<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-22679
ZARING NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-1506058
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 45242-1825
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
513-489-8849
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
--- ---
Number of common shares outstanding as of June 30, 1998: 4,765,788
-----------
Total Pages: 23
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ZARING NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets,
June 30, 1998, June 30, 1997 (unaudited), and
December 31, 1997 3
Consolidated Statements of Income (unaudited),
Three Months Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997 5
Consolidated Statement of Shareholders' Equity,
Six Months Ended June 30, 1998 (unaudited) 6
Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1997 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
PART II OTHER INFORMATION 22
SIGNATURES 23
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30,
------------------------- DECEMBER 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 4,292 $ 2,142 $ 4,160
Receivables:
Related parties 1,233 147 363
Other 270 687 476
Inventories:
Luxury site-built homes 47,834 35,539 42,405
Entry level site-built homes 2,340 - 1,547
Retail distribution manufactured homes 1,286 1,874 672
Model homes 18,298 12,131 16,890
Land, development costs and finished lots 43,579 39,698 46,907
Property and equipment, net 8,098 3,568 5,852
HomeMax Villages, net 8,255 - 3,674
Investments in and advances to
unconsolidated joint ventures 686 581 622
Future tax benefit 2,601 675 1,058
Cash surrender value of life insurance and other assets
5,588 5,024 5,161
Goodwill, net 2,302 - 2,356
-------- -------- --------
$146,662 $102,066 $132,143
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30,
---------------------- DECEMBER 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Liabilities:
Revolving credit facilities $ 45,863 $ 20,750 $ 46,425
Floor plan financing facility 4,169 - -
Term notes payable 21,243 17,245 15,745
Notes payable to former shareholders 2,046 - 1,896
Accounts payable 11,964 6,822 8,453
Accrued liabilities 7,062 3,649 6,292
Customer deposits 3,639 2,648 2,178
Income taxes payable - 762 -
-------- -------- --------
Total liabilities 95,986 51,876 80,989
-------- -------- --------
Minority interest 1,241 - 424
-------- -------- --------
Commitments and contingencies
Shareholders' equity:
Preferred shared, no par value, 2,000,000 shares
authorized, none issued or outstanding - - -
Common shares, no par value, 18,000,000
shares authorized, 4,765,788, 4,780,827,
4,780,788 issued and outstanding at June
30, 1998, June 30, 1997, and December 31,
1997, respectively 25,131 25,146 25,146
Additional paid-in capital 5,551 5,678 5,678
Retained earnings 18,753 19,366 19,906
-------- -------- --------
Total shareholders' equity 49,435 50,190 50,730
-------- -------- --------
$146,662 $102,066 $132,143
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Luxury site-built homes $ 66,926 $ 52,419 $ 116,803 $ 95,564
Entry level site-built homes 1,462 - 3,667 -
Retail distribution manufactured homes 2,047 1,410 2,977 2,422
----------- ----------- ----------- -----------
Total net revenues 70,435 53,829 123,447 97,986
----------- ----------- ----------- -----------
Expenses:
Cost of luxury site-built homes 55,142 43,995 97,721 79,537
Cost of sales entry level 1,149 - 2,864 _
site-built homes
Cost of sales retail distribution
manufactured homes 1,845 1,102 2,632 1,857
Interest 1,594 587 2,587 1,341
Selling 5,528 3,387 9,847 6,639
General and administrative 5,554 3,143 10,238 6,191
----------- ----------- ----------- -----------
Total expenses 70,812 52,214 125,889 95,565
----------- ----------- ----------- -----------
Operating income (loss) (377) 1,615 (2,442) 2,421
Other income (expense):
Income (loss) from unconsolidated joint
ventures 95 (15) 145 (40)
Other, net 42 127 73 148
----------- ----------- ----------- -----------
Income (loss) before minority interest
and provision (credit) for income taxes (240) 1,727 (2,224) 2,529
Minority interest in loss of subsidiary 102 - 183 _
----------- ----------- ----------- -----------
Income (loss) before provision (credit)
for income taxes (138) 1,727 (2,041) 2,529
Provision (credit) for income taxes (97) 695 (888) 1,017
----------- ----------- ----------- -----------
Net income (loss) $ (41) $ 1,032 $ (1,153) $ 1,512
=========== =========== =========== ===========
Basic and diluted earnings (loss) per
