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As filed with Securities and Exchange Commission on October __, 1996
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REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENERAL HOUSING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2451 16-1491687
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2255 INDUSTRIAL BOULEVARD
WAYCROSS, GEORGIA 31501
(912) 285-5068
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SAMUEL P. SCOTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GENERAL HOUSING, INC.
2255 INDUSTRIAL BOULEVARD
WAYCROSS, GEORGIA 31501
(912) 285-5068
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
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COPIES TO:
JAMES A. LOCKE, ESQ. JOE DANNENMAIER, ESQ.
JOHN C. PARTIGAN, ESQ. THOMPSON & KNIGHT, P.C.
NIXON, HARGRAVE, DEVANS & DOYLE LLP 1700 PACIFIC AVENUE, SUITE 3300
CLINTON SQUARE DALLAS, TEXAS 75201
ROCHESTER, NEW YORK 14603 (214) 969-1700
(716) 263-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
[_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
[_]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered (1) Share (2) Price (2) Registration Fee
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Common Stock, $.001 par
value..................... 2,300,000 $14.00 $32,200,000 $9,758
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(1) Includes up to 300,000 shares as to which the Underwriters have been granted
the option to purchase by the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER __, 1996
2,000,000 SHARES
General Housing, Inc.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $12.00 and $14.00 per share. For information relating to the factors
considered in determining the initial public offering price, see "Underwriting."
Application has been made for the inclusion of the Common Stock in the Nasdaq
National Market, under the symbol "GENH."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount Company(1)
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Per Share.................
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Total (2)................. $ $ $
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(1) Before deducting estimated expenses of $750,000 payable by the
Company.
(2) The Company has granted the Underwriters a 30-day option to purchase
up to an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters
exercise this option in full, the total price to public,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively.
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The shares of Common Stock are offered severally by the Underwriters
named herein subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that
certificates representing the shares will be ready for delivery at the
offices of Rauscher Pierce Refsnes, Inc., Dallas, Texas on or about , 1996.
RAUSCHER PIERCE REFSNES, INC. OPPENHEIMER & CO., INC.
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The date of this Prospectus is , 1996
<PAGE>
[Artwork to be inserted]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including financial statements and notes thereto, included
elsewhere in this Prospectus. Except where the context otherwise requires, all
references to the "Company" or to "General" include General Housing, Inc.,
its wholly owned subsidiary and the subsidiary's predecessor. Unless otherwise
indicated, the information contained in this Prospectus assumes no exercise of
the Underwriters' over-allotment option and has been adjusted to reflect
approximately a 0.82 for 1 reverse stock split to be effected immediately prior
to the closing of the Offering.
THE COMPANY
General produces manufactured homes in the southeastern United States, with
an emphasis on value-pricing and enhanced customer service. The Company sells
its homes through a network of independent dealers with more than 400 retail
sales centers principally located in the Company's primary markets of Georgia,
South Carolina, Florida, Alabama and North Carolina (the "Primary Markets") and
uses a variety of brand names in order to better penetrate its markets. The
Company's principal focus is on the production of multi-section homes, which,
for the first six months of 1996, represented approximately 64% of the homes
sold by the Company. Since 1994, in the Company's Primary Markets, sales of
multi-section homes have exceeded sales of single-section homes. The Company
believes that wider and more flexible floor plan designs and site-built
appearance are features of multi-section homes that have contributed to this
trend. The Company manufactures its homes in five production facilities, four of
which are located in Waycross, Georgia, and one of which is located in Lamar,
South Carolina. The Company's single-section homes generally sell at retail
prices between $12,000 and $29,000 and its multi-section homes generally sell at
retail prices between $18,000 and $44,000.
Since its founding in 1987, the Company has experienced rapid growth. Net
sales have increased from $20.4 million in 1991 to $90.7 million in 1995, a
compound annual growth rate of 45%. During the first six months of 1996, net
sales were $65.8 million compared to $42.8 million for the comparable period in
1995, a 54% increase. In addition, the Company believes that its operating
margins are among the highest in the industry based on the publicly available
information of its competitors. The Company began production at its third and
fourth manufacturing facilities in January 1994 and August 1995, and began
production at its fifth manufacturing facility, located in South Carolina, in
December 1995.
BUSINESS STRATEGY
The key elements of the Company's business strategy are as follows:
Comprehensive Approach to Customer Service. The Company is committed to
providing comprehensive service to its independent dealers and to retail buyers
of its homes. To differentiate itself in the market, the Company created the
Gold Card service program. Under the Gold Card service program, the retail home
buyer is able to contact the Company directly with respect to all warranty
service claims. The Company believes that its Gold Card program: (1) ensures
prompt customer service, (2) develops loyalty among dealers by reducing their
need to provide time-consuming customer service and (3) enhances the Company's
reputation in the marketplace. The Company believes the Gold Card service
program has contributed to its success and that it continues to be the only
warranty service program in the industry administered directly by the
manufacturer. The Company provides all retail buyers of its homes with one-year
limited warranties and, with respect to most of its homes, pays for a third
party to provide limited warranties against structural defects for a period of
nine years beginning after the initial one-year warranty period.
Product Focus. The Company targets its homes to the value-priced segment of
the manufactured housing market. In 1995, the Company's average wholesale price
per home sold was $20,358. In designing its homes, the Company incorporates
certain high-visibility and structural features that are valued by home buyers
and which are typically characteristic of higher-priced manufactured homes,
while avoiding other features that add to production cost without significantly
enhancing marketability. Standard high-visibility and structural features
typically include vaulted and textured ceilings, plywood floors and higher-
quality cabinets. Because of this design emphasis, together with its
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manufacturing expertise and strict cost controls, the Company believes that it
is able to offer multi-section homes that compete directly with the single-
section homes offered by certain of its competitors.
Geographic Focus. General's objective is to become one of the leading
producers of value-priced manufactured homes across the southeastern United
States. Historically, the Company has focused on marketing its homes through
independent dealers in the Company's Primary Markets. The states comprising the
Company's Primary Markets represent five of the six largest markets for
manufactured housing and accounted for approximately 32% of industry shipments
during the first six months of 1996 according to the Manufactured Housing
Institute (the "MHI"). The Company plans to continue to grow by increasing its
presence in its Primary Markets and by further expanding into contiguous markets
in the southeastern United States. Through its existing facilities, the Company
believes that its level of production can be increased to approximately 54
floors per day from its current average production of approximately 40 floors
per day.
Low-Cost Production. The Company strives to achieve low-cost production
through the use of (1) manufacturing-focused information systems, (2) incentive-
based compensation programs, (3) cost-efficient product designs and (4) a
centralized manufacturing strategy. The Company's information systems provide
management with daily reports that enable management to: identify potential
quality concerns; react to raw material price changes; recognize changes in
production efficiency; and tightly control costs. The Company relies heavily on
incentive-based compensation programs that are designed to motivate employees to
achieve production and sales volume goals and to maintain cost and quality
control standards. To help effect production efficiencies, the Company uses
innovative product designs and construction systems combined with standardized
base construction materials across product lines. The Company's centralized
manufacturing strategy allows the Company to reduce costs through plant
specialization and decreased overhead.
INDUSTRY
In 1995, the manufactured housing industry had estimated retail sales of
$12.3 billion in the United States, an increase of 21% over the previous year
according to the MHI. From 1991 through 1995, shipments of manufactured homes
increased from approximately 171,000 homes to 340,000 homes, a compound annual
growth rate of 18.8%. Growth has continued through the first six months of 1996
as home shipments increased 9.5% over the comparable period in 1995.
Manufactured housing shipments have benefited from the continuing cost advantage
of manufactured homes relative to site-built homes, the improved quality and
appearance of manufactured homes, a stable economic environment and increased
availability of financing for manufactured home buyers.
During the first six months of 1996, total manufactured home shipments
within the Company's Primary Markets increased by 13.1% over the comparable
period in 1995, exceeding the national rate of increase, and the Company's total
home shipments increased by 37.1% for the same period. Shipments of multi-
section manufactured homes in the Company's Primary Markets increased from
47,566 in 1994 to 53,990 in 1995, an increase of 13.5%, and through the first
six months of 1996, increased by 20.8% over the comparable period in 1995. The
Company's shipments of multi-section homes increased 41% and 38%, respectively,
for the same periods.
ACQUISITION AND RESTRUCTURING
The Company is the successor to General Manufactured Housing, Inc. which
commenced operations in 1987 (the "Predecessor"). The Predecessor was acquired
on December 21, 1995, in a leveraged buyout transaction accounted for as a
purchase, for an aggregate consideration of approximately $50.6 million (the
"Acquisition"). Strategic Investments & Holdings, Inc., a private investment
firm headquartered in Buffalo, New York ("Strategic Investments"), was
instrumental in structuring the Acquisition. Certain principals of Strategic
Investments actively participate in the management of the Company and an
affiliate of Strategic Investments is a principal stockholder of the Company.
See "Certain Transactions -- Management Agreement" and "Principal Stockholders."
The Acquisition was funded through the issuance of the Company's capital stock
and indebtedness. The proceeds of the Offering will be used to reduce such
indebtedness and to redeem the Company's Series A Redeemable Preferred Stock
(the "Redeemable Preferred Stock"). See "Use of Proceeds," "Capitalization" and
"Certain Transactions -- The Restructuring."
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Simultaneous with the closing of the Offering, all classes of the
Company's issued and outstanding capital stock will be converted into a single
class of Common Stock and the deferred consideration payable to the former
stockholders of the Predecessor will be converted into promissory notes
(together, with certain other changes to the Company's capital structure, the
"Restructuring").
In the fiscal quarter in which the Restructuring and the Offering are
consummated, the Company will record the following non-recurring, non-cash
charges: (1) approximately $2.2 million resulting from the issuance of Common
Stock to holders of the Company's Series B Convertible Preferred Stock (the
"Series B Preferred Stock") in satisfaction of the liquidation preference
payable to such holders upon the conversion of the Series B Preferred Stock into
Common Stock, and (2) approximately $264,000 resulting from the redemption of
the Redeemable Preferred Stock, representing the difference between the
consideration received upon issuance (plus accretion) and the redemption price.
The non-cash charge of $2.2 million will reduce net income available to common
stockholders for such quarter, but will not reduce total stockholders' equity.
In addition, at the same time, the Company will record an extraordinary after-
tax charge to income of approximately $446,000 resulting from the prepayment of
a substantial portion of the Company's outstanding long-term debt. See "Certain
Transactions -- The Acquisition" and "-- The Restructuring."
THE OFFERING
Common Stock offered by the Company..................... 2,000,000 shares(1)
Common Stock to be outstanding after the Offering (2) .. 5,769,231 shares
Use of proceeds......................................... To redeem all of the
shares of the
Company's Redeemable
Preferred Stock, and
to reduce
indebtedness incurred
in connection with
the Acquisition. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.................. GENH
__________________
(1) Samuel P. Scott, the founder of the Company and its Chief Executive Officer
since inception, and members of his family will purchase a total of 76,923
shares in the Offering. See "Principal Stockholders" and "Underwriting."
(2) Excludes 461,500 shares reserved for issuance under the Company's Stock
Option Plan, including 208,000 shares issuable upon the exercise of options
(all of which will be granted to officers and employees of the Company
immediately prior to the completion of the Offering) with an exercise price
equal to the initial public offering price. See "Management -- Compensation
Pursuant to Plans" and "Principal Stockholders."
The Company's principal executive offices are located at 2255 Industrial
Boulevard, Waycross, Georgia 31501 and its telephone number is (912) 285-5068.
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SUMMARY FINANCIAL AND OPERATING INFORMATION
(In thousands, except per share and operating data)
<TABLE>
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PREDECESSOR(1) COMPANY
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PRO FORMA(2)
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YEAR ENDED SIX MONTHS
SIX MONTHS ENDED DECEMBER 31, ENDED
YEARS ENDED DECEMBER 31, JUNE 30, 1995(3) JUNE 30, 1996
---------------------------------- --------------------
1993 1994 1995(3) 1995 1996
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INCOME STATEMENT DATA:
Net sales....................... $43,659 $67,418 $90,673 $42,764 $65,754 $90,673 $65,754
Gross profit.................... 9,373 15,148 21,100 9,996 17,402 21,100 17,402
Income from operations(4)....... 1,951 3,552 7,946 3,771 8,393 8,063 8,343
Interest expense................ 100 95 283 72 2,367 3,702 1,724
Net income...................... 1,093 2,106 4,784(5) 2,304(5) 3,515(6) 2,326 3,864
Net income per common
share.......................... $0.84 $0.40 $0.67
Weighted average number of
common shares.................. 3,604 5,769 5,769
OPERATING DATA:
Average wholesale price per home:
Single-section homes.......... $12,271 $13,617 $15,226 $14,433 $16,752
Multi-section homes........... 19,291 22,007 22,995 22,730 24,653
Average per home............. 15,223 18,385 20,358 19,412 21,773
Homes sold:
Single-section homes............ 1,662 1,583 1,512 816 1,101
Multi-section homes............. 1,206 2,084 2,942 1,387 1,919
------- ------- ------- ------- -------
Total homes............. 2,868 3,667 4,454 2,203 3,020
Manufacturing facilities (7).... 2 3 5 3 5
(end of period)
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JUNE 30, 1996
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PRO FORMA
ACTUAL(8) PRO FORMA(8),(9) AS ADJUSTED(8),(10)
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BALANCE SHEET DATA:
Total assets $59,050 $62,131 $61,550
Long-term debt 32,937 34,937 19,707
Redeemable Preferred Stock 7,736 7,736 --
Stockholders' equity 5,678 5,684 28,069
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(1) On December 21, 1995, the Company acquired all of the capital stock of the
Predecessor in the Acquisition. The financial information assumes that the
Acquisition was consummated after the close of business on December 30,
1995.
(2) Pro forma to give effect to the Acquisition, the Restructuring and the
Offering as if such transactions had occurred on January 1, 1995. See
"Unaudited Pro Forma Financial Statements."
(3) Year ended December 30.
(4) After management compensation of approximately $2,049, $4,121, $1,855 and
$927 for the years ended 1993, 1994 and 1995 and for the six months ended
June 30, 1995, respectively, which would not have been paid under the
current executive salary and bonus plan.
(5) Reflects a pro forma provision for federal and state income taxes for the
Predecessor at a blended rate of 38% for 1995. During 1995, the Predecessor
elected to be treated as an S corporation for federal income tax purposes
and therefore recorded no provision for federal income taxes for the year
or for the six months ended June 30, 1995.
(6) Before preferred stock dividends of $480 and accretion on preferred stock
of $16, which have been deducted from net income in determining net income
per common share.
(7) The Company's third, fourth and fifth facilities began operations in
January 1994, August 1995 and December 1995, respectively.
(8) Excludes approximately $29 million of restricted cash equivalents held to
serve as collateral on letters of credit securing payment on $29 million in
notes payable to the Predecessor stockholders and also excludes such
corresponding amount of notes payable.
(9) Pro forma to give effect to the Restructuring. See "Unaudited Pro Forma
Financial Statements."
(10) Pro forma to give effect to the Restructuring and as adjusted to reflect
the sale by the Company of 2,000,000 shares of Common Stock in the Offering
and the application of the net proceeds as described under "Use of
Proceeds."
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RISK FACTORS
Prospective investors should consider carefully the following
information, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby.
INDUSTRY CONDITIONS, CYCLICALITY AND SEASONALITY
The manufactured housing industry historically has been cyclical and is
influenced by many of the same national and regional economic and demographic
factors which affect the housing industry generally. Such factors include
consumer confidence, inflation, interest rates, availability of financing,
regional population and employment trends, availability and cost of alternative
housing, weather conditions and general economic conditions. According to the
MHI, during the period from 1983 to 1991, aggregate annual domestic shipments of
manufactured housing declined approximately 42% from approximately 295,000 homes
to 171,000 homes. The Company believes that the principal causes of this decline
included certain severe regional economic downturns, deterioration of general
economic conditions, reduced availability of financing and high levels of
repurchased and repossessed inventory of manufactured homes. Although aggregate
domestic manufactured housing shipments increased 99% from 1991 to 1995, there
can be no assurance that the manufactured housing market will not experience
future declines or that such declines will not have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the manufactured housing industry generally experiences
lower sales and reductions in backlog in the first and fourth quarters of the
year as a result of the effect of seasonal trends on manufacturing, distribution
and sales efforts. While the Company's quarterly results of operations have not
been materially impacted by seasonality during the last several years, such
seasonality, combined with increased production capacity in the industry and at
the Company, may have an adverse impact on the Company's future operations
during certain periods.
AVAILABILITY OF DEALER AND CONSUMER FINANCING
The Company's dealers and retail buyers of the Company's homes generally
secure financing for the purchase of the Company's homes from third-party
lenders. As is the practice in the industry, substantially all of the Company's
independent dealers finance their purchase of manufactured homes through
wholesale "floor plan" financing arrangements pursuant to which a financial
institution lends the dealer the purchase price of a home and maintains a
security interest in the home as collateral. Consumers typically purchase
manufactured homes through a combination of down payments ranging from 5% to 10%
and retail installment loans secured by a security interest in the home. The
availability, interest rates and other costs of financing for dealers and retail
home buyers can significantly affect the Company's sales and are determined by
the lending practices of financial institutions, governmental policies and other
conditions, all of which are beyond the control of the Company. Interest rates
for manufactured home loans are generally higher than loans for site-built homes
and, at times, home loans for manufactured housing have been more difficult to
obtain than conventional home mortgages. Although demand for the Company's homes
has been positively impacted by relatively low interest rates in recent periods,
any future increases in interest rates could have an adverse effect on the sales
of the Company's homes.
COMPETITION
The manufactured housing industry is highly competitive, and the barriers
to entry are lower than for industries requiring large capital investments or
substantial technological expertise. Competition exists at the manufacturing and
retail levels in terms of price, product quality and features, reputation for
service, warranty and repair, quality independent dealers and availability of
dealer and retail consumer financing. According to the MHI, at June 30, 1996,
there were more than 95 companies producing manufactured homes at more than 300
facilities in the United States, many of which are in direct competition with
the Company. Some of the Company's competitors have substantially greater
financial, manufacturing, distribution and marketing resources than the Company.
A number of the Company's competitors also provide floor plan financing to
retailers through captive financing sources. A contraction in floor plan
financing sources could provide an advantage to those competitors with
substantial capital resources or captive financing capabilities. Manufactured
homes compete with new and existing site-built homes and, to a lesser degree,
with apartments, townhouses, condominiums and prefabricated, modular site-built
homes. See "Business -- Competition."
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DEPENDENCE ON SENIOR MANAGEMENT
The Company's success depends upon the continued contributions of its
senior executives, particularly its Chairman and Chief Executive Officer, Samuel
P. Scott. In 1995, Mr. Scott and his two sons were among the Company's five most
highly compensated executives. The Company maintains a $5.0 million key man life
insurance policy on the life of Mr. Scott. The loss of the services of Mr. Scott
or one or more of the Company's other senior executives could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
FOCUS ON SOUTHEASTERN UNITED STATES
The Company sells its products in the southeastern United States, including
its Primary Markets of Georgia, South Carolina, Florida, Alabama and North
Carolina. While the Company believes that this region historically has been
strong for the manufactured housing industry, demographic factors and economic
conditions affecting this region may adversely affect the Company's business,
financial condition and results of operations.
CONTROL OF COMPANY
Upon completion of the Offering, approximately 65% of the outstanding
Common Stock of the Company will be beneficially owned by the Company's current
stockholders. As a result, such current stockholders, acting together, will
continue to be able to determine the outcome of elections of the Company's
directors and thereby control the management of the Company's business. Pursuant
to a management agreement, Strategic Investments provides management and
consulting services to the Company for which it receives compensation. See
"Principal Stockholders" and "Certain Transactions -- Management Agreement."
PRICING AND AVAILABILITY OF RAW MATERIALS
The Company's future results of operations could be affected by the pricing
and availability of raw materials. Although the Company attempts to increase the
sales prices of its homes in response to higher materials costs, such increases
lag somewhat behind the escalation of materials costs. Four of the most
important raw materials used in the Company's operations, lumber, steel, gypsum
wallboard and insulation, have experienced price fluctuations in recent periods.
Although the Company has not experienced any shortage of such building materials
to date, there can be no assurance that sufficient supplies of lumber, steel,
gypsum wallboard and insulation, as well as other raw materials, will continue
to be available to the Company on terms it regards as satisfactory. See
"Business -- Manufacturing."
GEOGRAPHIC EXPANSION OF OPERATIONS
In order to meet anticipated growth in demand, as conditions warrant,
the Company plans to expand its operations both within its Primary Markets and
into other contiguous areas in the southeastern United States, either through
the acquisition or construction of additional facilities. The Company's ability
to successfully implement its expansion plans will depend upon a number of
factors, including its capital resources, the availability of suitable facility
locations on acceptable terms, its ability to hire a sufficient number of
experienced plant management personnel, skilled workers and other employees, and
its ability to control opening and production costs. The opening of additional
facilities may have a negative effect on the Company's earnings in one or more
fiscal quarters.
In addition, if the Company were to proceed with one or more significant
acquisitions in which the consideration consists of cash, a substantial portion
of the Company's available cash could be used to consummate such transactions.
If the Company were to consummate one or more significant acquisitions in which
the consideration consists of stock, stockholders of the Company could suffer
significant dilution of their interest in the Company. Many of the businesses
that might become attractive acquisition candidates for the Company may have
significant goodwill and intangible assets, and acquisitions of these
businesses, if accounted for as a purchase, would typically result in
substantial amortization charges to the Company. The financial impact of
acquisitions could have a material adverse effect on the Company's business,
financial condition and results of operations and could cause substantial
fluctuations in the Company's quarterly and yearly operating results. See
"Business -- Acquisitions."
RELIANCE ON INDEPENDENT DEALERS
During the six months ended June 30, 1996, the Company sold manufactured
homes through more than 400 independent retail sales centers. The Company
believes that the quality of its independent dealer network has been
-9-
<PAGE>
important to the Company's performance. The Company does not have formal
marketing or other agreements with its dealers, and substantially all of the
Company's dealers also sell homes of other manufacturers. While the Company
believes its relations with its independent dealers are good, no assurance can
be given that the Company will be able to maintain these relations or that these
dealers will continue to sell the Company's homes. See "Business --
Distribution."
POTENTIAL ADVERSE EFFECTS OF GOVERNMENT REGULATION
The Company's operations are subject to a variety of federal, state and
local laws and regulations. Changes in, or a failure of the Company to comply
with, such laws and regulations could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-Government Regulation."
CONTINGENT REPURCHASE OBLIGATIONS
As is customary in the manufactured housing industry, the Company has
entered into repurchase agreements with various financial institutions and other
credit sources pursuant to which the Company has agreed, under certain
circumstances, to repurchase unsold homes held in inventory by independent
dealers in the event of a default by a dealer in its obligation to such credit
sources. Under such agreements, the Company agrees to repurchase such homes in
an amount equal to the unpaid balance less any appropriate adjustments. The
Company estimates that its potential obligations under such repurchase
agreements approximated $35.8 million at June 30, 1996. During the past three
fiscal years, the Company has not incurred any significant costs relating to
such repurchase agreements; however, there can be no assurance that the Company
will not suffer losses in the future with respect to, and as a consequence of,
such repurchase agreements. See "Business -- Dealer Financing."
POTENTIAL PRODUCTS LIABILITY AND WARRANTY EXPENSE
Although the Company has never been subject to significant products
liability claims, the Company may be exposed to the risk of loss as a result of
defects in its products or components of its products. The Company maintains a
$20.0 million umbrella liability insurance policy, but there can be no assurance
that such insurance will be sufficient to cover potential claims or that the
present level of coverage will be available in the future at reasonable cost. A
partially insured or a completely uninsured successful claim against the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company provides retail buyers of its homes with one-year limited
warranties and, with respect to most of its homes, pays a third party to provide
limited warranties against structural defects for a period of nine years
beginning after the initial one-year warranty period. There can be no assurance
that future warranty expenses will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business --Customer Service and Warranty."
ABSENCE OF PRIOR PUBLIC MARKET; OFFERING PRICE DETERMINED BY AGREEMENT;
VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price of the Common Stock has been determined solely by negotiations
between the Company and the Underwriters and may bear no relationship to the
market price of the Common Stock after the Offering. From time to time after the
Offering, there may be significant volatility in the market price of the Common
Stock. Quarterly operating results of the Company, changes in earnings estimated
by analysts, developments in the manufactured housing industry, changes in
general conditions in the economy or the financial markets or other developments
affecting the Company could cause the market price of the Common Stock to
fluctuate substantially. See "Underwriting."
DILUTION
Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution in pro forma net tangible book value per
share of their shares of Common Stock. After the completion of the Offering, the
Company will have a net tangible book value (deficit) per share. See "Dilution."
-10-
<PAGE>
ANTI-TAKEOVER PROVISIONS
In addition to the Common Stock, the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation"), authorizes the issuance of
up to 2,000,000 shares of Preferred Stock. Upon completion of the Offering, no
shares of Preferred Stock will be outstanding. The Certificate of Incorporation
grants the Board of Directors broad power to establish the rights and
preferences of any series of Preferred Stock. As a result, if the Board of
Directors elects to issue any Preferred Stock, the rights and preferences of any
such Preferred Stock may be superior to those of the Common Stock and could
decrease the amount of earnings and assets available for distribution to holders
of Common Stock and adversely affect the rights and preferences, including
voting rights, of such holders. The Board of Directors does not currently intend
to seek stockholder approval prior to any issuance of Preferred Stock, unless
otherwise required by law. In addition, the Company is and, subject to certain
conditions, will continue to be subject to the anti-takeover provisions of the
Delaware General Corporation Law, which could have the effect of delaying or
preventing a change of control of the Company. Furthermore, upon a change of
control, the Company's indebtedness under its senior credit facility and Senior
Subordinated Notes are required to be repaid and the vesting of options
outstanding under the Company's Stock Option Plan would be accelerated. All of
these factors could materially adversely affect the market price of the
Company's Common Stock. See "Description of Capital Stock -- Delaware Anti-
takeover Law" and "--Certain Charter and By-law Provisions."
DIVIDEND RESTRICTIONS
The Company's credit facilities prohibits the payment of dividends on the
Common Stock and the Company does not anticipate paying any dividends in the
foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. Approximately 3,769,231 shares of Common Stock will be eligible
for sale beginning December 1997, based on current Commission rules and subject
to compliance with the manner-of-sale, volume and other limitations of Rule 144.
The Commission has proposed an amendment to Rule 144 that, if adopted, could
permit those shares to be sold earlier. Some investors have the right to require
the Company to register the public resale of their shares beginning twelve
months after the closing of the Offering. The Company's current stockholders
have entered into 180-day lock-up agreements with the Underwriters. See
"Description of Capital Stock--Registration Rights," "Shares Eligible for Future
Sale" and "Underwriting."
-11-
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,000,000 shares of Common Stock offered hereby, based on an assumed initial
public offering price of $13.00 per share and after deducting the underwriting
discount and estimated offering expenses, are estimated to be $23.4 million
($27.1 million if the Underwriters' over-allotment option is exercised in full).
The Company will use approximately $15.4 million of the net proceeds to
reduce indebtedness that was incurred in 1995 to finance the Acquisition and
provide working capital. The Company intends to use such amount to repay in full
a $4.0 million term loan (the "Term Loan"), to reduce the Company's revolving
credit facility (the "Line of Credit") by $6.2 million, and to repay in full
$5.0 million of junior subordinated notes (the "Junior Subordinated Notes"),
plus pay all accrued interest and prepayment penalties thereon. The Term Loan
and Line of Credit each bear interest at 1.5% above a prime rate designated by
the lender or 3.75% above a LIBOR rate, at the election of the Company, and each
matures on April 1, 2000. The maximum aggregate amount which can be outstanding
under the Line of Credit is currently $14.0 million, with the maximum amount
declining on a quarterly basis by varying amounts until April 1, 2000. The
unused portion of the Line of Credit may be borrowed for general corporate
purposes. The Junior Subordinated Notes bear interest at 13% and mature on June
30, 2003.
The Company will use $8.0 million of the net proceeds to redeem all of the
outstanding shares of its Redeemable Preferred Stock. The Redeemable Preferred
Stock has a mandatory redemption date of December 31, 2003 and pays quarterly
dividends at the rate of 12% per annum. Such shares were issued for an aggregate
consideration of $7.7 million in connection with the Acquisition. See "Certain
Transactions -- The Acquisition."
DIVIDEND POLICY
Since the Acquisition, the Company has neither declared nor paid cash
dividends on its Common Stock and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain all of its earnings, if any, for use in its business. In addition, under
the Company's existing credit facilities, the payment of cash dividends on the
Company's Common Stock is prohibited until such loans have been paid in full.
-12-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis as of June 30, 1996, (i) on a pro forma basis to give effect
to the Restructuring, and (ii) on an as adjusted basis to reflect the sale by
the Company of 2,000,000 shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." The table below should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus. See "Certain
Transactions -- The Restructuring" and "Unaudited Pro Forma Financial
Statements."
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable to former stockholders of the
Predecessor (1)............................. $ 2,000 $ 2,000
Current portion of long-term debt............. 43 43
------- -------
Total short-term debt:................ $ 2,043 $ 2,043
======= =======
Long-term debt:
Line of Credit................................ $10,312 $ 4,082
Term Loan..................................... 4,000 -
Senior Subordinated Note...................... 12,831 12,831
Junior Subordinated Notes..................... 5,000 -
Notes payable to former stockholders
of the Predecessor(1)........................ 2,000 2,000
Other......................................... 794 794
------- -------
Total long-term debt.................. 34,937 19,707
------- -------
Redeemable Preferred Stock, Series A,
$.001 par value (8,000,000 shares
authorized, issued and outstanding,
pro forma; no shares authorized,
issued and outstanding, as adjusted).......... 7,736 -
Stockholders' Equity:
Preferred Stock, $.001 par value,
(2,000,000 shares authorized;
no shares issued and outstanding, pro forma
and as adjusted)........................... - -
Common Stock, $.001 par value, (20,000,000
shares authorized; 3,769,231 issued and
outstanding, pro forma; 5,769,231 shares
issued and outstanding, as adjusted) (2)... 4 6
Additional paid-in capital................... 4,812 28,240
Retained earnings (deficit).................. 868 (177)
------- -------
Total stockholders' equity............ 5,684 28,069
------- -------
Total capitalization............. $48,357 $47,776
======= =======
</TABLE>
________________________
-13-
<PAGE>
(1) As part of the Restructuring, the deferred compensation payable to
former stockholders of the Predecessor will be converted into
promissory notes. See "Certain Transactions--The Restructuring." Also,
excludes approximately $29 million in notes payable to the Predecessor
stockholders which are secured by letters of credit collateralized by
restricted cash.
(2) Excludes approximately 461,500 shares of Common Stock reserved for
issuance under the Company's Stock Option Plan, including 208,000
shares issuable upon the exercise of options (all of which will be
granted to officers and employees of the Company immediately prior to
the Completion of the Offering) with an exercise price equal to the
initial public offering price. See "Management -- Compensation
Pursuant to Plans."
-14-
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of June
30, 1996, pro forma to give effect to the Restructuring, was $(39.5) million, or
$(10.47) per share of Common Stock. Net tangible book value (deficit) per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 2,000,000 shares of Common Stock at an assumed initial
public offering price of $13.00 per share, and after deducting the underwriting
discount and estimated offering expenses payable by the Company, the pro forma
net tangible book value (deficit) of the Company as of June 30, 1996 would have
been $(16.5) million, or $(2.86) per share. This represents an immediate
increase in pro forma net tangible book value of $7.61 per share to existing
stockholders and an immediate dilution of $15.86 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 13.00
Pro forma net tangible book value (deficit) per share before the Offering.. $(10.47)
Increase per share attributable to new investors........................... 7.61
-----
Pro forma net tangible book value (deficit) per share after the Offering.... (2.86)
------
Dilution per share to new investors......................................... $ 15.86
=======
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock previously purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
existing stockholders and by the investors in the Offering at an assumed initial
public offering price of $13.00 per share and before deducting the underwriting
discount and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
------------------- ---------------------
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 3,769,231 65.3% $ 2,660,000 9.3% $.71
New investors............. 2,000,000 34.7% 26,000,000 90.7% 13.00
--------- ----- ----------- -----
Total................ 5,769,231 100.0% $ 28,660,000 100.0%
========= ===== =========== =====
</TABLE>
The calculations set forth above do not give effect to 208,000 shares
of Common Stock issuable upon the exercise of options outstanding as of the date
of this Prospectus pursuant to the Company's Stock Option Plan.
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical and pro forma
financial data for the Company and the Predecessor for the periods
indicated. The selected historical financial data as of and for each of the
years in the five-year period ended December 30, 1995 are derived from the
audited financial statements of the Predecessor. The selected historical
financial data for the six months ended June 30, 1996 and June 30, 1995 are
derived from financial statements that are unaudited but which, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of financial
condition and results of operations. The pro forma financial information is
unaudited and presents results of operations of the Company as if the
Acquisition, the Restructuring and the Offering had occurred on January 1,
1995. The pro forma information is not necessarily indicative of the
results of operations for the Company had such events occurred on that date
or of the Company's results of operations for any future periods. The
selected financial data should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Financial Statements."
<TABLE>
<CAPTION>
PREDECESSOR(1)
---------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1991 1992 1993 1994 1995(3)
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $20,410 $31,275 $43,659 $ 67,418 $ 90,673
Cost of sales................... 16,664 25,087 34,286 52,270 69,573
------- ------- ------- ------- --------
Gross profit.................... 3,746 6,188 9,373 15,148 21,100
Goodwill amortization........... -- -- -- -- --
Selling, general and
administrative expense(4)..... 2,799 4,871 7,422 11,596 13,154
------- ------- ------- ------- --------
Income from operations.......... 947 1,317 1,951 3,552 7,946
Interest expense................ 86 132 100 95 283
Other (income) expense.......... 96 97 89 55 (53)
------- ------- ------- ------- --------
Income before income taxes...... 765 1,088 1,762 3,402 7,716
Provision for income taxes(5)... 289 381 669 1,296 2,932
------- ------- ------- ------- --------
Net income...................... $ 476 $ 707 $ 1,093 $ 2,106 $ 4,784
======= ======= ======= ======= ========
Preferred stock dividend........ -- -- -- -- --
Net income per common share.....
Weighted average number
of common shares outstanding..
BALANCE SHEET DATA:
COMPANY(6)
----------
Total assets.................... $ 3,980 $ 6,202 $ 7,632 $10,917 $ 57,240
Long-term debt.................. 999 1,298 978 1,338 37,703
Redeemable Preferred Stock...... -- -- -- -- 7,720
Stockholders' equity............ 1,410 2,216 3,203 5,309 2,660
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Predecessor(1) Company
----------------- ---------------------------------------------------
ACTUAL PRO FORMA(2)
------ --------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30,
1995 1996 1995(3) 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $42,764 $65,754 $90,673 $65,754
Cost of sales........................... 32,768 48,352 69,573 48,352
------- ------- ------- -------
Gross profit............................ 9,996 17,402 21,100 17,402
Goodwill amortization................... -- 490 1,081 540
Selling, general and administrative.....
expense (4)............................ 6,225 8,519 11,956 8,519
------- ------- ------- -------
Income from operations.................. 3,771 8,393 8,063 8,343
Interest expense........................ 72 2,367 3,702 1,724
Other (income) expense.................. (17) 43 (53) 43
------- ------- ------- -------
Income before income taxes.............. 3,716 5,983 4,414 6,576
Provision for income taxes (5).......... 1,412 2,468 2,088 2,712
------- ------- ------- -------
Net income.............................. $ 2,304 $ 3,515 $ 2,326 $ 3,864
======= ======= ======= =======
Preferred stock dividend and accretion.. -- $ 496 -- --
Net income per common share............. $ 0.84 $ 0.40 $ 0.67
Weighted average number of
common shares outstanding.............. 3,604 5,769 5,769
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------------------
ACTUAL(6) PRO FORMA(6),(7) AS ADJUSTED(6),(8)
-------------- ---------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................ $59,050 $62,131 $61,550
Long-term debt.......................... 32,937 34,937 19,707
Redeemable Preferred Stock.............. 7,736 7,736 --
Stockholders' equity.................... 5,678 5,684 28,069
</TABLE>
______________________________
(1) On December 21, 1995, the Company acquired all of the capital stock of the
Predecessor in the Acquisition. The financial information assumes that the
Acquisition was consummated after the close of business on December 30,
1995.
(2) Pro forma to give effect to the Restructuring and the Offering as if such
transactions had occurred on January 1, 1995. See "Unaudited Pro Forma
Financial Statements."
(3) Year ended December 30.
(4) Includes management compensation of approximately $(227), $779, $2,049,
$4,121, $1,855 and $927 for the years 1991, 1992, 1993, 1994 and 1995 and
for the six months ended June 30, 1995, respectively, which would not have
been paid under the current executive salary and bonus plan.
(5) Reflects a pro forma provision for federal income taxes for the Predecessor
at a rate of 34% for 1995. During 1995, the Predecessor elected to be taxed
as an S corporation for federal income tax purposes and therefore recorded
no provision for federal income taxes for the year or for the six months
ended June 30, 1995.
-17-
<PAGE>
(6) Excludes approximately $45 million and $29 million of restricted cash
equivalents as of December 31, 1995 and June 30, 1996, respectively, held
to serve as collateral on letters of credit securing notes payable to the
Predecessor stockholders and also excludes such corresponding amount of
notes payable.
(7) Pro forma to give effect to the Restructuring. See "Unaudited Pro Forma
Financial Statements".
(8) Pro forma to give effect to the Restructuring and as adjusted to reflect
the sale by the Company of 2,000,000 shares of Common Stock in the
Offering and the application of the net proceeds as described under "Use of
Proceeds."
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 21, 1995, the Company acquired the business of its Predecessor.
See "Certain Transactions -- The Acquisition." As a result of the Acquisition,
the six month period ended June 30, 1996 is not comparable to the six month
period ended June 30, 1995 due to the purchase accounting effects of the
Acquisition, the different capital structure of the Company following the
Acquisition, and the amendments to the Company's executive compensation
arrangements. The primary effect of the Acquisition and the related financing on
the Company's future operations is to reduce reported profitability to the
extent (1) interest expense is above historical norms resulting from higher debt
incurred as part of the Acquisition and (2) purchase accounting treatment
results in increased amortization charges. The discussion of results of
operations that follows is based upon, and should be read in conjunction with,
the financial statements, including the notes thereto, included elsewhere in
this Prospectus.
GENERAL
The Company has experienced significant growth in net sales and net income
since 1991. Over the last three fiscal years, its net sales and net income have
increased at a faster rate than that of the manufactured housing industry as a
whole. This growth resulted from increased demand for the Company's homes and
from the Company's internal expansion, including the addition to the Company's
operations of a total of three manufacturing facilities during 1994 and 1995.
The Company intends to continue increasing its presence in its Primary Markets,
expanding into contiguous markets in the southeastern United States and raising
the level of production from its existing facilities as the primary means of
seeking further growth.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data of the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1993 1994 1995 (1) 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Average wholesale price
per home:
Single-section homes....... $12,271 $13,617 $15,226 $14,433 $16,752
Multi-section homes........ 19,291 22,007 22,995 22,730 24,653
Average per home........ 15,223 18,385 20,358 19,412 21,773
Homes sold:
Single-section homes....... 1,662 1,583 1,512 816 1,101
Multi-section homes........ 1,206 2,084 2,942 1,387 1,919
----- ----- ----- ----- -----
Total homes............. 2,868 3,667 4,454 2,203 3,020
Manufacturing facilities(2).. 2 3 5 3 5
(end of period)
</TABLE>
____________________
(1) Year ended December 30.
(2) The Company's third, fourth and fifth facilities commenced operations in
January 1994, and August and December 1995, respectively.
-19-
<PAGE>
The following table sets forth for the periods indicated certain statement
of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- --------------------------
1993 1994 1995 (1) 1995 1996
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............. 78.5 77.5 76.7 76.6 73.5
---- ---- ---- ----- -----
Gross profit............... 21.5 22.5 23.3 23.4 26.5
Goodwill amortization...... -- -- -- -- 0.7
Selling, general and
administrative expense.. 17.0 17.2 14.5 14.6 13.0
---- ---- ---- ---- ----
Income from operations..... 4.5 5.3 8.8 8.8 12.8
Interest expense........... 0.2 0.1 0.3 0.2 3.6
Net income................. 2.5% 3.1% 5.3%(2) 5.4%(2) 5.4%
</TABLE>
_____________________
(1) Year ended December 30.
(2) Reflects a pro forma provision for federal and state income taxes for the
Predecessor at a blended rate of 38% for 1995. During 1995, the Predecessor
elected to be treated as an S corporation for federal income tax purposes
and therefore recorded no provision for federal income taxes for the year or
for the six months ended June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Sales. Net sales of manufactured homes increased by 53.8% to $65.8
million for the six months ended June 30, 1996 compared to $42.8 million for the
six months ended June 30, 1995. This increase reflects a 37.1% increase in the
number of homes sold and a 12.2% increase in the average wholesale price per
home. The increase in the average wholesale price per home resulted from a
continued shift by home buyers toward larger, and therefore higher priced, homes
and general price increases on such homes. The six months ended June 30, 1996
includes $17.0 million of net sales from two new manufacturing facilities which
were not operating during the six months ended June 30, 1995. Sales of multi-
section homes accounted for approximately 64% of homes sold by the Company in
the six months ended June 30, 1996 and 63% in the six months ended June 30,
1995.
Cost of Sales. Cost of manufactured homes sold was $48.4 million (73.5% of
net sales) for the six months ended June 30, 1996 as compared to $32.8 million
(76.6% of net sales) for the six months ended June 30, 1995. The increase in
cost of sales was due primarily to higher sales volume. The decrease in the cost
of sales as a percentage of net sales for the compared periods was the result of
general price increases on homes sold, lower prices for certain commodity
materials, increased manufacturing efficiencies (including reduced overtime) and
improved use of volume incentives in purchasing raw materials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 36.9% to $8.5 million in the six months
ended June 30, 1996 from $6.2 million in the six months ended June 30, 1995,
primarily as a result of increased sales, the addition of new manufacturing
facilities and expenses related to the Acquisition. The decrease in selling,
general and administrative expenses as a percentage of net sales from 14.6% in
the six months ended June 30, 1995 to 13.0% in the six months ended June 30,
1996 primarily resulted from a reduction in executive compensation from $1.7
million in the six months ended June 30, 1995 to $1.1 million in the six months
ended June 30, 1996, a 35.3% decrease, partly offset by management fees paid to
Strategic Investments pursuant to a Management Agreement entered into by the
Company in connection with the Acquisition.
Interest Expense. Interest expense, which includes the amortization of
deferred financing charges, increased to $2.4 million in the six months ended
June 30, 1996 compared to less than $100,000 in the six months ended June 30,
1995. Such increase resulted primarily from the financing incurred in connection
with the Acquisition.
-20-
<PAGE>
YEAR ENDED DECEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Net Sales. Net sales increased by 34.5% to $90.7 million for fiscal 1995
compared to $67.4 million for fiscal 1994. The increase in net sales reflected a
21.5% increase in the number of homes sold and a 10.7% increase in the average
wholesale price per home. Increased production from the Company's existing
facilities as well as from the opening of two new manufacturing facilities in
the latter part of 1995, enabled the Company to respond to increased demand.
Production at the new facilities accounted for approximately $5.2 million of net
sales in 1995. The average wholesale price per home increased as a result of
price increases instituted by the Company, which included a pass through of
higher lumber costs, and an increase in the size of the average home. Sales of
multi-section homes accounted for approximately 66% of homes sold by the Company
in 1995 as compared to approximately 57% in 1994.
Cost of Sales. Cost of manufactured homes sold was $69.6 million (76.7% of
net sales) for fiscal 1995 as compared to $52.3 million (77.5% of net sales) for
fiscal 1994. The increase in cost of sales was due primarily to higher sales
volume. The decrease in cost of sales as a percentage of net sales was the
result of improved use of volume incentives in purchasing raw materials,
maintenance of margins by adjusting wholesale prices to account for increases in
the cost of raw materials, particularly lumber, and by changes in sales mix to a
greater proportion of sales of multi-section homes, which typically have higher
margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 13.4% to $13.2 million for fiscal 1995 from
$11.6 million for fiscal 1994 primarily as a result of increased sales and the
addition of two new manufacturing facilities. The decrease in selling, general
and administrative expenses as a percentage of net sales from 17.2% in fiscal
1994 to 14.5% in fiscal 1995 primarily resulted from a reduction in executive
compensation from $5.5 million in fiscal 1994 to $3.7 million in fiscal 1995, a
31.7% decrease, and in part, from increased operating efficiencies.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales increased by 54.4% to $67.4 million for fiscal 1994
compared to $43.7 million for fiscal 1993. The increase in net sales reflected a
27.9% increase in the number of homes sold and a 20.8% increase in the average
wholesale price per home. During January 1994, the Company began production at a
third manufacturing facility. Production at this facility accounted for
approximately $17.4 million of net sales in 1994. The primary reason for the
increase in the average wholesale price per home in 1994 was the pass through of
increased costs resulting from the implementation of U.S. Department of Housing
and Urban Development ("HUD") Wind Zone regulations for manufactured homes sold
in certain coastal areas and an increase in the size of the average home. Sales
of multi-section homes accounted for 57% of homes sold by the Company in 1994 as
compared to 42% in 1993.
Cost of Sales. Cost of manufactured homes sold was $52.3 million (77.5% of
net sales) for fiscal 1994 as compared to $34.3 million (78.5% of net sales) for
fiscal 1993. The increase in cost of sales was due primarily to higher sales
volume. The decrease in cost of sales as a percentage of net sales for the
compared periods was the result of improved use of volume incentives in
purchasing raw materials, maintenance of margins by adjusting wholesale prices
to account for increases in the cost of raw materials, particularly lumber, and
by changes in sales mix to a greater proportion of sales of multi-section homes,
which typically have higher margins. The Company was able to pass through
increased costs associated with higher raw materials prices and increased
material content required by the new HUD Wind Zone regulations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 56.2% to $11.6 million for fiscal 1994
compared to $7.4 million for fiscal 1993 primarily as a result of increased
sales, the addition of a new manufacturing facility and increased levels of
executive compensation. Selling, general and administrative expenses as a
percentage of net sales increased to 17.2% in 1994 from 17.0% in 1993 primarily
as a result of increased executive compensation, which rose to $5.5 million for
1994 compared to $3.1 million for 1993.
-21-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements and capital expenditures
historically have been funded from internally generated funds, and to a lesser
extent from borrowings. The Company's capital requirements have arisen
principally in connection with expansion of the Company's production capacity
and with increased working capital needs that normally accompany sales growth.
Accounts receivable are funded by approved dealer floor-plan financing and are
usually collected within 15 days. All homes are manufactured against orders, and
no homes are produced for inventory.
Cash flow provided by operating activities was approximately $1.6 million,
$340,000 and $8.4 million for fiscal 1993, 1994 and 1995, respectively. Cash
flow provided by operating activities was $5.1 million for the six month period
ended June 30, 1996, compared to $3.3 million for the six month period ending
June 30, 1995. Increased cash flow from operations in 1995 was due in part to
the Company's status as an S corporation for federal income tax purposes in that
year, pursuant to which the Company had no federal income tax liability. In the
other compared periods, the Company operated as a C corporation.
Capital expenditures were $225,000, $1.4 million and $1.2 million for
fiscal 1993, 1994 and 1995, respectively. Capital expenditures during those
periods were used primarily for expansion of manufacturing facilities and for
normal property, plant and equipment replacement. Expenditures in 1994 included
$1.0 million for the purchase of a corporate airplane and $200,000 to complete
the Company's Plant #3 in Waycross, Georgia. Expenditures in 1995 included
$400,000 to outfit and equip the Company's Plant #4 in Waycross, Georgia and
$800,000 to outfit and equip the Company's Plant #5 in Lamar, South Carolina. In
addition to the capital expenditures for Plant Nos. 3, 4 and 5, the Company
invested in the aggregate $1.8 million in inventory and accounts receivable net
of estimated trade payables during the first four months of operations of these
plants.
As a result of the Acquisition, the capital structure of the Company
significantly changed. The Company obtained a $26.0 million senior secured
credit facility consisting of a $16.0 million Line of Credit, a $4.0 million
Term Loan and a $ 6.0 million Working Capital Facility. The Company also issued
a $17.2 million Senior Subordinated Note for $14.9 million, which note bears
interest at 10.87% of the face amount through March 31, 2001 and 14.5%
thereafter through maturity on December 21, 2002. The discount on this note is
being amortized using the effective interest method over the life of the note.
In addition, the Company issued $5.0 million of Junior Subordinated Notes, which
bear interest at 13% and are payable in full on June 30, 2003. In addition, the
Company issued Redeemable Preferred Stock with a redemption price of $8.0
million for approximately $7.7 million. Finally, the Company issued additional
preferred and common equity for proceeds of approximately $2.7 million, all of
which equity will be converted into or exchanged for Common Stock as part of the
Restructuring.
As of June 30, 1996, borrowings and letters of credit outstanding under the
senior credit facility totaled $14.6 million, including $10.3 million under the
Line of Credit, $4.0 million under the Term Loan and approximately $300,000 in
outstanding letters of credit related to operations, leaving the Company with
$9.9 million available for use at that date. The Term Loan bears interest at
either a prime rate designated by the lender plus 1.5% or LIBOR plus 3.75%,
matures on January 1, 2001 and has no amortization until April 1, 2000. The Line
of Credit bears interest at the same rate as the Term Loan, and reduces over
time, maturing on April 1, 2000. The Working Capital Facility, which bears
interest at either a prime rate designated by the lender plus 1.25% or LIBOR
plus 3.5%, matures on January 1, 2001. As of June 30, 1996, the Company had
$1,000 outstanding under the Working Capital Facility. The senior credit
facility is secured by substantially all of the assets of the Company. During
June 1996, the Company borrowed under the Line of Credit to pay down $2.25
million of the Senior Subordinated Note.
The Company intends to use the net proceeds from the Offering to reduce
indebtedness and to redeem the Redeemable Preferred Stock. See "Use of
Proceeds." After completion of the Offering, the Company will have approximately
$14.0 million available under the senior credit facility, reducing to
approximately $6.0 million as of December 31, 1996, unless the terms of the
senior credit facility are renegotiated.
In the fiscal quarter in which the Restructuring and the Offering are
consummated, the Company will record the following non-recurring, non-cash
charges: (1) approximately $2.2 million resulting from the issuance of Common
Stock to the holders of Series B Preferred Stock in satisfaction of the
liquidation preference payable to such holders upon the conversion of the Series
B Preferred Stock into Common Stock, and (2) approximately $264,000
-22-
<PAGE>
resulting from the redemption of the Redeemable Preferred Stock, representing
the difference between the consideration received upon issuance (plus accretion)
and the redemption price. The non-cash charge of $2.2 million will reduce net
income available to common stockholders for such quarter, but will not reduce
total stockholders' equity. In addition, at the same time, the Company will
record an extraordinary after-tax charge to income of approximately $446,000
resulting from the prepayment of a substantial portion of the Company's
outstanding long-term debt. See "Certain Transactions - The Acquisition" and " -
The Restructuring."
In accordance with customary business practice in the manufactured housing
industry, the Company has entered into repurchase agreements with various
financial institutions and other credit sources pursuant to which the Company
has agreed, under certain circumstances, to repurchase homes sold to independent
dealers in the event of a default by a dealer in its obligation to such credit
sources. Under such agreements, the Company agrees to repurchase homes not
previously sold by the dealer at declining prices over the term of the agreement
(which generally ranges from 12 to 18 months). The Company estimates that its
potential obligations under such repurchase agreements approximated $35.8
million at June 30, 1996. During fiscal 1993, 1994 and 1995, net expenses
incurred by the Company under these repurchase agreements totaled less than
$25,000 in each year.
The Company believes that cash flow from operations, together with proceeds
from the Offering and existing credit facilities, will be adequate to support
its working capital needs and currently planned capital expenditure needs for at
least the next year.
BACKLOG
The Company's backlog at June 30, 1996 was approximately $10.5 million as
compared to $18.2 million at June 30, 1995. The Company believes that the
reduction in backlog is due principally to an increase in the Company's
production capacity as a result of the addition of two manufacturing facilities
in August and December 1995 and an overall increase in industry production
capacity, which has brought supply more into balance with demand. Due to the
strong growth in demand for manufactured homes in the Company's Primary Markets
over the last several years, the seasonal trend of generally lower sales and
reductions in backlog in the first and fourth quarters of the year has not
materially impacted the Company's quarterly results of operations. Such
seasonality, however, combined with increased production capacity in the
industry and at the Company, may have an adverse impact on the Company's future
operations during certain periods.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial
information for fiscal 1994 and 1995, and the six months ended June 30, 1996.
The unaudited quarterly information includes all adjustments, consisting of
normal recurring adjustments, which management considers necessary for a fair
presentation of the information shown. The operating results for any quarter are
not necessarily indicative of results of any future period.
-23-
<PAGE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net sales $13,985 $16,442 $17,842 $19,149 $67,418
Gross profit 3,168 3,764 4,134 4,082 15,148
Income from operations 700 900 989 963 3,552
Net income 411 535 590 570 2,106
YEAR ENDED DECEMBER 30, 1995
Net sales $20,521 $22,243 $21,385 $26,524 $90,673
Gross profit 4,620 5,376 4,837 6,267 21,100
Income from operations 1,663 2,108 2,207 1,968 7,946
Net income(1) 1,014 1,290 1,314 1,166 4,784
SIX MONTHS ENDED JUNE 30, 1996
Net sales $32,165 $33,589 $65,754
Gross profit 8,562 8,840 17,402
Income from operations 3,640 4,753 8,393
Net income 1,434 2,081 3,515
</TABLE>
_________________
(1) Reflects a pro forma provision for federal and state income taxes for the
Predecessor at a blended rate of 38% for 1995. During 1995, the Predecessor
elected to be treated as an S corporation for federal income tax purposes
and therefore recorded no provision for federal income taxes for the year
or for the six months ended June 30, 1995.
-24-
<PAGE>
BUSINESS
GENERAL
General produces manufactured homes in the southeastern United States, with
an emphasis on value-pricing and enhanced customer service. The Company sells
its homes through a network of independent dealers with more than 400 retail
sales centers principally located in the Company's Primary Markets and uses a
variety of brand names in order to better penetrate its markets. The Company's
principal focus is on the production of multi-section homes, which, for the
first six months of 1996, represented approximately 64% of the homes sold by the
Company. Since 1994, in the Company's Primary Markets, sales of multi-section
homes have exceeded sales of single-section homes. The Company believes that
wider and more flexible floor plan designs and site-built appearance are
features of multi-section homes that have contributed to this trend. The Company
manufactures its homes in five production facilities, four of which are located
in Waycross, Georgia, and one of which is located in Lamar, South Carolina. The
Company's single-section homes generally sell at retail prices between $12,000
and $29,000 and its multi-section homes generally sell at retail prices between
$18,000 and $44,000.
Since its founding in 1987, the Company has experienced rapid growth. Net
sales have increased from $20.4 million in 1991 to $90.7 million in 1995, a
compound annual growth rate of 45%. During the first six months of 1996, net
sales were $65.7 million compared to $42.7 million for the comparable period in
1995, a 54% increase. In addition, the Company believes that its operating
margins are among the highest in the industry based on the publicly available
information of its competitors. The Company began production at its third and
fourth manufacturing facilities in January 1994 and August 1995, and began
production at its fifth manufacturing facility, located in South Carolina, in
December 1995.
BUSINESS STRATEGY
The key elements of the Company's business strategy are as follows:
Comprehensive Approach to Customer Service. The Company is committed to
providing comprehensive service to its independent dealers and to retail buyers
of its homes. To differentiate itself in the market, the Company created the
Gold Card service program. Under the Gold Card service program, the retail home
buyer is able to contact the Company directly with respect to all warranty
service claims. The Company believes that its Gold Card program: (1) ensures
prompt customer service, (2) develops loyalty among dealers by reducing their
need to provide time-consuming customer service and (3) enhances the Company's
reputation in the marketplace. The Company believes the Gold Card service
program has contributed to its success and that it continues to be the only
warranty service program in the industry administered directly by the
manufacturer. The Company provides all retail buyers of its homes with one-year
limited warranties and, with respect to most of its homes, pays a third party to
provide limited warranties against structural defects for a period of nine years
beginning after the initial one-year warranty period.
Product Focus. The Company targets its homes to the value-priced segment
of the manufactured housing market. In 1995, the Company's average wholesale
price per home sold was $20,358. In designing its homes, the Company
incorporates certain high-visibility and structural features that are valued by
home buyers and characteristic of higher-priced manufactured homes, while
avoiding other features that add to production cost without significantly
enhancing marketability. Standard high-visibility and structural features
typically include vaulted and textured ceilings, plywood floors and higher-
quality cabinets. Because of this design emphasis, together with its
manufacturing expertise and strict cost controls, the Company believes that it
is able to offer multi-section homes that compete directly with the single-
section homes offered by certain of its competitors.
Geographic Focus. General's objective is to become one of the leading
producers of value-priced manufactured homes across the southeastern United
States. Historically, the Company has focused on marketing its homes through
independent dealers in the Company's Primary Markets. The states comprising the
Company's Primary Markets represent five of the six largest markets for
manufactured housing and accounted for approximately 32% of industry shipments
during the first six months of 1996 according to MHI. The Company plans to
continue to grow by increasing its presence in its Primary Markets and by
further expanding into contiguous markets in the southeastern United States.
Through its existing facilities, the Company believes that its level of
production can
-25-
<PAGE>
be increased to approximately 54 floors per day from its current average
production of approximately 40 floors per day.
Low-Cost Production. The Company strives to achieve low-cost production
through the use of (1) manufacturing-focused information systems, (2) incentive-
based compensation programs, (3) cost-efficient product designs and (4) a
centralized manufacturing strategy. The Company's information systems provide
management with daily reports that enable management to: identify potential
quality concerns; react to raw material price changes; recognize changes in
production efficiency; and tightly control costs. The Company relies heavily on
incentive-based compensation programs that are designed to motivate employees to
achieve production and sales volume goals and to maintain cost and quality
control standards. To help effect production efficiencies, the Company uses
innovative product designs and construction systems combined with standardized
base construction materials across product lines. The Company's centralized
manufacturing strategy allows the Company to reduce costs through plant
specialization and decreased overhead.
INDUSTRY
A manufactured home is a complete single-family residence that is built in
a factory and transported to a site. Manufactured homes offer most of the
amenities of, and are generally built with the same materials as, site-built
homes. Manufactured homes are produced in sections, also referred to as
"floors", and finished homes may consist of one or more sections. According to
the MHI, in 1995, the United States manufactured housing industry had estimated
retail sales of $12.3 billion compared to $10.2 billion in 1994, an increase of
21%. From 1991 through 1995, shipments of manufactured homes increased from
approximately 171,000 homes to 340,000 homes, a compound annual growth rate of
18.8%. Growth has continued through the first six months of 1996 as home
shipments increased 9.5% over the comparable period in 1995.
During the first months of 1996, total manufactured home shipments within
the Company's Primary Markets increased by 13.1% over the comparable period in
1995, exceeding the national rate of increase, and the Company's total home
shipments increased by 37% for the same period. Shipments of multi-section
manufactured homes in the Company's Primary Markets increased from 47,566 in
1994 to 53,990 in 1995, an increase of 13.5%, and through the first six months
of 1996, increased by 20.8% over the comparable period in 1995. The Company's
shipments of multi-section homes increased 41% and 38%, respectively, for the
same periods.
Because of the lower cost of construction compared to site-built homes,
manufactured housing has historically served as one of the most affordable
alternatives for the home buyer. According to the U.S. Department of Commerce,
in 1995 the average cost per square foot was $23.95 for a single-section
manufactured home and $28.96 for a multi-section manufactured home, as compared
to an average cost of $60.55 per square foot for a site-built home, each
excluding land costs. Manufactured homes have traditionally been an attractive
means for home buyers to overcome the obstacles of large down payments and high
monthly mortgage payments. Since the introduction of the first manufactured
homes, there have been significant improvements in quality, design and
amenities, and attractive home sites have become increasingly available.
The following table sets forth information according to MHI regarding the
number of new manufactured homes shipped during each of the past five years and
for the six months ended June 30, 1995 and 1996.
-26-
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ---------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- --------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
New manufactured homes shipped:
Single-section homes............... 91 112 134 156 174 87 90
Multi-section homes................ 80 99 120 148 166 79 92
--- --- --- --- --- -- --
Total.............................. 171 211 254 304 340 166 182
=== === === === === === ===
New manufactured homes shipped as a
percentage of total new
single-family homes sold/(1)/...... 25.1% 25.7% 27.6% 31.2% 33.7% 32.7% 31.1%
</TABLE>
_______________________
(1) Total new single-family homes sold includes both site-built and manufactured
homes.
As indicated in the table above, since 1991, the manufactured housing
industry has experienced a significant increase in demand. The Company believes
improved economic conditions, reduced inventories of repossessed homes, greater
availability of retail financing for the home buyer and enhanced quality of
manufactured homes have contributed to increased shipments. Although the
manufactured housing industry has experienced consistent growth over the past
four years, the industry is cyclical and is affected by many of the same factors
that influence the housing industry generally, including inflation, interest
rates, availability of financing, regional economic and demographic conditions
and consumer confidence levels, as well as the affordability and availability of
alternative housing, such as apartments, condominiums and conventional, site-
built homes. There can be no assurance, therefore, as to whether recent
increases in the demand for manufactured housing will continue nationally or in
the markets served by the Company.
PRODUCTS
The Company produces a broad range of value-priced manufactured homes under
various brand names, including "Jaguar", "General" and "Admiral." The Company,
which presently offers over 75 models of homes, frequently adds new models and
updates its decors annually. Single-section homes range in size from 616 square
feet to 1,216 square feet and multi-section homes range in size from 864 square
feet to 2,128 square feet. Homes generally have two to four bedrooms and all
homes include some major appliances. The Company offers additional optional
features, including alternate color packages, wood burning fireplaces, whirlpool
baths, ceramic tile and other items. While the Company does not offer central
air-conditioning as a standard feature, its homes include duct work so that it
may be easily added.
DISTRIBUTION
During the six months ended June 30, 1996, the Company sold manufactured
homes through more than 400 independent retail sales centers in ten states in
the southeastern United States and believes that the quality of its dealer
network has been important to its growth. The Company's Vice President of
Marketing administers a sales and marketing organization consisting of two
senior sales executives and 11 sales representatives. The sales force works
from the Company's executive offices in Waycross, rather than travel
extensively, which management believes is a more cost-effective approach.
Dealer relationships are maintained through Company-sponsored sales events and
participation in trade shows. Compensation to the sales force is heavily
incentive based, with sales representatives receiving a commission based on a
percentage of collected sales. The sales force has limited discretion in
pricing, as prices are established by senior management.
The Company believes the close working relationship between its sales
representatives and the dealers they service has been an important factor in the
Company's growth. The Company does not operate company-owned
-27-
<PAGE>
retail sales centers. In order to promote dealer loyalty and to enable dealers
to penetrate retail markets, only one dealer within a given local market may
distribute a particular brand of homes manufactured by the Company. The Company
will frequently sell a different brand of its homes to another dealer in the
same local market. This practice, known as "double-channeling," is an operating
strategy which enables the Company to increase its market penetration. The
Company does not have formal marketing agreements with its dealers, and
substantially all of the Company's dealers also sell homes of other
manufacturers. The Company believes its relations with its independent dealers
are good. During 1995, the Company's largest dealer accounted for approximately
6.9% of net sales, and the Company's ten largest dealers accounted for
approximately 33.4% of net sales. During the first six months of 1996, Southern
Lifestyle Homes accounted for approximately 13.8% of net sales.
The number of independent retail sales centers selling the Company's homes
has steadily increased each year, as shown in the table below. During the six
months ended June 30, 1996, the Company sold homes to more than 400 dealer
locations, up from 318 in 1995, 263 in 1994 and 203 in 1993. The greatest
growth in 1996 came in South Carolina, as 58 retail sales centers in that state
added models produced at the new Lamar manufacturing facility. Overall, during
1996, the Company sold homes manufactured at the Lamar facility to approximately
70 independent retail sales centers.
INDEPENDENT RETAIL SALES CENTERS BY STATE
<TABLE>
<CAPTION>
Six Months Ended
----------------
Year Ended December 31, June 30,
---------------------------------- ----------------
1993 1994 1995 1996
---- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Primary Markets:
Georgia................... 60 88 86 97
South Carolina............ 37 35 39 107
Florida................... 28 44 45 45
Alabama................... 27 30 54 58
North Carolina............ 18 31 42 49
---- ---- ---- ----
170 228 266 356
Contiguous Markets:
Kentucky................. 1 0 10 15
Louisiana................ 3 8 6 2
Mississippi.............. 11 17 16 19
Tennessee................ 18 10 16 14
Virginia................. 0 0 4 2
---- ---- ---- ----
33 35 52 52
---- ---- ---- ----
Total.............. 203 263 318 408
==== ==== ==== ====
</TABLE>
CUSTOMER SERVICE AND WARRANTY
The Company provides its Gold Card service program to all retail buyers of
its homes. Using the Gold Card "800" number, a home buyer may directly contact
the Company to obtain service. The Company endeavors to respond promptly to all
service calls and to return any call received during normal business hours
within 30 minutes of receipt of the call. The Company's President frequently
contacts home buyers directly with respect to service-related issues. The
Company schedules any required service work with the home buyers and, if the
work relates to a manufacturing defect, engages independent contractors to
perform the work. The contractors obtain materials for the work from the
Company, which maintains an inventory of materials to enable the Company to
ensure prompt customer service. The Gold Card service program reduces the
independent dealer's involvement in the service process and provides the home
buyer with a direct link to the manufacturer. The Company believes
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<PAGE>
that this program reduces the time and ultimate cost of resolving service
problems and builds collaborative relationships with independent dealers that
contribute to better long-term relationships and increased sales. The Company
strives to provide quick and personal handling of consumer complaints, and
maintains an average service backlog typically from 10 to 14 days, which the
Company believes compares favorably to others in the industry.
The Company maintains extensive manufacturing and service databases with
respect to the homes it sells. These databases include the building
identification number, the name of the dealer who sold the home and the
installer, a record of all service calls and attendant costs, the date and place
of manufacture, the floor plan and any optional features included in the home,
and identification of the principal building materials, fixtures and appliances
included in the home, together with the date of purchase and, for certain
components, names of the vendors that supplied such items. The Company's
service department uses this data to prepare weekly summaries of service-related
issues. The Company's databases enable management to improve the manufacturing
quality of its homes and monitor the service performance of its contractors and
dealers.
The Company provides all retail buyers of its homes with one-year limited
warranties and, with respect to most of its homes, pays a third-party
to provide limited warranties against structural defects for a period of nine
years beginning after the initial one-year warranty period. Many of the
Company's competitors provide buyers with only the HUD-mandated one-year limited
warranty. The Company also furnishes to the consumer copies of any direct
warranties that are provided by the manufacturer of components and appliances.
MANUFACTURING
The Company currently operates four manufacturing facilities located in
Waycross, Georgia and one manufacturing facility located in Lamar, South
Carolina. All of the Company's manufacturing facilities are designed to allow
for the production of either single-section or multi-section homes and for the
easy modification of product designs. This provides the Company with greater
flexibility to react to changes in customer demand. The Company leases each of
its facilities except for Plant #1 in Waycross, Georgia, which is owned by the
Company. The terms of the leases allow the Company to exercise purchase options
at its sole election. The following table sets forth certain information with
respect to the production of homes at the Company's current manufacturing
facilities, including production and estimated capacity expressed in floors per
day:
<TABLE>
<CAPTION>
COMMENCEMENT CURRENT ESTIMATED
PLANT LOCATION OF PRODUCTION PRODUCTION(1) CAPACITY(2)
- ------- --------------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
#1 Waycross, Georgia March, 1988 12 12
#2 Waycross, Georgia August, 1990 5 7
#3 Waycross, Georgia January, 1994 11 12
#4 Waycross, Georgia August, 1995 8 15
#5 Lamar, South Carolina December, 1995 4 8
</TABLE>
______________
(1) Average daily number of floors produced for the six months ended June 30,
1996. The Company's manufacturing facilities generally operate on a one
shift per day, five day per week basis.
(2) Estimates of management based upon current plant configuration and product
mix.
The Company currently manufactures only single-section homes at the Lamar
plant. The frames for those homes are currently manufactured in Waycross,
Georgia and shipped to the Lamar plant. The Company intends to expand its Lamar
operation in 1997 by adding a frame shop and, as market conditions warrant,
thereafter intends to begin construction of a new production facility to be
located in Lamar, which would allow the Company to increase production of multi-
section homes. The Company believes that the additional manufacturing
facilities would enable the Company to lower its manufacturing and freight costs
in the South Carolina market and to further penetrate the Kentucky, Tennessee,
Virginia and North Carolina markets.
-29-
<PAGE>
The following table sets forth the total homes and floors sold by
the Company for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- --------------------
1993 1994 1995 1995 1996
------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Homes sold:
Single-section homes... 1,662 1,583 1,512 816 1,101
Multi-section homes.... 1,206 2,084 2,942 1,387 1,919
----- ----- ----- ----- -----
Total homes............ 2,868 3,667 4,454 2,203 3,020
Total floors sold.......... 4,074 5,751 7,396 3,590 4,939
</TABLE>
The principal materials used in the construction of the Company's homes
include lumber and lumber products, gypsum wallboard, steel, aluminum,
fiberglass, carpet, vinyl, fasteners, appliances, electrical items, windows and
doors. The Company believes that the materials used in the manufacture of its
homes are readily available at competitive prices from a wide variety of
suppliers. Accordingly, the Company does not believe that the loss of any
single supplier would have a material adverse effect on its business. The
Company's direct or variable costs of operations can be significantly affected
by the availability and pricing of raw materials.
The Company's backlog at June 30, 1996 was approximately $10.5 million as
compared to $18.2 million at June 30, 1995. The Company believes that the
reduction in backlog is due principally to an increase in the Company's
production capacity as a result of the addition of two manufacturing facilities
in August and December 1995 and an overall increase in industry production
capacity, which has brought supply more into balance with demand. Due to the
strong growth in demand for manufactured homes in the Company's Primary Markets
over the last several years, the seasonal trend of generally lower sales and
reductions in backlog in the first and fourth quarters of the year has not
materially impacted the Company's quarterly results of operations. Such
seasonality, however, combined with increased industry production capacity, may
have an adverse impact on the Company's future operations during certain
periods. Dealer orders are subject to cancellation prior to the commencement of
production without penalty, and accordingly, the Company does not consider its
backlog of orders to be firm orders.
The Company's management information systems provide management with daily
reports with respect to production (including per unit production hours,
overtime and material costs for each plant), sales, inventories, receivables,
collections, orders and backlog. These reports enable management to tightly
control costs and to manage the business to achieve established performance
goals.
Because the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to dealers within a 400-mile
radius of the manufacturing facility. The Company arranges for the
transportation of finished homes to dealers using independent trucking
companies. Customary sales terms are cash-on-shipment or guaranteed payment
from a floor plan financing source. Dealers or other independent installers are
responsible for placing the home on site, making utility hook-ups and installing
air-conditioning.
INCENTIVE COMPENSATION
The management of the Company relies heavily on the use of incentive-based
compensation arrangements to motivate the employees of the Company. Nearly
every functional area of the Company has some form of incentive program. Hourly
production workers in the plants are paid on a piece-rate type system, based on
production through-put. The incentive component is paid weekly, thereby
creating immediate feedback to the employees. Plant supervisors are paid
incentives based on production volume, efficiency, overtime, and quality. Plant
supervisors can achieve total weekly compensation of up to four times weekly
base-pay. The Company's quality control employees are paid incentives based on
the lack of production errors. The Company's sales executives and
representatives are paid salaries coupled with a commission program. Executive
management receives base salaries, augmented by participation in the Executive
Bonus Plan, which pays 7% of adjusted earnings before interest and taxes to five
key officers. See "Management -- Compensation Pursuant to Plans." The Company
believes that these incentives enable management to create and maintain a
production-oriented, profit-driven work environment.
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DEALER FINANCING
Substantially all of the Company's dealers finance their purchases through
"floor plan" arrangements under which a financial institution provides the
dealer with a loan for the purchase price of the home and maintains a security
interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the dealer financing
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase unsold homes held in inventory by the
dealer at the Company's original invoice price plus certain administrative and
shipping expenses, reduced by any appropriate adjustments. At June 30, 1996,
the Company's contingent repurchase liability under floor plan financing
arrangements was approximately $35.8 million. Homes that have been repurchased
by the Company under floor plan financing arrangements are usually sold to other
dealers, and losses to date under these arrangements have been insignificant.
COMPETITION
The manufactured housing industry is highly competitive with competition
based upon various factors, including total price to the dealer, product
features, quality, warranty repair service and the terms of dealer and retail
consumer financing. Fleetwood Enterprises, Inc. ("Fleetwood"), Champion
Enterprises, Inc. ("Champion") and Redman Industries Inc. ("Redman") produced
approximately 20.3%, 7.7% and 6.9%, respectively, of all of the homes
manufactured in the United States during 1995, and no other manufacturer
produced more than 6.5%. The recently announced acquisition of Redman by
Champion could increase competitive pressures on the Company. A number of firms
have been operating longer and possess greater manufacturing, financial and
other resources than the Company, and there are numerous firms producing
manufactured homes in the states in which the Company operates, many of which
are in direct competition with the Company in the states where its homes are
sold. Additionally, management believes that a significant amount of new
manufactured housing production capacity has been developed in the past three
years. A downturn in the manufactured housing industry could result in excess
industry capacity, which in turn could result in increased competition adversely
affecting the Company's results of operations or financial condition. In
addition, the Company competes for quality independent dealers with other
manufacturers, some of which maintain their own retail sales centers. The
Company's sales to dealers could be adversely affected if competitors acquire
independent dealers and substituted other manufactured homes for homes
manufactured by the Company. Certain of the Company's competitors provide
consumers with financing from captive finance subsidiaries. While management
believes that financing has generally become more available in the manufactured
housing industry in recent years, a contraction in consumer credit could provide
an advantage to those competitors with internal financing capabilities.
Manufactured homes also compete with site-built homes, as well as apartments,
townhouses, condominiums and existing site-built and manufactured homes.
The barriers to entry into the manufactured housing industry are relatively
low. Management believes, however, that the qualifications for obtaining
inventory, accounts receivable and finished goods financing, which are based
upon the financial strength of the manufacturer and each of its dealers, and HUD
manufacturing requirements, have in recent years become more difficult for some
competitors to meet.
GOVERNMENT REGULATION
The Company's manufactured homes are subject to a number of federal, state
and local laws and regulations. Construction of manufactured homes is governed
by the National Manufactured Housing Construction and Safety Standards Act of
1974 and the regulations issued by HUD thereunder, establishing comprehensive
national construction standards for manufactured homes which preempt conflicting
state and local regulations. These regulations cover all aspects of manufactured
home construction, including structural integrity, fire safety, wind loads,
thermal protection and ventilation. The Company's manufacturing facilities and
the plans and specifications of its manufactured homes have been approved by a
HUD-designated inspection agency. The Company's homes are regularly checked by
an independent, HUD-approved inspector for compliance during construction.
Failure to comply with applicable HUD regulations could expose the Company to a
wide variety of sanctions, including mandated closings of Company manufacturing
facilities.
HUD regulations divide the country into three "Wind Zones" and impose more
stringent construction standards for homes to be sold in areas designated Wind
Zones II and III. The Company currently manufactures and sells homes only in
Wind Zones I and II. During 1995, approximately 24% of the Company's homes were
manufactured for Wind Zone II. The Company cannot predict if additional
regulations will be adopted or the effect such
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regulations would have on the Company or the manufactured housing industry as a
whole. Additionally, HUD regulations divide the United States in three "Thermal
Zones" and impose more stringent energy conservation standards for homes to be
sold therein. The Company manufactures and sells homes in Thermal Zones I, II
and III. Manufacturing costs could increase as a result of changes in the Wind
Zones, Thermal Zones and other regulations, and there can be no assurance that
the Company will be able to increase the sales price of its homes to cover any
such increases in its manufacturing costs. The Company believes its manufactured
homes meet or exceed all present HUD requirements.
Manufactured, modular and site-built homes are often built with particle
board, paneling and other products that contain various formaldehyde resins. HUD
regulates the allowable concentration of formaldehyde in certain products used
in manufactured homes and requires warnings to purchasers concerning
formaldehyde-associated risks. Certain components of manufactured homes are
subject to regulation by the Consumer Product Safety Commission (the "CPSC"),
which is empowered to ban the use of component materials believed to be
hazardous to health and to require the manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency and other
governmental agencies currently are re-evaluating the allowable standards for
formaldehyde emissions. The Company uses materials in its manufactured homes
that meet the current HUD standards for formaldehyde emissions and believes that
it otherwise complies with HUD and other applicable government regulations.
The location of manufactured homes is subject to local zoning and housing
regulations. A number of states require manufactured home producers and
retailers to post bonds to ensure the satisfaction of consumer warranty claims.
In addition, a number of states have adopted procedures governing the
installation of manufactured homes. Utility connections are subject to state
and local regulation and must be complied with by the dealer or other person
installing the home.
The Company's operations are also subject to federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation, disposal and discharge of materials into the environment.
Government authorities have the power to enforce compliance with these
regulations, and violations may result in the payment of fines or the entry of
injunctions, or both. Furthermore, the requirements of such environmental laws
and enforcement policies have generally become stricter in recent years. The
Company currently does not believe it will be required under existing
environmental laws and enforcement policies to expend amounts which will have a
material adverse effect on its operating results or financial condition. The
Company is unable to make any assurance, however, that the ultimate cost of
compliance with environmental laws and enforcement policies will not have a
material adverse effect on the operating results or financial condition of the
Company.
ACQUISITIONS
While the Company may in the future pursue an active acquisition policy, no
specific acquisitions are currently in negotiation, and the Company has no
immediate plans to commence such negotiations. If the Company were to proceed
with one or more significant acquisitions in which the consideration consists of
cash, a substantial portion of the Company's available cash could be used to
consummate the acquisitions. If the Company were to consummate one or more
significant acquisitions in which the consideration consists of stock,
stockholders of the Company could suffer a significant dilution of their
interests in the Company. The Company's ability to effect acquisitions may be
dependent upon its ability to obtain additional financing and, to the extent
applicable, consents from the holders of debt of the Company.
Many business acquisitions must be accounted for as purchases. Most of the
businesses that might become attractive acquisition candidates for the Company
are likely to have significant goodwill and intangible assets, and the
acquisitions of these businesses, if accounted for as a purchase, would
typically result in substantial amortization charges to the Company. In the
event the Company consummates additional acquisitions in the future that must be
accounted for as purchases, such acquisitions would likely increase the
Company's amortization expenses. In connection with any acquisitions the
Company could incur substantial expenses, including the fees of financial
advisors, attorneys and accountants, the expenses of integrating the business of
the acquired company with the Company's business and any expenses associated
with registering shares of the Company's capital stock, if such shares are
issued. The financial impact of such acquisitions could have a material adverse
effect on the Company's business, financial condition and results of operations
and could cause substantial fluctuations in the Company's quarterly and yearly
operating results.
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EMPLOYEES
As of June 30, 1996, the Company employed approximately 1,000 persons. The
Company does not have any collective bargaining agreements and has not
experienced any work stoppages as a result of labor disputes. The Company
considers its employee relations to be good.
LEGAL PROCEEDINGS
The Company is involved in routine litigation arising in the ordinary
course of business. In the opinion of the Company, such matters would not have a
material adverse effect on the financial condition or the results of operations
of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth certain information, as of October 16, 1996,
with respect to the executive officers and directors of the Company, as well as
certain of its senior management.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Samuel P. Scott(1) 59 Chairman of the Board of Directors and Chief
Executive Officer
Lannis Thomas 66 President
J. Wayne Roberts 51 Vice President, Chief Financial Officer and Treasurer
Gregory K. Scott 36 Vice President - Manufacturing
Thomas M. Vinson 54 Vice President - Marketing
Jack Himebook 63 Vice President - Purchasing
Drew E. Scott 28 Vice President - Consumer Affairs
Gary M. Brost(1)(2)(3) 43 Director, Executive Vice President and Secretary
James C. DelZoppo(2) 43 Director and Assistant Treasurer
Dennis C. Martin 46 Director
Donald R. Mossey 70 Director
James A. Parsons(1)(2)(3) 40 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Samuel P. Scott founded the Company in 1987 and has served as Chairman of
the Board of Directors and Chief Executive Officer of the Company since its
inception. From 1968 until founding the Company, Mr. Scott worked in the
manufactured home industry in various capacities.
Lannis Thomas has served as President of the Company since its inception.
Mr. Thomas has worked in the manufactured housing industry since 1983. Mr.
Thomas is a member of the board of directors of the Georgia Manufactured Housing
Association.
J. Wayne Roberts has served as Vice President, Treasurer and Chief
Financial Officer of the Company since December 1995. Mr. Roberts joined the
Company in early 1988 and was its Vice President of Finance from December 1989
until December 1995. Mr. Roberts has spent all but ten years of his
professional career in the manufactured housing industry.
Gregory K. Scott has served as Vice President - Manufacturing of the
Company since 1988. Mr. Scott has spent his entire professional career in the
manufactured housing industry. Mr. Scott is the son of Samuel P. Scott.
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<PAGE>
Thomas M. Vinson has served as Vice President - Marketing of the Company
since September 1994. Mr. Vinson served as a Director of Sales of Fleetwood
Enterprises, Inc. from 1985 to 1992 and a Marketing Director of Clayton Homes,
Inc. from 1992 to 1994. Mr. Vinson has spent all but six years of his
professional career in the manufactured housing industry.
Jack Himebook has served as Vice President - Purchasing of the Company
since May 1995. Mr. Himebook joined the Company from Muncy Homes Corporation
where he was employed as a Purchasing Director from November 1993 to May 1995.
From 1992 to 1993, he was employed with Regional Building Systems, Inc. as
Director of Purchasing and from 1989 to 1992, he was employed by Active Homes
Inc. Mr. Himebook has been employed in the purchasing and production operations
area for his entire career.
Drew E. Scott has served as Vice President - Consumer Affairs of the
Company since December 1995. Mr. Scott joined the Company as Assistant to the
President of the Company in August 1992. From 1990 to 1992, Mr. Scott served as
Sales Representative for Jax Valves and Fittings in Jacksonville, Florida. Mr.
Scott is the son of Samuel P. Scott.
Gary M. Brost has been Executive Vice President, Secretary and a director
of the Company since the Acquisition. Since 1989, Mr. Brost has been President
and a principal of Strategic Investments, and is the President and a principal
of SIHI-GMH LLC ("SIHI"). Mr. Brost currently serves on the Boards of Directors
of several privately held companies.
James C. DelZoppo has been Assistant Treasurer and a director of the
Company since the Acquisition. Since 1989, Mr. DelZoppo has been a Vice
President of Strategic Investments and is Assistant Secretary and a principal
of SIHI.
Dennis C. Martin has been a director of the Company since the Acquisition.
Since 1989, Mr. Martin has been a Vice President and a principal of Strategic
Investments and is Vice President, Secretary and a principal of SIHI.
Donald R. Mossey has been a director of the Company since October 1996.
Mr. Mossey was Chairman and Chief Executive Officer of Leland Engineering, Inc.,
a manufacturer of undercarriages for recreational vehicles and of snowmobile
trailers, from 1972 to 1992. Between 1965 and 1972, Mr. Mossey was Chairman,
Chief Executive Officer and majority shareholder of Ventline Inc., a
manufacturer of range hoods and ventilators for mobile homes and recreational
vehicles. In 1972, Mr. Mossey sold his company to Phillips Industries, Inc. a
then public company and major supplier to the manufactured housing industry.
Mr. Mossey served as a Director of Phillips Industries Inc. from 1972 to 1987.
James A. Parsons has been a director of the Company since the Acquisition.
Mr. Parsons is a general partner of RFE Associates V, L.P., the General Partner
of RFE Investment Partners V, L.P., a private equity investment fund located in
New Canaan, Connecticut. Mr. Parsons currently serves on the Boards of
Directors of several privately held companies.
After completion of the Offering, the Company intends to recruit an
additional independent Director to serve on the Board.
The Board of Directors holds regular quarterly meetings and meets on other
occasions when required by special circumstances.
The By-Laws of the Company provide that, so long as any liabilities to the
Company's senior lender remain outstanding, a representative of the senior
lender may attend meetings of the Board of Directors of the Company as an
observer and shall have the right to receive a copy of all materials distributed
to the Board of Directors of the Company.
Members of the Board of Directors serve until the next annual meeting of
stockholders and until their respective successors have been elected and
qualified. Officers of the Company serve at the direction of the Board of
Directors and, unless elected for a lesser term, serve until the next annual
meeting of the Board of Directors.
The Company's Board of Directors currently has three committees, the
Executive Committee, the Audit Committee and the Compensation Committee. The
Executive Committee has the right to exercise certain of the
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powers and authority of the Board of Directors in the management of the Company.
The Audit Committee, among other things, recommends the firm to be appointed as
independent accountants to audit the Company's financial statements, fixes the
compensation of such accountants, discusses the scope and results of the audit
with the independent accountants, reports to the Board of Directors with respect
to the same, and is responsible for ensuring that the business practices and
conduct of employees and other representatives of the Company and its
subsidiaries comply with the policies and procedures of the Company. The
Compensation Committee is charged with establishing a general compensation
policy for the Company and is responsible for the approval of directors' fees
and executive compensation and administers the Company's Stock Option Plan.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the total
compensation paid or accrued by the Company on behalf of its Chief Executive
Officer and the five other most highly compensated executive officers of the
Company (hereinafter collectively referred to as the "Named Executive Officers")
for the fiscal year ended December 31, 1995.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (1)
-------------------------------------------------------------
NAME AND PRINCIPAL Other Annual All Other
POSITION Year Salary ($) Bonus ($) Compensation($) Compensation($)
- ---------------------------------------- ---- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Samuel P. Scott......................... 1995 $100,000 $1,771,385 $3,723(2) $4,800(3)
Chairman and
Chief Executive Officer
Lannis Thomas........................... 1995 50,000 315,930 3,723(2)
President
J. Wayne Roberts........................ 1995 50,000 315,930 3,723(2)
Vice President, Treasurer and Chief
Financial Officer
Gregory K. Scott........................ 1995 50,000 305,930 3,723(2)
Vice President - Manufacturing
Drew E. Scott........................... 1995 35,000 305,930 1,390(2)
Vice President - Consumer Affairs
Thomas M. Vinson........................ 1995 50,000 168,107 3,723(2)
Vice President-Marketing
</TABLE>
_______________________
(1) Represents compensation paid pursuant to Predecessor's compensation
arrangements. These amounts do not include bonus awards of $215,113 and
$215,113 paid to Messrs. Thomas and Roberts, respectively, during 1995 for
services rendered during 1994.
(2) Consists of insurance premiums paid by the Company with respect to group
medical and life insurance coverage.
(3) Consists of insurance premiums paid by the Company with respect to a split
dollar life insurance policy presently in force insuring the life of Mr.
Scott.
The Company has entered into employment agreements with each of Samuel P.
Scott, Gregory K. Scott, and Drew E. Scott. Each of the agreements is for a term
expiring December 31, 2001, establishes the executive's base salary, and
contains a non-competition agreement for a period of two years following the
expiration of the agreement, voluntary resignation by the executive or
termination with cause. The employment agreements provide for base salaries in
the amounts of $325,000 for Samuel P. Scott and $100,000 for each of Gregory K.
Scott and Drew E. Scott. In addition, the base salaries for each of Messrs.
Thomas and Roberts were increased effective January 1, 1996 to $100,000.
COMPENSATION PURSUANT TO PLANS
Executive Bonus Plan. The Company maintains an Executive Bonus Plan in
which Samuel P. Scott, Lannis Thomas, J. Wayne Roberts, Gregory K. Scott and
Drew E. Scott are entitled to participate, each with a participant percentage of
20%. The plan provides for a bonus pool of 7% of EBIT of the Company, as defined
in the Executive Bonus Plan, in the event that EBIT exceeds the base amount of
$8.5 million for any fiscal year, to be divided among the plan participants
based upon their respective participant percentage. The plan became effective
January 1, 1996 and is administered by the Board of Directors or its
Compensation Committee, which may designate substitute participants in the event
of the termination of employment of any participant. The Board of Directors may
also elect to make discretionary bonus payments. The bonus pool is payable to
the participants, in cash, following the Company's receipt of its audited
financial statements. No portion of the bonus pool will be paid to any
participant for any fiscal year if such participant is not an employee of the
Company at the end of the year, although a prorated amount will be paid to the
participant or his personal representative in the event of the participant's
death, termination for disability or normal retirement during the plan year. In
September 1996, based on the Company's performance through August 1996, the
Company paid an aggregate of $500,000 to the participants under the Plan as an
advance against amounts due for that year, subject to an undertaking by each
participant to return the funds if he was not employed by the Company as of
December 31, 1996.
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Executive Stock Option Plan. The Company's Executive Stock Option Plan
(the "Stock Option Plan") was adopted by the Company in October 1996. The Stock
Option Plan provides for the issuance of up to 461,500 shares of the Company's
Common Stock to key employees of the Company and its subsidiaries. Awards under
the Stock Option Plan may be in the form of incentive stock options or non-
qualified stock options.
The Stock Option Plan is administered by the Compensation Committee of the
Company's Board of Directors, the members of which are ineligible for any grants
under the Stock Option Plan. The Compensation Committee is authorized, among
other things, to recommend to the Board the selection of key employees of the
Company to whom, and the time or times at which, awards shall be granted and the
number of shares to be subject to each option awarded. No awards may be made
under the Stock Option Plan after the tenth anniversary of the Stock Option
Plan.
The Stock Option Plan permits the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code as well as options which
do not meet the requirements of that section. All options will expire not more
than 10 years after the date of grant. The exercise price for any option under
the Stock Option Plan shall be equal to the fair market value of the Common
Stock at the time such option is granted. Options are not transferrable other
than by will or by the laws of descent and distribution and may be exercised
only by the optionee, his guardian or his legal representative.
The Stock Option Plan may be amended by the Committee or the shareholders,
provided that the Committee may not, without shareholder approval, materially
increase the benefits accruing to participants under the Stock Option Plan,
increase the maximum number of shares as to which options may be granted under
the Stock Option Plan, change the minimum exercise price, change the class of
eligible persons, extend the period for which options may be granted or
exercised, or withdraw the authority to administer the Stock Option Plan from
the Committee.
DIRECTOR COMPENSATION
After this Offering, directors, except Mr. Scott, will receive annual fees
of $10,000 plus $1,000 per meeting attended, and all Directors will be
reimbursed for their out-of-pocket expenses relating to meetings of the Board of
Directors and Committees thereof.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Samuel P. Scott was the Chief Executive Officer of, and Mr. Scott and
his spouse were the sole shareholders of, Scott Housing Systems, Inc., a
manufacturer of manufactured homes doing business throughout the southeast
United States. Scott Housing Systems, Inc. filed for protection from creditors
under Chapter 7 of the Bankruptcy Code in April 1987. Certain assets of Scott
Housing Systems, Inc. were sold to the Company in 1987.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that none of its
directors shall be personally liable to the Company or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, provided that
such limitation does not apply to liability of a director (1) for any breach of
the director's duty of loyalty to the Company or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of Title 8 of the Delaware
General Corporation Law (relating to liability of directors for unlawful
payments of dividends or unlawful stock purchases or redemptions) or (4) for any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation further provides that, if the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to the fullest
extent permitted by the amended Delaware General Corporation Law.
This provision is intended to afford directors additional protection, and
limit their potential liability, from suits alleging a breach of the duty of
care by a director. The Company believes this provision will assist it in
maintaining and securing the services of directors who are not employees of the
Company. As a result of the inclusion of such a provision, stockholders may be
unable to recover monetary damages against directors for actions
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taken by them that constitute negligence or gross negligence or that are in
violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available to stockholders for any particular case,
stockholders may not have any effective remedy against the challenged conduct.
The Company's By-laws also provide for indemnification of the Company's
directors, officers, employees and agents against liabilities arising from their
service in such capacities and from their service to other enterprises (such as
subsidiaries) at the request of the Company to the fullest extent permitted by
law, which generally requires that the individual has acted in good faith and in
a manner he reasonably believed to be in or not opposed to the Company's best
interests, and, with respect to any criminal action or proceeding, the
individual had no reason to believe his conduct was unlawful. In addition, the
By-laws provide that such indemnification will be provided only if the acts of
the individual were not committed in bad faith or the result of active and
deliberate dishonesty and that the individual did not personally gain in fact a
financial profit or other advantage to which he was not legally entitled. The
Company has applied for and expects to maintain directors and officers liability
insurance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established on March 20, 1996 and consists
of Messrs. Brost and Parsons. Mr. Brost is Executive Vice President and
Secretary of the Company. From March 20, 1996 until October 16, 1996, Mr.
Samuel P. Scott, the Company's Chairman and Chief Executive Officer, also served
as a member of the Compensation Committee. Prior to March 20, 1996, the Company
did not have a compensation committee and all directors, including Mr. Scott,
participated in deliberations concerning the compensation of executive officers.
After completion of the Offering, the Company intends to recruit an additional
independent Director to serve on the Compensation Committee.
Mr. Brost is the President and a principal of SIHI, the Managing Member of
Bulldog Holdings LLC ("Bulldog"). In connection with the Acquisition, the
Company sold 1,400,000 shares of its Series B Preferred Stock to Bulldog for an
aggregate consideration of $1.4 million. Prior to the closing of the Offering,
the shares of Common Stock to be issued to Bulldog in connection with the
conversion of the Company's Series B Preferred Stock will be distributed by
Bulldog to its members, including SIHI. On December 21, 1995, in connection with
the Acquisition, the Company entered into a Management Agreement with Strategic
Investments, of which Mr. Brost is President and a principal, Mr. Martin is a
Vice President and a principal, and Mr. DelZoppo is a Vice President. See
"Certain Transactions -- Management Agreement."
Mr. Parsons is a General Partner of RFE Associates V, L.P., the General
Partner of RFE Investment Partners V, L.P. ("RFE"). RFE will receive
approximately $7.5 million of the proceeds of the Offering upon the payment of
the Junior Subordinated Notes and redemption of the Redeemable Preferred Stock.
See "Use of Proceeds." In connection with the Acquisition, the Company sold to
RFE (1) approximately $2.9 million in aggregate principal amount of the
Company's Junior Subordinated Notes, (2) 4,690,351 shares of the Company's
Redeemable Preferred Stock for an aggregate consideration of approximately $4.5
million, (3) 439,720 shares of the Company's Series B Preferred Stock for an
aggregate consideration of $439,720, and (4) 714,546 shares of Common Stock for
an aggregate consideration of approximately $163,000. In connection with its
investment, the Company also granted certain put options to RFE, The Equitable
Life Assurance Society of the United States ("Equitable"), the State Treasurer
of the State of Michigan as Custodian of the Michigan Public School Employees
Retirement System, State Employees' Retirement System, Michigan State Police
Retirement System and the Michigan Judges Retirement System (collectively,
"Michigan") and non-affiliated investors, which put options will terminate
immediately prior to the closing of this Offering, and certain registration
rights. See "Certain Transactions -- The Restructuring" and "Description of
Capital Stock -- Registration Rights."
On December 21, 1995, in connection with the Acquisition, Mr. Samuel P.
Scott and his spouse purchased 92,749 shares of Common Stock from the Company
for an aggregate consideration of approximately $21,000. In addition, Gregory
K. Scott, Drew E. Scott and Kelly Scott Herold, Mr. Scott's children, purchased
a total of 213,501 shares of Common Stock from the Company for an aggregate
consideration of approximately $49,000. Mr. Scott is also involved in certain
other transactions relating to the Company described under "Certain
Transactions."
In connection with the sales described above, a stockholders' agreement
(the "Stockholders' Agreement), dated as of December 21, 1995, was entered into
among the Company, RFE, Bulldog, Mr. Samuel P. Scott,
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Equitable, Michigan and certain other stockholders. Under the terms of the
Stockholders' Agreement, Bulldog is entitled to designate up to four individuals
to serve on the Board of Directors of the Company, and RFE, Michigan and another
non-affiliated stockholder (the "RFE Group"), by plurality vote, are entitled to
designate two individuals to serve on the Board of Directors of the Company. The
Stockholders' Agreement provides that the seventh director is to be Samuel P.
Scott. Messrs. Brost, Martin and DelZoppo were elected as Bulldog's designees on
the Board of Directors, and Mr. Brost serves on the Compensation Committee of
the Board of Directors. Mr. Parsons was elected as one of the RFE Group's
designees on the Board of Directors and serves on the Compensation Committee of
the Board of Directors. Mr. Mossey is the RFE Group's other designee on the
Board of Directors. The Stockholders' Agreement will be terminated immediately
prior to the closing of the Offering.
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CERTAIN TRANSACTIONS
THE ACQUISITION
On December 21, 1995, pursuant to a Stock Purchase Agreement dated as of
October 10, 1995 (the "Stock Purchase Agreement"), as amended, by and among GMH
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the
Company ("GAC"), and the former stockholders of the Predecessor, GAC acquired
all of the issued and outstanding shares of common stock of the Predecessor for
consideration of approximately $50.6 million in a leveraged buyout transaction
accounted for as a purchase. Pursuant to the Stock Purchase Agreement, the
former stockholders of the Company, including Samuel P. Scott, Gregory K. Scott
and Drew E. Scott, who are officers of the Company, and Kelly Scott Herold, Mr.
Scott's daughter, have agreed to indemnify the Company for losses and litigation
expenses incurred or required to be paid by the Company as a result of a breach
of certain representations, warranties, covenants or agreements made by the
former stockholders. The former stockholders' indemnity is subject to a
$300,000 deductible payment under certain circumstances, and a $3.3 million
ceiling, which ceiling will be reduced to $2.3 million in April 1997 and
$300,000 in April 1998; provided that indemnification for losses incurred or
required to be paid as a result of federal or state income taxes is not limited
by the ceiling. GAC was incorporated in Delaware in October 1994. Immediately
following the Acquisition, GAC was merged into the Predecessor, so that as a
result, the Predecessor became a wholly-owned subsidiary of the Company.
The consideration for the Acquisition included:
. Installment nonrecourse promissory notes of the Company in the aggregate
principal amount of $45.0 million, which were paid in full on
September 23, 1996.
. The Incentive Plan under which the former stockholders could receive
deferred consideration of up to an aggregate of $3.85 million based on
future earnings of the Company.
. Cash consideration of approximately $1.75 million.
The cash consideration for the Acquisition was funded through the issuance
of the Company's capital stock and indebtedness. In addition, the Company
incurred approximately $2.1 million in debt issuance costs and $2.1 million in
acquisition costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity."
THE RESTRUCTURING
The following transactions (collectively referred to as the
"Restructuring") have occurred or will automatically occur immediately prior to
the closing of the Offering:
The holders of the Company's Series B Preferred Stock, including SIHI, RFE
and Michigan, will convert such holdings into shares of Common Stock, and
pursuant to the terms of the Certificate of Incorporation, will receive a
liquidation preference in the amount of approximately $2.2 million, which will
be paid in shares of Common Stock based on the assumed initial offering price
(the "Series B Conversion"). In addition, (1) the Company's Certificate of
Incorporation will be amended and restated to eliminate the Series B Preferred
Stock, the Class B and Class C Common Stock, redesignate the Class A Common
Stock as Common Stock and authorize the Company to issue 2,000,000 additional
shares of Preferred Stock, (2) Equitable and other non-affiliated individuals
who acquired warrants in connection with the Acquisition will exercise their
warrants to purchase an aggregate of 568,750 shares of the Company's Common
Stock for a nominal consideration and (3) certain put and call options held by
certain stockholders and the Company will be terminated.
Also immediately prior to the closing of the Offering, the Incentive Plan
will be terminated, and the obligations to the former shareholders of the
Predecessor thereunder will be converted into promissory notes of the Company in
the aggregate principal amount of $4.0 million, bearing interest at the rate of
9% per annum, and payable on April 1, 1997 and April 1, 1998 in equal amounts.
In addition, employment agreements between the Company and each of Samuel P.
Scott, Drew E. Scott and Gregory K. Scott will be amended principally to extend
the term of the agreements until December 31, 2001 and provide that any stock
options to be awarded to Mr. Scott under the Stock Option Plan will vest at a
rate of 20% per annum. The employment agreement for Samuel P. Scott further
provides for
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Company-paid health insurance for Mr. Scott and his wife for the remainder of
their lives so long as Mr. Scott remains an executive officer of the Company
until December 31, 2001. In addition, Mr. Scott's current employment agreement
provides that he may continue to own a 20% equity interest which be acquired in
1994 in Sweetwater Homes, Inc., a small producer of manufactured homes, but may
not directly or indirectly increase his equity interest in Sweetwater, serve as
an officer, director or employee of, or consultant to Sweetwater or otherwise
assist Sweetwater in any aspect of its operations.
MANAGEMENT AGREEMENT
In connection with the Acquisition, the Company entered into a Management
Agreement with Strategic Investments under which it provides ongoing management
and consulting services to the Company. Messrs. Brost and Martin are officers
and shareholders of Strategic Investments and Mr. DelZoppo is an officer of
Strategic Investments. Services provided by Strategic Investments include
strategic planning, marketing, consulting, financial planning, capital
budgeting, executive compensation program analysis, monitoring of the Company's
business and assistance with merger and acquisition opportunities. Pursuant to
the Management Agreement, Strategic Investments is entitled to an annual fee
initially in an amount equal to $500,000 comprised of a base fee of $250,000,
subject to an adjustment based on the Consumer Price Index, and an additional
annual fee of $250,000. Strategic Investments is entitled to receive the
additional $250,000 fee so long as SIHI continues to own an equity interest in
the Company; provided, that if SIHI continues to own an equity interest in the
Company until the 30th month after the closing of the Offering, Strategic
Investments will continue to receive the full amount of the additional $250,000
annual fee even if it disposes of all of its stock in the Company after such
date. In the event SIHI sells all of its stock in the Company to an unaffiliated
entity prior to the 30th month after the closing of the Offering, the additional
fee will be prorated for the fiscal year in which such sale occurs based on the
number of months during such year that SIHI held such stock plus one additional
year's fee. The term of the Management Agreement ends December 31, 2001.
Pursuant to the Management Agreement, the Company paid to Strategic Investments,
upon the closing of the Acquisition, a closing fee of $500,000 plus
reimbursement of expenses in the amount of $29,811 incurred in connection with
the Acquisition.
FEDERAL TAX AUDIT
The Internal Revenue Service (the "Service") is currently conducting an
audit of the Company's income tax returns for the years 1992, 1993 and 1994.
The Company believes that the principal focus of the Service's audit is the
reasonableness of compensation paid to Samuel P. Scott, the Company's Chief
Executive Officer, during those years. Although the Service has not completed
its income tax audit, if the Service successfully asserts that some portion of
the approximately $7.0 million of compensation that Mr. Scott received during
this period is excess compensation and should be recharacterized as dividends,
the Company would be subject to additional tax at a rate of 34% of such excess
amount for federal income tax purposes and 6% for state income tax purposes.
Each of the former stockholders of the Predecessor, including Mr. Scott, Gregory
K. Scott and Drew E. Scott, who are officers of the Company, and Kelly Scott
Herold, Mr. Scott's daughter, has acknowledged his or her obligation to
indemnify the Company for losses or obligations which the Service may assert, or
any litigation expenses incurred by the Company, as a result of the pending tax
audit. Each has confirmed to the Company his or her ability to personally
satisfy any such tax liability.
SERVICE AGREEMENT
In connection with the Acquisition, the Company entered into a service
agreement in December 1995 with M/H Retail, Inc. ("Retail"), a Georgia
corporation wholly owned by Kelly Scott Herold, a daughter of Samuel P. Scott, a
Director and Chief Executive Officer of the Company. Since the Company's
inception in 1987, Retail had provided warranty and repair services exclusively
to purchasers of the Company's homes and resold at retail certain materials and
components purchased from the Company. Pursuant to the service agreement, Retail
paid a management fee to the Company equal to Retail's net operating profit. See
note 7 of Notes to Consolidated Financial Statements. In October, 1996, the
Company exercised its option to purchase Retail's assets, net of liabilities, at
a cash purchase price of approximately $36,000. During 1995 and 1996 (until
closing of the sale)
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Kelly Scott Herold received total payments from Retail of approximately $316,000
and $75,000, respectively. The operations of Retail have now been integrated
into the operations of the Company.
GEORGIA STATE WITHHOLDING TAX
In late May 1996, the Company determined that it had failed to properly
withhold personal income tax for certain employees, including members of senior
management, of the Company who were non-Georgia residents. Upon its discovery of
this issue, the Company commenced withholding the proper amounts. In addition,
the Company and the individuals involved promptly brought the matter to the
attention of the Georgia Department of Revenue ("GDR") and agreed to pay the sum
of $694,037 representing the amount of tax the Company should have withheld for
the years in question, including interest to the date of payment. The payment by
the Company, made in July 1996, discharged the personal income tax liability,
including any interest, of all individual employees of the Company whose income
from employment with the Company was not reported in years 1993, 1994 and 1995.
The GDR waived all penalties with regard to the Company's failure to withhold
and the individuals' failure to report or make estimated tax payments as well as
any penalties for corporate income tax. The former stockholders of the
Predecessor reimbursed the Company for the entire amount paid by the Company to
the GDR.
SALES OF SECURITIES TO RELATED PARTIES
Mr. Parsons is a General Partner of RFE Associates V, L.P., the General
Partner of RFE. RFE will receive approximately $7.5 million of the proceeds of
the Offering upon the payment of the Junior Subordinated Notes and redemption of
the Redeemable Preferred Stock. See "Use of Proceeds." In connection with the
Acquisition, the Company sold to RFE (1) approximately $2.9 million in aggregate
principal amount of the Company's Junior Subordinated Notes, (2) 4,690,351
shares of the Company's Redeemable Preferred Stock for an aggregate
consideration of approximately $4.5 million, (3) 439,720 shares of the Company's
Series B Preferred Stock for an aggregate consideration of $439,720, and (4)
714,546 shares of Common Stock for an aggregate consideration of approximately
$163,000. In connection with such investment, the Company also granted to RFE,
Equitable, Michigan and non-affiliated investors certain put options with
respect to their shares, which put options will terminate immediately prior to
the closing of this Offering, and certain registration rights. See "-- The
Restructuring" and "Description of Capital Stock -- Registration Rights."
Mr. Brost is an equity owner, President and Managing Member of SIHI, the
Managing Member of Bulldog. In connection with the Acquisition, the Company
sold 1,400,000 million shares of its Series B Preferred Stock to Bulldog for an
aggregate consideration of $1.4 million. Prior to the closing of the Offering,
the shares of Common Stock to be issued to Bulldog in connection with the
conversion of the Company's Series B Preferred Stock will be distributed by
Bulldog to its members, including SIHI.
On December 21, 1995, in connection with the Acquisition, Mr. Samuel P.
Scott and his spouse purchased 92,749 shares of Common Stock from the Company
for an aggregate consideration of approximately $21,000. In addition, Gregory
K. Scott, Drew E. Scott and Kelly Scott Herold, Mr. Scott's children, purchased
a total of 213,501 shares of Common Stock from the Company for an aggregate
consideration of approximately $49,000.
On December 21, 1995, in connection with the Acquisition, the Company
issued to Equitable the Senior Subordinated Note and warrants to purchase
350,000 shares of Common Stock for an aggregate consideration of approximately
$15.0 million. In addition, the Company issued to Michigan, (1) approximately
$1.9 million in aggregate principal amount of the Company's Junior Subordinated
Notes, (2) 3,076,922 shares of the Company's Redeemable Preferred Stock for an
aggregate consideration of approximately $3.0 million, (3) 288,462 shares of the
Company's Series B Preferred Stock for an aggregate consideration of $288,462
and (4) 468,750 shares of Common Stock for an aggregate consideration of
approximately $107,000. Michigan will receive approximately $4.9 million of the
proceeds of the Offering upon the payment of the Junior Subordinated Notes and
redemption of the Redeemable Preferred Stock. See "Use of Proceeds."
In connection with the sales described above, a Stockholders' Agreement
(the "Stockholders' Agreement"), dated as of December 21, 1995, was entered into
among the Company, RFE, Bulldog, Mr. Scott, Equitable, Michigan and certain
other stockholders. Under the terms of the Stockholders' Agreement, Bulldog is
entitled to designate up to four individuals to serve on the Board of Directors
of the Company, and the RFE Group, by plurality vote, is entitled to designate
two individuals to serve on the Board of Directors of the Company. The
Stockholders' Agreement provides that the seventh director is to be Samuel P.
Scott. Messrs. Brost, Martin and
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Del Zoppo were elected as Bulldog's designees on the Board of Directors and Mr.
Brost serves on the Compensation Committee of the Board of Directors. Mr.
Parsons was elected as one of the RFE Group's designees on the Board of
Directors and serves on the Compensation Committee of the Board of Directors.
Mr. Mossey is RFE Group's other designee on the Board of Directors. These voting
arrangements will be terminated immediately prior to the closing of the
Offering.
In July 1996, in connection with his agreement to serve on the Company's
Board of Directors as a designee of the RFE Group, Mr. Mossey purchased from RFE
at the original purchase price thereof, securities of the Company consisting of
(1) $36,364 in principal amount of Junior Subordinated Notes for an amount equal
to the face amount thereof, (2) approximately 58,182 shares of Redeemable
Preferred Stock at a purchase price of $56,182, (3) 5,454 shares of Series B
Preferred Stock at a purchase price of $5,454 and (4) 8,864 shares of Common
Stock at a purchase price of approximately $2,000.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock giving effect to the completion of the
Restructuring and as adjusted to reflect the sale of the 2,000,000 shares of
Common Stock offered hereby assuming no exercise of the Underwriters over-
allotment option by: (1) each person who is known by the Company to own
beneficially more than 5% of any class of the Company's voting securities; (2)
each director of the Company; (3) each executive officer named in the Summary
Compensation Table; and (4) all directors and executive officers of the Company
as a group. The address of the officers of the Company is the Company's
principal offices. Except as otherwise noted, the persons named in the table
have sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OWNED
-----------------------------------
SHARES BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------- ---------------- ---------------
<S> <C> <C> <C>
BENEFICIAL OWNER
- ----------------
SIHI-GMH LLC/(1)/........................... 1,011,500 26.8% 17.5%
RFE Investment Partners V, L.P.............. 979,103 26.0 17.0
36 Grove Street
New Canaan, CT 06840
State Treasurer of State of Michigan /(2)/.. 650,370 17.3 11.3
The Equitable Life Assurance
Society of the United States................ 288,308 7.6 5.0
787 7th Avenue
New York, New York 10019
Samuel P. Scott/(3)/........................ 99,477 2.6 1.7
Lannis Thomas/(4)/.......................... 23,065 * *
Gregory Keith Scott/(5)/.................... 76,572 2.0 1.3
J. Wayne Roberts/(6)/....................... 23,065 * *
Thomas M. Vinson/(7)/....................... 17,298 * *
Drew Eric Scott/(8)/........................ 76,572 2.0 1.3
Gary M. Brost /(1)/......................... 1,011,500 26.8 17.5
James C. DelZoppo /(1)/..................... 1,011,500 26.8 17.5
Dennis C. Martin /(1)/...................... 1,011,500 26.8 17.5
Donald R. Mossey............................ 12,298 * *
23805 County Road #6
Elkhart, Indiana 46514
James A. Parsons/(9)/....................... 979,103 26.0 17.0
36 Grove Street
New Canaan, CT 06840
Executive officers and
directors as a group/(10)/................ 2,318,950 61.5 40.2
(11 persons)
</TABLE>
___________________
* Less than 1%.
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(1) Consists of shares owned by SIHI, of which Mr. Brost is a principal and
President, Mr. DelZoppo is a principal and Assistant Secretary and Mr.
Martin is a principal and Vice President and Secretary. Messrs. Brost,
DelZoppoa and Martin have shared voting power and shared investment power
with respect to these shares and disclaim beneficial ownership thereof. The
address of Messrs. Brost, DelZoppo and Martin is c/o Strategic Investments
& Holdings, Inc., 369 Franklin Street, Buffalo, New York 14202
(2) The State Treasurer of the State of Michigan acts as Custodian of the
Michigan Public School Employees' Retirement System, State Employees'
Retirement System, Michigan State Police Retirement System and the Michigan
Judges Retirement System. The address of these investors is 430 West
Allegan, Lansing, Michigan 48922.
(3) These shares are owned jointly with Mr. Scott's spouse, Sherry J. Scott.
Mr. Scott and his spouse share investment and voting power with respect to
all shares which he beneficially owns. Includes 23,076 shares of Common
Stock to be purchased by Mr. Scott in the Offering. Does not include 85,000
shares issuable upon the exercise of options which are not deemed to be
presently exercisable.
(4) Does not include 15,000 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(5) Includes 17,949 shares of Common Stock to be purchased by Mr. Scott in the
Offering. Does not include 15,000 shares issuable upon the exercise of
options which are not deemed to be presently exercisable.
(6) Does not include 15,000 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(7) Does not include 15,000 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(8) Includes 17,949 shares of Common Stock to be purchased by Mr. Scott in the
Offering. Does not include 15,000 shares issuable upon the exercise of
options which are not deemed to be presently exercisable.
(9) Consists of shares owned by RFE, of which RFE Associates V, L.P. is the
General Partner. Mr. Parsons is a General Partner of RFE Associates V, L.P.
Mr. Parsons has shared voting power and shared investment power with
respect to these shares. Mr. Parsons disclaims beneficial ownership of such
shares.
(10) See notes (1), (3), (4), (5), (6), (7), (8) and (9) above.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and By-laws is a
summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and By-laws, each as amended, which have been filed
as exhibits to the Company's Registration Statement, of which this Prospectus is
a part. The following discussion assumes that the Restructuring and the
Offering have been completed.
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.001 per share, and 2,000,000 shares of Preferred
Stock, par value $0.001 per share. Upon consummation of the Offering, 5,769,231
shares of Common Stock will be outstanding and no shares of Preferred Stock will
be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors and, as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any shares of Preferred Stock issued in
the future, all shares of Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available for payment. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive or conversion rights. There are no redemption
or sinking fund provisions applicable to the Common Stock. All shares of Common
Stock to be outstanding upon completion of this offering will be fully paid and
nonassessable.
At present, there is no established trading market for the Common Stock.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "GENH."
PREFERRED STOCK
The Board of Directors may, from time to time, without further action by
the Company's stockholders, authorize the issuance of shares of Preferred Stock
in series and may, at the time of issuance, determine the powers, rights,
preferences and limitations of any such series. Satisfaction of any dividend
preferences on outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on Common Stock. Holders of
Preferred Stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any payment
is made to the holders of Common Stock. Under certain circumstances, the
issuance of such Preferred Stock may render more difficult or tend to discourage
a merger, tender offer or proxy contest, the assumption of control by a holder
of a large block of the Company's securities or the removal of incumbent
directors.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement") among the Company and the holders ("Holders")
of approximately 3,769,231 shares of Common Stock (all such shares, the
"Registrable Shares"), such Holders or their permitted transferees are entitled
to certain registration rights with respect to the Registrable Shares. If the
Company at any time proposes to register any of its securities under the
Securities Act, the Holders will be entitled to notice thereof and, subject to
certain restrictions, to include their Registrable Shares in such registration.
Beginning twelve months after the closing of the Offering, the RFE Group and
Equitable may each make up to two demands of the Company to register their
shares on Form S-3 or similar short-form registration forms, subject to certain
conditions and limitations. A Holder's right to include shares in an
underwritten registration is subject to the right of the underwriters to limit
the number of shares included in the offering. Subject to certain limitations,
the Company is required to bear all registration, legal (for no more than one
independent legal counsel for all selling Holders) and other expenses in
connection with these registrations (other than underwriting discounts and
commissions) and must provide appropriate indemnification.
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DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless prior to
the date the stockholder became an interested stockholder, the board approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder or unless one of the two
following exceptions to the prohibition are satisfied: (i) upon consummation of
the transaction that resulted in such person becoming an interested stockholder,
the interested stockholder owned at least 85% of the Company's voting stock
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by certain directors
or certain employee stock plans) or (ii) on or after the date the stockholder
became an interested stockholder, the business combination is approved by the
board of directors and authorized by the affirmative vote (and not by written
consent) of at least two-thirds of the outstanding voting stock excluding that
stock owned by the interested stockholder. A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who (other than
the corporation and any direct or indirect majority-owned subsidiary of the
corporation), together with affiliates and associates, owns (or as an affiliate
or associate, within the three years prior, did own) 15% or more of the
corporation's outstanding voting stock. It is possible that these provisions
may have the effect of delaying, deterring or preventing a change in control of
the Company.
The Company's Certificate of Incorporation or By-laws, as applicable, among
other things (i) provide that the number of directors will be not fewer than
one, with the exact number of directors to be determined from time to time by
resolution adopted by a majority of the Board of Directors and (ii) provide that
the Board of Directors, without action by the stockholders, may issue and fix
the rights and preferences of shares of Preferred Stock. These provisions may
have the effect of delaying, deferring or preventing a change of control of the
Company without further action by the stockholders, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock.
The Company's senior credit facility and Senior Subordinated Note each
contain provisions which require prepayment of the amounts outstanding
thereunder upon a change in control of the Company. It is possible that these
provisions may have the effect of delaying, deterring or preventing a change in
control of the Company.
TRANSFER AGENT AND REGISTRAR
___________________ has been appointed as the transfer agent and registrar
for the Company's Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts of Common Stock in the open
market, or the availability of shares for sale, may adversely affect the market
price of the Common Stock and the ability of the Company to raise funds through
equity offerings in the future.
Upon completion of the Offering, after giving effect to the Restructuring,
the Company will have 5,769,231 outstanding shares of Common Stock, assuming no
exercise of the Underwriters' over-allotment option or outstanding stock
options. Effective upon the consummation of the Offering, after giving effect to
the Restructuring, assuming no exercise of outstanding options, the Company will
have outstanding options exercisable for an aggregate of approximately 208,000
shares of Common Stock (subject to anti-dilution adjustment), none of which will
be presently exercisable.
Of the Common Stock to be outstanding upon completion of the Offering, the
2,000,000 shares of Common Stock sold in the Offering will be freely tradeable
without restriction or further registration under the Securities Act, except for
any shares purchased by "affiliates" of the Company, as that term is defined
under the Securities Act and the Regulations promulgated thereunder (an
"Affiliate"). The remaining 3,769,231 shares of Common Stock held by officers,
directors, employees, consultants and other stockholders of the Company were
sold by the Company in reliance on exemptions from the registration requirements
of the Securities Act and are "restricted securities" within the meaning of Rule
144 under the Securities Act. Any shares of Common Stock issued upon the
exercise of options or warrants held by any of such persons also will constitute
restricted securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
"restricted securities" (defined generally in Rule 144 as unregistered
securities) for a period of at least two years from the later of the date such
restricted securities were acquired from the Company or the date they were
acquired from an Affiliate, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 57,692 shares immediately
after the Offering) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain provisions relating to the volume and notice of sale and
the availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an Affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least three years, would be entitled
to sell such shares under Rule 144(k) without regard to the volume or manner of
sale limitations referred to above. However, since the Company was just recently
formed in 1995, none of the restricted shares will be eligible for resale in the
open market immediately after the Offering.
The Commission has recently proposed amendments to Rule 144 and Rule 144(k)
that would permit resales of restricted securities under Rule 144 after a one-
year, rather than a two-year holding period, subject to compliance with the
other provisions of Rule 144, and would permit resale of restricted securities
by non-Affiliates under Rule 144(k) after a two-year, rather than a three-year
holding period. Adoption of such amendments could result in resales of
restricted securities sooner than would be the case under Rule 144 and Rule
144(k) as currently in effect.
Assuming no additional shares are purchased by Affiliates, and subject to
the lock-up agreements, approximately 3,000,000 shares held by Affiliates of the
Company and approximately 770,000 shares held by existing stockholders of the
Company who are not Affiliates will be eligible for sale in the public market at
various times under Rule 144, subject to the foregoing volume limitations and
other restrictions.
The holders of 3,769,231 shares are entitled to certain registration rights
with respect to their shares. See "Description of Capital Stock -- Registration
Rights."
For a description of certain 180-day lock-up agreements signed by the
Company's executive officers, directors and current stockholders of the Company,
see "Underwriting."
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UNDERWRITING
The Underwriters named below, represented by Rauscher Pierce Refsnes, Inc.
and Oppenheimer & Co., Inc. (the "Representatives") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock as set forth below
opposite their names below. The nature of the obligations of the Underwriters is
such that, if any of such shares are purchased, all must be purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Rauscher Pierce Refsnes, Inc.
Oppenheimer & Co., Inc.
---------
Total 2,000,000
=========
</TABLE>
The Underwriters propose initially to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers Inc. ("NASD")
not in excess of $________ per share, and the Underwriters may allow, and such
dealers may reallow, to members of the NASD a concession not in excess of $____
per share. After the Offering, the price to public, the concession and the
reallowance may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock at the initial price to public, less underwriting
discount, set forth on the cover page of this Prospectus. The Underwriters may
exercise such option only for the purpose of covering any over-allotments. To
the extent the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase from the Company that
number of the additional shares of Common Stock which is proportionate to such
Underwriter's initial commitment.
Samuel P. Scott has agreed to purchase 23,076 shares, and each of Gregory
K. Scott, Drew E. Scott and Kelly Scott Herold have agreed to purchase 17,949
shares, of the Common Stock offered hereby at the initial public offering price.
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market will develop
upon the completion of the Offering. The initial public offering price was
determined by negotiations among the Company and the Representatives. The
primary factors considered by the Representatives in determining such public
offering price included the history of and the prospects for the industry in
which the Company competes, an assessment of the Company's management, its past
and present operations, its past and present earnings and the trend of such
earnings, the general condition of the securities markets at the time of the
Offering and the price-earnings multiples and market prices of publicly traded
securities of comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representatives a nonaccountable expense allowance of
$75,000.
-50-
<PAGE>
The Company, its executive officers and directors and current stockholders
of the Company have agreed that for a period of 180 days after the date of this
Prospectus, they will not offer, sell, or otherwise dispose of any of the shares
of Common Stock beneficially owned or controlled by them (including subsequently
acquired shares), without the prior written consent of Rauscher Pierce Refsnes
Inc. on behalf of the Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has engaged Rauscher Pierce Refsnes, Inc. to provide certain
consulting and advisory services to the Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Nixon, Hargrave, Devans & Doyle LLP,
Rochester, New York. Certain legal matters in connection with the Common Stock
offered hereby will be passed upon for the Underwriters by Thompson & Knight,
P.C., Dallas, Texas.
EXPERTS
The financial statements and schedules included in the Prospectus and
included elsewhere in the Registration Statement, to the extent and for the
periods indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and Earl A. Lawson, independent public
accountant, and are included herein in reliance upon the authority of said
accountants as experts in accounting and auditing in issuing said reports.
Earl A. Lawson was replaced as the Company's principal auditor as of
December 31, 1993. During the fiscal year ended December 31, 1993, there was no
disagreement between the Company and Earl A. Lawson on any matter of accounting
principles or practices, financial statement disclosure or auditing scope of
procedure which, if not resolved to the satisfaction of Earl A. Lawson, would
have caused Earl A. Lawson to make reference to the subject matter of the
disagreement in connection with his report and there occurred no "reportable
event" within the meaning of item 304(a)(1)(v) of SEC Regulation S-K.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the Common Stock offered
hereby has been filed by the Company with the Securities and Exchange
Commission, Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof,
including any exhibit thereto, may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
-51-
<PAGE>
GENERAL HOUSING, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GENERAL HOUSING, INC.
Reports of Independent Certified Public Accountants F-2
F-3
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30,
1996 (unaudited) F-4
Consolidated Statements of Income for the years ended December 31,
1993 and 1994 and December 30, 1995 and for the six
months ended June 30, 1995 and 1996 (unaudited) F-6
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1993 and 1994 and December 30, 1995
and for the six months ended June 30, 1996 (unaudited) F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994 and December 30, 1995 and for the six months
ended June 30, 1995 and 1996 (unaudited) F-8
Notes to Consolidated Financial Statements F-9
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Financial Information F-24
Unaudited Pro Forma Consolidated Balance Sheet, June 30, 1996 F-25
Unaudited Pro Forma Consolidated Statement of Income for year ended
December 30, 1995 F-27
Unaudited Pro Forma Consolidated Statement of Income for six months
ended June 30, 1996 F-28
</TABLE>
F-1
<PAGE>
After the proposed stock split in connection with the initial public offering of
the Company, as discussed in Note 10 to the consolidated financial statements,
is effected, we expect to be in a position to render the following audit report:
ARTHUR ANDERSEN LLP
Jacksonville, Florida
January 26, 1996 (except
with respect to Note 10,
as to which the date is
October 16, 1996)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To General Housing, Inc.:
We have audited the accompanying consolidated balance sheet of General Housing,
Inc. (a Delaware corporation, formerly GMH Holdings, Inc.) (the "Company"), as
of December 31, 1995 and the balance sheet of General Manufactured Housing, Inc.
(the "Predecessor"), as of December 31, 1994 and the related statements of
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 1994 and December 30, 1995 for the Predecessor. These financial
statements are the responsibility of the Company's and the Precedessor's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of General Housing, Inc., as of
December 31, 1995, and the financial position of General Manufactured Housing,
Inc. as of December 31, 1994 and the results of the Predecessor's operations and
cash flows for the years ended December 31, 1994 and December 30, 1995 in
conformity with generally accepted accounting principles.
Jacksonville, Florida
January 26, 1996 (except
with respect to Note 10,
as to which the date is
October 16, 1996)
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders of
General Manufactured Housing, Inc.:
I have audited the accompanying financial statements of income, stockholders'
equity and cash flows of General Manufactured Housing, Inc. for the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of General Manufactured Housing, Inc.
for the year ended December 31, 1993 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
EARL A. LAWSON
Blackshear, Georgia
January 24, 1994
F-3
<PAGE>
GENERAL HOUSING, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
Predecessor | Company
------------ | -------------------------------
December 31, | December 31, June 30,
ASSETS 1994 | 1995 1996
------ ------------ | ------------ -----------
| (Unaudited)
<S> <C> | <C> <C>
CURRENT ASSETS: |
Cash and cash equivalents $ 1,805,249 | $ 505,227 $ 168,899
Accounts receivable 3,385,118 | 4,631,290 4,989,928
Inventories 2,467,198 | 4,590,798 5,982,725
Deferred income taxes 0 | 540,000 579,858
Prepaid items 44,738 | 35,188 89,575
----------- | ----------- -----------
Total current assets 7,702,303 | 10,302,503 11,810,985
----------- | ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT: |
Land 70,035 | 70,035 70,035
Buildings 1,932,633 | 2,215,829 2,273,260
Machinery, equipment, and fixtures 1,934,762 | 1,918,884 2,018,719
----------- | ----------- -----------
3,937,430 | 4,204,748 4,362,014
Less accumulated depreciation (722,400) | 0 (281,043)
----------- | ----------- -----------
Property, plant and equipment, net 3,215,030 | 4,204,748 4,080,971
=========== | =========== ===========
OTHER ASSETS: |
Restricted cash and cash equivalents |
(Notes 1 and 4) 0 | 46,000,000 30,000,000
Goodwill, net of accumulated |
amortization of $490,422 at June 30, 1996 0 | 39,233,613 39,910,193
|
Deferred financing costs, net 0 | 2,130,725 1,917,652
Other 0 | 368,339 330,418
----------- | ------------ -----------
Total other assets 0 | 87,732,677 72,158,263
----------- | ------------ -----------
Total assets $10,917,333 | $102,239,928 $88,050,219
=========== | ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
GENERAL HOUSING, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
Predecessor Company
----------------- --------------------------------
December 31, December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 1996
- --------------------------------------------------------------------- ----------------- ------------------ -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,009,593 $ 3,514,922 $ 3,328,973
Bank overdrafts 0 1,543,552 1,055,287
Accrued liabilities 2,038,310 3,877,281 8,052,665
Current portion of long-term debt 181,977 41,427 43,413
--------------- --------------- -------------
Total current liabilities 4,229,880 8,977,182 12,480,338
LONG-TERM DEBT, net of current portion 1,338,052 37,702,746 32,937,490
INSTALLMENT PROMISSORY NOTES DUE TO FORMER
STOCKHOLDERS OF THE PREDECESSOR 0 45,000,000 29,000,000
DEFERRED INCOME TAXES 40,485 180,000 217,960
--------------- --------------- -------------
Total liabilities 5,608,417 91,859,928 74,635,788
--------------- --------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5,7,8,9,10 and 11)
REDEEMABLE PREFERRED STOCK, Series A, $8,000,000 redemption
amount; $.001 par value; no shares authorized at December 31, 1994;
8,000,000 shares authorized, issued, and outstanding at December 31,
1995 and June 30, 1996 0 7,720,000 7,736,000
--------------- --------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series B, $.001 par value; $1 per share liquidation
preference; no shares authorized at December 31, 1994; 2,150,000
shares authorized, issued and outstanding at December 31, 1995 and
June 30, 1996 0 2,150 2,150
Common stock $.001 par value; no shares authorized at December 31,
1994; 20,000,000 shares authorized at December 31, 1995 and June
30, 1996 and 1,364,313 shares issued and outstanding at December 31,
1995 and June 30, 1996 0 1,364 1,364
Warrants 0 130,000 130,000
Common stock of the Predecessor, $100 par value; 100,000 shares
authorized and 6,000 shares issued at December 31, 1994; no shares
authorized at December 31, 1995 and June 30, 1996 600,000 0 0
Additional paid-in capital 151,485 2,526,486 2,526,486
Retained earnings 4,674,431 0 3,018,431
Less 750 shares of common stock held in treasury, at cost (117,000) 0 0
--------------- --------------- --------------
Total stockholders' equity 5,308,917 2,660,000 5,678,431
--------------- --------------- --------------
Total liabilities and stockholders' equity $10,917,333 $102,239,928 $88,050,219
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
GENERAL HOUSING, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Predecessor | Company
--------------------------------------------------------- | -------------
Year Ended Year Ended Six | Six
December 31, December 30, Months Ended | Months Ended
------------------------- |
1993 1994 1995 June 30, 1995 | June 30, 1996
----------- ----------- ----------- ------------- | -------------
(Unaudited) | (Unaudited)
<S> <C> <C> <C> <C> | <C>
|
NET SALES $43,658,525 $67,417,784 $90,672,550 $42,764,122 | $65,754,239
|
COST OF SALES 34,285,690 52,269,610 69,572,072 32,768,050 | 48,352,351
----------- ----------- ----------- ----------- | -----------
GROSS PROFIT 9,372,835 15,148,174 21,100,478 9,996,072 | 17,401,888
|
SELLING, GENERAL AND ADMINISTRATIVE |
EXPENSES 7,421,775 11,596,580 13,154,796 6,224,935 | 8,518,338
|
|
GOODWILL AMORTIZATION 0 0 0 0 | 490,422
----------- ----------- ----------- ----------- | -----------
INCOME FROM OPERATIONS 1,951,060 3,551,594 7,945,682 3,771,137 | 8,393,128
|
INTEREST EXPENSE 100,297 94,927 283,159 72,471 | 2,367,127
|
OTHER EXPENSE (INCOME) 88,270 55,102 (53,610) (17,028) | 42,665
----------- ----------- ----------- ----------- | -----------
INCOME BEFORE INCOME TAXES 1,762,493 3,401,565 7,716,133 3,715,694 | 5,983,336
|
PROVISION FOR INCOME TAXES 669,983 1,295,957 465,000 226,268 | 2,468,572
----------- ----------- ----------- ----------- | -----------
NET INCOME $ 1,092,510 $ 2,105,608 $ 7,251,133 $ 3,489,426 | 3,514,764
=========== =========== =========== =========== |
|
PREFERRED STOCK DIVIDEND AND ACCRETION | 496,333
| -----------
NET INCOME AVAILABLE TO COMMON |
STOCKHOLDERS | $ 3,018,431
| ===========
|
|
EARNINGS PER COMMON SHARE | $0.84
| ===========
WEIGHTED AVERAGE NUMBER OF COMMON |
SHARES AND COMMON SHARE EQUIVALENTS |
OUTSTANDING | 3,603,846
| ===========
|
|
|
|
|
UNAUDITED PRO FORMA NET INCOME $ 2,932,131 $ 1,411,963 |
Pro forma provision for income taxes =========== =========== |
|
Pro forma net income $ 4,784,002 $ 2,303,731 |
UNAUDITED SUPPLEMENTAL PRO FORMA =========== =========== |
EARNINGS PER SHARE |
Supplemental pro forma earnings |
per common share | $0.67
| ===========
Supplemental pro forma weighted |
average number of common shares |
outstanding | 5,769,231
| ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
GENERAL HOUSING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL
SERIES B PREFERRED STOCK COMMON STOCK PAID-IN RETAINED
------------------------ --------------------
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL EARNINGS
PREDECESSOR: ------------ ---------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 0 $ 0 6,000 $600,000 $ 0 $ 151,485 $ 1,581,313
1992
Net income 0 0 0 0 0 0 1,092,510
Dividends 0 0 0 0 0 0 (105,000)
------------ ---------- --------- --------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 0 0 6,000 600,000 0 151,485 2,568,823
1993
Net income 0 0 0 0 0 0 2,105,608
------------ ---------- --------- --------- ----------- ----------- -------------
BALANCE, DECEMBER 31,
1994 0 0 6,000 600,000 0 151,485 4,674,431
S corporation 0 0 0 0 0 (4,084,826)
distributions to
stockholders
Net income 0 0 0 0 0 0 7,251,133
------------ ---------- --------- --------- ----------- ----------- -------------
BALANCE, DECEMBER 30, 0 $ 0 6,000 $600,000 $ 0 $ 151,485 $ 7,840,738
1995 ============ ========== ========= ========= =========== =========== =============
- ----------------------------------------------------------------------------------------------------------------
COMPANY:
(Unaudited)
Initial investment
in General
Housing, Inc. at 2,150,000 $2,150 1,364,313 $ 1,364 $130,000 $2,526,486 $ 0
December 31, 1995
Net income 0 0 0 0 0 0 3,514,764
Preferred stock
dividends 0 0 0 0 0 0 (496,333)
and accretion ------------ ---------- --------- --------- ----------- ----------- -------------
BALANCE, June 30, 1996 2,150,000 $2,150 1,364,313 $ 1,364 $130,000 $2,526,486 $ 3,018,431
============ ========== ========= ========= =========== =========== =============
<CAPTION>
STOCK HELD IN
TREASURY, AT COST
-----------------------------
SHARES AMOUNT TOTAL
PREDECESSOR: ----------- ------------- --------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 750 $(117,000) $ 2,215,798
1992
Net income 0 0 1,092,510
Dividends 0 0 (105,000)
----------- ------------- --------------------
BALANCE, DECEMBER 31, 750 (117,000) 3,203,308
1993
Net income 0 0 2,105,608
----------- ------------- --------------------
BALANCE, DECEMBER 31, 750 (117,000) 5,308,916
1994
S corporation 0 0 (4,084,826)
distributions to
stockholders
Net income 0 0 7,251,133
----------- ------------- --------------------
BALANCE, DECEMBER 30, 750 $(117,000) $ 8,475,223
1995 =========== ============= ====================
- -----------------------------------------------------------------------------------
COMPANY:
(Unaudited)
Initial investment
in General
Housing, Inc. at 0 $ 0 $ 2,660,000
December 31, 1995
Net income 0 0 3,514,764
Preferred stock dividends 0 0 (496,333)
and accertion ----------- ------------- --------------------
BALANCE, June 30, 1996 0 $ 0 $ 5,678,431
=========== ============= ====================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F - 7
<PAGE>
GENERAL HOUSING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Predecessor | COMPANY
------------------------------------------------------------------ | ----------------
Year Ended Year Ended Six | Six
December 31, December 30, Months Ended | Months Ended
------------------------------- --------------- |
1993 1994 1995 June 30, 1995 | June 30, 1996
-------------- --------------- --------------- ---------------- | ----------------
(Unaudited) | (Unaudited)
<S> <C> <C> <C> <C> | <C>
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income $1,092,510 $ 2,105,608 $ 7,251,133 $ 3,489,426 | $ 3,514,764
-------------- --------------- --------------- ---------------- | ----------------
Adjustments to reconcile net income to |
net cash provided by operating |
activities: |
Loss from sale of property, plant, and |
equipment 0 8,703 0 0 | 0
Depreciation 146,168 291,154 483,180 224,814 | 281,043
Amortization of intangible assets 37,199 7,955 23,661 0 | 703,494
Deferred income taxes 0 23,565 (25,000) (40,485) | (1,898)
Net increase in receivables (138,399) (2,201,932) (1,246,172) (1,246,168) | (358,638)
Net increase in inventories (470,874) (733,767) (2,123,600) (770,762) | (1,391,927)
Net decrease (increase) in prepaids 104,108 74,035 (15,450) (46,785) | (54,387)
Net increase (decrease) in payables 229,375 479,243 1,505,329 1,580,758 | (185,949)
Net increase (decrease) in bank |
overdrafts 0 0 1,543,552 0 | (488,265)
Net increase in accrued liabilities 554,633 287,575 980,971 126,328 | 3,008,382
Other 3 0 (15,485) (9,956) | 37,922
-------------- --------------- --------------- ---------------- | ----------------
Total adjustments 462,213 (1,763,469) 1,110,986 (182,256) | 1,549,777
-------------- --------------- --------------- ---------------- | ----------------
Net cash provided by operating |
activities 1,554,723 342,139 8,362,119 3,307,170 | 5,064,541
-------------- --------------- --------------- ---------------- | ----------------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Additions to property, plant, and |
equipment (225,006) (1,353,381) (1,164,203) (216,836) | (157,266)
Proceeds from sale of property, plant, |
and equipment 0 10,600 0 0 | 0
Other 0 0 (392,000) 0 | 0
-------------- --------------- --------------- ---------------- | ----------------
Net cash used in investing activities (225,006) (1,342,781) (1,556,203) (216,836) | (157,266)
-------------- --------------- --------------- ---------------- | ----------------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Repayment of long-term debt (341,107) (210,626) (971,193) (80,345) | (4,763,270)
Repayment of installment promissory |
notes due to predecessor stockholders 0 0 0 0 | (16,000,000)
Proceeds from restricted cash 0 0 0 0 | 16,000,000
Proceeds from long-term debt 0 600,000 0 0 | 0
Advances to acquirer 0 0 (3,049,919) 0 | 0
S corporation distributions to |
stockholders 0 0 (4,084,826) 0 | 0
Dividends (105,000) 0 0 0 | (480,333)
-------------- --------------- --------------- ---------------- | ----------------
Net cash (used in) provided by |
financing activities (446,107) 389,374 (8,105,938) (80,345) | (5,243,603)
-------------- --------------- --------------- ---------------- | ----------------
NET INCREASE (DECREASE) IN CASH AND |
CASH EQUIVALENTS 883,610 (611,268) (1,300,022) 3,009,989 | (336,328)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF |
PERIOD $1,532,907 $ 2,416,517 $ 1,805,249 $ 1,805,249 | $ 505,227
-------------- --------------- --------------- ---------------- | ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,416,517 $ 1,805,249 $ 505,227 $ 4,815,238 | $ 168,899
============== =============== =============== ================ | ================
SUPPLEMENTAL CASH FLOW DISCLOSURES |
CASH PAID FOR INTEREST $ 138,334 $ 94,927 $ 135,040 $ 72,471 | $ 1,396,202
============== =============== =============== ================ | ================
CASH PAID FOR INCOME TAXES $ 0 $ 1,177,900 $ 186,000 $ 137,767 | $ 2,228,017
============== =============== =============== ================ | ================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
GENERAL HOUSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. ACQUISITION
On December 21, 1995, GMH Acquisition Corp. ("GAC"), a wholly owned
subsidiary of General Housing, Inc. (formerly GMH Holdings, Inc.) (the
"Company") purchased all of the outstanding shares of common stock of
General Manufactured Housing, Inc. (the "Predecessor"). The Company and GAC
were incorporated in Delaware and were utilized for the purpose of
acquiring all of the outstanding common stock of the Predecessor.
Subsequent to the purchase of the Predecessor, GAC and the Predecessor were
merged into one entity, General Manufactured Housing, Inc. The accompanying
consolidated financial statements at December 31, 1995 assume that the
acquisition was consummated after the close of business on December 30,
1995. No material transactions outside the normal course of business, other
than those directly related to the acquisition, occurred from December 21,
1995 through December 30, 1995.
The purchase price was comprised of the following:
a. The Company issued installment promissory notes to the former
stockholders of the Predecessor in the amount of $45 million. To
secure payment on the notes, the Company obtained letters of
credit and deposited cash of approximately $45 million into
irrevocable trust accounts to collateralize such letters of
credit (Note 4).
b. The Company deposited cash of $1 million into an escrow account
as assurance against certain contingencies indemnified against by
the former stockholders of the Predecessor. To the extent not
needed to fund any indemnifications, such cash will revert to the
former stockholders of the Predecessor.
c. Cash consideration of approximately $750,000.
d. The Company established an incentive plan (the "Incentive Plan")
under which the former stockholders could receive up to an
aggregate of $3.85 million based on the future earnings of the
Company as defined in the Incentive Plan.
e. The Company incurred approximately $2.1 million in acquisition
costs.
The cash consideration was funded through the issuance of common stock,
preferred stock, warrants to purchase common stock, and debt. In addition,
the Company incurred approximately $2.1 million in debt issuance costs. See
Notes 3, 8, and 9 for descriptions of the terms and amounts of debt,
redeemable preferred stock and stock, respectively.
F-9
<PAGE>
The acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, the preliminary
estimate of the purchase price has been allocated to the assets and
liabilities based on their respective fair values at the date of
acquisition. The resulting excess of purchase price over fair value of net
assets acquired has been recorded as goodwill in the accompanying
consolidated balance sheets.
PURCHASE ACCOUNTING
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased amortization and depreciation reported in future periods.
Accordingly, the accompanying financial statements of the Predecessor and
the Company are not comparable in all material respects since those
financial statements report financial positions, results of operations and
cash flows of these two separate entities.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
The Company manufactures and distributes manufactured homes primarily
throughout the southeast and has manufacturing facilities in Waycross,
Georgia, and Lamar, South Carolina. The markets for the Company's products
are affected by changes in industry capacity and the economy in the
southeast.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company manufactures homes pursuant to dealer orders, and sales and
related transit costs are recognized upon shipment of the home to the
dealer.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company's receivables are concentrated with manufactured home dealers
in the southeastern United States. The Company performs credit evaluations
of its customers
F-10
<PAGE>
- 3 -
and does not maintain an allowance for doubtful accounts as it believes
that all of its receivables are collectible.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined on the first-in, first-out method. At December 31, 1995,
inventories purchased in connection with the acquisition of the Predecessor
are stated at the Predecessor's cost, which approximated fair value upon
acquisition.
At December 31, 1994 and 1995 and June 30, 1996, inventories consisted of
the following:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------
December 31, December 31, June 30,
1994 1995 1996
-------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
Raw materials $2,146,966 $3,584,864 $4,349,407
Work in progress 304,785 419,569 479,992
Finished goods 15,447 586,365 1,153,326
-------------- -------------- -------------
Total $2,467,198 $4,590,798 $5,982,725
============== ============== =============
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
All property purchased in connection with the acquisition of the
Predecessor has been recorded at the Predecessor's approximate net book
value, which approximated fair value upon acquisition. Depreciation is
provided using the straight-line method for financial reporting purposes
based on the following estimated useful lives:
Buildings 31 to 36 years
Machinery, equipment, and fixtures 3 to 10 years
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets sold or retired are removed from the
respective accounts. Any gain or loss from the sale or retirement of
property, plant, and equipment is reflected in other (income) expense in
the accompanying consolidated statements of income.
F-11
<PAGE>
GOODWILL
Goodwill is being amortized over a period of forty years. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Company continually evaluates whether
current events and circumstances warrant adjustments to the carrying amount
of goodwill, based on the Company's estimates of undiscounted operating
income over the remaining life of goodwill. At this time, the Company
believes that no impairment has occurred.
ACCRUED LIABILITIES
At December 31, 1994 and 1995 and June 30, 1996, accrued liabilities
consisted of the following:
<TABLE>
<CAPTION>
Predecessor Company
------------- -------------------------
December 31, December 31, June 30,
1994 1995 1996
------------- -------------- ----------
(Unaudited)
<S> <C> <C> <C>
Income taxes payable $ 94,491 $ 389,600 $ 667,337
Accrued payroll 251,215 379,703 492,098
Accrued interest 0 131,659 736,491
Accrued warranty costs 195,040 1,100,000 1,374,993
Accrued dealer-installed options 318,705 455,911 500,996
Accrued management bonus 452,225 0 713,188
Incentive Compensation and other
amounts payable to former
stockholders of the Predecessor 0 0 1,167,002
Accrued volume incentive plan 286,537 304,353 274,279
Other 440,097 1,116,055 2,126,281
------------- -------------- ----------
$2,038,310 $3,877,281 $8,052,665
============= ============== ==========
</TABLE>
PRODUCT WARRANTIES
Products are warranted by the Company against manufacturing defects for a
period of one year commencing at the time of retail sale. The estimated
cost of such warranties is accrued at the time of sale and is reflected in
selling, general and administrative expenses in the consolidated statements
of income. Warranty costs were $883,601, $1,707,912, $3,118,556 for the
years ended December 31, 1993 and 1994, and December 30, 1995,
respectively. Warranty costs were $1,246,307 and $1,946,831 for the six
months ended June 30, 1995 and 1996, respectively.
VOLUME INCENTIVE PAYABLE
Rebates are provided to dealers using a predetermined formula applied to
the volume of homes sold to the dealers during the year. Such rebates
(reflected in selling, general, and
F-12
<PAGE>
administrative expenses) are recorded at the time sales to dealers are
recognized. Volume incentive rebates were $754,638, $843,735, and
$1,380,707 for the years ended December 31, 1993 and 1994, and December 30,
1995, respectively. Volume incentive rebates were $726,208 and $855,686 for
the six months ended June 30, 1995 and 1996, respectively.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs to obtain financing and are
amortized using both the effective interest method and the straight-line
method over the terms of the related indebtedness. The effect of debt
prepayments, if any, will be reflected in the amortization of deferred
financing costs in the period of prepayment.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
shares and equivalents outstanding. Common share equivalents consist of the
incremental common shares issuable upon conversion of the convertible
preferred stock and the exercise of warrants.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to the immediate or short-term maturity
of these financial instruments. In the opinion of management, total long-
term debt recorded in the accompanying consolidated balance sheets
approximates fair value based on the borrowing rates currently available to
the Company for loans with similar terms and average maturities.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data at June 30, 1996 and for the six months ended
June 30, 1996 and 1995 is unaudited; however, in the opinion of management,
such interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position and its results for the interim periods in accordance
with generally accepted accounting principles.
RECLASSIFICATIONS
Certain 1993, 1994 and 1995 amounts have been reclassified to conform with
the interim 1996 presentation.
3. LONG-TERM DEBT
SENIOR SUBORDINATED NOTE
In connection with the acquisition, the Company issued a $17,243,295 senior
subordinated note under a note and warrant purchase agreement consisting of
a senior subordinated note
F-13
<PAGE>
issued for cash consideration of $14,920,000 due December 21, 2002. The
note bears interest at an annual rate of 10.87% through March 31, 2001 and
14.5% thereafter, payable quarterly through December 21, 2002. The discount
on this note is being amortized using the effective interest method over
the life of the note. During the quarter ended June 30, 1996, the Company
voluntarily prepaid $2,250,000 of principal as allowed under the terms of
the note.
SECURED CREDIT AGREEMENT
In connection with the acquisition, the Company entered into a $26 million
secured credit agreement consisting of approximately $16 million in a
revolving line of credit (the "line of credit") and $4 million in a term
loan due January 1, 2001. This agreement also provides for a working
capital facility when the line of credit has been exhausted, not to exceed
$6 million. Any amounts outstanding under the working capital facility are
due January 1, 2001. Availability under the line of credit declines on a
quarterly basis by varying amounts until April 1, 2000, at which time any
amounts outstanding under the revolving loan commitment become due and
payable. Interest is determined at the time of borrowing based on the
definition of loan type determined by the borrower. Based on this
determination, the revolving loans and term loan bear interest which is
payable monthly as follows:
a. If a reference rate loan (as defined in the secured credit
agreement), then at the sum of the reference rate in effect from
time to time, plus 1.5% per annum
b. If a London InterBank Offered Rate ("LIBOR") loan, then at the
sum of LIBOR for the applicable interest period, plus 3.75% per
annum
Working capital facility loans bear interest as follows:
a. If a reference rate loan (as defined in the secured credit
agreement), then at the sum of the reference rate in effect from
time to time, plus 1.25% per annum
b. If a LIBOR loan, then at the sum of LIBOR for the applicable
interest period, plus 3.5% per annum
A commitment fee of .5% per annum is paid on any unused portion under both
the working capital facility and line of credit.
JUNIOR SUBORDINATED NOTES
In connection with the acquisition, the Company issued $5 million in junior
subordinated notes payable to three stockholders due June 30, 2003. These
notes bear interest at an annual rate of 13%, payable quarterly through
June 30, 2003.
F-14
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Predecessor Company
------------- ---------------------------
December 31, December 31, June 30,
1994 1995 1996
------------- -------------- -----------
(Unaudited)
<S> <C> <C> <C>
Senior Subordinated Note, net of
discount of $2,323,295 and $2,081,941
at December 31, 1995 and June 30,
1996, respectively $ 0 $14,920,000 $12,831,354
Line of Credit 0 12,965,642 10,311,552
Term Note 0 4,000,000 4,000,000
Working capital facility 0 1,000 1,000
Junior Subordinated Notes 0 5,000,000 5,000,000
Other 579,264 857,531 836,997
Notes payable repaid in 1995 940,765 0 0
------------- -------------- -----------
1,520,029 37,744,173 32,980,903
Less current maturities (181,977) (41,427) (43,413)
------------- -------------- -----------
Total long-term debt $1,338,052 $37,702,746 $32,937,490
============= ============== ===========
</TABLE>
Maturities of long-term debt, including scheduled reductions of the line of
credit and excluding the amounts payable under the installment promissory
notes due to former stockholders due January 25, 1997 (Note 4), as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 41,427
1997 2,179,105
1998 3,882,894
1999 4,552,572
2000 6,565,569
Thereafter 20,522,606
-----------
Long-term debt $37,744,173
===========
</TABLE>
Borrowings under the various notes payable and the secured credit agreement
are collateralized by substantially all of the assets of the Company. These
agreements contain certain restrictive covenants, including financial
covenants which become more restrictive over time. The most restrictive
covenants include, among other restrictions, (a) current ratio, as defined,
(b) net worth, as defined, (c) net cash ratio, as defined, (d) total
liabilities ratio, as defined, (e) annual interest coverage ratio, as
defined, (f) limitations on the
F-15
<PAGE>
Company's ability to incur additional liens or debt or enter into new lease
agreements, (g) certain restrictions on dividend distributions, and (h)
limitations on changes of control of the Company.
4. INSTALLMENT PROMISSORY NOTES DUE TO FORMER STOCKHOLDERS OF THE PREDECESSOR
In connection with the purchase of the common stock from the former
stockholders of the Predecessor, the Company issued $45 million in
installment promissory notes to the former stockholders due January 25,
1997, which are secured by letters of credit collateralized by restricted
cash. These notes bear interest at the same rate upon which restricted cash
earns interest, which is 5.57% at December 31, 1995. The restricted cash of
$45 million securing the letters of credit has been placed in irrevocable
trust accounts. Under the terms of the notes, the former stockholders have
no recourse against the Company upon a default on the notes, other than to
demand repayment under the letters of credit.
During the quarter ended June 30, 1996, the Company prepaid $16 million of
the installment promissory notes to the former stockholders.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain machinery for use in its manufacturing process.
The following schedule lists the minimum future rental payments required by
the leases as of December 31, 1995:
<TABLE>
<S> <C>
1996 $209,100
1997 138,500
1998 26,300
--------
Total $373,900
========
</TABLE>
The Company recorded rental expense of $49,000 $85,000 and $148,000 for the
years ended December 31, 1993 and 1994, and December 30, 1995, respectively
and $44,000 and $117,000 for the six months ended June 30, 1995 and 1996,
respectively.
REPURCHASE AGREEMENTS
As is customary in the manufactured housing industry, the Company is
contingently liable under the terms of repurchase agreements with various
financial institutions providing inventory financing for dealers of the
Company's products. Generally, the agreements provide for the repurchase of
the manufactured homes from the financing institutions in the event of
repossession upon a dealer's default. The contingent liability under these
agreements approximates the amount financed, reduced by the resale value of
any products which may be repurchased, and the risk of loss is spread over
numerous dealers
F-16
<PAGE>
and financial institutions. The aggregate amount outstanding under these
repurchase agreements was estimated to be approximately $25.0 million and
$35.8 million at December 31, 1995 and June 30, 1996, respectively.
INCENTIVE PLAN AND EXECUTIVE BONUS PLAN
Under the Incentive Plan, the former stockholders of the Predecessor
employed by the Company can earn up to $3,850,000 over a five year period
based upon the Company achieving certain levels of earnings as defined in
the Incentive Plan. As of June 30, 1996, $925,000 has been accrued in the
accompanying financial statements as due to former stockholders of the
Predecessor, with a corresponding amount assigned to goodwill, reflecting
contingent consideration. Pursuant to the terms of the Incentive Plan,
ninety percent of any unpaid amounts up to the maximum amount payable under
the Incentive Plan will be paid out immediately prior to an initial public
offering of the Company's common stock.
The Company has established an executive bonus plan (the "Executive Bonus
Plan") to provide incentives for its principal executives, whereby the
executives may earn cash compensation should earnings of the Company exceed
certain amounts, as defined in the agreement, in any fiscal year. As of
June 30, 1996, the Company has accrued approximately $713,000 of bonus
expense under the Executive Bonus Plan.
OTHER
The Internal Revenue Service is currently conducting an examination of the
Predecessor's income tax returns for 1992, 1993, and 1994. Although the
examination has not yet been completed, the former stockholders of the
Predecessor have indemnified the Company against any possible federal,
state, or local tax contingencies which might arise from preacquisition
circumstances or positions taken on tax returns.
During 1995, an individual filed an action against the Company in Ware
Superior Court, Georgia, seeking damages of $2,500,000 for personal injury
and loss of consortium. The cause of action arises from an incident where
the individual, while working for his employer, a subcontractor hired by a
contractor working for the Company, fell and injured himself on the
Company's premises. Although this matter is still in the discovery process,
the Company plans to contest it vigorously.
F-17
<PAGE>
The Company is party to other various legal proceedings generally
incidental to its business. Management does not believe that the resolution
or settlement of the legal proceeding described above and any or all of
such other proceedings would have a material adverse effect on the
financial condition or liquidity of the Company.
6. INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109.
SFAS No. 109 requires the determination of deferred income taxes using the
liability method under which deferred tax assets and liabilities are
determined based on the difference between the financial accounting and tax
bases of assets and liabilities. Deferred tax assets or liabilities at the
end of each period are determined using the currently enacted regular tax
rate expected to apply to the taxable income in the periods in which the
deferred tax asset or liability is expected to be settled or realized.
Effective January 1, 1995, the Predecessor elected S corporation status for
income tax purposes, except with respect to the State of Georgia, where the
Predecessor was operating under C corporation status. The taxable income or
loss of an S corporation is included in the individual income tax returns
of the Company's stockholders. Accordingly, no income tax amounts were
included in the Predecessor's financial statements for 1995 other than
amounts related to the State of Georgia, where the Predecessor operated
under C corporation status. The Company is a C corporation.
The provision for income taxes for the respective periods is as follows:
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------- -----------
Six Months Six Months
Year Ended Year Ended Ended Ended
December 31, December 30, June 30, June 30,
--------------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income taxes:
Current $569,483 $1,086,419 $ 0 $ 0 $2,078,245
Deferred 0 23,565 0 0 (1,898)
------------ ------------ ----------- ------------ -----------
569,483 1,109,984 0 0 2,076,347
------------ ------------ ----------- ------------ -----------
State income taxes:
Current 100,500 185,973 490,000 267,113 392,225
Deferred 0 0 (25,000) (40,845) 0
------------ ------------ ----------- ------------ -----------
100,500 185,973 465,000 226,268 392,225
------------ ------------ ----------- ------------ -----------
Total Provision $669,983 $1,295,957 $465,000 $226,268 $2,468,572
============ ============ =========== ============ ===========
</TABLE>
F-18
<PAGE>
The provisions for income taxes differ from the amounts computed by
applying the federal statutory rates due to the following:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------------------ ---------------
Year Ended Year Ended Six Months Six Months
December 31, December 30, Ended Ended
--------------------------
1993 1994 1995 June 30, 1995 June 30, 1996
------------ ------------ ------------ --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision at the federal
statutory rate $599,248 $1,156,532 $ 0 $ 0 $2,033,186
State income taxes, net of
federal benefit 66,330 124,788 465,000 226,268 258,869
Goodwill amortization 0 0 0 0 186,360
Other 4,405 14,637 0 0 (9,843)
------------ ------------ ------------ --------------- ---------------
Total Provision $669,983 $1,295,957 $465,000 $226,268 $2,468,572
============ ============ ============ =============== ===============
</TABLE>
The tax effect of temporary differences which create deferred tax assets
(liabilities) at December 31, 1994 and 1995 and June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Predecessor Company
-------------- ---------------------------
December 31, December 31, June 30,
1994 1995 1996
-------------- -------------- -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Warranty accrual $ 74,022 $ 456,000 $ 484,470
Vacation accrual 46,740 49,377 49,377
Other -- 34,623 46,011
-------------- -------------- -----------
Total deferred assets 120,762 540,000 579,858
Deferred tax liabilities:
Depreciation (101,310) (180,000) (217,960)
Other (59,937)
-------------- -------------- -----------
Total deferred liabilities (161,247) (180,000) (217,960)
-------------- -------------- -----------
Net deferred asset
(liability) $ (40,485) $ 360,000 $ 361,898
-------------- -------------- -----------
</TABLE>
7. RELATED-PARTY TRANSACTIONS
M/H Retail, Inc. is a company controlled by a minority stockholder which
provides warranty services for the Company. The Company made payments to
M/H Retail, Inc. for warranty services of approximately $660,000,
$1,249,000 and $2,213,000 for fiscal 1993, 1994, and 1995, respectively,
and $992,000 and $1,590,000 for the six months ended June 30, 1995 and
1996, respectively. The Company sells materials used for warranty service
to M/H Retail, Inc. from time to time. Amounts due from M/H Retail, Inc. of
approximately
F-19
<PAGE>
$108,000 and $368,000 as of December 31, 1994 and 1995 were recorded as
receivables in the accompanying consolidated balance sheets. Amounts due
from M/H Retail, Inc. of approximately $446,000 were recorded as
receivables in the accompanying consolidated balance sheet at June 30,
1996.
In connection with the acquisition of the Predecessor, the Company entered
into a 15-year agreement with a company controlled by certain of its
stockholders to provide general management services to the Company. The
agreement is cancelable upon the occurrence of certain events, and payments
under the agreement are subordinate to the claims of certain stockholders
and debt holders of the Company. The base annual management fee is
$250,000, payable in quarterly installments in arrears, and up to $500,000
may be paid under the agreement if certain perfomance goals are met. The
total annual management fee is subject to certain adjustments based on
inflation and the occurrence of certain future events. Also, in connection
with the acquisition, the Company paid a fee of approximately $500,000 upon
closing which was included in acquisition costs.
In connection with the acquisition, the Company issued $5 million of Junior
Subordinated Notes (Note 3), 8,000,000 shares of Redeemable Preferred Stock
(Note 8) and 750,000 shares of Series B preferred stock (Note 9) to common
stockholders.
8. REDEEMABLE SERIES A PREFERRED STOCK
Each share of Redeemable Preferred Stock is not convertible, is nonvoting
(except in certain circumstances, as defined), and has a par value of $.001
per share and a liquidation value of $1 per share; 8,000,000 shares are
authorized, issued, and outstanding. Holders of the Redeemable Preferred
Stock are entitled to receive quarterly dividends at an annual rate of
twelve cents per share. Such dividends are cumulative, and the holders of
Redeemable Preferred Stock shall be entitled to receive dividends and
distributions prior and in preference to any dividends or distributions on
the Series B preferred stock, Class A common stock, Class B common stock,
or Class C common stock. The Redeemable Preferred Stock was recorded on the
accompanying consolidated balance sheet at its fair value on the issue
date. The difference between the fair value and the liquidation value is
being accreted to the mandatory redemption date of December 31, 2003 using
the effective interest method. Once redeemed, the Redeemable Preferred
Stock must be canceled and may not be reissued.
9. STOCKHOLDERS' EQUITY
The following are the major terms of the Company's stockholders' equity.
SERIES B PREFERRED STOCK
Each share of Series B preferred stock is voting (as discussed below) and
has a par value of $.001 per share; 2,150,000 shares are authorized,
issued, and outstanding. The holders of Series B preferred stock shall not
be entitled to receive dividends on such shares. The holders of Series B
preferred stock and Class C common stock shall be entitled to receive
F-20
<PAGE>
prior and in preference to any liquidating dividends and distributions to
the holders of Class A and Class B common stock the amount of $1 per share
and will then participate proportionately with the holders of the Class A
and Class B common stock. The holders of Series B preferred stock shall be
entitled to the number of votes as are equal to the number of shares of
Class C common stock into which such holders' shares of Series B preferred
stock could be converted at the record date. Each share of Series B
preferred stock shall be convertible, at the option of the holder, at any
time after the date of issuance of such shares into such number of shares
of Class C common stock as is determined by dividing the initial Series B
conversion price by the Series B conversion price in effect at the
conversion date. At the option of the Company, Series B preferred stock
shall be converted into one or more shares of Class A common stock (as
determined by applicable conversion prices) upon a public offering of the
Company's stock, provided that the holders of the Series B preferred stock
are first paid their liquidation preference of $1 per share.
CLASS A COMMON STOCK
Each share of Class A common stock is voting and has a par value of $.001
per share; 4,375,000 shares are authorized, and 1,656,250 shares are issued
and outstanding. Upon certain transfers of Class A common stock to holders
of Class B common stock, such shares of Class A common stock shall be
converted into the same number of shares of Class B common stock so being
transferred.
CLASS B COMMON STOCK
Each share of Class B common stock is nonvoting, except as defined in the
certificate of incorporation, and has a par value of $.001 per share;
787,500 shares are authorized, none of which are issued and outstanding.
Upon certain transfers of Class B common stock or upon the sale of any
shares of common stock of the Company pursuant to certain registered or
qualified offerings, each share of Class B common shares will be converted
into a share of Class A common stock.
CLASS C COMMON STOCK
Each share of Class C common stock is voting and has a par value of $.001
per share; 2,150,000 shares are authorized, none of which are issued and
outstanding. The holders of Series B preferred stock and Class C common
stock shall be entitled to receive prior and in preference to any
liquidating dividends and distributions to the holders of Class A and Class
B common stock the amount of $1 per share and will then participate
proportionately with the holders of the Class A and Class B common stock.
Class C common stock shall be converted into one share of Class A common
stock, at the option of the Company, upon a public offering of the
Company's stock, provided that the holders of Class C common stock are
first paid their liquidation preference of $1 per share.
STOCK WARRANTS
In connection with the financing of the acquisition, the Company issued
stock warrants to the Senior Subordinated Note holder and certain
individuals. Under the terms of the warrants, the warrant holders have the
rights to purchase 350,000 and 218,750 shares of the
F-21
<PAGE>
Company's common stock, respectively, for a purchase price of $.01 per
share at any time until December 21, 2002 and December 21, 2003,
respectively. Pursuant to an investors' rights agreement (the "Rights
Agreement"), the Senior Subordinated Note holder has a put option which
requires the Company to purchase the warrants back at a price based on fair
market value (as defined in the Rights Agreement) of the common stock.
The warrants are recorded in the accompanying consolidated balance sheets
at the estimated fair value on the issue date.
PUT AND CALL OPTIONS
Certain stockholders, pursuant to the Rights Agreement, have a put option
to require the Company to purchase all of their outstanding common shares
at any time and from time to time commencing December 30, 2003; 1,968,750
such shares (1,218,750 common shares and 750,000 Series A preferred shares)
are outstanding at January 1, 1996. Upon exercise of the put option, the
Company shall pay a price per share equal to the fair market value (as
defined in the Rights Agreement) determined as of the date of the put
notice. At any time commencing December 30, 2004, the Company may elect to
purchase all of the aforementioned shares at a price equal to the fair
market value determined as of the date of the call notice.
10. SUBSEQUENT EVENTS
On October 16, 1996, the Company's Board of Directors (the "Board")
authorized a new class of common stock with 20,000,000 shares authorized
into which Class A common stock will be converted and a .823736264 for one
reverse stock split to be effected prior to the Company's planned initial
public offering. All share and earnings per share data of the Company in
the accompanying financial statements have been retroactively adjusted to
reflect the stock split. In addition, the Board authorized changing the
name of the Company to General Housing, Inc. The Board also authorized the
implementation of an executive stock option plan providing for the issuance
of up to 461,500 shares of the Company's common stock to key employees of
which options for 208,000 shares will be granted at an exercise price equal
to the initial public offering price.
11. INITIAL PUBLIC OFFERING AND PRO FORMA SUPPLEMENTAL INFORMATION (UNAUDITED)
The Company is planning an initial public offering ("Offering") of
2,000,000 shares of the Company's common stock. The Company intends to use
the net proceeds of such Offering, which are expected to be approximately
$23,400,000 based on an assummed offering price of $13 per share, for
redemption of the Redeemable Preferred Stock held by certain stockholders
and repayment of certain outstanding indebtedness (including the Junior
Subordinated Notes payable to certain stockholders). Immediately prior to
the closing of the offering, the Company plans to convert the Incentive
Plan into $4,000,000 in promissory notes to be paid in equal installments
on April 1, 1997 and April 1, 1998, restructure its capital stock so that
all issued and outstanding shares of Class A common stock are exchanged for
newly created common stock, exercise its right to convert the
F-22
<PAGE>
Series B preferred stock into the newly created common stock and satisfy
the liquidation preference requirements of $2,150,000 on the Series B
preferred stock through issuance of shares of the newly created common
stock. In addition, the Rights Agreement providing for put and call options
on shares of the Company's stock is expected to be terminated.