common share $ (0.01) $ 0.22 $ (0.24) $ 0.32
=========== =========== =========== ===========
Weighted average shares outstanding 4,765,788 4,781,063 4,771,092 4,781,063
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
SHARES COMMON PAID-IN RETAINED
ISSUED SHARES CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 4,780,788 $25,146 $5,678 $19,906 $50,730
Purchase and retirement of
common shares (15,000) (15) (127) - (142)
Net loss - - - (1,153) (1,153)
--------- ------- ------ -------- -------
BALANCE, June 30, 1998 4,765,788 $25,131 $5,551 $ 18,753 $49,435
========= ======= ====== ======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (1,153) $ 1,512
Adjustments to reconcile net income to cash provided by
operating activities--
Depreciation and amortization 1,284 718
Income (loss) from unconsolidated joint ventures (145) 40
Minority interest in loss of subsidiary (183) -
Change in assets and liabilities--
Future tax benefit (1,543) -
Receivables 336 (280)
Inventories (4,916) (5,590)
Cash surrender value of life insurance and other assets (672) (1,352)
Accounts payable and other accrued liabilities 3,511 577
Accrued expenses 770 778
Customer deposits 1,461 99
Income taxes payable - 655
-------- --------
Net cash used for operating activities (1,250) (2,843)
-------- --------
Cash Flows from Investing Activities:
Additions to property and equipment (7,812) (1,667)
Distributions from unconsolidated joint ventures, net 81 465
-------- --------
Net cash used for investing activities (7,731) (1,202)
-------- --------
Cash Flows from Financing Activities:
Borrowings on notes payable 73,595 37,250
Repayments of notes payable (64,340) (33,500)
Purchase of common shares (142) (3)
-------- --------
Net cash provided by financing activities 9,113 3,747
-------- --------
Increase (decrease) in cash and cash equivalents 132 (298)
Cash and cash equivalents, beginning of period 4,160 2,440
-------- --------
Cash and cash equivalents, end of period $ 4,292 $ 2,142
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest, net of amounts capitalized $ 2,494 $ 1,304
======== ========
Income taxes $ 594 $ 362
======== ========
</TABLE>
The accompanying notes are an ntegral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(1) Basis of Presentation-
----------------------
Effective in May 1997, Zaring National Corporation (an Ohio corporation)
implemented the formation of a holding company structure which results in
the accompanying consolidated financial statements including the accounts
of Zaring National Corporation and subsidiaries (the Company), formerly
Zaring Homes, Inc. The formation of the holding company had no effect on
the carrying value of assets, liabilities or equity of the Company. The
subsidiaries of the Company include the following: Zaring Homes, Inc. and
its subsidiaries, Zaring Homes of Indiana, LLC and Zaring Homes Kentucky,
LLC; Zaring Holdings, Inc.; HomeMax, Inc. and its subsidiaries, HomeMax
North Carolina, Inc., HomeMax Tennessee, Inc., HomeMax South Carolina,
Inc., HomeMax Ohio, Inc., HomeMax Indiana, LLC and HomeMax Kentucky, LLC;
Hearthside Homes, LLC (formerly Zaring Acquisition Company of Indiana,
LLC); and Legacy Mortgage Corporation, dba Hearthside Home Mortgage.
During June, 1998, First Cincinnati Leasing LLC (Leasing LLC) and First
Cincinnati Land LLC (Land LLC) were formed. Both Leasing LLC and Land LLC
are owned primarily by the principal shareholder of Zaring National
Corporation (see note 3) and are included in the consolidated financial
statements as of June 30, 1998.
The principal business of the Company's subsidiary, Zaring Homes, Inc.
(Zaring Homes) is the designing, constructing, marketing and selling of
Luxury Site Built single-family homes, and the acquisition and
development of land for sale as residential building lots in the midwest
and southeast United States. Zaring Homes began operations in Cincinnati,
Ohio in 1964 and commenced operations in Nashville, Tennessee in 1986. In
1994, operations commenced in Raleigh/Durham, North Carolina, and
Indianapolis, Indiana. In 1996, operations began in Louisville, Kentucky
and Charlotte, North Carolina.
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In November 1996, the Company formed HomeMax, Inc. (HomeMax) for the
purpose of entering into the retail distribution of manufactured housing.
HomeMax, based in Raleigh, North Carolina, commenced operations in the
first quarter of 1997. During 1997, HomeMax acquired the assets of three
manufactured housing retailers for approximately $2.4 million in cash.