In the fiscal quarter in which the restructuring and the Offering are
consummated, the Company will record the following non-cash charges to net
income prior to determining earnings per share: (1) $2,150,000 resulting
from payment of the liquidation preference on the Series B preferred stock
as noted above, and (2) approximately $264,000 resulting from the
redemption of the Series A preferred stock, representing the difference
between the consideration received upon issuance (plus accretion) and the
redemption price. In addition, at the same time, the Company will record an
extraordinary after-tax charge to income of approximately $446,000
resulting from the prepayment of a substantial portion of the Company's
outstanding long-term debt.
PRO FORMA INFORMATION AND SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED)
The unaudited pro forma net income for the year ended December 30, 1995 and
for the six months ended June 30, 1995 is based on the pro forma provision
for income taxes which would have resulted assuming the Company was taxed
as a C corporation rather than as an S corporation.
The unaudited supplemental pro forma earnings per share is based on pro
forma income adjusted to give effect to the reduction in interest costs,
net of the tax effect, (approximately $510,000 in the period ended June 30,
1996) and the elimination of the Redeemable Preferred Stock dividend and
accretion (approximately $496,000 in the period ended June 30, 1996) which
would have resulted assuming application of the net proceeds from the
proposed Offering to repay certain indebtedness of the Company and to
redeem the Redeemable Preferred Stock as if such repayment occurred as of
January 1, 1995. The number of shares used in the computation of unaudited
supplemental pro forma earnings per share is the weighted average number of
common and common equivalent shares outstanding increased by the estimated
number of additional shares issued in connection with the offering,
assuming the estimated net proceeds of $23,400,000 are required to be used
to repay such indebtedness and to redeem Redeemable Preferred Stock.
F-23
<PAGE>
GENERAL HOUSING, INC.
UNAUDITED PRO FORMA FINANCIAL INFORNATION
The following unaudited pro forma consolidated financial statements have been
prepared giving effect to the Acquisition, the Restructuring and the Offering.
The pro forma consolidated balance sheet as of June 30, 1996 assumes that the
Restructuring and the Offering had occurred on that date. The pro forma
consolidated statements of income for the year ended December 30, 1995 and the
six months ended June 30, 1996 give effect to the Acquisition, the Restructuring
and the Offering as if such events had occurred on January 1, 1995 .
The unaudited pro forma consolidated financial statements do not purport to
represent the results of operations or financial position had the above events
in fact occurred on such dates nor does such information give effect to any
events other than those events referred to above and those events discussed in
the notes to the unaudited pro forma consolidated financial statements below.
Moreover, the unaudited pro forma consolidated financial statements are not
intended to be indicative of future results of operations or financial
performance of the Company.
F-24
<PAGE>
General Housing, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1996
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Restructuring For the Offering
Historical Adjustments Restructuring Adjustments
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 169 6 (a) $ 175
Accounts receivable 4,989 4,989
Inventories 5,983 5,983
Deferred income taxes 39,858 580
Prepaid items 90 90
---------------- ----------------
Total current assets 11,811 11,817
---------------- ----------------
---------------- ----------------
Property, plant and equipment, net 4,081 4,081
---------------- ----------------
Restricted cash & cash equivalents 30,000 30,000
Goodwill 39,910 3,075 (b) 42,985
Deferred financing costs 1,918 1,918 (581) (f)
Other assets 330 330
---------------- ----------------
TOTAL ASSETS 88,050 91,131
================ ================
Current liabilities:
Accounts payable 3,329 3,329
Bank overdrafts 1,055 1,055
Accrued liabilities 8,054 (925)(b) 7,129
Current portion of long-term debt 43 2,000 (b) 2,043
---------------- ----------------
Total current liabilities 12,481 13,556
================ ================
Long-term debt 32,937 2,000 (b) 34,937 (15,230) (g)
Deferred income taxes 218 218
Promissory notes to predecessor stockholders 29,000 29,000
---------------- ----------------
Total liabilities 74,636 77,711
---------------- ----------------
---------------- ----------------
Redeemable preferred stock 7,736 7,736 (7,736) (g) (h)
Stockholders' equity:
Preferred stock, series B 2 (2)(c) -
Common stock 2 2 (a) (c) (d) (e) 4 2 (g)
Warrants 130 (130)(a) -
Paid-in capital 2,526 2,286 (a) (d) (e) 4,812 23,428 (g)
Retained earnings 3,018 (2,150)(d) 868 (1,045) (f) (h) (i)
---------------- ----------------
5,678 5,684
---------------- ----------------
---------------- ----------------
$ 88,050 $ 91,131
================ ================
<CAPTION>
Pro Forma
For the Restructuring
and Offering
---------------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 175
Accounts receivable 4,989
Inventories 5,983
Deferred income taxes 580
Prepaid items 90
----------------
Total current assets 11,817
----------------
----------------
Property, plant and equipment, net 4,081
----------------
Restricted cash & cash equivalents 30,000
Goodwill 42,985
Deferred financing costs 1,337
Other assets 330
----------------
TOTAL ASSETS 90,550
================
Current liabilities:
Accounts payable 3,329
Bank overdrafts 1,055
Accrued liabilities 7,129
Current portion of long-term debt 2,043
----------------
Total current liabilities 13,556
================
Long-term debt 19,707
Deferred income taxes 218
Promissory notes to predecessor stockholders 29,000
----------------
Total liabilities 62,481
----------------
----------------
Redeemable preferred stock -
Stockholders' equity:
Preferred stock, series B -
Common stock 6
Warrants -
Paid-in capital 28,240
Retained earnings (177)
----------------
28,069
----------------
----------------
$ 90,550
================
</TABLE>
Note 1: The above pro forma balance sheet gives effect to the following pro
forma adjustments necessary to reflect the planned Restructuring (the
conversion of the Series B Preferred Stock into Common Stock, the
conversion of the Incentive Plan into promissory notes and the exercise
of outstanding warrants to purchase Common Stock, as described under
"Certain Transactions -- The Restructuring" ) and the Offereing, as if
these events had occurred on that date.
F-25
<PAGE>
(a) Reflects the issuance of 568,750 shares of Common Stock upon the exercise
of outstanding warrants at an exercise price of $.01 per share.
Results in an increase in cash ($6), increase in common stock ($0.569),
increase in paid in capital ($135), and a decrease in warrants ($130).
(b) Reflects the issuance of $4,000 in notes issued in connection with the
conversion of the Incentive Plan. Results in a net increase in goodwill of
$3,075 in addition to $925 accrued during the six months ended June 30,
1996 under the original terms of the Incentive Plan. The notes bear
interest at 9% per annum and are payable in equal installments on April 1,
1997 and 1998.
(c) Reflects the conversion of the Series B Preferred Stock ($2) to Common
Stock ($2).
(d) Reflects the issuance of 165,385 shares of Common Stock at an assummed
offering price of $13 per share in payment of the $2,150 liquidation
preference on the Series B Preferred Stock conversion. Results in an
increase in common stock ($.165), increase in paid-in capital ($2,150),
and a decrease in retained earnings ($2,150).
(e) Reflects the effect of the reverse stock split on Common Stock ($.771) and
paid-in capital ($.771).
(f) Reflects the reduction in deferred financing costs ( approximately $581)
due to the early repayment of debt with proceeds from the Offering.
(g) Reflects the issuance of 2,000,000 shares of Common Stock at an
assummed initial public offering price of $13 per share and the
application of the estimated net proceeds therefrom. Results in an
increase in Common Stock ($2) and paid-in capital ($23,428).
(h) Reflects a charge to net income available to common stockholders ($264)
equal to the difference between the consideration received upon issuance
of the Redeemable Preferred Stock (plus accretion) and the redemption
price.
(i) Reflects estimated prepayment penalty of approximately $200 associated with
the early retirement of debt.
F-26
<PAGE>
GENERAL HOUSING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Year ended December 30, 1995
----------------------------------------------------------------------------------------------------
Pro Forma for the
Pro Forma for the Acquisition,
Acquisition Restucturing Acquisition and Offering Restructuring and
Predecessor Adjustments Adjustments Restructuring Adjustments Offering
------------- ------------ ------------ ----------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $90,673 $ 90,673 $ 90,673
Cost of goods sold 69,573 69,573 69,573
------------ ------------ ------------ ----------------- ----------- ------------------
Gross Profit 21,100 21,100 21,100
Goodwill amortization - 981 (a) 100 (f) 1,081 1,081
Selling, general, and
administrative
expenses 13,154 (1,198) (b) 11,956 11,956
------------ ----------- ----------- ----------------- ----------- ------------------
Income from operations 7,946 217 (100) 8,063 8,063
Interest expense 283 4,704 (c) 360 (g) 5,347 (1,645) (i) 3,702
Other income (53) (53) (53)
------------ ------------ ----------- ----------------- ----------- ------------------
Income before income taxes 7,716 (4,487) (460) 2,769 1,645 4,414
Provision for income taxes 465 1,135 (d) (137)(h) 1,463 625 (j) 2,088
------------ ------------ ----------- ----------------- ----------- ------------------
Net income 7,251 (5,622) (323) 1,306 1,020 2,326
Preferred stock dividends (988) (e) (988) 988 (k)
------------ ------------ ----------- ----------------- ----------- ------------------
Net income available to
common stockholders $7,251 ($6,610) ($323) $ 318 $ 2,008 2,326
============ ============ =========== ================= =========== ==================
Net Income per common share $ 0.08 $ 0.40
Weighted Average Shares (l) 3,603,846 165,385 3,769,231 2,000,000 5,769,231
</TABLE>
Note 1: The above statement for the year ended December 30, 1995 gives effect
to the following pro forma adjustments nececessary to reflect the
acquistion of General Manufactured Housing, Inc. (the "Predecessor") by the
Company; the planned Restructuring (the conversion of the Series B
Preferred Stock into Common Stock, the conversion of the Incentive Plan
into promissory notes and the exercise of outstanding warrants to purchase
Common Stock, as described under "Certain Transactions -- The
Restructuring") and the Offering, as if these events had taken place as of
January 1, 1995. Pro forma adjustments do not reflect nonrecurring
adjustments associated with the Restructuring and the Offering, including
an extraordinary loss associated with the early retirement of debt (
approximately $446 net of tax effect), and charges to income available to
common stockholders for accretion to redemption amount on Redeemable
Preferred Stock ($264) and the issuance of Common Stock in payment of the
liquidation preference relating to the Series B Conversion ($2,150) .
(a) Reflects amortization expense of goodwill over a life of 40 years. The
acquisition was accounted for as a purchase business combination pursuant
to Accounting Principles Board Opinion No. 16. The excess of the purchase
price over the estimated fair value of assets acquired and liabilities
assumed was recorded as goodwill.
(b) Reflects the reduction of management compensation expense ($1,855) and the
recording of management fees ($500) and other general and administrative
expenses ($157). Management compensation eliminated represents the amount
of compensation paid to management in 1995 which would not have been paid
had the current executive bonus plan been in place. Management fees and
other general and administrative expenses represent increased expenses for
certain management, adminstrative and other recurring expenses resulting
from the Acquisition.
(c) Reflects additional interest expense ($4,278) and amortization of deferred
financing costs ($426) resulting principally from debt incurred by the
Company to effect the Acquistion.
(d) The Predecessor operated as an S corporation for federal income tax
purposes during 1995. The adjustment reflects a provision for federal
income taxes at 34% to provide for taxes as if the Predecessor had been
taxed as a C corporation during 1995, less the tax benefits of the pro
forma adjustments described above.
(e) Reflects the dividend requirements on the Redeemable Preferred Stock ($960)
and the accretion on the Redeemable Preferred Stock ($28). 8,000,000 shares
of the Redeemable Preferred Stock were issued in connection with the
Acquisition for cash consideration of $7,720.
(f) Reflects increased amortization expense resulting from increased goodwill
($4,000) related to the conversion of the the Incentive Plan into
promissory notes, which is being amortized over 40 years.
(g) Reflects increased interest expense associated with the $4,000 promissory
notes issued pursuant to the Incentive Plan conversion.
(h) Reflects the tax effect of the Restructuring adjustments.
(i) Reflects decreased interest expense related to debt to be retired with a
portion of the proceeds of the Offering.
(j) Reflects the income tax effect of the Offering adjustments at a rate of
38 %
(k) Reflects the elimination of the dividend requirement and the accretion on
the Redeemable Preferred Stock which will be redeemed with a portion of the
proceeds of the Offering.
(l) Weighted average shares for the Company reflect the reverse stock split to
be effected immediately prior to the closing of the Offering and the
issuance of Common Shares in connection with the Acquisition, the
Restructuring and the Offering
F-27
<PAGE>
GENERAL HOUSING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-------------------------------------------------------------------------------------------
Pro Forma for
Restructuring Pro Forma for the Offering the Restructuring
Company Adjustments Restructuring Adjustments and Offering
------------- ------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $65,754 $65,754 $ 65,754
Cost of goods sold 48,352 48,352 48,352
------------- -------------- ----------------- --------------- ----------------
Gross profit 17,402 17,402 17,402
Goodwill amortization 490 50 (a) 540 540
Selling, general, and administrative
expenses 8,519 8,519 8,519
------------- -------------- ----------------- --------------- ---------------
Income from operations 8,393 (50) 8,343 8,343
Interest expense 2,367 180 (b) 2,547 (823) (d) 1,724
Other expense 43 43 43
------------- -------------- ----------------- --------------- ---------------
Income before income taxes 5,983 (230) 5,753 823 6,576
Provision for income taxes 2,468 (69)(c) 2,399 313 (e) 2,712
------------- -------------- ----------------- --------------- ---------------
Net income 3,515 (161) 3,354 510 3,864
Preferred stock dividends 496 496 (496) (f) 0
------------- --------------- ---------------- -------------- ---------------
Net income available to
common stockholders $3,019 ($161) $ 2,858 $ 1,006 $3,864
============= =============== ================ ============== ===============
Net Income per common share $ 0.84 $ 0.76 $ 0.67
Weighted Average Shares (g) 3,603,846 165,385 3,769,231 2,000,000 5,769,231
</TABLE>
Note 1: The above statement for the six months ended June 30, 1996 gives effect
to the following pro forma adjustments nececessary to reflect the planned
Restructuring (the conversion of the Series B Preferred Stock into Common
Stock, the conversion of the Incentive Plan into promissory notes and the
exercise of outstanding warrants to purchase Common Stock, as described
under "Certain Transactions -- The Restructuring") and the Offering, as if
these events had taken place as of January 1, 1995. Pro forma adjustments
do not reflect nonrecurring adjustments associated with the Restructuring
and the Offering, including an extraordinary loss associated with the early
retirement of debt ( approximately $446 net of tax effect), and charges to
income available to common stockholders for accretion to redemption amount
on Redeemable Preferred Stock ($264) and the issuance of Common Stock in
payment of the liquidation preference relating to the Series B Conversion
($2,150).
(a) Reflects increased amortization expense resulting from increased goodwill
($4,000) related to the conversion of the the Incentive Plan into
promissory notes, which is being amortized over 40 years.
(b) Reflects increased interest expense associated with the $4,000 promissory
notes issued under the Incentive Plan conversion.
(c) Reflects the tax effect of the Restructuring adjustments.
(d) Reflects decreased interest expense related to debt to be retired with a
portion of the proceeds of the Offering.
(e) Reflects the income tax effect of the Offering adjustments at a rate of
38 %.
(f) Reflects the elimination of the dividend requirement and the accretion on
the Redeemable Preferred Stock which will be redeemed with a portion of the
proceeds of the Offering.
(g) Weighted average shares for the Company reflect the reverse stock split to
be effected immediately prior to the closing of the Offering and the
issuance of Common Shares in connection with the Acquisition, the
Restructuring and the Offering
F-28
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<TABLE>
<CAPTION>
_________________
TABLE OF CONTENTS
<S> <C>
Page
----
Prospectus Summary......................................................
Risk Factors............................................................
Use of Proceeds.........................................................
Dividend Policy.........................................................
Capitalization..........................................................
Dilution................................................................
Selected Consolidated Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................................
Business................................................................
Management..............................................................
Certain Transactions....................................................
Principal Stockholders..................................................
Description of Capital Stock............................................
Shares Eligible for Future Sale.........................................
Underwriting............................................................
Legal Matters...........................................................
Experts.................................................................
Additional Information..................................................
Index to Consolidated Financial Statements ....................... F-1
</TABLE>
______________________________
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,000,000 SHARES
[GMH Logo]
COMMON STOCK
________________
PROSPECTUS
________________
RAUSCHER PIERCE REFSNES, INC.
OPPENHEIMER & CO., INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred
by the Company in connection with the issuance and distribution of the
shares of Common Stock being registered hereby, other than
underwriting discounts and commissions. All amounts shown are
estimates, except the SEC Registration fee and the NASD filing fee:
SEC Registration Fee ................... $9,758.00
NASD Filing Fee ........................ 3,720.00
Printing and Engraving Costs ........... *
Legal Fees and Expenses ................ *
Accounting Fees and Expenses ........... *
Transfer Agent and Registrar Fees....... *
Blue Sky Fees and Expenses ............. *
NASDAQ Listing .........................
Miscellaneous .......................... *
----------
Total $ *
==========
_______________
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides
that a corporation may indemnify any director or officer against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred in defense of any threatened, pending or
completed action, suit or proceeding whether civil, criminal or investigative
(other than an action by or in the right of the corporation) arising by reason
of the fact that he/she is or was an officer or director, if he/she acted in
good faith and in a manner he/she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, it is determined that he/she had no reasonable cause to believe
his/her conduct was unlawful. Section 145 also provides that a corporation may
indemnify any such officer or director against expenses incurred in an action by
or in the right of the corporation if he/she acted in good faith and in a manner
he/she reasonably believed to be in or not opposed to the best interests of the
Company, except in respect of any matter as to which such person is adjudged to
be liable to the Company, unless allowed by the court in which such action is
brought. This statute requires indemnification of such officers and Directors
against expenses to the extent they may be successful in defending any such
action. The statute also permits purchase of liability insurance by the Company
on behalf of its officers and Directors.
Article FIFTH of the Company's Certificate of Incorporation and Article
IV Section 2 of its Amended and Restated By-laws (collectively its "charter
documents") generally provide for the indemnification of and advancement of
litigation expenses to the Company's directors, officers, employees and agents
to the fullest extent permitted by the DGCL against all liabilities, losses and
expenses incurred in connection with any action, suit or proceeding in which any
of them become involved by reason of their service rendered to the Company or,
at its request, to another entity; provided that it is determined, in connection
with any civil action, that the indemnitee acted in good faith and in a manner
that he or she reasonably believed to be in or not opposed to the Company's best
interests, and in connection with any criminal proceeding, that the indemnitee
had no reasonable cause to believe his or her conduct was unlawful. These
provisions of the Company's charter documents are not exclusive of any other
indemnification rights to which an indemnitee may be entitled, whether by
contract or otherwise. The Company may also purchase liability insurance on
behalf of its Directors and officers, whether or not it would have the
obligation or power to indemnify any of them under the terms of its charter
documents or the DGCL. The Company has applied for and intends to maintain
liability insurance for the benefit of its directors and officers for serving in
such capacities.
II-1
<PAGE>
Reference is made to the Underwriting Agreement filed as Exhibit 1.1
hereto for provisions relating to the indemnification of the Underwriters and
persons who control the Underwriters within the meaning of Section 15 of the
Securities Act of 1933, and to indemnification of the Company by the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 21, 1995, in connection with the acquisition of all of the
issued and outstanding stock of General Manufactured Housing, Inc., the
Registrant issued and sold to nine accredited investors an aggregate of (i)
$17,243,295 of Senior Subordinated Notes for a purchase price of approximately
$14,920,000; (ii) $5,000,000 of Junior Subordinated Notes; (iii) 8,000,000
shares of Redeemable Preferred Stock at a purchase price of $.97 per share; (iv)
2,150,000 shares of Series B Convertible Preferred Stock at a purchase price of
approximately $1.00 per share; (v) 1,218,750 shares of Common Stock at a
purchase price of approximately $0.23 per share; and (vi) warrants to purchase
568,750 shares Common Stock at an exercise price of $0.01 per share. As part of
the same transaction, the Company issued an aggregate of 437,500 shares of
Common Stock to members of management and other key employees of the Company at
a purchase price of approximately $0.23 per share. The aggregate consideration
received by the Registrant for the issuance of such notes and the sale of such
shares and warrants was $30,252,188, including the purchase price for the
warrants.
The securities issued in the transaction described above were exempt from
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance on Section 4(2) of the Act as a transaction by an issuer not involving
any public offering. In such transaction, the recipients of securities had
adequate access to information about the Registrant, and appropriate legends
regarding the restricted nature of such securities were affixed to the
certificates representing such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See the Exhibit Index immediately following the consolidated
financial statement schedules.
(b) Consolidated Financial Statement Schedules
Schedule Number Description
--------------- -----------
2 Valuation and qualifying accounts for the
years ended December 31, 1993 and 1994 and
December 30, 1995.
Schedules other than those listed above have been omitted since they
are either not required or are not applicable because the required information
is shown in the consolidated financial statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, D.C., on
October 17, 1996.
GENERAL HOUSING, INC.
By s/Samuel P. Scott
----------------------------------
Samuel P. Scott
Chairman of the Board of Directors and
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Samuel P. Scott, J. Wayne
Roberts, and Gary M. Brost, and each of them, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution for him and
in his name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to the Registration Statement,
and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
s/Samuel P. Scott Chairman of the Board of Directors October 17, 1996
- -----------------------------
Samuel P. Scott and Chief Executive Officer
(Principal Executive Officer)
s/J. Wayne Roberts Vice President, Treasurer and Chief October 17, 1996
- -----------------------------
J. Wayne Roberts Financial Officer (Principal Financial
and Accounting Officer)
s/Gary M. Brost Director October 17, 1996
- -----------------------------
Gary M. Brost
s/James C. DelZoppo Director October 17, 1996
- -----------------------------
James C. DelZoppo
s/Dennis C. Martin Director October 17, 1996
- -----------------------------
Dennis C. Martin
Director October 17, 1996
- -----------------------------
Donald R. Mossey
s/James A. Parsons Director October 17, 1996
- -----------------------------
James A. Parsons
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To General Housing, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheet of General Housing, Inc., as of December 31, 1995 and
the financial statements of General Manufactured Housing, Inc. for the year
ended December 30, 1995 and as of and for the year ended December 31, 1994,
included in this registration statement and have issued our report thereon dated
January 26, 1996. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
16(b) of Part II of the registration statement is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
January 26, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders of
General Manufactured Housing, Inc.:
I have audited in accordance with generally accepted auditing standards, the
financial statements of General Manufactured Housing, Inc. for the year ended
December 31, 1993, included in this registration statement and have issued my
report thereon dated January 24, 1994. My audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 16(b) of Part II of the registration statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in my
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
EARL A. LAWSON
Blackshear, Georgia
January 24, 1994
<PAGE>
SCHEDULE II
GENERAL HOUSING, INC.
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
BALANCE AT PROVISIONS BALANCE AT
VALUATION ALLOWANCE FOR BEGINNING CHARGED TO END OF
WARRANTY COSTS OF PERIOD EXPENSE DEDUCTIONS PERIOD
- --------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
For the year ended December 31,
1993 $ 52,787 $ 883,601 $ 881,627 $ 54,761
For the year ended December 31,
1994 54,761 1,707,912 1,567,633 195,040
For the year ended December 30,
1995 195,040 3,118,556 2,213,596 1,100,000
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Underwriting Agreement*
2.1 Certificate of Ownership and Merger merging GMH
Acquisition Corp. into General Manufactured
Housing, Inc. dated as of December 21, 1995*
2.2 Articles of Merger merging GMH Acquisition Corp.
into General Manufactured Housing, Inc. dated as of
December 21, 1995 *
2.3 Plan of Merger merging GMH Acquisition Corp. into
General Manufactured Housing, Inc.*
2.4 Certificate of Merger merging Lamar Housing, L.L.C.
into General Manufactured Housing, Inc., dated as
of December 14, 1995
3.1 Restated Certificate of Incorporation of the
Company*
3.2 Amended and Restated By-laws of the Company*
4.1 Form of Common Stock Certificate*
4.2 Article Fourth of the Amended and Restated
Certificate of Incorporation of the Company (see
Exhibit 3.1)*
4.3 Article I of the Amended and Restated By-laws of
the Company (see Exhibit 3.2)*
4.4 Stockholders' Agreement dated as of December 21,
1995 among the Company and the Stockholders and
Warrant holders named therein.*
4.5 Warrant to Purchase Common Stock of the Company
dated as of December 21, 1995 and issued to Eileen
V. Austen to purchase 54,687 shares of Class A
Common Stock of the Company.*
4.6 Warrant to Purchase Common Stock of the Company
dated as of December 21, 1995 and issued to Paul
Cronson to purchase 54,687 shares of Class A Common
Stock of the Company.
4.7 Warrant to Purchase Common Stock of the Company
dated as of December 21, 1995 and issued to Robert
L. Goodwin to purchase 54,688 shares of Class A
Common Stock of the Company.
4.8 Warrant to Purchase Common Stock of the Company
dated as of December 21, 1995 and issued to Robert
C. Mayer, Jr. to purchase 54,688 shares of Class A
Common Stock of the Company.*
5 Opinion of Nixon, Hargrave, Devans & Doyle LLP*
10.1 Contract of Lease and Rent dated as of December 30,
1993 between General Manufactured Housing, Inc. and
Waycross and Ware County Development Authority.*
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.2 Sublease Agreement dated as of July 1, 1995 between
Hi-Tech Properties, Inc. and General Manufactured
Housing, Inc.*
10.3 Lease Agreement dated as of October 10, 1995
between Waycross and Ware County Development
Authority and Hi-Tech Properties, Inc.*
10.4 Sublease Agreement dated as of October 10, 1995
between Hi-Tech Properties, Inc. and General
Manufactured Housing, Inc.*
10.5 Lease Agreement with Option to Purchase effective
as of July 10, 1995 between R.A. Warr and Wayne
Evans, each individually and doing business as
Lamar Warehouse Co., and General Manufactured
Housing, Inc., as successor by merger to Lamar
Housing, L.L.C.
10.6 Aviation Ground Lease effective as of September 19,
1994 by and between Ware County, Georgia, The City
of Waycross, Georgia and General Manufactured
Housing, Inc. with respect to property at the
Waycross Ware County Airport.
10.7 Employment Agreement dated as of December 21, 1995
between General Manufactured Housing, Inc. and
Samuel P. Scott.*
10.8 Employment Agreement dated as of December 21, 1995
between GMH Acquisition, Corp. and Gregory Keith
Scott.
10.9 Employment Agreement dated as of December 21, 1995
between GMH Acquisition Corp., and Drew Eric Scott.
10.10 Employment Agreement dated as of January 1, 1996
between General Manufactured Housing, Inc. and
Kelly S. Herold.
10.11 Escrow Agreement dated as of December 18, 1995
between and among GHM Acquisition Corp., Kelly
Scott Herold, as trustee, Gregory Keith Scott, Drew
Eric Scott and Samuel P. Scott, individually and as
joint tenant with Sherry J. Scott, and Key Trust
Company.
10.12 Service Agreement dated as of December 21, 1995
between General Manufactured Housing, Inc. and M/H
Retail, Inc.
10.13 Junior Subordinated Promissory Note of General
Manufactured Housing, Inc. dated as of December 21,
1995 and issued to RFE Investment Partners V, L.P.
in the original principal amount of $2,931,469.00.
10.14 Junior Subordinated Promissory Note of General
Manufactured Housing, Inc. dated as of December 21,
1995 and issued to Sterling Commercial Capital,
Inc. in the original principal amount of
$145,454.50.
10.15 Junior Subordinated Promissory Note of General
Manufactured
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ----------------------
Housing, Inc. dated as of December 21, 1995 and
issued to State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees'
Retirement System, State Employees' Retirement
System, Michigan State Police State Retirement
System, and Michigan Judges Retirement System in
the original principal amount of $1,923,076.50.
10.16 Secured Credit Agreement dated as of December 21,
1995 by and between General Manufactured Housing,
Inc. and First Source Financial LLP ("First Source").*
10.17 Term Loan Note dated Financial LLP ("First Source")
as of December 21, 1995 from General Manufactured
Housing, Inc. to First Source in the original
principal amount of $4,000,000.
10.18 Revolving Note dated as of December 21, 1995 from
General Manufactured Housing, Inc. to First Source
in the original principal amount of $16,000,000.
10.19 Working Capital Note dated as of December 21, 1995
from General Manufactured Housing, Inc. to First
Source in the original principal amount of
$6,000,000.
10.20 Subordination Agreement dated as of December 21,
1995 among General Manufactured Housing, Inc., the
Company, The Equitable Life Assurance Society of
the United States, RFE Investment Partners V.,
L.P., Sterling Commercial Capital, Inc., State
Treasurer of the State of Michigan, Custodian of
the Michigan Public School Employees' Retirement
System, State Employees' Retirement System,
Michigan State Police Retirement System and
Michigan Judges Retirement System, Strategic
Investments & Holdings, Inc. and First Source.
10.21 Security Agreement dated as of December 21, 1995
between General Manufactured Housing, Inc. and
First Source.
10.22 Agreement (Trademark) dated as of December 21, 1995
between General Manufactured Housing, Inc. and
First Source.
10.23 Aircraft Mortgage and Security Agreement dated as
of December 21, 1995 between General Manufactured
Housing, Inc. and First Source.*
10.24 Bank Agency Agreement dated as of December 21, 1995
among General Manufactured Housing, Inc., First
Source, First Source Financial, Inc., Citicorp
North America, Inc. and The First National Bank of
Chicago.
10.25 Pledge Agreement dated as of December 21, 1995
between the Company and First Source.
10.26 Assignment of Leases dated as of December 21, 1995
from General Manufactured Housing, Inc. to First
Source.*
10.27 Deed to Secure Debt, Assignment of Leases, and
Rents and Security
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ----------------------
Agreement dated as of December 21, 1995 by General
Manufactured Housing, Inc. to and for the benefit
of First Source.
10.28 Short Form Lease dated as of December 21, 1995
between Waycross and Ware County Development
Authority and General Manufactured Housing, Inc.*
10.29 Leasehold Mortgage, Assignment of Leases and Rents
and Security Agreement dated as of December 21,
1995 from General Manufactured Housing, Inc. and
First Source.*
10.30 Post-Closing Agreement dated as of December 21,
1995 between General Manufactured Housing, Inc. and
First Source.
10.31 Management Agreement dated as of December 21, 1995
between General Manufactured Housing, Inc. and
Strategic Investments and Holdings, Inc.*
10.32 Guaranty by Corporation dated as of December 30,
1993 given by General Manufactured Housing, Inc. to
the Patterson Bank.*
10.33 Indemnity Agreement dated as of December 30, 1993
between General Manufactured Housing, Inc. and
Waycross and Ware County Development Authority.
10.34 Manufacturer's Indemnification Agreement dated as
of October 10, 1989 by and between General
Manufactured Housing, Inc. and Security Pacific
Housing Services, Inc.
10.35 Indemnity Agreement dated as of July 1, 1995
between and among General Manufactured Housing,
Inc., Tim-Bar Corporation, and Hi-Tech Properties,
Inc.*
22 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Earl A. Lawson, CPA.
23.3 Consent of Nixon, Hargrave, Devans & Doyle LLP
(contained in the opinion filed as Exhibit 5).*
24 Power of Attorney (included on the signature page
of the Registration Statement).*
27.1 Financial Data Schedule.*
________________________
* To be filed by Amendment.
<PAGE>
EXHIBIT 2.4
CERTIFICATE OF MERGER
OF
LAMAR HOUSING, L.L.C., A GEORGIA LIMITED LIABILITY COMPANY
WITH AND INTO
GENERAL MANUFACTURED HOUSING, INC., A GEORGIA CORPORATION
Pursuant to the provisions of section 14-2-1105(b) of the Georgia
Business Corporation Code, General Manufactured Housing, Inc., a Georgia
corporation, and Lamar Housing, L.L.C., a Georgia limited liability company,
hereby execute the following Certificate of Merger.
1. The name and state of incorporation or formation of each entity
which is merging is: General Manufactured Housing, Inc., a Georgia corporation;
Lamar Housing, L.L.C., a Georgia limited liability company.
2. General Manufactured Housing, a Georgia corporation, shall be the
Surviving Entity resulting from the merger.
3. The Agreement and Plan of Merger effects no amendments to the
Articles of Incorporation of the Surviving Entity.
4. The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving Entity located at 2255 Industrial
Blvd., Waycross, GA 31502.
5. A copy of the Agreement and Plan of Merger will be furnished by
the Surviving Entity, on request and without cost, to any shareholder or member
of any entity which is a party to the merger.
6. The Agreement and Plan of Merger was duly approved by the
shareholders of the Surviving Entity and by the members of Lamar Housing, L.L.C.
on December 14, 1995.
IN WITNESS WHEREOF, each of the undersigned entities has caused this
Certificate of Merger to be duly executed in its name this December 14, 1995,
effective immediately upon filing with the Georgia Secretary of State.
GENERAL MANUFACTURED HOUSING,
INC., a Georgia corporation
By: /s/ J. Wayne Roberts
------------------------------------
J. Wayne Roberts
Its: SECRETARY/TREASURER
LAMAR HOUSING, L.L.C., a Georgia limited
liability company
By: /s/ Samuel P. Scott
------------------------------------
Samuel P. Scott
Its: MANAGER
<PAGE>
EXHIBIT 4.6
WARRANT TO PURCHASE COMMON STOCK OF
GMH HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Exercise of Warrant..................................... 1
Section 2. Reservation of Shares................................... 2
Section 3. Adjustment of Shares.................................... 3
Section 4. Liquidation, Dissolution, Etc........................... 5
Section 5. Representations and Warranties of the Company........... 6
Section 6. Loss, Theft, Destruction or Mutilation.................. 8
Section 7. Shareholder's Rights.................................... 8
Section 8. Notices................................................. 8
Section 9. Applicable Law.......................................... 9
Section 10. Binding Effect.......................................... 9
</TABLE>
SIGNATURES
EXHIBIT A
<PAGE>
WARRANT TO PURCHASE COMMON STOCK OF
GMH HOLDINGS, INC.
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF (i) RECEIPT BY GMH HOLDINGS, INC. (THE "COMPANY") OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SUCH
SECURITIES LAWS IS NOT REQUIRED, OR (ii) REGISTRATION UNDER SUCH SECURITIES
LAWS, OR (iii) COMPLIANCE WITH RULE 144 OF THE SECURITIES ACT OF 1933 AS
AMENDED.
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF ARE SUBJECT TO THE TERMS OF A STOCKHOLDERS' AGREEMENT DATED AS
OF THE DATE HEREOF BY AND AMONG THE COMPANY, ITS STOCKHOLDERS AND
WARRANTHOLDERS, WHICH AGREEMENT, INTERALIA, RESTRICTS THE TRANSFER OF THIS
WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF.
This is to certify, that, FOR VALUE RECEIVED, PAUL CRONSON, his
successors and assigns ("Holder") is entitled to purchase from the Company
pursuant to this Warrant, 54,687 shares of Class A Common Stock of the Company
("Shares") for a purchase price of $.01 per Share, provided that any rights
pursuant to this Warrant must be exercised on or before December 21, 2003.
Section 1. Exercise of Warrant. This Warrant may be exercised by the
Holder hereof as to the whole or any part of shares of Class A Common Stock
covered hereby and may be exercised upon thirty (30) days' prior written notice,
sent by certified mail, return receipt requested, to
<PAGE>
the Company in the form of subscription attached hereto as Exhibit A duly
executed by the Holder. Upon payment of the purchase price by the Holder either
in cash or check payable to the order of the Company and presentation and
surrender of this Warrant, the Company shall deliver a certificate or
certificates representing all Shares issued to the Holder pursuant to this
Warrant in accordance with the instructions of the Holder. The Shares have not
been registered under the Securities Act of 1933, as amended or under the
securities laws of any state, and may not be transferred in the absence of (i)
receipt of an opinion of counsel satisfactory to the Company that registration
under such securities laws is not required, or (ii) registration under such
securities laws or (iii) compliance with Rule 144 of the Securities Act of 1933,
as amended.
If this Warrant shall be exercised in respect of a part only of the
Shares covered hereby, the Holder shall be entitled to receive a similar Warrant
of like tenor and date covering the number of Shares in respect of which this
Warrant shall not have been exercised. As used herein, the term "Warrant" shall
include any replacement Warrant or Warrants issued pursuant to this paragraph.
Section 2. Reservation of Shares. The Company hereby covenants and
agrees that at all times during the term of this Warrant, there shall be
reserved for issuance out of its authorized and unissued Class A Common Stock,
the number of shares as shall be required to be issued upon exercise of this
Warrant. The Company shall, from time to time, increase the number of authorized
shares of Class A Common Stock so as to maintain the number of such shares
required to be issued upon the exercise of this Warrant.
Section 3. Adjustment of Shares. The Shares issuable upon the
exercise of this Warrant shall be subject to the following adjustments:
(i) If at any time after the issuance and before termination of all
of the rights granted by this Warrant (either by the exercise in full of the
Warrant rights or by reason of the passage of time), there shall be
<PAGE>
a subdivision, combination, stock dividend, stock split or other distribution
(except by sale), or reclassification, or other change of the outstanding shares
of Class A Common Stock of the Company into a different kind, or class of
shares, stock dividends, stock splits or other distributions, then at the same
time the Shares issuable upon the exercise of this Warrant shall, on the date
upon which such change shall become effective, be changed into the equivalent
thereof (including price and number thereof) under the terms of such
subdivision, combination, stock dividend, stock split or other distribution
(except by sale for value) or reclassification or other change.
(ii) If at any time after the issuance and before termination of all
of the rights granted by this Warrant (either by the exercise in full of the
Warrant rights or by reason of the passage of time), the Company shall
consolidate with or merge into another corporation, the Holder hereof shall
thereafter be entitled upon the exercise hereof to purchase, with respect to
each Share purchasable hereunder, such securities of the surviving corporation
as the Holder would be entitled to receive had it exercised this Warrant
immediately prior to the effective date of such consolidation or merger, without
any change in, or payment in addition to, the purchase price hereunder, and the
successor corporation shall take such steps in connection with such
consolidation or merger as may be necessary to assure that all of the provisions
of this Warrant shall thereafter be applicable in relation to any securities or
property, thereafter deliverable upon the exercise of this Warrant. The Company
shall not effect any such consolidation or merger unless prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting therefrom shall assume by written instrument executed and mailed to
the Holder hereof at the address shown on the books of the Company, the
obligation to deliver to the Holder such stock, securities or property as in
accordance with the foregoing provisions the Holder shall be entitled to
<PAGE>
purchase. A sale of all or substantially all of the assets of the Company for
consideration consisting primarily of stock or securities shall be deemed a
consolidation or merger for the foregoing purposes.
(iii) The Company shall promptly give written notice to the Holder of
the happening of any event requiring an adjustment of the number of Shares
issuable upon the exercise of this Warrant.
(iv) If at any time after the issuance and before termination of all
of the rights granted by this Warrant (either by the exercise in full of the
Warrant rights or by reason of the passage of time) Class A Common Stock of the
Company is sold for a price which is less than One Dollar ($1.00) per share
(such price being hereinafter called "Lesser Price"), the Holder may purchase
the Shares subject to this Warrant at the Lesser Price, and the number of Shares
it may purchase shall be increased so that a total investment of $546.87 may be
made at the option of the Holder.
(v) Notwithstanding any anti-dilution provisions contained herein,
such provisions shall not apply in the event of any proposed offering for sale
of the Company's common stock to the public as provided for under the Securities
Act of 1933, as amended, and applicable state securities laws, nor shall a mere
increase in the authorized shares or the issuance of shares under an employee
fringe benefit or stock option plan or options or warrants granted to the
Company's directors result in a change in the price or number of Shares which
may be acquired hereunder.
Section 4. Liquidation, Dissolution, Etc. In the event that the
liquidation or dissolution of the Company or the winding up of the Company shall
at any time be proposed, the Company shall give the Holder at least thirty (30)
days' prior written notice stating the date on which such event is to take place
and the date as of which the holders of Class A Common Stock shall be entitled
to exchange their Class A Common Stock for securities or other property,
deliverable upon such liquidation, dissolution or winding up. During such thirty
(30) day period, the Holder
<PAGE>
may purchase the Shares issuable hereunder and be entitled in respect of the
Shares so purchased to all of the rights of the holders of Class A Common Stock
of the Company in proportion to the Holder's ownership interest after such
purchase. If the Warrant is not exercised prior to the expiration of that thirty
(30) day period, it shall be void, and no right shall exist hereunder.
Section 5. Representations and Warranties of the Company. The
Company hereby represents and warrants as follows:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business.
(ii) The Company's entire authorized capital consists of (A)
8,000,000 shares of Series A Redeemable Preferred Stock, $.001 par value, all of
which shares will be issued and outstanding immediately following the Closing on
the date hereof, (B) 2,150,000 shares of Series B Convertible Preferred Stock,
$.001 par value, all of which shares will be issued and outstanding immediately
following the Closing on the date hereof, (C) 4,375,000 shares of Class A Common
Stock, $.001 par value, 1,656,250 of which shares will be issued and outstanding
immediately following the Closing on the date hereof, (D) 787,500 shares of
Class B Common Stock, $.001 par value, none of which shares will be issued and
outstanding immediately following the Closing on the date hereof, and (E)
2,150,000 shares of Class C Common Stock, $.001 par value, none of which shares
shall be issued and outstanding immediately following the Closing on the date
hereof.
(iii) The execution and delivery of this Warrant, and the issuance
and delivery of the shares of Class A Common Stock of the Company upon the
exercise hereof, have been duly authorized by all such proper corporate
proceedings as may be necessary, and will not contravene or
<PAGE>
constitute a default under or with respect to any provision of applicable law or
regulation or of the Company's Certificate of Incorporation or By-laws, each as
amended, or of any agreement or other instrument binding upon or related to the
Company, and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
(iv) All shares of Class A Common Stock of the Company which may be
delivered upon the exercise of this Warrant will, upon delivery, be free from
all taxes, liens and charges with respect to the purchase thereof, and such
shares of Class A Common Stock will, upon payment of the purchase price
hereunder, be duly authorized, validly issued, fully paid and non-assessable.
(v) All representations and warranties shall survive the execution
hereof.
Section 6. Loss, Theft, Destruction or Mutilation. Upon receipt by
the Company of evidence satisfactory to it of the ownership and the loss, theft,
destruction or mutilation of this Warrant, the Company will execute and deliver
in lieu thereof a new Warrant containing the same terms and conditions.
Section 7. Shareholder's Rights. Except as otherwise set forth in
the Stockholders' Agreement dated as of the date hereof by and among the
Company, its stockholders and its warrantholders, until the valid exercise of
this Warrant, the Holder hereof shall not be entitled to any rights of a
stockholder of the Company with respect to any shares purchasable hereunder;
immediately upon the exercise of this Warrant and upon payment of the purchase
price as provided herein, the Holder hereof shall be deemed a record holder of
Class A Common Stock of the Company with respect to the shares purchased
hereunder.
Section 8. Notices. Any notice authorized by this Agreement to be
given or made shall be sufficiently given or made if delivered in person
<PAGE>
or if sent by registered or certified mail, return receipt requested, postage
prepaid, as follows:
To the Holder:
c/o Larkspur Capital Corporation
445 Park Avenue
New York, New York 10022
To the Company:
GMH Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attn: Gary M. Brost
Section 9. Applicable Law. This Warrant shall be governed and
construed in accordance with the laws of the State of Delaware.
Section 10. Binding Effect. This Warrant shall be binding upon and
inure to the benefit of the parties and their respective successors, assigns,
heirs and personal representatives.
IN WITNESS WHEREOF, this Warrant has been duly executed by the parties
hereto as of the 21st day of December, 1995.
GMH HOLDINGS, INC.
By: /s/ Gary M. Brost
-----------------------------
Gary M. Brost
President
EXHIBIT A
---------
GMH Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attention: President
Gentlemen:
This letter constitutes an offer to GMH Holdings, Inc. for the
following:
<PAGE>
_____________________________________________________ ("Holder")
agrees to subscribe for ________ shares of the Class A Common Stock of the
Company ("Stock") for a purchase price of $.01 per share. The total issue price
for the Stock is to be $_____________. The Holder shall pay the price in full
upon tender of a certificate or certificates representing the Stock.
Very truly yours,
By:____________________
Name:
Accepted:
GMH HOLDINGS, INC.
By:____________________
<PAGE>
EXHIBIT 4.7
WARRANT TO PURCHASE COMMON STOCK OF
GMH HOLDINGS, INC.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
Section 1. Exercise of Warrant............................ 1
Section 2. Reservation of Shares.......................... 2
Section 3. Adjustment of Shares........................... 3
Section 4. Liquidation, Dissolution, Etc.................. 5
Section 5. Representations and Warranties of the Company.. 6
Section 6. Loss, Theft, Destruction or Mutilation......... 8
Section 7. Shareholder's Rights........................... 8
Section 8. Notices........................................ 8
Section 9. Applicable Law................................. 9
Section 10. Binding Effect................................. 9
</TABLE>
SIGNATURES
EXHIBIT A
<PAGE>
WARRANT TO PURCHASE COMMON STOCK OF
GMH HOLDINGS, INC.
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF (i) RECEIPT BY GMH HOLDINGS, INC. (THE "COMPANY") OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SUCH
SECURITIES LAWS IS NOT REQUIRED, OR (ii) REGISTRATION UNDER SUCH SECURITIES
LAWS, OR (iii) COMPLIANCE WITH RULE 144 OF THE SECURITIES ACT OF 1933 AS
AMENDED.
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON
THE EXERCISE HEREOF ARE SUBJECT TO THE TERMS OF A STOCKHOLDERS' AGREEMENT
DATED AS OF THE DATE HEREOF BY AND AMONG THE COMPANY, ITS STOCKHOLDERS AND
WARRANTHOLDERS, WHICH AGREEMENT, INTERALIA, RESTRICTS THE TRANSFER OF THIS
WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF.
This is to certify, that, FOR VALUE RECEIVED, ROBERT C. MAYER,
JR., his successors and assigns ("Holder") is entitled to purchase from the
Company pursuant to this Warrant, 54,688 shares of Class A Common Stock of
the Company ("Shares") for a purchase price of $.01 per Share, provided
that any rights pursuant to this Warrant must be exercised on or before
December 21, 2003.
Section 1. Exercise of Warrant. This Warrant may be exercised
by the Holder hereof as to the whole or any part of shares of Class A
Common Stock covered hereby and may be exercised upon thirty (30) days'
prior written notice, sent by certified mail, return receipt requested, to
<PAGE>
the Company in the form of subscription attached hereto as Exhibit A duly
executed by the Holder. Upon payment of the purchase price by the Holder either
in cash or check payable to the order of the Company and presentation and
surrender of this Warrant, the Company shall deliver a certificate or
certificates representing all Shares issued to the Holder pursuant to this
Warrant in accordance with the instructions of the Holder. The Shares have not
been registered under the Securities Act of 1933, as amended or under the
securities laws of any state, and may not be transferred in the absence of (i)
receipt of an opinion of counsel satisfactory to the Company that registration
under such securities laws is not required, or (ii) registration under such
securities laws or (iii) compliance with Rule 144 of the Securities Act of 1933,
as amended.
If this Warrant shall be exercised in respect of a part only of
the Shares covered hereby, the Holder shall be entitled to receive a
similar Warrant of like tenor and date covering the number of Shares in
respect of which this Warrant shall not have been exercised. As used
herein, the term "Warrant" shall include any replacement Warrant or
Warrants issued pursuant to this paragraph.
Section 2. Reservation of Shares. The Company hereby covenants
and agrees that at all times during the term of this Warrant, there shall
be reserved for issuance out of its authorized and unissued Class A Common
Stock, the number of shares as shall be required to be issued upon exercise
of this Warrant. The Company shall, from time to time, increase the number
of authorized shares of Class A Common Stock so as to maintain the number
of such shares required to be issued upon the exercise of this Warrant.
Section 3. Adjustment of Shares. The Shares issuable upon the
exercise of this Warrant shall be subject to the following adjustments:
(i) If at any time after the issuance and before termination of
all of the rights granted by this Warrant (either by the exercise in full
of the Warrant rights or by reason of the passage of time), there shall be
<PAGE>
a subdivision, combination, stock dividend, stock split or other distribution
(except by sale), or reclassification, or other change of the outstanding shares
of Class A Common Stock of the Company into a different kind, or class of
shares, stock dividends, stock splits or other distributions, then at the same
time the Shares issuable upon the exercise of this Warrant shall, on the date
upon which such change shall become effective, be changed into the equivalent
thereof (including price and number thereof) under the terms of such
subdivision, combination, stock dividend, stock split or other distribution
(except by sale for value) or reclassification or other change.
(ii) If at any time after the issuance and before termination of
all of the rights granted by this Warrant (either by the exercise in full
of the Warrant rights or by reason of the passage of time), the Company
shall consolidate with or merge into another corporation, the Holder hereof
shall thereafter be entitled upon the exercise hereof to purchase, with
respect to each Share purchasable hereunder, such securities of the
surviving corporation as the Holder would be entitled to receive had it
exercised this Warrant immediately prior to the effective date of such
consolidation or merger, without any change in, or payment in addition to,
the purchase price hereunder, and the successor corporation shall take such
steps in connection with such consolidation or merger as may be necessary
to assure that all of the provisions of this Warrant shall thereafter be
applicable in relation to any securities or property, thereafter
deliverable upon the exercise of this Warrant. The Company shall not
effect any such consolidation or merger unless prior to the consummation
thereof, the successor corporation (if other than the Company) resulting
therefrom shall assume by written instrument executed and mailed to the
Holder hereof at the address shown on the books of the Company, the
obligation to deliver to the Holder such stock, securities or property as
in accordance with the foregoing provisions the Holder shall be entitled to
<PAGE>
purchase. A sale of all or substantially all of the assets of the Company
for consideration consisting primarily of stock or securities shall be
deemed a consolidation or merger for the foregoing purposes.
(iii) The Company shall promptly give written notice to the
Holder of the happening of any event requiring an adjustment of the number
of Shares issuable upon the exercise of this Warrant.
(iv) If at any time after the issuance and before termination of
all of the rights granted by this Warrant (either by the exercise in full
of the Warrant rights or by reason of the passage of time) Class A Common
Stock of the Company is sold for a price which is less than One Dollar
($1.00) per share (such price being hereinafter called "Lesser Price"), the
Holder may purchase the Shares subject to this Warrant at the Lesser Price,
and the number of Shares it may purchase shall be increased so that a total
investment of $546.88 may be made at the option of the Holder.
(v) Notwithstanding any anti-dilution provisions contained
herein, such provisions shall not apply in the event of any proposed
offering for sale of the Company's common stock to the public as provided
for under the Securities Act of 1933, as amended, and applicable state
securities laws, nor shall a mere increase in the authorized shares or the
issuance of shares under an employee fringe benefit or stock option plan or
options or warrants granted to the Company's directors result in a change
in the price or number of Shares which may be acquired hereunder.
Section 4. Liquidation, Dissolution, Etc. In the event that the
liquidation or dissolution of the Company or the winding up of the Company
shall at any time be proposed, the Company shall give the Holder at least
thirty (30) days' prior written notice stating the date on which such event
is to take place and the date as of which the holders of Class A Common
Stock shall be entitled to exchange their Class A Common Stock for
securities or other property, deliverable upon such liquidation,
dissolution or winding up. During such thirty (30) day period, the Holder
<PAGE>
may purchase the Shares issuable hereunder and be entitled in respect of
the Shares so purchased to all of the rights of the holders of Class A
Common Stock of the Company in proportion to the Holder's ownership
interest after such purchase. If the Warrant is not exercised prior to the
expiration of that thirty (30) day period, it shall be void, and no right
shall exist hereunder.
Section 5. Representations and Warranties of the Company. The
Company hereby represents and warrants as follows:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to own and operate its
properties and to carry on its business.
(ii) The Company's entire authorized capital consists of (A)
8,000,000 shares of Series A Redeemable Preferred Stock, $.001 par value,
all of which shares will be issued and outstanding immediately following
the Closing on the date hereof, (B) 2,150,000 shares of Series B
Convertible Preferred Stock, $.001 par value, all of which shares will be
issued and outstanding immediately following the Closing on the date
hereof, (C) 4,375,000 shares of Class A Common Stock, $.001 par value,
1,656,250 of which shares will be issued and outstanding immediately
following the Closing on the date hereof, (D) 787,500 shares of Class B
Common Stock, $.001 par value, none of which shares will be issued and
outstanding immediately following the Closing on the date hereof, and (E)
2,150,000 shares of Class C Common Stock, $.001 par value, none of which
shares shall be issued and outstanding immediately following the Closing on
the date hereof.
(iii) The execution and delivery of this Warrant, and the
issuance and delivery of the shares of Class A Common Stock of the Company
upon the exercise hereof, have been duly authorized by all such proper
corporate proceedings as may be necessary, and will not contravene or
<PAGE>
constitute a default under or with respect to any provision of applicable
law or regulation or of the Company's Certificate of Incorporation or
By-laws, each as amended, or of any agreement or other instrument binding
upon or related to the Company, and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms.
(iv) All shares of Class A Common Stock of the Company which may
be delivered upon the exercise of this Warrant will, upon delivery, be free
from all taxes, liens and charges with respect to the purchase thereof, and
such shares of Class A Common Stock will, upon payment of the purchase
price hereunder, be duly authorized, validly issued, fully paid and
non-assessable.
(v) All representations and warranties shall survive the
execution hereof.
Section 6. Loss, Theft, Destruction or Mutilation. Upon receipt
by the Company of evidence satisfactory to it of the ownership and the
loss, theft, destruction or mutilation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant containing the same terms
and conditions.
Section 7. Shareholder's Rights. Except as otherwise set forth
in the Stockholders' Agreement dated as of the date hereof by and among the
Company, its stockholders and its warrantholders, until the valid exercise
of this Warrant, the Holder hereof shall not be entitled to any rights of a
stockholder of the Company with respect to any shares purchasable
hereunder; immediately upon the exercise of this Warrant and upon payment
of the purchase price as provided herein, the Holder hereof shall be deemed
a record holder of Class A Common Stock of the Company with respect to the
shares purchased hereunder.
Section 8. Notices. Any notice authorized by this Agreement to
be given or made shall be sufficiently given or made if delivered in person
<PAGE>
or if sent by registered or certified mail, return receipt requested,
postage prepaid, as follows:
To the Holder:
c/o Larkspur Capital Corporation
445 Park Avenue
New York, New York 10022
To the Company:
GMH Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attn: Gary M. Brost
Section 9. Applicable Law. This Warrant shall be governed and
construed in accordance with the laws of the State of Delaware.
Section 10. Binding Effect. This Warrant shall be binding upon
and inure to the benefit of the parties and their respective successors,
assigns, heirs and personal representatives.
IN WITNESS WHEREOF, this Warrant has been duly executed by the
parties hereto as of the 21st day of December, 1995.
GMH HOLDINGS, INC.
By: /s/ Gary M. Brost
-------------------------------
Gary M. Brost
President
EXHIBIT A
---------
GMH Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attention: President
Gentlemen:
This letter constitutes an offer to GMH Holdings, Inc. for the
following:
<PAGE>
_____________________________________________________ ("Holder")
agrees to subscribe for ________ shares of the Class A Common Stock of the
Company ("Stock") for a purchase price of $.01 per share. The total issue
price for the Stock is to be $_____________. The Holder shall pay the
price in full upon tender of a certificate or certificates representing the
Stock.
Very truly yours,
By:____________________
Name:
Accepted:
GMH HOLDINGS, INC.
By:____________________
<PAGE>
EXHIBIT 10.5
LEASE AGREEMENT WITH OPTION TO PURCHASE
This Agreement, sometimes referred to as "Agreement," is made and entered
into effective on July 10, 1995 between R. A. Warr and Wayne Evans, each
individually and doing business as Lamar Warehouse Co., of the State of South
Carolina, having an office at ________________, Lamar, South Carolina referred
to as Lessors, and Lamar Housing, L.L.C., a Georgia company with offices in
Waycross, Ware County, Georgia, referred to as Lessee.
RECITALS
The parties recite and declare:
A. Lessors is the sole owner of improved real property described below,
as leased premises, and desires to lease the premises to a suitable Lessee, with
an option to purchase.
B. Lessee desires to lease the premises with the option to purchase for
the purposes set forth herein.
C. The parties desire to enter into an Agreement defining their rights,
duties and liabilities relating to the premises.
In consideration of the mutual covenants contained in this Lease Agreement,
the parties agree as follows:
SECTION ONE
SUBJECT AND PURPOSE
Upon the terms and conditions set forth herein, Lessors leases to Lessee
the improvements and realty (sometimes referred to as "leased premises") located
in the County of Darlington, State of South Carolina, and said realty being more
particularly described on the attached Exhibit A.
SECTION TWO
TERM AND RENT
A. Subject only to the right and option of Lessee to purchase the leased
premises, Lessors leases to Lessee the leased premises for a term of ten (10)
years, commencing July 10, 1995, and terminating on July 9, 2005, at the monthly
rental as follows: For the first sixty months, commencing July 10, 1995 the sum
of $3360.00; for the next thirty months, provided that Lessee does not exercise
its right and option to purchase the leased premises, the sum of $4200.00 per
month; then for the final thirty months, provided that Lessee has not exercised
its right and option to purchase the leased premises as set forth below the
monthly rental shall be $5320.00. Monthly rental payments shall be due and
payable on the 1st day of each month.
B. All rental payments shall be made to Lessors at the address specified
herein, or at such other address that Lessors may designate, in writing.
C. At Lessee's sole option, the parties agree to the immediate issuance
of a title insurance policy insuring Lessee's leasehold interest in the leased
premises, showing Lessee or its assignee as the lessee of the real property
described in the attached Exhibit "A", containing only the printed exceptions
usually and customarily found in such policies.
<PAGE>
SECTION THREE
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
A. Subject to the limitation that no portion of the buildings on the
leased premises shall be demolished or removed or substantially altered in
exterior appearance by Lessee without the prior, express and written consent of
Lessors, and, if necessary, of any mortgagee, Lessee may at any time during the
Lease term, subject to the conditions set forth below and at its own expense,
make alterations, additions, or improvements in and to the leased premises and
the improvements thereon. Alterations shall be performed in a satisfactory
manner and shall not weaken or impair the structural strength of the building on
the leased premises. Lessee is hereby authorized, without limitation, to modify
and alter the lease premises by (1) removing or modifying the building located
at the southerly end of the property, which building is separate from the main
building; (2) by adding lean-tos on each side of the main building;(3) make such
other reasonable modifications that do not impair the structural integrity or
buildings. Attached hereto and made a party hereof I reference as exhibit B,
containing a sketch and list of alterations and additions that Lessee intends to
make to the lease premises. Such sketch is intended to be approximately correct
and is not intended to be a detailed and precise drawing of the proposed
alterations and additions. Lessors hereby approve said list and sketch. I the
event that Lessee needs to make alterations and additions to the lease premises
hereafter, Lessee agrees to submit to Lessors prior to commencement thereof a
sketch of the proposed alterations and additions. Further such sketches are not
required to be exactly precisely correct, but can be approximately correct.
Lessors further agrees that they will not unreasonably fail or refuse to approve
any such proposed alterations or additions.
B. Lessee may also place in the buildings and structures located on the
leased premises such additional furniture, furnishings, tools, materials,
machinery, equipment, inventory and trade fixtures to make the leased premises
suitable in Lessee's sole discretion for manufactured housing construction and
related purposes, and such other lawful purposes that Lessee, in its discretion,
may choose to conduct on the leased premises. All such items placed on the
premises by Lessee shall remain the sole property of Lessee and Lessee may
remove the same at the end of the term of this Agreement: provided, however, all
payments have been made to Lessor.
C. Notwithstanding any of the other terms and conditions in this
Agreement, immediately upon the execution hereof Lessee may enter the leased
premises for the purpose of making such plans, preparations, and inspections, in
order to prepare the leased premises for the uses and purposes set forth in this
Lease Agreement. All such entries previously hereto, are hereby approved and
ratified.
D. Lessee agrees, during the term of this Agreement, to keep the leased
premises in good repair, excepting damage by fire and other casualty, and
excepting ordinary wear and tear.
E. Lessee shall keep the sprinkler system in good repair, provided that
said system is operational and in good repair at the commencement of the lease
term. Provided however, Lessors shall be required to bring the sprinkler system
up into a good state of repair prior to Lessee assuming any responsibility for
maintenance. Once the sprinkler system is brought up into a good state of
repair, Lessee shall thereafter provide for the mutual inspection of the
sprinkler system.
<PAGE>
SECTION FOUR
TAXES
The parties agree to pro-rate 1995 county, state and town ad valorem taxes
and assessments with Lessors to pay one-half of such 1995 taxes and Lessee to
pay one-half of 1995 taxes. Thereafter, during the term of this Lease Agreement,
Lessee agrees to pay when due all County, town and State ad valorem taxes and
assessments on the leased premises. Lessee may contest any such taxes,
assessments, and valuations, at Lessee's option and cost, and Lessee may contest
such taxes, assessments, and valuations in Lessor's name, if required to do so
pursuant to applicable law. Provided, however, that if Lessee contests taxes it
shall deposit with Lessor a sum equal to the taxes and assessments for the
previous year to be applied to the taxes and assessment in the event the contest
is not successful.
SECTION FIVE
UTILITIES
During the term of this Agreement all applications and connections for
necessary utility services on the leased premises shall be made in the name of
Lessee only. Lessee shall be solely liable for utility charges as they become
due, including, but not limited to, those for sewer, water, gas, electricity,
and telephone services.
SECTION SIX
INSURANCE
A. During the term of this Lease Agreement and for any further time that
Lessee shall hold the leased premises, Lessee shall provide, at Lessee's expense
the following insurance coverage:
(1) All risk of direct physical loss excluding flood and earthquake
with Lessors as Loss Payee in the sum of $275,000.00
B. Lessee shall carry such other insurance as it deems reasonable and
appropriate.
C. Lessee agrees to indemnify and hold harmless the Lessor against all
claims for damages to persons or property by reason of the use or occupancy of
the leased premises caused by or resulting from the negligence or omissions of
Lessee.
SECTION SEVEN
The parties agree that Lessee or its assigns may use the name "Lamar" as
part of the name of the facility during the term of this Lease and thereafter.
Lessors shall not be entitled to any additional remuneration for such usage and
no further consent or notice to Lessors shall be required for such usage.
Lessors agrees to cooperate with Lessee and to execute any necessary and
appropriate forms and documents in order for Lessee to use the name "Lamar".
SECTION EIGHT
OPTION TO PURCHASE
Lessors grants to Lessee the right and option to purchase the Leased
premises leased by Lessee pursuant to this Agreement on the following terms and
conditions:
<PAGE>
A. Except as set forth below the purchase price shall be $275,000.00.
However, one-half of each monthly rental installment for the first 60 months of
the lease term (unless Lessee exercises its right and option to purchase the
lease premises prior to the end of the first 60 months) which Lessee pays
pursuant to the terms of this Agreement shall be credited toward the purchase
price and shall reduce the purchase price by one-half of the amount of each such
monthly installment. For example, the initial monthly rental is $3360.00; one-
half of that amount of $1680.00 so that the net purchase price after the initial
monthly rental payment would be $273,320.00.
B. Lessee may exercise this right and option to purchase at any time
during the first sixty (60) months of this Agreement by giving written notice to
Lessors of Lessee's exercise of its rights to purchase, delivered or mailed to
Lessors at the address of Lessors set forth in this Agreement; such notice shall
be deemed to be delivered to Lessors two days after mailing, if sent to Lessors
by first class mail, by telecopier, or by Federal Express or other overnight
delivery service, at the sole option of Lessee. Upon Lessee giving to Lessors
notice of exercise of its right and option to purchase the leased premises,
closing shall be within 45 days of such notice.
C. Lessors and Lessee agree to execute and record among the public Land
Records of Darlington County, South Carolina a Memorandum giving Notice of this
Agreement.
D. The parties further agree purchase and to pay equally the cost of a
policy of title insurance issued by TICOR Title Insurance Company (or such other
mutually acceptable title insurance company conducting business in the County of
Darlington, South Carolina) insuring the title to the real property described in
the attached Exhibit "B" upon Lessee exercising its Right and option to purchase
the Leased Premises. Lessee shall be the insured in such title insurance policy.
Simultaneously herewith Lessee is being issued a commitment for said title
insurance policy. The title insurance shall insure title in and to the leased
premises showing Lessee or its assignee as the owner of the real property
described in the attached Exhibit "B", containing only the printed exceptions
usually and customarily found in such policies.
SECTION NINE
EASEMENT
Lessee agrees to provide Lessors with an easement sixty-six (66) feet wide
for the purposes of ingress and egress to property owned by one or both Lessors
adjacent to or joining Tract 2; if Lessors are unable to obtain an alternate
sixty-six (66) feet wide easement to said adjacent tract by any other means.
Lessors agree to actively pursue obtaining an alternate easement and agree to
accept a reasonable alternative easement and shall not arbitrarily or in bad
faith decline to accept a reasonable alternative easement. Lessee's agreement to
provide Lessors with an easement shall, if granted pursuant to terms hereof, be
limited to the area shown on the attached Exhibit C.
SECTION TEN
DEFAULT OR BREACH
Each of the following events shall constitute a default or breach of this
Agreement by Lessee:
A. If Lessee, or any subtenant, successor or assignee of Lessee
<PAGE>
while in possession, shall file a petition in bankruptcy or insolvency or for
reorganization under any bankruptcy act, or shall voluntarily take advantage of
any such act by answer or otherwise, or shall make an assignment for the benefit
of creditors.
B. If involuntary proceedings under any bankruptcy law or insolvency act
shall be instituted against Lessee, or its assigns, or if a receiver or trustee
shall be appointed of all or substantially all of the property of Lessee, and
such proceedings shall not be dismissed or the receivership or trusteeship
vacated within thirty (30) days after the institution or appointment.
C. If default be made in the payment of the rent for fifteen (15) days
after written notice to Lessee from Lessor or the holder of any mortgage
covering the leased premises or if default be made in the performance of any of
the covenants and agreements in this Agreement contained on the part of the
Lessee to be kept and performed the thirty days after written notice to Lessee,
or if the performance cannot be reasonably had within the thirty-day period,
Lessee shall not in good faith have commenced performance within the thirty-day
period and shall not diligently proceed to completion of performance. All
notices to Lessee must be written and sent registered or certified mail, return
receipt requested, addressed to Lessee at the address given in this Agreement,
or such other address that Lessee may, in writing, designate.
D. If Lessee's right and interest in this Agreement shall be transferred
to or shall pass to or devolve on any other person or party; provided, however,
that Lessee may assign and transfer its right and interest herein to any other
person, firm partnership, limited liability company, or corporation affiliated
with Lessee
SECTION ELEVEN
REPRESENTATIONS AND WARRANTIES
OF THE LESSORS
If Lessee elects to exercise its right and option to purchase the leased
premises the closing of the purchase and sale shall be held at a mutually
agreeable time during the term of this Agreement, unless extended by agreement
of Lessors and Lessee, in writing. The terms "Closing" and "Closing Date" shall
refer to and mean the actual closing of said purchase and sale. To induce Lessee
to enter into this Agreement, Lessors, jointly and severally, represent and
warrant to Lessee that:
A. Lessors are a partnership duly organized and validly existing in good
standing under the laws of the State of South Carolina, with full power and
authority to own its assets and enter into and perform their obligations under
this Agreement. Lessor's execution, delivery and performance of this Agreement
and the sale to Lessee (if Lessee exercises its right and option to purchase the
leased premise) of the leased premises have been duly authorized by all
requisite action on the part of Lessors, and this Agreement constitutes, and all
bills of sale, warranty deeds, assignments, agreements and other instruments and
documents to be executed and delivered by Lessors hereunder will constitute,
Lessors's legal, valid and binding obligations, enforceable against Lessors in
accordance with their respective terms.
B. Absence of Conflicts and Consent Requirements: Lessor's execution and
delivery of this Agreement and the performance of its obligations hereunder,
including the sale of the Leased premises, do not and will not conflict with,
violate or result in any default under Lessors'
<PAGE>
agreements, contracts or Bylaws or any mortgage, indenture, agreement,
instrument or other contract to which Lessors are a party or by which Lessors or
its property is bound, nor will they violate any judgment, order, decree, law,
statute, regulation or other judicial or governmental restriction to which
Lessors is subject. Lessors' execution and delivery of this Agreement and the
performance of its obligations hereunder, including the sale of the Leased
premises, do not and will not require the consent of, or any prior filing with
or notice to, any governmental authority or other third party.
C. Title to Assets: Lessors have good and marketable indefeasible fee
simple title to the Leased premises such title being free and clear of all
liens, charges, security interests, easements, reservations, restrictions,
encumbrances and other defects in title (collectively, the "Encumbrances")
except as shown on Schedule 11C hereto, has the right to convey the Leased
premises to Lessee, and at the Closing shall have conveyed to Lessee good and
marketable indefeasible fee simple title to the Leased premises free and clear
of all Encumbrances. Lessors shall provide Lessee with an insured title, (with
the cost thereof to be equally divided between Lessors and Lessee) insured by a
title insurance company licensed to do business in the State of South Carolina,
in a form reasonably acceptable to Lessee, insuring against unlawful claims of
all persons whomsoever.
D. Condition of Tangible Assets: Except for ordinary wear and tear, all
of the Leased premises are in good operating condition and repair.
E. Leases: Except as shown on Schedule 11E hereto, none of the leased
premises is leased by Lessors to any other party and none of the leased premises
is leased by Lessors from any other party.
F. Litigation: There are no claims, actions, suits or other proceedings
pending, or to the knowledge of Lessors threatened against Lessors or any of the
Leased premises before any court, agency or other judicial, administrative or
other governmental body or arbitrator.
G. Compliance with Law:
(1) Conduct of Business: Lessors has conducted any Business on the
leased premises so as to comply with, and is in compliance with, all laws,
statutes, regulations, rules and other requirements of any governmental
authority applicable to it, with which the noncompliance or the curing of such
noncompliance might have a material adverse effect on Lessors or the Leased
premises.
(2) Investigations: There have been and are no investigations of
Lessors or the leased premises since December 31, 1992 known to Lessors
conducted by any grand jury, administrative agency or other governmental
authority; and describes all inspection reports, questionnaires, inquiries,
demands, requests for information, and claims of violations or noncompliance
with the law received by Lessors from any governmental authority since such date
and all written statements or responses of Lessors with respect thereto, other
than requests for information from the Internal Revenue Service or any state
department of revenue in connection with audits of Lessors's income tax returns
or routine questionnaires and requests for information received generally by
others in Lessors's industry.
(3) Judgment and Orders: There are no outstanding judgments, orders,
writs or decrees of any judicial or other governmental authority
<PAGE>
binding upon Lessors or the Leased premises, other than judgments, orders, writs
and decrees with which Lessors has complied and which have no future
applicability.
(4) Licenses: Lessors's existing business licenses constitute the
only licenses required of Lessors for the conduct of the Business as now
conducted. Lessors is not presently in violation or default under any such
license. There do not exist any circumstance which with notice or the passage of
time, or both, would result in such a violation or default, and there is no
proceeding pending, or to Lessors's or the Shareholder's knowledge threatened,
with respect to the revocation or limitation of any such license.
(5) Improper Payments: Neither Lessors nor, to the knowledge of
Lessors or any agent, employee or other representative of Lessors acting or
purporting to act on behalf of Lessors or of any business enterprise with which
Lessors has been associated or affiliated, has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or services, in
violation of applicable law, (i) as a kickback or bribe to any person or (ii) to
any political organization nor the holder of, or any aspirant to, any elective
or appointive office of any nation, state, political subdivision hereof, or
other governmental body or instrumentality.
(6) Compliance: The leased premises are in compliance with the rules
and regulations of the State Fire Marshall and the use of the premises for
manufactured housing construction will not violate any zoning or land use rules
or regulations. If, during the term of the lease, it is determined that the
leased premises were not in compliance with said rules, regulations and statues
at the inception of this Lease Agreement, then it shall be the responsibility of
Lessors to provide the changes, repairs or improvements to bring the facility
into compliance. Any changes made to the facility by Lessee or changes in the
use of the facility by Lessee, which bring about a need for repairs or
improvements in order to comply with said rules, regulations, and statutes shall
be the responsibility of Lessee.
(7) Returns and Payment of Taxes: All tax returns required to be
filed on or prior to the Closing Date by Lessors with all taxing authorities
have been or prior to the Closing Date will have been filed; and all taxes due
and payable on such returns, all other taxes, duties and other governmental
charges payable by Lessors and for the payment of which there may arise any lien
upon the Leased premises sold hereunder subsequent to such sale, and all
deficiencies, assessments, penalties and interest with respect thereto, notice
of which has been received by Lessors, in each case due and payable on or before
the Closing Date, have been paid, or prior to the Closing Date will have been
paid.
(8) Withholding of Taxes: There has been withheld or collected from
each payment made to each employee of Lessors the amount of all taxes (including
without limitation federal income taxes, Federal Insurance Contributions Act
taxes, and state and local income, payroll and wage taxes) required to be
withheld or collected therefrom, and the same have been paid to the proper tax
depositories or collecting authorities.
(9) Ad Valorem Taxes: All ad valorem property taxes for years prior
to 1995 imposed on Lessors with respect to, or which may have become a lien on,
the Leased premises have been paid in full.
(10) Employee Benefit Plans; Employment Contracts: Lessee shall
<PAGE>
have no liability or responsibility with respect to any benefit plan, employment
contract or other arrangements of Lessors which relate to or cover the employees
of the Business and no lien, charge, encumbrance or other claim with respect to
the Leased premises shall arise under or pursuant to such benefit plan,
employment contract or other arrangement.
(11) Certain Contracts and Transactions: Lessors are not parties to
any contract or agreement (including an option) which is material to the leased
premises or materially affects its assets, operations, profitability or
prospects.
(12) Prospective Changes: Neither Lessor knows of any impending
change in its business, assets, liabilities, or in any governmental actions or
regulations affecting the leased premises, which, if they occur, could have a
material adverse effect on Lessors or the leased premises.
(13) No Material Misstatements or Omissions: To the best of the
knowledge and belief of Lessors the representations and warranties of Lessors in
this Agreement do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made therein not
misleading. If, however, Lessors' representations should be untrue for any
reason, Lessors agree to indemnify, save and hold Lessee harmless with respect
thereto as well as any non-compliance by Lessors with any local, State or
Federal environmental statutes, laws, ordinances, regulations, codes, licenses
and permits, including but not limited to all environmental statutes.
SECTION TWELVE
DESTRUCTION
If premises are totally destroyed by storm, fire, lightning, earthquake or
other casualty, this Lease may terminate, at Lessee's option, as of the date of
such destruction, and rental shall be accounted for as between Lessor and Lessee
as of that date. If the premises are damaged, but not wholly destroyed by any
such casualties, rental shall abate in such proportion as use of premises to
carry one operation by Lessee has been destroyed and Lessor shall restore
premises to substantially the same condition as before as speedily as
practicable, whereupon full rental shall recommence. Lessee has the right to
cancel if Lessor does not complete restoration in the one hundred twenty (120)
days unless circumstances resulting from fire or acts of God and beyond the
control of Lessor cause interference or delay in completing restoration.
SECTION THIRTEEN
CERTAIN COVENANTS AND AGREEMENTS
Conduct Prior to Closing:
A. ORDINARY COURSE OF BUSINESS: From the date hereof, through the
effective date of the lease term and thereafter until Closing Date, if Lessee
exercises its right and option to purchase the leased premises (the "Interim
Period"), unless Lessee consents otherwise, Lessors shall not dispose of any of
the Leased premises shall not enter into any contract, lease, agreement,
transaction or arrangement which, if existing on the date hereof, would be
required to be disclosed herein, and shall not take any other action which would
cause any representation or warranty made in any Section or paragraph hereof to
be incorrect in any material respect if such representation or warranty were
made on any date during the Interim Period.
<PAGE>
B. ACCESS: During the Interim Period, Lessors shall give Lessee and its
agents, attorneys and representatives full access to the leased premises as
Lessee may reasonably request.
C. FURTHER ASSURANCES: Lessors and Lessee hereby covenant and agree that
at any time and from time to time each will promptly execute and deliver to the
other such further assurances, instruments and documents and take such further
action as the other may reasonably request in order to carry out the full intent
and purpose of this Agreement.
D. FEES AND EXPENSES: Lessors and Lessee shall each bear their own
expenses in connection with the negotiation and preparation of this Agreement
and their consummation of the transactions contemplated hereby, including
without limitation the fees and expenses of their respective counsel,
accountants and consultants.
E. NO BROKERS: Lessors and Lessee each represent and warrant to the
other that no broker or finder has been involved or engaged by it in connection
with the transactions contemplated hereby, and each hereby agrees to indemnify
and save harmless the other from and against any and all broker's or finder's
fees, commissions or similar charges incurred or alleged to have been incurred
by the other party in connection with the transactions contemplated hereby and
any and all loss, liability, cost or expense (including reasonable attorneys'
fees) arising out of any claim that the other party incurred any such fees,
commissions or charges.
F. BULK TRANSFER: Lessors and Lessee are entering into this Agreement
based upon the assumption that the Bulk Transfer Provisions of the Uniform
Commercial Code do not apply to the transactions contemplated herein. However,
if such provisions should apply, in whole, or in part, Lessors shall save,
indemnify and hold harmless Lessee with respect to any such failure. Further
Lessee may withhold from any sums due Lessors as to any liabilities or debt
which Lessee may incur because of the failure of the Lessors to comply with the
Bulk Transfer provisions of the Uniform Commercial Code.
G. PAYMENT OF LIABILITIES: Lessors covenant and agree that they will
pay, perform and discharge all liabilities and obligations of Lessors that could
give rise to a claim on or against or a lien upon the Leased premises in each
case as and when due and payable.
SECTION FOURTEEN
Lessee shall not be responsible for paying any debt, bill, invoice incurred
prior to July __, 1995 in connection with the leased premises. If Lessee
receives any such debt, bill or invoice, it shall forward the same to Lessors
and Lessors agrees to pay the same promptly and when due. If Lessors fails to
pay the same when due, and if demand is made upon Lessee to pay the same, then
Lessee, at Lessee's option may pay the same and offset the sums paid against
future rentals due to Lessors.
SECTION FIFTEEN
Lessee may, at its own expense, during the term of this Agreement conduct
one or more environmental surveys on the leased premises.
SECTION SIXTEEN
CONDITIONS TO CLOSING
Conditions to the Lessee's Obligations: The obligations of Lessee to
<PAGE>
complete the Closing (if Lessee exercises its right and option to purchase the
leased premises) are contingent upon the fulfillment of each of the following
conditions on or before the Closing Date, except to the extent that Lessee may,
in its absolute discretion, waive any one or more thereof in whole or in part:
A. BRINGDOWN: The representations and warranties of Lessors set forth in
this Agreement shall be true and correct in all material respects on the Closing
Date with the same force and effect as though made on the Closing Date; all
terms, covenants and conditions to be complied with and performed by Lessors
under this Agreement on or before the Closing Date shall have been duly complied
with and duly performed.
B. INSTRUMENTS OF TRANSFER: The parties are entering into this Agreement
with expectation that a Warranty deed from Lessors to Lessee will be sufficient
to pass title, if Lessee exercises its right and option to purchase the leased
premises. If, however, in the reasonable opinion of Lessee, upon Lessee's
exercise of its right and option to purchase the leased premises, at Lessee's
sole option, additional documents are appropriate and necessary to pass title to
Lessee, Lessors shall execute and deliver to Lessee such assignments, bills of
sale, certificates of title and other instruments of transfer, all in form
reasonably satisfactory to Lessee, as are necessary to fully and effectively
convey to Lessee all of the leased premises in accordance with the terms hereof.
C. PARTNER'S APPROVAL: The transactions occurring pursuant to this
Agreement have been and do have full approval of all partners having any right,
title and interest in the leased premises and in the transactions provided for
herein. Lessors agree to provide such other assurances that Lessee may request
concerning ownership of and interest in the leased premises certified by the
Lessors.
D. Lessors shall have provided all information reasonably requested and
shall have given representatives of Lessee access at all reasonable times to the
Leased Premises.
E. OTHER ASSURANCES: Lessors shall have delivered to Lessee such other
and further certificates, assurances and documents as Lessee may reasonably
request in order to evidence the accuracy of Lessors's representations and
warranties, the performance of its covenants and agreements to be performed at
or prior to the Closing, and the fulfillment of the conditions to Lessee's
obligations.
F. NO ADVERSE PROCEEDINGS. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced, no
investigation by any governmental or regulatory authority shall have been
commenced, and no action, suit or proceeding by any governmental or regulatory
authority shall have been threatened, against any of the parties to this
Agreement, or any of the principals, officers or directors of any of them or the
leased premises, seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions or seeking damages in connection with any of such transactions.
Lessee agrees that this subsection will not be used in a bad faith manner to
delay Lessee's purchase of the Leased premises.
SECTION SEVENTEEN
CONDITIONS TO LESSORS' OBLIGATIONS: The obligations of Lessors to complete
the Closing are contingent upon the fulfillment of each of the
<PAGE>
following conditions on or before the Closing Date, except to the extent that
Lessors may, in its absolute direction, waive any one or more thereof in whole
or in part:
A. BRINGDOWN: The representations and warranties of Lessee set forth in
this Agreement shall be true and correct in all material respects on the Closing
Date with the same force and effect as though made on the Closing Date; all
terms, covenants and conditions to be complied with and performed by Lessee
under this Agreement on or before the Closing Date shall have been duly complied
with and duly performed.
B. PAYMENT OF PURCHASE PRICE: Lessee shall have paid to Lessors the
Purchase Price as provided in this Agreement.
SECTION EIGHTEEN
INDEMNIFICATION
INDEMNIFICATION BY LESSORS: Subject to the procedures and limitations set
forth in this Section Seventeen, Lessors, jointly and severally, hereby agree
that they will indemnify and save harmless Lessee from and against any and all
loss, liability, damage, cost or expense (including reasonable attorneys' fees)
incurred by Lessee arising out of any of the following:
A. BREACH OF WARRANTY. The falsity or incorrectness of any
representation or warranty made by Lessors in this Agreement or in any
instrument or document delivered by Lessors to Lessee pursuant to this
Agreement;
B. BREACH OF CONVENANTS. The failure of Lessors duly to perform any
covenant or agreement to be performed by it or them under this Agreement or
under any instrument or document delivered by Lessors to Lessee pursuant to this
Agreement;
C. LIABILITIES. Any liability or obligation, or alleged liability or
obligation, of Lessors (including without limitation any such liability or
obligation arising from actions taken by Lessors prior to the Closing Date but
accruing or asserted thereafter), to the extent that such liabilities arise out
of occurrences, circumstances, actions or inactions occurring or in existence
prior to the Closing Date, whether or not such occurrences, circumstances,
actions or inactions are known by Lessors or Lessee on or prior to the Closing
Date or are disclosed herein;
D. CLAIMS AGAINST LEASED PREMISES. Any levy or other claim by any third
party against or with respect to the leased premises or any part thereof, or any
other claim by any third party against Lessee, arising out of any act or
omission or alleged act or omission of Lessors prior to the Closing.