The acquisitions were recorded using the purchase method of accounting.
Accordingly, the Company made allocations of the purchase price based on
fair market values as of the date of purchase. The excess of the cost of
the acquired assets over their estimated fair value has been recorded as
goodwill.
Effective October 1, 1997, the Company, through its newly formed
subsidiary Hearthside Homes, LLC, acquired substantially all of the net
operating assets of Legacy, Inc., an Indianapolis-based builder of entry
level site built single-family homes for approximately $1.9 million in
cash and a note. The Company also acquired the stock of Legacy Mortgage
Corporation for approximately $138,000. Hearthside Home Mortgage
originates, processes and sells mortgages to third party investors. The
acquisitions were recorded using the purchase method of accounting. In
1998, Hearthside expanded its operations into Nashville, Tennessee and
Louisville, Kentucky.
The principal business of Leasing LLC is to enter into sale lease-back
transactions for model homes. The principal business of Land LLC is to
purchase undeveloped land inventory and execute land option contracts to
repurchase the undeveloped land.
All significant intercompany transactions and balances have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Since such financial
statements do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements, they should be read in conjunction with the consolidated
financial statements and related footnotes included in the Form 10-K for
the fiscal year ended December 31, 1997 filed with the Securities and
Exchange Commission. The financial statements are unaudited, but in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
Company's unaudited consolidated financial statements as of June 30, 1998
have been included. Operating results for the six months ended June 30,
1998, are not necessarily indicative of the results for the entire year.
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(2) Capitalized Interest-
---------------------
Interest is capitalized on land in the process of development,
construction of sales villages and residential housing construction costs
during the development and construction period. The following table
summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
--------------------------- ------------------------
1998 1997 1998 1997
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Capitalized interest,
beginning of period $ 1,965 $ 1,066 $ 1,678 $ 1,074
Interest incurred 1,790 813 3,070 1,539
Interest expensed (1,594) (520) (2,587) (1,254)
--------- -------- -------- -------
Capitalized interest,
end of period $ 2,161 $ 1,359 $ 2,161 $ 1,359
========= ======== ======== =======
</TABLE>
(3) Notes Payable-
--------------
The Company has an unsecured $87.5 million syndicated credit facility
with PNC Bank acting as agent. This facility consists of a revolving
credit facility, providing for borrowings up to $72.5 million, depending
on the Company's borrowing base, as defined in the agreement, and a $15
million term loan. The revolving credit facility may be used for letters
of credit in an amount of up to $10 million. The revolving credit
facility bears interest at the options of (a) the greater of the prime
rate or the Federal Funds rate plus .5% or the (b) Euro-rate plus 1.25%
to 1.625%, depending on the Company's leverage ratio. The revolving
credit facility expires July 1, 1999. As of June 30, 1998, the Company
had outstanding balances of $32.9 million under the revolving credit
facility and $ 7.6 million in letters of credit.
In February 1998, the Company entered into three additional syndicated
credit facilities with NationsBank as agent. The new facilities consist
of:
- A $33.9 million manufactured housing floor plan financing facility
for inventory and display models with interest equal to the prime
rate or Euro-rate plus 2.35%. Retail inventory borrowings are subject
to repayment upon the earlier of sale, 10% at the end of six months
following initial borrowing and the balance after nine months.
Borrowings for the cost of display models are subject to payments of
10% after twelve months, with the balance due no later than
twenty-four months after the date of the initial borrowing.
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<PAGE> 11
As of June 30, 1998, the Company had outstanding balances of $4.2
million under the floor plan facility.
- A $12 million sales village mortgage loan for sales village
development, interest at prime plus 2%, convertible into twenty-eight
separate fifteen year amortization loans in amounts ranging from
$250,000 to $500,000 per village, balloon payments due five years
after the initial borrowing for each village, secured by mortgages.
As of June 30, 1998, the Company had not utilized the mortgage loan.
- A $15 million unsecured two-year revolving credit note expiring
March 2000 for working capital needs of HomeMax, Inc. and
subsidiaries with interest equal to the prime rate or Euro-rate plus
1.75% and guaranteed by Zaring Homes, Inc. As of June 30, 1998, the
Company had outstanding balances of $13.0 million under the revolving
credit note.