E. THIRD PARTY CLAIMS. If any Indemnity Claim is based upon any claim,
demand, suit or action of any third party against Lessee or the leased premises
(a "Third Party Claim"), then Lessee, at the time it gives Lessors the Notice of
Claim with respect to such Third Party Claim, shall:
Offer to Lessors the option to have Lessors assume the defense of such
Third Party Claim, which option shall be exercised by Lessors (if they elect to
exercise) by written notice to Lessee within fifteen (15) days after Lessee
gives written notice to Lessors thereof. If Lessors so exercise such option,
then Lessors shall, at their own expense, assume the defense of such Third Party
Claim, and shall upon the final determination thereof fully discharge at their
own expense all liability of Lessee with
<PAGE>
respect to such Third Party Claim, and shall be entitled, in their sole
discretion and at their sole expense but without any liability of Lessee
therefor, to compromise or settle such Third Party Claim upon terms acceptable
to them. From the time Lessors so assume such defense and while such defense is
pursued diligently and in good faith, Lessors shall have no further liability
for attorneys' fees or other costs of defense thereafter incurred by Lessee in
connection with such Third Party Claim; PROVIDED HOWEVER, that Lessee shall have
the right to participate in (but not control) such defense; or
If Lessors do not make the election provided in subparagraph (1)
above, Lessee shall undertake to defend such Third Party claim itself. It shall
conduct such defense as would a reasonable and prudent person to whom no
indemnity were available, shall permit Lessors (at their sole expense) to
participate in (but not control) such defense, and shall not settle or
compromise such Third Party Claim without the consent of Lessors to such
settlement or compromise (which consent shall not unreasonably be withheld).
F. SURVIVAL OF LESSORS' REPRESENTATIONS AND WARRANTIES: The
representations,, covenants, promises and warranties of Lessors, and Lessee made
in this Agreement or in any instruments, certificates, schedules, documents,
opinions or other writings delivered by Lessors pursuant to this Agreement shall
be deemed to be continuing and shall survive the Closing.
G. RIGHT OF OFFSET: Lessee may offset any Indemnification Claim under
this Section Twenty against payment due or which will become due to Lessors
pursuant to this Agreement. If Lessee has notice or actual knowledge of any
event or circumstance which does not or may result in a right of offset pursuant
to the terms of this Agreement, it shall with 20 days of such notice or actual
knowledge of such event or circumstances notify Lessors in writing of such event
or circumstance. Provided, however, Lessee may not offset any indemnification
claim under this Section with respect to any claim for indemnification contested
in good faith by Lessor, until such matter is resolved by an order or judgment
of a court of competent jurisdiction by written stipulation executed by the
parties or by determination by arbitration. If Lessor shall contest any such
indemnification, but such contest shall not be in good faith, then Lessor shall
be liable to Lessee for payment of reasonable attorney fees and expenses of
litigation incurred by Lessee in connection with such contest.
H. LIABILITY FOR INDEMNITY CLAIMS: The liability of Lessors hereunder
with respect to Indemnity Claims shall continue from the effective date of this
Lease Agreement, and shall terminate on the earlier of June 30, 2005, or two
years after the actual closing if Lessee exercises its right and option to
purchase the leased premises.
SECTION NINETEEN
DEFAULT
If the Lessee shall fail or neglect to pay any amount of rent when the same
is due and payable or if the Lessee shall fail or neglect to perform or observe
any of the agreements or covenants contained herein, then the Lessor shall
deliver or mail to the Lessee at the Leased Premises, and to the address of
Lessee given in this Agreement a written notice of such failure to pay rents or
other default and Lessee shall have (a) a period of fifteen (15) days after such
notice in which to pay the rents due and 2) one hundred twenty (120) days to
cure any default other than non-payment of rents due. In the event that Lessee
shall fail to pay the rent due or cure the default complained of after such
notice, the Lessor may, by
<PAGE>
expiration of the applicable periods of time set forth in (a) and/or (b) above,
may terminate the lease immediately and take possession of the premises.
In the event the Lessor shall exercise the right to terminate this lease
under the aforesaid provisions, the Lessor will not thereby be deprived of any
other right it may have against the Lessee, but shall at all times be entitled
to recover from the Lessee any and all other damages sustained by the Lessor on
account of a breach of covenants or agreements herein contained which Lessee is
obligated to perform. Lessee further agrees that in case of such termination by
Lessor that Lessee will indemnify Lessor against all loss of rents for the
remainder of the lease term which Lessor may incur due to the termination of
this Agreement.
In the event of termination, Lessor may reenter the leased premises
immediately and remove the property, equipment and personnel of Lessee and store
the property and equipment at a place selected by Lessor at the expense of
Lessee. After reentry, Lessor may re-let the leased premises or any part of the
leased premises.
SECTION TWENTY
QUIET ENJOYMENT
Lessor warrants that Lessee shall be granted peaceable and quiet enjoyment
of the leased premises free from any eviction or interference by Lessors if
Lessee pays the rent and other charges provided in this Agreement, and otherwise
fully and punctually performs the terms and conditions imposed on Lessee.
SECTION TWENTY-ONE
LESSORS ENVIRONMENTAL INDEMNITY AND HOLD HARMLESS
Lessors hereby agrees to indemnify, defend, protect, and hold harmless
Lessee and Lessee's agents, and their respective successors and assigns, from
any and all claims, judgments, damages, penalties, fines, costs, liabilities,
and losses that may arise during the lease term or within five (5) years of the
termination of the lease term, directly or indirectly from the presence of
underground storage tanks and Hazardous Materials on or in the leased premises
which is caused or permitted by Lessors or Lessors's agents. This
indemnification by Lessors of Lessee and Lessee's representatives includes,
without limitation, any and all costs incurred with any cleanup, remedial,
removal or restoration work required by any federal, state, or local
governmental agency or political subdivision because of the presence of
underground storage tanks or Hazardous Material in or on the leased premises.
Lessors shall promptly notify Lessee of any presence of underground storage
tanks or Hazardous Materials in or on the leased premises that Lessors is aware
of or becomes aware of during the term of this lease, whether caused by Lessors,
Lessors's agents, or any other persons or entities other than Lessee. Nothing in
this provision shall be construed so as to prevent the Lessor from utilizing the
full protection provided by any federal, state or local law in existence at the
inception of this lease or later coming into existence which limits, eliminates,
or shields an owner or previous owner of property from environmental liability
which was caused or occasioned by some other party.
As used in this Lease, the term Hazardous Materials shall mean and include
any hazardous or toxic materials, substances, or wastes including (i) those
materials included in the provisions of O.C.G.A. (section) 12-8-140, (ii) any
materials, substances, or wastes that are toxic, ignitable, corrosive, or
reactive and that are regulated by any
<PAGE>
local governmental authority, any agency of the State of South Carolina, or any
agency of the United States government, (iii) asbestos, (iv) petroleum and
petroleum-based products, (v) urea formaldehyde foam insulation, (vi)
polychlorinated biphenyls (PCBs), (vii) freon and other chlorofluorocarbons,
(viii) those designated as hazardous substances pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 USC (section) 6901 et seq.,
and (ix) those designated as hazardous substances pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Recovery Act, 42 USC
(section) 9601 et seq.
SECTION TWENTY-TWO
LESSEE'S ENVIRONMENTAL INDEMNITY AND HOLD HARMLESS.
Lessee hereby agrees to indemnify, defend, protect, and hold harmless
Lessors and Lessors' agents, and their respective successors and assigns, from
any and all claims, judgments, damages, penalties, fines, costs, liabilities,
and losses that arise during the lease, or within five (5) years of the
termination of the lease term, directly or indirectly from the presence of
underground storage tanks or Hazardous Materials on or in the leased premises
which is caused or permitted by Lessee or Lessee's agents. This indemnification
by Lessee of Lessors and Lessors' representatives includes, without limitation,
any and all costs incurred with any cleanup, remedial, removal, or restoration
work required by any federal, state, or local governmental agency or political
subdivision because of the presence of that underground storage tanks or
Hazardous Material in or on the leased premises. Lessee shall promptly notify
Lessors of any presence of underground storage tanks or Hazardous Materials in
or on the leased premises that Lessee is aware of or becomes aware of during the
term of this lease, whether caused by Lessee, Lessee's agents, or any other
persons or entities. Nothing in this provision shall be construed as to prevent
the Lessee from utilizing the full protection provided by any federal, state or
local law in existence at the inception of this lease, or later coming into
existence which limits, eliminates or shields an owner, Lessee, or previous
owner or Lessee of property from the environmental liability which was caused by
or occasioned by some other party.
As used in this Lease, the term Hazardous Materials shall mean and include
any hazardous or toxic materials, substances, or wastes including (i) those
materials identified in O.C.G.A. (section) 12-8-140, (ii) any materials,
substances, or wastes that are toxic, ignitable, corrosive, or reactive and that
are regulated by any local governmental authority, any agency of the State of
South Carolina or any agency of the United States government, (iii) asbestos,
(iv) petroleum and petroleum-based products, (v) urea formaldehyde foam
insulation, (vi) polychlorinated biphenyls (PCBs), (vii) freon and other
chlorofluorocarbons, (viii) those designated as hazardous substances pursuant to
Section 1004 of the Federal Resource Conservation and Recover Act, 42 USC
(section) 6901 et seq., and (ix) those designated as hazardous substances
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Recovery Act, 42 USC (section) 9601 et seq.
SECTION TWENTY-THREE
WAIVERS
The failure of Lessor to insist on strict performance of any of the other
terms and conditions of this Lease Agreement shall not be deemed a waiver or of
any breach or default in any terms and conditions.
SECTION TWENTY-FOUR
<PAGE>
NOTICES
A. All notices, demands, or other writings in this Lease Agreement
provided to be given or made or sent, or which may be given or made or sent, by
either party to the other, shall be deemed to have been fully given or made or
sent when made in writing and deposited in the United States mail, registered
and postage prepaid, and addressed as follows:
To Lessors: R. A. Warr
Wayne Evans d/b/a
Lamar Warehouse Co.
P.O. Box 828
Lamar, South Carolina 29069
To Lessee: Lamar Housing, L.L.C.
2255 Industrial Boulevard
Waycross, GA 31501
B. The address to which any notice, demand or other writing may be given
or made or sent to any party as above provided may be changed by written notice
given by such party to the other parties hereto.
SECTION TWENTY-FIVE
ASSIGNMENT, MORTGAGE, OR SUBLEASE
Lessee may assign or sub-let all or any portion of the Leased premises to a
person, firm, limited liability company, or corporation affiliated with Lessee
without further notice to Lessors. However, no such assignment or subletting
shall alter or amend any covenant, promise or obligation of Lessee pursuant to
the terms of this Lease Agreement.
SECTION TWENTY-SIX
SURRENDER OF POSSESSION
A. Unless Lessee elects to exercise its right and option to purchase as
set forth in Section Eight of this Agreement, Lessee shall, on the last day of
the term, or on earlier termination and forfeiture of this Agreement, peaceably
and quietly surrender and deliver the leased premises to Lessors free of
subtenancies, moveable trade fixtures, equipment, furniture, tools, machinery,
materials, and inventory, in good condition, reasonable wear and tear excepted.
B. Lessors may remove any trade fixtures, equipment and personal property
placed upon the leased premises and belonging to Lessee, if Lessee fails or
refuses to remove the same.
C. Lessee shall repair and restore all damage to the leased premises
caused by the removal of equipment, trade fixtures, and personal property.
SECTION TWENTY-SEVEN
ENTIRE AGREEMENT
This Agreement and the Schedules hereto and other agreements referred to
herein shall constitute the entire Agreement between the parties. Any prior
understanding or representation of any kind preceding the date of this Agreement
shall not be binding upon either party except to the extent incorporated in this
Agreement.
SECTION TWENTY-EIGHT
MODIFICATION OF AGREEMENT
<PAGE>
Any modification of this Agreement or additional obligation assumed by
either party in connection with this Agreement shall be binding only if
evidenced in a writing signed by each party or an authorized representative of
each party.
SECTION TWENTY-NINE
BINDING EFFECT
This Agreement shall bind and inure to the benefit of the respective heirs,
executors, administrators, successors, and assigns of the parties.
SECTION THIRTY
APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of South Carolina.
SECTION THIRTY-ONE
TIME OF THE ESSENCE
It is specifically declared that time is of the essence in all provisions
of this Agreement.
SECTION THIRTY-TWO
PARAGRAPH HEADINGS
The titles to the paragraphs of this Agreement are solely for the
convenience of the parties and shall not be used to explain, modify, simplify,
or aid in the interpretation of the provisions of this Agreement.
SECTION THIRTY-THREE
No presumptions of law or otherwise shall arise for or against either party
concerning the preparation of this Agreement.
IN WITNESS WHEREOF each party to this Agreement has caused it to be
executed effective the day and year first above written.
LAMAR WAREHOUSE CO.
A partnership
BY: /s/ Wayne Evans
-------------------------------
Wayne Evans, Partner
BY: /s/ R.A. Warr
-------------------------------
R. A. Warr, Partner
Signed, sealed and delivered in the
presence of:
/s/ Donald Bell Clark
- ----------------------------------
Witness
/s/ [illegible]
- ----------------------------------
Notary Public
<PAGE>
My Commission expires: 6/15/05
REMAINDER OF SIGNATURE PAGE TO LEASE AGREEMENT WITH OPTION TO PURCHASE BETWEEN
R. A. WARR and WAYNE EVANS, INDIVIDUALLY AND DBA LAMAR WAREHOUSE CO. and LAMAR
HOUSING, L.L.C.
LAMAR HOUSING, L.L.C., Lessee
BY: /s/ Ed [illegible]
--------------------------------------
Signed, sealed and delivered in the
presence of
/s/ Donald Bell Clark
- --------------------------------
Witness
/s/ [illegible]
- --------------------------------
Notary Public
My commission expires: 6/15/05
EXHIBIT A
TRACT ONE: All that certain piece, parcel or tract of land together with the
buildings and improvements thereon lying, being and situate in the Town of
Lamar, County of Darlington, State of South Carolina. Said tract being
designated as Tract #1 on a plat hereinafter referred to, according to which
said tract contains 4.253 acres, more or less, and is bounded and measures as
follows on the northwest by the right-of-way of Railroad Avenue whereon it
measures 1,852.95 feet; on the northeast by the right-of-way Railroad Avenue and
by lands now or formerly of E.H. Seagars and Company and measured thereon 100
feet, more or less; on the southeast by the old Seaboard Coast Line Railroad
right-of-way, by the McClain Subdivision, by the lands of the Estate of H.c.
Galloway, and of Howard Paul, and measuring thereon 1,852.95 feet; on the
southwest by lands now or formerly of E.H. Seagars and Company measuring thereon
100 feet, more or less. SUBJECT HOWEVER, to existing rights-of-way across the
aforesaid property, including the right-of-way of Railroad Avenue as shown on
said plat.
TRACT TWO: All that certain piece, parcel or lot of land situate, lying and
being in the County of Darlington, State of South Carolina, being shown and
designated as Tract No. Two (2) on the certain plat prepared by Lind Surveying
Co., dated October 7, 1972, and recorded in the office of the Clerk of Court for
Darlington County in Plat Book 59, Page 99. Said tract being triangular in shape
and containing 1.034 acres, as shown on said plat; and being bounded, now or
formerly, as follows: On the north or northwest by a canal separating it from
property now or formerly of Willie J. Carter, a distance of 526.94 feet; on the
east by property now or formerly of E. H. Segrs & Company, a distance of 182.25
feet, and on the south by Railroad Avenue, on which it fronts and measures
494.42 feet. Be all measurements a little more or less, and being the same
property conveyed by deed dated June 26, 1984 and recorded in the Office of the
Clerk of Court for Darlington County in Deed Book 873, page 697 on June 27,
<PAGE>
1984.
TRACT THREE: All that certain piece, parcel or lot of land, situate, lying and
being in the Town of Lamar, State of South Carolina and shown on that certain
plat prepared for C. H. Segars by M. E. Lind, Jr., Registered Surveyor, dated
February 6, 1980 and recorded in Plat Book __; Page __; this property is bounded
and measures as follows, to-wit: On the northwest by property now or formerly of
William James Carter for a distance of Two Hundred Fifty-four and Nine One
hundredths (254.09') feet, the boundary between the properties being the center
of a ditch running thereon; on the northeast by property now or formerly of R.
E. Reynolds for a distance of Two Hundred Ninety-nine and Two One-hundredths
(299.02') feet; on the southeast by Railroad Avenue on which it fronts and
measures Two Hundred Forty-one and Sixty-one One-hundredths (241.61') feet; and
on the southwest by property of James Lewis for a distance of One Hundred
Eighty-two and Twenty-five One-hundredths (182.25') feet; all measurements a
little more or less.
This is the same property conveyed to Coker Builders, Inc., by deed of Southern
Bank and Trust Company dated February 28, 1985 and recorded in the Office of the
Clerk of Court for Darlington County in Deed Book 891 at Page 668 on May 3,
1985.
TRACT FOUR: All that certain piece, parcel or tract of land lying, being and
situate in the Town of Lamar, County of Darlington, State of South Carolina.
Said tract being designated as Tract #4 contains 4.5 acres, more or less and is
bounded and measures as follows: on the northwest by the right of way to
Railroad Avenue and measuring 1,956 feet, more or less; on the northeast by
Tract #1 on said plat and measuring thereon 100 feet; on the southeast by lands
of Howard Paul and measuring 1,956 feet, more or less; on the southwest by a
State Road (S-16-975) and measuring 100 feet.
For a more particular description of said tract, reference may be had to a
plat by the Lind Surveying Company dated 7 October 1972 and revised 11 February
1982 to show the above tract #4 and recorded in the Office of the Clerk of Court
of Darlington County, in Plat Book 89 at Page 231.
Said properties having been conveyed to Coker Builders, Inc. by deed of
C.H. Seagars dated 14 February 1982, recorded in the office of the Clerk of
Court of Darlington County in Deed Book 837, at page 145.
TRACT FIVE: All that certain piece, parcel or lot of land situate, lying and
being in the County of Darlington, State of South Carolina, being shown on that
certain plat prepared for E. H. Segars by Lind Surveying Co., Registered
Surveyor, dated October 7, 1972, and recorded in the Office of the Clerk of
Court for Darlington County in Plat Book 89, Page 231. This property lies at the
fork of two public roads; e.g. Railroad Avenue and McLain Street which roads
comprise the North, East and South boundaries; on the West by property now or
formerly of E. H. Segars measuring 100 feet along a bearing of S 320 degrees 40'
East. Said tract being irregular in shape and comprising .230 acres together
with the buildings and improvements thereon lying.
EXHIBIT B TO
LEASE AGREEMENT WITH OPTION TO
PURCHASE DATED JULY 7, 1995
<PAGE>
ALTERATIONS, ADDITIONS AND IMPROVEMENTS TO LEASED PREMISES
Lessee proposes the following alterations, additions and improvements to the
Leased Premises:
A. Exterior
1. Add an extension to the north end of the main building.
2. Add approximately 4 - 6 additional sheds to the exterior walls on
Railroad Avenue and McClain Street, and add additional exterior
bathrooms.
3. Add a dock on Railroad Avenue at the last door.
4. Reduce the size of the loading dock at the south end of the main
building.
5. Add approximately six overhead doors to the sides and ends of the
main building.
6. Modify or remove sections of the chain link fence .
7 Remove or modify the pole shed at the south end of the building
inside the fence.
8. Modify or possibly remove the concrete block building on Tract No. 5.
(At such time is available and part of the leased premises.)
B. Interior
1. Replace two to four restrooms.
2. Remove two built-in offices and storage areas.
3. Hang overhead steel for roof carrier, to set roof for production
line, and trolley system.
4. With jackhammer or similar equipment, place hole in concrete for
water drain and cover with grate.
5. With jackhammer or similar equipment, cut concrete for line roll
system and conveyor.
6. Install V Groove center line of plant floor.
Lamar Warehouse Co. Lamar Housing, L.L.C.
/s/ R. A. Warr /s/ Ed [illegible]
- ----------------------------- -----------------------------
/s/ Wayne Evans
- -----------------------------
[Attached to this document is small diagram illustrating
Tract 2 and Tract 3 in relation to Railroad Ave and the
"Town Pumping Station."]
<PAGE>
EXHIBIT 10.6
LEASE
THIS AVIATION GROUND LEASE, referred to as Agreement, effective as of
September 19, 1994, by and between WARE COUNTY, GEORGIA and THE CITY OF
WAYCROSS, GEORGIA, both body politics organized under the laws of the State of
Georgia, and having their principal offices in the City of Waycross, County of
Ware, State of Georgia, herein referred to as Lessor, and GENERAL MANUFACTURED
HOUSING, INC., a corporation organized under the laws of the State of Georgia,
and having its principal office at 2255 Industrial Boulevard, City of Waycross,
County of Ware, State of Georgia, referred to as Lessee.
RECITALS
The Parties recite and declare:
A. Lessor is the owner of an airport known as Waycross Ware
County Airport referred to as the Airport.
B. Lessee desires to use the facilities of the Airport.
C. Lessor is willing to lease to Lessee a portion of the
Airport premises together with such rights and privileges as are set forth
in this Agreement.
In consideration of the above recitals, the terms and covenants of
this agreement, and other valuable consideration, the receipt of which is
acknowledged, the parties agree as follows:
SECTION ONE
RENT
A. For the period ending September 30, 1999, Lessee shall pay
to Lessor as annual rental for the tract of $0.02 per square foot of leased
land area. Rent shall be annually or semi-annually at Lessee's option, in
advance, without demand, on the first day of each annual or semi-annual
period. Except for the initial period which shall be for the period from
the date hereto through September 30, 1995, each annual period shall
commence on October 1. Each semi-annual period shall commence on April 1.
B. For the period commencing October 1, 1999, Lessor, at its sole
option, may increase the annual rent to $0.0233 per square foot of leased land
area.
C. For the period commencing October 1, 2004, Lessor, at its sole
option, may increase the annual rent to $0.0266 per square foot of leased land
area.
D. For the period commencing October 1, 2009, Lessor at its sole
option, may increase the annual rent to $.03 per square foot of leased land
area.
E. Provided, however, that if Lessor decides to exercise its right
and option to increase the rent for any of the periods described above, it shall
give Lessee written notice not less than ninety (90) days
<PAGE>
in advance of the period commencement date as set forth above; further provided
that Lessee shall have thirty (30) days from receipt of the Notice of Rent
Increase to terminate this Agreement. Lessee shall notify Lessor in writing of
such termination within thirty (30) days of receipt of the Notice of Rent
Increase. Lessee shall have ninety (90) days from such written notice to remove
its improvements, equipment, property and aircraft from the leased premises.
Rent shall be prorated down to the actual date that Lessee vacates the leased
premises.
Nothing herein shall prevent Lessee from Selling to Lessor the
improvements, equipment, and personal property on the leased premises.
SECTION TWO
DESCRIPTION OF LEASED PREMISES
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
that certain parcel of real property at the Airport together with any
improvements contained on the parcel for Lessee's exclusive use specifically
described as follows:
That tract or parcel of land in Ware County, Georgia more fully shown
on the attached drawing, which drawing is incorporated herein by reference.
SECTION THREE
IMPROVEMENT CONSTRUCTION
Lessee may construct improvements on the parcel. Such improvements
shall be subject to requirements such as set-back requirements and paving
requirements for connection to the taxiway as well as for ramp and parking.
All construction shall meet the requirements of applicable building
code and the design shall be harmonious with surrounding structures.
Lessee may modify, improve, replace, repair or remove the improvements
during the term of the Agreement or any extension thereof.
SECTION FOUR
USE OF AIRPORT
Lessee is granted the use, in common with others similarly authorized,
of the airport, together with all facilities, equipment, improvements, and
services which have been or may hereafter be provided at or in connection with
the airport from time to time including, but not limited to, the landing field
and any extensions thereof or additions thereto, roadways, runways, aprons,
taxiways, sewage and water facilities, floodlights, landing lights, beacons,
control tower, signals radio aids, and all other conveniences for flying,
landings, and takeoffs.
SECTION FIVE
RIGHT OF INGRESS AND EGRESS
Lessee shall have at all times the full and free right of ingress to
and egress from the premises and facilities referred to in this
<PAGE>
Agreement for Lessee, its employees, customers, passengers, guests, and other
invitees. Such right shall also extend to persons or organizations supplying
materials or furnishing services to Lessee, to include vehicles, machinery, and
equipment reasonably required by such persons or organizations.
SECTION SIX
INSURANCE
Lessee shall procure and maintain in force insurance covering the
leased premises and Lessee's activities thereon. Lessee agrees to indemnify
Lessors against all liability for injuries to persons or damage to property
caused by Lessee's negligent use or occupancy of the leased premises; provided,
however, that Lessee shall not be liable for any injury, damage, or loss
occasioned by the negligence of Lessors or their agents or employees; and
provided further that Lessors shall give to Lessee prompt and timely notice of
any claim made or suite instituted which in any way directly or indirectly
contingently or otherwise, affects or might affect Lessee, and Lessee shall have
the right to compromise and defend the same to the extent of its own interest.
SECTION SEVEN
OBLIGATIONS OF LESSOR
During the term of this Agreement, Lessor shall operate and maintain
the Airport for use by the public. Operation and maintenance by the Lessor
includes providing access to the leased premises for use by Lessee's vehicles.
Under no circumstances shall the Lessor have any responsibility for the
condition of the leased premises after delivery to Lessee.
SECTION EIGHT
OBLIGATIONS OF LESSEE
Lessee shall have sole responsibility to maintain and operate the
leased premises and all improvements placed thereon at Lessee's sole cost and
expense. Under no circumstances shall the Lessor bear any cost or expense.
Lessee accepts the leased premises in its present condition. Lessee declares and
hereby agrees that it is leasing the above described property on its own
examination and judgment and that it is not relying on any representations made
by Lessor or its agents as to location, value, future value, income therefrom or
its production.
Lessee shall, at its sole cost and expense, maintain the leased
premises and improvements in good condition.
Lessee shall allow inspection by Lessor at all reasonable times.
Lessee shall conduct all activity in accord with the laws of the
United States of America and the State of Georgia.
SECTION NINE
INDEMNIFICATION
Lessee and Lessor have no relationship except as landlord and tenant.
Lessee shall be responsible in every respect for all of its acts or omissions.
<PAGE>
SECTION TEN
CANCELLATION BY LESSEE
Lessee may cancel this lease by written notice to the Lessor,
whereupon rent shall be prorated as of the date Lessee vacates the parcel, upon
occurrence of one of the following events:
a. abandonment of the Airport by Lessor.
b. assumption of the operation, control or use of the Airport by
United States Government in such manner that substantially restricts Lessee from
operating in a normal manner for a period of ninety (90) consecutive days.
c. existence of an injunction by a Court of competent jurisdiction
preventing or restraining use of the Airport for a period of at least ninety
(90) consecutive days.
d. default by Lessor continuing for at least thirty (30) consecutive
days after receipt from Lessee of written notice to remedy a default.
e. as set forth in Section One, above.
SECTION ELEVEN
CANCELLATION BY LESSOR
This Agreement shall be subject to cancellation by Lessor as follows:
a. When Lessee is in default of payment of rent for a period of
thirty (30) days after written notice from Lessor.
b. When Lessee is in default in performance of any other covenant or
condition required by this Agreement for a period of thirty (30) days after
written notice of the default.
The right to obtain possession of the parcel and to cancel the
Agreement as provided hereinabove shall not limit Lessor's right to obtain
specific performance or to pursue any other remedy provided for by law or this
Agreement. Lessor's right in the event of default shall be cumulative, subject
only to such election of alternatives as the law may require.
SECTION TWELVE
SUBLEASE AND ASSIGNMENT
Lessee shall have the right to sell, sublease, assign or transfer
rights and privileges under this lease only upon prior written consent of the
Lessor which consent shall not be unreasonably withheld.
SECTION THIRTEEN
SECURITY INTERESTS
Lessee may pledge or mortgage the leased premises together with
improvements as collateral for a loan or loans. However, such pledgee or
<PAGE>
mortgagee shall not receive rights greater than the rights of Lessee herein.
SECTION FOURTEEN
NOTICES
Any notice given in connection with this Agreement shall be served
upon the Parties to this Agreement either personally or by certified mail and
shall be directed to the following addressees:
LESSOR: Ware County, Georgia
Ware County Courthouse
Waycross, GA 31501
LESSEE: General Manufactured Housing, Inc.
P.O. Box 1449
Waycross, GA 31502
Notice served by mail under the provisions of this Section shall be
complete upon deposit in the United States Mail with postage pre-paid. The
address to which notice shall be sent may be changed by notification of such
change in compliance with the provisions of this section and by sending such
notice to the address contained herein.
SECTION FIFTEEN
NO ADDITIONAL CHARGES OR FEES
No charges, fees, or tolls, other than those expressly provided
for in this Agreement, shall be charged or collected by Lessor from Lessee
or any other persons for the privilege of entering or leaving the airport
or, within the limits of the airport, for the privilege of transporting,
loading, unloading, or handling persons, cargo, property, or mail in
connection with Lessee's business.
SECTION SIXTEEN
MAINTENANCE AND UTILITIES
a. During the initial term of this agreement and any renewal
thereof, Lessor shall maintain and keep in good repair so much of the airport
premises as is not under the exclusive control of individual lessees, including,
but not limited to, all roadways, runways, aprons, and taxiways. Lessor shall
also maintain and operate all sewage and water facilities, all electrical and
electronic facilities, and all such other appurtenances and services as are now
or hereafter connected with the operation of the airport.
b. Lessee shall provide for and supply at its expense and shall pay
for all heat, light, gas, electricity, and water used by it in or in connection
with such buildings and facilities.
SECTION SEVENTEEN
RULES AND REGULATIONS
Lessee agrees to observe and obey reasonable rules and regulations
with respect to use of the premises; provided, however, that such rules and
regulations shall be consistent with safety and rules, regulations, and orders
of the Federal Aviation Administration with respect
<PAGE>
to aircraft operation at the airport; and provided further, that such rules and
regulations shall not be inconsistent with the provision of this agreement or
the procedures prescribed or approved from time to time by the Federal Aviation
Administration with respect to the operation of Lessee's aircraft at the
airport.
SECTION EIGHTEEN
INSPECTION BY LESSOR
Lessor may enter the premises now or hereafter leased exclusively to
lessee at any reasonable time for any purpose necessary or incidental to the
performance of its obligations under this agreement.
SECTION NINETEEN
GOVERNING LAW
This Agreement shall be governed by, construed, and enforced in
accordance with the laws of the State of Georgia.
SECTION TWENTY
SEVERABILITY
Any covenant, condition, or provision of this Agreement that is held
to be invalid by any court of competent jurisdiction shall be considered deleted
from this Agreement, but such deletion shall in no way affect any other
covenant, condition, or provision of this Agreement so long as such deletion
does not materially prejudice Lessor or Lessee in their respective rights and
obligations contained in the valid covenants, conditions, or provisions of this
Agreement.
SECTION TWENTY-ONE
EFFECT OF AGREEMENT
All covenants, conditions, and provisions in this agreement shall
extend to and bind the legal representatives, successors, and assigns of the
respective parties.
SECTION TWENTY-TWO
CONFORMITY OF AGREEMENT
In the event Lessor enters into any lease, contract, or agreement with
any other Lessee with respect to the airport containing more favorable terms
than this Agreement, or in the event Lessor grants to any other rights or
privileges with respect to the airport that are not accorded Lessee under this
Agreement, then the same rights, privileges, and more favorable terms shall be
concurrently and automatically made available to Lessee.
SECTION TWENTY-THREE
ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties,
and any prior understanding or representation of any kind preceding the date of
this Agreement shall not be binding on either party except to the extent
incorporated in this agreement.
<PAGE>
SECTION TWENTY-FOUR
MODIFICATION OF AGREEMENT
Any modification of this Agreement or additional obligation assumed by
either party in connection with this Agreement shall be binding only if in
writing signed by each party or an authorized representative of each party.
IN WITNESS WHEREOF, each party to this Agreement has caused it to
be executed at Waycross, Georgia, the day and year above set forth.
WARE COUNTY, GEORGIA
By: /s/ [ILLEGIBLE]
------------------------------------
Attest: /s/ Gail [ILLEGIBLE]
--------------------------------
Signed, sealed and delivered in the
presence of:
/s/ Joyce Herndon
- ------------------------------------
Witness
/s/ Heather L. Dean
- ------------------------------------
Notary Public
My Commission expires: AUGUST 8, 1997
CITY OF WAYCROSS, GEORGIA
By: /s/ [ILLEGIBLE]
-------------------------------------
Attest: /s/ [ILLEGIBLE]
---------------------------------
Signed, sealed and delivered in the
presence of:
/s/ [ILLEGIBLE] Caswell
- -----------------------------------
Witness
/s/ Marcia S. Kilmark
- -----------------------------------
Notary Public
My Commission expires: NOVEMBER 22, 1997
<PAGE>
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Sam Scott
--------------------------------
Attest: /s/ [ILLEGIBLE]
----------------------------
Signed, sealed and delivered in the
presence of:
/s/ [ILLEGIBLE]
- ----------------------------------------
Witness
/s/ Shelby Jean Griffin
- ----------------------------------------
Notary Public
My Commission expires: NOVEMBER 17, 1997
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of December 21,
1995, by and between GMH ACQUISITION CORP., a Delaware corporation with an
office at P.O. Box 1449, Waycross, Georgia 31502-1449 (the "Company") and
GREGORY KEITH SCOTT, currently residing at 3136-A South Fletcher Avenue,
Fernandina Beach, Florida 32034 (the "Executive").
The parties hereto, intending to be legally bound hereby, and in
consideration of the mutual covenants herein contained, agree as follows:
1. EMPLOYMENT.
1.1 The Company employs the Executive, and the Executive accepts
such employment (the "Employment"), as Vice President -Manufacturing of the
Company. The Executive agrees to accept the employment and agrees to remain in
the employ of the Company during the Employment Term (as defined in Section 2
hereof) and any extensions thereof and to perform such lawful duties as are from
time to time assigned to him by the Chief Executive Officer or the Board of
Directors of the Company (the "Board") and which are normally associated with
the position of Vice President - Manufacturing in the manufactured housing
industry.
1.2 During the Employment Term and any extensions thereof, the
Executive will devote his best efforts and full business time, skill and
attention to the performance of his duties on behalf of the Company.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6
hereof, the term of the Executive's employment hereunder shall be from the date
hereof until December 31, 2000 (the "Employment Term").
<PAGE>
3. COMPENSATION.
3.1 The Company agrees to pay, and the Executive agrees to
accept, as base compensation for all services to be rendered by the Executive in
any capacity to the Company or its affiliates during the Employment Term, a
salary of $100,000 per annum, subject to such deductions and withholdings as may
be required by law or by further agreement with the Executive (the "Base
Salary"), payable in arrears in equal bi-weekly installments. The Base Salary
may be increased from time to time in the discretion of the Board. Any such
increases shall be added to the Base Salary then being paid to the Executive,
and the sum thereof shall then become the Base Salary for each successive year,
until further adjusted in accordance with the provisions of this Section 3.1.
3.2 In addition to the Base Salary, the Executive shall
participate in the Company's Executive Bonus Plan, a copy of which is attached
hereto as Exhibit 1, (the "Plan") subject to the terms and conditions of the
Plan. The Executive's "Participant Percentage" under the Plan will never be less
than 20% of the "Bonus Pool" (as such terms are defined in the Plan). The
Company will award not less than a $100,000 incentive award to the Executive for
the 1996 Plan Year regardless of the size of the Bonus Pool.
3.3 The Company shall reimburse the Executive for all reasonable and
necessary expenses incurred by the Executive in connection with the Employment,
including without limitation, travel and lodging expenses and charges incurred
on a Company credit card for business entertainment. Such expenses shall be
reimbursed to the Executive by the Company after the Executive's submittal of an
invoice to the Company with respect to the reimbursable expenses incurred by
him. All invoices for reimbursable
<PAGE>
expenses shall include adequate supporting documentation of the expenses
incurred by the Executive, including receipts.
4. ADDITIONAL BENEFITS. During the Employment Term, the Company
shall provide the following additional benefits to the Executive: 4.1 The
Executive shall be entitled to four (4) weeks of paid vacation during each
calendar year.
4.1 The Executive shall be entitled to four (4) weeks of paid
vacation during each calender year.
4.2 The Company shall provide the Executive with health, medical
and hospitalization insurance benefits equal to those provided by the Company to
other executive officers of the Company. In addition, the Executive shall be
permitted, if and to the extent eligible, to participate in any pension plan or
other "fringe benefits" of the Company, which may be available generally to
other executive officers of the Company.
4.3 To defray the expenses of operating his personal automobile
in connection with the performance of his duties hereunder, the Executive shall
be entitled to an automobile allowance in the amount of $200.00 per month.
5. INSURANCE. In addition to any insurance coverage provided
for in Section 4 hereof, the Company may, in its discretion, purchase or renew
insurance on the life of the Executive, with the Company or a lender of the
Company as beneficiary in an amount determined by the Company or such lender
from time to time. The Executive agrees to submit to medical examinations and
otherwise to cooperate with the Company and any such lender in connection with
obtaining such insurance.
6. TERMINATION.
<PAGE>
6.1 In the event the Executive's employment is terminated for
"Cause", the Executive shall have no further rights under this Agreement, except
the right to receive the Base Salary up to the date of termination by the
Company of the Executive's employment hereunder. The decision to terminate the
Executive under this Section 6.1 shall be made by the Chief Executive Officer of
the Company or by the Board. The term "Cause" shall mean any of the following:
(a) any deliberate or intentional act or omission by the Executive with the
intent of causing damage to the Company's relationships with its lenders,
suppliers or customers; (b) any fraud, misappropriation or embezzlement by the
Executive involving properties, assets or funds of the Company; (c) a conviction
of the Executive, or plea of NOLO CONTENDERE by the Executive, to any crime or
offense involving monies or other property of the Company or any other felony or
criminal act involving moral turpitude; (d) any usurpation by the Executive of a
corporate opportunity of the Company or the Executive's willful and continual
neglect of or willful and continual failure to perform any of his material
duties, responsibilities or obligations as an employee of the Company, but only
after notice of such usurpation, neglect or failure is delivered to the
Executive and the Executive fails or refuses to remedy such usurpation, neglect
or failure to the reasonable satisfaction of the Board within thirty (30) days
after the receipt of such notice; provided, that any action or omission taken by
the Executive in good faith and in the reasonable belief that such action or
omission was in the best interests of the Company shall not constitute "Cause";
or (e) the violation by the Executive of Section 7 of this Agreement or of any
other non-competition agreement or covenant binding upon the Executive.
6.2 In the event the Executive's employment is terminated
without "Cause", the Executive shall have no further rights under this
<PAGE>
Agreement except the right to receive (a) the Base Salary for the balance of the
term of this Agreement, payable in arrears, in bi-weekly installments, (b) any
amounts due in accordance with the terms of the Plan, (c) all benefits under
Section 4.1 hereof which have accrued as of the date of termination and (d)
uninterrupted continuation of all rights and benefits accorded the Executive
under Section 4.2 hereof for the duration of this Agreement.
6.3 In the event of the Executive's death during the Employment
Term, the Employment Term shall terminate automatically as of the date of the
Executive's death, and the Executive's executor, administrator or other legal
representative shall have no further rights hereunder, except the right to
receive (a) the Base Salary up to the date of the Executive's death and (b) any
amounts due under the Plan.
6.4 If for any reason (other than pursuant to Section 6.3 or
6.5), the Executive resigns from his employment hereunder, this Agreement shall
terminate automatically, and the Executive shall have no further rights
hereunder, except the right to receive the Base Salary up to the date of the
Executive's resignation.
6.5 If, by reason of any illness, disability or incapacity, the
Executive is unable to perform his duties under this Agreement for a period of
six (6) consecutive months (or shorter periods aggregating to nine (9) months in
any twelve (12) month period) ("Disability"), the Company may terminate the
Employment Term as of the last day of such six (6) or nine (9) month period, as
the case may be, or as of such other day thereafter, provided the Executive
remains unable to perform his duties hereunder. The Executive or his legal
representative, if one is appointed, shall be entitled to receive, within sixty
(60) days after the date of such
<PAGE>
termination, any amounts payable to the Executive pursuant to this Agreement up
to the date of termination of this Agreement. Notwithstanding the foregoing, if
the Executive suffers a Disability and his employment hereunder is not
terminated, the Executive shall be entitled to receive any amounts owing to him
hereunder, less any disability insurance payments which Executive receives
pursuant to disability insurance provided by the Company hereunder.
6.6 Upon the termination of the Executive's employment pursuant
to this Section 6, the Executive shall have no further rights under this
Agreement except as expressly provided in this Section 6.
7. NON-COMPETITION, NON-INTERFERENCE AND NON-DISCLOSURE.
7.1 The Executive acknowledges that: (a) the business of
producing and distributing at wholesale, manufactured housing, currently
conducted and as conducted from time to time throughout the term of this
Agreement (collectively, the "Business") is conducted by and is proposed to be
conducted by the Company throughout the states of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Alabama, Mississippi,
Louisiana, Kentucky and Tennessee (the "Company's Market"); (b) the Business
involves the identification and development of new products and markets relating
to the production and distribution at wholesale of manufactured housing; (c) the
Company has developed trade secrets and confidential information concerning the
Business; and (d) the agreements and covenants contained in this Section 7 are
essential to protect the Business of the Company. In order to induce the Company
to enter into this Employment Agreement, the Executive covenants and agrees
that:
<PAGE>
7.2 For a period commencing on the date of this Agreement and
ending (a) on the date that the Executive's employment is terminated without
Cause, or (b) in the case of the expiration of this Agreement or the Executive's
voluntary resignation or termination with Cause, on the date which is two years
following such expiration, resignation or termination of this Agreement, neither
the Executive nor any entity of which 5% or more of the beneficial ownership is
held by the Executive or a related family member ("Controlled Entity") will,
anywhere in the Company's Market, directly or indirectly own, manage, operate,
control, invest or acquire an interest in, or otherwise engage or participate
in, whether as a proprietor, partner, stockholder, director, officer, "Key
Employee" (defined herein to include any person who is employed in a management,
executive, supervisory, marketing or sales capacity for another person), joint
venturer, investor or other participant, any business which competes with the
Business ("Competitive Business") without regard to (i) whether the Competitive
Business has its office, manufacturing or other business facilities within or
without the Company's Market, (ii) whether any of the activities of the
Executive referred to above occur or are performed within or without the
Company's Market or (iii) whether the Executive resides, or reports to an
office, within or without the Company's Market.
7.3 During the period commencing on the date of this Agreement
and ending on the date which is two years following the expiration or
termination of this Agreement, whether by resignation, termination with or
without Cause, or otherwise (the "Restricted Period"), neither the Executive nor
any Controlled Entity will directly or indirectly solicit, induce or influence
any customer, supplier, lender, lessor or any other person which has a business
relationship with the Company, or which had on the date of this Agreement, a
business relationship with the Company, to discontinue or reduce the extent of
such relationship with the
<PAGE>
Company.
7.4 During the Restricted Period, neither the Executive nor any
Controlled Entity will directly or indirectly recruit, solicit or otherwise
induce or influence any employee or sales agent of the Company or any of its
affiliates to discontinue such employment or agency relationship with the
Company. During the Restricted Period, neither the Executive nor any Controlled
Entity will employ or seek to employ, or cause or induce any Competitive
Business to employ or seek to employ for any Competitive Business, any person
who is then (or was at any time within six months prior to the date the
Executive or the Competitive Business employs or seeks to employ such person)
employed by the Company. Nothing herein shall prevent the Executive from
providing a letter of recommendation to an Employee with respect to a future
employment opportunity.
7.5 During the Restricted Period and thereafter, neither the
Executive nor any Controlled Entity will directly or indirectly disclose to
anyone, or use or otherwise exploit for the Executive's or any Controlled
Entity's own benefit or for the benefit of anyone other than the Company, any
confidential information, including, without limitation, any confidential "know-
how", trade secrets, customer lists, details of client or consultant contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, computer software, business acquisition plans
and new personnel acquisition plans of the Company related to the Business or
any portion or phase of any scientific or technical information, design,
process, procedure, formula or improvement of the Company that is valuable and
not generally known to the competitors of the Company whether or not in written
or tangible form (hereinafter referred to as "Confidential Information"). The
term "Confidential Information" does not include, and there shall be no
<PAGE>
obligation hereunder with respect to, (a) information that becomes generally
available to the public other than as a result of a disclosure by the Executive
or a Controlled Entity or any agent or other representative thereof and (b)
general business methods applicable to a sales business including, but not
limited to, pricing policies, operational methods and marketing concepts.
Neither the Executive nor any Controlled Entity shall have any obligation
hereunder to keep confidential any Confidential Information to the extent
disclosure of any thereof is required by law, or determined in good faith by the
Executive to be necessary or appropriate to comply with any legal or regulatory
order, regulation or requirement; provided, however, that in the event
disclosure is required by law, the Executive or the Controlled Entity concerned
shall provide the Company with prompt notice of such requirement so that the
Company may seek an appropriate protective order.
7.6 In the event the termination or expiration of this
Agreement, the covenants and agreements contained in this Section 7 shall
survive, shall continue thereafter, and shall not expire unless and except as
expressly set forth in such Sections.
7.7 The parties to this Agreement agree that (a) if either the
Executive or any Controlled Entity breaches any provision of this Section 7, the
damage to the Company will be substantial, although difficult to ascertain, and
money damages will not afford the Company an adequate remedy, and (b) if either
the Executive or any Controlled Entity is in breach of this Agreement, or
threatens a breach of this Agreement, the Company shall be entitled, in addition
to all other rights and remedies as may be available to the Company at law or in
equity, to (i) specific performance, (ii) injunctive and other equitable relief
to prevent or restrain a breach of this Agreement and (iii) require the
breaching party
<PAGE>
to account for and pay over to the Company all compensation, profits, monies,
accruals or other benefits derived or received by such party as the result of
any transactions constituting a breach hereof.
7.8 If any court determines that any provision of this Section 7
is unenforceable because of the duration or geographic scope of such provision,
such court shall have the power to reduce the scope or duration of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
8. HEADINGS. The section headings of this Agreement are for
convenience of reference only and are not to be considered in the interpretation
of the terms and conditions of this Agreement.
9. NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) if sent by
telecopy, when receipt thereof is acknowledged at the telecopy number below, (c)
the day following the day on which the same has been delivered prepaid for
overnight delivery to a national air courier service or (d) three business days
following deposit in the United States Mail, registered or certified, postage
prepaid, in each case,
addressed as follows:
If to the Company: GMH Acquisition Corp.
P.O. Box 1449
Waycross, Georgia 31502-1449
Attn: Gary M. Brost
Telecopy: 912-285-5068
with copies to: Strategic Investments &
Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attn: Gary M. Brost
Telecopy: 716-857-6490
<PAGE>
Nixon, Hargrave, Devans & Doyle LLP
1600 Main Place Tower
Buffalo, New York 14202
Attn: Charles P. Jacobs, Esq.
Telecopy: 716-853-8109
If to the
Executive: Gregory Keith Scott
3136-A South Fletcher Avenue
Fernandina Beach, Florida 32034
with a copy to: Holland & Knight
50 North Laura Street
Jacksonville, Florida 32202
Attn: L. Kinder Cannon, III, Esq.
Telecopy: 904-358-1872
Any party may change the persons and address to which notices or other
communications are to be sent by given written notice of such change to the
other party in the manner provided herein for giving notice.
10. WAIVER OF BREACH. No waiver by either party of any condition or
of the breach by the other of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement. The failure of either party to exercise any right
hereunder shall not bar the later exercise thereof.
11. BINDING NATURE; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding on the parties and their respective successors in
interest, and shall not be assignable by either party without the written
consent of the other; provided that nothing in this Section shall preclude the
Executive from designating a beneficiary to receive any benefit payable
hereunder upon his death, or the executors, administrators or other legal
representatives of the Executive or his estate from assigning any rights
hereunder to which they become entitled to the person
<PAGE>
or persons entitled thereto. It is specifically understood and acknowledged that
this Agreement will be assumed by General Manufactured Housing, Inc., a Georgia
corporation ("GMH") by virtue of a merger of the Company with and into GMH which
is occurring contemporaneously with the execution hereof.
12. GOVERNING LAW. This Agreement is entered into and shall be
construed in accordance with the laws of the State of Georgia, without giving
effect to conflict of laws principles thereof requiring application of the
substantive laws of another jurisdiction.
13. INVALIDITY OR UNENFORCEABILITY. If any term or provision of this
Agreement is held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect any other term or provision hereof and this
Agreement shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
14. ENTIRE AGREEMENT. This Agreement constitutes the full and
complete understanding and agreement of the Executive and the Company respecting
the subject matter hereof, and supersedes all prior understandings and
agreements concerning the subject matter hereof, oral or written, express or
implied. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
modification or amendment is sought.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EXECUTIVE
/s/ Gregory Keith Scott
---------------------------------------------
Gregory Keith Scott
COMPANY
GMH ACQUISITION CORP.
By: /s/ Gary M. Brost
------------------------------------------
Gary M. Brost
Title: President
EXHIBIT 1
GENERAL MANUFACTURED HOUSING, INC.
EXECUTIVE BONUS PLAN
1. PURPOSES OF THE PLAN
The purposes of this Executive Bonus Plan (the "Plan") are to enable
General Manufactured Housing, Inc. (the "Company") to retain the services of key
employees and to provide them with increased motivation and incentive to achieve
and exceed the goals of the business consistent with both short term and long
term objectives.
2. DEFINITIONS
The following terms shall have the meanings set forth below:
(a) "Base Amount" means $8.5 million.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Bonus Pool" means, for each fiscal year of the Company, so long as
EBIT equals or exceeds the Base Amount for such fiscal year, 7% of EBIT.
(d) "EBIT" means, for each fiscal year of the Company, the net income of
the Company for such year, before (i) interest expense, (ii) taxes, (iii)
amortization, (iv) amounts paid under the Company's Incentive
<PAGE>
Compensation Plan, (v) reimbursement of the Company's expenses under Section 19
of the Stock Purchase Agreement, (vi) the Management Fee, (vii) costs incurred
by the Company in remediating the Company's properties pursuant to Section 14(b)
of the Stock Purchase Agreement and (viii) all compensation and benefits payable
to management personnel added after the Effective Date other than at the
direction of the Chief Executive Officer of the Company and other than in the
ordinary course of the Company's business, all as shown on the audited financial
statements of the Company; provided, that EBIT shall be determined in accordance
with generally accepted accounting principles consistent with those employed by
the Company in 1994 and reflected in its audited financial statements for such
year.
(e) "Effective Date" means January 1, 1996.
(f) "Management Agreement" means the Management Agreement dated as of
December 21, 1995 by and between Strategic Investments & Holdings, Inc. and the
Company.
(g) "Management Fee" means an amount equal to the management fee paid
pursuant to the terms of the Management Agreement.
(h) "Participant" means each of the following management personnel of the
Company: Samuel Scott, Gregory Scott, Drew Scott, Lannis Thomas and Wayne
Roberts.
(i) "Participant Percentage" means, for any Plan Year, the percentage of
the Bonus Pool allocated to a Participant, which shall be 20% for each
Participant.
(j) "Plan Year" means the fiscal year of the Company.
(k) "Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated as of October 10, 1995, among Samuel P. Scott et al. and GMH Acquisition
Corp., as amended.
3. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Board of Directors or a
Compensation Committee thereof. In the event the employment of any Participant
terminates, the Board of Directors or Compensation Committee shall have the
right to designate a substitute Participant or Participants (having an aggregate
Participant Percentage not in excess of that of the terminating Participant) or
otherwise determine the disposition of the Participant Percentage of any such
terminating Participant. Any decision by the Board of Directors or Compensation
Committee regarding the administration, interpretation or construction of any
provisions of the Plan shall be final, binding and conclusive.
(b) No member of the Board of Directors or Compensation Committee shall be
liable for any action taken or omitted to be taken or for any determination made
by him or her in good faith with respect to the Plan, and the Company shall
indemnify and hold harmless each member of the Board of Directors or
Compensation Committee against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Board of Directors) arising out of any act or omission in connection with
the administration or interpretation of the Plan, unless arising out of such
person's own fraud or bad faith.
(c) The Plan shall become effective upon the Effective Date.
<PAGE>
4. INCENTIVE AWARDS
(a) If EBIT for any Plan Year does not at least equal the Base Amount for
such year, the Company shall not allocate any amounts to the Bonus Pool.
Notwithstanding the foregoing or anything to the contrary contained herein, the
Board of Directors may elect to make discretionary bonus payments, not paid from
any Bonus Pool, in order to reward and retain such key employees as it shall
deem appropriate.
(b) If EBIT for any Plan Year equals or exceeds the Base Amount for such
year, the Company shall allocate 7% of EBIT to the Bonus Pool to be allocated
among the Participants.
(c) The Bonus Pool, if any, for any Plan Year shall be calculated and paid
to the Participants, in cash, within thirty (30) days after the Company's
receipt of its audited financial statements for such year but not later than one
hundred fifty (150) days following the end of such year; provided, however, that
except as provided in paragraph (d) hereof, no portion of the Bonus Pool shall
be paid to any Participant for any Plan Year if such Participant is not an
employee of the Company at the end of such year.
(d) In the event that a Participant is not an employee of the Company at
the end of a Plan Year because of his death, termination for disability or
retirement during such year, the portion of the Bonus Pool, if any, payable to
such Participant for such Plan Year shall be prorated to the date of death, date
of termination for disability or date of retirement, and the portion of the
Bonus Pool attributable to the part of the Plan Year prior to such date of
death, termination or retirement shall be determined and paid to such
Participant or his legal representative in accordance with paragraph (c) above.
In the event that a Participant is not an employee of the Company at the end of
a Plan Year because such Participant has either voluntarily terminated his
employment or because of the termination of such Participant for any reason
other than death, disability or retirement during such year, no portion of the
Bonus Pool for such year shall be payable to such Participant.
(e) Any and all amounts payable under the Bonus Pool hereunder shall be
subject to (i) applicable federal, state and local tax withholding requirements
and (ii) the Company's obligations to comply with the covenants set forth in the
Company's agreements with its lenders, and payment of any and all amounts
payable under the Bonus Pool may be deferred in order to maintain the Company's
compliance with such covenants. Such deferred amounts will be accrued until such
time as they are permitted to be paid under the Company's agreements with its
lenders and shall then be promptly paid with interest as set forth in the
immediately following sentence. Any such deferred amounts will accrue interest
at the Prime Rate, as such rate is quoted from time to time in the Wall Street
Journal.
5. MISCELLANEOUS
(a) No right to receive any incentive compensation under the Plan shall be
transferable except by will or the laws of descent and distribution. Any
purported transfer contrary to this provision will be null and void and without
effect.
(b) Neither the adoption of the Plan nor its operation, nor any
document describing or referring to the Plan, or any part hereof, nor the
designation of any employee as a Participant in the Plan shall confer upon
<PAGE>
any Participant any right to continue in the employ of the Company or shall in
any way affect the right and power of the Company to terminate the employment of
any Participant at any time with or without assigning a reason therefor, to the
same extent as might have been done if the Plan had not been adopted.
(c) By acceptance of any incentive compensation under the Plan, the
recipient shall be deemed to agree (a) to execute any and all documents
requested by the Company in connection with his or her participation in the
Plan, including an agreement to report any amounts received under the Plan as
compensation and (b) that any compensation paid hereunder will not be taken into
account as "base remuneration", "wages", "salary" or "compensation" in
determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company.
(d) The place of administration of the Plan shall be in the State of
Georgia, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Georgia.
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of December 21,
1995, by and between GMH ACQUISITION CORP., a Delaware corporation with an
office at P.O. Box 1449, Waycross, Georgia 31502-1449 (the "Company") and DREW
ERIC SCOTT, currently residing at 3000-B South Fletcher Avenue, Fernandina
Beach, Florida 32034 (the "Executive").
The parties hereto, intending to be legally bound hereby, and in
consideration of the mutual covenants herein contained, agree as follows:
1. EMPLOYMENT.
1.1 The Company employs the Executive, and the Executive accepts
such employment (the "Employment"), as Vice President - Services of the Company.
The Executive agrees to accept the employment and agrees to remain in the employ
of the Company during the Employment Term (as defined in Section 2 hereof) and
any extensions thereof and to perform such lawful duties as are from time to
time assigned to him by the Chief Executive Officer or the Board of Directors of
the Company (the "Board") and which are normally associated with the position of
Vice President - Services in the manufactured housing industry.
1.2 During the Employment Term and any extensions thereof, the
Executive will devote his best efforts and full business time, skill and
attention to the performance of his duties on behalf of the Company.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6
hereof, the term of the Executive's employment hereunder shall be from the date
hereof until December 31, 2000 (the "Employment Term").
<PAGE>
3. COMPENSATION.
3.1 The Company agrees to pay, and the Executive agrees to
accept, as base compensation for all services to be rendered by the Executive in
any capacity to the Company or its affiliates during the Employment Term, a
salary of $100,000 per annum, subject to such deductions and withholdings as may
be required by law or by further agreement with the Executive (the "Base
Salary"), payable in arrears in equal bi-weekly installments. The Base Salary
may be increased from time to time in the discretion of the Board. Any such
increases shall be added to the Base Salary then being paid to the Executive,
and the sum thereof shall then become the Base Salary for each successive year,
until further adjusted in accordance with the provisions of this Section 3.1.
3.2 In addition to the Base Salary, the Executive shall
participate in the Company's Executive Bonus Plan, a copy of which is attached
hereto as Exhibit 1, (the "Plan") subject to the terms and conditions of the
Plan. The Executive's "Participant Percentage" under the Plan will never be less
than 20% of the "Bonus Pool" (as such terms are defined in the Plan). The
Company will award not less than a $100,000 incentive award to the Executive for
the 1996 Plan Year regardless of the size of the Bonus Pool.
3.3 The Company shall reimburse the Executive for all reasonable and
necessary expenses incurred by the Executive in connection with the Employment,
including without limitation, travel and lodging expenses and charges incurred
on a Company credit card for business entertainment. Such expenses shall be
reimbursed to the Executive by the Company after the Executive's submittal of an
invoice to the Company with respect to the reimbursable expenses incurred by
him. All invoices for reimbursable
<PAGE>
expenses shall include adequate supporting documentation of the expenses
incurred by the Executive, including receipts.
4. ADDITIONAL BENEFITS. During the Employment Term, the Company
shall provide the following additional benefits to the Executive:
4.1 The Executive shall be entitled to four (4) weeks of paid
vacation during each calendar year.
4.2 The Company shall provide the Executive with health, medical
and hospitalization insurance benefits equal to those provided by the Company to
other executive officers of the Company. In addition, the Executive shall be
permitted, if and to the extent eligible, to participate in any pension plan or
other "fringe benefits" of the Company, which may be available generally to
other executive officers of the Company.
4.3 To defray the expenses of operating his personal automobile
in connection with the performance of his duties hereunder, the Executive shall
be entitled to an automobile allowance in the amount of $200.00 per month.
5. INSURANCE. In addition to any insurance coverage provided
for in Section 4 hereof, the Company may, in its discretion, purchase or renew
insurance on the life of the Executive, with the Company or a lender of the
Company as beneficiary in an amount determined by the Company or such lender
from time to time. The Executive agrees to submit to medical examinations and
otherwise to cooperate with the Company and any such lender in connection with
obtaining such insurance.
6. TERMINATION.
<PAGE>
6.1 In the event the Executive's employment is terminated for
"Cause", the Executive shall have no further rights under this Agreement, except
the right to receive the Base Salary up to the date of termination by the
Company of the Executive's employment hereunder. The decision to terminate the
Executive under this Section 6.1 shall be made by the Chief Executive Officer of
the Company or by the Board. The term "Cause" shall mean any of the following:
(a) any deliberate or intentional act or omission by the Executive with the
intent of causing damage to the Company's relationships with its lenders,
suppliers or customers; (b) any fraud, misappropriation or embezzlement by the
Executive involving properties, assets or funds of the Company; (c) a conviction
of the Executive, or plea of NOLO CONTENDERE by the Executive, to any crime or
offense involving monies or other property of the Company or any other felony or
criminal act involving moral turpitude; (d) any usurpation by the Executive of a
corporate opportunity of the Company or the Executive's willful and continual
neglect of or willful and continual failure to perform any of his material
duties, responsibilities or obligations as an employee of the Company, but only
after notice of such usurpation, neglect or failure is delivered to the
Executive and the Executive fails or refuses to remedy such usurpation, neglect
or failure to the reasonable satisfaction of the Board within thirty (30) days
after the receipt of such notice; provided, that any action or omission taken by
the Executive in good faith and in the reasonable belief that such action or
omission was in the best interests of the Company shall not constitute "Cause";
or (e) the violation by the Executive of Section 7 of this Agreement or of any
other non-competition agreement or covenant binding upon the Executive.
6.2 In the event the Executive's employment is terminated
without "Cause", the Executive shall have no further rights under this
<PAGE>
Agreement except the right to receive (a) the Base Salary for the balance of the
term of this Agreement, payable in arrears, in bi-weekly installments, (b) any
amounts due in accordance with the terms of the Plan, (c) all benefits under
Section 4.1 hereof which have accrued as of the date of termination and (d)
uninterrupted continuation of all rights and benefits accorded the Executive
under Section 4.2 hereof for the duration of this Agreement.
6.3 In the event of the Executive's death during the Employment
Term, the Employment Term shall terminate automatically as of the date of the
Executive's death, and the Executive's executor, administrator or other legal
representative shall have no further rights hereunder, except the right to
receive (a) the Base Salary up to the date of the Executive's death and (b) any
amounts due under the Plan.
6.4 If for any reason (other than pursuant to Section 6.3 or
6.5), the Executive resigns from his employment hereunder, this Agreement shall
terminate automatically, and the Executive shall have no further rights
hereunder, except the right to receive the Base Salary up to the date of the
Executive's resignation.
6.5 If, by reason of any illness, disability or incapacity, the
Executive is unable to perform his duties under this Agreement for a period of
six (6) consecutive months (or shorter periods aggregating to nine (9) months in
any twelve (12) month period) ("Disability"), the Company may terminate the
Employment Term as of the last day of such six (6) or nine (9) month period, as
the case may be, or as of such other day thereafter, provided the Executive
remains unable to perform his duties hereunder. The Executive or his legal
representative, if one is appointed, shall be entitled to receive, within sixty
(60) days after the date of such
<PAGE>
termination, any amounts payable to the Executive pursuant to this Agreement up
to the date of termination of this Agreement. Notwithstanding the foregoing, if
the Executive suffers a Disability and his employment hereunder is not
terminated, the Executive shall be entitled to receive any amounts owing to him
hereunder, less any disability insurance payments which Executive receives
pursuant to disability insurance provided by the Company hereunder.
6.6 Upon the termination of the Executive's employment pursuant
to this Section 6, the Executive shall have no further rights under this
Agreement except as expressly provided in this Section 6.
7. NON-COMPETITION, NON-INTERFERENCE AND NON-DISCLOSURE.
7.1 The Executive acknowledges that: (a) the business of
producing and distributing at wholesale, manufactured housing, currently
conducted and as conducted from time to time throughout the term of this
Agreement (collectively, the "Business") is conducted by and is proposed to be
conducted by the Company throughout the states of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Alabama, Mississippi,
Louisiana, Kentucky and Tennessee (the "Company's Market"); (b) the Business
involves the identification and development of new products and markets relating
to the production and distribution at wholesale of manufactured housing; (c) the
Company has developed trade secrets and confidential information concerning the
Business; and (d) the agreements and covenants contained in this Section 7 are
essential to protect the Business of the Company. In order to induce the Company
to enter into this Employment Agreement, the Executive covenants and agrees
that:
<PAGE>
7.2 For a period commencing on the date of this Agreement and
ending (a) on the date that the Executive's employment is terminated without
Cause, or (b) in the case of the expiration of this Agreement or the Executive's
voluntary resignation or termination with Cause, on the date which is two years
following such expiration, resignation or termination of this Agreement, neither
the Executive nor any entity of which 5% or more of the beneficial ownership is
held by the Executive or a related family member ("Controlled Entity") will,
anywhere in the Company's Market, directly or indirectly own, manage, operate,
control, invest or acquire an interest in, or otherwise engage or participate
in, whether as a proprietor, partner, stockholder, director, officer, "Key
Employee" (defined herein to include any person who is employed in a management,
executive, supervisory, marketing or sales capacity for another person), joint
venturer, investor or other participant, any business which competes with the
Business ("Competitive Business") without regard to (i) whether the Competitive
Business has its office, manufacturing or other business facilities within or
without the Company's Market, (ii) whether any of the activities of the
Executive referred to above occur or are performed within or without the
Company's Market or (iii) whether the Executive resides, or reports to an
office, within or without the Company's Market.
7.3 During the period commencing on the date of this Agreement
and ending on the date which is two years following the expiration or
termination of this Agreement, whether by resignation, termination with or
without Cause, or otherwise (the "Restricted Period"), neither the Executive nor
any Controlled Entity will directly or indirectly solicit, induce or influence
any customer, supplier, lender, lessor or any other person which has a business
relationship with the Company, or which had on the date of this Agreement, a
business relationship with the Company, to discontinue or reduce the extent of
such relationship with the
<PAGE>
Company.
7.4 During the Restricted Period, neither the Executive nor any
Controlled Entity will directly or indirectly recruit, solicit or otherwise
induce or influence any employee or sales agent of the Company or any of its
affiliates to discontinue such employment or agency relationship with the
Company. During the Restricted Period, neither the Executive nor any Controlled
Entity will employ or seek to employ, or cause or induce any Competitive
Business to employ or seek to employ for any Competitive Business, any person
who is then (or was at any time within six months prior to the date the
Executive or the Competitive Business employs or seeks to employ such person)
employed by the Company. Nothing herein shall prevent the Executive from
providing a letter of recommendation to an Employee with respect to a future
employment opportunity.
7.5 During the Restricted Period and thereafter, neither the
Executive nor any Controlled Entity will directly or indirectly disclose to
anyone, or use or otherwise exploit for the Executive's or any Controlled
Entity's own benefit or for the benefit of anyone other than the Company, any
confidential information, including, without limitation, any confidential "know-
how", trade secrets, customer lists, details of client or consultant contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, computer software, business acquisition plans
and new personnel acquisition plans of the Company related to the Business or
any portion or phase of any scientific or technical information, design,
process, procedure, formula or improvement of the Company that is valuable and
not generally known to the competitors of the Company whether or not in written
or tangible form (hereinafter referred to as "Confidential Information"). The
term "Confidential Information" does not include, and there shall be no
<PAGE>
obligation hereunder with respect to, (a) information that becomes generally
available to the public other than as a result of a disclosure by the Executive
or a Controlled Entity or any agent or other representative thereof and (b)
general business methods applicable to a sales business including, but not
limited to, pricing policies, operational methods and marketing concepts.
Neither the Executive nor any Controlled Entity shall have any obligation
hereunder to keep confidential any Confidential Information to the extent
disclosure of any thereof is required by law, or determined in good faith by the
Executive to be necessary or appropriate to comply with any legal or regulatory
order, regulation or requirement; provided, however, that in the event
disclosure is required by law, the Executive or the Controlled Entity concerned
shall provide the Company with prompt notice of such requirement so that the
Company may seek an appropriate protective order.
7.6 In the event the termination or expiration of this
Agreement, the covenants and agreements contained in this Section 7 shall
survive, shall continue thereafter, and shall not expire unless and except as
expressly set forth in such Sections.
7.7 The parties to this Agreement agree that (a) if either the
Executive or any Controlled Entity breaches any provision of this Section 7, the
damage to the Company will be substantial, although difficult to ascertain, and
money damages will not afford the Company an adequate remedy, and (b) if either
the Executive or any Controlled Entity is in breach of this Agreement, or
threatens a breach of this Agreement, the Company shall be entitled, in addition
to all other rights and remedies as may be available to the Company at law or in
equity, to (i) specific performance, (ii) injunctive and other equitable relief
to prevent or restrain a breach of this Agreement and (iii) require the
breaching party
<PAGE>
to account for and pay over to the Company all compensation, profits, monies,
accruals or other benefits derived or received by such party as the result of
any transactions constituting a breach hereof.
7.8 If any court determines that any provision of this Section 7
is unenforceable because of the duration or geographic scope of such provision,
such court shall have the power to reduce the scope or duration of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
8. HEADINGS. The section headings of this Agreement are for
convenience of reference only and are not to be considered in the interpretation
of the terms and conditions of this Agreement.
9. NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) if sent by
telecopy, when receipt thereof is acknowledged at the telecopy number below, (c)
the day following the day on which the same has been delivered prepaid for
overnight delivery to a national air courier service or (d) three business days
following deposit in the United States Mail, registered or certified, postage
prepaid, in each case, addressed as follows:
If to the Company: GMH Acquisition Corp.
P.O. Box 1449
Waycross, Georgia 31502-1449
Attn: Gary M. Brost
Telecopy: 912-285-1397
with copies to: Strategic Investments &
Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attn: Gary M. Brost
Telecopy: 716-857-6490
<PAGE>
Nixon, Hargrave, Devans & Doyle LLP
1600 Main Place Tower
Buffalo, New York 14202
Attn: Charles P. Jacobs, Esq.
Telecopy: 716-853-8109
If to the
Executive: Drew Eric Scott
3000-B South Fletcher Avenue
Fernandina Beach, Florida 32034
with a copy to: Holland & Knight
50 North Laura Street
Jacksonville, Florida 32202
Attn: L. Kinder Cannon, III, Esq.
Telecopy: 904-358-1872
Any party may change the persons and address to which notices or other
communications are to be sent by given written notice of such change to the
other party in the manner provided herein for giving notice.
10. WAIVER OF BREACH. No waiver by either party of any condition or
of the breach by the other of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement. The failure of either party to exercise any right
hereunder shall not bar the later exercise thereof.
11. BINDING NATURE; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding on the parties and their respective successors in
interest, and shall not be assignable by either party without the written
consent of the other; provided that nothing in this Section shall preclude the
Executive from designating a beneficiary to receive any benefit payable
hereunder upon his death, or the executors, administrators or other legal
representatives of the Executive or his estate from assigning any rights
hereunder to which they become entitled to the person
<PAGE>
or persons entitled thereto. It is specifically understood and acknowledged that
this Agreement will be assumed by General Manufactured Housing, Inc., a Georgia
corporation ("GMH") by virtue of a merger of the Company with and into GMH which
is occurring contemporaneously with the execution hereof.
12. GOVERNING LAW. This Agreement is entered into and shall be
construed in accordance with the laws of the State of Georgia, without giving
effect to conflict of laws principles thereof requiring application of the
substantive laws of another jurisdiction.
13. INVALIDITY OR UNENFORCEABILITY. If any term or provision of this
Agreement is held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect any other term or provision hereof and this
Agreement shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
14. ENTIRE AGREEMENT. This Agreement constitutes the full and
complete understanding and agreement of the Executive and the Company respecting
the subject matter hereof, and supersedes all prior understandings and
agreements concerning the subject matter hereof, oral or written, express or
implied. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
modification or amendment is sought.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first written.
EXECUTIVE
/s/ Drew Eric Scott
-----------------------------------
Drew Eric Scott
COMPANY
GMH ACQUISITION CORP.
By: /s/ Gary M. Brost
--------------------------------
Gary M. Brost
Title: President
EXHIBIT 1
GENERAL MANUFACTURED HOUSING, INC.
EXECUTIVE BONUS PLAN
1. PURPOSES OF THE PLAN
The purposes of this Executive Bonus Plan (the "Plan") are to enable
General Manufactured Housing, Inc. (the "Company") to retain the services of key
employees and to provide them with increased motivation and incentive to achieve
and exceed the goals of the business consistent with both short term and long
term objectives.
2. DEFINITIONS
The following terms shall have the meanings set forth below:
(a) "Base Amount" means $8.5 million.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Bonus Pool" means, for each fiscal year of the Company, so long as
EBIT equals or exceeds the Base Amount for such fiscal year, 7% of EBIT.
(d) "EBIT" means, for each fiscal year of the Company, the net income of
the Company for such year, before (i) interest expense, (ii) taxes, (iii)
amortization, (iv) amounts paid under the Company's Incentive
<PAGE>
Compensation Plan, (v) reimbursement of the Company's expenses under Section 19
of the Stock Purchase Agreement, (vi) the Management Fee, (vii) costs incurred
by the Company in remediating the Company's properties pursuant to Section 14(b)
of the Stock Purchase Agreement and (viii) all compensation and benefits payable
to management personnel added after the Effective Date other than at the
direction of the Chief Executive Officer of the Company and other than in the
ordinary course of the Company's business, all as shown on the audited financial
statements of the Company; provided, that EBIT shall be determined in accordance
with generally accepted accounting principles consistent with those employed by
the Company in 1994 and reflected in its audited financial statements for such
year.
(e) "Effective Date" means January 1, 1996.
(f) "Management Agreement" means the Management Agreement dated as of
December 21, 1995 by and between Strategic Investments & Holdings, Inc. and the
Company.
(g) "Management Fee" means an amount equal to the management fee paid
pursuant to the terms of the Management Agreement.
(h) "Participant" means each of the following management personnel of the
Company: Samuel Scott, Gregory Scott, Drew Scott, Lannis Thomas and Wayne
Roberts.
(i) "Participant Percentage" means, for any Plan Year, the percentage of
the Bonus Pool allocated to a Participant, which shall be 20% for each
Participant.
(j) "Plan Year" means the fiscal year of the Company.
(k) "Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated as of October 10, 1995, among Samuel P. Scott et al. and GMH Acquisition
Corp., as amended.
3. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Board of Directors or a
Compensation Committee thereof. In the event the employment of any Participant
terminates, the Board of Directors or Compensation Committee shall have the
right to designate a substitute Participant or Participants (having an aggregate
Participant Percentage not in excess of that of the terminating Participant) or
otherwise determine the disposition of the Participant Percentage of any such
terminating Participant. Any decision by the Board of Directors or Compensation
Committee regarding the administration, interpretation or construction of any
provisions of the Plan shall be final, binding and conclusive.
(b) No member of the Board of Directors or Compensation Committee shall be
liable for any action taken or omitted to be taken or for any determination made
by him or her in good faith with respect to the Plan, and the Company shall
indemnify and hold harmless each member of the Board of Directors or
Compensation Committee against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Board of Directors) arising out of any act or omission in connection with
the administration or interpretation of the Plan, unless arising out of such
person's own fraud or bad faith.
(c) The Plan shall become effective upon the Effective Date.
<PAGE>
4. INCENTIVE AWARDS
(a) If EBIT for any Plan Year does not at least equal the Base Amount for
such year, the Company shall not allocate any amounts to the Bonus Pool.
Notwithstanding the foregoing or anything to the contrary contained herein, the
Board of Directors may elect to make discretionary bonus payments, not paid from
any Bonus Pool, in order to reward and retain such key employees as it shall
deem appropriate.
(b) If EBIT for any Plan Year equals or exceeds the Base Amount for such
year, the Company shall allocate 7% of EBIT to the Bonus Pool to be allocated
among the Participants.
(c) The Bonus Pool, if any, for any Plan Year shall be calculated and paid
to the Participants, in cash, within thirty (30) days after the Company's
receipt of its audited financial statements for such year but not later than one
hundred fifty (150) days following the end of such year; provided, however, that
except as provided in paragraph (d) hereof, no portion of the Bonus Pool shall
be paid to any Participant for any Plan Year if such Participant is not an
employee of the Company at the end of such year.
(d) In the event that a Participant is not an employee of the Company at
the end of a Plan Year because of his death, termination for disability or
retirement during such year, the portion of the Bonus Pool, if any, payable to
such Participant for such Plan Year shall be prorated to the date of death, date
of termination for disability or date of retirement, and the portion of the
Bonus Pool attributable to the part of the Plan Year prior to such date of
death, termination or retirement shall be determined and paid to such
Participant or his legal representative in accordance with paragraph (c) above.
In the event that a Participant is not an employee of the Company at the end of
a Plan Year because such Participant has either voluntarily terminated his
employment or because of the termination of such Participant for any reason
other than death, disability or retirement during such year, no portion of the
Bonus Pool for such year shall be payable to such Participant.
(e) Any and all amounts payable under the Bonus Pool hereunder shall be
subject to (i) applicable federal, state and local tax withholding requirements
and (ii) the Company's obligations to comply with the covenants set forth in the
Company's agreements with its lenders, and payment of any and all amounts
payable under the Bonus Pool may be deferred in order to maintain the Company's
compliance with such covenants. Such deferred amounts will be accrued until such
time as they are permitted to be paid under the Company's agreements with its
lenders and shall then be promptly paid with interest as set forth in the
immediately following sentence. Any such deferred amounts will accrue interest
at the Prime Rate, as such rate is quoted from time to time in the Wall Street
Journal.
5. MISCELLANEOUS
(a) No right to receive any incentive compensation under the Plan shall be
transferable except by will or the laws of descent and distribution. Any
purported transfer contrary to this provision will be null and void and without
effect.
(b) Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part hereof, nor the designation of
any employee as a Participant in the Plan shall confer upon
<PAGE>
any Participant any right to continue in the employ of the Company or shall in
any way affect the right and power of the Company to terminate the employment of
any Participant at any time with or without assigning a reason therefor, to the
same extent as might have been done if the Plan had not been adopted.
(c) By acceptance of any incentive compensation under the Plan, the
recipient shall be deemed to agree (a) to execute any and all documents
requested by the Company in connection with his or her participation in the
Plan, including an agreement to report any amounts received under the Plan as
compensation and (b) that any compensation paid hereunder will not be taken into
account as "base remuneration", "wages", "salary" or "compensation" in
determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company.
(d) The place of administration of the Plan shall be in the State of
Georgia, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Georgia.
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of the 1st day of January, 1996, by and between
GENERAL MANUFACTURED HOUSING, INC., a Georgia corporation (the "Company"), and
KELLY S. HEROLD ("Employee").
WHEREAS, the Company and Employee are parties to that certain Stock
Purchase Agreement dated October 10, 1995, as amended by First Amendment to
Stock Purchase Agreement dated December 21, 1995 (as amended, the "Stock
Purchase Agreement"); and
WHEREAS, the Company desires to employ Employees to perform services for
the Company following the consummation of the transactions contemplated by the
Stock Purchase Agreement, and Employee desires to accept said employment; and
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledge, the Company and Employee agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee accepts
such employment and agrees to perform services for the Company, upon the terms
and conditions set forth in this Agreement.
2. TERM. Company hereby agrees to employ Employee for a term commencing
on the date hereof, and continuing for eighteen (18) months thereafter (the
"Initial Term"), unless earlier terminated as hereinafter provided. At the end
of the Initial Term and at the end of each successive six-month term thereafter
(the "Extended Terms"), the term of this Agreement shall be automatically
extended for one (1) additional period of six (6) months, unless Employee or the
Company gives the other written notice, at least thirty (30) days prior to the
end of the Initial Term or Extended Terms, as the case may be, that either party
does not intend for the term of this Agreement to be extended further (the
Initial Term and Extended Terms are collectively referred to herein as the
"Period of Employment").
3. POSITION AND DUTIES.
3.1 POSITION OF THE COMPANY. During the Period of Employment,
Employee shall serve as, and her title shall be, Vice President.
3.2 PERFORMANCE OF DUTIES. Employee agrees to serve the Company
faithfully and to the best of her ability. Employee shall act at all times in
the best interests of the Company. Employee hereby confirms that she is under no
contractual commitments inconsistent with her obligations set forth in this
Agreement, and that during the Period of Employment, she will not render or
perform services, or enter into any contract to do so, for any other
corporation, firm, entity or person which are inconsistent with the provisions
of this Agreement.
3.3 PERFORMANCE POLICIES. Employee shall conduct herself at all
times in a businesslike and professional manner as appropriate for a person in
her position, and shall represent the Company in all respects as complies with
good business and ethical practices. In addition, Employee shall be subject to
and abide by the policies and procedures of the Company applicable to personnel
of the Company, as adopted from time to time.
<PAGE>
4. COMPENSATION AND BENEFITS.
4.1 ANNUAL BASE SALARY. As compensation for all services to be
rendered by Employee under this Agreement, the Company shall pay to Employee a
salary (the "Base Salary") of $4,167.00 per month, for the first twelve (12)
months of the Initial Term and $2,083.00 per month thereafter, payable in
accordance with Company's standard payroll policy.
4.2 EMPLOYEE BENEFITS. Except as otherwise required by law, Employee
shall not be entitled hereunder to participate in any employee benefit plans or
programs sponsored or maintained by the Company or its affiliates for the
benefit of Company employees; however, Company shall permit Employee and her
immediate family members to participate in the Company's health insurance
program at a cost to Employee equal to the Company's incremental cost of
providing such benefit.
4.3 EXPENSES. In accordance with the Company's policies established
from time to time, the Company will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the terms and
conditions of the Company's expense reimbursement policy, including, but not
limited to, the presentment of appropriate vouchers and receipts sufficient to
permit the deductibility of such expenses by the Company pursuant to the
applicable regulations under the Internal Revenue Code of 1986, as amended.
4.4 WITHHOLDING. All references herein to compensation to be paid to
the Employee are to the gross amounts thereof which are due hereunder. The
Company shall have the right to deduct therefrom all sums which may be required
to be deducted or withheld under any provision of law (including, but not
limited to, social security payments, income tax withholding, and any other
deduction required by law) now in effect or which may become effective at any
time during the term of this Agreement.
5. TERMINATION.
5.1 TERMINATION UPON DEATH, DISABILITY OR CAUSE. This Agreement
shall terminate immediately upon (a) Employee's death, or (b) notice to
Employee that the Company's Board has determined (i) that Employee has become
disabled, or (ii) that Cause exists. "Cause" means (A) conduct amounting to
fraud, embezzlement or misappropriation as against the Company, (B) having been
convicted of a felony or other criminal offense, (C) willful misconduct or gross
negligence in the conduct of Employee's duties, (D) material breach of this
Agreement or breach of any fiduciary duty owed to the Company by Employee, or
(E) repeated failure, after thirty (30) days prior written notice, of Employee
to follow specific directives of the Board.
5.2 "DISABILITY" DEFINED. The Board may determine that Employee has
become disabled, for the purpose of this Agreement, in the event that
Employee shall fail, because of illness or other physical or mental incapacity,
to render services of the character contemplated by this Agreement for any
aggregate period of more than one hundred twenty (120) calendar days during any
twelve (12) months period.
5.3 SURRENDER OF RECORDS, ETC. Upon termination of employment with
the Company, Employee shall promptly deliver to the Company all records,
manuals, books, blank forms, documents, letters, memoranda, notes, notebooks,
reports, data, tables, calculations or copies thereof, which are the property of
the Company and which relate in any way to the business,
<PAGE>
products, practices or techniques of the Company, and all other property, trade
secrets and confidential information of the Company, including, but not limited
to, all documents which, in whole or in part, contain any trade secrets or
confidential information of the Company, which in any of these cases are in her
possession or under her control.
5.4 SURVIVAL. Notwithstanding any termination of the Agreement,
Employee, in consideration of her employment hereunder to the date of such
termination, shall remain bound by the provisions of this Agreement which
specifically relate to her activities or obligations upon or subsequent to the
termination of Employee's employment. The salary and other benefits provided
herein shall be paid to Employee up to the effective date of termination of this
Agreement for whatever reason, including the death of Employee, and not
thereafter.
6. ASSIGNMENT. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Employee, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets or of which
fifty percent (50%) or more of the equity investment and voting control is
owned, directly or indirectly, by, or is under common ownership with, the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 6.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Florida.
7.2 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver or such term or condition for the future or as any act other
than that specifically waived.
7.3 SEVERABILITY. To the extent any provisions of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the enforceability
(of the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement, which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and enforceable.
7.4 AGENCY. Except to the extent conferred upon her by the Company
Board, Employee shall have no authority to enter into any contracts
<PAGE>
binding upon the Company or to create any obligations on the part of the
Company.
7.5 NOTICES. All notices hereunder shall be in writing and shall be
effective (i) when personally delivered by facsimile transmission, courier
(including overnight carriers) or otherwise, or (ii) on the third business day
following the date deposited in the mail if such notice is sent by certified or
registered mail with return receipt requested and postage thereon fully prepaid.
The address for such notices shall be as follows:
If to the Company:
General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, Georgia 31502
Attn: Gary M, Brost, Exec. Vice President
If to the Employee:
Kelly S. Herold
1230 Greenridge Road
Jacksonville, Florida 32207
7.6 INUREMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and the respective heirs, executors,
administrators, successors and permitted assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto the day and year first above written.
"EMPLOYEE"
/s/ Kelly S. Herold
-------------------------------------
KELLY S. HEROLD
"COMPANY"
GENERAL MANUFACTURED HOUSING, INC.
BY: /s/ Gary M. Brost
----------------------------------
Gary M. Brost, Executive Vice President
<PAGE>
EXHIBIT 10.11
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of 12/18, 1995, between and among GMH
Acquisition Corp., a Delaware corporation (the "Buyer"), Kelly Scott Herold, as
Trustee, Gregory Keith Scott, Drew Eric Scott and Samuel P. Scott, Individually
and as Joint Tenant with Sherry J. Scott (collectively, the "Sellers") and Key
Trust Company, a New York Banking Corp. (the "Escrow Agent").
WHEREAS, the Buyer and the Sellers entered into a Stock Purchase Agreement
dated as of October 10, 1995, as amended (the "Stock Purchase Agreement"),
pursuant to which the Buyer agreed to purchase 100% of the issued and
outstanding stock of the Company and 100% of the membership interests in Lamar
Housing LLC, a Georgia limited liability company ("Lamar"); and
WHEREAS, in connection with the Stock Purchase Agreement, the Buyer and the
Sellers have negotiated certain indemnities; and
WHEREAS, Section 3(b) of the Stock Purchase Agreement provides for the
deposit with the Escrow Agent of $1,000,000 of the Purchase Price due the
Sellers as security for the Sellers' obligations, pursuant to Sections 15(b) and
15(c) of the Stock Purchase Agreement, to indemnify the Buyer against any Loss
and any Litigation Expense with respect thereto;
WHEREAS, it is a condition to closing the transactions contemplated by the
Stock Purchase Agreement that the Buyer, the Sellers and the Escrow Agent shall
have entered into this Agreement; and
NOW THEREFORE, in consideration of the above premises and the mutual
covenants contained in this Agreement, and intending to be legally bound hereby,
the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the terms defined in the
preamble and recitals hereto shall have the respective meanings specified
therein, and unless otherwise defined, all other capitalized terms used herein
shall have the following meanings:
AGREEMENT shall mean this Escrow Agreement, as the same may be amended
from time to time.
BUSINESS DAY shall mean any day other than a Saturday, Sunday or
public holiday under the laws of the State of New York or other day on which
banking or lending institutions are authorized or obligated to close in Buffalo,
New York.
CLOSING DATE shall mean the date on which the closing of the
transactions under the Stock Purchase Agreement shall occur.
ESCROWED FUNDS shall mean the sum of $1,000,000 deposited with the
Escrow Agent pursuant to the terms hereof.
LITIGATION EXPENSE, shall mean the matters referred to in Sections
15(b)(vii) and 15(c)(ii) of the Stock Purchase Agreement as relates to a Loss
defined therein.
<PAGE>
LOSS shall mean the matters referred to in Sections 15(b)(i), (ii),
(iii), (iv) and (vi) and 15(c)(i) of the Stock Purchase Agreement.
PERMITTED INVESTMENTS shall mean:
(a) Demand deposit accounts, money market accounts or bankers'
acceptances maturing in 90 days or less from the date of issue of not less than
the highest rating then available from Standard and Poor's Corporation ("S&P")
or Moody's Investor Services, Inc. ("Moody's") at the time of investment;
(b) Certificates of deposit or Eurodollar deposits maturing in 90
days or less from the date of deposit and either placed by or with a United
States bank with stockholder capital exceeding Five Hundred Million Dollars
($500,000,000) or a minimum credit rating at the time of investment of A from
S&P or Moody's for its debt instruments (so long as there has been no public
announcement by S&P or Moody's that such credit rating may be subject to a
negative adjustment), and the accounts of which are insured by the Federal
Deposit Insurance Corporation or any successor thereto (an "Acceptable Bank");
(c) Securities which are all of the following (i) commonly known as
"commercial paper", (ii) due and payable within 90 days from the date of issue,
(iii) issued by any corporation organized under the laws of the United States or
of any State thereof and (iv) the ratings for the commercial paper of which, at
the time of the investment therein, are not less than the highest rating then
available from Moody's, S&P or another nationally recognized rating agency;
(d) United States Treasury obligations maturing in 180 days or less
from the date of purchase;
(e) Certificates issued by the Government National Mortgage
Association maturing in 90 days or less from the date of purchase; or
(f) An interest in any fund or other investment vehicle, including,
without limitation, a registered investment company maintained by an Acceptable
Bank, that invests primarily in any of the items specified in clauses (a)
through (e) above, and which does not invest in items which are rated less than
investment grade at the time of investment, including a registered investment
company for which the Escrow Agent or its affiliates provides services and are
separately and additionally compensated therefor.
2. ACCEPTANCE OF ESCROW. The Escrow Agent hereby acknowledges the
receipt from the Buyer and the Sellers of the Escrowed Funds. The Escrow Agent
shall hold and dispose of the Escrowed Funds and shall act as Escrow Agent for
the Buyer and the Sellers with respect to the Escrowed Funds in accordance with
the terms, conditions and provisions of this Agreement.
3. INVESTMENT OF ESCROWED FUNDS. The Escrow Agent shall invest the
Escrowed Funds in (a) such Permitted Investments as the Buyer may from time to
time direct, (b) in such other investments as the Buyer and the Sellers shall
jointly direct in writing or (c) in the absence of direction pursuant to clause
(a) or (b), demand deposit accounts, money market accounts or bankers'
acceptances maturing in 90 days or less from the date of issue, of any
Acceptable Bank. All securities and deposits representing investment of the
Escrowed Funds shall be held in the name of the Escrow Agent or its nominee, or
in bearer form, and the Escrow Agent may deposit any securities or other
property in a depository or clearing corporation. The Escrow Agent shall receive
and collect all funds payable in connection with such
<PAGE>
investment. Except to the extent that payment of the Escrowed Funds is required
to be made pursuant to this Agreement, the Escrow Agent shall retain the
Escrowed Funds and invest the Escrowed Funds as provided for herein.
4. DISTRIBUTION OF INTEREST. All interest and other income realized in
respect of the Escrowed Funds shall be segregated from the Escrowed Funds and
shall be distributed to the Buyer within five (5) Business Days after the date
of receipt by the Escrow Agent, unless otherwise instructed pursuant to the
direction of the Buyer.
5. DISTRIBUTION OF ESCROWED FUNDS. The Buyer and the Sellers shall be
entitled to receive from the Escrow Agent, payments of the Escrowed Funds in the
following manner and upon the following terms and conditions:
(a) In the event that the Buyer is entitled to be paid the amount of
any Loss required to be paid by the Sellers pursuant to either Section
15(b) (other than Section 15(b)(v)), or 15(c) of the Stock Purchase
Agreement or any Litigation Expense with respect thereto required to be
paid by the Sellers pursuant to either Section 15(b)(vii) or Section
15(c)(ii) of the Stock Purchase Agreement, which Loss or Litigation Expense
has not otherwise been paid by or on behalf of the Sellers, the Buyer may
give written notice thereof, including the amount to be paid to the Buyer
out of the Escrowed Funds, to the Escrow Agent (a "Statement") prior to the
Termination Date (as defined in Section 9 hereof). Within not more than
three (3) Business Days after its receipt thereof, the Escrow Agent shall
send a copy of the Statement to the Sellers. If a written objection to such
Statement is delivered to the Escrow Agent by or on behalf of the Sellers
within ten (10) Business Days after the date such notice is deemed given to
the Sellers under the provisions of Section 10 hereof (the "Objection
Notice"), the Escrow Agent shall send to the Buyer a copy thereof within
three (3) Business Days after its receipt of the Objection Notice, and the
provisions of Section 5(b) relating to a Statement as to which an Objection
Notice has been timely delivered shall apply to such Statement; otherwise
the Escrow Agent is hereby authorized, empowered and directed to deliver to
the Buyer from the Escrowed Funds, an amount equal to the amount set forth
in such Statement.
(b) The Escrow Agent shall not make any distribution under this
Section 5 with respect to the portion of the indemnification claims set
forth in a Statement which are the subject of an Objection Notice delivered
under Section 5(a) above, but shall reserve in a claims account (the
"Claims Account"), the amount of such claims and shall continue to hold
such amount in the Claims Account, notwithstanding the expiration of the
term of this Escrow Agreement, until the receipt by the Escrow Agent of
either (i) joint written instructions of the Buyer and the Sellers
directing the Escrow Agent to remit the amount held with respect to such
Statement in accordance with such written instructions or (ii) a certified
copy of a final court order, no longer subject to appeal, which contains a
final determination of the entitlement to and the specific amount of the
indemnification obligation owed to the Buyer with respect to such
Statement. Upon its receipt of either of the above, the Escrow Agent (x)
shall disburse to the Buyer the amount, if any, determined to be due to it
in accordance with the terms of such instructions or court order, (y) if
all of the outstanding and undischarged Statements are fully reserved in
the Claims Accounts established therefor, the excess, if any, of the
balance in the discharged Claims Account shall either be returned to the
Escrowed Funds general account or, if the Termination Date has
<PAGE>
passed, distributed to the Sellers, and (z) if all of the outstanding and
undischarged Statements are not fully reserved in the Claims Accounts
established therefor, then the balance in the discharged Claims Account, if
any, shall be applied first to satisfy any deficiencies in the Claims
Accounts with respect to such outstanding and undischarged Statements, and
the remaining balance, if any, shall either be retained in the Escrowed
Funds general account or, if the Termination Date has passed, distributed
to the Sellers. In the event an Objection Notice relates to only a portion
of a Statement, the Escrow Agent shall deliver to the Buyer from the
Escrowed Funds that portion of such Statement which is not subject to the
Objection Notice in accordance with the provisions of Section 5(a) hereof.
(c) Promptly after the Termination Date, the Escrow Agent shall
deliver to the Sellers and the Buyer a full and complete final period
statement with respect to the Escrowed Funds. If, as of the close of
business on the Termination Date, all Statements which have been filed with
the Escrow Agent prior to the Termination Date have been finally discharged
in accordance with the provisions of Section 5(b) hereof, the Escrow Agent
shall deliver to the Sellers any remaining Escrowed Funds and shall deliver
to the Buyer all interest accrued thereon to the date of such payment.
However, if, upon the Termination Date, any Statement remains outstanding
and undischarged, the Escrow Agent shall continue to hold both the Claims
Account with respect to such outstanding Statements, and if no Claims
Account has yet been established with respect to any outstanding Statement,
that portion of the Escrowed Funds equal to the amount claimed under all
Statements then outstanding as to which no Claims Account has yet been
established. With respect to the Escrowed Funds retained by the Escrow
Agent after the Termination Date pursuant to this Section 5(c), the Escrow
Agent shall continue to hold the Escrowed Funds in accordance with the
provisions of this Agreement and shall make payments to the Buyer and/or
the Sellers and discharge Statements as provided in Section 5(b). All
Escrowed Funds remaining after the discharge of all Statements, together
with all interest accrued thereon, shall be distributed to the Sellers
within five (5) Business Days after the discharge of the last remaining
Statement.
6. DUTIES AND RESPONSIBILITIES OF THE ESCROW AGENT. The Escrow Agent
shall have no duties or obligations hereunder except those specifically set
forth herein, and such duties and obligations shall be determined solely by the
express provisions of this Agreement.
(a) In connection with its duties hereunder, the Escrow Agent shall
be protected in acting or refraining from acting based solely and
exclusively upon any written notice, request, consent, certificate,
instruction, Statement, Objection Notice, court order, or other document
furnished to it hereunder and believed by it to be genuine and to have been
signed or sent by the proper party or parties, and it shall not be
necessary for the Escrow Agent to inquire into the authority of the signers
thereof or to determine the accuracy or completeness of any written notice,
request, consent, certificate, instruction, court order, Statement,
Objection Notice or other documents, except and to the extent expressly
provided in this Agreement. The Escrow Agent shall not be liable for
anything it may do or refrain from doing in connection with its duties
hereunder except as a result of its own gross negligence, willful
misconduct or bad faith. The Escrow Agent shall not be responsible for any
loss to the Escrowed Funds resulting from the investment thereof in
accordance with the terms of this Agreement. The Escrow Agent may consult
its
<PAGE>
counsel and shall be protected in respect of any action taken or omitted to
be taken by it in good faith on the advice of such counsel.
(b) The Sellers and the Buyer shall, jointly and severally, indemnify
and hold the Escrow Agent harmless for any liability, cost or expense,
including reasonable attorneys' fees actually and reasonably incurred by
the Escrow Agent, arising out of or relating to the performance of its
duties hereunder; provided, however, that the Escrow Agent shall not be
entitled to any indemnity hereunder if it is determined to have acted with
gross negligence, in bad faith or with willful misconduct. The obligations
of the Sellers and the Buyer under this Section 6(b) shall survive
termination of this Agreement or resignation of the Escrow Agent.
(c) By written instrument signed by the Sellers and the Buyer, the
Escrow Agent may be removed as Escrow Agent at any time for any reason. The
Escrow Agent may resign as Escrow Agent at any time upon prior written
notice to the Sellers and the Buyer stating the effective date of such
resignation. Upon receiving such notice of resignation or upon such
removal, the Sellers and the Buyer shall promptly appoint a successor
Escrow Agent by a written instrument, and no such resignation or removal
shall be effective until the date upon which a successor Escrow Agent shall
have been appointed and shall have accepted such appointment. Any such
successor Escrow Agent appointed by the Sellers and the Buyer shall be an
Acceptable Bank. The Escrow Agent shall have no liability whatsoever to the
Sellers or the Buyer to advise, inform or make any comment as to the
suitability, financial or otherwise, of any successor Escrow Agent so
appointed. If a successor Escrow Agent is not appointed by the resignation
date set forth in the notice from the Escrow Agent, the Escrow Agent may
petition a court of competent jurisdiction to name a successor. Until the
successor Escrow Agent has accepted such appointment, the Escrow Agent
shall hold the Escrowed Funds and manage and distribute the Escrowed Funds
in accordance with the provisions of this Agreement.
(d) The Escrow Agent shall not be required to institute or defend any
action or legal process involving any matter referred to herein which in
any manner affects it or its duties or liabilities hereunder. In the event
the Escrow Agent shall institute or defend any such action or legal
process, it shall do so only upon receiving full indemnity in an amount and
of such character as it shall require, against any and all claims,
liabilities, judgments, attorneys' fees and other expenses of every kind in
relation thereto, except in the case of its own willful misconduct or gross
negligence.
(e) If any two parties, whether or not they are parties of this
Agreement, shall be in disagreement about the interpretation of this
Agreement, or about the rights and obligations, or the propriety, of any
action contemplated by the Escrow Agent, or if any other dispute shall
arise hereunder, or if the Escrow Agent otherwise has any doubts as to the
proper disposition of funds or any execution of any of its duties
hereunder, the Escrow Agent may, at its sole discretion, file action in
interpleader to resolve the said disagreement in New York State Supreme
Court, Buffalo, New York. The Escrow Agent shall be indemnified for all
costs, including reasonable attorneys' fees and expenses, in action, and
shall be fully protected in suspending all or part of its activities under
this Agreement until a final judgment in the interpleader action is
received.
7. ESCROW FEES. The Escrow Agent shall be entitled to receive
<PAGE>
reasonable compensation for its services hereunder pursuant to the schedule of
fees attached hereto and made a part hereof and, in addition thereto, shall be
reimbursed for all out of pocket expenses, including reasonable attorneys' fees,
actually and reasonably incurred by it in connection with the performance of its
duties and obligations under this Agreement. All such fees and expenses shall be
borne equally by the Buyer and the Sellers. The Escrow Agent shall render
monthly statements, including therein a statement of all interest or other
income earned on the Escrowed Funds, to the Sellers and the Buyer. The Escrow
Agent shall have a lien on and may offset against the Escrowed Funds to the
extent any amounts due to it hereunder are not paid when due.
8. SAVINGS CLAUSE. Notwithstanding anything to the contrary contained
herein, as between the Sellers and the Company, the Company's rights to recover
from the Sellers on any claim made pursuant to the Stock Purchase Agreement
shall be governed by the provisions of the Stock Purchase Agreement and shall
not be limited (a) to the amount or availability of Escrowed Funds or (b) by any
action or failure to act of the Buyer or the Company pursuant to this Agreement,
except to the extent a Statement is discharged pursuant to the terms hereof.
9. TERM. This Agreement shall terminate on the third anniversary of the
date hereof unless sooner terminated by a written notice to the Escrow Agent
from the Sellers and the Company (the "Termination Date"); provided, however
that if on such date, any Statement shall remain outstanding and not discharged,
then this Agreement shall remain in full force and effect until all Escrowed
Funds have been disbursed by the Escrow Agent in accordance with the provisions
hereof at which time this Agreement shall terminate and be of no further force
or effect; provided, further, however, that, upon payment of any of the Escrowed
Funds to the Company or the Sellers as provided for herein, any funds so paid
shall be released from and shall no longer be subject to this Agreement.
10. NOTICES, ETC. All notices, consents, demands, requests, Statements,
Objection Notices, approvals and other communications which are required or may
be given hereunder shall be in writing and shall be deemed to have been duly
given (a) when delivered personally, (b) if sent by telecopy, when receipt
thereof is acknowledged at the telecopy number below, (c) the second day
following the day on which the same has been delivered prepaid to a national air
courier service or (d) five (5) Business Days following deposit in the mail,
registered or certified postage prepaid in each case, addressed as follows:
If to the Sellers:
c/o Samuel P. Scott
General Manufactured Housing, Inc.
P.O. Box 1449
Waycross, Georgia 31502-1449
Telecopy: 912-285-1397
with copies to:
Neal L. Conner, Esq.
Kopp and Conner, P.C.
1008 Plant Avenue
Waycross, Georgia 31502
Telecopy: 912-285-9813
and
<PAGE>
L. Kinder Cannon, Esq.
Holland & Knight
50 North Laura Street, Suite 3900
P.O. Box 52687
Jacksonville, Florida 32201-2687
Telecopy: 904-358-1872
If to the Buyer:
GMH Acquisition Corp.
P.O. Box 1449
Waycross, Georgia 31502-1449
Attention: Gary M. Brost
Telecopy: 912-285-1397
with copies to:
Strategic Investments & Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attention: Gary M. Brost
Telecopy: 716-857-6490
and
Nixon, Hargrave, Devans & Doyle LLP
1600 Main Place Tower
Buffalo, New York 14202
Attention: Charles P. Jacobs, Esq.
Telecopy: 716-853-8109
If to the Escrow Agent:
Key Trust Company
50 Fountain Plaza 16th Floor
Buffalo, NY 14202
Attention: Irene Hypnarowski
Telecopy: 716-847-8867
or to such other person or persons at such address or addresses as may be
designated by written notice hereunder. Any notice given in accordance with this
Section may be given by a party hereto or by such party's counsel.
11. ASSIGNMENT. Neither the Sellers nor the Buyer may assign or convey
this Agreement or any of their respective rights or obligations hereunder to any
other party without the prior written consent of each of the other parties to
this Agreement; provided, however, that (a) the Buyer may assign all of its
rights hereunder to an institutional lender or lenders providing financing for
the transactions contemplated by the Stock Purchase Agreement and (b) prior to
the Closing Date, any one or more of the Sellers may assign all of his or her
rights and obligations hereunder to the trustee of a trust, all of the
beneficial interests of which are owned by such Seller(s) or his, her or their
immediate family members.
12. APPLICABLE LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws or the State of New York without giving
effect to conflict of laws principles thereof.
13. ENTIRE AGREEMENT. This Agreement, the Stock Purchase Agreement
<PAGE>
and all Exhibits hereto embody the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof and supersede any prior
agreement or understanding between the parties; provided, however, the entire
agreement of the Buyer and the Sellers with the Escrow Agent is contained in
this Agreement. The Escrow Agent is not expected or required to be familiar with
the provisions of any other instrument, agreement or document, specifically
including, without limitation, the Stock Purchase Agreement, and shall not be
charged with any responsibility or liability in connection with the observance
or non-observance by any other party whatsoever of the provisions of any such
other instrument, agreement or document, including, without limitation, the
Stock Purchase Agreement. This Agreement may not be amended except in a writing
executed by each party to this Agreement.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
15. HEADINGS. Headings of the Sections in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
16. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
administrators, executors, successors and permitted assigns; provided, however,
that nothing in this Agreement, expressed or implied, is intended to confer on
any person other than the parties hereto or their respective successors and
permitted assigns, any rights and remedies, obligations or liabilities under or
by reason of this Agreement.
17. CONSTRUCTION. Wherever the context may require, any pronoun used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
SELLERS:
/S/ KELLY SCOTT HEROLD
-----------------------------------
Kelly Scott Herold, as Trustee
/S/ GREGORY KEITH SCOTT
-----------------------------------
Gregory Keith Scott
/S/ DREW ERIC SCOTT
<PAGE>
-----------------------------------
Drew Eric Scott
/S/ SAMUEL P. SCOTT
-----------------------------------
Samuel P. Scott, Individually and as
Joint Tenant
/S/ SHERRY J. SCOTT
-----------------------------------
Sherry J. Scott, as Joint Tenant
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Samuel P. Scott
-------------------------------
Samuel P. Scott
Title: Chairman of the Board
BUYER:
GMH ACQUISITION CORP.
By: /s/ Gary M. Brost
-------------------------------
Title: President
ESCROW AGENT
KEY TRUST COMPANY
By: /s/ [illegible]
-------------------------------
Title: Vice President
<PAGE>
EXHIBIT 10.12
SERVICE AGREEMENT
This Service Agreement ("Agreement") is made and entered into as of
the 21st day of December, 1995, by and between GENERAL MANUFACTURED HOUSING,
INC., a Georgia corporation ("GMH") and M/H RETAIL, INC., a Georgia corporation
("Retail").
WITNESSETH:
WHEREAS, GMH is in the business of manufacturing and selling at
wholesale manufactured homes; and
WHEREAS, Retail is in the business of providing warranty and repair
services with respect to manufactured homes and has, in the past, provided such
services to GMH; additionally, Retail is engaged in the business of selling at
retail materials and components used in the manufacture and repair of
manufactured housing (collectively, "Retail Sales"), such materials and
components being acquired from GMH at prices equal to GMH's cost for new
materials and components and at no cost to Retail for damaged or used materials
and components; and
WHEREAS, GMH and Retail desire to enter into this Agreement to set
forth their respective rights and obligations with respect to such warranty and
repair services;
NOW, THEREFORE, in consideration of the premises set forth above, and
the mutual covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, GMH and Retail, intending to be legally bound, hereby agree as
follows:
1. Provision of Services.
(a) OBLIGATIONS OF RETAIL. During the term of this Agreement and
subject to the terms and conditions set forth herein, upon request by GMH in the
form of a written work order, Retail shall provide all warranty and repair
services requested by GMH with respect to each manufactured home produced by GMH
(the "Services"). All Services shall be:
(i) performed by independent contractors engaged by Retail;
(ii) performed promptly upon request by GMH;
(iii) performed in a professional, efficient and workmanlike manner
and to the satisfaction of GMH;
(iv) performed by independent contractors who Retail reasonably
believes to be sufficiently qualified and who have sufficient tools and
equipment, including, without limitation, trucks and means of transportation for
such contractors to perform the requested tasks; and
(v) performed in accordance with applicable federal, state and local
laws, codes, ordinances, rules and regulations.
It shall be Retail's responsibility to correct, in a timely fashion and at its
sole expense, defects and deficiencies in its Services resulting from its
failure to act in accordance with the standards set forth in this Agreement. In
addition, Retail shall make available to GMH, throughout the
<PAGE>
term hereof, its officers and employees, for consultation and advice with
respect to the subject matter of this Agreement. Retail understands and agrees
that GMH has worked for and established a favorable, positive and respected
status in the manufactured housing industry among dealers, suppliers, other
manufacturers and customers and GMH desires to maintain such status. Retail
agrees to use its best efforts to help GMH maintain such status.
(b) OBLIGATIONS OF GMH. During the term of this Agreement and
subject to the terms and conditions set forth herein, GMH shall permit Retail,
its employees, agents and independent contractors to have access to records
reasonably necessary and appropriate to enable Retail to perform the Services
under the work orders submitted by General pursuant to Section 1(a) hereof.
2. Exclusivity of Services. During the term of this Agreement,
Retail shall provide warranty and repair services exclusively to GMH. In
consideration of the foregoing, GMH shall request Retail, pursuant to this
Agreement, to perform all warranty and repair work required by GMH on all homes
manufactured by it, except to the extent that any such repairs are beyond the
capabilities of Retail.
3. PAYMENTS.
(a) PAYMENT FOR SERVICES; PRICE. Upon completion of the Services
with respect to each manufactured home with respect to which Services are
provided hereunder, Retail shall deliver an invoice to GMH. The amount of each
such invoice shall be Retail's actual cost of providing such Services plus an
amount per unit determined by GMH from time to time. Promptly upon receipt of
each such invoice, GMH shall mail to Retail a check in the amount of such
invoice. GMH and its agents shall have the right, at reasonable times, to review
the books and records of Retail to confirm the cost to Retail of providing the
Services hereunder. Retail's actual cost of providing Services shall not include
any of its overhead including, without limitation, the salaries of its
employees, its lease of operating space or any similar amounts.
(b) MANAGEMENT FEE. Retail shall pay to GMH a management fee (the
"Management Fee"), payable quarterly within 30 days following the end of each
calendar quarter hereunder, in an amount equal to the operating profit of Retail
for such quarter, if any, which otherwise would be realized but for the
Management Fee. In the event Retail's cash resources are insufficient to permit
it to pay the Management Fee to GMH, the deficiency in such required payment
shall be recorded as a payable from Retail to GMH. Retail agrees that it will
not make any payment other than in the ordinary and customary course of business
without the prior consent of GMH.
(c) FUNDING OF OPERATING DEFICITS. GMH agrees to fund in cash the
full amount of any monthly operating deficit of Retail within 10 days following
written notice from Retail given to GMH after the end of any calendar month for
which an operating deficit is recorded.
4. Term. The term of this Agreement shall commence on the date
hereof and shall continue until June 30, 1997, unless earlier terminated by
either party in accordance with Section 12 hereof.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF RETAIL. Retail
represents, warrants, and covenants to GMH as follows:
<PAGE>
(a) Organization, good standing and power. Retail is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Retail has all requisite corporate power, authority and
capacity to enter into this Agreement and to perform all of its obligations
hereunder and this Agreement constitutes the legal, valid and binding obligation
of Retail and is enforceable against it in accordance with its terms.
(b) Authorization. This Agreement has been authorized by all
necessary corporate action of Retail.
(c) Effective Agreement. The execution, delivery and
performance of this Agreement by Retail and the consummation of the transactions
contemplated hereby do not and will not conflict with, violate or result in the
breach of any of the terms or conditions of, or constitute a default under, the
Certificate of Incorporation or the By-Laws of Retail, or any material contract,
agreement, commitment, indenture, mortgage, pledge, note, bond, license, permit,
or other instrument or obligation to which Retail is a party or by which Retail
or its assets may be bound or affected, or any law, regulation, ordinance, or
decree to which Retail or its assets are subject. The recitals to this Agreement
insofar as they relate to Retail are accurate.
(d) Litigation. There is no suit, action or litigation,
administrative hearing, arbitration or other proceeding or governmental inquiry
or investigation affecting Retail or its properties pending or, to the best
knowledge of Retail, threatened against Retail in connection with this Agreement
or the transactions contemplated hereby.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF GMH. GMH
represents, warrants and covenants to Retail as follows:
(a) Organization, good standing and power. GMH is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Georgia. GMH has all requisite corporate power, authority
and capacity to enter into this Agreement and this Agreement constitutes the
legal, valid and binding obligation of GMH and is enforceable against it in
accordance with its terms.
(b) Authorization. This Agreement has been authorized by all
necessary corporate action of GMH.
(c) Effective Agreement. The execution, delivery and
performance of this Agreement by GMH and the consummation of the transactions
contemplated hereby do not and will not: conflict with, violate or result in the
breach of any of the terms or conditions of, or constitute a default under, the
Certificate of Incorporation or By-Laws of GMH, or any MATERIAL contract,
agreement, commitment, indenture, mortgage, pledge, note, bond, license, permit,
or other instrument or obligation to which GMH is a party or by which GMH or its
assets may be bound or affected, or any law, regulation, ordinance or decree to
which GMH or its assets are subject. The recitals to this Agreement insofar as
they relate to GMH are accurate.
(d) Litigation. There is no suit, action or litigation,
administrative hearing, arbitration or other proceeding or governmental inquiry
or investigation affecting GMH or its properties pending or, to the best
knowledge of GMH, threatened against GMH in connection with this Agreement or
the transactions contemplated hereby.
<PAGE>
7. INSURANCE. Retail shall purchase and maintain in effect at all
times, during and after the term of this Agreement, primary, excess, or umbrella
insurance, including Comprehensive General Liability and Contractual Liability
Coverage with a minimum aggregate limit of liability of $3,000,000 per claim and
per policy year. Such insurance shall be issued by an insurer acceptable to GMH
and shall specifically name GMH as a named insured and shall provide for thirty
(30) days' advance written notice to GMH of any modification or termination of
the policy. Retail shall, upon GMH's request, promptly furnish to GMH an
original certificate of insurance, signed by an authorized representative or
agent of the insurer, as of the date of such request, evidencing compliance with
the foregoing. If Retail fails to purchase and maintain such insurance, GMH may
purchase the required insurance and Retail shall promptly reimburse GMH for that
cost.
8. GMH OPTION TO PURCHASE RETAIL. At any time during the term
hereof, GMH may, upon thirty (30) days' written notice to Retail (the "Notice"),
purchase the business of Retail for a purchase price equal to the net assets
(i.e., total assets less total liabilities as shown on Retail's balance sheet,
as of a date within 30 days of the Notice, prepared by the firm of accountants
then serving GMH) of such business. Such purchase may be structured as a stock
purchase, an asset purchase, a merger or otherwise, in the discretion of GMH. In
connection with such purchase, Retail agrees to use its reasonable efforts in
good faith to facilitate the orderly transition to GMH of Retail's relationship
with its network of independent contractors performing Services. The closing for
the purchase provided herein shall be held at the offices of GMH on a date
mutually agreed upon by the parties but no later than thirty (30) days from the
date of the Notice. The purchase price shall be paid in cash at the closing by
certified check or by cashier's or official bank check. At the closing, Retail
and/or its shareholders shall do all things and execute and deliver all such
documents as may be necessary or reasonably requested by GMH in order to
consummate such transfer. All accounting fees associated with the consummation
of GMH's purchase of Retail shall be borne by GMH.
9. RESTRICTIONS ON SALE AND TRANSFER. During the term hereof,
Retail shall not transfer, sell or assign any substantial part of the assets of
Retail and shall not redeem any of the outstanding shares of Retail and no
shareholder of Retail shall transfer, sell or assign any of the outstanding
shares of Retail except to the immediate family members (by blood or marriage)
of such shareholder or any trustee of a trust all of the beneficial interests of
which are owned by such shareholder or such shareholder's immediate family
members with the prior consent of GMH, which shall not be unreasonably withheld.
For purposes of this Section 9, an "assignment" shall include, but not be
limited to, any transfer by means of an express assignment or in connection with
any of the following: (a) a merger or consolidation with or into another entity,
including, but not limited to, a corporation, partnership, limited liability
company or limited liability partnership, whether or not such party is the
surviving entity, (b) a sale of assets, or (c) a sale or transfer of equity
interests.
10. DEFAULT. Each of the following shall be an "Event of Default"
hereunder:
(a) DEFAULT BY RETAIL OR GMH. Either of Retail or GMH: (i) fails to
pay any amount due hereunder on its due date; (ii) fails to observe or perform
any material provision of this Agreement (other than an obligation to pay any
amount due hereunder which shall be governed by (i) above), and such failure
continues for more than fifteen (15) days after written notice
<PAGE>
by the other party; or (iii) becomes insolvent, is adjudged bankrupt, makes any
assignment for the benefit of creditors, has a receiver appointed for it or any
of its assets or is dissolved or if a substantial portion of its assets on more
than fifty percent (50%) of its outstanding equity interests are sold or
transferred, in one or more transactions.
(b) ADDITIONAL DEFAULTS BY RETAIL: (i) If Retail shall fail to
remedy or fail to promptly commence and pursue action toward remedying any
material defect or deficiency in accordance with the terms of Section 1 of this
Agreement, and such failure continues for more than fifteen (15) days after
WRITTEN notice by GMH; (ii) Retail shall fail to comply with any and all
applicable laws, statutes, ordinances, or regulations of any nature with respect
to the Services, except where the failure to so comply will not materially
adversely affect the operations or condition (financial or otherwise) of Retail,
and such failure continues for more than fifteen (15) days after notice by GMH;
or (iii) Retail fails to maintain the insurance required by this Agreement, and
such failure continues for more than five (5) days after notice by GMH.
11. REMEDIES UPON DEFAULT. If an Event of Default shall have
occurred or be continuing by one party, the other party may, at its option, do
one or more of the following: (i) terminate this Agreement in accordance with
the terms of Section 12 hereof; and/or (ii) pursue its remedies in equity and/or
at law.
12. Termination. This Agreement may be terminated:
(a) by the mutual consent of GMH and Retail at any time; or
(b) by either party hereto, by written notice upon the occurrence of
an Event of Default by the other party hereto; or
(c) by either party by written notice upon consummation of the
purchase of Retail's business pursuant to Section 8 hereof.
13. Rights and Responsibilities upon Termination. Upon termination
of this Agreement all obligations of the parties hereunder shall terminate
except (a) the obligation of each party to promptly pay when due all amounts
owed to the other; (b) the indemnification obligations of the parties under
Section 16; and (c) the non-disclosure obligations under Section 14.
14. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) CONFIDENTIAL INFORMATION. During the term of this Agreement, GMH
and Retail shall and shall cause their respective officers, directors, managers,
employees, agents and affiliates to keep secret, protect and retain in strictest
confidence, and not divulge, furnish, or make accessible to anyone or use in
competition with or in a manner otherwise detrimental to the interests of the
other, any confidential information of the other, including without limitation
any confidential "know-how"; trade secrets; designs; plans; blueprints;
specifications; drawings; manufacturing methods; processes and equipment;
customer lists; pricing policies; operational methods; financial, business and
marketing plans or strategies; product or service development techniques or
plans; production cost information; technical data; documentation or software;
discoveries; innovations; inventions; improvements or research projects
("Confidential Information"). The term "Confidential Information" does not
include information that becomes generally available to the public other than as
a result of an unauthorized disclosure by GMH or Retail or any
<PAGE>
agent or other representative thereof. GMH and Retail shall not, however, be
obliged to keep confidential any information to the extent disclosure is
required by law, or determined in good faith to be necessary or appropriate to
comply with any legal or regulatory order, regulation or requirement; provided,
however, that in the event disclosure is required by law each shall give the
other prompt notice of the intended disclosure so that an appropriate protective
order can be timely sought.
(b) NON-COMPETITION. Without the prior written consent of the other,
during the term of this Agreement, neither GMH, nor Retail, nor any of their
respective officers, directors, managers, employees, agents or Affiliates shall
enter into any agreement to provide or pay for the provision of the same or
similar services as provided hereunder, with any other party, provided that GMH
may enter into such an Agreement for services to the extent that Retail is
unable to provide the same.
(c) RIGHTS AND REMEDIES UPON BREACH. In the event either party
breaches, or threatens to commit a breach of, any of the provisions of this
Section the other party hereto shall have the following rights and remedies,
which shall be independent of any others and severally enforceable, and shall be
in addition to and not in lieu of any other rights and remedies available to
such party at law or in equity:
(i) the right and remedy to have the provisions of this
Section specifically enforced by any court of competent
jurisdiction, without posting a bond or other security
of any kind whatsoever, it being agreed that any breach
or threatened breach of this Section would cause
irreparable injury and that money damages would not
provide an adequate remedy; and
(ii) the right and remedy to require the breaching party to
account for and pay over to the other party all
compensation, profits, monies, accruals, increments or
other benefits derived or received by such party as the
result of any transactions constituting a breach of
this Section.
(d) SEVERABILITY OF COVENANTS. Each party acknowledges and agrees
that the provisions of this Section are reasonable and valid in scope and in all
other respects. If any court determines that any such provisions or any part
thereof are invalid or unenforceable, the remainder of this Section shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
15. ARBITRATION. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section, which shall be the sole and exclusive procedures for the resolution of
any such disputes.
(a) Negotiation Between Executives.
(i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by
negotiation between Kelly S. Herold of Retail and Gary M. Brost
of GMH, or their successors with direct responsibility for
administration of this contract. Any party may give the other
party written notice of any dispute not resolved in the normal
course of business. Within 15 days after delivery of the notice,
the receiving party shall
<PAGE>
submit to the other a written response. The notice and the
response shall include (a) a statement of each party's position
and a summary of arguments supporting that position, and (b) the
name and title of the executive who will represent that party and
of any other person who will accompany the executive. Within 30
days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute. All reasonable
requests for information made by one party to the other will be
honored.
(ii) If the matter has not been resolved by these persons within
60 days of the disputing party's notice, or if the parties
fail to meet within 30 days, the dispute shall be referred
to the Chairmen of the Boards of both parties who shall
likewise meet to attempt to resolve the dispute. If the
matter has not been resolved within 30 days from the
referral of the dispute to such Chairmen, or if no meeting
of such Chairmen has taken place within 15 days after such
referral, either party may initiate arbitration as provided
hereinafter.
(iii) All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence
and state rules of evidence.
(b) Arbitration under the CPR Rules. Any dispute arising out of or
relating to this contract, or the breach, termination or validity thereof, that
has not been resolved under Subsection (a) above, shall be settled by
arbitration in accordance with the then current Center for Public Resources
Rules for Non-Administered Arbitration of Business Disputes by a sole arbitrator
or three independent and impartial arbitrators, of whom each party shall appoint
one and those two shall appoint the third. The arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. <section> 1-16, and judgment upon
the award rendered by the arbitrator(s) may be entered by any court having
jurisdiction thereof. The place of arbitration shall be Atlanta, Georgia. The
arbitrators are not empowered to award damages in excess of compensatory damages
and each party hereby irrevocably waives any right to recover such damages with
respect to any dispute resolved by arbitration.
(c) Provisional Remedies. The procedures specified in this Section
shall be the sole and exclusive procedures for the resolution of disputes
between the parties arising out of or relating to this agreement; provided,
however, that a party, without prejudice to the above procedures, may file a
complaint for statute of limitations or venue reasons, or to seek a preliminary
injunction or other provisional judicial relief, if in its sole judgment such
action is necessary to avoid irreparable damage or to preserve the status quo.
Despite such action the parties will continue to participate in good faith in
the procedures specified in this Section.
(d) Tolling Statute of Limitations. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in this Section are pending. The parties will take such
action, if any, required to effectuate such tolling.
(e) Performance to Continue. Each party is required to continue to
perform its obligations under this contract pending final
<PAGE>
resolution of any dispute arising out of or relating to this contract.
16. INDEMNIFICATION.
(a) GMH agrees to indemnify, defend and hold harmless Retail, its
officers, employees and directors (hereinafter collectively referred to as the
"Indemnitee") against any and all losses, obligations, settlement payments,
awards, judgments, fines, penalties, interest charges, claims, actions, costs,
expenses, damages and liabilities, including reasonable attorneys' fees and any
expenses incurred in connection with investigating, defending or asserting any
claim, action, suit or proceeding incident to any matter indemnified against
hereunder, including without limitation court filing fees, court costs,
arbitration fees or costs, witness fees, and fees and disbursements of legal
counsel, investigators, expert witnesses, accountants and other professionals,
whether incurred by an indemnified party in any action or proceeding between an
indemnified party and an indemnifying party (including a proceeding to enforce
this Agreement) or between an indemnified party and any third party, arising out
of or in connection with the conduct of Retail's business (including, but not
limited to, its Services and Retail Sales business segments) from and after the
date hereof; provided, however, that, except as provided in the immediately
following clause, GMH shall have no obligation to indemnify, defend or hold
harmless Retail or the Indemnitees for any federal or state income taxes
relating to Retail's business operations, whether heretofore or hereafter
conducted; provided further, however, that GMH shall indemnify, defend and hold
harmless Retail from any federal and state income tax liability incurred after
the date hereof to the extent resulting from the recognition of "S Corporation"
taxable profits which are absorbed by the Management Fee payable to GMH pursuant
to Section 3(b) hereof.
(b) Each Indemnitee shall use its best efforts to give prompt written
notice to the indemnifying party or parties of any claim or event known to it
that does or may give rise to a claim by such Indemnitee against the
indemnifying party or parties based on this Agreement, stating the nature and
basis of said claims or events and the amounts thereof, to the extent known.
(c) The indemnifying party shall have the right to assume the defense
of any action or claim for which it has an indemnification obligation under this
Section 16 using legal counsel reasonably acceptable to the indemnified party or
parties.
(d) The obligations of the parties under this Section shall survive
termination of this Agreement.
17. INDEPENDENT CONTRACTOR. In performing the services under this
Agreement, Retail shall operate as and have the status of an independent
contractor and shall not act as an agent or be an agent of GMH. Except as
provided in Section 1 hereof with respect to the quality of the Services, as an
independent contractor, Retail shall be solely responsible for determining the
means and methods of performing the Services and shall have complete charge and
responsibility for its personnel engaged in the performance of the Services.
18. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia without giving
effect to conflict of laws principles thereof.
19. NOTICES.
<PAGE>
(a) Except as provided in Section 19(b) hereof, all notices or other
communications herein required or permitted to be given shall be in writing and
shall be deemed to have been given when delivered in person or by courier
service, upon receipt of a telecopy or four (4) business days after deposit in
the United States mail (registered or certified, with postage prepaid and
properly addressed). For purposes hereof, the addresses (until written notice of
a change thereof is delivered as provided in this Section) shall be as follows:
GMH:
General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, Georgia 31501
Attention: Chief Executive Officer
with a copy to:
GMH Holdings, Inc.
c/o Cyclorama Building
369 Franklin Street
Buffalo, New York 14202
Attention: Gary M. Brost
Retail:
M/H Retail, Inc.
1515 Albany Avenue
Waycross, Georgia 31501
Attention: President
with a copy to:
Holland & Knight
50 N. Laura Street, Suite 3900
Jacksonville, Florida 32202
Attention: L. Kinder Cannon III
(b) Routine communications, including requests for Services, invoices
and payments shall be considered as duly delivered when mailed, postage
prepaid, by either registered or ordinary first class mail.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and contains all of the terms and conditions thereof and
supersedes all prior understandings relating to the subject matter hereof,
including, but not limited to, the Agreement dated March 23, 1988 between GMH
and Retail, as amended.
21. AMENDMENT. This Agreement may be amended, modified or
supplemented only by a written agreement executed by GMH and Retail.
22. WAIVER. Failure of either party to enforce, at any time,
the provisions of this Agreement, does not constitute a waiver of such
provisions in any way or waive the right of either party at any time to avail
itself of such remedies as it may have for the breach or breaches of such
provisions. None of the conditions of this Agreement shall be considered waived
by either party unless such waiver is explicitly given in writing by the other
party. No such waiver shall be a waiver of any past or future default, breach,
or modification, unless expressly stipulated in such waiver.
23. BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
<PAGE>
respective permitted successors and permitted assigns; provided, however, that
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective permitted successors
and permitted assigns, any rights and remedies, obligations or liabilities under
or by reason of this Agreement.
24. ASSIGNMENT. Neither party may assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of the
other party hereto. Any assignment of this Agreement other than in accordance
with this Section 24 shall be void and of no effect. For purposes of this
Section 24, an "assignment" shall include, but not be limited to, any transfer
by either party of its rights and duties under this Agreement by means of an
express assignment or in connection with any of the following: (a) a merger or
consolidation of either party with or into another entity, including, but not
limited to, a corporation, partnership, limited liability company or limited
liability partnership, whether or not such party is the surviving entity, (b) a
sale of all or a substantial part of either party's assets, or (c) a sale or
transfer of 50% or more of such party's outstanding equity interests.
25. SEVERABILITY. If any court of competent jurisdiction
determines that any clause, provision, section, or other portion of this
Agreement, or any part thereof, is invalid or unenforceable, the remainder of
this Agreement shall not thereby be affected and shall be given full force and
effect, without regard to any invalid portions.
26. BLUE PENCILLING. If any court of competent jurisdiction
determines that any of the provisions contained in this Agreement are legally
unenforceable because of the duration or other scope of such provision, the
parties agree and consent to such court reducing the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be fully enforceable.
27. HEADINGS. Headings of the Sections in this Agreement are
for reference purposes only and shall not be deemed to have any substantive
effect nor shall they be used to interpret this Agreement.
28. COUNTERPARTS. This Agreement may be executed in any number
of counterparts each of which once so executed and delivered shall be deemed an
original, but all of which together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, GMH and Retail have executed this Agreement
as of the day and year first above written.
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
-----------------------------------
Gary M. Brost
Executive Vice President
<PAGE>
Signed in the presence of:
/s/ David Leve
- -------------------------------
WITNESS
M/H RETAIL, INC.
By: /s/ Lannis Thomas
------------------------------------
Lannis Thomas
President
Signed in the presence of:
/s/ [ILLEGIBLE]
- -------------------------------
WITNESS
<PAGE>
EXHIBIT 10.13
THIS JUNIOR SUBORDINATED NOTE IS SUBORDINATED PURSUANT TO THE TERMS OF THAT
CERTAIN SUBORDINATION AGREEMENT DATED THE DATE HEREOF AMONG THE PAYEE, THE
OTHER PURCHASERS WHO ARE PARTIES TO THE AGREEMENT (AS DEFINED BELOW), THE
MAKER, THE SENIOR LENDER, THE SENIOR SUBORDINATED LENDER AND STRATEGIC
INVESTMENTS & HOLDINGS, INC. (ALL AS DEFINED BELOW).
GENERAL MANUFACTURED HOUSING, INC.
JUNIOR SUBORDINATED NOTE DUE JUNE 30, 2003
$2,931,469.00
December 21, 1995
FOR VALUE RECEIVED, GENERAL MANUFACTURED HOUSING, INC. a Georgia
corporation with its principal office at 2255 Industrial Boulevard, Waycross,
Georgia 31503 (the "Maker"), hereby unconditionally promise(s) to pay to the
order of RFE INVESTMENT PARTNERS V, L.P. (the "Payee"), or registered assigns at
the office of the Payee located at 36 Grove Street, New Canaan, Connecticut
06840 or at such other office as the holder hereof may designate, in lawful
money of the United States, the principal sum of Two Million Nine Hundred Thirty
One Thousand Four Hundred Sixty Nine Dollars ($2,931,469.00), together with
interest thereon as provided for below.
This Note is one of a duly authorized issue of Junior Subordinated
Notes of the Maker, limited in aggregate principal amount to Five Million
Dollars ($5,000,000.00) (the "Notes"), copies of which are available for
inspection at the Maker's principal office. The Notes have been sold pursuant to
a Securities Purchase Agreement dated as of the date hereof, among the Maker and
the Payees of the Notes (the "Agreement"), a copy of which is available for
inspection at the Maker's principal office. This Note is subject and entitled to
certain terms, conditions, covenants and agreements contained in the Agreement.
Reference to the Agreement and the Subordination Agreement (as defined below)
shall in no way impair the negotiability hereof or the absolute and
unconditional obligation of the Maker to pay both principal of and interest on
this Note as provided herein.
1. EQUAL RANK. The Notes rank equally and ratably without priority
over one another. No payment, including any prepayment, shall be made hereunder
unless payment, including any prepayment, is made with respect to the other
Notes in an amount which bears the same ratio to the then unpaid balance on such
other Notes as the payment made hereon bears to the then unpaid balance under
this Note.
2. INTEREST. Interest shall accrue on the outstanding principal
balance hereof at a rate per annum equal to thirteen percent (13%) per annum,
payable (in the event and only to the extent that Maker has accumulated earnings
sufficient to pay such accrued interest) quarterly, on the last day of December,
March, June and September in each year and on the Maturity Date (as defined
below), commencing on March 31, 1996. Interest for the period commencing with
the date of this Note through March 31, 1996 shall be payable on March 31, 1996.
If all or a portion of the principal amount of or interest on
<PAGE>
this Note shall not be paid when due (whether or not such interest has been
earned as provided above and whether at stated maturity, by acceleration or
otherwise) such overdue amount shall bear interest at a rate per annum which is
2% above the rate that would otherwise be applicable thereto.
Anything contained in this Note to the contrary notwithstanding, the
Payee does not intend to charge and the Maker shall not be required to pay
interest or other charges in excess of the maximum rate (if any) permitted by
applicable law (if any). Any payments in excess of such maximum shall be
refunded to the Maker or credited against principal.
3. PAYMENT OF PRINCIPAL AND INTEREST. The Maker shall pay the
entire unpaid principal hereof and any accrued and unpaid interest thereon in
one lump payment due on June 30, 2003. The term "Maturity Date" shall mean June
30, 2003.
4. SUBORDINATION. Anything in this Note to the contrary
notwithstanding, the indebtedness evidenced by this Note shall be subordinated
to the prior payment and satisfaction of all indebtedness of the Maker to (i)
First Source Financial LLP (the "Senior Lender") arising out of the Secured
Credit Agreement dated December 21, 1995 (the "Loan Agreement") between the
Senior Lender and the Maker, including any such additional indebtedness
permitted by the Subordination Agreement, and (ii) The Equitable Life Assurance
Society of the United States (the "Senior Subordinated Lender") arising out of
that certain Note and Warrant Purchase Agreement dated as of December 21, 1995
(the "Note Agreement"), between the Maker and the Senior Subordinated Lender
(such indebtedness of the Maker to which this Note is subordinated being
hereinafter referred to as "Senior Indebtedness"), which subordination shall be
subject to the terms and conditions of that certain Subordination Agreement
dated as of the date hereof between the Maker, the Senior Lender, the Senior
Subordinated Lender, Strategic Investments & Holdings, Inc. and the Payees of
the Notes. Senior Indebtedness shall include any replacement or refinancing
thereof. This Note and the other Notes shall be senior in right of payment to
all other borrowed money indebtedness of the Maker, except the Senior
Indebtedness.
5. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Maker, this Note shall
be entitled to a claim in liquidation after the payment in full of all Senior
Indebtedness of the Maker, but before participation by the holders of any debt
subordinate hereto or of any capital stock of the Maker. The amount of the claim
in liquidation shall equal the amount to which the Payee of this Note would be
entitled in the case of payment, whether or not this Note is eligible for
payment at the time of liquidation. If upon such liquidation, dissolution, or
winding up, the assets available for distribution among the holders of the Notes
shall be insufficient to permit the payment of the full amounts of their claims
in liquidation, then the entire assets of the Maker to be distributed to the
holders of the Notes shall be distributed pro-rata among the holders of the
Notes based upon the amounts of their respective claims in liquidation.
6. PREPAYMENT. OPTIONAL PREPAYMENT. The Maker may prepay the
principal hereof and all interest thereon in whole or in part at any time
without penalty or premium after ten (10) days' prior written notice to the
holders of the Notes; provided that any partial prepayment is in multiples of
$10,000. At the time of prepayment, all interest owing on the amount prepaid to
the date of payment must simultaneously be paid.
7. EXPENSES. The Maker shall pay the Payee, on demand, for all
<PAGE>
reasonable costs and expenses, including, but not limited to, reasonable
attorneys' fees, incurred in the collection or enforcement of this Note.
8. DISCLOSURE OF SENIOR INDEBTEDNESS. The Maker shall notify the
Payee of this Note of the existence of any Senior Indebtedness, incurred from
time to time, or any written modification, extension, renewal or rollover
thereof or any default therein within five (5) days of the date it is incurred
or occurs. Such notice shall provide the Payee of this Note access to all
documents executed in connection therewith and all information with respect
thereto.
9. DEFAULT; ACCELERATION. The occurrence of any of the following
shall constitute an "Event of Default": (a) The breach by the Maker of any of
the terms or provisions contained in this Note or any of the Notes, including
without limitation the failure to pay when due (whether at the date hereof or at
a date fixed for prepayment hereof or by acceleration hereof or otherwise) any
principal, interest, charges or other amounts hereunder or failure to perform
hereunder or under any of the Notes and such breach shall continue unremedied
for five business days; or
(b) If the Maker
(i) shall commence any case or proceeding or other action
relating to it under any bankruptcy, insolvency or other
similar law or seek reorganization, arrangement,
readjustment of its debts, dissolution, liquidation,
winding-up, composition or any other relief under any
bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt
or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing; or
(ii) shall admit the material allegations of any petition or
pleading in connection with any such case or proceeding; or
(iii) makes an application for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar
officer for the Maker or for all or a substantial part of
the Maker's property; or
(iv) makes a general assignment for the benefit of creditors; or
(v) is unable or admits in writing its inability to pay its
debts as they mature; or
(c) Commencement of any case or proceeding or the taking of any other
action against the Maker in bankruptcy, insolvency, or similar law or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, winding-up, composition or for any other relief under any
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act of law of any
jurisdiction, domestic or foreign, now or hereafter existing; or the appointment
of a receiver, conservator, trustee or similar officer for the Maker or for all
or a substantial part of the Maker's property; or the issuance of a warrant of
attachment, execution or similar process against any substantial part of the
property of the Maker; and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or
<PAGE>
(d) An event of default shall occur under (i) the Senior Loan
Agreement (as defined in the Securities Purchase Agreement) or related
documents, or (ii) any of the Senior Subordinated Note Instruments (as defined
in the Securities Purchase Agreement) or related documents, or (iii) any other
agreements relating to Senior Indebtedness or (iv) any of the Notes; or
(e) The Maker shall fail to comply with any of its covenants
contained in the Agreement or the Investors Rights Agreement dated as of the
date hereof among the Maker, the Payees of the Notes and certain other parties,
and such failure continues unremedied for a period of thirty (30) days after the
Maker receives written notice from the Payee of such default; or
(f) Any representation or warranty of the Maker in the
Agreement or in any other document or instrument delivered pursuant to the
Agreement shall prove to have been false in any material respect upon the
date when made; or
(g) Maker shall fail to pay at maturity, or within any applicable
period of grace, any obligation for borrowed money or credit received or in
respect of any indebtedness for borrowed money (other than the Senior
Indebtedness) or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing or
securing borrowed money or credit received or in respect of any indebtedness for
borrowed money (other than the Senior Indebtedness) for such period of time as
would permit (assuming the giving of appropriate notice if required) the holder
or holders thereof or of any obligations issued thereunder to accelerate the
maturity thereof; or
(h) There shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against Maker that with other outstanding final judgments,
undischarged, against Maker exceeds in the aggregate $250,000; or
(i) The Maker shall be enjoined, restrained or in any way prevented
by the order of any court or any administrative or regulatory agency from
conducting any material part of its business; or
(j) The Agreement or the Investors' Rights Agreement shall cease, for
any reason, to be in full force and effect other than in accordance with the
terms thereof.
Upon the occurrence, and at any time during the continuance, of an
Event of Default, the Payee, at the Payee's option and without the need for
presentment, demand, protest, or other notice of any kind, may declare all
unpaid principal hereof and interest hereunder to be immediately due and payable
and same shall become immediately due and payable upon such declaration;
PROVIDED that in the event of any Event of Default specified in clauses (b) and
(c) above, all such amounts shall become immediately due and payable
automatically and without any requirement of notice from the Payee.
10. CERTAIN WAIVERS. The Maker and any endorser or guarantor hereof
(collectively, the "Obligors") and each of them (i) waive(s) presentment,
diligence, protest, demand, notice of demand, notice of acceptance or reliance,
notice of non-payment, notice of dishonor, notice of protest and all other
notices to parties in connection with the delivery, acceptance, performance,
default or enforcement of this Note, any
<PAGE>
endorsement or guaranty of this Note, or any collateral or other security; (ii)
consent(s) to any and all delays, extensions, renewals or other modifications of
this Note, any related document or the debt(s) or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect, record,
preserve, realize upon, or lawfully dispose of, or any other impairment of, any
collateral or other security, or any other failure to act by the Payee or any
other forbearance or indulgence shown by the Payee, from time to time and in one
or more instances (without notice to or assent from any of the Obligors) and
agree(s) that none of the foregoing shall release, discharge or otherwise impair
any of their liabilities; (iii) agree(s) that the full or partial release or
discharge of any Obligor(s) shall not release, discharge or otherwise impair the
liabilities of any other Obligor(s); and (iv) otherwise waive(s) any other
defenses based on suretyship or impairment of collateral.
11. REGISTRATION AND TRANSFER OF THIS NOTE. The Maker shall keep at
its principal executive office a register (herein sometimes referred to as the
"Note Register"), in which, but at its expense (other than transfer taxes, if
any), the Maker shall provide for the registration and transfer of the Notes.
The Payee of this Note, at such Payee's option, may in person or by duly
authorized attorney surrender this Note for exchange at the principal office of
the Maker, to receive in exchange therefor a new Note or Notes, as may be
requested by such Payee, of the same series and in the same aggregate unpaid
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered; provided, however, that any transfer tax relating to such
transaction shall be paid by the Payee requesting the exchange. Each such new
Note shall be dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so surrendered and shall be in such
principal amount and registered in such name or names as such Payee may
designate in writing.
12. LOST DOCUMENTS. Upon receipt by the Maker of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note or
any Notes exchanged for it, and (in case of loss, theft or destruction ) of
indemnity satisfactory to it, and upon reimbursement to the Maker of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Maker will make and deliver in lieu of such Note a
new Note of the same series and of like tenor and unpaid principal amount and
dated as of the date to which interest has been paid on the unpaid principal
amount of the Note in lieu of which such new Note is made and delivered.
13. COMMERCIAL TRANSACTION; JURY WAIVER. THE MAKER ACKNOWLEDGES
THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION.
THE MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY AND THE RIGHT
THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR OUT OF, OR
OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS NOTE AND/OR ANY RELATED
DOCUMENT. THE MAKER FURTHER ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO
REVIEW THIS NOTE AND THE OTHER FINANCING DOCUMENTS WITH ITS COUNSEL AND THAT IT
ON ITS OWN HAS MADE THE DETERMINATION TO EXECUTE THIS NOTE AND ALL OTHER
FINANCING DOCUMENTS TO WHICH IT IS A PARTY AFTER CONSIDERATION OF ALL OF THE
TERMS OF THIS NOTE AND SUCH OTHER DOCUMENTS (INCLUDING THE INTEREST RATE) AND OF
ALL OTHER FACTORS WHICH IT CONSIDERS RELEVANT.
14. BINDING NATURE. This Note shall bind the Maker and the
Maker's successors and permitted assigns and shall inure to the benefit of
<PAGE>
the Payee and the Payee's heirs, representatives, successors and permitted
assigns. This Note may only be transferred to a transferee of shares of capital
stock of GMH Holdings, Inc. which have been issued pursuant to the Agreement.
The term "Payee" as used herein shall include, in addition to the initial Payee,
any successors, endorsees, or other permitted assignees of such Payee and shall
also include any other holder of this Note.
15. GOVERNING LAW. This Note shall be governed by and construed and
interpreted in accordance with the laws the State of Delaware, without regard to
its rules pertaining to conflicts of laws thereunder.
16. MISCELLANEOUS. No delay or omission by the Payee in exercising
any right or remedy hereunder shall operate as a waiver of such right or remedy
or any other right or remedy; and a waiver on one occasion shall not be a bar to
or waiver of any right or remedy on any other occasion. All rights and remedies
of the Payee hereunder, any other applicable document and under applicable law
shall be cumulative and not in the alternative. No provision of this Note may be
waived or modified orally but only by a writing (a) signed by the party against
whom enforcement of such amendment, waiver or other modification is sought and
(b) consented to in writing by holders of Notes representing sixty six and 2/3
percent (66-2/3%) in principal amount of the Notes.
17. NOTICES. All notices, requests, consents and demands shall be
made in writing and shall be mailed first class postage prepaid, or delivered by
hand or by messenger to the Maker or to the Payee hereof at their respective
addresses set forth at the beginning of this Note or at such other respective
addresses as may be furnished in writing to each other.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note as
of the day and year first written above.
Maker:
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
---------------------------------
Name: Gary M. Brost
Title: President
<PAGE>
EXHIBIT 10.14
THIS JUNIOR SUBORDINATED NOTE IS SUBORDINATED PURSUANT TO THE TERMS OF THAT
CERTAIN SUBORDINATION AGREEMENT DATED THE DATE HEREOF AMONG THE PAYEE, THE
OTHER PURCHASERS WHO ARE PARTIES TO THE AGREEMENT (AS DEFINED BELOW), THE
MAKER, THE SENIOR LENDER, THE SENIOR SUBORDINATED LENDER AND STRATEGIC
INVESTMENTS & HOLDINGS, INC. (ALL AS DEFINED BELOW).
GENERAL MANUFACTURED HOUSING, INC.
JUNIOR SUBORDINATED NOTE DUE JUNE 30, 2003
$145,454.50
December 21, 1995
FOR VALUE RECEIVED, GENERAL MANUFACTURED HOUSING, INC. a Georgia
corporation with its principal office at 2255 Industrial Boulevard,
Waycross, Georgia 31503 (the "Maker"), hereby unconditionally promise(s) to
pay to the order of STERLING COMMERCIAL CAPITAL, INC. (the "Payee"), or
registered assigns at the office of the Payee located at 175 Great Neck
Road, Great Neck, New York 11021 or at such other office as the holder
hereof may designate, in lawful money of the United States, the principal
sum of One Hundred Forty Five Thousand Four Hundred Fifty Four and 50/100
Dollars ($145,454.50), together with interest thereon as provided for
below.
This Note is one of a duly authorized issue of Junior
Subordinated Notes of the Maker, limited in aggregate principal amount to
Five Million Dollars ($5,000,000.00) (the "Notes"), copies of which are
available for inspection at the Maker's principal office. The Notes have
been sold pursuant to a Securities Purchase Agreement dated as of the date
hereof, among the Maker and the Payees of the Notes (the "Agreement"), a
copy of which is available for inspection at the Maker's principal office.
This Note is subject and entitled to certain terms, conditions, covenants
and agreements contained in the Agreement. Reference to the Agreement and
the Subordination Agreement (as defined below) shall in no way impair the
negotiability hereof or the absolute and unconditional obligation of the
Maker to pay both principal of and interest on this Note as provided
herein.
1. EQUAL RANK. The Notes rank equally and ratably without
priority over one another. No payment, including any prepayment, shall be
made hereunder unless payment, including any prepayment, is made with
respect to the other Notes in an amount which bears the same ratio to the
then unpaid balance on such other Notes as the payment made hereon bears to
the then unpaid balance under this Note.
2. INTEREST. Interest shall accrue on the outstanding principal
balance hereof at a rate per annum equal to thirteen percent (13%) per
annum, payable (in the event and only to the extent that Maker has
accumulated earnings sufficient to pay such accrued interest) quarterly, on
the last day of December, March, June and September in each year and on the
Maturity Date (as defined below), commencing on March 31, 1996. Interest
for the period commencing with the date of this Note through March 31, 1996
shall be payable on March 31, 1996.
If all or a portion of the principal amount of or interest on
<PAGE>
this Note shall not be paid when due (whether or not such interest has been
earned as provided above and whether at stated maturity, by acceleration or
otherwise) such overdue amount shall bear interest at a rate per annum
which is 2% above the rate that would otherwise be applicable thereto.
Anything contained in this Note to the contrary notwithstanding,
the Payee does not intend to charge and the Maker shall not be required to
pay interest or other charges in excess of the maximum rate (if any)
permitted by applicable law (if any). Any payments in excess of such
maximum shall be refunded to the Maker or credited against principal.
3. PAYMENT OF PRINCIPAL AND INTEREST. The Maker shall pay the
entire unpaid principal hereof and any accrued and unpaid interest thereon
in one lump payment due on June 30, 2003. The term "Maturity Date" shall
mean June 30, 2003.
4. SUBORDINATION. Anything in this Note to the contrary
notwithstanding, the indebtedness evidenced by this Note shall be
subordinated to the prior payment and satisfaction of all indebtedness of
the Maker to (i) First Source Financial LLP (the "Senior Lender") arising
out of the Secured Credit Agreement dated December 21, 1995 (the "Loan
Agreement") between the Senior Lender and the Maker, including any such
additional indebtedness permitted by the Subordination Agreement, and (ii)
The Equitable Life Assurance Society of the United States (the "Senior
Subordinated Lender") arising out of that certain Note and Warrant Purchase
Agreement dated as of December 21, 1995 (the "Note Agreement"), between the
Maker and the Senior Subordinated Lender (such indebtedness of the Maker to
which this Note is subordinated being hereinafter referred to as "Senior
Indebtedness"), which subordination shall be subject to the terms and
conditions of that certain Subordination Agreement dated as of the date
hereof between the Maker, the Senior Lender, the Senior Subordinated
Lender, Strategic Investments & Holdings, Inc. and the Payees of the Notes.
Senior Indebtedness shall include any replacement or refinancing thereof.
This Note and the other Notes shall be senior in right of payment to all
other borrowed money indebtedness of the Maker, except the Senior
Indebtedness.
5. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Maker, this Note
shall be entitled to a claim in liquidation after the payment in full of
all Senior Indebtedness of the Maker, but before participation by the
holders of any debt subordinate hereto or of any capital stock of the
Maker. The amount of the claim in liquidation shall equal the amount to
which the Payee of this Note would be entitled in the case of payment,
whether or not this Note is eligible for payment at the time of
liquidation. If upon such liquidation, dissolution, or winding up, the
assets available for distribution among the holders of the Notes shall be
insufficient to permit the payment of the full amounts of their claims in
liquidation, then the entire assets of the Maker to be distributed to the
holders of the Notes shall be distributed pro-rata among the holders of the
Notes based upon the amounts of their respective claims in liquidation.
6. PREPAYMENT. OPTIONAL PREPAYMENT. The Maker may prepay the
principal hereof and all interest thereon in whole or in part at any time
without penalty or premium after ten (10) days' prior written notice to the
holders of the Notes; provided that any partial prepayment is in multiples
of $10,000. At the time of prepayment, all interest owing on the amount
prepaid to the date of payment must simultaneously be paid.
7. EXPENSES. The Maker shall pay the Payee, on demand, for all
<PAGE>
reasonable costs and expenses, including, but not limited to, reasonable
attorneys' fees, incurred in the collection or enforcement of this Note.
8. DISCLOSURE OF SENIOR INDEBTEDNESS. The Maker shall notify
the Payee of this Note of the existence of any Senior Indebtedness,
incurred from time to time, or any written modification, extension, renewal
or rollover thereof or any default therein within five (5) days of the date
it is incurred or occurs. Such notice shall provide the Payee of this Note
access to all documents executed in connection therewith and all
information with respect thereto.
9. DEFAULT; ACCELERATION. The occurrence of any of the
following shall constitute an "Event of Default":
(a) The breach by the Maker of any of the terms or provisions
contained in this Note or any of the Notes, including without limitation
the failure to pay when due (whether at the date hereof or at a date fixed
for prepayment hereof or by acceleration hereof or otherwise) any
principal, interest, charges or other amounts hereunder or failure to
perform hereunder or under any of the Notes and such breach shall continue
unremedied for five business days; or
(b) If the Maker
(i) shall commence any case or proceeding or other action
relating to it under any bankruptcy, insolvency or other
similar law or seek reorganization, arrangement,
readjustment of its debts, dissolution, liquidation,
winding-up, composition or any other relief under any
bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt
or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing; or
(ii) shall admit the material allegations of any petition or
pleading in connection with any such case or proceeding; or
(iii) makes an application for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar
officer for the Maker or for all or a substantial part of
the Maker's property; or
(iv) makes a general assignment for the benefit of creditors; or
(v) is unable or admits in writing its inability to pay its
debts as they mature; or
(c) Commencement of any case or proceeding or the taking of any
other action against the Maker in bankruptcy, insolvency, or similar law or
seeking reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, winding-up, composition or for any other relief
under any bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other similar act of
law of any jurisdiction, domestic or foreign, now or hereafter existing; or
the appointment of a receiver, conservator, trustee or similar officer for
the Maker or for all or a substantial part of the Maker's property; or the
issuance of a warrant of attachment, execution or similar process against
<PAGE>
any substantial part of the property of the Maker; and the continuance of
any of such events for sixty (60) days undismissed, unbonded or
undischarged; or
(d) An event of default shall occur under (i) the Senior Loan
Agreement (as defined in the Securities Purchase Agreement) or related
documents, or (ii) any of the Senior Subordinated Note Instruments (as
defined in the Securities Purchase Agreement) or related documents, or
(iii) any other agreements relating to Senior Indebtedness or (iv) any of
the Notes; or
(e) The Maker shall fail to comply with any of its covenants
contained in the Agreement or the Investors Rights Agreement dated as of
the date hereof among the Maker, the Payees of the Notes and certain other
parties, and such failure continues unremedied for a period of thirty (30)
days after the Maker receives written notice from the Payee of such
default; or
(f) Any representation or warranty of the Maker in the Agreement
or in any other document or instrument delivered pursuant to the Agreement
shall prove to have been false in any material respect upon the date when
made; or
(g) Maker shall fail to pay at maturity, or within any
applicable period of grace, any obligation for borrowed money or credit
received or in respect of any indebtedness for borrowed money (other than
the Senior Indebtedness) or fail to observe or perform any material term,
covenant or agreement contained in any agreement by which it is bound,
evidencing or securing borrowed money or credit received or in respect of
any indebtedness for borrowed money (other than the Senior Indebtedness)
for such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity thereof; or
(h) There shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against Maker that with other outstanding final judgments,
undischarged, against Maker exceeds in the aggregate $250,000; or
(i) The Maker shall be enjoined, restrained or in any way
prevented by the order of any court or any administrative or regulatory
agency from conducting any material part of its business; or
(j) The Agreement or the Investors' Rights Agreement shall
cease, for any reason, to be in full force and effect other than in
accordance with the terms thereof.
Upon the occurrence, and at any time during the continuance, of
an Event of Default, the Payee, at the Payee's option and without the need
for presentment, demand, protest, or other notice of any kind, may declare
all unpaid principal hereof and interest hereunder to be immediately due
and payable and same shall become immediately due and payable upon such
declaration; PROVIDED that in the event of any Event of Default specified
in clauses (b) and (c) above, all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the
Payee.
10. CERTAIN WAIVERS. The Maker and any endorser or guarantor
hereof (collectively, the "Obligors") and each of them (i) waive(s)
presentment, diligence, protest, demand, notice of demand, notice of
acceptance or reliance, notice of non-payment, notice of dishonor, notice
<PAGE>
of protest and all other notices to parties in connection with the
delivery, acceptance, performance, default or enforcement of this Note, any
endorsement or guaranty of this Note, or any collateral or other security;
(ii) consent(s) to any and all delays, extensions, renewals or other
modifications of this Note, any related document or the debt(s) or
collateral evidenced hereby or thereby or any waivers of any term hereof or
thereof, any release, surrender, taking of additional, substitution,
exchange, failure to perfect, record, preserve, realize upon, or lawfully
dispose of, or any other impairment of, any collateral or other security,
or any other failure to act by the Payee or any other forbearance or
indulgence shown by the Payee, from time to time and in one or more
instances (without notice to or assent from any of the Obligors) and
agree(s) that none of the foregoing shall release, discharge or otherwise
impair any of their liabilities; (iii) agree(s) that the full or partial
release or discharge of any Obligor(s) shall not release, discharge or
otherwise impair the liabilities of any other Obligor(s); and (iv)
otherwise waive(s) any other defenses based on suretyship or impairment of
collateral.
11. REGISTRATION AND TRANSFER OF THIS NOTE. The Maker shall keep
at its principal executive office a register (herein sometimes referred to
as the "Note Register"), in which, but at its expense (other than transfer
taxes, if any), the Maker shall provide for the registration and transfer
of the Notes. The Payee of this Note, at such Payee's option, may in person
or by duly authorized attorney surrender this Note for exchange at the
principal office of the Maker, to receive in exchange therefor a new Note
or Notes, as may be requested by such Payee, of the same series and in the
same aggregate unpaid principal amount as the aggregate unpaid principal
amount of the Note or Notes so surrendered; provided, however, that any
transfer tax relating to such transaction shall be paid by the Payee
requesting the exchange. Each such new Note shall be dated as of the date
to which interest has been paid on the unpaid principal amount of the Note
or Notes so surrendered and shall be in such principal amount and
registered in such name or names as such Payee may designate in writing.
12. LOST DOCUMENTS. Upon receipt by the Maker of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Note or any Notes exchanged for it, and (in case of loss, theft or
destruction ) of indemnity satisfactory to it, and upon reimbursement to
the Maker of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Note, if mutilated, the Maker will make and
deliver in lieu of such Note a new Note of the same series and of like
tenor and unpaid principal amount and dated as of the date to which
interest has been paid on the unpaid principal amount of the Note in lieu
of which such new Note is made and delivered.
13. COMMERCIAL TRANSACTION; JURY WAIVER. THE MAKER ACKNOWLEDGES
THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL
TRANSACTION. THE MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY
JURY AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING
UNDER OR OUT OF, OR OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS
NOTE AND/OR ANY RELATED DOCUMENT. THE MAKER FURTHER ACKNOWLEDGES THAT IT
HAS HAD AN OPPORTUNITY TO REVIEW THIS NOTE AND THE OTHER FINANCING
DOCUMENTS WITH ITS COUNSEL AND THAT IT ON ITS OWN HAS MADE THE
DETERMINATION TO EXECUTE THIS NOTE AND ALL OTHER FINANCING DOCUMENTS TO
WHICH IT IS A PARTY AFTER CONSIDERATION OF ALL OF THE TERMS OF THIS NOTE
AND SUCH OTHER DOCUMENTS (INCLUDING THE INTEREST RATE) AND OF ALL OTHER
FACTORS WHICH IT CONSIDERS RELEVANT.
<PAGE>
14. BINDING NATURE. This Note shall bind the Maker and the
Maker's successors and permitted assigns and shall inure to the benefit of
the Payee and the Payee's heirs, representatives, successors and permitted
assigns. This Note may only be transferred to a transferee of shares of
capital stock of GMH Holdings, Inc. which have been issued pursuant to the
Agreement. The term "Payee" as used herein shall include, in addition to
the initial Payee, any successors, endorsees, or other permitted assignees
of such Payee and shall also include any other holder of this Note.
15. GOVERNING LAW. This Note shall be governed by and construed
and interpreted in accordance with the laws the State of Delaware, without
regard to its rules pertaining to conflicts of laws thereunder.
16. MISCELLANEOUS. No delay or omission by the Payee in
exercising any right or remedy hereunder shall operate as a waiver of such
right or remedy or any other right or remedy; and a waiver on one occasion
shall not be a bar to or waiver of any right or remedy on any other
occasion. All rights and remedies of the Payee hereunder, any other
applicable document and under applicable law shall be cumulative and not in
the alternative. No provision of this Note may be waived or modified orally
but only by a writing (a) signed by the party against whom enforcement of
such amendment, waiver or other modification is sought and (b) consented to
in writing by holders of Notes representing sixty six and 2/3 percent (66-
2/3%) in principal amount of the Notes.
17. NOTICES. All notices, requests, consents and demands shall
be made in writing and shall be mailed first class postage prepaid, or
delivered by hand or by messenger to the Maker or to the Payee hereof at
their respective addresses set forth at the beginning of this Note or at
such other respective addresses as may be furnished in writing to each
other.
IN WITNESS WHEREOF, the Maker has executed and delivered this
Note as of the day and year first written above.
Maker:
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
--------------------------------
Name: Gary M. Brost
Title: President
<PAGE>
EXHIBIT 10.15
THIS JUNIOR SUBORDINATED NOTE IS SUBORDINATED PURSUANT TO THE TERMS OF THAT
CERTAIN SUBORDINATION AGREEMENT DATED THE DATE HEREOF AMONG THE PAYEE, THE
OTHER PURCHASERS WHO ARE PARTIES TO THE AGREEMENT (AS DEFINED BELOW), THE
MAKER, THE SENIOR LENDER, THE SENIOR SUBORDINATED LENDER AND STRATEGIC
INVESTMENTS & HOLDINGS, INC. (ALL AS DEFINED BELOW).
GENERAL MANUFACTURED HOUSING, INC.
JUNIOR SUBORDINATED NOTE DUE JUNE 30, 2003
$1,923,076.50
December 21, 1995
FOR VALUE RECEIVED, GENERAL MANUFACTURED HOUSING, INC. a Georgia
corporation with its principal office at 2255 Industrial Boulevard, Waycross,
Georgia 31503 (the "Maker"), hereby unconditionally promise(s) to pay to the
order of STATE TREASURER OF THE STATE OF MICHIGAN, CUSTODIAN OF THE MICHIGAN
PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM, STATE EMPLOYEES' RETIREMENT SYSTEM,
MICHIGAN STATE POLICE RETIREMENT SYSTEM, AND MICHIGAN JUDGES RETIREMENT SYSTEM
(the "Payee"), or registered assigns at the office of the Payee located at 40
West Allegan, Lansing, Michigan 48992 or at such other office as the holder
hereof may designate, in lawful money of the United States, the principal sum of
One Million Nine Hundred Twenty Three Thousand Seventy Six and 50/100 Dollars
($1,932,076.50), together with interest thereon as provided for below.
This Note is one of a duly authorized issue of Junior Subordinated
Notes of the Maker, limited in aggregate principal amount to Five Million
Dollars ($5,000,000.00) (the "Notes"), copies of which are available for
inspection at the Maker's principal office. The Notes have been sold pursuant to
a Securities Purchase Agreement dated as of the date hereof, among the Maker and
the Payees of the Notes (the "Agreement"), a copy of which is available for
inspection at the Maker's principal office. This Note is subject and entitled to
certain terms, conditions, covenants and agreements contained in the Agreement.
Reference to the Agreement and the Subordination Agreement (as defined below)
shall in no way impair the negotiability hereof or the absolute and
unconditional obligation of the Maker to pay both principal of and interest on
this Note as provided herein.
1. EQUAL RANK. The Notes rank equally and ratably without priority
over one another. No payment, including any prepayment, shall be made hereunder
unless payment, including any prepayment, is made with respect to the other
Notes in an amount which bears the same ratio to the then unpaid balance on such
other Notes as the payment made hereon bears to the then unpaid balance under
this Note.
2. INTEREST. Interest shall accrue on the outstanding principal
balance hereof at a rate per annum equal to thirteen percent (13%) per annum,
payable (in the event and only to the extent that Maker has accumulated earnings
sufficient to pay such accrued interest) quarterly, on the last day of December,
March, June and September in each year and on the Maturity Date (as defined
below), commencing on March 31, 1996. Interest for the period commencing with
the date of this Note through March 31, 1996 shall be payable on March 31, 1996.
<PAGE>
If all or a portion of the principal amount of or interest on this
Note shall not be paid when due (whether or not such interest has been earned as
provided above and whether at stated maturity, by acceleration or otherwise)
such overdue amount shall bear interest at a rate per annum which is 2% above
the rate that would otherwise be applicable thereto.
Anything contained in this Note to the contrary notwithstanding, the
Payee does not intend to charge and the Maker shall not be required to pay
interest or other charges in excess of the maximum rate (if any) permitted by
applicable law (if any). Any payments in excess of such maximum shall be
refunded to the Maker or credited against principal.
3. PAYMENT OF PRINCIPAL AND INTEREST. The Maker shall pay the
entire unpaid principal hereof and any accrued and unpaid interest thereon in
one lump payment due on June 30, 2003. The term "Maturity Date" shall mean June
30, 2003.
4. SUBORDINATION. Anything in this Note to the contrary
notwithstanding, the indebtedness evidenced by this Note shall be subordinated
to the prior payment and satisfaction of all indebtedness of the Maker to (i)
First Source Financial LLP (the "Senior Lender") arising out of the Secured
Credit Agreement dated December 21, 1995 (the "Loan Agreement") between the
Senior Lender and the Maker, including any such additional indebtedness
permitted by the Subordination Agreement, and (ii) The Equitable Life Assurance
Society of the United States (the "Senior Subordinated Lender") arising out of
that certain Note and Warrant Purchase Agreement dated as of December 21, 1995
(the "Note Agreement"), between the Maker and the Senior Subordinated Lender
(such indebtedness of the Maker to which this Note is subordinated being
hereinafter referred to as "Senior Indebtedness"), which subordination shall be
subject to the terms and conditions of that certain Subordination Agreement
dated as of the date hereof between the Maker, the Senior Lender, the Senior
Subordinated Lender, Strategic Investments & Holdings, Inc. and the Payees of
the Notes. Senior Indebtedness shall include any replacement or refinancing
thereof. This Note and the other Notes shall be senior in right of payment to
all other borrowed money indebtedness of the Maker, except the Senior
Indebtedness.
5. LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Maker, this Note shall be entitled
to a claim in liquidation after the payment in full of all Senior Indebtedness
of the Maker, but before participation by the holders of any debt subordinate
hereto or of any capital stock of the Maker. The amount of the claim in
liquidation shall equal the amount to which the Payee of this Note would be
entitled in the case of payment, whether or not this Note is eligible for
payment at the time of liquidation. If upon such liquidation, dissolution, or
winding up, the assets available for distribution among the holders of the Notes
shall be insufficient to permit the payment of the full amounts of their claims
in liquidation, then the entire assets of the Maker to be distributed to the
holders of the Notes shall be distributed pro-rata among the holders of the
Notes based upon the amounts of their respective claims in liquidation.
6. PREPAYMENT. OPTIONAL PREPAYMENT. The Maker may prepay the
principal hereof and all interest thereon in whole or in part at any time
without penalty or premium after ten (10) days' prior written notice to the
holders of the Notes; provided that any partial prepayment is in multiples of
$10,000. At the time of prepayment, all interest owing on the amount prepaid to
the date of payment must simultaneously be paid.
<PAGE>
7. EXPENSES. The Maker shall pay the Payee, on demand, for all
reasonable costs and expenses, including, but not limited to, reasonable
attorneys' fees, incurred in the collection or enforcement of this Note.
8. DISCLOSURE OF SENIOR INDEBTEDNESS. The Maker shall notify the
Payee of this Note of the existence of any Senior Indebtedness, incurred from
time to time, or any written modification, extension, renewal or rollover
thereof or any default therein within five (5) days of the date it is incurred
or occurs. Such notice shall provide the Payee of this Note access to all
documents executed in connection therewith and all information with respect
thereto.
9. DEFAULT; ACCELERATION. The occurrence of any of the following
shall constitute an "Event of Default":
(a) The breach by the Maker of any of the terms or provisions
contained in this Note or any of the Notes, including without limitation the
failure to pay when due (whether at the date hereof or at a date fixed for
prepayment hereof or by acceleration hereof or otherwise) any principal,
interest, charges or other amounts hereunder or failure to perform hereunder or
under any of the Notes and such breach shall continue unremedied for five
business days; or
(b) If the Maker
(i) shall commence any case or proceeding or other action relating to
it under any bankruptcy, insolvency or other similar law or seek reorganization,
arrangement, readjustment of its debts, dissolution, liquidation, winding-up,
composition or any other relief under any bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement, composition, readjustment
of debt or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing; or
(ii) shall admit the material allegations of any petition or
pleading in connection with any such case or proceeding; or
(iii) makes an application for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar officer for the Maker
or for all or a substantial part of the Maker's property; or
(iv) makes a general assignment for the benefit of creditors; or
(v) is unable or admits in writing its inability to pay its debts as
they mature; or
(c) Commencement of any case or proceeding or the taking of any other
action against the Maker in bankruptcy, insolvency, or similar law or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, winding-up, composition or for any other relief under any
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act of law of any
jurisdiction, domestic or foreign, now or hereafter existing; or the appointment
of a receiver, conservator, trustee or similar officer for the Maker or for all
or a substantial part of the Maker's property; or the issuance of a warrant of
attachment, execution or similar process against any substantial part of the
property of the Maker; and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or
<PAGE>
(d) An event of default shall occur under (i) the Senior Loan Agreement
(as defined in the Securities Purchase Agreement) or related documents, or (ii)
any of the Senior Subordinated Note Instruments (as defined in the Securities
Purchase Agreement) or related documents, or (iii) any other agreements relating
to Senior Indebtedness or (iv) any of the Notes; or
(e) The Maker shall fail to comply with any of its covenants contained in
the Agreement or the Investors Rights Agreement dated as of the date hereof
among the Maker, the Payees of the Notes and certain other parties, and such
failure continues unremedied for a period of thirty (30) days after the Maker
receives written notice from the Payee of such default; or
(f) Any representation or warranty of the Maker in the Agreement or in any
other document or instrument delivered pursuant to the Agreement shall prove to
have been false in any material respect upon the date when made; or
(g) Maker shall fail to pay at maturity, or within any applicable period
of grace, any obligation for borrowed money or credit received or in respect of
any indebtedness for borrowed money (other than the Senior Indebtedness) or fail
to observe or perform any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing borrowed money or credit
received or in respect of any indebtedness for borrowed money (other than the
Senior Indebtedness) for such period of time as would permit (assuming the
giving of appropriate notice if required) the holder or holders thereof or of
any obligations issued thereunder to accelerate the maturity thereof; or
(h) There shall remain in force, undischarged, unsatisfied and unstayed,
for more than thirty days, whether or not consecutive, any final judgment
against Maker that with other outstanding final judgments, undischarged, against
Maker exceeds in the aggregate $250,000; or
(i) The Maker shall be enjoined, restrained or in any way prevented by the
order of any court or any administrative or regulatory agency from conducting
any material part of its business; or
(j) The Agreement or the Investors' Rights Agreement shall cease, for any
reason, to be in full force and effect other than in accordance with the terms
thereof.
Upon the occurrence, and at any time during the continuance, of an
Event of Default, the Payee, at the Payee's option and without the need for
presentment, demand, protest, or other notice of any kind, may declare all
unpaid principal hereof and interest hereunder to be immediately due and payable
and same shall become immediately due and payable upon such declaration;
PROVIDED that in the event of any Event of Default specified in clauses (b) and
(c) above, all such amounts shall become immediately due and payable
automatically and without any requirement of notice from the Payee.
10. CERTAIN WAIVERS. The Maker and any endorser or guarantor hereof
(collectively, the "Obligors") and each of them (i) waive(s) presentment,
diligence, protest, demand, notice of demand, notice of acceptance or reliance,
notice of non-payment, notice of dishonor, notice of protest and all other
notices to parties in connection with the delivery, acceptance, performance,
default or enforcement of this Note, any endorsement or guaranty of this Note,
or any collateral or other security; (ii) consent(s)
<PAGE>
to any and all delays, extensions, renewals or other modifications of this Note,
any related document or the debt(s) or collateral evidenced hereby or thereby or
any waivers of any term hereof or thereof, any release, surrender, taking of
additional, substitution, exchange, failure to perfect, record, preserve,
realize upon, or lawfully dispose of, or any other impairment of, any collateral
or other security, or any other failure to act by the Payee or any other
forbearance or indulgence shown by the Payee, from time to time and in one or
more instances (without notice to or assent from any of the Obligors) and
agree(s) that none of the foregoing shall release, discharge or otherwise impair
any of their liabilities; (iii) agree(s) that the full or partial release or
discharge of any Obligor(s) shall not release, discharge or otherwise impair the
liabilities of any other Obligor(s); and (iv) otherwise waive(s) any other
defenses based on suretyship or impairment of collateral.
11. REGISTRATION AND TRANSFER OF THIS NOTE. The Maker shall keep at
its principal executive office a register (herein sometimes referred to as the
"Note Register"), in which, but at its expense (other than transfer taxes, if
any), the Maker shall provide for the registration and transfer of the Notes.
The Payee of this Note, at such Payee's option, may in person or by duly
authorized attorney surrender this Note for exchange at the principal office of
the Maker, to receive in exchange therefor a new Note or Notes, as may be
requested by such Payee, of the same series and in the same aggregate unpaid
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered; provided, however, that any transfer tax relating to such
transaction shall be paid by the Payee requesting the exchange. Each such new
Note shall be dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so surrendered and shall be in such
principal amount and registered in such name or names as such Payee may
designate in writing.
12. LOST DOCUMENTS. Upon receipt by the Maker of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note or
any Notes exchanged for it, and (in case of loss, theft or destruction ) of
indemnity satisfactory to it, and upon reimbursement to the Maker of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Maker will make and deliver in lieu of such Note a
new Note of the same series and of like tenor and unpaid principal amount and
dated as of the date to which interest has been paid on the unpaid principal
amount of the Note in lieu of which such new Note is made and delivered.
13. COMMERCIAL TRANSACTION; JURY WAIVER. THE MAKER ACKNOWLEDGES THAT
THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION. THE
MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY AND THE RIGHT
THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR OUT OF, OR
OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS NOTE AND/OR ANY RELATED
DOCUMENT. THE MAKER FURTHER ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO
REVIEW THIS NOTE AND THE OTHER FINANCING DOCUMENTS WITH ITS COUNSEL AND THAT IT
ON ITS OWN HAS MADE THE DETERMINATION TO EXECUTE THIS NOTE AND ALL OTHER
FINANCING DOCUMENTS TO WHICH IT IS A PARTY AFTER CONSIDERATION OF ALL OF THE
TERMS OF THIS NOTE AND SUCH OTHER DOCUMENTS (INCLUDING THE INTEREST RATE) AND OF
ALL OTHER FACTORS WHICH IT CONSIDERS RELEVANT.
14. BINDING NATURE. This Note shall bind the Maker and the Maker's
successors and permitted assigns and shall inure to the benefit of the Payee and
the Payee's heirs, representatives, successors and permitted assigns. This Note
may only be transferred to a transferee of shares of capital stock of GMH
Holdings, Inc. which have been issued pursuant to the
<PAGE>
Agreement. The term "Payee" as used herein shall include, in addition to the
initial Payee, any successors, endorsees, or other permitted assignees of such
Payee and shall also include any other holder of this Note.
15. GOVERNING LAW. This Note shall be governed by and construed and
interpreted in accordance with the laws the State of Delaware, without regard to
its rules pertaining to conflicts of laws thereunder.
16. MISCELLANEOUS. No delay or omission by the Payee in exercising
any right or remedy hereunder shall operate as a waiver of such right or remedy
or any other right or remedy; and a waiver on one occasion shall not be a bar to
or waiver of any right or remedy on any other occasion. All rights and remedies
of the Payee hereunder, any other applicable document and under applicable law
shall be cumulative and not in the alternative. No provision of this Note may be
waived or modified orally but only by a writing (a) signed by the party against
whom enforcement of such amendment, waiver or other modification is sought and
(b) consented to in writing by holders of Notes representing sixty six and 2/3
percent (66-2/3%) in principal amount of the Notes.
17. NOTICES. All notices, requests, consents and demands shall be
made in writing and shall be mailed first class postage prepaid, or delivered by
hand or by messenger to the Maker or to the Payee hereof at their respective
addresses set forth at the beginning of this Note or at such other respective
addresses as may be furnished in writing to each other.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note as
of the day and year first written above.
Maker:
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
--------------------------------
Name: Gary M. Brost
Title: President
<PAGE>
EXHIBIT 10.17
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE TRANSFERABLE
WITHOUT COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH LAWS UNLESS AN
EXEMPTION OR EXCLUSION FROM REGISTRATION IS AVAILABLE.
TERM LOAN NOTE
$4,000,000 Due January 1, 2001
December 21, 1995
FOR VALUE RECEIVED, on or before June 1, 2001 the undersigned hereby
promises to pay to the order of First Source Financial LLP, an Illinois
registered limited liability partnership ("Lender"), at the principal office of
The First National Bank of Chicago in Chicago, Illinois the principal amount of
FOUR MILLION AND NO/100 DOLLARS ($4,000,000) or, if less, the aggregate unpaid
principal amount of all Term Loan made by Lender pursuant to the Secured Credit
Agreement hereinafter referred to (as shown in the records of Lender or, at
Lender's option, on the schedule attached hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of the Term Loan from the date of hereof until the Term Loan is
paid in full, payable at such rate(s) and at such time(s), as provided in the
Secured Credit Agreement hereinafter referred to.
This Note evidences indebtedness incurred under, and is entitled to
the benefits of, that certain Secured Credit Agreement dated as of the date
hereof (and, if amended, all amendments thereto) among the undersigned and
Lender (herein called the "Secured Credit Agreement"), to which Secured Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Note may be paid prior to its due date or its due date
accelerated. Reference is hereby made to the Secured Credit Agreement relating
to reductions in the principal amount of this Note. Terms used but not otherwise
defined herein are used herein as defined in the Secured Credit Agreement
hereinabove referred to.
This Note is secured pursuant to the Secured Credit Agreement and the
Related Documents referred to therein, and reference is made thereto for a
statement of terms and provisions.
In addition to and not in limitation of the foregoing and the
provisions of the Secured Credit Agreement hereinabove referred to, the
undersigned further agrees, subject only to any limitation imposed by applicable
law, to pay all expenses, including reasonable attorneys' fees and legal
expenses, incurred by the holder of this Note in endeavoring to collect any
amounts payable hereunder which are not paid when due, whether by acceleration
or otherwise.
This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of laws principles.
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
-------------------------------
Gary M. Brost
<PAGE>
President
2255 Industrial Boulevard
Waycross Georgia 31501
Attention: Samuel P. Scott
Telecopy: (912) 285-1397
Telephone: (912) 285-5065
<PAGE>
EXHIBIT 10.18
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE TRANSFERABLE
WITHOUT COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH LAWS UNLESS AN
EXEMPTION OR EXCLUSION FROM REGISTRATION IS AVAILABLE.
REVOLVING NOTE
$16,000,000 Due April 1, 2000
December 21, 1995
FOR VALUE RECEIVED, on or before April 1, 2000 the undersigned hereby
promises to pay to the order of First Source Financial LLP, an Illinois
registered limited liability partnership ("Lender"), at the principal office of
The First National Bank of Chicago in Chicago, Illinois the principal amount of
SIXTEEN MILLION AND NO/100 DOLLARS ($16,000,000) or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by Lender pursuant to the
Secured Credit Agreement hereinafter referred to (as shown in the records of
Lender or, at Lender's option, on the schedule attached hereto and any
continuation thereof).
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan from the date of such Revolving Loan until such
Revolving Loan is paid in full, payable at such rate(s) and at such time(s), as
provided in the Secured Credit Agreement hereinafter referred to.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, that certain Secured Credit Agreement dated as of the date hereof
(and, if amended, all amendments thereto) among the undersigned and Lender
(herein called the "Secured Credit Agreement"), to which Secured Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Note may be paid prior to its due date or its due date
accelerated. Reference is hereby made to the Secured Credit Agreement relating
to reductions in the principal amount of this Note. Terms used but not otherwise
defined herein are used herein as defined in the Secured Credit Agreement
hereinabove referred to.
This Note is secured pursuant to the Secured Credit Agreement and the
Related Documents referred to therein, and reference is made thereto for a
statement of terms and provisions.
In addition to and not in limitation of the foregoing and the provisions of
the Secured Credit Agreement hereinabove referred to, the undersigned further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
This Note is made under and governed by the laws of the State of Illinois
without regard to conflict of laws principles.
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
-------------------------------
Gary M. Brost
<PAGE>
President
2255 Industrial Boulevard
Waycross, Georgia 31501
Attention: Samuel P. Scott
Telecopy: (912) 285-1397
Telephone: (912) 285-5065
<PAGE>
EXHIBIT 10.19
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE TRANSFERABLE
WITHOUT COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH LAWS UNLESS AN
EXEMPTION OR EXCLUSION FROM REGISTRATION IS AVAILABLE.
WORKING CAPITAL NOTE
$6,000,000 December 21, 1995
FOR VALUE RECEIVED, on or before January 1, 1999 (unless extended pursuant
to a Working Capital Commitment Extension Request under Section 2.2 of the
Secured Credit Agreement hereinafter referred to, in which event this Note shall
mature on or before the Working Capital Loan Termination Date), the undersigned
hereby promises to pay to the order of First Source Financial LLP, an Illinois
registered limited liability partnership ("Lender") at the principal office of
The First National Bank of Chicago in Chicago, Illinois the principal amount of
SIX MILLION AND NO/100 Dollars ($6,000,000) or, if less, the aggregate unpaid
principal amount of all Working Capital Loans made by Lender pursuant to the
Secured Credit Agreement hereinafter referred to (as shown in the records of
Lender or, at Lender's option, on the schedule attached hereto and any
continuation thereof).
The undersigned promises to pay interest on the unpaid principal amount of
each Working Capital Loan from the date of such Working Capital Loan until such
Working Capital Loan is paid in full, payable at such rate(s) and at such
time(s), as provided in the Secured Credit Agreement hereinafter referred to.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, that certain Secured Credit Agreement dated as of the date hereof
(and, if amended, all amendments thereto) among the undersigned and Lender
(herein called the "Secured Credit Agreement"), to which Secured Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Note may be paid prior to its due date or its due date
accelerated. Reference is hereby made to the Secured Credit Agreement relating
to reductions in the principal amount of this Note. Terms used but not otherwise
defined herein are used herein as defined in the Secured Credit Agreement
hereinabove referred to.
This Note is secured pursuant to the Secured Credit Agreement and the
Related Documents referred to therein, and reference is made thereto for a
statement of terms and provisions.
In addition to and not in limitation of the foregoing and the provisions of
the Secured Credit Agreement hereinabove referred to, the undersigned further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
This Note is made under and governed by the laws of the State of Illinois
without regard to conflict of laws principles.
GENERAL MANUFACTURED HOUSING, INC.
<PAGE>
By: /s/ Gary M. Brost
---------------------------------
Gary M. Brost
President
2255 Industrial Boulevard
Waycross, Georgia 31501
Attention: Samuel P. Scott
Telecopy: (912) 285-1397
Telephone (912) 285-5065
<PAGE>
EXHIBIT 10.20
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT (this "Agreement") is entered into as of
December 21, 1995 among GENERAL MANUFACTURED HOUSING, INC., a Georgia
corporation and sucessor by merger to GMH Acquisition Corp., a Delaware
corporation ("Borrower"), GMH HOLDINGS, INC., a Delaware corporation ("Parent"),
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York insurance
company ("Senior Subordinated Lender"), RFE INVESTMENT PARTNERS V, L.P., a
Delaware limited partnership ("RFE"), STERLING COMMERCIAL CAPITAL, INC., a New
York corporation ("Sterling"), STATE TREASURER OF THE STATE OF MICHIGAN,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System and
Michigan Judges Retirement System (the "State of Michigan") (RFE, Sterling and
the State of Michigan hereinafter are referred to collectively as "Junior
Subordinated Lenders"), STRATEGIC INVESTMENTS & HOLDINGS, INC., a Delaware
corporation ("Strategic"), and FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership ("Senior Lender").
R E C I T A L S
---------------
A. Borrower and Senior Lender have entered into a Secured Credit
Agreement of even date herewith (as the same hereafter may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
subject to the terms and conditions of which Senior Lender will make certain
loans and other financial accommodations to Borrower.
B. Borrower is indebted to Senior Subordinated Lender in the principal
amount of $17,243,295, which indebtedness is evidenced by a certain senior
subordinated note of even date herewith issued by Borrower payable to Senior
Subordinated Lender, a copy of which is attached hereto as EXHIBIT A (the
"Senior Subordinated Note").
C. Borrower is indebted to Junior Subordinated Lenders in the aggregate
principal amount of $5,000,000, which indebtedness is evidenced by certain
junior subordinated notes of even date herewith issued by Borrower payable to
Junior Subordinated Lenders, copies of which are attached hereto as EXHIBIT B
(the "Junior Subordinated Notes").
D. Parent owns 100% of the issued and outstanding capital stock of
Borrower.
E. Junior Subordinated Lenders collectively own 100% (8,000,000 shares)
of the issued and outstanding Series A Preferred Stock of Parent (the "Preferred
Stock").
F. One of the conditions precedent to Senior Lender's obligations under
the Credit Agreement is that this Agreement shall have been executed and
delivered.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. RECITALS AND DEFINITIONS.
1.1 RECITALS. The Recitals set forth above are acknowledged by the
parties hereto to be true and correct and are incorporated herein by this
reference.
<PAGE>
1.2 DEFINITIONS. All capitalized terms used but not elsewhere
defined herein shall have the respective meanings ascribed to such terms in
the Credit Agreement. As used herein, the following terms shall have the
following meanings:
ADDITIONAL PRINCIPAL AMOUNT: with respect to each Principal
Payment Date, an amount equal to the quotient obtained by dividing (a)
the amount of any Permitted Increase by (b) the number of Principal
Payment Dates remaining after the effective date of such Permitted
Increase.
APPLICABLE PERIOD: with respect to the calculation of Total
Cash Sources or Non-Subordinated Fixed Charges as of (a) April 30,
1996, the three month period then ended, (b) July 31, 1996, the six
month period then ended and (c) any other Determination Date, the nine
month period then ended.
ARTICLES: the Restated Certificate of Incorporation of Parent as
in effect on the date hereof.
AVAILABLE CASH: as of any Determination Date, an amount equal to
the remainder of (a) the quotient obtained by dividing (i) Total Cash
Sources for the Applicable Period ending on such Determination Date by
(ii) 1.10 MINUS (b) Non-Subordinated Fixed Charges for the Applicable
Period ending on such Determination Date MINUS (c) for any
Determination Date which occurs on or after July 31, 1996, all
Subordinated Payments actually paid with respect to the (i) first
Fiscal Quarter of 1996, in the case of the Determination Date which
occurs on July 31, 1996 and (ii) in the case of any other
Determination Date, the last two Fiscal Quarters ending during the
Applicable Period ending on such Determination Date (which
Subordinated Payments correspond to the calculation of Available Cash
for the first two Determination Dates of such Applicable Period).
CASH OVERAGE: as of any Determination Date, an amount equal
to the remainder of (a) Total Cash Sources for the Applicable Period
ending on such Determination Date MINUS (b) Non-Subordinated Fixed
Charges for such Applicable Period MINUS (c) the aggregate amount of
all accrued and unpaid Senior Subordinated Payments (including for the
current period) MINUS (d) 110% of the amount of the accreted discount
on the Senior Subordinated Notes with respect to such Applicable
Period.
DETERMINATION DATE: the last day of each January, April, July
and October.
INCENTIVE MANAGEMENT FEES: the management fees payable by
Borrower to Strategic pursuant to Section 2.3(b) of the Management
Agreement, in an aggregate amount not to exceed (a) $69,500 with
respect to the last ten days of December, 1995 and the first Fiscal
Quarter of 1996 and (b) $62,500 with respect to any other Fiscal
Quarter.
JUNIOR SUBORDINATED DEFAULT: a default in the payment of the
Junior Subordinated Indebtedness or any other occurrence permitting
Junior Subordinated Lenders to accelerate the payment of all or any
portion of the Junior Subordinated Indebtedness.
JUNIOR SUBORDINATED DEFAULT NOTICE: a written notice from Junior
Subordinated Lenders to Borrower of the occurrence of a
<PAGE>
Junior Subordinated Default.
JUNIOR SUBORDINATED INDEBTEDNESS: all of the obligations of
Borrower to Junior Subordinated Lenders under the Junior Subordinated
Instruments and all other amounts now or hereafter owed by Borrower to
Junior Subordinated Lenders other than the Preferred Obligations.
JUNIOR SUBORDINATED INSTRUMENTS: the Junior Subordinated Notes,
the Junior Subordinated Note Purchase Agreement and all other
documents and instruments evidencing or pertaining to any portion of
the Junior Subordinated Indebtedness.
JUNIOR SUBORDINATED NOTE PURCHASE AGREEMENT: the Securities
Purchase Agreement of even date herewith among Borrower, Parent and
the Junior Subordinated Lenders.
JUNIOR SUBORDINATED PAYMENTS: quarterly cash payments of
interest on the Junior Subordinated Indebtedness (other than any
Junior Subordinated Indebtedness representing accrued and unpaid
interest added to the principal amount of the Junior Subordinated
Indebtedness) required by the Junior Subordinated Notes at a rate not
to exceed 13.00% per annum.
LIEN: any lien, mortgage, security interest, financing
statement, pledge, hypothecation, assignment or judgment lien of any
kind or nature whatsoever, whether arising by contract, operation of
law, or otherwise.
MANAGEMENT AGREEMENT: that certain Management Agreement of even
date herewith between Borrower and Strategic.
NON-SUBORDINATED FIXED CHARGES: for any Applicable Period,
the sum of (a) all scheduled payments of interest on account of the
Senior Indebtedness for such Applicable Period, PLUS (b) all Senior
Principal Payments for such Applicable Period, PLUS (c) without double
counting, all income taxes accrued (but not less than zero) by
Borrower and Parent with respect to such Applicable Period.
PREFERRED DIVIDENDS: quarterly cash dividends from Borrower
to Parent in an amount sufficient to enable Parent to pay the
Parent Preferred Dividends.
PARENT PREFERRED DIVIDENDS: quarterly cash dividends on the
Preferred Stock required by the Articles in an amount not to exceed
$240,000 per quarter. Parent Preferred Dividends shall not include any
accrued and unpaid interest on any unpaid Parent Preferred Dividends
from prior quarters.
PERMITTED INCREASE: any and all increases in the Commitments
agreed to by Borrower and Senior Lender after the date hereof in an
aggregate amount not to exceed $2,600,000.
PREFERRED DIVIDEND INSTRUMENTS: the Articles and all other
documents and instruments evidencing or pertaining to the payment
of the Preferred Dividends or the Parent Preferred Dividends.
PREFERRED OBLIGATIONS: all of the obligations of Borrower to
Parent and Parent to Junior Subordinated Lenders under the
<PAGE>
Preferred Dividend Instruments and all other amounts now or hereafter
owed by Borrower to Parent and by Parent to Junior Subordinated
Lenders, in their capacity as owners of the Preferred Stock.
PRINCIPAL PAYMENT DATE: the last day of each Fiscal Quarter.
PROCEEDING: any insolvency, bankruptcy, receivership,
custodianship, liquidation, reorganization, assignment for the benefit
of creditors or other proceeding for the liquidation, dissolution or
other winding up of Borrower or its property.
SENIOR INDEBTEDNESS: the Liabilities, together with post-
petition interest thereon, whether or not allowed in any Proceeding.
SENIOR PRINCIPAL PAYMENTS: with respect to each Applicable
Period, the sum of the amounts set forth below opposite each Principal
Payment Date which occurs during such Applicable Period plus the
Additional Principal Amount, if any, applicable to each such Principal
Payment Date:
<TABLE>
<CAPTION>
PRINCIPAL PAYMENT DATE AMOUNT
<S> <C>
March 31, 1996 $350,000
June 30, 1996 $700,000
September 30, 1996 $1,050,000
December 31, 1996 $1,050,000
March 31, 1997 $1,075,000
June 30, 1997 $1,100,000
September 30, 1997 $1,125,000
December 31, 1997 $1,125,000
March 31, 1998 $1,687,500
June 30, 1998 $2,250,000
September 30, 1998 $2,812,500
December 31, 1998 $2,812,500
March 31, 1999 $3,250,000
June 30, 1999 $3,687,500
September 30, 1999 $4,125,000
December 31, 1999 $4,125,000
March 31, 2000 $4,250,000
June 30, 2000 $4,375,000
September 30, 2000 $4,500,000
December 31, 2000 $4,500,000
</TABLE>
SENIOR SUBORDINATED DEFAULT: a default in the payment of the
Senior Subordinated Indebtedness or any other occurrence permitting
Senior Subordinated Lender to accelerate the payment of all or any
portion of the Senior Subordinated Indebtedness.
SENIOR SUBORDINATED DEFAULT NOTICE: a written notice from Senior
Subordinated Lender to Borrower of the occurrence of a Senior
Subordinated Default.
SENIOR SUBORDINATED INDEBTEDNESS: all of the obligations of
Borrower to Senior Subordinated Lender under the Senior Subordinated
Instruments and all other amounts now or hereafter owed by Borrower to
Senior Subordinated Lender.
<PAGE>
SENIOR SUBORDINATED INSTRUMENTS: the Senior Subordinated Note,
the Senior Subordinated Note Purchase Agreement and all other
documents and instruments evidencing or pertaining to any portion of
the Senior Subordinated Indebtedness.
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT: the Note and
Warrant Purchase Agreement of even date herewith among Borrower,
Parent and Senior Subordinated Lender.
SENIOR SUBORDINATED PAYMENTS: quarterly cash payments of
interest on the Senior Subordinated Indebtedness (other than any
Senior Subordinated Indebtedness representing accrued and unpaid
interest added to the principal amount of the Senior Subordinated
Indebtedness) required by the Senior Subordinated Note at a rate not
to exceed 10.87% per annum through March 31, 2001 and 14.50% per annum
thereafter, or, if the Liabilities have been paid in full and the
Commitments have been terminated, any other applicable rate set forth
in the Senior Subordinated Instruments.
SUBORDINATED HOLDERS: Senior Subordinated Lender, Junior
Subordinated Lenders, Parent and Strategic.
SUBORDINATED INSTRUMENTS: the Senior Subordinated Instruments,
the Junior Subordinated Instruments, the Preferred Dividend
Instruments and the Management Agreement.
SUBORDINATED OBLIGATIONS: the Senior Subordinated Indebtedness,
the Junior Subordinated Indebtedness, the Preferred Obligations and
the Incentive Management Fees.
SUBORDINATED PAYMENTS: the Senior Subordinated Payments, the
Junior Subordinated Payments, the Preferred Dividends and the
Incentive Management Fees.
TOTAL CASH SOURCES: for any Applicable Period, (a) the amount
which, in conformity with GAAP, would be set forth opposite the
caption "net income" (or any like caption) (plus, to the extent
subtracted from gross income in determining such net income, any
dividends paid or payable by Borrower) on an income statement of
Borrower for such Applicable Period, PLUS (b) the amount which, in
conformity with GAAP, would be set forth opposite the caption
"interest expense" (or any like caption) on such an income statement,
PLUS (c) the amount (but not less than zero) which, in conformity with
GAAP, would be set forth opposite the caption "income tax expense" (or
any like caption) on such an income statement, PLUS (d) the amount
which, in conformity with GAAP, would be set forth opposite the
caption "depreciation and amortization expenses" (or any like caption)
on such an income statement, PLUS (e) the amount accrued by Borrower
related to Incentive Management Fees during such Applicable Period in
an aggregate amount not to exceed (i) $62,500 for the Applicable
Period ending April 30, 1996, (ii) $125,000 for the Applicable Period
ending July 31, 1996 and (iii) $187,500 for any Applicable Period
thereafter, LESS (f) the amount which, in conformity with GAAP, would
be set forth opposite the caption "extraordinary pre-tax gain" (or any
like caption) on such an income statement, LESS (g) capital
expenditures (as determined in conformity with GAAP) incurred during
such Applicable Period.
2. SUBORDINATION OF THE SUBORDINATED OBLIGATIONS TO SENIOR
<PAGE>
INDEBTEDNESS.
2.1 SUBORDINATION. The payment of any and all of the (a)
Subordinated Obligations is hereby expressly subordinated to the prior
payment in full of the Senior Indebtedness, (b) Junior Subordinated
Indebtedness, Preferred Dividends and Incentive Management Fees is hereby
expressly subordinated to the prior payment in full of the Senior
Subordinated Indebtedness and (c) Preferred Dividends and Incentive
Management Fees is hereby expressly subordinated to the prior payment in
full of the Junior Subordinated Indebtedness.
2.2 RESTRICTIONS ON PAYMENTS. Notwithstanding any provision of the
Subordinated Instruments to the contrary and in addition to any other
limitations set forth herein or therein, no payment of principal, interest,
dividends, fees or any other amount due with respect to the Subordinated
Obligations shall be made, and no Subordinated Holder shall exercise any
right of set-off (other than a set-off by Senior Subordinated Lender of the
exercise price of the warrant issued to it by Parent on the Closing Date
against the Senior Subordinated Indebtedness provided the amount of such
set-off does not exceed $3,500 in the aggregate) or recoupment with respect
to any Subordinated Obligations, until all of the Senior Indebtedness is
paid in full, except that, subject to the proviso at the end of this
Section 2.2, (i) on April 1, 1996, Borrower may make and the applicable
Subordinated Holder may receive and retain all Subordinated Payments
accrued through March 31, 1996 and (ii) on the first Business Day after the
end of each Fiscal Quarter commencing with the Fiscal Quarter ending June
30, 1996 Borrower may make and the applicable Subordinated Holder may
receive and retain accrued and unpaid Subordinated Payments in an aggregate
amount not to exceed Available Cash as of the most recent Determination
Date in the following order of priority:
(a) first, all accrued and unpaid Senior Subordinated Payments;
(b) second, all accrued and unpaid Junior Subordinated Payments;
and
(c) third, all accrued and unpaid Preferred Dividends and
Incentive Management Fees, pro rata to the aggregate amount thereof
then outstanding;
provided, that in the event that due to the payment restrictions of this
Section 2.2 any Junior Subordinated Payments, Preferred Dividends or
Incentive Management Fees have accrued with respect to any prior Fiscal
Quarter and remain unpaid, no Junior Subordinated Payments, Preferred
Dividends and Incentive Management Fees shall be paid except to the extent
of any Cash Overage.
2.3 PROCEEDINGS. In the event of any Proceeding, (i) all Senior
Indebtedness first shall be paid in full in cash before any payment of or
with respect to the Subordinated Obligations shall be made; (ii) any
payment which, but for the terms hereof, otherwise would be payable or
deliverable in respect of the Subordinated Obligations shall be paid or
delivered directly to Senior Lender (to be held and/or applied by Senior
Lender in accordance with the terms of the Credit Agreement) until all
Senior Indebtedness is paid in full, and each Subordinated Holder
irrevocably authorizes, empowers and directs all receivers, trustees,
liquidators, custodians, conservators and others having authority in the
premises to effect all such payments
<PAGE>
and deliveries, and each Subordinated Holder also irrevocably authorizes,
empowers and directs Senior Lender to demand, sue for, collect and receive
every such payment or distribution upon the failure of such Subordinated
Holder to do so within a reasonable period of time after requested to do so
by Senior Lender; (iii) each Subordinated Holder agrees to execute and
deliver to Senior Lender or its representative all such further instruments
reasonably requested by Senior Lender confirming the authorization referred
to in the foregoing clause (ii) and (iv) each Subordinated Holder agrees to
execute, verify, deliver and file any proofs of claim in respect of the
Subordinated Obligations reasonably requested by Senior Lender in
connection with any such proceeding at least 15 days prior to the bar date
for filing such proofs of claim and, upon the failure of such Subordinated
Holder to do so, such Subordinated Holder hereby irrevocably authorizes,
empowers and appoints Senior Lender its agent and attorney-in-fact to (A)
execute, verify, deliver and file such proofs of claim and (B) vote such
proofs of claim in any such proceeding if such Subordinated Holder fails to
do so within a reasonable time prior to t he deadline for voting such
proofs of claim. Notwithstanding the provisions of this Section 2.3, in the
event of any Proceeding and if so ordered by a court of competent
jurisdiction, Subordinated Holders may receive securities (including equity
securities) of Borrower as reorganized, or securities of Borrower or any
other Person provided for by a plan of reorganization, composition,
arrangement, adjustment or readjustment of Borrower or of its securities,
the payment of which is subordinate, at least to the extent provided in
this Agreement with respect to the Subordinated Obligations, to the payment
of all Senior Indebtedness of Borrower at the time outstanding and to the
payment of all securities issued to Senior Lender in exchange therefor.
2.4 INCORRECT PAYMENTS. If any payment not permitted under subsection
2.2 is received by any Subordinated Holder on account of the Subordinated
Obligations before all Senior Indebtedness is paid in full, such payment
shall not be commingled with any asset of such Subordinated Holder, shall
be held in trust by such Subordinated Holder for the benefit of Senior
Lender and shall be paid over to Senior Lender, or its designated
representative, for application (in accordance with the Credit Agreement)
to the payment of the Senior Indebtedness then remaining unpaid, until all
of the Senior Indebtedness is paid in full.
2.5 SALE, TRANSFER. No Subordinated Holder shall sell, assign,
dispose of or otherwise transfer all or any portion of the Subordinated
Obligations unless, prior to the consummation of any such action, the
transferee thereof executes and delivers to Senior Lender an agreement
substantially identical to this Agreement, providing for the continued
subordination and forbearance of the Subordinated Obligations to the Senior
Indebtedness as provided herein and for the continued effectiveness of all
of the rights of Senior Lender arising under this Agreement.
Notwithstanding the failure to execute or deliver any such agreement, the
subordination effected hereby shall survive any sale, assignment,
disposition or other transfer of all or any portion of the Subordinated
Obligations, and the terms of this Agreement shall be binding upon the
successors and assigns of each Subordinated Holder, as provided in Section
10 below.
2.6 LEGENDS. Until the Senior Indebtedness is paid in full, each of
the Subordinated Instruments at all times shall contain in a conspicuous
manner the following legend:
<PAGE>
"The obligations evidenced hereby are subordinate in the manner and to
the extent set forth in that certain Subordination Agreement (the
"Subordination Agreement") dated as of December 21, 1995 among General
Manufactured Housing, Inc. ("Borrower"), GMH Holdings, Inc., The
Equitable Life Assurance Society of the United States, RFE Investment
Partners V, L.P., Sterling Commercial Capital, Inc., the State
Treasurer of the State of Michigan, as Custodian of the Michigan
Public School Employees' Retirement System, the Michigan State
Employees' Retirement System, the Michigan State Police Retirement
System and the Michigan Judges Retirement System, Strategic
Investments & Holdings, Inc. and First Source Financial LLP ("Senior
Lender") to the obligations (including interest) owed by Borrower to
the holders of all of the notes issued pursuant to that certain
Secured Credit Agreement dated as of December 20, 1995 between
Borrower and Senior Lender, as such Secured Credit Agreement has been
and hereafter may be supplemented and amended from time to time; and
each holder hereof, by its acceptance hereof, shall be bound by the
provisions of the Subordination Agreement."
2.7 RESTRICTION ON ACTION BY EACH SUBORDINATED HOLDER.
(a) Until the Senior Indebtedness is paid in full and notwithstanding
anything contained in the Subordinated Instruments, the Credit Agreement or
the other Related Documents to the contrary, no Subordinated Holder shall
agree to any amendment or modification of, or supplement to, the
Subordinated Instruments as in effect on the date hereof, the effect of
which is to (i) increase the amount of the Subordinated Obligations, (ii)
increase the rate of interest or dividends on or fees payable in respect of
any of the Subordinated Obligations, (iii) shorten the maturity date of any
of the Subordinated Obligations, (iv) accelerate the terms under which the
Subordinated Obligations are payable or (v) make the covenants or events of
default contained therein, taken as a whole, materially more restrictive to
Borrower or Parent.
(b) Until the Senior Indebtedness is paid in full, no Subordinated
Holder shall exercise any of the remedies with respect to the Subordinated
Obligations set forth in any of the Subordinated Instruments or that
otherwise may be available to such Subordinated Holder, either at law or in
equity, except that:
(1) in the event Senior Lender accelerates the Senior
Indebtedness, Senior Subordinated Lender may accelerate the Senior
Subordinated Indebtedness and Junior Subordinated Lenders may
accelerate the Junior Subordinated Indebtedness, and, in the event
Senior Subordinated Lender is entitled under clause (3) below to
accelerate and does accelerate the Senior Subordinated Indebtedness,
Junior Subordinated Lenders may accelerate the Junior Subordinated
Indebtedness;
(2) in the event of any Proceeding not initiated by any
Subordinated Holder, such Subordinated Holder may participate in such
Proceeding;
(3) in the event the aggregate amount of all accrued and unpaid
Senior Subordinated Payments exceeds $937,500, or in the event that
Senior Subordinated Lender receives less than $237,500 in the
aggregate on account of the Senior Subordinated Payments
<PAGE>
with respect to any two successive Fiscal Quarters, then, provided
Senior Subordinated Lender, at any time after either such event
occurs, gives Senior Lender not less than 30 days' prior notice of its
intent to exercise such remedies, Senior Subordinated Lender may
exercise any of the remedies set forth in the Senior Subordinated
Instruments;
(4) in the event the aggregate amount of all accrued and unpaid
Junior Subordinated Payments exceeds $650,000, then, provided provided
Junior Subordinated Lenders, at any time after such event occurs, give
Senior Lender not less than 120 days' prior notice of their intent to
exercise such remedies, Junior Subordinated Lenders may exercise any
of the remedies set forth in the Junior Subordinated Instruments;
(5) in the event Junior Subordinated Lenders give the notice
referred to in clause (4) above, Senior Subordinated Lender may
exercise any of the remedies set forth in the Senior Subordinated
Instruments provided Senior Subordinated Lender, at any time after the
Junior Subordinated Lenders give the notice referred to in clause (4)
above, gives Senior Lender not less than 60 days' prior notice of its
intent to exercise such remedies;
(6) Junior Subordinated Lenders may exercise their rights to
elect a majority of the Board of Directors of Parent pursuant to
Article C, Section 4(f) of the Articles and Section 10(g) of the
Stockholders Agreement;
(7) in the event any Subordinated Payment permitted to be made
under the terms of this Agreement is not made by Borrower, the
applicable Subordinated Holder may take action to collect the amount
of such Subordinated Payment provided such Subordinated Holder gives
Senior Lender not less than 15 days' prior notice of its intent to
take such action; and
(8) each Subordinated Holder may take action to enforce its
rights under the Articles, the Investors Rights Agreement and the
Stockholders Agreement other than any such rights pertaining to the
acceleration or payment of the Subordinated Obligations.
2.8 AMENDMENTS OF CREDIT AGREEMENT AND RELATED DOCUMENTS. Until
the Senior Indebtedness is paid in full and notwithstanding anything
contained in the Subordinated Instruments, the Credit Agreement or the
other Related Documents to the contrary, Senior Lender shall not agree to
any amendment or modification of, or supplement to, the Credit Agreement or
the Related Documents as in effect on the date hereof, the effect of which
is to (i) increase the Commitments (except for any Permitted Increase),
(ii) increase the rate of interest on or fees payable in respect of any of
the Senior Indebtedness, (iii) shorten the maturity date of any of the
Senior Indebtedness, (iv) accelerate the terms under which the Senior
Indebtedness (other than any Permitted Increase) is payable or (v) make the
covenants or events of default contained therein, taken as a whole,
materially more restrictive to Borrower or Parent.
3. CONTINUED EFFECTIVENESS OF THIS AGREEMENT. The terms of this
Agreement, the subordination effected hereby, and the rights and the obligations
of each Subordinated Holder and Senior Lender arising hereunder, shall not be
affected, modified or impaired in any manner or to any extent by: (a) any
amendment or modification of or supplement to the
<PAGE>
Credit Agreement, any of the other Related Documents or any of the Subordinated
Instruments; (b) the validity or enforceability of any of such documents; or (c)
any exercise or non-exercise of any right, power or remedy under or in respect
of the Senior Indebtedness or the Subordinated Obligations or any of the
instruments or documents referred to in clause (a) above.
4. REPRESENTATIONS AND WARRANTIES. Each party hereto hereby represents
and warrants that this Agreement, when executed and delivered, will constitute
the valid and legally binding obligation of such party enforceable in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by equitable principles.
5. CUMULATIVE RIGHTS, NO WAIVERS. Each and every right, remedy and power
granted to Senior Lender hereunder shall be cumulative and in addition to any
other right, remedy or power specifically granted herein, in the Credit
Agreement or the other Related Documents, in the Subordinated Instruments or now
or hereafter existing in equity, at law, by virtue of statute or otherwise, and
may be exercised by Senior Lender, from time to time, concurrently or
independently and as often and in such order as Senior Lender may deem
expedient. Any failure or delay on the part of Senior Lender in exercising any
such right, remedy or power, or abandonment or discontinuance of steps to
enforce the same, shall not operate as a waiver thereof or affect Senior
Lender's right thereafter to exercise the same, and any single or partial
exercise of any such right, remedy or power shall not preclude any other or
further exercise thereof or the exercise of any other right, remedy or power,
and no such failure, delay, abandonment or single or partial exercise of Senior
Lender's rights hereunder shall be deemed to establish a custom or course of
dealing or performance among the parties hereto.
6. MODIFICATION. Any modification or waiver of any provision of this
Agreement, or any consent to any departure by any Subordinated Holder therefrom,
shall not be effective in any event unless the same is in writing and signed by
Senior Lender and the Subordinated Holder against whom enforcement of such
modification, waiver or consent is sought, and then such modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose given. Any notice to or demand on any Subordinated Holder in any event
not specifically required of Senior Lender hereunder shall not entitle any
Subordinated Holder to any other or further notice or demand in the same,
similar or other circumstances unless specifically required hereunder.
7. ADDITIONAL DOCUMENTS AND ACTIONS. Each Subordinated Holder at any
time, and from time to time, after the execution and delivery of this Agreement,
upon the request of Senior Lender and at the expense of such Subordinated
Holder, promptly will execute and deliver such further documents and do such
further acts and things as Senior Lender reasonably may request in order to
effect fully the purposes of this Agreement.
8. NOTICES. All notices under this Agreement shall be in writing and
shall be (a) delivered in person, (b) sent by telecopy or (c) mailed, postage
prepaid, either by registered or certified mail, return receipt requested, or by
overnight express courier, addressed as follows:
To Borrower or Parent: c/o General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, GA 31501
<PAGE>
Attention: Sam Scott
Telecopy No.: (912) 285-1397
and
Strategic Investments & Holdings, Inc.
Cyclorama Building
369 Franklin Street
Buffalo, NY 14202
Attention: Gary M. Brost
Telecopy No.: (716) 857-6490
To Senior Subordinated
Lender: c/o Alliance Corporate Finance Group
1345 Avenue of the Americas
New York, NY 10105
Attention: Susan C. Penny
Telecopy No.: (212) 969-1529
To Junior Subordinated
Lenders: c/o RFE Investment Partners V, L.P.
36 Grove Street
New Canaan, CT 06840
Attention: James A. Parsons
Telecopy No.: (203) 966-3109
and
Alternative Investments Division
Bureau of Investments
Michigan Department of Treasury
P.O. Box 15128 (U.S. Mail)
Lansing, MI 48901 (U.S. Mail)
430 W. Allegan (Overnight Courier)
Lansing, MI 48922 (Overnight Courier)
Attention: Linda Rose
Thomas Hufnagel
Telecopy No.: (517) 335-3668
and
Finance and Development Division
Department of Attorney General
P.O. Box 30217 (U.S. Mail)
Lansing, MI 48909 (U.S. Mail)
120 Michigan Avenue, Fourth Floor (Overnight
Courier)
Lansing, MI 48933 (Overnight Courier)
Attention: Timothy F. Konieczny
Telecopy No.: (517) 335-3088
To Strategic: Strategic Investments & Holdings, Inc.
Cyclorama Building
369 Franklin Street
Buffalo, NY 14202
Attention: Gary M. Brost
Telecopy No.: (716) 857-6490
To Senior Lender: c/o First Source Financial, Inc.
2850 West Golf Road, 5th Floor
<PAGE>
Rolling Meadows, IL 60008
Attention: Contract Administration
Telecopy No.: (708) 734-7910
or to any other address or telecopy number, as to any of the parties hereto, as
such party shall designate in a notice to the other parties hereto. All notices
sent pursuant to the terms of this Section 8 shall be deemed received (i) if
personally delivered, then on the Business Day of delivery, (ii) if sent by
telecopy, on the day sent if a Business Day or if such day is not a Business
Day, then on the next Business Day, (iii) if sent by registered or certified
mail, on the earlier of the third Business Day following the day sent or when
actually received or (iv) if sent by overnight, express courier, on the next
Business Day immediately following the day sent. Any notice by telecopy shall be
followed by delivery of a copy of such notice on the next Business Day by
overnight, express courier or by personal delivery.
9. SEVERABILITY. In the event that any provision of this Agreement is
deemed to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court or governmental authority, this
Agreement shall be construed as not containing such provision and the invalidity
of such provision shall not affect the validity of any other provisions hereof,
and any and all other provisions hereof which otherwise are lawful and valid
shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Senior Lender and shall be binding upon the
successors and assigns of Borrower and each Subordinated Holder.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall be one and the same instrument.
12. DEFINES RIGHTS OF CREDITORS. The provisions of this Agreement are
solely for the purpose of defining the relative rights of each Subordinated
Holder and Senior Lender and shall not be deemed to create any rights or
priorities in favor of any other Person, including, without limitation,
Borrower.
13. CONFLICT. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Subordinated Instruments, the provisions of this Agreement shall control and
govern. For purposes of this Section 13, to the extent that any provisions of
any of the Subordinated Instruments provide rights, remedies and benefits to
Senior Lender that exceed the rights, remedies and benefits provided to Senior
Lender under this Agreement, such provisions of the applicable Subordinated
Instruments shall be deemed to supplement (and not to conflict with) the
provisions hereof.
14. STATEMENT OF INDEBTEDNESS TO SUBORDINATED HOLDERS. Pursuant to the
Credit Agreement, Borrower is obligated to furnish to Senior Lender a monthly
Compliance Certificate containing, among other things, computations of Available
Cash and the Subordinated Payments owing from Borrower to each Subordinated
Holder. Borrower will furnish a copy of such computations to each Subordinated
Holder as and when furnished to Senior Lender. Senior Lender may rely without
further investigation upon such computations unless the affected Subordinated
Holder notifies Senior Lender of its objections to such computations within 30
days after receipt.
<PAGE>
15. HEADINGS. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
16. TERMINATION. All obligations of Senior Lender under this Agreement
shall terminate upon the indefeasible payment in full of the Senior
Indebtedness. All obligations of all other parties under this agreement shall
terminate upon the indefeasible payment in full of the Senior Subordinated
Indebtedness.
17. DEFAULT NOTICES. Senior Subordinated Lender shall provide Senior
Lender with a copy of each Senior Subordinated Default Notice concurrently with
the sending thereof to Borrower, and promptly shall notify Senior Lender in the
event the Senior Subordinated Default which is the subject of such Senior
Subordinated Default Notice is cured or waived. Junior Subordinated Lenders
shall provide Senior Lender with a copy of each Junior Subordinated Default
Notice concurrently with the sending thereof to Borrower, and promptly shall
notify Senior Lender in the event the Junior Subordinated Default which is the
subject of such Junior Subordinated Default Notice is cured or waived.
18. NO CONTEST OF LIENS; NO SECURITY FOR SUBORDINATED OBLIGATIONS. Each
Subordinated Holder agrees that it will not at any time contest the validity,
perfection, priority or enforceability of the Liens in the Collateral granted to
Senior Lender pursuant to the Credit Agreement and the other Related Documents
or accept or take any collateral security for the Subordinated Obligations. The
provisions of this Agreement shall apply regardless of any invalidity,
unenforceability or lack of perfection of the Liens in the Collateral granted to
Senior Lender pursuant to the Credit Agreement and the other Related Documents.
19. SUBMISSION TO JURISDICTION. SENIOR LENDER MAY ENFORCE ANY CLAIM
ARISING OUT OF THIS AGREEMENT, THE CREDIT AGREEMENT OR THE RELATED DOCUMENTS IN
ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN
CHICAGO, ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH
RESPECT TO ANY SUCH CLAIM, BORROWER AND EACH SUBORDINATED HOLDER OTHER THAN THE
STATE OF MICHIGAN HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS.
BORROWER AND PARENT EACH HEREBY IRREVOCABLY DESIGNATE PRENTICE-HALL, WITH
OFFICES ON THE DATE HEREOF AT 33 NORTH LASALLE STREET, SUITE 1925, CHICAGO,
ILLINOIS 60602, TO RECEIVE FOR AND ON BEHALF OF SUCH PERSON SERVICE OF PROCESS
IN ILLINOIS. EACH OTHER SUBORDINATED HOLDER OTHER THAN THE STATE OF MICHIGAN AND
SENIOR SUBORDINATED LENDER HEREBY IRREVOCABLY DESIGNATES THE PERSON WHOSE NAME
AND ADDRESS ARE SET FORTH ON EXHIBIT C TO RECEIVE FOR AND ON BEHALF OF SUCH
SUBORDINATED HOLDER SERVICE OF PROCESS IN ILLINOIS. SENIOR SUBORDINATED LENDER
ACKNOWLEDGES AND AGREES THAT IT HAS A PRESENCE IN THE STATE OF ILLINOIS AND IS
SUBJECT TO SERVICE OF PROCESS IN ILLINOIS. BORROWER AND EACH SUBORDINATED HOLDER
OTHER THAN THE STATE OF MICHIGAN FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY REGISTERED MAIL,
POSTAGE PREPAID, TO BORROWER OR SUCH SUBORDINATED HOLDER AND AGREES THAT SUCH
SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (i) SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR
PROCEEDING AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON
AND PERSONAL DELIVERY TO IT. NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHT OF
SENIOR LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE
SENIOR LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY
OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. BORROWER AND
EACH SUBORDINATED HOLDER OTHER THAN THE STATE OF MICHIGAN HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
<PAGE>
OBJECTION WHICH IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED IN CHICAGO,
ILLINOIS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
20. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
GENERAL MANUFACTURED HOUSING, INC.,
a Georgia corporation and successor by
merger to GMH Acquisition Corp., a
Delaware corporation
By: /s/ Gary M. Brost
-----------------------------------
Gary M. Brost
President
GMH HOLDINGS, INC., a Delaware
corporation
By: /s/ Gary M. Brost
-----------------------------------
Gary M. Brost
President
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES, a New York
insurance company
By: /s/ James R. Wilson
-----------------------------------
Name: James R. Wilson
-----------------------------
Title: Investment Officer
-----------------------------
RFE INVESTMENT PARTNERS V, L.P., a
Delaware limited partnership
By: RFE Associates V, L.P., a
Delaware limited partnership, its
sole general partner
By: /s/ James A. Parsons
----------------------------
<PAGE>
James A. Parsons
General Partner
STERLING COMMERCIAL CAPITAL, INC., a
New York corporation
By: /s/ Harvey Rosenblatt
----------------------------------
Harvey Rosenblatt
Executive Vice President
STATE TREASURER OF THE STATE OF MICHIGAN,
Custodian of the Michigan Public School
Employees' Retirement System, State
Employees' Retirement System, Michigan
State Police Retirement System and
Michigan Judges Retirement System
By: /s/ Paul E. Rice
----------------------------------
Paul E. Rice
Administrator, Alternative
Investments Division
STRATEGIC INVESTMENTS & HOLDINGS, INC.,
a Delaware corporation
By: /s/ Gary M. Brost
----------------------------------
Gary M. Brost
President
FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership
By: First Source Financial, Inc., a
Delaware corporation, its
Agent/Manager
By: /s/ Edward A. Szarkowicz
----------------------------
Name: Edward A. Szarkowicz
----------------------
Title: Vice President
----------------------
EXHIBIT A
<PAGE>
(SEE ATTACHED)
EXHIBIT B
(SEE ATTACHED)
EXHIBIT C
AGENT FOR SERVICE OF PROCESS IN ILLINOIS
RFE INVESTMENT PARTNERS V, L.P.
PRENTICE-HALL
33 NORTH LASALLE STREET
SUITE 1925
CHICAGO, IL 60602
STERLING COMMERCIAL CAPITAL, INC.
PRENTICE-HALL
33 NORTH LASALLE STREET
SUITE 1925
CHICAGO, IL 60602
STRATEGIC INVESTMENTS & HOLDINGS, INC.
PRENTICE-HALL
33 NORTH LASALLE STREET
SUITE 1925
CHICAGO, IL 60602
<PAGE>
EXHIBIT 10.21
SECURITY AGREEMENT
by and between
GENERAL MANUFACTURED HOUSING, INC.
and
FIRST SOURCE FINANCIAL LLP
Dated as of December 21, 1995
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, dated as of December 21, 1995 (herein, as the same
may at any time be amended or modified and in effect, called this "AGREEMENT"),
is by and between GENERAL MANUFACTURED HOUSING, INC., a Georgia corporation
(herein called "BORROWER"), and FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership ("LENDER").
BACKGROUND:
----------
1. Borrower and Lender have entered into a certain Secured Credit
Agreement of even date herewith (herein, as it may at any time be amended or
modified from time to time and in effect, called the "SECURED CREDIT
AGREEMENT"), pursuant to which Lender has agreed to make certain Loans (as
defined in the Secured Credit Agreement) to Borrower.
2. It is a condition precedent to the making of the initial Loans under
the Secured Credit Agreement that this Agreement be executed and delivered.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. (a) When used herein, the following terms
<PAGE>
shall have the following meanings:
ACCOUNT shall mean any right of Borrower to payment for goods sold or
leased or for services rendered which is not evidenced by an Instrument or
Chattel Paper, whether or not it has been earned by performance.
ACCOUNT DEBTOR shall mean the Person who is obligated on or under any
Account, Chattel Paper or, if appropriate, any of the General Intangibles of
Borrower.
AGENT BANK shall mean any bank serving in the capacity of agent for Lender
under the Bank Agency Agreement. The initial Agent Bank is The First National
Bank of Chicago.
BANK AGENCY AGREEMENT shall mean that certain Bank Agency Agreement by and
among Agent Bank, Borrower, Lender, First Source Financial, Inc., and Citicorp
North America, Inc., dated as of the date hereof, as the same may be amended,
modified or supplemented from time to time, or any similar agreement entered
into among a bank serving in the capacity as agent for Lender, Borrower, Lender,
First Source Financial, Inc., and Citicorp North America, Inc., as the same may
be amended, modified or supplemented from time to time.
BENEFITS - see SECTION 16.
CERTIFICATED SECURITY shall have the meaning assigned to such term in the
Uniform Commercial Code.
CHATTEL PAPER shall have the meaning assigned to such term in the Uniform
Commercial Code.
COLLATERAL shall mean all property or rights in which a Security Interest
is granted hereunder.
COMMITMENTS shall mean, collectively, Lender's commitments to Borrower
pursuant to the Secured Credit Agreement.
COMPUTER HARDWARE AND SOFTWARE COLLATERAL shall mean (i) all computer and
other electronic data processing hardware, integrated computer systems, central
processing units, memory units, display terminals, printers, features, computer
elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories and all
peripheral devices and other related computer hardware, whether now owned,
licensed or leased or hereafter acquired by Borrower; (ii) all software programs
(including source code and object code and all related applications and data
files), whether now owned, licensed or leased or hereafter acquired by Borrower,
designed for use on the computers and electronic data processing hardware
described in CLAUSE (I) above; (iii) all firmware associated therewith, whether
now owned, licensed or leased or hereafter acquired by Borrower; (iv) all
documentation (including flow charts, logic diagrams, manuals, guides and
specifications) for such hardware, software and firmware described in the
preceding CLAUSES (I), (II) and (III), whether now owned, licensed or leased or
hereafter acquired by Borrower; and (v) all rights with respect to all of the
foregoing, including, without limitation, any and all copyrights, licenses,
options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications and any substitutions, replacements, additions or model
conversions of any of the foregoing.
<PAGE>
COPYRIGHT COLLATERAL shall mean all copyrights and all semiconductor chip
product mask works of Borrower, whether statutory or common law, registered or
unregistered, now or hereafter in force throughout the world, including, without
limitation, all of Borrower's right, title and interest in and to all copyrights
and mask works registered in the United States Copyright Office or anywhere else
in the world and also including, without limitation, the copyrights and mask
works referred to in ITEM A of SCHEDULE III attached hereto, and all
applications for registration thereof, whether pending or in preparation, all
copyright and mask work licenses, including each copyright and mask work license
referred to in ITEM B of SCHEDULE III attached hereto, the right to sue for
past, present and future infringements of any thereof, all rights corresponding
thereto throughout the world, all extensions and renewals of any thereof and all
proceeds of the foregoing, including, without limitation, licenses, royalties,
income, payments, claims, damages and proceeds of suit.
DEFAULT shall mean any Unmatured Event of Default or any Event of Default.
DOCUMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
EQUIPMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
EVENT OF DEFAULT shall have the meaning assigned to such term in the
Secured Credit Agreement.
FIXTURE shall have the meaning assigned to such term in the Uniform
Commercial Code.
GENERAL INTANGIBLES shall have the meaning assigned to such term in the
Uniform Commercial Code and shall include, without limitation, goodwill.
GOODS shall have the meaning assigned to such term in the Uniform
Commercial Code.
INSTRUMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
INTANGIBLE COLLATERAL shall mean all Collateral other than Goods.
INTELLECTUAL PROPERTY COLLATERAL shall mean, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
INVENTORY shall mean goods, merchandise and other personal property
furnished under any contract of service or intended for sale or lease,
including, without limitation, all raw materials, work in process, finished
goods and materials and supplies, of any kind, nature or description, that are
used or consumed by Borrower's business, or are or might be used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such goods, merchandise and other personal property, and all returned or
repossessed goods now or at any time or times hereafter in the possession or
under the control of Borrower or Lender.
MASTER ACCOUNT shall mean the account maintained in Lender's name at Agent
Bank, of which Agent Bank is agent and pledgee-in-possession for
<PAGE>
Lender, which account is the "MASTER ACCOUNT" referred to in Section 6.2 of the
Secured Credit Agreement.
NOTES shall mean any and all promissory notes of Borrower evidencing any
loan or advance made by Lender to Borrower, and any promissory notes taken in
extension or renewal of any thereof or in replacement therefor.
OPERATING ACCOUNT shall mean the account maintained in Borrower's name at
Agent Bank, of which Agent Bank is agent and pledgee-in-possession for Lender,
which account is the "OPERATING ACCOUNT" referred to in Section 6.2 of the
Secured Credit Agreement.
PATENT COLLATERAL shall mean:
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world and including each patent and patent application
referred to in ITEM A of SCHEDULE II attached hereto;
(b) all patent licenses, including each patent license referred to in
ITEM B of SCHEDULE II attached hereto;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
CLAUSES (A) and (B); and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, including any patent or patent application
referred to in ITEM A of SCHEDULE II attached hereto, and for breach or
enforcement of any patent license, including any patent license referred to
in ITEM B of SCHEDULE II attached hereto, and all rights corresponding
thereto throughout the world.
PERMITTED LIENS shall have the meaning assigned to such term in the Secured
Credit Agreement.
SECURITY shall have the meaning assigned to such term in the Uniform
Commercial Code.
SECURITY INTEREST shall, when used with respect to any Person, mean any
interest in any real or personal property, asset or other right owned or being
purchased or acquired by such Person for its own use, consumption or enjoyment
in its business which secures payment or performance of any obligation and shall
include any mortgage, lien, pledge, encumbrance, charge or other security
interest of any kind, whether arising under a security agreement, mortgage, deed
of trust, chattel mortgage, assignment, pledge, financing or similar statement
or notice or as a matter of law, judicial process or otherwise. As used herein
with respect to the rights granted to Lender hereunder in the Collateral,
"SECURITY INTEREST" means a security interest under the Uniform Commercial Code.
TRADEMARK COLLATERAL shall mean:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks,
certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like
<PAGE>
nature (each of the foregoing items in this CLAUSE (A) being called a
"TRADEMARK"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and recordings
thereof and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country, including those referred to in ITEM A of SCHEDULE I
attached hereto;
(b) all Trademark licenses, including each Trademark license referred
to in ITEM B of SCHEDULE I attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (A) and (B);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, CLAUSES (A) and (B); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by Borrower against third parties for past, present or
future infringement or dilution of any Trademark, Trademark registration or
Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in ITEM A and ITEM B of SCHEDULE I attached
hereto, or for any injury to the goodwill associated with the use of any
such Trademark or for breach or enforcement of any Trademark license.
TRADE SECRETS COLLATERAL shall mean common law and statutory trade secrets
and all other confidential and proprietary information and all know-how obtained
by or used in or contemplated at any time for use in the business of Borrower
(each of the foregoing being called a "TRADE SECRET"), whether or not such Trade
Secret has been reduced to a writing or other tangible form, including all
documents and things embodying, incorporating or referring in any way to such
Trade Secret, all Trade Secret licenses, including each Trade Secret license
referred to in SCHEDULE IV attached hereto, and including the right to sue for
and to enjoin and to collect damages for the actual or threatened
misappropriation of any Trade Secret and for the breach or enforcement of any
such Trade secret license.
UNCERTIFICATED SECURITY shall have the meaning assigned to such term in the
Uniform Commercial Code.
UNIFORM COMMERCIAL CODE shall mean the Uniform Commercial Code as in effect
in the state of Illinois on the date of this Agreement.
UNMATURED EVENT OF DEFAULT shall mean any event or condition which if it
continues uncured will, with the passage of time or giving of notice, or both,
become an Event of Default.
UNMATURED INSOLVENCY DEFAULT shall mean an Unmatured Event of Default
arising under section 13.1.5 of the Secured Credit Agreement.
WAIVER AGREEMENT shall mean a declaration and agreement substantially in
the form of EXHIBIT A hereto (and in form and substance satisfactory to Lender)
executed and delivered by the appropriate Persons pursuant to SECTION 4(D).
(b) Unless otherwise defined herein, terms defined in the Secured Credit
Agreement shall have the same meaning when used herein. Terms not otherwise
defined herein or in the Secured Credit Agreement shall have the
<PAGE>
meanings, if any, ascribed to them under the Uniform Commercial Code, as it may
be in effect in the State of Illinois.
SECTION 2. GRANT OF SECURITY INTEREST. As collateral security for the
prompt and complete payment, performance and observance of all Liabilities,
Borrower hereby mortgages, pledges and assigns to Lender, and grants to Lender a
continuing Security Interest and lien under the Uniform Commercial Code and all
other applicable laws in all of the following property of Borrower wherever
located, whether now or hereafter existing, owned, licensed, leased, consigned,
arising or acquired:
(i) Accounts;
(ii) Goods (including, without limitation, all of Borrower's Equipment,
Fixtures (including, without limitation, the Fixtures located on the
premises described on Schedule VII) and Inventory);
(iii) General Intangibles, including, without limitation,
(A) All tax refunds,
(B) All Intellectual Property Collateral, and
(C) Rights arising out of leases, licenses and contracts which are
not Accounts,
(iv) Chattel Paper, Documents, Instruments, Certificated Securities and
Uncertificated Securities;
(v) Money and property now or at any time in the possession or under the
control of, or in transit to, Lender or Agent Bank, Borrower or any
bailee, agent or custodian of Lender, Agent Bank or Borrower;
(vi) Right, title and interest (if any) in and to the Master Account, the
Operating Account and all other accounts of Borrower maintained by
Agent Bank, and any other accounts maintained by Borrower, all funds
on deposit therein, all investments arising out of such funds, all
claims thereunder or in connection therewith, and all cash,
securities, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of such
accounts, such funds or such investments;
(vii) Insurance policies, including claims or rights to payment thereunder;
and
(viii) Liens, guaranties and other rights and privileges pertaining to any
of the Collateral;
together with: (ix) all books, ledgers, books of account, records, writings,
data bases, information and other property relating to, used or useful in
connection with, evidencing, embodying, incorporating or referring to, any of
the foregoing; and (x) all proceeds, products, rents, issues, profits and
returns of and from any of the foregoing.
SECTION 3. BORROWER TO REMAIN LIABLE. Borrower hereby expressly agrees
that, anything herein to the contrary notwithstanding, it shall remain liable
under each contract, agreement, interest or obligation
<PAGE>
assigned to Lender hereunder to observe and perform all of the conditions and
obligations to be observed and performed by Borrower thereunder, all in
accordance with and pursuant to the terms and provisions thereof. The exercise
by Lender of any of the rights assigned hereunder shall not release Borrower
from any of its duties or obligations under any such contract, agreement,
interest or obligation. Lender shall not have any duty, responsibility,
obligation or liability under any such contract, agreement, interest or
obligation by reason of or arising out of the assignment thereof to Lender or
the granting to Lender of a Security Interest therein or the receipt by Lender
of any payment relating to any such contract, agreement, interest or obligation
pursuant hereto, nor shall Lender be required or obligated in any manner to
perform or fulfill any of the obligations of Borrower thereunder or pursuant
thereto, or to make any payment, or to make any inquiry as to the nature or
sufficiency of any payment received by it or the sufficiency of any performance
of any party under any such contract, agreement, interest or obligation, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it, in
which it may have been granted a Security Interest or to which it may be
entitled at any time or times.
SECTION 4. REPRESENTATIONS AND WARRANTIES AND AGREEMENTS. Borrower
represents and warrants to, and covenants and agrees with, Lender that:
(a) No Uniform Commercial Code financing statement (other than any which
may have been filed on behalf of Lender or in connection with a Permitted Lien
or which has been, or in connection with execution and delivery hereof is being,
terminated) covering any of the Collateral is on file in any public office.
(b) Borrower has and will have a valid leasehold interest in all
Collateral it leases, and, except as otherwise noted in Schedule VI of the
Secured Credit Agreement, good and marketable title to all its other Collateral,
real and personal, of any nature whatsoever (which, with respect to licenses,
means that Borrower is the lawful owner of its rights under licenses, except as
provided in Section 10.14 of the Secured Credit Agreement), free of all Security
Interests whatsoever, other than the Security Interest created hereby and the
Permitted Liens, with full power and authority to execute this Agreement, to
perform Borrower's obligations hereunder, and to subject the Collateral to the
assignment and Security Interest created hereby.
(c) All of Borrower's books and records are now located at one or more of
the premises shown on SCHEDULE V hereto, and all of Borrower's Equipment,
Inventory and other Goods are located either at one or more of the premises
shown on SCHEDULE V hereto or at one or more of the premises shown on SCHEDULE
VI hereto.
(d) To the extent that any of the premises shown on SCHEDULE V hereto are
leased by Borrower, Borrower shall provide Lender with a Waiver Agreement
executed by the landlord under such lease.
(e) All information with respect to the Collateral and the Account Debtors
set forth in any schedule, certificate, or other writing at any time heretofore
or hereafter furnished by or on behalf of Borrower to Lender, and all other
information heretofore or hereafter furnished by or on behalf of Borrower to
Lender, is and will be true, correct and complete in all material respects as of
the date furnished and does not and will not omit any material fact necessary to
make the statements not misleading.
<PAGE>
(f) Borrower will at all times maintain its chief executive office as
identified in SCHEDULE V hereto in the contiguous continental United States and
Borrower shall take such action from time to time as is required so that a
creditor of Borrower would reasonably expect the chief executive office
identified on SCHEDULE V to be its chief executive office for purposes of
Article 9 of the Uniform Commercial Code.
(g) With respect to any Intellectual Property Collateral the loss,
impairment or infringement of which has a reasonable probability of having a
Material Adverse Effect:
(i) Such Intellectual Property Collateral is subsisting and has not
been adjudged invalid or unenforceable, in whole or in part.
(ii) Such Intellectual Property Collateral is valid and enforceable.
(iii) Borrower has made all filings and recordations necessary in the
exercise of reasonable and prudent business judgment to protect its
interest in such Intellectual Property Collateral, including, without
limitation, recordations of all of its interest in the Patent Collateral
and Trademark Collateral in the United States Patent and Trademark Office
and in corresponding offices throughout the world and its claims to the
Copyright Collateral in the United States Copyright Office and in
corresponding offices throughout the world.
(iv) Borrower is the owner of the entire and unencumbered right,
title and interest in and to such Intellectual Property Collateral and no
claim has been made that the use of such Intellectual Property Collateral
does or may violate the asserted rights of any third party.
(v) Borrower has performed and will continue to perform all acts and
has paid and will continue to pay all required fees and taxes to maintain
each and every item of Intellectual Property Collateral in full force and
effect throughout the world, as applicable.
Borrower owns directly, or is entitled to use by license or otherwise, all
Intellectual Property Collateral used in, necessary for or material to the
conduct of Borrower's business. No litigation is pending or, to the best
knowledge of Borrower, threatened which contains allegations respecting the
validity, enforceability, infringement or ownership of any of the Intellectual
Property Collateral.
(h) None of the Collateral (other than Intangible Collateral) has, within
the four (4) months preceding the date of this Agreement, been located at any
place other than Borrower's own premises at the address shown on the signature
page hereto or at one or more of the premises listed on SCHEDULES V and VI
hereto.
(i) Schedule VII to the Secured Credit Agreement lists all trade names by
which Borrower is now known or was previously known.
(j) Borrower may, from time to time, have Goods repurchased by Borrower
pursuant to the Repurchase Agreements in the States listed on SCHEDULE VI
hereto.
SECTION 5. PROCESSING, SALE, COLLECTIONS, ETC.
(a) Until notice from Lender to the contrary, given at any time after the
occurrence and during continuance of any Event of Default or Unmatured
<PAGE>
Insolvency Default, Borrower (i) may, in the ordinary course of its business, at
its own expense, sell, lease or furnish under contracts of service any of the
Inventory normally held by Borrower for such purpose, and use and consume, in
the ordinary course of its business, any raw materials, work in process or
materials normally held by Borrower for such purpose (but no such sale or use
shall limit or impair Lender's Security Interest in any proceeds thereof,
including, without limitation, any Account), (ii) will, at its own expense,
endeavor to collect, as and when due, all amounts due with respect to any of the
Intangible Collateral, including the taking of such action with respect to such
collection as Lender may reasonably request or, in the absence of such request,
as Borrower may deem advisable, and (iii) may grant, subject to the next
sentence hereof, to any Person obligated on any of the Intangible Collateral,
any rebate, refund or allowance to which such Person may be lawfully entitled,
and may accept, in connection therewith, the return of goods, the sale or lease
of which shall have given rise to such Intangible Collateral. Lender, however,
may at any time, whether before or after the maturity of any of the Liabilities,
so long as a Default shall have occurred and be continuing, (1) notify any
Person obligated on any of the Intangible Collateral to make payment to Lender
of any amounts due or to become due thereunder; (2) enforce collection of any of
the Intangible Collateral by suit or otherwise; (3) surrender, release or
exchange all or any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby; and (4) notify Borrower (and upon receipt of
such notice Borrower agrees to notify, at its sole expense, any parties
obligated on any of the Collateral) to make payment to Lender of any amount due
or to become due under the Collateral.
(b) Borrower will, forthwith upon receipt, transmit and deliver to Lender
or Agent Bank, in the form received, all cash, checks, drafts and other
instruments or writings for the payment of money (properly endorsed, where
required, so that such items may be collected by Lender or Agent Bank) which may
be received by Borrower at any time in full or partial payment, or other
proceeds of any Collateral. Except as Lender may otherwise consent in writing,
any such items which may be so received by Borrower will not be commingled by
Borrower with any of its other funds or property, but, until delivery to Lender
or Agent Bank, will be held separate and apart from such other funds and
property and in trust for Lender or Agent Bank.
(c) Lender or Agent Bank is authorized to endorse, in the name of
Borrower, any item, howsoever received by Lender or Agent Bank representing any
payment on or other proceeds of any of the Collateral.
SECTION 6. AGREEMENTS OF BORROWER. Borrower shall:
(a) Keep all its Inventory and other Goods, unless Lender shall otherwise
consent in writing, at one or more of its own premises (as shown on SCHEDULE V
hereto) or at one or more of the premises listed on SCHEDULE VI hereto;
PROVIDED, HOWEVER, that (i) so long as no Event of Default or Unmatured
Insolvency Default shall have occurred and be continuing, and subject to SECTION
6(J), Borrower may designate additional premises (such premises shall be located
in the contiguous continental United States) for inclusion on SCHEDULE V hereto
upon delivery to Lender of (A) 30 days' advance written notice and (B) all
documents, and completion of all action, required by Lender to maintain the
Security Interest in favor of Lender in the Collateral, free and clear of any
other Security Interest whatsoever except for Permitted Liens and (ii) in the
case of the premises listed on SCHEDULE VI hereto from time to time, Borrower's
Inventory and other Goods
<PAGE>
shall be kept separate from the Inventory and other Goods of those Persons
(other than Borrower) using such premises and shall be clearly and conspicuously
designated as being Borrower's sole property (for example, by posting signs or
by affixing Borrower's name on its Inventory and other Goods).
(b) Immediately notify Lender of (i) the occurrence of any event causing
loss or depreciation in value of any of Borrower's Goods in excess, in the
aggregate during any of Borrower's fiscal years, of $40,000, and (ii) the amount
of such loss or depreciation.
(c) Furnish Lender such information concerning Borrower, the Collateral
and the Account Debtors as Lender may from time to time reasonably request.
(d) Defend Borrower's title to the Collateral against all Persons and
against all claims and demands whatsoever.
(e) Do all acts reasonably necessary to maintain, preserve and protect all
Collateral, keep all Collateral in good condition and repair (ordinary wear and
tear excepted), and prevent any waste or unusual or unreasonable depreciation
thereof.
(f) Permit Lender and designees of Lender, from time to time, to inspect
at reasonable times the Collateral, and to, at reasonable times, inspect, audit
and make copies of and extracts from all records and all other papers in the
possession of Borrower and will, upon request of Lender, deliver to Lender all
of such records and papers which pertain to the Collateral and the Account
Debtors.
(g) Upon request of Lender, stamp on its records concerning the Collateral
(and/or enter into its computer records concerning the Collateral), a notation,
in form satisfactory to Lender, of the Security Interest created hereby.
(h) Except for the sale or lease of Inventory in the ordinary course of
its business and except as otherwise permitted by the Secured Credit Agreement,
not sell, lease, assign, license, sublicense, abandon or otherwise transfer, or
create or permit to exist any Security Interest (other than any Permitted Lien)
on any Collateral to or in favor of anyone other than Lender.
(i) At all times keep all Inventory and Equipment insured against loss,
damage, theft and other risks in the manner required by Section 11.4 of the
Secured Credit Agreement (whether or not the Secured Credit Agreement shall be
in effect) and, if Lender so requests, deposit with Lender originals or
certified copies of the relevant policies and certificates of insurance.
(j) Furnish to Lender, in accordance with Section 9.2 of the Secured
Credit Agreement, notice in writing as soon as possible and in any event no
later than 30 days prior to the occurrence from time to time of (i) any change
in the location of Borrower's chief executive office and (ii) any change in the
name of Borrower or the name under or by which it conducts its business, and
take all action required by Lender to maintain and preserve the Security
Interest in favor of Lender in the Collateral, free and clear of any other
Security Interest whatsoever except for Permitted Liens.
(k) Reimburse Lender for all expenses, including attorneys' fees and
<PAGE>
legal expenses and expenses of any repairs to realty or other property to which
any Collateral may be affixed or be a part, incurred by Lender in seeking to
collect or enforce any rights under or with respect to the Collateral, in
seeking to collect the Notes and all other Liabilities, and in enforcing its
rights hereunder, together with interest thereon from the date incurred until
reimbursed by Borrower at a rate per annum equal to the default rate specified
in SECTION 11(B) hereof, after notice to Borrower, if any, as required by the
Secured Credit Agreement.
(l) Not sell, assign or license to any third party any of its right, title
or interest in any of the Intellectual Property Collateral and General
Intangibles other than in Borrower's ordinary course of business.
(m) Not, unless Borrower shall either (i) reasonably and in good faith
determine (and notice of such determination shall have been delivered to Lender)
that any of the Patent Collateral is of negligible economic value to Borrower,
or (ii) have a valid business purpose to do otherwise, do any act, or omit to do
any act, whereby any of the Patent Collateral may lapse or become abandoned or
dedicated to the public or unenforceable.
(n) Not, and shall not permit any of its licensees to, unless Borrower
shall either (i) reasonably and in good faith determine (and notice of such
determination shall have been delivered to Lender) that any of the Trademark
Collateral is of negligible economic value to Borrower, or (ii) have a valid
business purpose to do otherwise,
(A) fail to continue to use any of the Trademark Collateral in order
to maintain all of the Trademark Collateral in full force free from any
claim of abandonment for non-use,
(B) fail to maintain as in the past the quality of products and
services offered under all of the Trademark Collateral,
(C) fail to employ all of the Trademark Collateral registered with
any Federal or State or foreign authority with an appropriate notice of
such registration,
(D) adopt or use any other Trademark which is confusingly similar or
a colorable imitation of any of the Trademark Collateral except in
compliance with applicable law,
(E) use any of the Trademark Collateral registered with any Federal
or State or foreign authority except for the uses for which registration or
application for registration of such Trademark Collateral has been made
except in compliance with applicable law, and
(F) do or permit any act or knowingly omit to do any act whereby any
of the Trademark Collateral is reasonably likely to lapse or become invalid
or unenforceable.
(o) Not, unless Borrower shall either (i) reasonably and in good faith
determine (and notice of such determination shall have been delivered to Lender)
that any of the Copyright Collateral or any of the Trade Secrets Collateral is
of negligible economic value to Borrower, or (ii) have a valid business purpose
to do otherwise, do or permit any act or knowingly omit to do any act whereby
any of the Copyright Collateral or any of the Trade Secrets Collateral is
reasonably likely to lapse or become invalid or unenforceable or placed in the
public domain except upon expiration of the end of an unrenewable term of a
registration thereof.
<PAGE>
(p) Notify Lender immediately if it knows that any application or
registration relating to any material item of the Intellectual Property
Collateral may become abandoned or dedicated to the public or placed in the
public domain or invalid or unenforceable, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any foreign counterpart thereof or any
court) regarding Borrower's ownership of any of the Intellectual Property
Collateral, its right to register the same or to keep and maintain and enforce
the same.
(q) Not, nor shall any of Borrower's agents, employees, designees or
licensees, file an application for the registration of any Intellectual Property
Collateral with the United States Patent and Trademark Office, the United States
Copyright Office or any similar office or agency in any other country or any
political subdivision thereof, unless it promptly informs Lender, and, upon
request of Lender, executes and delivers any and all agreements, instruments,
documents and papers as Lender may reasonably request to evidence Lender's
Security Interest in such Intellectual Property Collateral and the goodwill and
general intangibles of Borrower relating thereto or represented thereby.
(r) Take all necessary steps, including in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue any application (and to obtain the relevant
registration) filed with respect to, and to maintain any registration of, the
Intellectual Property Collateral, including the filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings and the payment of fees and taxes
(except to the extent that dedication, abandonment or invalidation is permitted
under the foregoing CLAUSE (M), (N) or (O)).
(s) Contemporaneously herewith, execute and deliver to Lender an Agreement
(Patent), an Agreement (Trademark) and an Agreement (Copyright) in the forms of
EXHIBITS B, C and D hereto, respectively, and shall execute and deliver to
Lender any other document reasonably required to acknowledge or register or
perfect Lender's interest in any part of the Intellectual Property Collateral.
(t) At its sole expense, (i) without any request by Lender, immediately
deliver or cause to be delivered to Lender, in due form for transfer (I.E.,
endorsed in blank or accompanied by duly executed undated blank stock or bond
powers), all certificated Securities, Chattel Paper, Instruments and Documents,
if any, at any time representing all or any of the Collateral, (ii) upon request
of Lender cause Lender's Security Interest hereunder and under the other
Collateral Documents to be at all times duly noted on any certificate of title
issuable with respect to any of the Collateral and forthwith deliver or cause to
be delivered to Lender each such certificate of title, and (iii) execute and
deliver, or cause to be executed and delivered, to Lender, in due form for
filing or recording (and pay the cost of filing or recording the same in all
public offices deemed necessary or advisable by Lender) such assignments
(including, without limitation, assignments of life insurance, if Borrower
elects or is otherwise required to obtain such insurance), security agreements,
mortgages, deeds of trust, pledge agreements, consents, waivers, financing
statements, stock or bond powers, and other documents, and do such other acts
and things, all as may from time to time be necessary or desirable, to the
satisfaction of Lender, to establish and maintain in favor of Lender, a
<PAGE>
valid perfected lien on and Security Interest in all assets of Borrower now or
hereafter existing or acquired (free of all other liens, claims and rights of
third parties whatsoever other than Permitted Liens) to secure payment and
performance of the Liabilities.
(u) At Lender's request after the occurrence and during the continuance of
an Event of Default, transfer all or any part of the Collateral, (including,
with respect to any Trademarks, the goodwill associated therewith) into the name
of Lender or its nominee for the benefit of Lender, with or without disclosing
that such Collateral is subject to the Security Interest hereunder.
(v) At all times comply with the requirements of all applicable laws
(including, without limitation, the provisions of the Fair Labor Standards Act),
rules, regulations and orders of every governmental authority, the non-
compliance with which, as Lender determines would be reasonably likely to
materially and adversely affect the value of the Collateral or the worth of the
Collateral as collateral security, taken as a whole.
SECTION 7. RENEWALS, AMENDMENTS AND OTHER SECURITY; PARTIAL RELEASES.
(a) Lender may from time to time, whether before or after any of the
Liabilities shall become due and payable, without notice to Borrower, take any
or all of the following actions (provided that actions taken under clause (v)
may only be taken after an Event of Default has occurred and is continuing): (i)
retain or obtain a Security Interest in any property to secure payment and
performance of any of the Liabilities, (ii) retain or obtain the primary or
secondary liability of any Person, in addition to Borrower, with respect to any
of the Liabilities, (iii) create, extend or renew for any period (whether or not
longer than the original period) or alter or exchange any of the Liabilities or
release or compromise any obligation of any nature of any Person with respect
thereto, (iv) release or fail to perfect its Security Interest in, or surrender,
release or permit any substitution or exchange for, all or any part of any
property securing any of the Liabilities, or create, extend or renew for any
period (whether or not longer than the original period) or release, compromise,
alter or exchange any obligations of any nature of any Person with respect to
any such property, and (v) resort to the Collateral for payment of any of the
Liabilities whether or not it (1) shall have resorted to any other property
securing payment and performance of the Liabilities or (2) shall have proceeded
against any Person primarily or secondarily liable on any of the Liabilities
(all of the actions referred to in preceding CLAUSES (1) and (2) being hereby
expressly waived by Borrower).
(b) No release from the Security Interest created by this Agreement of any
part of the Collateral by Lender shall in any way alter, vary or diminish the
force or effect of or Security Interest created by this Agreement against the
balance or remainder of the Collateral.
SECTION 8. GRANT OF LICENSE TO USE INTANGIBLES. In addition to SECTION
6(U) and solely for the purpose of enabling Lender to exercise rights and
remedies hereunder, after the occurrence and during the continuance of an Event
of Default, Borrower hereby grants to Lender, after an Event of Default has
occurred and is continuing, an irrevocable (so long as any of the Liabilities
remain outstanding and any or all of the Commitments remain in effect),
nonexclusive license (exercisable without payment of royalty or other
compensation to Borrower) to use, assign, license or sublicense any of
Borrower's General Intangibles, now owned or hereafter acquired by Borrower, and
wherever the same may be located, including in such license reasonable access as
to all media in which any of
<PAGE>
the licensed items may be recorded or stored and to all computer programs used
for the compilation or printout thereof. No agreements hereafter acquired or
agreed to or entered into by Borrower shall prohibit, restrict or impair the
rights granted hereunder.
SECTION 9. INFORMATION. Lender and any of the officers, employees, agents
or auditors of Lender shall have the right at reasonable intervals after the
date hereof to make reasonable inquiries by mail, telephone, telegraph or
otherwise to any Person with respect to validity and amount or any other matter
(including, without limitation, the assertion by Account Debtors of claims,
offsets and counterclaims) concerning any of the Collateral.
SECTION 10. EVENT OF DEFAULT.
(a) (i) Whenever an Event of Default or Unmatured Insolvency Default
shall be existing, Lender may exercise from time to time any rights and remedies
available to it hereunder, under the Secured Credit Agreement and under the
Uniform Commercial Code as in effect from time to time in Illinois or otherwise
available to it under applicable law. Borrower hereby expressly waives, to the
fullest extent permitted by applicable law, any and all notices, advertisements,
hearings, or process of law in connection with the exercise by Lender of any of
its rights and remedies after an Event of Default or Unmatured Insolvency
Default occurs.
(ii) Borrower agrees, upon the occurrence of an Event of Default or
Unmatured Insolvency Default and upon the request of Lender, to assemble, at
Borrower's expense, all Collateral at a convenient place acceptable to Lender,
in the State where such Collateral is located. ghgf
(iii) To the fullest extent permitted by applicable law, Borrower hereby
waives the right to object to the manner or sufficiency of advertising,
refurbishing of the Collateral, or solicitation of bids in connection with any
sales or other disposition of the Collateral. Any sale by Lender may be made at
any broker's board or public or private sale, with or without notice or
advertisement, for cash or credit, and for present or future delivery. At any
such public or private sale or other disposition of Collateral, Lender may, to
the extent permissible under applicable law, purchase the whole or any part of
any Collateral sold, or may sell or dispose of the Collateral to any other
Person, free from any and all claims of Borrower or of any other Person claiming
by, through, or under Borrower. Borrower hereby expressly waives and releases,
to the fullest extent permitted by applicable law, any right of redemption on
the part of Borrower. If any notification of intended disposition of any of the
Collateral is required by law, such notification, if mailed, shall be deemed
reasonably and properly given if mailed at least five days before such
disposition, postage prepaid, addressed to Borrower either at the address shown
below, or at any other address of Borrower appearing on the records of Lender.
Any proceeds of any Collateral, or of the disposition by Lender of any of the
Collateral (including, without limitation, Benefits to the extent provided in
SECTION 16 hereof), may be applied by Lender to the payment of expenses in
connection with the Collateral, including attorneys' fees and legal expenses,
and any balance of such proceeds may be applied by Lender toward the payment of
such of the Liabilities, and in such order of application, as Lender may from
time to time elect.
(b) Without limiting any other provision of this Agreement, whenever
an Event of Default or Unmatured Insolvency Default shall be existing,
Lender, with or without process of law, may enter upon any premises where
the Collateral or any part thereof may be, and take possession of all or
<PAGE>
any part thereof; and Lender may, without Lender being responsible for loss
or damage, hold, store, keep idle, lease, operate or otherwise use or
permit the use of the Collateral or any part thereof for such time and upon
such terms as Lender may deem to be reasonable, or may render all or part
of the Collateral unusable, and may demand, collect and retain all earnings
and all other sums due and to become due in respect of the Collateral from
any Person whomsoever, accounting only for net earnings, if any, arising
from use or from the sale thereof after charging against all receipts from
use or from the sale thereof all costs and expenses of, and damages or
losses by reason of, such use or sale.
(c) Borrower hereby agrees to pay any and all expenses incurred by Lender
in retaking, holding, preparing for sale, selling and the like with regard to
the Collateral, including, without limitation, attorneys' fees incurred by
Lender in connection therewith.
(d) Borrower agrees that in any sale of any of the Collateral, Lender is
authorized to comply with any limitation or restriction in connection with such
sale as counsel may advise Lender is necessary in order to avoid any violation
of applicable law (including, without limitation, compliance with such
procedures as may restrict the number of prospective bidders or purchasers,
require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to Persons
who will represent and agree that they are purchasing for their own account or
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental or regulatory authority or official, and Borrower
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Lender be liable or accountable to Borrower for any discount allowed
by reason of the fact that such Collateral was sold in compliance with any such
limitation or restriction.
(e) If sufficient sums are not realized upon any disposition of the
Collateral to pay all Liabilities and any expenses of such disposition,
including, without limitation, reasonable attorneys' fees, Borrower hereby
promises to pay immediately any resulting deficiency.
(f) No right or remedy herein conferred is intended to be exclusive of any
other right or remedy, but every such right or remedy shall be cumulative and
shall be in addition to every other right or remedy herein conferred, or
conferred upon Lender by any other agreement or instrument or security, or now
or hereafter existing at law or in equity or by statute.
SECTION 11. AUTHORITY OF LENDER. (a) Lender shall have, and be entitled
to exercise, all such powers hereunder as are specifically delegated to Lender
by the terms hereof, together with such powers as are incidental thereto. Lender
may execute any of its duties hereunder by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
such counsel concerning all matters pertaining to its duties hereunder. Neither
Lender nor any director, officer or employee of Lender shall be liable for any
action taken or omitted to be taken by it hereunder or in connection herewith,
except for its own gross negligence or willful misconduct. Borrower agrees to
reimburse Lender, on demand, for all costs and expenses incurred by Lender in
connection with the administration and enforcement of this Agreement (including
costs and expenses incurred by any agent employed by Lender) and agrees to
indemnify (which indemnification shall survive any termination of this
Agreement) and hold harmless Lender (and any such agent) from and against any
and all liability incurred by Lender (or such agent) hereunder
<PAGE>
or in connection herewith, unless such liability shall be due to gross
negligence or willful misconduct on the part of Lender or such agent, as the
case may be.
(b) Lender may from time to time, without notice to Borrower, at its
option, perform any obligation to be performed by Borrower hereunder, under the
Secured Credit Agreement or the Related Documents which shall not have been
performed and take any other action which, in its sole discretion, it deems
necessary or desirable for the maintenance or preservation of any of the
Collateral or Lender's Security Interest in the Collateral. All moneys advanced
by Lender in connection with the foregoing shall, whether or not there are then
outstanding any Loans made under the Secured Credit Agreement, bear interest at
the Default Rate (or such lower maximum rate as shall be legal under applicable
law), and shall be repaid together with such interest by Borrower to Lender,
upon Lender's demand, and shall be secured hereby prior to any other
indebtedness or obligation secured hereby, but the making of any such advance by
Lender shall not relieve Borrower of any default hereunder or thereunder.
SECTION 12. TERMINATION. Subject to Section 15(n) hereof, this Agreement
shall terminate when the Commitments shall be terminated and all the Liabilities
have been fully paid and performed, at which time Lender shall reassign and
redeliver (or cause to be reassigned and redelivered) to Borrower, or to such
person as Borrower shall designate, against receipt, such of the Collateral (if
any) as shall not have been sold or otherwise applied by Lender pursuant to the
terms hereof and shall still be held by it hereunder, together with appropriate
instruments of termination, reassignment, and release. Any such reassignment
shall be without recourse upon, or representation or warranty by, Lender and at
the sole cost and expense of Borrower.
SECTION 13. PROTECTION OF INTELLECTUAL PROPERTY COLLATERAL. (a) Borrower
shall have the duty to protect, preserve and maintain all rights in each of the
items of Intellectual Property Collateral, the loss of which is reasonably
likely to have a Material Adverse Effect on Borrower's business, including,
without limitation, the duty to prosecute, the failure of which to prosecute is
reasonably likely to have a Material Adverse Effect, and/or defend against any
and all suits concerning validity, infringement, enforceability, ownership or
dilution or other aspects of the Intellectual Property Collateral, as well as
the duty to register Copyrights, the failure of which to register is likely to
have a Material Adverse Effect on Borrower's business, with the United States
Copyright Office and to make publications of all materials, which have been
registered with the U.S. Copyright Office, with an appropriate copyright notice.
Any expenses incurred in protecting, preserving and maintaining the Intellectual
Property Collateral shall be borne by Borrower. To the maximum extent permitted
by law, after the occurrence of and during the continuance of an Event of
Default, Lender shall have the right, without taking title to any of the
Intellectual Property Collateral, to bring suit, in Lender's name or in
Borrower's name or in both such names, as determined by Lender, to enforce any
or all of the Intellectual Property Collateral or Lender's Security Interest
therein, in which event Borrower shall, at the request of Lender, do any and all
lawful acts and execute any and all proper documents required by Lender in aid
of such enforcement. All costs, expenses and other moneys advanced by Lender in
connection with the foregoing shall be treated as an advance under SECTION 11(B)
hereof, but the making of any such advance by Lender shall not relieve Borrower
of any default hereunder. All monetary recoveries from any such suits instituted
by Lender shall be retained by and owned solely by Lender. In addition, Borrower
shall indemnify (which indemnification shall survive any
<PAGE>
termination of this Agreement) and hold harmless Lender from any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including attorneys' fees and legal expenses)
of any kind whatsoever which may be imposed on, incurred by or asserted against
Lender in connection with or in any way arising out of such suits, proceedings
or other actions. Notwithstanding the foregoing, Lender shall have no
obligations or liabilities regarding any or all of the Intellectual Property
Collateral by reason of, or arising out of, this Agreement.
(b) If any Event of Default shall have occurred and be continuing, upon
the written demand of Lender, Borrower shall execute and deliver to Lender an
assignment or assignments of the Intellectual Property Collateral, and such
other documents as are necessary or appropriate to carry out the intent and
purposes of this Agreement along with, in the case of any Trademark, goodwill
and assets relating to the products sold under such Trademark. Borrower agrees
that such an assignment shall be applied to reduce the Liabilities then due only
to the extent that Lender receives cash proceeds in respect of the sale of, or
other realization upon, the Intellectual Property Collateral or licenses; such
cash proceeds to be applied to the payment of expenses incurred in connection
with the Intellectual Property Collateral or licenses, including attorneys' fees
and legal expenses, and any balance of such proceeds shall be applied by Lender
as provided in SECTION 10(A)(III). Without limiting any other rights and
remedies of Lender, within five (5) Business Days of written notice from Lender,
Borrower shall make available to Lender, to the extent within Borrower's power
and authority, such personnel in Borrower's employ on the date of the Event of
Default as Lender may reasonably designate, by name, title or job
responsibility, to permit Borrower to continue, directly or indirectly, to
advertise and operate the business of Borrower under any Trademark or licenses,
such personnel to be available to perform their prior functions on Lender's
behalf and to be compensated by Lender on a per diem, pro-rata basis consistent
with the salary and benefit structure applicable to each as of the date of such
Event of Default.
SECTION 14. SUBMISSION TO JURISDICTION. LENDER MAY ENFORCE ANY CLAIM
ARISING OUT OF THIS AGREEMENT, ANY COLLATERAL OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH, OR ARISING FROM OR RELATED TO ANY CREDIT RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT IN ANY STATE OR FEDERAL COURT HAVING
SUBJECT MATTER JURISDICTION AND LOCATED IN CHICAGO, ILLINOIS. FOR THE PURPOSE OF
ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND ALSO HAS
IRREVOCABLY DESIGNATED THE PERSON WHOSE NAME AND ADDRESS ARE SET FORTH IN THE
SECURED CREDIT AGREEMENT TO RECEIVE FOR AND ON BEHALF OF BORROWER SERVICE OF
PROCESS IN ILLINOIS. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY REGISTERED MAIL,
POSTAGE PREPAID, TO BORROWER AND AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT
PERMITTED BY LAW, (i) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (ii) SHALL BE TAKEN
AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING
HEREIN CONTAINED SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING
IN RESPECT HEREOF IN ANY OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER
SUCH ACTION. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED
IN CHICAGO, ILLINOIS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
<PAGE>
INCONVENIENT FORUM.
SECTION 15. MISCELLANEOUS PROVISIONS.
(a) Lender and Agent Bank shall be deemed to have exercised reasonable
care in the custody and preservation of any of the Collateral if they take such
action for that purpose as Borrower requests in writing, but failure of Lender
or Agent Bank to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of Lender or Agent Bank to
preserve or protect any rights with respect to the Collateral against prior or
other parties, or to do any act with respect to the preservation of the
Collateral not so requested by Borrower, shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
(b) Borrower hereby appoints Lender, with full power of substitution, as
Borrower's attorney-in-fact for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Lender
may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, Borrower agrees that Lender, shall have the right
and authority: (i) while any Event of Default or Unmatured Insolvency Event
shall exist, to assign, sell, license, sublicense or otherwise dispose of all
right, title and interest of Borrower in and to the Intellectual Property
Collateral, any other General Intangible or any thereof, including, without
limitation, assignments, recordings, registrations and applications therefor in
the United States Patent and Trademark Office, the United States Copyright
Office or any similar office or agency of the United States, any State thereof
or any other country or political subdivision thereof, and for the purpose of
the recording, registering and filing of, or accomplishing any other formality
with respect to, the foregoing, to execute and deliver any and all agreements,
documents, instruments of assignment or other papers necessary or advisable to
effect such purpose; and (ii) to make claim for, and receive and give
acquittance for payment on account of, loss under any insurance policy covering
the Collateral, or any part thereof, and to receive, endorse and collect all
checks, drafts and other orders for the payment of money representing the
proceeds of such insurance.
(c) All notices or other communications hereunder shall be given in the
manner specified under Section 14.3 of the Secured Credit Agreement, whether or
not then in effect.
(d) No delay on the part of Lender in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Lender
of any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy.
(e) No amendment to, modification or waiver of, or consent with respect
to, any provision of this Agreement shall in any event be effective unless the
same shall be in writing and signed and delivered by Lender, and then any such
amendment, modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(F) THIS AGREEMENT HAS BEEN DELIVERED AT CHICAGO, ILLINOIS, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW. WHENEVER
POSSIBLE, EACH PROVISION OF THIS AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER
AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
AGREEMENT SHALL BE PROHIBITED BY OR INVALID UNDER SUCH
<PAGE>
LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR
INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE
REMAINING PROVISIONS OF THIS AGREEMENT. ALL OBLIGATIONS OF BORROWER, ANY OF ITS
SUBSIDIARIES OR ANY RELATED PERSON AND RIGHTS OF LENDER AND ANY OTHER HOLDER OF
A NOTE OR LIABILITY EXPRESSED IN THIS AGREEMENT SHALL BE IN ADDITION TO AND NOT
IN LIMITATION OF THOSE PROVIDED UNDER APPLICABLE LAW OR IN ANY OTHER WRITTEN
INSTRUMENT OR AGREEMENT RELATING TO ANY OF THE LIABILITIES.
(g) The rights and privileges of Lender hereunder shall inure to the
benefit of its successors and assigns. This Agreement shall be binding upon
Borrower and its successors and assigns.
(h) At the option of Lender, this Agreement, or a carbon, photographic or
other reproduction of this Agreement or of any Uniform Commercial Code financing
statement covering the Collateral or any portion thereof, shall be sufficient as
a Uniform Commercial Code financing statement and may be filed as such.
(i) The section headings in this Agreement are inserted for convenience of
reference and shall not be considered a part of this Agreement or used in its
interpretation.
(j) This Agreement may be executed in any number of counterparts and by
the different parties on separate counterparts and each such counterpart shall
for all purposes be deemed an original, but all such counterparts shall together
constitute but one and the same Agreement. Borrower hereby acknowledges receipt
of a true, correct and complete counterpart of this Agreement.
(K) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATED TO
THIS AGREEMENT, ANY COLLATERAL OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH
THE FOREGOING OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
(l) Borrower hereby expressly waives to the fullest extent permitted by
law: (i) notice of the acceptance by Lender of this Agreement, (ii) notice of
the existence or creation or non-payment of all or any of the Liabilities, (iii)
presentment, demand, notice of dishonor, protest, and all other notices
whatsoever, and (iv) all diligence in collection or protection of or realization
upon the Liabilities or any thereof, any obligation hereunder, or any security
for or guaranty of any of the foregoing.
(m) Subject to the provisions of the Secured Credit Agreement, Lender may,
from time to time, without notice to Borrower, assign or transfer any or all of
the Liabilities or any interest therein; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Liabilities shall be and remain Liabilities for the purposes of this Agreement,
and each and every immediate and successive assignee or transferee of any of the
Liabilities or of any interest therein shall, to the extent of the interest of
such assignee or transferee in the Liabilities, be entitled to the benefits of
this Agreement to the same extent as if such assignee or transferee were Lender;
PROVIDED, HOWEVER, that Lender shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce this Agreement,
as to those of the Liabilities which Lender has not assigned or transferred.
<PAGE>
(n) Borrower agrees that, if at any time all or any part of any payment
theretofore applied by Lender to any of the Liabilities is or must be rescinded
or returned by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of Borrower or any of its
Affiliates), such Liabilities shall, for the purposes of this Agreement, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by Lender, and the
Security Interest granted hereunder shall continue to be effective or be
reinstated, as the case may be, as to such Liabilities, all as though such
application by Lender had not been made. Borrower shall get credit for interest
earned by Lender on such amounts.
(o) Lender is the current holder of all Liabilities but, subject to the
Secured Credit Agreement, may in the future transfer, assign or sell certain
Liabilities.
(p) Borrower hereby acknowledges that there are no conditions to the
effectiveness of this Agreement.
(q) If any item of Collateral hereunder also constitutes collateral
granted to Lender under any other mortgage, agreement or instrument, in the
event of any conflict between the provisions under this Agreement and those
under such other mortgage, agreement or instrument relating to such Collateral,
the provision or provisions selected by Lender shall control with respect to
such Collateral.
(r) In case of conflict between any provision of this Agreement and any
provision of the Secured Credit Agreement, the provisions of the Secured Credit
Agreement shall control.
SECTION 16. APPLICATION OF INSURANCE PROCEEDS. Any loss benefits
("BENEFITS") under any of the insurance policies maintained by Borrower pursuant
to SECTION 6(I) hereof shall be applied as follows:
(a) If no Event of Default has occurred and is continuing, and the amount
of such Benefits, together with all other Benefits previously or
contemporaneously paid to Lender hereunder, is less than $25,000, then such
Benefits shall be paid into the Master Account for application pursuant to the
Secured Credit Agreement.
(b) If no Event of Default has occurred and is continuing and the amount
of such Benefits, together with all other Benefits previously or
contemporaneously paid to Lender hereunder, is $25,000 or greater, then such
Benefits, together with any interest thereon, shall be held by Lender as
additional Collateral hereunder, but, so long as no Event of Default has
occurred and is continuing, such Benefits may, at Borrower's discretion, be
either:
(i) applied by Lender to the repayment of the Loans in the order
of application set forth in Section 7.3 of the Secured Credit Agreement,
subject to all of the terms and conditions of the Secured Credit Agreement,
and to the extent such repayment reduces the principal balance of the
Loans, the Commitments shall be correspondingly reduced, or
(ii) at any time, but subject to the following PARAGRAPH (C),
used by Borrower to repair or replace the damaged or destroyed Collateral
giving rise to such Benefits.
<PAGE>
(c) Lender shall have no obligation to release any Benefits to Borrower for
Borrower's use in repairing or replacing damaged or destroyed Collateral unless
Borrower satisfies such conditions as Lender reasonably may impose upon the
release of Benefits and as are customary in the financing of repairs or
purchases of the type proposed by Borrower, including without limitation, the
condition that the available amount of such Benefits shall be sufficient to
complete such repairs or replacements, or Lender shall have received from
Borrower a cash deposit (or Borrower shall maintain borrowing availability)
equal to the excess of the estimated cost of such repair or replacement over the
available amount of such Benefits.
(d) If an Event of Default or an Unmatured Insolvency Default occurs or is
continuing while Lender is holding any Benefits pursuant to this SECTION 16,
Lender may apply such Benefits to the repayment of the Loans in the order of
application set forth in Section 7.3 of the Secured Credit Agreement, subject to
all of the terms and conditions of the Secured Credit Agreement, and to the
extent such repayment reduces the principal balance of the Loans, the
Commitments shall be correspondingly reduced.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
GENERAL MANUFACTURED HOUSING, INC., a
Georgia corporation
Address:
2255 Industrial Boulevard By: /S/ GARY M. BROST
Waycross, Georgia 31501 Name: Gary M. Brost
Its: President
Telephone: (912) 285-5065
Telecopy: (912) 285-1397
Attention: Samuel P. Scott
FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership
By: First Source Financial, Inc., a
Delaware corporation, its Agent/Manager
ADDRESS:
2850 West Golf Road By: /S/ EDWARD A. SZARKOWICZ, JR.
5th Floor Name: Edward A. Szarkowicz, Jr.
Rolling Meadows, IL 60008 Its: Vice President
Telecopy: (708) 734-7910/7911
Telephone: (708) 734-2000
On and after January 20, 1996:
Telephone: (847) 734-2000
Telecopy: (847) 734-7910/7911
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
I, Karen J. Muzzillo, a notary public in and for said County, in the State
of aforesaid, DO HEREBY CERTIFY that Gary M. Brost, personally known to me to be
President of GENERAL MANUFACTURED HOUSING, INC., a Georgia corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he/she signed and delivered the said instrument as such officer of said
corporation, pursuant to authority, given by the Board of Directors of said
corporation as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporation, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 21st day of December __, 1995.
/S/ Karen J. Muzzillo
---------------------------------
Notary Public
My Commission Expires:
stamped
- --------------------------
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
I, Karen J. Muzzillo, a notary public in and for said County, in the State
of aforesaid, DO HEREBY CERTIFY that Edward A. Szarkowicz, Jr. personally known
to me to be a Vice President of FIRST SOURCE FINANCIAL, INC., a Delaware
corporation, the Agent/Manager of First Source Financial LLP, an Illinois
registered limited liability partnership, and personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that he/she signed and delivered
the said instrument as such officer of said corporation, pursuant to authority,
given by the Board of Directors of said corporation as such person's free and
voluntary act, and as the free and voluntary act and deed of said corporation,
for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 21st day of December __, 1995.
/S/ Karen J. Muzzillo
------------------------------
<PAGE>
Notary Public
My Commission Expires:
STAMPED
SCHEDULE I
to
Security Agreement
Item A. TRADEMARKS
REGISTERED TRADEMARKS
* COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
State of "Jaguar Homes 1994 S-13433 03/11/94
Georgia . . . the Year of the
Cat"
PENDING TRADEMARK APPLICATIONS
* COUNTRY TRADEMARK SERIAL NO. FILING DATE
NONE
TRADEMARK APPLICATIONS IN PREPARATION
Expected Products/
* COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
NONE
Item B. TRADEMARK LICENSES
* Country or Effective Expiration
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
NONE
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
SCHEDULE II
to
<PAGE>
Security Agreement
Item A. PATENTS
ISSUED PATENTS
* COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE
NONE
PENDING PATENT APPLICATIONS
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
NONE
PATENT APPLICATIONS IN PREPARATION
Expected
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
NONE
Item B. PATENT LICENSES
*Country or Effective Expiration Subject
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
NONE
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
SCHEDULE III
to
Security Agreement
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
* COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE
NONE
COPYRIGHT/MASK WORK PENDING PATENT APPLICATIONS
<PAGE>
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
NONE
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
Expected
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
NONE
Item B. COPYRIGHT/MASK WORK LICENSES
*Country or Effective Expiration Subject
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
NONE
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
SCHEDULE IV
to
Security Agreement
TRADE SECRET OR KNOW-HOW LICENSES
Country or Effective Expiration Subject
*TERRITORY LICENSOR LICENSEE DATE DATE MATTER
NONE
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
SCHEDULE V
to
Security Agreement
LOCATIONS OF COLLATERAL
Plant 1 2255 Industrial Boulevard, Waycross, GA 31501
Plant 2 3233 Industrial Boulevard, Waycross, GA 31501
Plant 3 2170 Industrial Boulevard, Waycross, GA 31501
<PAGE>
Plant 4 2875 Fulford Road, Waycross, GA 31501
Vacant Lot Adjacent to Plant 4
Plant 5 206 South Railroad Avenue, Lamar, SC 29069
Airplane Hangar at Waycross Ware County Airport
LOCATION OF CHIEF EXECUTIVE OFFICE
General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, GA 31501
SCHEDULE VI
to
Security Agreement
THIRD PARTY LOCATIONS OF BORROWER'S GOODS
Borrower may from time to time have property in the following states as
a result of fulfilling its obligations under certain repurchase agreements:
Alabama
Florida
Georgia
Louisiana
Mississippi
North Carolina
Oklahoma
South Carolina
Tennessee
Texas
Virginia
SCHEDULE VII
to
Security Agreement
LEGAL DESCRIPTIONS
EXHIBIT A
LANDLORD'S CONSENT AND ESTOPPEL
1. The undersigned ("Lessor") is the lessor or sublessor under a lease or
sublease, under which _________ ________________________________, is the lessee
or sublessee ("Lessee") of the premises covered thereby (the
<PAGE>
"Premises"). A true and correct copy of such lease or sublease (including all
extensions, amendments and renewals thereto) is attached as EXHIBIT A (the
"Lease").
2. In connection with certain financing arrangements (the "Financing
Arrangements") from time to time entered into between Lessee and First Source
Financial LLP ("First Source"), Lessee will (i) grant First Source a first lien
on its interest under the Lease (the "Mortgage") and (ii) grant First Source a
security interest in, among other things, all existing and after-acquired
furniture, fixtures, equipment, machinery, inventory and tangible property owned
by Lessee (the "Property").
3. Lessor consents to the Mortgage, and agrees that if First Source
exercises any of its rights under the Mortgage, Lessor shall recognize First
Source (or any purchaser at a foreclosure sale or any other successor or
assignee of First Source) as the lessee under the Lease, entitled to all of the
benefits thereof.
4. Lessor disclaims and releases any interest in or to the Property
(including rights of levy or distraint for rent). Lessor agrees that none of the
Property shall be considered fixtures or a part of the Premises.
5. If First Source provides written notice to Lessor that Lessee has
defaulted on its obligations to First Source under the Financing Arrangements,
Lessor shall permit First Source to enter the Premises and take possession of,
use, remove, sell (including auction sales), transfer or otherwise dispose of
all or any part of the Property.
6. Lessor represents, warrants, certifies to and covenants and agrees with
First Source and its successors and assigns that on the date hereof: (a) the
Lease is unmodified and in full force and effect and no default exists
thereunder; (b) the Lease represents the entire agreement between the parties
with respect to the Premises; (c) the expiration date of the Lease is
___________________________; (d) monthly rent due under the Lease is
$___________ and has been paid through ; (e) no rent, other than for the current
month, has been paid in advance; (f) the amount of the security deposit
presently held by Lessor is $ ____________; (g) all other charges due under the
Lease have been paid through _____________; (h) neither Lessor nor Lessee has
commenced any action or given or received any notice with respect to termination
of the Lease and (i) the record owner of the Premises is ___________________,
with an address at __________________________________.
7. Lessor agrees to provide written notice to First Source of any default
by Lessee under the Lease. Such notice shall describe the claimed default in
reasonable detail, including, without limitation, the provisions of the Lease
which have been violated. Lessor further agrees that: (a) First Source, at its
option without any obligation to do so, shall have the right to cure (i) any
payment default under the Lease within 10 days after receipt of notice of such
default or (ii) any other default under the Lease within 30 days after receipt
of notice of such default; (b) Lessor shall not exercise any rights or remedies
it might have under the Lease as a result of any such default unless First
Source does not cure such default within the applicable time period set forth
above; and (c) if First Source cures such default, Lessor shall accept such cure
thereby eliminating such default.
8. Lessor agrees that if the Lease is terminated for any reason other than
by expiration of its term, including but not limited to termination due to an
uncured or incurable default, Lessor shall, at the
<PAGE>
option of First Source, exercised with 30 days after Lessor notifies First
Source of such termination, lease the Premises to First Source pursuant to a
lease containing the same terms and conditions as provided in the Lease.
9. Lessor agrees that First Source shall have the right to exercise any
option to extend, expand, purchase or renew contained in the Lease on behalf of
Lessee, and in such event Lessor shall recognize First Source as the Lessee,
entitled to all of the benefits thereof. If any such option is not exercised by
Lessee, Lessor will notify First Source, and First Source will have 10 days
after such notice to exercise such option such exercise to be binding on Lessee
and Lessor.
10. Lessor agrees that it shall not enter in to any amendment of the Lease
without first obtaining First Source's written consent to such amendment. Lessor
further agrees that any such amendment made without Landlord's prior written
consent shall be null and void.
11. Notices shall be forwarded by mail and shall be deemed to have been
given three days after the date sent if sent to the addresses listed below by
registered or certified mail, postage prepaid.
If to First Source: If to Lessor:
First Source Financial LLP _________________________________
c/o First Source Financial, Inc. _________________________________
2850 West Golf Road _________________________________
5th Floor _________________________________
Rolling Meadows, Illinois 60008
Attention: Corporate Finance Division
or in the case of either party, at such address as such party may, by written
notice to the other party so designate.
12. This Agreement shall be binding upon Lessor and its successors and
assigns and shall inure to the benefit of First Source, other lenders under the
Financing Arrangements and their respective successors and assigns.
Dated: ______________, 1995 LESSOR:
______________________________
By:___________________________
Title:________________________
EXHIBIT A
TRUE AND CORRECT COPY OF LEASE
Please see attached.
<PAGE>
[TO BE PROVIDED BY LESSOR]
Exhibit B
to
Security Agreement
AGREEMENT
(Patent)
THIS AGREEMENT (PATENT), dated as of ____________, 199_ (this "AGREEMENT"),
between ___________________, a ________ corporation ("BORROWER") and FIRST
SOURCE FINANCIAL LLP, an Illinois registered limited liability partnership
("Lender");
W I T N E S S E T H:
WHEREAS, pursuant to a Secured Credit Agreement of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURED CREDIT AGREEMENT"), between Borrower and
Lender, Lender has extended Commitments to make Loans to Borrower; and
WHEREAS, in connection with the Secured Credit Agreement, Borrower has
executed and delivered a Security Agreement, dated as of the date hereof
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURITY AGREEMENT"); and
WHEREAS, as a condition precedent to the making of the initial Loans under
the Secured Credit Agreement, Borrower is required to execute and deliver this
Agreement and to grant to Lender a continuing security interest in all of the
Patent Collateral (as defined below) to secure all Liabilities; and
WHEREAS, Borrower has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce Lender to make Loans (including
the initial Loans) to Borrower pursuant to the Secured Credit Agreement,
Borrower agrees, for the benefit of Lender, as follows:
<PAGE>
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided or provided by reference in the Security
Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, to secure all of
the Liabilities, Borrower does hereby mortgage, pledge and assign to Lender, and
grant to Lender a continuing security interest in, all of the following property
(the "PATENT COLLATERAL"), whether now or hereafter owned, acquired or existing:
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world and including each patent and patent application
referred to in ITEM A of ATTACHMENT 1 hereto;
(b) all patent licenses, including each patent license referred to in
ITEM B of ATTACHMENT 1 hereto;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
the foregoing CLAUSES (A) and B; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, including any patent or patent application
referred to in ITEM A of ATTACHMENT 1 hereto, and for breach or enforcement
of any patent license, including any patent license referred to in ITEM B
of ATTACHMENT 1 hereto, and all rights corresponding thereto throughout the
world.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by Borrower for the purpose of registering the security interest of
Lender in the Patent Collateral with the United States Patent and Trademark
Office and corresponding offices in other countries of the world. The security
interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to Lender under the Security
Agreement. The Security Agreement (and all rights and remedies of Lender
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full of all
Liabilities and the termination of all Commitments, Lender shall, at Borrower's
expense, execute and deliver to Borrower all instruments and other documents as
may be necessary or proper to release the lien on and security interest in the
Patent Collateral which has been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. Borrower does hereby further acknowledge and
affirm that the rights and remedies of Lender with respect to the security
interest in the Patent Collateral granted hereby are more fully set forth in the
Security Agreement, the terms and provisions of which (including the remedies
provided for therein) are incorporated by reference herein as if fully set forth
herein.
SECTION 6. RELATED DOCUMENT, ETC. This Agreement is a Related Document
executed pursuant to the Secured Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered
<PAGE>
and applied in accordance with the terms and provisions of the Secured Credit
Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
___________________, a ________
corporation
By:_____________________________________
Name Printed:___________________________
Its:____________________________________
________________________________________
________________________________________
Attention:______________________________
Telecopy:_______________________________
Telex: ______ (Answerback: ____________)
Telephone:______________________________
FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership
By: First Source Financial, Inc.,
a Delaware corporation, its Agent/
Manager
By: _____________________________
Name: _____________________________
Its: _____________________________
Address:
2850 West Golf Road
5th Floor
Rolling Meadows, IL 60008
<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
_____________ of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
My Commission Expires:
___________________________
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
_____________ of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
<PAGE>
My Commission Expires:
___________________________
ATTACHMENT 1
to
Agreement
(Patent)
Item A. PATENTS
ISSUED PATENTS
*Country PATENT NO. ISSUE DATE INVENTOR(S) TITLE
PENDING PATENT APPLICATIONS
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
PATENT APPLICATIONS IN PREPARATION
Expected
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
Item B. PATENT LICENSES
*Country or Effective Expiration Subject
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
* List items related to the United States first for ease of recordation. List
items related to other countries next, grouped by country and in alphabetical
order by country name.
EXHIBIT C
to
Security Agreement
<PAGE>
AGREEMENT
(Trademark)
THIS AGREEMENT (TRADEMARK), dated as of ____________, 199_ (this
"AGREEMENT"), between ___________________, a ________ corporation ("BORROWER"),
and FIRST SOURCE FINANCIAL LLP, an Illinois registered limited liability
partnership ("Lender");
W I T N E S S E T H:
WHEREAS, pursuant to a Secured Credit Agreement of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURED CREDIT AGREEMENT"), between Borrower and
Lender, Lender has extended Commitments to make Loans to Borrower; and
WHEREAS, in connection with the Secured Credit Agreement, Borrower has
executed and delivered a Security Agreement, dated as of the date hereof
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURITY AGREEMENT"); and
WHEREAS, as a condition precedent to the making of the initial Loans under
the Secured Credit Agreement, Borrower is required to execute and deliver this
Agreement and to grant to Lender a continuing security interest in all of the
Trademark Collateral (as defined below) to secure all Liabilities; and
WHEREAS, Borrower has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce Lender to make Loans (including
the initial Loans) to Borrower pursuant to the Secured Credit Agreement,
Borrower agrees, for the benefit of Lender, as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided or provided by reference in the Security
Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, to secure all of
the Liabilities, Borrower does hereby mortgage, pledge and assign to Lender, and
grant to Lender a continuing security interest in, all of the following property
(the "TRADEMARK COLLATERAL"), whether now or hereafter owned, acquired or
existing:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks,
certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (each of the
foregoing items in this CLAUSE (A) being called a "TRADEMARK"), now
existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and all
applications in connection therewith, whether pending or in preparation for
filing, including registrations, recordings and applications in the United
States Patent and Trademark
<PAGE>
Office or in any office or agency of the United States of America or any
State thereof or any foreign country, including those referred to in ITEM A
of ATTACHMENT 1 hereto;
(b) all Trademark licenses, including each Trademark license referred
to in ITEM B of ATTACHMENT 1 hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (A) and (B);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in CLAUSES (A) and (B); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by Borrower against third parties for past, present or
future infringement or dilution of any Trademark, Trademark registration,
or Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in ITEM A and ITEM B of ATTACHMENT 1 hereto,
or for any injury to the goodwill associated with the use of any Trademark
or for breach or enforcement of any Trademark license.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by Borrower for the purpose of registering the security interest of
Lender in the Trademark Collateral with the United States Patent and Trademark
Office and corresponding offices in other countries of the world. The security
interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to Lender under the Security
Agreement. The Security Agreement (and all rights and remedies of Lender
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full of all
Liabilities and the termination of all Commitments, Lender shall, at Borrower's
expense, execute and deliver to Borrower all instruments and other documents as
may be necessary or proper to release the lien on and security interest in the
Trademark Collateral which has been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. Borrower does hereby further acknowledge and
affirm that the rights and remedies of Lender with respect to the security
interest in the Trademark Collateral granted hereby are more fully set forth in
the Security Agreement, the terms and provisions of which (including the
remedies provided for therein) are incorporated by reference herein as if fully
set forth herein.
SECTION 6. RELATED DOCUMENT, ETC. This Agreement is a Related Document
executed pursuant to the Secured Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions of the Secured Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
<PAGE>
______________________, a _______
corporation
By:___________________________________
Name Printed:_________________________
Its:__________________________________
______________________________________
______________________________________
Attention:____________________________
______________________________________
Telecopy:_____________________________
Telex:_______ (Answerback:_______)
Telephone:____________________________
FIRST SOURCE FINANCIAL LLP, an
Illinois registered limited liability
partnership
By: First Source Financial, Inc.,
a Delaware corporation, its Agent/
Manager
By:_______________________________
Name:_____________________________
Its:______________________________
Address:
2850 West Golf Road
5th Floor
Rolling Meadows, IL 60008
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me
<PAGE>
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/she signed and
delivered the said instrument as _____________ of said corporation, pursuant to
authority, given by the Board of Directors of said corporation as such person's
free and voluntary act, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
My Commission Expires:
___________________________
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
_____________ of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
My Commission Expires:
___________________________
<PAGE>
ATTACHMENT 1
to
Agreement
(Trademark)
Item A. TRADEMARKS
REGISTERED TRADEMARKS
* COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
PENDING TRADEMARK APPLICATIONS
* COUNTRY TRADEMARK SERIAL NO. FILING DATE
TRADEMARK APPLICATIONS IN PREPARATION
Expected Products/
* COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
Item B. TRADEMARK LICENSES
* Country or Effective Expiration
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
Exhibit D
to
Security Agreement
AGREEMENT
(Copyright)
THIS AGREEMENT (COPYRIGHT), dated as of ____________, 199_ (this
<PAGE>
"AGREEMENT"), between ___________________, a ________ corporation ("BORROWER"),
and FIRST SOURCE FINANCIAL LLP, an Illinois registered limited liability
partnership ("Lender");
W I T N E S S E T H:
WHEREAS, pursuant to a Secured Credit Agreement of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURED CREDIT AGREEMENT"), between Borrower and
Lender, Lender has extended Commitments to make Loans to Borrower; and
WHEREAS, in connection with the Secured Credit Agreement, Borrower has
executed and delivered a Security Agreement, dated as of the date hereof
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURITY AGREEMENT"); and
WHEREAS, as a condition precedent to the making of the initial Loans under
the Secured Credit Agreement, Borrower is required to execute and deliver this
Agreement and to grant to Lender a continuing security interest in all of the
Copyright Collateral (as defined below) to secure all Liabilities; and
WHEREAS, Borrower has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce Lender to make Loans (including
the initial Loans) to Borrower pursuant to the Secured Credit Agreement,
Borrower agrees, for the benefit of Lender, as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided or provided by reference in the Security
Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, to secure all of
the Liabilities, Borrower does hereby mortgage, pledge and assign to Lender, and
grant to Lender a continuing security interest in, all of the following property
(the "COPYRIGHT COLLATERAL"), whether now or hereafter owned, acquired or
existing, being all copyrights and all semiconductor chip product mask works of
Borrower, whether statutory or common law, registered or unregistered, now or
hereafter in force throughout the world, including, without limitation, all of
Borrower's right, title and interest in and to all copyrights and mask works
registered in the United States Copyright Office or anywhere else in the world
and also including, without limitation, the copyrights and mask works referred
to in ITEM A of ATTACHMENT 1 hereto, and all applications for registration
thereof, whether pending or in preparation, all copyright and mask work
licenses, including each copyright and mask work license referred to in ITEM B
of ATTACHMENT 1 attached hereto, the right to sue for past, present and future
infringements of any thereof, all rights corresponding thereto throughout the
world, all extensions and renewals of any thereof and all proceeds of the
foregoing, including, without limitation, licenses, royalties, income, payments,
claims, damages and proceeds of suit.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by Borrower for the purpose of registering the security interest
<PAGE>
of Lender in the Copyright Collateral with the United States Copyright Office
and corresponding offices in other countries of the world. The security interest
granted hereby has been granted as a supplement to, and not in limitation of,
the security interest granted to Lender under the Security Agreement. The
Security Agreement (and all rights and remedies of Lender thereunder) shall
remain in full force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full of all
Liabilities and the termination of all Commitments, Lender shall, at Borrower's
expense, execute and deliver to Borrower all instruments and other documents as
may be necessary or proper to release the lien on and security interest in the
Copyright Collateral which has been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. Borrower does hereby further acknowledge and
affirm that the rights and remedies of Lender with respect to the security
interest in the Copyright Collateral granted hereby are more fully set forth in
the Security Agreement, the terms and provisions of which (including the
remedies provided for therein) are incorporated by reference herein as if fully
set forth herein.
SECTION 6. RELATED DOCUMENT, ETC. This Agreement is a Related Document
executed pursuant to the Secured Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions of the Secured Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
____________________, a ________
corporation
By:__________________________________
Name Printed:________________________
Its:_________________________________
_____________________________________
_____________________________________
Attention:___________________________
Telecopy:____________________________
Telex:_ (Answerback:________________)
Telephone:___________________________
FIRST SOURCE FINANCIAL LLP, an
Illinois registered limited
liability partnership
By: First Source Financial, Inc.,
<PAGE>
a Delaware corporation, its Agent/
Manager
By:______________________________
Name:____________________________
Its:_____________________________
Address:
2850 West Golf Road
5th Floor
Rolling Meadows, IL 60008
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
_____________ of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
My Commission Expires:
___________________________
STATE OF ILLINOIS )
) SS.
COUNTY OF )
<PAGE>
I, _______________________, a notary public in and for said County, in the
State of aforesaid, DO HEREBY CERTIFY that ________________________ personally
known to me to be a ___________________________ of ____________________, a
___________ corporation, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
_____________ of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _________, 199_.
__________________________________
Notary Public
My Commission Expires:
___________________________
ATTACHMENT 1
to
Agreement
(Copyright)
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
* COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
Expected
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
Item B. COPYRIGHT/MASK WORK LICENSES
<PAGE>
*Country or Effective Expiration Subject
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
* List items related to the United States first for ease of recordation. List
items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT 10.22
AGREEMENT
---------
(Trademark)
THIS AGREEMENT (TRADEMARK), dated as of December 21, 1995 (this
"AGREEMENT"), between GENERAL MANUFACTURED HOUSING, INC., a Georgia
corporation ("BORROWER"), and FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership ("Lender");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to a Secured Credit Agreement of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURED CREDIT AGREEMENT"), between Borrower and
Lender, Lender has extended Commitments to make Loans to Borrower; and
WHEREAS, in connection with the Secured Credit Agreement, Borrower has
executed and delivered a Security Agreement, dated as of the date hereof
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "SECURITY AGREEMENT"); and
WHEREAS, as a condition precedent to the making of the initial Loans under
the Secured Credit Agreement, Borrower is required to execute and deliver this
Agreement and to grant to Lender a continuing security interest in all of the
Trademark Collateral (as defined below) to secure all Liabilities; and
WHEREAS, Borrower has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce Lender to make Loans (including
the initial Loans) to Borrower pursuant to the Secured Credit Agreement,
Borrower agrees, for the benefit of Lender, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided or provided by reference in the Security
Agreement.
SECTION 2. Grant of Security Interest. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, to secure all of
the Liabilities, Borrower does hereby mortgage, pledge and assign to Lender, and
grant to Lender a continuing security interest in, all of the following property
(the "TRADEMARK COLLATERAL"), whether now or hereafter owned, acquired or
existing:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks,
certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (each of the
foregoing items in this clause (a) being called a "TRADEMARK"), now
existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and
<PAGE>
recordings thereof and all applications in connection therewith, whether
pending or in preparation for filing, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country, including those referred to in Item A of Attachment 1
hereto;
(b) all Trademark licenses, including each Trademark license referred
to in Item B of Attachment 1 hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (A) and (B);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in clauses (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by Borrower against third parties for past, present or
future infringement or dilution of any Trademark, Trademark registration,
or Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in Item A and Item B of Attachment 1 hereto,
or for any injury to the goodwill associated with the use of any Trademark
or for breach or enforcement of any Trademark license.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by Borrower for the purpose of registering the security interest of
Lender in the Trademark Collateral with the United States Patent and Trademark
Office and corresponding offices in other countries of the world. The security
interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to Lender under the Security
Agreement. The Security Agreement (and all rights and remedies of Lender
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full of all
Liabilities and the termination of all Commitments, Lender shall, at Borrower's
expense, execute and deliver to Borrower all instruments and other documents as
may be necessary or proper to release the lien on and security interest in the
Trademark Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. Borrower does hereby further acknowledge and
affirm that the rights and remedies of Lender with respect to the security
interest in the Trademark Collateral granted hereby are more fully set forth in
the Security Agreement, the terms and provisions of which (including the
remedies provided for therein) are incorporated by reference herein as if fully
set forth herein.
SECTION 6. Related Document, etc. This Agreement is a Related Document
executed pursuant to the Secured Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions of the Secured Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
<PAGE>
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
GENERAL MANUFACTURED HOUSING, INC.,
a Georgia corporation
By: /s/ Gary M. Brost
---------------------------------
Name: Gary M. Brost
Its: President
2255 Industrial Boulevard
Waycross, Georgia 31501
Attention: President
Telecopy: (912) 285-1397
Telephone: (912) 285-5065
FIRST SOURCE FINANCIAL LLP,
an Illinois registered limited
liability partnership
By: First Source Financial, Inc.,
a Delaware corporation, its
Agent/Manager
By: /s/ Edward A. Szarkowica, Jr.
-------------------------------
Name: Edward A. Szarkowicz, Jr.
Its: Vice President
Address:
2850 West Golf Road
5th Floor
Rolling Meadows, IL 60008
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
I, Karen J. Muzzillo, a notary public in and for said County, in the
<PAGE>
State of aforesaid, DO HEREBY CERTIFY that Edward A. Szarkowicz, Jr. personally
known to me to be a Vice President of General Manufactured Housing, Inc., a
Georgia corporation, and personally known to me to be the same person whose name
is subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that he/she signed and delivered the said instrument as Vice
President of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 21st day of December, 1995.
/s/ Karen J. Muzzillo
----------------------------------------
Notary Public
My Commission Expires:
stamped
- ----------------------------
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
I, Karen J. Muzzillo, a notary public in and for said County, in the State
of aforesaid, DO HEREBY CERTIFY that Gary M. Brost personally known to me to be
a President of First Source Financial, Inc., a Delaware corporation and the
agent/manager of First Source Financial LLP, an Illinois registered limited
liability partnership, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed and delivered the said instrument as
President of said corporation, pursuant to authority, given by the Board of
Directors of said corporation as such person's free and voluntary act, and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 21st day of December, 1995.
/s/ Karen J. Muzzillo
----------------------------------------
Notary Public
My Commission Expires:
stamped
- -----------------------
<PAGE>
ATTACHMENT 1
to
Agreement
(Trademark)
Item A. Trademarks
-----------
Registered Trademarks
---------------------
*Country Trademark Registration No. Registration Date
- -------- --------- ----------------- -----------------
U.S.A "Jaguar Homes 1994 . . . S-13,433 3/11/94
the Year of the Cat"
Pending Trademark Applications
------------------------------
* Country Trademark Serial No. Filing Date
- --------- --------- ---------- -----------
NONE
Trademark Applications in Preparation
Expected Products/
* Country Trademark Docket No. Filing Date Services
- --------- --------- ---------- ----------- ---------
NONE
Item B. Trademark Licenses
------------------
* Country or Effective Expiration
Terrritory Trademark Licensor Licensee Date Date
---------- --------- -------- -------- ---------- --------
NONE
<PAGE>
EXHIBIT 10.24
BANK AGENCY AGREEMENT
December 21, 1995
TO: The First National Bank of Chicago
One First National Plaza
Mail Suite 0196
Chicago, Illinois 60670-0196
Ladies and Gentlemen:
This Letter Agreement, between you (collectively, the "Bank"), General
Manufactured Housing, Inc., a Georgia corporation (the "Company"), First Source
Financial LLP (the "Lender"), First Source Financial, Inc. (the "Servicer") and
Citicorp North America, Inc. (the "Agent") shall serve as instructions regarding
the operation and procedures for all lockboxes and bank accounts specifically
identified herein and any other lockboxes and bank accounts now or hereafter
maintained at the Bank by, or for the deposit, credit or custody of property of
the Company.
1. EFFECTIVENESS. This Agreement shall take effect immediately upon
the execution and delivery of this Agreement by each of the parties hereto.
2. LOCKBOX AND ACCOUNT IDENTIFICATION. This Agreement applies to
Lockbox No. 93541 at the Bank (the "Lockbox"), controlled disbursement zero
balance Account No. 94-18857 at the Bank (the "Operating Account"), and Master
Concentration Account No. 55-45021 (the "Master Account") at the Bank. The
Master Account, the Operating Account and all other bank accounts now or
hereafter maintained at the Bank by, or for the deposit, credit or custody of
property, of the Company are herein called the "Accounts".
3. SECURITY INTEREST: AGENCY. (a) The Company has granted, and does
hereby grant, to the Lender a continuing lien upon, and security interest in,
all funds, items, instruments, investments, securities and other things of value
at any time paid, deposited, credited or held (whether for collection,
provisionally or otherwise) in each Account and the Lockbox and all other
property of the Company from time to time in the possession or under the control
of, or in transit to the Bank or any agent, bailee or custodian therefor, and
all proceeds of all of the foregoing, including, without limitation, any of the
foregoing from time to time paid, deposited, credited or held in the Lockbox,
the Master Account or the Operating Account (collectively, the "Account
Collateral").
(b) The Lender hereby appoints the Bank as the Lender's pledgee-in-
possession for the Lockbox, the Accounts and all of the Account Collateral, and
the Bank by its execution and delivery of this Agreement hereby accepts such
appointment and agrees to be bound by the terms of this Agreement. The Company
hereby agrees to such appointment of the Bank and further agrees that the Bank,
on behalf of the Lender, shall be entitled to exercise, upon the instructions of
the Lender or the Servicer, acting in its capacity as agent on behalf of the
Lender, any and all rights which the Lender may have (i) under or in connection
with the Secured Credit Agreement dated as of December __, 1995 between the
Company and the Lender (the "Credit Agreement"), all promissory notes, all
agreements executed
<PAGE>
pursuant to the Credit Agreement pursuant to which security interests and liens
are granted to the Lender, or (ii) under applicable law, in each case with
respect to the Lockbox, the Accounts, and all other collateral described in this
SECTION 3. The Bank agrees to take such action as shall from time to time be
specified in writing by the Lender or the Servicer, acting in its capacity as
agent on behalf of the Lender, to enable the Lender to exercise its rights and
remedies with respect to the lien and security interest described in this
SECTION 3.
(c) The Lender and the Servicer have entered into certain financing
arrangements with the Agent, and certain other financial institutions on whose
behalf the Agent is authorized to act (the "Financing"). As part of the
Financing, the Lender has granted to the Agent a continuing lien upon, and
security interest in, all of the Lender's interests in the property of the
Company, including, without limitation, all of the Lender's interest in the
Lockbox, the Accounts and the Account Collateral. The Agent holds its lien and
security interest described in this SECTION 3 on behalf of certain other "Senior
Creditors" (as such term is defined in the various agreements evidencing the
Financing) and as such, acts as the contractual representative for such Senior
Creditors. Each of the Lender, the Servicer and the Company hereby authorize the
Bank after it has received notice from the Agent that an Event of Termination
has occurred under the Financing, to take such action as shall from time to time
thereafter be specified in writing by the Agent to enable the Agent to exercise
its rights and remedies with respect to the lien and security interest granted
to the Agent as part of the Financing.
(d) Each of the Lender, the Servicer, the Company and the Bank hereby
agree that after the Bank has received notice from the Agent that an Event of
Termination has occurred (i) any instructions given to the Bank by the Agent
shall supersede those given by the Lender or the Servicer acting on the Lender's
behalf and (ii) the Bank shall not comply with any instructions given by the
Lender, the Servicer or the Company unless otherwise authorized to do so by the
Agent.
4. CONTROL OF LOCKBOX AND MASTER ACCOUNT. The Lockbox (and any
related post office boxes) and the Master Account shall be under the sole
dominion and control of the Servicer acting on the Lender's behalf, subject to
the rights of the Lender specified herein to direct the Bank, and shall be
maintained by the Bank in the name of "First Source Financial LLP Collateral
Account for General Manufactured Housing, Inc." Neither the Company nor any
other person or entity claiming by, through or under the Company shall have any
control over the use of, or any right to withdraw any amount from, the Lockbox
or the Master Account.
5. LOCKBOX AND ACCOUNT PROCEDURES. The Bank shall have exclusive and
unrestricted access to, and shall collect the mail addressed or delivered to,
the Lockbox (even though addressed to the Company) on each business day in
accordance with the Bank's regular collection schedule. The Bank shall follow
the following procedures with respect to items so collected from the Lockbox and
other deposited items:
(a) Open mail addressed or delivered to the Lockbox (even though
addressed to the Company) and endorse all items and remittances contained
therein for deposit in the Master Account and credit such items and
remittances to the Master Account.
(b) Apply and credit to the Master Account all wire transfers and ACH
entries directed to the Master Account and apply and credit for deposit to
the Master Account all checks and other items from time to
<PAGE>
time tendered by the Company for deposit.
(c) It is understood and agreed that all such items and remittances
credited to the Master Account shall be subject to the usual terms and
conditions of the Bank in regard to deposits.
(d) Until the Lender or the Servicer acting on the Lender's behalf
provides notice to the Bank as to the occurrence of an Event of Default
under the Credit Agreement, on each business day determine the balance of
funds in the Master Account then deemed to be collected in accordance with
the Bank's customary availability schedule prior to 10:00 a.m. (Chicago
time) and:
(i) transfer automatically to the Operating Account an aggregate
amount equal to the amount of (A) all unpaid checks presented thereon
and not returned as of the preceding business day and (B) ACH credit
entries authorized by the Company, or, if less, the amount of such
collected funds on deposit in the Master Account. It is understood
that if funds in the Operating Account (including the proceeds of any
loans made pursuant to the Credit Agreement) are insufficient to pay
checks after transfer of funds from the Master Account pursuant to
this SECTION 3(D)(I), the Bank may, in its sole discretion, return
such checks unpaid.
(ii) transfer any balance of collected funds on deposit in the
Master Account after giving effect to the transfer described in the
preceding clause (i) to the Lender pursuant to such transfer
instructions as the Lender or the Servicer acting on behalf of the
Lender may from time to time give.
(e) In performing its obligations with respect to the Lockbox, the
Bank may discover from time to time remittances bearing restrictive
legends. Any such items discovered by the Bank shall be returned to the
Company unprocessed for further instructions (or, following the Bank's
receipt of any notice from the Lender or Servicer of any Event of Default
under the Credit Agreement, it shall forward such items to the Servicer,
or, following the Bank's receipt of any notice from the Agent of the
occurrence of any Event of Termination under the Financing, to such other
person or entity as the Agent may direct), PROVIDED, HOWEVER, that the Bank
shall have no responsibility for its failure to discover any items bearing
a restrictive legend, nor for the Bank's failure to determine in any manner
the correctness of any remittance. In addition, the Bank reserves the
right, should there be a question as to any particular item sent to the
Lockbox, to forward such item to the Company for inspection and
instructions before processing for deposit (except that after the Bank
receives any notice from the Lender or the Servicer of any Event of Default
under the Credit Agreement, it shall forward such items to the Servicer,
or, following the Bank's receipt of any notice from the Agent of the
occurrence of any Event of Termination under the Financing, to such other
person or entity as the Agent may direct).
(f) For items which were accepted for credit to the Master Account
and are later returned unpaid, the Bank shall re-present them through a
clearing channel selected by the Bank. If any such item is returned unpaid
a second time, the Bank shall debit the Master Account and return the item
to the Company. The Bank shall inform the Company, or, after notice of any
Event of Default, the Servicer, or, at any time, to the Agent if the Agent
so directs the Bank, of the particulars of such items.
<PAGE>
(g) The Bank shall mail to the Company, via first class mail, all
documents (invoices, etc.) received with the remittances, together with a
credit advice and photocopies of checks deposited. Following the Bank's
receipt of any notice of the occurrence of any Event of Default under the
Credit Agreement, such documents shall be mailed to the Servicer and,
following the Bank's receipt of any notice from the Agent of the occurrence
of any Event of Termination under the Financing, such documents shall be
mailed to the Agent or such other person or entity as the Agent may direct.
(h) At the close of each banking day, the Bank shall mail to the
Company any checks, other evidence of payment, and any other mail that does
not appear to represent a remittance, except that checks not appearing to
represent remittances shall be mailed to the Servicer only after the Bank
receives any notice of any Event of Default under the Credit Agreement and,
following the Bank's receipt of any notice of the occurrence of any Event
of Termination under the Financing, such checks shall be mailed to the
Agent or such other person or entity as the Agent may direct.
(i) The Bank will adhere to the following procedures concerning
irregular items:
(i) The Bank will process those checks that lack a signature
and will inscribe the postmark date on those checks that arrive with
no date.
(ii) The Bank will return to the Company any checks postdated
three or more days, except that after the Bank receives any notice
from the Lender or the Servicer of any Event of Default, the Lender or
the Servicer, as the case be, may require the Bank to return such item
to it and after the Bank receives any notice from the Agent of the
occurrence of an Event of Termination, the Agent may require the Bank
to return such item to it or such other person or entity as the Agent
may direct. If a check carries and has violated the phrase "void after
x-number of days", or is dated over 6 months past, the check will be
returned to the Company.
(iii) If the numeric and written amounts of the check should
disagree and the amount cannot be verified from a supporting document,
the Bank will process the check for the written amount.
6. EVENTS OF DEFAULT AND TERMINATION. (a) At all times after the Bank's
receipt of any notice from the Lender or the Servicer of the occurrence of any
Event of Default under the Credit Agreement, the Bank shall follow the
instructions of the Lender and the Servicer as to the holding, investment and
transfer of all collected amounts from time to time on deposit in the Master
Account. In addition, the Company agrees that the Bank may act as the agent of
the Lender in exercising as to any funds or items from time to time in the
Lockbox or on deposit in any of the Accounts any rights of set-off provided by
applicable law or by the Credit Agreement. The Company agrees that the Bank
shall be entitled to rely, without independent investigation, on any statement
of the Lender or the Servicer to the effect that an Event of Default has
occurred and is continuing or to the effect that any exercise of set-off
requested by the Lender or the Servicer is permitted under applicable law or the
Credit Agreement.
<PAGE>
(b) At all times after the Bank's receipt of notice from the Agent
that an Event of Termination under the Financing has occurred, the Bank shall no
longer follow any instructions given to the Bank by the Servicer or the Lender,
but shall act only upon the express instructions of the Agent. All of the rights
and remedies granted to the Lender or the Servicer hereunder shall immediately
upon such notice of an Event of Termination under the Financing become available
to the Agent at such time. Each of the Company, the Lender and the Servicer
agrees that the Bank shall be entitled to rely, without independent
investigation, on any statement of the Agent to the effect that an Event of
Termination has occurred and is continuing or to the effect that any exercise of
set-off requested by the Agent is permitted under applicable law or the
agreements executed and delivered in connection with the Financing.
7. STATEMENTS; INFORMATION. The Bank shall prepare monthly statements
of credits and debits to the Accounts in its standard forms and according to its
current practices and mail copies of such statements to such persons or
departments of the Company as the Company may designate from time to time and
mail one copy of any such statements prepared to the Servicer. In addition, the
Bank shall provide the Lender and the Servicer with such information with
respect to the Lockbox and the Accounts as the Lender or the Servicer may from
time to time reasonably request, and following notice from the Agent that an
Event of Termination under the Financing has occurred, such information as the
Agent shall reasonably request, and the Company hereby consents to such
information being provided to the Lender, the Servicer or the Agent, as the case
may be.
8. COMPENSATION.
(a) The Company hereby agrees to:
(i) pay to the Bank the Bank's usual and customary charges with
respect to the Lockbox, the Accounts, and all services performed for
the Company under this Agreement. It is understood that the Bank may
change these charges without prior notice. It is understood and agreed
that the Company shall be responsible for payment of these charges and
all other expenses related to the provision of services under this
Agreement. The Bank will send the Company an invoice detailing these
charges periodically and the Company shall pay the amount due within
thirty (30) days of receipt. In the event the Company fails to pay,
the Bank may exercise its right of set-off against the Accounts for
such amounts. In the event there are not sufficient funds in the
Accounts to pay these charges and expenses, the Lender agrees to pay
them within ten (10) business days of receipt of the Bank's written
notice to the Lender.
(ii) on and after the date a notice of an Event of Default is
given, provide the Servicer with a monthly statement showing the
invoices sent with respect to the Lockbox and the Accounts, the amount
thereof and whether or not such invoices have been paid as of the date
of such statement. After the Bank receives notice from the Agent that
an Event of Termination has occurred, such information shall be
provided to the Agent rather than the Servicer.
(b) The Bank shall notify the Servicer if the compensation provided
above in this SECTION 8 has not been paid by the Company. The Bank shall
not discontinue any service provided for in this Agreement unless thirty
(30) days shall have elapsed from the date
<PAGE>
such notice is received by the Servicer and such compensation then shall
not have been paid. After the Bank receives notice from the Agent that an
Event of Termination has occurred, such notice shall be provided to the
Agent rather than the Servicer.
(c) The Company agrees to compensate the Bank for all services
provided to the Lender, the Servicer or the Agent under this Agreement.
Such services shall include, without limitation, action which the Bank
takes pursuant to the Lender's, Servicer's or Agent's request under SECTION
3. Such compensation shall be agreed upon from time to time by the Company
and the Bank, except where the charges are for services for which the Bank
has usual and customary charges, in which case such charges shall apply.
Payment shall be made by the Company, or as the case may be, by the Lender,
in accordance with the provisions of SECTION 8(A)(I).
9. EXCULPATION. The Bank undertakes to perform only such duties as are
expressly set forth herein. Notwithstanding any other provision of this
Agreement, it is agreed by the parties hereto that the Bank shall not be liable
for any action taken by it or any of its directors, officers, agents or
employees in accordance with this Agreement, including, without limitation, any
action so taken at the request of the Lender, the Servicer or the Agent, except
for the Bank's or such person's own gross negligence or willful misconduct. In
no event shall the Bank be liable for losses or delays resulting from computer
malfunction, interruption of communication facilities, labor difficulties or
other causes beyond the Bank's reasonable control or for indirect, special or
consequential damages.
10. IRREVOCABLE AGREEMENTS. Each of the Company, the Lender and the
Servicer acknowledges that the agreements made by it and the authorizations
granted by it herein are irrevocable and that the authorizations granted in
SECTIONS 3, 4, 5 and 6 are powers coupled with an interest.
11. SETOFF. (a) The Bank waives, with respect to all of its existing and
future claims against the Company or any affiliate thereof, all existing and
future rights of setoff and banker's liens against the Accounts, any Account
Collateral and any other items (and proceeds thereof) that come into its
possession in connection with the Accounts or the Lockbox, including, without
limitation, any failure of collection of any funds transferred to the Company,
PROVIDED, HOWEVER, that the Bank shall have the right to charge the Master
Account, without duplication, (i) for all items deposited therein which are
subsequently returned to the Bank unpaid and for any return charges payable by
the Bank under applicable law, and (ii) for all past due compensation and
expenses with respect to the Accounts as provided in SECTION 8(A)(I).
(b) If any available funds transferred from the Master Account
subsequently are not collected by the Bank for any reason whatsoever, the Bank
shall have recourse for reimbursement of such funds to the Company; and, if
reimbursement is not recovered from funds deposited in the Master Account or
from the Company within ten (10) business days after the Bank's delivery of a
written request for reimbursement to the Company, the Lender shall be
responsible for such reimbursement and shall reimburse the Bank within ten
business days of the Bank's written notice to the Lender.
12. MISCELLANEOUS. This Agreement shall be effective as provided in
SECTION 1 hereof. This Agreement shall supersede any other agreement relating to
the matters referred to herein. This Agreement constitutes the entire agreement
with respect to the services provided hereunder and is binding upon the parties
hereto and their respective successors and assigns
<PAGE>
(including any trustee of the Company appointed or elected in any action under
the Bankruptcy Reform Act of 1978, as amended) and shall inure to their benefit.
The Lender is the current holder of all indebtedness secured by the security
interest and lien described in SECTION 3 but may, subject to the restrictions
set forth in the Secured Credit Agreement, in the future transfer, assign or
sell all or part of such indebtedness and, thus, the Lender acts herein as agent
for itself and any future holder of such indebtedness. The Agent holds its lien
and security interest described in SECTION 3 on behalf of certain other Senior
Creditors and as such, acts as the contractual representative for such Senior
Creditors. Neither this Agreement nor any provision hereof may be changed,
amended, modified or waived orally, but only by an instrument in writing signed
by the parties hereto, PROVIDED that such instrument need be signed only by the
Bank, the Lender, the Servicer and the Agent if it does not change any rights or
obligations of, or authorizations granted by, or protections given to, the
Company hereunder and notice thereof is provided by the Lender, the Servicer or
the Agent to the Company. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Illinois without reference to its
principles of conflicts of law. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. All obligations and
rights of the parties hereto expressed herein shall be in addition to and not in
limitation of those provided by applicable law. This Agreement may be executed
in any number of counterparts which together shall constitute one and the same
instrument.
13. TERMINATION. This Agreement may be terminated by the Lender (or the
Servicer acting on behalf of the Lender) or the Bank upon 30 days' advance
written notice to the other parties hereto. All rights of the Bank under SECTION
8 and 9 for the period prior to any such termination shall survive such
termination. After this Agreement is terminated, the Bank may continue to
receive mail through the Lockbox. The Company or if an Event of Default has
occurred, the Lender, agrees to pay the Bank's usual and customary charges for
handling this mail.
14. NOTICES. All notices, requests or other communications required or
desired to be given to the Company, the Lender, the Servicer, the Agent or the
Bank hereunder shall be given in writing (including facsimile transmission or
similar writing) at the address or facsimile number specified below:
LENDER: First Source Financial LLP
c/o First Source Financial, Inc.
2850 West Golf Road
5th Floor
Rolling Meadows, Illinois 60008
Attention: Loan Administration
Telephone: (708) 734-4040
Facsimile: (708) 734-7911
SERVICER: First Source Financial, Inc.
2850 West Golf Road
5th Floor
Rolling Meadows, Illinois 60008
Attention: Loan Administration
<PAGE>
Telephone: (708) 734-4040
Facsimile: (708) 734-7911
BANK: The First National Bank of Chicago
One First National Plaza
Mail Suite 0196
Chicago, Illinois 60670-0196
Attention: Account Officer - George Silca
Telephone: (312) 732-3776
Facsimile: (312) 732-3997
AGENT: Citicorp North America, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset Funding
Telephone: (914) 889-7157
Facsimile: (914) 889-7015
COMPANY: General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, Georgia 31501
Attention: Samuel P. Scott
Telephone: (912) 285-5065
Facsimile: (912) 285-1397
WITH A COPY TO: Strategic Investments & Holdings, Inc.
369 Franklin Street
Buffalo, New York 14202
Attention: Gary M. Brost
Telephone: (716) 857-6000
Facsimile: (716) 857-6490
Any party may change its address or facsimile number for notices hereunder by
notice to each other party hereunder. Each notice, request or other
communication shall be effective (a) if given by facsimile, when such facsimile
is transmitted to the facsimile number specified in this Section and
confirmation of receipt is made by the appropriate party, (b) if given by mail,
72 hours after such communication is deposited in the mails with registered
first class postage prepaid, addressed as aforesaid or (c) if given by any other
means, when delivered at the address specified in this Section.
15. ELIGIBILITY OF BANK. The Bank hereby represents and warrants to the
Lender, the Servicer and the Agent that the shareholder's equity of the Bank, as
at the date of the latest published quarterly financial statements of the Bank,
is at least $100,000,000. If the shareholders' equity of the Bank, as at the
date of any quarterly financial statements of the Bank published hereafter, is
less than $100,000,000, the Bank hereby agrees to promptly notify each of the
Lender and the Agent thereof.
16. RIGHTS OF AGENT. Notwithstanding anything to the contrary herein,
Agent shall (a) have no rights greater than the rights of Lender and Servicer
hereunder and (b) be bound by the terms and conditions of, and be subject to the
restrictions in, the Credit Agreement and the documents delivered pursuant
thereto, as if such Agent were the Lender thereunder.
<PAGE>
17. RELATED DOCUMENTS. The Bank shall not be deemed to have any knowledge
(imputed or otherwise) of: (a) any of the terms or conditions of the Credit
Agreement or any document referred to therein or relating to any financing
arrangement among the Company or the Lender relating thereto (collectively,
"Related Documents"); (b) any occurrence or existence of an Event of Default
(other than as set forth in a notice of default); or (c) any other breach of any
term or condition of the Credit Agreement or any other Related Document; and
Bank has no obligation to inform any person of such breach or take any action in
connection with any of the foregoing, except such actions regarding the Accounts
and the Account Collateral as are specified in this Agreement. Bank is not
responsible for the effectiveness, enforceability, genuineness or validity of
the Credit Agreement or any other Related Document or the security interest
granted herein or therein or for the observance or performance of any of the
terms or conditions thereof.
18. FINANCING DOCUMENTS. The Bank shall not be deemed to have any
knowledge (imputed or otherwise) of: (a) any of the terms or conditions of the
documents executed in connection with the Financing or any document referred to
therein or relating to any financing arrangement among the Company, Lender or
the Agent relating thereto (the "Financing Documents"); (b) any occurrence or
existence of an Event of Termination (other than as set forth in a notice of
default); or (c) any other breach of any term or condition of the Financing
Documents; and Bank has no obligation to inform any person of such breach or
take any action in connection with any of the foregoing, except such actions
regarding the Accounts and the Account Collateral as are specified in this
Agreement. Bank is not responsible for the effectiveness, enforceability,
genuineness or validity of the Financing Documents or any security interest
granted herein or therein or for the observance or performance of any of the
terms or conditions thereof.
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ F. Renee Coleman
-----------------------------------
Name: F. Renee Coleman
-----------------------------------
Title: [illegible]
-----------------------------------
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc., its Agent/
Manager
By: /s/ Edward A. Szarkowicz
-------------------------------------
Name: Edward A. Szarkowicz, Esq.
Title: Vice President
FIRST SOURCE FINANCIAL, INC.
By: /s/ Edward A. Szarkowicz
-----------------------------------
Name: Edward A. Szarkowicz, Esq.
<PAGE>
Title: Vice President
The First National Bank of Chicago
December 21, 1995
Page 2
CITICORP NORTH AMERICA, INC., as Agent
By: /s/ Michael Storm
------------------------------
Name: Michael Storm
------------------------------
Title: Vice President
------------------------------
Accepted and Agreed to as of
the date first above written:
GENERAL MANUFACTURED HOUSING, INC.
By: /s/ Gary M. Brost
-------------------------------
Name: Gary M. Brost
Title: President
<PAGE>
EXHIBIT 10.25
PLEDGE AGREEMENT
by and between
GMH HOLDINGS, INC.
and
FIRST SOURCE FINANCIAL LLP
Dated as of December 21, 1995
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of December 21, 1995 (herein, as the same
may at any time be amended or modified and in effect, called this "Agreement"),
is by and between GMH Holdings, Inc., a Delaware corporation, having its chief
executive office at 369 Franklin Street, Buffalo, New York 14202 (herein called
"Pledgor"), and FIRST SOURCE FINANCIAL LLP, an Illinois registered limited
liability partnership ("Lender").
BACKGROUND
1. General Manufactured Housing, Inc., a Georgia corporation
("Borrower"), and Lender have entered into a certain Secured Credit Agreement,
dated of even date herewith (herein, as the same may be amended, restated,
supplemented or otherwise modified from time to time, called the "Secured Credit
Agreement"), pursuant to which Lender has agreed to make certain Loans (as
defined in the Secured Credit Agreement) and other
<PAGE>
financial accommodations to or for the account of Borrower.
2. Pledgor is the owner of 100% of the issued and outstanding capital
stock of Borrower, which capital stock is described on SCHEDULE I hereto.
3. It is a condition precedent to the making of the Loans under the
Secured Credit Agreement that Pledgor execute and deliver this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby is acknowledged, Pledgor agrees with Lender that:
SECTION 1. DEFINITIONS. When used herein, the following terms shall have
the following meanings:
The terms "Commitments", "Event of Default", "Liabilities", "Notes",
"Unmatured Event of Default" and all other terms defined in the Secured
Credit Agreement shall have the meanings assigned thereto in the Secured
Credit Agreement, unless otherwise defined in this Agreement.
"Collateral" - See SECTION 2.
"Default" shall mean an Unmatured Insolvency Default or any Event of
Default.
"Issuer" shall mean the issuer of any Pledged Shares or other
Collateral.
"Pledged Shares" - see SECTION 2.
"Unmatured Insolvency Default" shall mean an Unmatured Event of
Default arising under Section 13.1.5 of the Secured Credit Agreement.
SECTION 2. PLEDGE. To secure the prompt and complete payment and
performance of the Liabilities and the obligations of Pledgor hereunder, Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
Lender and hereby grants to Lender a continuing security interest in the
following (herein collectively called the "Collateral"):
(a) the shares of stock described in SCHEDULE I hereto and all shares
of stock of Borrower hereafter acquired by Pledgor (herein called the
"Pledged Shares") and the certificates representing or evidencing the
Pledged Shares, and all cash, securities, interest, dividends, rights and
other property at any time and from time to time received, receivable or
otherwise distributed after the Closing Date in respect of or in exchange
for any or all of such Pledged Shares;
(b) all other property hereafter delivered to Pledgor in substitution
for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all cash,
securities, interest, dividends, rights and other property at any time and
from time to time received, receivable or otherwise distributed after the
Closing Date in respect of or in exchange for any or all thereof; and
(c) all proceeds of all of the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
<PAGE>
interests, privileges and preferences appertaining or incidental thereto, unto
Lender, its successors and assigns, SUBJECT, HOWEVER, to the terms, covenants
and conditions hereafter set forth.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Pledgor represents and warrants to Lender that: (i) the Pledged
Shares are duly authorized and validly issued and are fully paid and non-
assessable; (ii) Lender has a valid first perfected security interest in
the Collateral and the proceeds thereof free of all Liens whatsoever,
except the Lien created hereunder; (iii) the Pledged Shares represent all
of the issued and outstanding capital stock of all of its existing
subsidiaries; and (iv) Pledgor will, at all times, keep pledged to Lender
pursuant hereto all shares of the capital stock of Borrower, and all other
certificates or instruments which Pledgor may now or hereafter own
evidencing any ownership in Borrower. Pledgor agrees to endorse and deliver
to Lender for pledge hereunder, promptly upon its obtaining thereof, any
additional Collateral. As of the date of any such delivery of additional
shares, certificates or instruments to Lender, Pledgor represents and
warrants that (x) it will own such shares, certificates and instruments
free and clear of any rights of any other Person, (y) it will have good and
marketable title to said shares, certificates and instruments and have the
right to pledge such shares, certificates or instruments to Lender pursuant
to this Agreement and (z) it will have pledged to Lender, as at such date,
all of the capital stock of Borrower. Pledgor shall have represented and
warranted, by delivery of any additional shares, certificates or
instruments, that Lender has a valid, first perfected security interest in
said shares, certificates or instruments and the proceeds thereof free of
all Liens whatsoever. All documentary, stamp or other taxes or fees owing
in connection with the issuance, transfer and/or pledge of the Pledged
Shares and other certificates or instruments have been paid and will
hereafter be paid by Pledgor as such become due and payable.
(b) Pledgor further represents and warrants to Lender that it is the
lawful owner of the Collateral, free of all Liens, other than the Lien
hereunder, with full right to deliver, pledge, assign and transfer such
Collateral to Lender as Collateral hereunder.
(c) Until the Liabilities have been paid in full and the Commitments
have been terminated in accordance with the Secured Credit Agreement,
Pledgor will:
(i) at its sole expense, promptly deliver to Lender, from time
to time upon request of Lender, such assignments separate from
certificate and other documents, satisfactory in form and substance to
Lender, with respect to the Collateral as Lender reasonably may
request, to preserve and protect, and to enable Lender to enforce, its
rights and remedies hereunder;
(ii) not sell, assign, exchange or otherwise transfer any of its
rights to any of the Collateral;
(iii) not create or suffer to exist any Lien against, in or with
respect to any of the Collateral except for the pledge hereunder and
the Lien created hereby;
(iv) not make or consent to any amendment with respect to any
rights granted to Pledgor with respect to any of the shares which
<PAGE>
constitute the Collateral, or enter into any agreement or permit to
exist any restriction with respect to any of the Collateral other than
pursuant hereto, pursuant to the Borrower's Certificate of
Incorporation, pursuant to the Related Documents or any documents
executed in connection with the Related Transactions and pursuant to
applicable securities laws; and
(v) not take or fail to take any action which would in any
manner impair the enforceability of Lender's Lien in any of the
Collateral.
(d) Each representation and warranty made or to be made herein by
Pledgor shall be deemed remade as of and at the date of each Loan made from
time to time under or in connection with the Secured Credit Agreement with
the same effect as if made contemporaneously with the making of each such
Loan.
SECTION 4. CARE OF COLLATERAL. Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Pledgor requests in writing, but failure
of Lender to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of Lender to preserve or
protect any rights with respect to the Collateral against prior or other
parties, or to do any act with respect to preservation of the Collateral so
requested by Pledgor, shall be deemed a failure to exercise reasonable care in
the custody or preservation of the Collateral.
SECTION 5. CERTAIN RIGHTS REGARDING COLLATERAL AND LIABILITIES.
(a) Subject to SECTIONS 5(C) and 6 hereof, Lender from time to time,
after the occurrence and during the continuance of any Default, and without
notice to Pledgor, may (i) transfer all or any part of the Collateral into
the name of Lender or its nominee, with or without disclosing that such
Collateral is subject to the Lien hereunder, (ii) notify the parties
obligated on any of the Collateral to make payment to Lender of any amounts
due or to become due thereunder, (iii) enforce collection of any of the
Collateral by suit or otherwise, (iv) surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any period (whether
or not longer than the original period) any obligations of any nature of
any party with respect thereto, and (v) take control of any proceeds of the
Collateral.
(b) Lender, from time to time and without notice to Pledgor, may take
any or all of the following actions (provided that actions taken under
clause (v) may only be taken after an Event of Default has occurred and is
continuing): (i) retain or obtain a Lien upon any property to secure
payment and performance of any of the Liabilities or any obligation
hereunder, (ii) retain or obtain the primary or secondary obligation of any
obligor or obligors, with respect to any of the Liabilities or any
obligation hereunder, (iii) create, extend or renew for any period (whether
or not longer than the original period) or alter or exchange any of the
Liabilities, or release or compromise any obligation of Pledgor hereunder
or any obligation of any nature of any other obligor with respect to any of
the Liabilities or any obligation hereunder, (iv) release or fail to
perfect its Lien upon, or impair, surrender, release or permit any
substitution or exchange for, all or any part of any property securing any
of the Liabilities or any obligation hereunder, or create, extend or renew
<PAGE>
for any period (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor
with respect to any such property, and (v) resort to the Collateral for
payment of any of the Liabilities or any obligation hereunder, whether or
not Lender (A) shall have resorted to any other property securing any of
the Liabilities or any obligation hereunder or (B) shall have proceeded
against any other obligor primarily or secondarily obligated with respect
to any of the Liabilities or any obligation hereunder (all of the actions
referred to in preceding CLAUSES (A) and (B) being hereby expressly waived
by Pledgor).
(c) Lender shall have no right to vote the Pledged Shares or other
Collateral or give consents, waivers or ratifications in respect thereof
prior to the occurrence of a Default. After the occurrence and during the
continuance of a Default, unless such Default shall have been cured or
waived, Pledgor shall have the right to vote any and all of the Pledged
Shares and other Collateral and give consents, waivers and ratifications in
respect thereof unless and until it receives notice from Lender that such
right has been terminated. Pledgor agrees to deliver (properly endorsed
when required) to Lender, after the occurrence and during the continuance
of a Default, promptly upon request of Lender, such proxies and other
documents as may be necessary for Lender to exercise the voting power with
respect to the Pledged Shares and other Collateral then or previously owned
by Pledgor.
SECTION 6. DIVIDENDS, ETC.
(a) So long as no Default shall have occurred and be continuing:
(i) Subject to the provisions of the Secured Credit Agreement,
Pledgor shall be entitled to receive and retain any and all cash
dividends on the Collateral which it is otherwise entitled to receive,
but any and all stock and/or liquidating dividends, distributions in
property, returns of capital or other distributions made on or in
respect of the Collateral, whether resulting from a subdivision,
combination, reclassification or conversion of the outstanding capital
stock of any issuer, or received in exchange for the Collateral or any
part thereof, or as a result of any merger, consolidation, acquisition
or other exchange of assets to which any issuer may be a party or
otherwise, and any and all cash and other property received in
exchange for any Collateral shall be and become part of the Collateral
pledged hereunder and, if received by Pledgor, shall forthwith be
delivered to Lender or its designated nominee (accompanied, if
appropriate, by proper instruments of assignment and/or stock powers
executed by Pledgor in accordance with Lender's instructions) to be
held subject to the terms of this Agreement.
(ii) If the Collateral or any part thereof shall have been
registered in the name of Lender or its agent, Lender shall execute
and deliver (or cause to be executed and delivered) to Pledgor all
such dividend orders and other instruments as Pledgor may request for
the purpose of enabling Pledgor to receive the dividends or other
payments which it is authorized to receive and retain pursuant to
CLAUSE (I) above.
(b) Upon the occurrence and during the continuance of a Default
(i) all rights of Pledgor pursuant to SECTION 6(A)(I) hereof shall
<PAGE>
cease and Lender shall have the sole and exclusive right and authority to
receive and retain the dividends which Pledgor would otherwise be
authorized to retain, (ii) all such dividends, and all other distributions
and payments made on or in respect of the Collateral which may at any time
and from time to time be held by Pledgor, shall, until delivery to Lender,
be held by Pledgor separate and apart from its other property in trust for
Lender, and (iii) any and all money and other property paid over to or
received by Lender pursuant to the provisions of this PARAGRAPH (B) shall
be retained by Lender as additional Collateral hereunder and be applied in
accordance with the provisions hereof.
SECTION 7. DEFAULT.
(a) Upon the occurrence and during the continuance of a Default,
Lender may exercise from time to time any rights and remedies available to
it under the Uniform Commercial Code as in effect from time to time in
Illinois or otherwise available to it, including, without limitation, sale,
assignment, or other disposal of the Collateral in exchange for cash or
credit. If any notification of intended disposition of any of the
Collateral is required by law, such notification, if mailed, shall be
deemed reasonably and properly given if mailed at least ten (10) days
before such disposition, postage prepaid, addressed to Pledgor either at
the address of Pledgor shown below, or at any other address of Pledgor
appearing on the records of Lender. Any proceeds of any disposition of
Collateral shall be applied as provided in SECTION 8 hereof. No rights and
remedies of Lender expressed hereunder are intended to be exclusive of any
other right or remedy, but every such right or remedy shall be cumulative
and shall be in addition to all other rights and remedies herein conferred,
or conferred upon Lender under any other agreement or instrument relating
to any of the Liabilities or security therefor or now or hereafter existing
at law or in equity or by statute. No delay on the part of Lender in the
exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by Lender of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or
remedy. No action of Lender permitted hereunder shall impair or affect the
rights of Lender in and to the Collateral.
(b) Pledgor agrees that in any sale of any of the Collateral, Lender
is authorized to comply with any limitation or restriction in connection
with such sale as counsel may advise Lender is necessary in order to avoid
any violation of applicable law (including, without limitation, compliance
with such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have
certain qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the
distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall Lender be
liable nor accountable to Pledgor for any discount allowed by reason of the
fact that such Collateral is sold in compliance with any such limitation or
restriction.
SECTION 8. APPLICATION OF PROCEEDS. The proceeds of sale of
<PAGE>
Collateral sold pursuant to the terms of SECTION 7 hereof and any cash held as
Collateral hereunder shall be applied by Lender as follows:
FIRST: to payment of all of the costs and expenses of Lender,
including (i) the expenses of such sale, (ii) the out-of-pocket costs and
expenses of Lender and the reasonable fees and out-of-pocket costs and
expenses of counsel employed by Lender, (iii) the payment of all advances
made by Lender for the account of Pledgor or Borrower, and (iv) the payment
of all costs and expenses incurred by Lender in connection with the
administration and enforcement of this Agreement, to the extent that such
advances, costs and expenses shall not have been reimbursed to Lender and
then to all other obligations of Pledgor hereunder;
SECOND: to the payment in full of the Liabilities in such order as
Lender may determine from time to time in its sole discretion; and
THIRD: the balance, if any, of such proceeds shall be paid to
Pledgor, its successors and assigns, or as a court of competent
jurisdiction may direct.
SECTION 9. AUTHORITY OF LENDER. Lender shall have, and be entitled to
exercise, all such powers hereunder as are specifically delegated to Lender by
the terms hereof, together with such powers as are incidental thereto. Lender
may execute any of its duties hereunder by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
such counsel concerning all matters pertaining to its duties hereunder. Neither
Lender nor any director, officer or employee of Lender shall be liable for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith, except for its or their own gross negligence or willful misconduct.
Pledgor hereby agrees to reimburse Lender, on demand, for all costs and expenses
incurred by Lender in connection with the enforcement of this Agreement
(including, without limitation, costs and expenses incurred by any agent
employed by Lender) and agrees to indemnify (which indemnification shall survive
any termination of this Agreement) and hold harmless Lender (and any such agent)
from and against any and all liability incurred by Lender (or such agent)
hereunder or in connection herewith, unless such liability shall be due to gross
negligence or willful misconduct on the part of Lender or such agent, as the
case may be.
SECTION 10. TERMINATION. Subject to Section 16(e), Pledgor agrees that
its pledge hereunder shall (notwithstanding, without limitation, that at any
time or from time to time all Liabilities may have been paid in full), terminate
only when all Liabilities (including, without limitation, any extensions or
renewals of any thereof) and all interest thereon and all expenses (including,
without limitation, reasonable attorneys' fees and legal expenses) paid or
incurred by Lender or the holder or the holders of the Notes in endeavoring to
enforce this Agreement, the Secured Credit Agreement and the Related Documents
to which Lender is a party or of which Lender is a beneficiary shall have been
finally paid in full and all Commitments under the Secured Credit Agreement have
been terminated, at which time Lender shall reassign and redeliver (or cause to
be reassigned and redelivered) to Pledgor, or to such Person or Persons as
Pledgor shall designate, such of the Collateral (if any) as shall not have been
sold or otherwise applied by Lender pursuant to the terms hereof and shall still
be held by Lender hereunder, together with appropriate instruments of
termination, reassignment and release. Any such reassignment shall be without
recourse upon, or representation or warranty by, Lender and at the sole cost and
expense of Pledgor.
<PAGE>
SECTION 11. NOTICES. All notices or other communications hereunder shall
be given in the manner specified under Section 14.3 of the Secured Credit
Agreement.
SECTION 12. BINDING AGREEMENT; ASSIGNMENT. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and assigns, except
Pledgor shall not be permitted to assign this Agreement nor any interest herein
nor in the Collateral, nor any part thereof, nor otherwise pledge, encumber or
grant any option with respect to the Collateral, nor any part thereof and
Pledgee subject to the provisions of the Secured Credit Agreement.
SECTION 13. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. LENDER MAY
ENFORCE ANY CLAIM ARISING OUT OF THIS AGREEMENT, ANY COLLATERAL OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY BE IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR ARISING FROM OR RELATED TO ANY
CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT IN ANY STATE OR
FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN CHICAGO,
ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO
ANY SUCH CLAIM, PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH
COURTS AND ALSO HAS IRREVOCABLY DESIGNATED THE PERSON WHOSE NAME AND ADDRESS ARE
SET FORTH IN THE SECURED CREDIT AGREEMENT TO RECEIVE FOR AND ON BEHALF OF
PLEDGOR SERVICE OF PROCESS IN ILLINOIS. PLEDGOR IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO PLEDGOR AND AGREES THAT SUCH SERVICE, TO THE FULLEST
EXTENT PERMITTED BY LAW, (A) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE
OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (B) SHALL BE TAKEN
AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING
HEREIN CONTAINED SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING
IN RESPECT HEREOF IN ANY OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER
SUCH ACTION. PLEDGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED IN
CHICAGO, ILLINOIS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT, ANY COLLATERAL OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THE FOREGOING OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING
IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 14. GOVERNING LAW; INTERPRETATION. THIS AGREEMENT HAS BEEN
DELIVERED AT CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF ILLINOIS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
WHEREVER POSSIBLE, EACH PROVISION OF THIS AGREEMENT SHALL BE INTERPRETED IN SUCH
MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION
OF THIS AGREEMENT SHALL BE PROHIBITED BY OR INVALID UNDER SUCH LAW, SUCH
PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY,
WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS
OF THIS AGREEMENT.
SECTION 15. FILING AS A FINANCING STATEMENT. At the option of Lender, this
Agreement, or a carbon, photographic or other reproduction of this Agreement or
of any Uniform Commercial Code financing statement covering
<PAGE>
the Collateral or any portion thereof, shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
SECTION 16. MISCELLANEOUS.
(a) No amendment to, modification or waiver of, or consent with respect
to, any provision of this Agreement shall in any event be effective unless the
same shall be in writing and signed and delivered by Lender and Pledgor, and
then any such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) The section headings in this Agreement are inserted for convenience of
reference and shall not be considered a part of this Agreement or used in its
interpretation.
(c) Except as otherwise set forth in the Secured Credit Agreement and the
Related Documents, Pledgor hereby expressly waives to the fullest extent
permitted by law: (i) notice of the acceptance by Lender of this Agreement, (ii)
notice of the existence or creation or nonpayment of all or any of the
Liabilities, (iii) presentment, demand, notice of dishonor, protest, and all
other notices whatsoever, and (iv) all diligence in collection or protection of
or realization upon the Liabilities or any thereof, any obligation hereunder, or
any security for or guaranty of any of the foregoing.
(d) Subject to the terms of the Secured Credit Agreement, Lender may, from
time to time, without notice to Pledgor, assign or transfer any or all of the
Liabilities or any interest therein; and, notwithstanding any such assignment or
transfer or any subsequent assignment or transfer thereof, such Liabilities
shall be and remain Liabilities for the purposes of this Agreement, and each and
every immediate and successive assignee or transferee of any of the Liabilities
or of any interest therein shall, to the extent of the interest of such assignee
or transferee in the Liabilities, be entitled to the benefits of this Agreement
to the same extent as if such assignee or transferee were Lender.
(e) Pledgor agrees that, if at any time all or any part of any payment
theretofore applied by Lender to any of the Liabilities is or must be rescinded
or returned by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of any Borrower), such Liabilities
shall, for the purposes of this Agreement, to the extent that such payment is or
must be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by Lender, and the pledge by Pledgor hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by Lender had not been made. Pledgor
will get credit for interest earned by Lender on such amounts.
(f) No action of Lender permitted hereunder shall in any way affect or
impair the rights of Lender and the obligations of Pledgor under this Agreement.
Pledgor hereby acknowledges that there are no conditions to the effectiveness of
this Agreement.
(g) All obligations of Pledgor and rights of Lender and any other holder
of a Note or Liability expressed in this Agreement shall be in addition to and
not in limitation of those provided under applicable law or in any other written
instrument or agreement relating to any of the Liabilities.
<PAGE>
(h) This Agreement may be executed in any number of counterparts, each of
which shall for all purposes be deemed an original, but all such counterparts
shall constitute but one and the same Agreement. Pledgor hereby acknowledges
receipt of a true, correct and complete counterpart of this Agreement.
(i) Lender is the current holder of all Liabilities but may in the future
transfer, assign or sell certain Liabilities, subject to the provisions of the
Secured Credit Agreement.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GMH Holdings, Inc., a Delaware
corporation
Address:
By: /s/ Gary M. Brost
---------------------------------
369 Franklin Street Name: Gary M. Brost
Buffalo, New York 14202 Title: President
Telecopy: (716) 857-6490
Telephone: (716) 857-6000
FIRST SOURCE FINANCIAL LLP, an Illinois
registered limited liability partnership
By: First Source Financial, Inc.,
a Delaware corporation, its
Agent/Manager
Address:
By: /s/ Edward A. Szarkowicz, Jr.
2850 West Golf Road ----------------------------------
5th Floor Name: Edward A. Szarkowicz, Jr.
Rolling Meadows, IL 60008 Title: Vice President
Telecopy: (708) 734-7911
Telephone: (708) 734-4040
SCHEDULE I
LISTING OF STOCK PLEDGED
NUMBER OF
CERTIFICATE SHARES OF
<PAGE>
ISSUER NUMBER CAPITAL STOCK % OWNERSHIP
General Manufactured Housing, Inc. 27 5250 100%
[Attached to Schedule I is the Stock Certificate Number 27 for 5,250 shares in
the name of GMH Holdings, Inc. and dated the 21st day of December, 1995.]
[Also attached to Schedule I is a Stock Power executed by GMH Holdings, Inc.]
<PAGE>
EXHIBIT 10.27
RECORD AND RETURN TO:
KATTEN MUCHIN & ZAVIS
525 West Monroe
Suite 1600
Chicago, Illinois 60661
Attn: Catherine Patton, Esq.
DEED TO SECURE DEBT, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
from
GENERAL MANUFACTURED HOUSING, INC.
to
FIRST SOURCE FINANCIAL LLP
_____________________________________________
Dated as of December 21, 1995
_____________________________________________
______________________________________________________________________________
______________________________________________________________________________
DEED TO SECURE DEBT, ASSIGNMENT OF LEASES
AND SECURITY AGREEMENT
THIS DEED TO SECURE DEBT, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT
("MORTGAGE") is made as of the 21st day of December, 1995, by GENERAL
MANUFACTURED HOUSING, INC., a Georgia corporation, with its principal place of
business at 2255 Industrial Boulevard, Waycross, GA 31501 ("MORTGAGOR"), to and
for the benefit of FIRST SOURCE FINANCIAL LLP, an Illinois registered limited
liability partnership ("MORTGAGEE"), with an office at c/o First Source
Financial, Inc., 2850 West Golf Road, West Tower, 5th Floor, Rolling Meadows,
Illinois 60008.
<PAGE>
RECITALS:
A. Mortgagor is the owner of the Premises (this and all other capitalized
terms used but not elsewhere defined herein are defined in Section 1. 1 or in
the Credit Agreement) and the Improvements.
B. Pursuant to the terms of the Credit Agreement, Mortgagee has agreed to
make certain loans and other financial accommodations to Mortgagor.
C. The Loans are evidenced by the Note.
D. One of the conditions precedent to the obligation of Mortgagee to
make the Loans is the execution and delivery by Mortgagor of this Mortgage.
ARTICLE I
DEFINITIONS AND DETERMINATIONS
1.1 DEFINITIONS. Capitalized terms used but not elsewhere defined in this
Mortgage shall have the meanings ascribed thereto in the Credit Agreement. When
used in this Mortgage, the following terms shall have the following meanings:
CONSTRUCTION CONTRACTS: any contracts executed by Mortgagor with any
provider of goods or services in connection with any construction
undertaken on or services performed in connection with, the Premises or the
Improvements.
CREDIT AGREEMENT: that certain Secured Credit Agreement dated as of
December 20, 1995 between Mortgagor and Mortgagee, as the same may be
amended, modified or supplemented after the date hereof.
DEPOSITS: all deposits (i) received by Mortgagor from third parties
(including all earnest money sales deposits) or (ii) deposited by Mortgagor
with Mortgagee or third parties, including deposits pertaining to utility
services, real estate taxes, special assessments and payment of insurance
premiums.
DOCUMENTS: any mortgage, deed of trust, deed to secure debt,
assignment of leases, assignment of rents, note, indemnification agreement,
security agreement, financing statement, affidavit, assignment of
insurance, loss payee endorsement, mortgage title insurance policy, opinion
letter, waiver letter, estoppel letter, consent letter, insurance
certificate and any other similar documents.
EQUIPMENT: all apparatus, machinery, equipment, furniture, fixtures,
fittings, goods, materials, supplies and chattels of any and every kind and
nature whatsoever now or hereafter used, attached to, installed or located
in or on the Premises and/or the Improvements, including any item used to
supply heat, gas, air conditioning, water, light, electricity, power,
plumbing, refrigeration, sprinkling, ventilation, mobility, communication,
incineration, recreation, laundry service or any other related services.
EVENT OF DEFAULT: each of the Events of Default set forth in the
Credit Agreement.
<PAGE>
FUTURE ADVANCES: all advances made by Mortgagee under the Credit
Agreement after the Closing Date to or on behalf of Mortgagor but not
including any advances made under that certain Revolving Note ("Revolving
Note") and that certain Working Capital Note ("Working Capital Note") of
even date herewith by and between Mortgagor and Mortgagee.
IMPOSTS: any disbursements made in accordance with the terms hereof
for the payment of taxes, levies or insurance on the Premises.
IMPROVEMENTS: the buildings and improvements now or hereafter located
on the Premises, all tenements, easements, rights-of-way, hereditaments and
appurtenances now and/or at any time hereafter situated on such real estate
and all roads, alleys, streets, passages and other public ways abutting
such real estate, whether before or after vacation thereof and whether in
existence as of the date hereof or created after the date hereof.
LEASES: collectively, all (i) present and future leases, subleases,
agreements, tenancies, subtenancies, licenses, occupancy agreements,
concessions and franchises of Mortgagor's present and future right, title,
and interest in and to the Premises and/or the Improvements, (ii) deposits
of money as advance rent or for security under any of the Leases and (iii)
guaranties of performance under the items described in clauses (i) and (ii)
preceding.
MORTGAGED PROPERTY: collectively, all of Mortgagor's present and
future estate, right, title, and interest in and to the following:
(a) the Premises;
(b) the Improvements;
(c) the Rents;
(d) the Leases;
(e) all Plans;
(f) all Deposits;
(g) all Permits;
(h) all Equipment;
(i) all Construction Contracts;
(j) all present and future judgments, awards of damages and
settlements made as a result or in lieu of any taking of all or any part of
the Premises, Improvements, Equipment and/or Leases under the power of
eminent domain, or for any damage thereto as a result of any such taking;
(k) all insurance policies in force or effect insuring the Premises,
the Improvements, the Rents, the Leases or the Equipment;
(1) rights arising out of Mortgagor's interest in the Premises and
the Improvements to (i) the payment of money, (ii) accounts receivable,
(iii) reserves, (iv) deferred payments, (v) refunds and (vi) cost savings;
<PAGE>
(m) all development and use rights with respect to the Premises, the
Improvements and/or the Leases;
(n) all chattel paper, instruments, documents, notes, drafts and
letters of credit, other than letters of credit in favor of Mortgagee,
which arise from or relate to (i) construction on the Premises or (ii) the
Premises and Improvements generally;
(o) all causes of action and proceeds thereof for any damage or
injury to the Premises or the Improvements or any other portion of the
Mortgaged Property described above, in addition to those described in
clause (j) above, or breach of warranty in connection with the construction
of all or any portion of the Improvements; and
(p) all proceeds (including condemnation and insurance proceeds) of,
additions to, substitutions for, and changes in each and every one of the
foregoing.
MORTGAGE LIEN: the Lien in favor of Mortgagee represented by this
Mortgage.
MORTGAGOR'S OBLIGATIONS: (i) the payment of any and all Indebtedness,
other than the Indebtedness evidenced by the Revolving Note and the Working
Capital Note, due or to become due, now existing or howsoever arising of
Mortgagor to Mortgagee pursuant to the terms of the Credit Agreement and
the Related Documents, including, without limitation, all (A) advances made
in accordance with the terms hereof to protect and preserve the value of
the Mortgaged Property and the priority of the Mortgage Lien and (B) Future
Advances; (ii) the performance of the covenants of Mortgagor contained in
the Credit Agreement and the Related Documents; (iii) the payment and
performance of any and all Liabilities, other than Liabilities arising
under the Revolving Note and the Working Capital Note pursuant to the terms
of the Credit Agreement and the Related Documents; and (iv) any and all
judgments on the Note, Credit Agreement and Related Documents.
NOTE: that certain Term Note dated December 21, 1995 by and between
Mortgagor and Mortgagee in the amount of Four Million and No/100ths Dollars
($4,000,000.00) which is due on or before January 1, 2001 which date
includes all extension options contained therein.
PERMITS: all permits, certificates, approvals, licenses, applications
and authorizations used in the operation of the Premises, Improvements
and/or the Leases.
PLANS: all plans and specifications, designs, surveys, drawings, soil
reports and other matters prepared for any construction on the Premises.
PREMISES: the real property legally described in EXHIBIT A.
RENTS: all present and future rents, royalties, issues, avails,
profits and proceeds of or from the Premises, the Improvements, the Leases
and/or the Equipment.
1.2 CERTAIN TERMS. Wherever used in this Mortgage:
1.2.1 AND/OR. The term "and/or" means one or the other or both.
<PAGE>
1.2.2 REFERENCES. All references to "Article", "Section",
"subsection", "Subparagraph", "Clause" or "Exhibit", unless otherwise
stated, shall be deemed to refer to an Article, Section, subsection,
subparagraph, clause or Exhibit, as applicable, of this Mortgage.
1.2.3 EXHIBITS. Each reference to an "Exhibit" to this Mortgage is to
an Exhibit which is attached to this Mortgage, each of which Exhibits is
deemed to be a part hereof.
ARTICLE II
CONVEYANCE
2.1 GRANTING CLAUSE. To secure the payment and performance of Mortgagor's
Obligations, subject to the terms, covenants and provisions contained herein,
the Mortgagor does hereby grant, bargain, sell, alien, remise, release, convey,
assign, transfer, hypothecate, pledge, deliver, set over, warrant and confirm
unto the Mortgagee, for the benefit of the Mortgagee and its successors and
assigns forever, all right, title and interest of the Mortgagor in and to the
Mortgaged Property.
2.2 TITLE. THIS INSTRUMENT is a deed passing title to the Mortgaged
Property to the Mortgagee and is made under the laws of the State of Georgia
relating to deeds to secure debt, and is not a mortgage, and is given to secure
the payment of the Mortgagor's Obligations together with any and all renewals,
modifications, consolidations, replacements and extensions thereof.
2.3 SECURITY AGREEMENT. This Mortgage constitutes a security agreement
with respect to the portion of the Mortgaged Property which consists of personal
property and fixtures under the Uniform Commercial Code of the State in which
the Premises are located.
2.4 ABSOLUTE ASSIGNMENT. This Mortgage is a present and absolute
assignment with respect to the Leases and the Rents.
ARTICLE III
FUTURE ADVANCES; LIMITATION ON AMOUNT SECURED
3.1 FUTURE ADVANCES. This Mortgage is given to secure not only
Mortgagor's Obligations which exist as of the Closing Date, but also the payment
of any and all Future Advances, whether such Future Advances are obligatory, or
are to be made at the option of Mortgagee.
3.2 LIMITATION ON AMOUNT SECURED. The total amount of Indebtedness
secured by this Mortgage may decrease or increase from time to time, but the
total unpaid balance so secured at one time shall not exceed the sum of (i)
$4,000,000.00, plus (ii) interest thereon, plus (iii) any Imposts, plus (iv) any
amounts paid by Mortgagee pursuant to Section 10.2 hereof, plus (v) all costs
and expenses incurred by Mortgagee in enforcing its rights and remedies under
this Mortgage, plus (vi) interest on the disbursements described in clauses
(iii), (iv) and (v) preceding, which interest shall be calculated at the Default
Rate.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Mortgagor represents and warrants to Mortgagee as follows:
4.1 TITLE. Mortgagor (i) has full legal power and authority to grant
and convey the Premises and (ii) is the holder of fee simple title to the
Premises, free and clear of all Liens except Permitted Liens.
4.2 LOCATION, USE OF PREMISES, IMPROVEMENTS AND EQUIPMENT. The location
and use of the Premises, the Improvements and the Equipment are in compliance
with all applicable laws, rules, ordinances and regulations, including, but not
limited to, building and zoning laws, and all covenants and restrictions of
record, the failure to comply with which would have a Material Adverse Effect.
No notice of violation of such laws, rules and/or ordinances has been issued and
received by Mortgagor which remains uncorrected.
4.3 CREDIT AGREEMENT. All representations and warranties of Mortgagor set
forth in the Credit Agreement are true and correct and are deemed to be remade
herein, including, without limitation, those with respect to (i) Liens, (ii)
Hazardous Materials, Environmental Laws and other environmental matters
affecting the Mortgaged Property and (iii) taxes, assessments, levies,
impositions and charges that have been or hereafter may be imposed or assessed
against all or any portion of the Mortgaged Property.
4.4 COPY OF MORTGAGE. Mortgagor has been furnished with a true, correct
and complete copy of this Mortgage.
4.5 LEGAL COUNSEL. Throughout the transaction contemplated by this
Mortgage, Mortgagor has retained and has been represented by legal counsel of
its own choosing.
4.6 BUSINESS LOAN. The (i) Loans constitute a business loan transaction
and (ii) proceeds of such Loans are to be utilized solely for the purpose of
carrying on the business of Mortgagor.
4.7 NO AGRICULTURAL PURPOSES. No part of the Mortgaged Property is used
principally or primarily for agricultural or farm purposes.
ARTICLE V
AFFIRMATIVE COVENANTS
Until Mortgagor's Obligations are paid and performed in full, Mortgagor
agrees it shall:
5.1 PAYMENT AND PERFORMANCE OF MORTGAGOR'S OBLIGATIONS. Promptly pay
or perform, or cause to be paid or performed, when due all of Mortgagor's
Obligations.
5.2 MAINTENANCE OF RIGHTS. Maintain the standing, right, power and lawful
authority to do the following: (i) own good title to the Mortgaged Property,
(ii) carry on the business of and operate the Mortgaged Property, (iii) enter
into, execute and deliver this Mortgage, (iv) convey and assign the interests of
Mortgagor in the Mortgaged Property to Mortgagee, (v) encumber the Mortgaged
Property to Mortgagee as provided herein and (vi)
<PAGE>
consummate all of the transactions described in or contemplated by this Mortgage
to be consummated by Mortgagor.
5.3 MAINTENANCE OF PERMITS. Obtain and maintain all Permits where the
failure to obtain and/or maintain any such Permit would have a Material Adverse
Effect.
5.4 PEACEFUL POSSESSION. Remain in peaceful possession of the Mortgaged
Property and take all actions necessary to maintain and preserve the Mortgage
Lien.
5.5 PAYMENT OF LIENS. Promptly pay or cause to be paid, as and when due
and payable or when declared due and payable, any Indebtedness which may become
or be secured by any Lien on any Mortgaged Property and, immediately upon
request by Mortgagee, deliver to Mortgagee evidence satisfactory to Mortgagee of
the payment and discharge thereof.
5.6 REPAIRS. Make all necessary repairs, replacements and renewals
(including the replacement of any items of Equipment) to the Mortgaged Property
so that the value thereof shall not be impaired, including, without limitation,
repairing, restoring or rebuilding any building or improvement now or hereafter
on the Premises which may become damaged or destroyed, and if any portion of the
Mortgaged Property becomes damaged or destroyed, Mortgagor permit Mortgagee, and
its agents, upon prior notice and demand, access to the Mortgaged Property for
the purpose of inspection thereof.
5.7 BUILDINGS AND IMPROVEMENTS. Pay for and complete, within a reasonable
time, any building or improvement at any time in the process of being erected
upon the Premises.
5.8 EXECUTION OF DOCUMENTS. Immediately upon request by Mortgagee, at
Mortgagor's sole expense, make, execute and deliver and/or cause to be made,
executed and delivered to Mortgagee, in form and substance acceptable to
Mortgagee, all Documents that Mortgagee deems necessary to evidence, document
and/or conclude the transactions described in and/or contemplated by this
Mortgage, or reasonably required to perfect or continue perfected the Mortgage
Lien.
5.9 COMPLIANCE WITH LAWS. Comply with all applicable laws, rules,
ordinances and regulations, including, without limitation, building and zoning
laws, and all covenants and restrictions of record, the failure to comply with
which would have a Material Adverse Effect.
5.10 CREDIT AGREEMENT. Comply with all covenants, agreements and
indemnifications contained in the Credit Agreement, including those with respect
to (i) taxes, assessments, levies, impositions and charges as they relate to
Mortgagor or the Mortgaged Property, (ii) delivery of financial statements,
reports and other information, (iii) insurance policies to be maintained for the
Mortgaged Property and the settlement, receipt and application of insurance
proceeds arising under such insurance policies and (iv) Hazardous Materials,
Environmental Laws and other environmental matters as they relate to Mortgagor
or the Mortgaged Property.
5.11 STAMP TAX; EFFECT OF CHANGE IN LAWS REGARDING TAXATION.
5.11.1 PAYMENT OF STAMP TAX. If, by the laws of the United States of
America or of any state or subdivision thereof having jurisdiction over
Mortgagor, any tax is due or becomes due in respect of the issuance of the
Note or the recording of this Mortgage or the
<PAGE>
Credit Agreement and the Related Documents and unless such laws prohibit
Mortgagor from paying such tax, (i) pay such tax in the manner required by
any such law and (ii) reimburse Mortgagee for any sums which Mortgagee may
expend by reason of the imposition of any tax on the issuance of the Note.
5.11.2 PAYMENT OF TAXES IMPOSED ON MORTGAGEE. In the event of the
enactment, after this date, of any law, statute, rule or regulation of the
United States of America or of the State in which the Premises are located
or any other state or subdivision thereof imposing upon Mortgagee the
payment of the whole or any part of the taxes, assessments or Liens herein
required to be paid by Mortgagor, or changing in any way the laws relating
to the taxation of mortgages or debts secured by mortgages or Mortgagee's
interest in the Premises or any other portion of the Mortgaged Property, or
the manner of collection of taxes, so as to affect this Mortgage or
Mortgagor's Obligations or the holder thereof, then, and in any such event,
upon demand by Mortgagee, pay such taxes or assessments or reimburse
Mortgagee therefor; provided, however, that if the opinion of counsel for
Mortgagee, (i) it might be unlawful to require Mortgagor to make such
payment, or (ii) the making of such payment might result in the imposition
of interest beyond the maximum amount permitted by law, then and in any
such event, Mortgagee may elect, by notice in writing given to Mortgagor,
to declare all of Mortgagor's Obligations to be and become due and payable
thirty (30) days from the date of giving of such notice.
ARTICLE VI
NEGATIVE COVENANTS
Until Mortgagor's Obligations are paid and performed in full, Mortgagor
agrees it will not:
6.1 ADDITIONAL LIMITATIONS. Execute, file or record any notice limiting
the maximum principal amount that may be secured by this Mortgage.
6.2 SALE OR TRANSFER. Sell, transfer, exchange, convey, remove or
otherwise dispose of all or any portion of the Mortgaged Property or legal or
equitable interest therein, except to the extent permitted by the Credit
Agreement.
6.3 LIENS. Permit any Liens to exist on the Mortgaged Property except (i)
Permitted Liens, and (ii) Leases, if any.
6.4 USE OF MORTGAGED PROPERTY. Substantially or materially change the use
or character of any portion of the Mortgaged Property, permit any excavation,
construction, site work or other lienable work to be performed on any portion of
the Mortgaged Property, initiate or acquiesce in any zoning variation or
reclassification of any portion of the Mortgaged Property or commit or suffer
any waste to exist on any portion of the Mortgaged Property.
6.5 INSURANCE. Purchase any separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under the
Credit Agreement and the Related Documents unless (i) Mortgagee receives prompt
notice thereof and is included thereon under a standard non-contributory
mortgagee clause acceptable to Mortgagee, (ii) such separate insurance otherwise
complies with all of the requirements of the
<PAGE>
Credit Agreement and the Related Documents and (iii) Mortgagor delivers to
Mortgagee promptly the original policy or policies of such insurance.
ARTICLE VIII
INSURANCE
7.1 ADJUSTMENT OF LOSSES; COLLECTION OF PROCEEDS. In case of loss or
damage by fire or other insured casualty to all or any portion of the Mortgaged
Property, Mortgagee is authorized and empowered to (i) make or file proofs of
loss, and settle and adjust any claim under insurance policies which insure
against such risks, or (ii) direct Mortgagor to agree with each insurance
company on the amount to be paid as a result of such loss. If the insurance
proceeds paid for such loss are equal to or less than $10,000, Mortgagor may
collect such proceeds so long as (x) Mortgagor uses such proceeds to repair,
restore or rebuild the Mortgaged Property, in such manner and under such
conditions as Mortgagee may require and (y) no Event of Default or Unmatured
Event of Default exists. If the insurance proceeds paid for such loss are
greater than $10,000, or if an Unmatured Event of Default or Event of Default
then exists, then Mortgagee is authorized to collect such proceeds.
7.2 APPLICATION OF PROCEEDS. Mortgagee may elect (i) to apply insurance
proceeds received by Mortgagee to the payment of Mortgagor's Obligations,
whether or not then due, or (ii) after the payment of all expenses incurred by
Mortgagee in connection with the collection of such insurance proceeds,
including, without limitation, attorneys' fees, to make such insurance proceeds
available to Mortgagor for repair, restoration or rebuilding of the Mortgaged
Property, in such manner and under such conditions as Mortgagee may require. In
the event that Mortgagee has permitted the insurance proceeds to be used to
restore the Mortgaged Property, Mortgagor shall (x) pay the amount of any
deficiency in such insurance proceeds in order to restore the Mortgaged Property
fully to its condition immediately prior to the loss or damage to which such
insurance proceeds relate and (y) deliver to Mortgagee any surplus which may
remain out of such proceeds after payment of the cost of restoration to be
applied to the payment of Mortgagor's Obligations.
7.3 FAILURE TO COLLECT PROCEEDS. Mortgagee shall not be held responsible
for (i) any failure to collect any insurance proceeds due under the terms of any
policy, regardless of the cause of such failure, (ii) the amount of any such
proceeds ultimately paid, regardless of any negotiation by Mortgagee of such
amount, or (iii) any use by Mortgagor of such proceeds as Mortgagee may pay over
to Mortgagor.
ARTICLE VIII
CONDEMNATION
8.1 NOTICE; ASSIGNMENT OF PROCEEDS. Mortgagor shall notify Mortgagee
immediately of the institution or threat of institution of any proceeding
pertaining to the condemnation of any portion of the Mortgaged Property.
Mortgagee is authorized to settle all claims for damages to any portion of the
Mortgaged Property which relate to, and collect any proceeds of any award which
may be the result of, any eminent domain or condemnation proceeding.
8.2 APPLICATION OF PROCEEDS. Mortgagee may elect (i) to apply the
<PAGE>
proceeds of the award or claim received by Mortgagee described in Section 8.1 to
the payment of Mortgagor's Obligations in accordance with the provisions of the
Credit Agreement, whether due or not, or (ii) after the payment of all expenses
incurred by Mortgagee in connection with the collection of such proceeds,
including, without limitation, attorneys' fees, to make such proceeds available
to Mortgagor for replacement of the condemned portion of the Mortgaged Property,
in such manner and under such conditions as Mortgagee may require. In the event
that Mortgagee has permitted the proceeds of the award or claim to be used to
replace the condemned portion of the Mortgaged Property, Mortgagor shall (x) pay
the amount of any deficiency in such proceeds in order to complete such
replacement and (y) deliver to Mortgagee any surplus which may remain out of
such proceeds after payment of the cost of replacement to be applied to the
payment of Mortgagor's Obligations.
8.3 FAILURE TO COLLECT PROCEEDS. Mortgagee shall not be held responsible
for (i) any failure to collect any condemnation proceeds, regardless of the
cause of such failure, (ii) the amount of any such proceeds ultimately paid,
regardless of any negotiation by Mortgagee of such amount, or (iii) any use by
Mortgagor of such proceeds as Mortgagee may pay over to Mortgagor.
ARTICLE IX
LEASES AND RENTS
9.1 LICENSE TO COLLECT. Subject to Mortgagee's rights under Section 11,
Mortgagee hereby confers upon Mortgagor a non-exclusive license to collect and
retain the Rents as they become due and payable.
9.2 RENT ROLL, COPIES OF LEASES. Upon Mortgagee's request, Mortgagor
shall deliver to Mortgagee (i) a rent roll pertaining to all Leases, (ii) copies
of all Leases and (iii) such other matters and information relating to any Lease
as Mortgagee may request.
ARTICLE X
CERTAIN RIGHTS OF MORTGAGEE
10.1 DOCUMENTS. In case Mortgagor fails to execute or obtain any Documents
required by Mortgagee for the perfection or continuation of the Mortgage Lien,
Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact to
execute or obtain any such Documents on its behalf.
10.2 MAINTENANCE OF MORTGAGED PROPERTY. If Mortgagor, within thirty (30)
days after receipt of written demand from Mortgagee (except in cases of
emergency, when no demand shall be required), shall neglect or refuse to (i)
keep the Mortgaged Property in good operating condition and repair, (ii) replace
or maintain the same as herein agreed, (iii) pay the premiums for the insurance
which is required to be maintained hereunder, (iv) pay and discharge all Liens
as herein agreed or (v) otherwise perform Mortgagor's Obligations within the
time periods specified therefor (including any applicable cure periods),
Mortgagee, at its option and sole election. may cause such repairs or
replacements to be made, obtain such insurance, pay such Liens or perform such
Mortgagor's Obligations. Any amounts paid by Mortgagee in taking such action,
together with interest thereon at the Default Rate until repaid by Mortgagor to
Mortgagee, shall be due and payable by Mortgagor to Mortgagee upon demand, and,
until paid,
<PAGE>
shall constitute a part of Mortgagor's Obligations secured by this Mortgage.
Mortgagee shall not be liable to Mortgagor for failure or refusal to exercise
any such right. In making, any payments pursuant to the exercise of any such
right, Mortgagee may rely upon any bills delivered to it by Mortgagor or any
such payee.
ARTICLE XI
DEFAULT AND REMEDIES
The occurrence of an Event of Default under the Credit Agreement shall
constitute an Event of Default under this Mortgage. Upon the occurrence of an
Event of Default, Mortgagee may declare all of Mortgagor's Obligations
immediately due and payable, whereupon Mortgagor's Obligations immediately shall
mature and become due and payable.
If any Event of Default occurs, Mortgagee, in its sole discretion and at
its sole election, without notice of such election, and without further demand,
may exercise any one or more of the following rights and remedies:
11.1 OTHER REMEDIES. To the extent permitted by applicable law, Mortgagee
may exercise any one or more of the following remedies, whether or not
Mortgagor's Obligations have been accelerated:
11.1.1 TAKING OF POSSESSION. Mortgagee, by itself or by such
officers or agents as it may appoint, may enter and take exclusive
possession of all or any part of the Mortgaged Property, including all
books, papers and accounts of Mortgagor relating to the business of
Mortgagor conducted at such Mortgaged Property, and may expel, remove and
exclude Mortgagor, its agents and employees and any persons, goods and
chattels occupying the Mortgaged Property. If Mortgagor for any reason
fails to surrender or deliver the Mortgaged Property or any part thereof
after such demand by Mortgagee, Mortgagee may obtain a judgment or decree
conferring on Mortgagee the right to immediate possession or requiring the
delivery to Mortgagee of the Mortgaged Property, and Mortgagor specifically
consents to the entry of such judgment or decree. Upon every such taking of
possession, Mortgagee may (i) hold, store, use, operate, manage and control
the Mortgaged Property and conduct the business of Mortgagor thereon, (ii)
perform all necessary and proper maintenance and make all necessary and
proper repairs, renewals, replacements, additions, betterment and
improvements thereto and thereon and purchase or otherwise acquire
additional fixtures, personalty and other Property, (iii) keep the
Mortgaged Property insured, (iv) manage and operate the Mortgaged Property
and exercise all of the rights and powers of Mortgagor to the same extent
as Mortgagor could in its own name, (v) enter into any agreements with
respect to the exercise by others of any of the powers granted to Mortgagee
herein, in such manner as Mortgagee shall elect, (vi) collect and receive
all of the Rents, including those past due as well as those accruing after
the occurrence of any such Event of Default and (vii) after deducting (A)
all expenses of taking, holding, holding, managing and operating the
Mortgaged Property (including compensation for the services of all Persons
employed for such purposes), (B) the cost of all such maintenance, repairs,
renewals, replacements, additions, betterments, improvements and purchases
and acquisitions, (C) the cost of such insurance, (D) such taxes,
assessments and other similar charges as Mortgagee may determine to pay,
(E) other proper charges upon the Mortgaged Property or any part thereof
and (F) the compensation, expenses and disbursements of the
<PAGE>
attorneys and agents of Mortgagee, apply the remainder of the monies
and proceeds so received by Mortgagee as described in Section 11.8
hereof.
11.1.2 DEPOSITS FOR TAXES AND INSURANCE. Mortgagee may require
Mortgagor to deposit with Mortgagee, commencing 10 days following such
request and on the first day of each month thereafter, a sum equal to the
amount of all insurance premiums next due in respect of the insurance
policies required to be maintained under the Credit Agreement and the
Related Documents and all general and special real estate taxes and
assessments next due upon or for the Mortgaged Property (the amount of such
insurance premiums, taxes and assessments next due to be based upon
Mortgagee's reasonable estimate, but shall include all taxes or assessments
not levied, charged, assessed or imposed separately upon the Mortgaged
Property), reduced by the amount, if any, then on deposit with Mortgagee
for such purpose, divided by the number of months to elapse before one
month prior to the date when such insurance premiums, taxes and assessments
will become due and payable. If such Deposits are insufficient to pay any
such insurance premiums, taxes or assessments when the same become due and
payable, Mortgagor, within 10 days after receipt of demand therefor from
Mortgagee, shall deposit such additional funds as may be necessary to pay
such insurance premiums in full. If such Deposits exceed the amount
required to pay such insurance premiums, taxes or assessments for any year,
the excess shall be credited against the next succeeding deposit or
deposits to be made by Mortgagor. Such Deposits need not be kept separate
and apart from any other funds of Mortgagee, shall be held without any
allowance of interest to Mortgagor and shall be used for the payment of
insurance premiums, taxes and assessments on the Mortgaged Property next
due and payable when they become due; provided that Mortgagee shall not be
liable for any failure to apply such Deposits to the payment of such
insurance premiums, taxes and assessments unless Mortgagee shall have
received from Mortgagor a request for payment accompanied by the bills for
such insurance premiums, taxes and assessments not less than thirty days
prior to the date due.
11.1.3 LEASES AND RENTS. Mortgagee may, with or without taking
possession of the Mortgaged Property, as attorney and agent-in-fact for
Mortgagor constituted and appointed by Mortgagor with full power of
substitution (which power is coupled with an interest and is irrevocable),
in the name of Mortgagor, Mortgagee, or both:
(a) demand, collect, settle, adjust, compromise, and enforce, by
legal proceedings or otherwise, payment of the Rents, endorse the name
of Mortgagor upon any payments or proceeds of the Rents and deposit
the same for the account of Mortgagee and do all other acts and things
necessary, in Mortgagee's sole discretion, to obtain control and use
of the Rents;
(b) terminate the license granted to Mortgagor hereunder to
collect the Rents and thereafter Mortgagee shall have all right,
title and interest in and to the Leases and the Rents by virtue
of the present assignment thereof granted to Mortgagee hereunder;
(c) require Mortgagor to deliver to Mortgagee the originals of
the Leases, with appropriate endorsement and/or other specific
evidence of assignment thereto to Mortgagee, which endorsement and/or
assignment shall be in form and substance acceptable to Mortgagee;
<PAGE>
(d) notify any of the obligors under the Leases that the
Leases have been assigned to Mortgagee and direct such obligers
thereafter to make all payments due from them under the Leases
directly to Mortgagee; and
(e) require Mortgagor to direct all obligers of the Leases
to make all payments due them under the Leases directly to Mortgagee.
Notwithstanding anything in this subsection 11.2.3 to the contrary, under
no circumstances shall Mortgagee have any duty to produce Rents from the
Mortgaged Property. Regardless of whether or not Mortgagee, in person or by
agent, takes actual possession of the Premises and Improvements, Mortgagee
is not and shall not be deemed to be (i) a "mortgagee in possession" for
any purpose; (ii) responsible for performing any of the obligations of the
lessor under any Lease; (iii) responsible for any waste committed by
lessees or any other parties, any dangerous or defective condition of the
Mortgaged Property, or any negligence in the management, upkeep, repair or
control of the Mortgaged Property; or (iv) liable in any manner for the
Mortgaged Property or the use, occupancy, enjoyment or operation of all or
any part thereof.
11.1.4 APPOINTMENT OF RECEIVER. Upon application to a court of
competent jurisdiction, Mortgagee may appoint a receiver to take
possession of and to operate the Mortgaged Property and to collect and
apply the Rents, without notice and without regard to the occupancy or
value of any security for Mortgagor's Obligations or the solvency of
Mortgagor. The receiver shall have all rights and powers necessary or
usual for the protection, possession, control, management and
operation of the Mortgaged Property during the period of receivership,
to the fullest extent permitted by law.
11.1.5 OTHER REMEDIES. Mortgagee may exercise any other rights
and remedies then available to Mortgagee under this Mortgage, the
Note, the Credit Agreement and the other Related Documents and any
applicable laws.
11.2 REMEDIES UPON ACCELERATION. If Mortgagor's Obligations have
been accelerated pursuant to Section 11 or the Credit Agreement, in
addition to Mortgagee's rights under Section 11.1, Mortgagee may exercise
any one or more of the following remedies:
11.2.1 POWER OF ENFORCEMENT.
If Mortgagor's Obligations have been accelerated, Mortgagee,
at its option, may do any one or more of the following:
(a) Sell the Mortgaged Property or any part of the Mortgaged
Property at one or more public sale or sales at the usual place for
conducting sales in the county in which the Premises or any part of
the Premises is situated, to the highest bidder for cash, in order to
pay the Mortgagor's Obligations, and all expenses of sale and of all
proceedings in connection therewith, including reasonable attorneys'
fees, after advertising the time, place and terms of sale once a week
for four (4) weeks immediately preceding such sale (but without regard
to the number of days) in a newspaper in which sheriff's
<PAGE>
sales are advertised in said county, all other notices being hereby
waived by the Mortgagor. At any such public sale, the Mortgagee may
execute and deliver to the purchaser a conveyance of the Mortgaged
Property or any part of the Mortgaged Property in fee simple, without
warranty on behalf of Mortgagor; and to this end Mortgagor hereby
constitutes and appoints the Mortgagee the agent and attorney-in-fact
of Mortgagor to make such sale and conveyance, and thereby to divest
Mortgagor of all right, title and equity that Mortgagor may have in
and to the Mortgaged Property and to vest the same in the purchaser or
purchasers at such sale or sales, and all the acts and doings of said
agent and attorney-in-fact are hereby ratified and confirmed, and any
recitals in said conveyance or conveyances as to facts essential to a
valid sale shall be binding upon Mortgagor absent manifest error. The
aforesaid power of sale and agency hereby granted are coupled with an
interest and are irrevocable by death or otherwise, and shall not be
exhausted by one exercise thereof but may be exercised until full
payment of all of the Mortgagor's Obligations. In the event of any
sale under this Mortgage by virtue of the exercise of the powers
herein granted, or pursuant to any order in any judicial proceeding or
otherwise, the Mortgaged Property may be sold as an entirety or in
separate parcels and in such manner or order as the Mortgagee in its
discretion may elect, and if the Mortgagee so elects, the Mortgagee
may sell the personal property covered by this Mortgage at one or more
separate sales in any manner permitted by the U.C.C. (hereinafter
defined), and one or more exercises of the powers herein granted shall
not extinguish nor exhaust such powers, until the entire Mortgaged
Property is sold or the Indebtedness is paid in full. If the
Mortgagor's Obligations are now or hereafter further secured by any
chattel mortgages, pledges, contracts of guaranty, assignments of
lease or other security instruments, the Mortgagee may at its option
exhaust the remedies granted under any of said security either
concurrently or independently, and in such order as the Mortgagee may
determine in its discretion. Upon any foreclosure sale, the Mortgagee
may bid for and purchase the Mortgaged Property and shall be entitled
to apply all or any part of the Mortgagor's Obligations as a credit to
the purchase price. In the event of any such foreclosure sale by the
Mortgagee, Mortgagor and any party claiming through Mortgagor shall be
deemed a tenant holding over and shall forthwith deliver possession to
the purchaser or purchasers at such sale or be summarily dispossessed
according to provisions of law applicable to tenants holding over.
(b) Proceed by a suit or suits in law or in equity or by another
appropriate proceeding or remedy (i) to enforce payment of the Note or
the performance of any term, covenant, condition or agreement of this
Mortgage or any of the other Related Documents or any other right or
(ii) to pursue any other remedy available to the Mortgagee.
11.2.2 INDEBTEDNESS DUE ON FORECLOSURE.
Upon commencement of suit on this Mortgage or the Note, or upon
commencement of foreclosure of this Mortgage by suit or by
commencement of advertising of the intended exercise of the sale under
power provided herein, the unpaid principal of the Note, if not
previously declared due, and the interest accrued thereon, and any
other Indebtedness shall at once become and be
<PAGE>
immediately due and payable.
11.2.3 RIGHTS UNDER UNIFORM COMMERCIAL CODE. Mortgagee may
exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code of the State in which the Premises are located
(the "U.C.C.") with respect to the Collateral. Pursuant to Section 9-
501(4) of such Uniform Commercial Code, Mortgagee shall have an option
to proceed with respect to both the real property portion of the
Mortgaged Property and the Collateral, in accordance with its rights,
powers and remedies with respect to the real property, in which event
the remedy and enforcement provisions of this Mortgage in lieu of the
remedy and enforcement provisions of such Uniform Commercial Code
shall apply. Such Section 9-501(4) also permits Mortgagee to proceed
separately against the Collateral in accordance with the remedy and
enforcement provisions of such Uniform Commercial Code. If Mortgagee
shall elect to proceed against the Collateral separately from any
proceeding with respect to the real property, Mortgagor agrees that 10
days notice of the sale of the Collateral shall be reasonable notice.
11.2.4 STATE STATUTES. Mortgagee may exercise all rights and
remedies under the statutes in the State where the Premises are
located, subject to the following:
(a) if any provision in this Mortgage is inconsistent with
any applicable statute in the State where the Premises are
located, such statute shall take precedence over the provisions
of this Mortgage, but shall not invalidate or render
unenforceable any other provision of this Mortgage that can be
construed in a manner consistent with such statute; and
(b) if any provision of this Mortgage shall grant to
Mortgagee any rights or remedies upon default of Mortgagor which
are more limited than the rights that otherwise would be vested
in Mortgagee under such statute in the absence of such provision,
Mortgagee shall be vested with the rights granted in such statute
to the full extent permitted by law.
Without limiting the generality of the foregoing, all expenses
incurred by Mortgagee to the extent reimbursable under such statute,
whether incurred before or after any decrees or judgment of
foreclosure, and whether or not provided for elsewhere in this
Mortgage, shall be added to Mortgagor's Obligations or to the judgment
of foreclosure, as described more fully in Section 11.3.
11.3 ADDITIONS TO MORTGAGOR'S OBLIGATIONS. Upon the occurrence of an
Event of Default, there will be added to and included as part of Mortgagor's
Obligations (and allowed in any sale or decree for sale of the Mortgaged
Property or in any judgment rendered upon this Mortgage, the Note, the Credit
Agreement or the other Related Documents) all of the costs and expenses incurred
by Mortgagee in exercising its rights and remedies under this Mortgage. All of
such costs and expenses, including attorneys' fees, shall (i) be secured by this
Mortgage, (ii) be payable upon demand and (iii) bear interest at the Default
Rate from the date incurred by Mortgagee until paid.
11.4 PROCEEDINGS DISCONTINUED. To the full extent permitted by applicable
law, in case Mortgagee shall have proceeded to enforce any right
<PAGE>
under this Mortgage by foreclosure, entry or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or shall have been
determined adversely to Mortgagee, then, except as otherwise determined in such
proceeding, Mortgagor and Mortgagee shall be restored to their former positions
and rights hereunder with respect to the Mortgaged Property, and all rights,
remedies, and powers of Mortgagee shall continue as though no such proceedings
had been commenced.
11.5 DEFICIENCY.
11.5.1 SALE AND FORECLOSURE. If the Mortgaged Property (or any
part thereof which remains subject to this Mortgage) is sold pursuant to
foreclosure proceedings or pursuant to a power of sale, and if the net
proceeds of any such sale are not sufficient to pay all of Mortgagor's
Obligations then outstanding and any other amounts provided for in any
decree or judgment of foreclosure or provided for by applicable law (the
amount of such deficiency and the deficiency described in subsection 11.5.2
hereinafter collectively referred to as the "Balance Owed"), then the
Indebtedness evidenced by the Note shall not be satisfied to the extent of
the Balance Owed, but such Indebtedness shall continue in existence and
shall continue to be evidenced by the Note and shall continue to be secured
by the Credit Agreement and the Related Documents which were in existence
prior to any such decree or judgment of foreclosure, except this Mortgage.
Subject to the requirements of applicable law, if Mortgagee shall acquire
the Mortgaged Property as a result of any such sale described above
(whether by bidding all or any of Mortgagor's Obligations or otherwise),
the proceeds of such sale shall not be deemed to include (and Mortgagor
shall not be entitled to any benefit or credit on account of) proceeds of
any subsequent sale of the Mortgaged Property by Mortgagee.
11.5.2 FORECLOSURE OF OTHER CREDIT AGREEMENT AND THE RELATED
DOCUMENTS. Notwithstanding the provisions of subsection 11.5.1, Mortgagor
further agrees that if any other portion of the Collateral is foreclosed
judicially and such Collateral is sold pursuant to foreclosure proceedings
or pursuant to subsection 11.2.1, and if the proceeds of such sale (after
application of such proceeds as provided for herein and after deducting all
accrued and general and special taxes and assessments) are not sufficient
to pay Mortgagor's Obligations and any other amounts provided for in the
decree or judgment of foreclosure or provided for by applicable law, then
Mortgagor's Obligations then outstanding shall not be satisfied to the
extent of such Balance Owed, but such Indebtedness shall continue in
existence and continue to be evidenced by the Note and shall continue to be
secured by this Mortgage, the Credit Agreement and the other Related
Documents, which were in existence immediately prior to any such decree or
judgment of foreclosure, except each such Related Document which pertains
to the portion of the Collateral which was the subject of any such sale.
11.6 APPLICATION OF PROCEEDS. The proceeds of any foreclosure sale of
the Mortgaged Property or any other proceeds received hereunder shall be applied
in accordance with the provisions of Section 7.3 of the Credit Agreement.
ARTICLE XII
RECONVEYANCE
<PAGE>
Mortgagee shall release the Mortgaged Property, or such portion thereof as
previously shall not have been sold pursuant to the terms of this Mortgage, by
proper instrument upon payment and discharge of all of Mortgagor's Obligations.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. All notices and communications under this Mortgage shall be
in writing and, if (a) forwarded by mail shall be deemed to have been given
three days after the date sent if sent by registered or certified mail, postage
prepaid, and:
(i) if to Mortgagor, addressed to Mortgagor at its address first set
forth above; or
(ii) if to Mortgagee, addressed to Mortgagee at its address first set
forth above; or
in the case of any party, at such other address as such party may, by written
notice received by the other parties to this Mortgage, have designated a-s its
address for notices; and (b) notices given by telegram, telex or facsimile
transmission shall be deemed to have been given when sent if addressed to the
party to whom sent, at its address as aforesaid, or to any other address, as to
any such party, as such party shall designate in a written notice to the other
party hereto. All notices sent pursuant to the terms of this Section 13.1 shall
be deemed received (i) if personally delivered, then on the date of delivery,
(ii) if sent by overnight, express carrier, on the next Business Day immediately
following the day sent, or (iii) if sent by registered or certified mail, on the
earlier of the fifth Business Day following the day sent or when actually
received.
13.2 COVENANTS RUN WITH LAND. All the covenants contained in this Mortgage
shall run with the land. Time is of the essence for the performance by Mortgagor
of its obligations under this Mortgage.
13.3 GOVERNING LAW. THIS MORTGAGE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED AS TO VALIDITY, INTERPRETATION, CONSTRUCTION, EFFECT AND IN ALL
OTHER RESPECTS BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS, EXCEPT THAT
THE LAWS OF THE STATE WHERE THE PREMISES ARE LOCATED SHALL APPLY TO THE
CREATION, PRIORITY, PERFECTION AND MAINTENANCE OF THE MORTGAGE LIEN AND TO THE
ENFORCEMENT OF THE REMEDIES OF MORTGAGEE HEREUNDER AND ANY OF ITS SUCCESSORS AND
ASSIGNS.
13.4 JURISDICTION AND VENUE. SUBJECT TO THE PROVISIONS OF ANY APPLICABLE
STATUTE IN THE STATE WHERE THE PREMISES ARE LOCATED, MORTGAGOR AGREES THAT
MORTGAGEE MAY ENFORCE ANY CLAIM ARISING OUT OF THIS MORTGAGE IN ANY STATE OR
FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN CHICAGO,
ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO
ANY SUCH CLAIM, MORTGAGOR HEREBY IRREVOCABLY DESIGNATES THE PRENTICE-HALL
CORPORATION SYSTEM, INC., WITH OFFICES ON THE DATE HEREOF AT 33 NORTH LASALLE
STREET, CHICAGO, ILLINOIS 60602, TO RECEIVE FOR AND ON BEHALF OF MORTGAGOR
SERVICE OF PROCESS IN ILLINOIS. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF SUCH COURTS BY MAILING A COPY THEREOF, POSTAGE
PREPAID, TO MORTGAGOR AND AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT
PERMITTED BY LAW, (i) SHALL BE DEEMED
<PAGE>
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION
OR PROCEEDING AND (ii) SHALL BE TAKEN AND HELD TO BE PERSONAL SERVICE UPON AND
PERSONAL DELIVERY TO IT. NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHT OF
AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
PRECLUDE AGENT OR ANY LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT OF
THIS MORTGAGE IN ANY OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH
ACTION. MORTGAGOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED
IN CHICAGO, ILLINOIS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
13.5 WAIVER OF JURY TRIAL. TO THE FULL EXTENT PERMITTED BY APPLICABLE
LAW, EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR
ANY RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT OR ANY RELATED DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
13.6 SUCCESSORS AND ASSIGNS. This Mortgage will be binding upon and inure
to the benefit of the successors and assigns of each of Mortgagor and Mortgagee.
13.7 SEVERABILITY. Any provision of this Mortgage that is unenforceable
in any state in which this Mortgage may be filed or recorded or is invalid or
contrary to the law of such state, shall be of no effect, and in such case all
the remaining terms and provisions of this Mortgage shall continue to be fully
effective in accordance with the terms and provisions of this Mortgage, all as
though no such invalid portion ever had been included herein.
13.8 REMEDIES CUMULATIVE. All rights and remedies of Mortgagee under this
Mortgage, the other Credit Agreement and any of the other Related Documents are
cumulative and concurrent and may be exercised singularly, successively or
concurrently and Mortgagee shall have all rights, remedies and recourse
available at law or equity.
13.9 SUBROGATION. To the extent that any of Mortgagor's Obligations
represent funds utilized to satisfy any outstanding Indebtedness secured by
Liens against all or any part of the Mortgaged Property, to the extent permitted
thereby and by applicable law, Mortgagee shall be subrogated to any and all
Liens owned or claimed by the holder of any such outstanding Indebtedness so
satisfied, regardless of whether such Liens are assigned to Mortgagee or
released by the holder(s) thereof.
13.10 INDEMNIFICATION. Mortgagor will save and hold Mortgagee harmless of
and from any and all damage, loss, cost and expense, including, but not limited
to, attorneys' fees, costs and expenses, incurred by reason of or arising from
or on account of or in connection with any suit or proceeding threatened, filed
and/or pending brought by anyone other than Mortgagee, in or to which Mortgagee
is or may become a party by reason of or arising from Mortgagor's Obligations,
this Mortgage, the Credit Agreement and any of the other Related Documents.
13.11 CONFLICTS. In the event of any conflict or inconsistency between the
terms of this Mortgage and the terms of the Credit Agreement,
<PAGE>
the terms of the Credit Agreement shall prevail.
13.12 NO PARTNER, JOINT VENTURER. Mortgagor and Mortgagee agree that in no
event shall Mortgagee be deemed to be a partner or a joint venturer with
Mortgagor. Without limiting the foregoing, Mortgagee shall not be deemed to be
such a partner or joint venturer on account of becoming a mortgagee in
possession or exercising any rights pursuant to this Mortgage or pursuant to any
other instrument or document evidencing or securing any of Mortgagor's
Obligations.
13.13 WAIVERS. Mortgagor, on behalf of itself, its successors and assigns,
to the extent permitted by law, hereby (i) waives any and all rights of
appraisement, valuation, stay, extension and (to the extent permitted by law)
redemption from sale under any order or decree of foreclosure of this Mortgage,
(ii) waives any equitable, statutory or other right available to it, pertaining
to marshalling of assets hereunder, so as to require the separate sales of
interests in the Mortgaged Property before proceeding against any other interest
in the Mortgaged Property, (iii) consents to and authorizes, at the option of
Mortgagee, the sale, either separately or together, of any and all interests in
the Mortgaged Property, (iv) agrees that in no event shall Mortgagee be required
to allocate any proceeds received by Mortgagee from foreclosure sale or
otherwise, to any particular interest in the Mortgaged Property and (v) agrees
that when a sale is consummated under any decree of foreclosure of this
Mortgage, upon confirmation of such sale, the master in chancery, the sheriff or
other Person making such sale, or his successor in office, shall be and is
authorized immediately to execute and deliver to the purchaser at such sale a
deed conveying the Mortgaged Property, showing the amount paid therefor, or if
purchased by the Person in whose favor the order or decree is entered, the
amount of his bid therefor.
13.14 REMEDIES NOT EXCLUSIVE. No right or remedy of Mortgagee hereunder is
exclusive of any other right or remedy hereunder or now or hereafter existing at
law or in equity or under the Note, the Credit Agreement or any of the other
Related Documents, but is cumulative and in addition thereto and Mortgagee may
recover judgment thereon, issue execution therefor, and resort to every other
right or remedy available at law or in equity or under the Note, the Credit
Agreement or any of the other Related Documents, without first exhausting or
affecting or impairing the security or any right or remedy afforded this
Mortgage. No delay in exercising, or omission to exercise, any such right or
remedy will impair any such right or remedy or will be construed to be a waiver
of any default by Mortgagor hereunder, or acquiescence therein, and such waiver
will not affect any subsequent default hereunder by Mortgagor of the same or
different nature. Every such right or remedy may be exercised independently or
concurrently, and when and so often as may be deemed expedient by Mortgagee. No
term or condition contained in this Mortgage may be waived, altered or changed
except as evidenced in writing signed by Mortgagor and Mortgagee.
13.15 NO WAIVER BY MORTGAGEE. Any failure of Mortgagee to insist upon the
strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any such terms and provisions,
and Mortgagee, notwithstanding any such failure, shall have the right at any
time thereafter to insist upon the strict performance by Mortgagor of any and
all of the terms and provisions hereof.
13.16 NO RELEASE. Except as may be provided otherwise by applicable law,
neither Mortgagor, nor any other Person now or hereafter obligated for the
payment of the whole or any part of Mortgagor's Obligations, shall be
<PAGE>
relieved of such obligation by reason of (i) the sale, conveyance or other
transfer of the Mortgaged Property, (ii) the failure of Mortgagee to comply with
any request of Mortgagor, or of any other Person, to take action to foreclose
this Mortgage or otherwise enforce any of the provisions of this Mortgage, the
Note, the Credit Agreement or any of the other Related Documents, (iii) the
release, regardless of consideration, of the whole or any part of the
Collateral, or (iv) any agreement or stipulation between any subsequent owner of
the Mortgaged Property and Mortgagee extending the time of payment under or
modifying the terms of the Note, the Credit Agreement, any of the other Related
Documents or this Mortgage without first having obtained the consent of
Mortgagor or such other Person. If Mortgagee shall enter into any agreement
described in clause (iv) hereof, then, notwithstanding any such agreement,
Mortgagor and all such other Persons shall continue to be liable on account of
Mortgagor's Obligations and shall continue to make such payments according to
the terms of any such agreement of extension or modification unless expressly
released and discharged in writing by Mortgagee.
13.17 RELEASE OF SECURITY. Mortgagee, without notice, may release,
regardless of consideration, any part of the Collateral, without impairing or
affecting the Mortgage Lien of or the priority of such Mortgage Lien over any
subordinate Lien.
13.18 CAPTIONS. The captions in this Mortgage are inserted for convenience
of reference only and in no way define, describe or limit the scope or intent of
this Mortgage or any of the provisions hereof.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the undersigned have executed this Deed to Secure Debt,
Assignment of Leases and Rents, and Security Agreement under seal as of the day
and year first above written.
MORTGAGOR:
Signed, sealed and GENERAL MANUFACTURED HOUSING,
delivered in the presence of: INC., a Georgia corporation
/s/ Cathy Patton By: /s/ Gary M. Brost
- ----------------------------- ----------------------------------
Unofficial Witness Name: GARY M. BROST
Title: PRESIDENT
/s/ Karen J. Mpzzillo
- -----------------------------
Notary Public [CORPORATE SEAL]
Notarization Date: 12/21/95
Commission Expiration Date:
(NOTARIAL SEAL)
<PAGE>
EXHIBIT "A"
All of that tract of land lying and being in Land Lot 125 in the 8th Land
District of Ware County, Georgia, and described as follows: To obtain the
beginning point of the property herein described, start at the northeast corner
of Land Lot 125 aforesaid and thence run south 20 degrees 40 minutes 39 seconds
west a distance of 2,864.1 feet to a point on the western margin of Industrial
Boulevard marked by a concrete post, which said point is the BEGINNING POINT of
the property described herein; thence from this beginning point run south 18
degrees 55 minutes 40 seconds west along the westerly margin of Industrial
Boulevard a distance of 650 feet marked by a concrete post; thence run north 71
degrees 04 minutes 20 seconds west a distance of 405.2 feet to a point which is
marked by a concrete post; thence run north 18 degrees 59 minutes 40 seconds
east a distance of 650 feet to a point marked by a concrete post; thence south
71 degrees 04 minutes 20 seconds east a distance of 404.45 feet to Industrial
Boulevard and the POINT OF BEGINNING, shown on plat recorded in Plat Book "A",
page 540, same being 6.041 acres.
<PAGE>
EXHIBIT 10.30
POST-CLOSING AGREEMENT
December 21 1995
First Source Financial LLP
2850 West Golf Road, 5th Floor
Rolling Meadows, IL 60008
RE: Credit Facility to General Manufactured Housing, Inc.
("Borrower")
Ladies and Gentlemen:
Reference is made to the Secured Credit Agreement of even date herewith
(the "Credit Agreement") between Borrower and First Source Financial LLP
("FSF"). All capitalized terms used but not elsewhere defined herein shall have
the respective meanings ascribed to such terms in the Credit Agreement.
Certain conditions precedent to the obligations of FSF under the Credit
Agreement have not been satisfied as of the Closing Date. Therefore, we request
your limited consent and waiver to the satisfaction of the conditions set forth
on Exhibit A attached hereto subsequent to the Closing Date provided such
conditions are satisfied within the applicable time periods set forth on Exhibit
A.
Borrower acknowledges and agrees that the failure of Borrower to satisfy
any of the conditions set forth on Exhibit A within the applicable time periods
set forth on Exhibit A shall constitute an Event of Default under the Credit
Agreement without notice from FSF.
Very truly yours,
General Manufactured Housing, Inc.
By: /s/ Gary M. Brost
-----------------------------------------------
Gary M. Brost
President
Accepted and Agreed this
21 day of December, 1995:
First Source Financial LLP
By: First Source Financial, Inc.
By: /s/ Edward A. Szarkowicz, Jr.
--------------------------------
Edward A. Szarkowicz, Jr.
Vice President
EXHIBIT A
1. REAL ESTATE MATTERS - PLANTS 2 AND 3:
<PAGE>
A. Not later than April 30, 1996 Borrower shall obtain an amendment (the
"Amendment") to the Contract of Lease and Rent dated December 30, 1993 between
Waycross and Ware County Development Authority, as Lessor, and Borrower, as
Lessee, (the "Lease") with respect to Plants 2 and 3, which Amendment shall (i)
delete Article XX of the Lease and (ii) specifically provide that the estate
conveyed to Lessee under the Lease is an estate for years upon which Lessee may
grant a leasehold deed to secure debt.
B. Not later than 7 days after obtaining the Amendment, Borrower shall (i)
provide FSF with a leasehold deed to secure debt (the "Authority Leasehold
Mortgage") in form satisfactory to FSF conveying security title to Plants 2 and
3, (ii) provide FSF with a Consent and Nondisturbance Agreement in form
satisfactory to FSF with regard to the 1993 Deed to Secure Debt to The Patterson
Bank, (iii) promptly cause the Authority Leasehold Mortgage to be recorded in
the Recorder's Office of Ware County, Georgia, (iv) promptly cause First
American Title Company to issue its 1992 Alta Leasehold Loan Policies
("Policies") insuring the Authority Leasehold Mortgage in amounts satisfactory
to FSF in accordance with commitment numbers 6767-43 and 6767-35, which Policies
shall only be subject to item 9 as shown on Schedule B Part I and items 8, 9,
10, 11 and 12 on Schedule B, Part II of Commitment 6767-43 and item 8 on
Schedule B Part I and items 8, 9, 10 and 11 of Schedule B Part II of Commitment
6767-35, (v) promptly pay any and all costs, charges, recording or filing fees,
expenses or other costs in connection with the recording of the Authority
Leasehold Mortgage and issuance of the Policies, (vi) promptly cause Powell,
Goldstein, Frazer and Murphy or other law firm satisfactory to FSF to issue a
legal opinion opining that the Authority Leasehold Mortgage is valid and
enforceable in the State of Georgia and otherwise in form satisfactory to FSF
and (vii) promptly pay all costs, expenses and fees in connection with the
issuance of said opinion.
2. REAL ESTATE MATTERS - PLANT 4:
A. As soon as practicable but in any event not later than June 30, 1998, if
Borrower is still using Plant 4 in its operations at that date, Borrower shall
have obtained (i) fee simple title to Plant 4 or (ii) an estate for years
leasehold interest in Plant 4 (the "Plant 4 Lease") sufficient to permit
Borrower to give a leasehold deed to secure debt thereon. In the event Borrower
elects to obtain fee simple title to Plant 4 in order to satisfy its obligations
hereunder, the acquisition cost, not to exceed $650,000, shall be added to the
amount of permitted Gross Capital Expenditures under Section 11.18 of the Credit
Agreement in the applicable year.
B. Not later than 7 days after obtaining the Plant 4 Lease, Borrower shall
(i) provide FSF with a first leasehold deed to secure debt in form satisfactory
to FSF conveying leasehold security title to Plant 4 (the "Plant 4 Leasehold
Mortgage"), (ii) provide FSF with a Consent and Nondisturbance Agreement in form
satisfactory to FSF from the Plant 4 fee title mortgagee, if any, (iii) promptly
cause the Plant 4 Leasehold Mortgage to be recorded in the Recorder's Office of
Ware County, Georgia, (iv) promptly cause First American Title Company to issue
its 1992 Alta Leasehold Loan Policy insuring the Plant 4 Leasehold Mortgage in
an amount satisfaction to FSF, subject only to such exceptions as are
satisfactory to FSF, (v) promptly pay any and all costs, charges, recording or
filing fees, expenses or other costs in connection with the recording of the
Plant 4 Leasehold Mortgage and issuance of the Policies, (vi) promptly cause
Powell, Goldstein, Frazer and Murphy or other law firm satisfactory to FSF to
issue a legal opinion opining that the Plant 4 Leasehold Mortgage is
<PAGE>
valid and enforceable in the State of Georgia and otherwise in form satisfactory
to FSF and (vii) promptly pay all costs, expenses and fees in connection with
the issuance of said opinion.
3. REAL ESTATE MATTERS - PLANT 5:
Not later than March 31, 1996 subject to the last sentence of this Paragraph
3, Borrower shall resolve to the satisfaction of FSF each of the survey defects
(the "Survey Defects") with respect to Plant 5 described below as said Survey
Defects are depicted on survey number 95420 dated December 8 1995, prepared by
Nesbitt Surveying Company:
a.Right of way for Railroad Avenue runs through tract 1, tract 2, tract 3
and tract 4;
b.Building on tract 1 projects into Railroad Avenue right of way in three
(3) locations;
c.Water line and sewer line run under buildings located on tract 1 and tract
5 with no recorded easements;
d.Building on tract 1 projects onto property south and adjacent to tract 1;
e.Lack of recorded easement for paved access area on property south and
adjoining tract 1;
f.Lack of recorded 20 foot drainage easement on tract 3;
g.No recorded easement for dirt drive access to mobile which runs north to
south across tract 1;
h.Lack of recorded easements for utilities, affecting all tracts; and
i.Borrower presently uses tract 6 but has no record interest in said tract
6.
So long as Borrower demonstrates to the satisfaction of FSF not later than March
31, 1996 and the end of each Fiscal Quarter thereafter that satisfactory
progress is being made to resolve such Survey Defects, the failure to resolve
such Survey Defects shall not constitute an Event of Default.
4. OTHER MATTERS
a. Not later than 14 days after the Closing Date, Borrower shall provide,
or cause to be provided, to FSF a termination of the liens held by
NationsBank of GA, N.A. against Borrower in the UCC records of Ware
County, Georgia, file number 94-01242, dated 9/26/94 and in the
records of the FAA, conveyance number E18614 and filed 10/19/94.
b. Not later than 14 days after the Closing Date, Borrower shall deliver
to FSF UCC financing statements reasonably requested by FSF to be
filed in jurisdictions required by dual filing rules in the States in
which Borrower has or may have Property.
c. Not later than 21 days after the Closing Date, Borrower shall deliver
to FSF true, correct and complete copies of the documents set forth in
Section 12.1 of the Credit Agreement certified by an
<PAGE>
officer of Borrower.
d. Not later than 90 days after the Closing Date, Borrower shall deliver,
or cause to be delivered, to FSF evidence of (a) liability insurance
coverage, in an amount reasonably satisfactory to FSF, (b) the
buildings on Plants 2 and 3 insured at replacement cost and (c) all
copies of policies and/or certificates of insurance reasonably
requested by FSF.
e. Not later than 14 days after the Closing Date, Borrower shall deliver
to FSF the payroll and petty cash account letter from Carolina Bank
and Trust to FSF, in form reasonably satisfactory to FSF.
f. Not later than 14 days after the Closing Date, Borrower shall deliver
to FSF a copy of the restated certificate of incorporation of Parent
and Borrower, each certified by the Secretary of State of Delaware.
[remainder of page intentionally left blank]
<PAGE>
EXHIBIT 10.33
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT made and entered into effective the 1st day
of July, 1995 by and between GENERAL MANUFACTURED HOUSING, INC., a Georgia
corporation as Indemnitor, TIM-BAR CORPORATION, a corporation incorporated under
the laws of the State of Pennsylvania, sometimes referred to as Indemnitee and
as Lessor and HI-TECH PROPERTIES, INC. as Lessee.
RECITALS
1. Lessor and Lessee have entered into a Lease Agreement dated May
26, 1995, which Lease Agreement is incorporated herein by reference.
2. That Lessor and Lessee have entered into an Amendment to Lease
Agreement effective July 1, 1995, which is also incorporated herein by
reference.
3. That Lessor/Indemnitee has requested and Indemnitor has agreed to
indemnify Lessor with respect to the moving of two vertical beams located inside
the main building up to four (4) feet each, as provided for in Section Three F
of the Amendment to the Lease Agreement.
NOW THEREFORE, in consideration of the premises, the receipt and
sufficiency whereof is hereby acknowledged by Indemnitor, it is agreed as
follows:
SECTION ONE. Indemnitor agrees to indemnify and save Indemnitee
harmless against any and all loss, claims, suits, including costs and attorney's
fees, for or on account of injury to or death of persons, damage to or
destruction of property of Lessor or others occurring by reason of the moving or
relocation of the two vertical beams set forth in Section Three F of the
Amendment to the Lease Agreement.
SECTION TWO. This indemnity shall be effective upon the execution
hereof and shall continue during the term of the Lease Agreement, and for the
period of any applicable statute of limitations following termination of the
Lease Agreement including the statute of limitations for injury or damage
occurring by reason of moving or relocating the two vertical beams.
SECTION THREE. Indemnitor agrees that as part of this Indemnity
Agreement that it will defend any claim, cause of action brought against
Indemnitee arising from the matters indemnified against herein and shall bear
all costs of litigation.
SECTION FOUR. Any notice required or permitted to be given pursuant
to this Agreement shall be deemed to have been sufficiently given if delivered
personally or if sent by registered mail or certified mail, postage prepaid,
addressed as follows:
To Indemnitor: General Manufactured Housing, Inc.
2255 Industrial Boulevard
Waycross, GA 31503
To Lessee: Hi-Tech Properties, Inc.
2255 Industrial Boulevard
Waycross, GA 31503
<PAGE>
To Indemnitee: Tim-Bar Corporation
P.O. Box 449
Hanover, PA 17331
Any of the above addresses may be changed by written notice given to
other parties in the manner stated herein.
SECTION FIVE. This Agreement and the indemnity shall be binding upon
Indemnitor, its successors and assigns, and shall inure to the benefit of the
Indemnitee, its successors and assigns.
SECTION SIX. This Agreement and the indemnity shall be governed by
laws of the State of Georgia.
IN WITNESS WHEREOF the parties have executed this Agreement the day
and year first above written.
GENERAL MANUFACTURED HOUSING INC.,
Indemnitor
BY: /S/ Lannis Thomas
---------------------------------
Signed, sealed and delivered
in the presence of:
/S/ Barbara S. Johnson
- -------------------------------
WITNESS
/S/ Marilyn Hale
- --------------------------------
NOTARY PUBLIC (Seal)
My commission expires 4/12/98
----------
CONTINUATION OF SIGNATURE PAGE OF INDEMNITY AGREEMENT BETWEEN GENERAL
MANUFACTURED HOUSING, INC., TIM-BAR CORPORATION AND HIGH-TECH PROPERTIES,
INC.
TIM-BAR, Indemnitee/Lessor
BY: /S/ [illegible]
---------------------------------
Signed, sealed and delivered
in the presence of:
/S/ Rachel J. Settle
- --------------------------------
WITNESS
- --------------------------------
NOTARY PUBLIC (Seal)
<PAGE>
My commission expires___________
HI-TECH PROPERTIES, INC., Lessee
BY: /S/ [illegible]
---------------------------------
Signed, sealed and delivered
in the presence of:
/S/ Barbara S. Johnson
- --------------------------------
WITNESS
/S/ Marilyn Hale
- --------------------------------
NOTARY PUBLIC (Seal)
My commission expires 4/12/98
-----------
<PAGE>
EXHIBIT 10.34
MANUFACTURER'S INDEMNIFICATION AGREEMENT
This Indemnification Agreement effective as of the date accepted by Lender, is
entered into between General Manufactured Housing, Inc. ("Manufacturer") and
Security Pacific Housing Services, Inc. ("Lender").
Lender will be providing retail financing for purchasers of Manufacturer's
manufactured homes from certain dealers, and in consideration thereof,
Manufacturer agrees as follows:
1. Manufacturer agrees to promptly perform all services and warranty work,
according to the terms of Manufacturer's warranty, requested by Lender on
all of Manufacturer's manufactured homes financed by Lender within 21 days
from the date of receipt of written notification from Lender, to the
satisfaction of Lender.
2. Should there be a disagreement between Manufacturer and Lender on what
constitutes warranty repairs, both parties agree to have the home in
question inspected by an independent third party. The recommended third
party shall be the state agency that regulates mobile homes within the
state where the home is located. Both parties agree that the third party
inspection report is final and binding.
3. Manufacturer shall indemnify and hold Lender harmless from Lender's loss
and costs (including attorneys fees) which Lender may suffer if the
manufactured home in question is subsequently repossessed by Lender for
Manufacturer's failure to perform warranty repairs. However, Manufacturer's
liability hereunder shall be limited to the amount of the Manufacturer's
invoice price plus repossession costs and attorneys fees.
4. Any funds or other property of Manufacturer that may now or at any time
hereafter be given or left in the possession of Lender, for any purpose, or
that may be in transit to or from Lender for any purpose, are hereby
pledged and delivered to Lender to secure the payment of any obligations or
liabilities of Manufacturer to Lender, direct or contingent, whether due or
to become due, and whether now existing or hereafter arising. However,
Lender shall not withhold funds or property from Manufacturer except upon
Manufacturer actually failing or refusing to perform service or warranty
work. Further, Lender shall not create from funds or property due
Manufacturer a "reserve" for Manufacturer's failure or refusal to perform
service or warranty work pursuant to paragraph 1.
5. Both parties to this Agreement waive any and all right to a trial by jury
in any action or proceeding, whether in law or equity arising out of or
related to this or any other agreement between the parties.
6. This Agreement represents the entire agreement between the parties and may
not be modified or amended except by a writing duly executed by both
parties.
7. Waiver by Lender of any event of default by Manufacturer is not a waiver of
any subsequent default. Lender shall have the absolute and unconditional
right at all times to enforce all agreements of whatever kind or nature,
present or future, between Lender and Dealer in strict accordance with the
written terms of such agreements, notwithstanding any conduct, custom or
course of dealing between the parties contrary
<PAGE>
to the specific terms of the agreements.
8. Either party may cancel this Agreement by giving sixty (60) days written
notice to the other party by registered mail. However, Manufacturer shall
be bound to perform warranty repairs on all homes financed by Lender up to
the cancellation date as per the terms of this Agreement.
The parties hereto have accepted this Agreement on the dates set forth below.
LENDER: MANUFACTURER:
SECURITY PACIFIC HOUSING GENERAL MANUFACTURED
SERVICES, INC. HOUSING, INC.
BY /s/ A. O. Fowler By /s/ [illegible]
- -------------------------- --------------------------------
Its_______________________ Its TREASURER
-------------------------------
Date 10/10/89 Date OCTOBER 9, 1989
---------------------- ------------------------------
GUARANTY
The undersigned does hereby guarantee to you, and in the event that this
instrument be signed by two or more guarantors, the undersigned do hereby
jointly and severally guarantee to you, the due, regular and punctual payment of
any and all obligations, debts or liabilities of Manufacturer to you arising out
of or connected with the aforesaid Manufacturer's Indemnification Agreement. Any
financing extended by you on Manufacturer's products on or after the date hereof
shall be deemed to have been made in reliance hereon. In the event of default in
the performance of this Guaranty, undersigned (jointly and severally if more
than one) agrees to pay all reasonable court costs, attorney's fees and other
expenses paid or incurred by you in enforcing this Guaranty.
The undersigned hereby severally agree that this Guaranty shall not be
impaired by any modification, extension, or other alteration of any of the
obligations hereby guaranteed or of any security therefor, to all of which the
undersigned hereby consent without notice thereof. It is further agreed that the
liability of the undersigned hereunder is direct and unconditional, and may be
enforced without prior resort to any other right, remedy or security. No delay
in exercising any rights hereunder or failure to exercise the same shall operate
as a waiver thereof. This Guaranty may not be modified, altered or changed, nor
may any provision hereof be waived, except by an instrument in writing signed by
the party or parties adversely affected hereby.
Notice of acceptance hereof, notice of default by Manufacturer; demand for
payment hereunder presentment and protest of any instrument and notice hereby;
the right to a jury trial in any action hereon, to the extent permitted by
applicable law, and all other notices or demands to which undersigned might
otherwise be entitled, are all hereby expressly waived.
<PAGE>
This Guaranty shall not be discharged or affected by the death of any of
the undersigned, but shall bind their respective heirs, executors,
administrators and assigns, and the benefits hereof shall extend to and include
your successors and assigns.
Notwithstanding anything set forth above, the liability of the undersigned
shall be limited to the following amounts:
<TABLE>
<CAPTION>
Time Period From Dollar Amount of Liability
DATE OF GUARANTEE FOR EACH TIME PERIOD
<S> <C>
1st Year $500,000
2nd Year $400,000
3rd Year $300,000
4th Year $200,000
5th Year $100,000
</TABLE>
Date: 9 Oct 1989 /s/ Samuel P. Scott
---------------------- --------------------------------
Samuel P. Scott
Subscribed and sworn to before Home Address: 4300 SOUTH FLETCHER
me this 9TH day of OCTOBER,1989 FERNANDINA BEACH FLA 3203
/s/ Teiri F. Aldridge
______________________________________
Notary Public (Notary Seal)
stamped
Subscribed and sworn to before /S/ SHERON L. SCOTT
Sheron L. Scott
me this 9TH day of OCTOBER, 1989 Home Address: 4300 S. FLETCHER
/S/ TEIRI F. ALDRIDGE FERNANDINA BEACH, FL. 32034
Notary Public (Notary Seal)
stamped
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
October 18, 1996
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
As an independent certified public accountant, I hereby consent to the use of my
reports (and to all references to my Firm) included in or made a part of this
registration statement.
EARL A. LAWSON
Blackshear, Georgia
October 15, 1996