Term notes payable at June 30, 1998, include a $15.0 million term loan
($9.0 million outstanding as of June 30, 1998), expiring April 1, 2001,
which bears interest at (a) the greater of the prime rate or the Federal
Funds rate plus .5% or the (b) Euro-rate plus 1.375% to 1.75%, depending
on the Company's leverage ratio, and is payable in quarterly installments
of $750,000, and other term loans of $5.2 million which bear interest at
a fixed rate of 7.95% and are payable in 12 equal quarterly installments
beginning September, 1998. As of June 30, 1998, the Company also has $2.0
million of notes including accrued interest, to former shareholders with
interest rates of 6% to 8.5%, payable in equal annual installments and
due December, 1999 and August, 2001.
The bank credit agreements include provisions which require, among
others, that the Company maintain certain levels of tangible net worth
and cash flow from operations as well as limiting the Company's dividends
and ratio of debt to equity.
On June 30, 1998, Leasing LLC (a limited liability company owned by Allen
G. Zaring III, President of Zaring National Corporation), purchased at
cost and subsequently leased-back $7.8 million of model homes
collectively from Zaring Homes, Inc., (Zaring Homes). Leasing LLC will
lease the model homes to Zaring Homes on a triple net basis, wherein
Zaring Homes is responsible for taxes, insurance, maintenance and
homeowner fees, if applicable. Zaring Homes will pay rent equal to the
sales price of the model home times the prime interest rate (8.50% at
June 30, 1998). To finance the purchase of the model homes, on June 30,
1998, Leasing LLC entered into a loan agreement with The Huntington
National Bank whereby an amount of up to $10.0 million can be borrowed
until December 31, 1998 (the "draw period"). As of June 30, 1998, the
loan had an outstanding balance of $7.0 million and bears interest at
LIBOR plus 1.75%. Interest is payable monthly. The principal balance is
due (i) following lease termination and as each model home is sold on the
date of each sale in an amount equal to the amount originally advanced
for each model home; and (ii) in three consecutive annual installment
periods beginning on June 30, 1999. Each installment payment of principal
shall be in an aggregate amount equal to not less than one-fifth of the
principal balance except that the final installment payment shall be for
the unpaid balance.
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Accrued interest shall be payable on the same dates as installment
payments of the principal. The loan agreement contains provisions which
require, among others, that Leasing LLC maintain a specified level of
interest coverage and tangible net worth. The loan is guaranteed by Allen
G. Zaring III and is collateralized by first mortgage liens on the model
homes. As of June 30, 1998, Leasing LLC recorded a $1.0 million
receivable from Allen G. Zaring III representing his capital
contribution. On July 15, 1998, $850,000 of the capital was paid.
During July, 1998, Land LLC (a limited liability company owned equally by
Allen G. Zaring III and his sons), purchased $3.6 million in undeveloped
land inventory from Zaring Homes. Subsequently, Land LLC executed a three
year land option contract with Zaring Homes to repurchase the land with
monthly land option contract payments equal to Land LLC's carrying cost
(interest, real estate taxes, sewer and water). Zaring Homes' purchase
price of the land will equal Land LLC's original cost plus 15%. To secure
its performance of the option contract, Zaring Homes provided an
irrevocable letter of credit in the amount of $1.5 million in favor of
Land LLC which is drawable if the option is not exercised. To finance the
purchase of the land, Land LLC entered into a loan agreement with the
Provident Bank whereby an amount of up to $10.0 million can be borrowed.
As of July 31, 1998, the loan had an outstanding balance of $3.6 million
and bears interest at LIBOR plus 2.25%. Interest is payable monthly. The
principal balance is due in July, 2001. The loan is guaranteed by Allen
G. Zaring III and his sons and is collateralized by first mortgage liens
on the land inventory.
(4) Earnings (Loss) Per Common Share-
---------------------------------
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128). In accordance with SFAS128,
basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed similar to basic except the
denominator is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common
shares had been issued.
Options to purchase 333,277 and 258,569 shares of common stock at an
average price of $10.07 and $10.50 per share were outstanding during the
periods ending June 30, 1998 and 1997, respectively, but were not
included in the computation of earnings per share since the options'
exercise prices were greater than the average market price of the common
shares.
Since there are no antidilutive securities, basic and diluted earnings
(loss) per share are identical thus a reconciliation of the numerator and
denominator is not necessary.
SFAS 128 requires the Company to restate reported earnings for all
periods presented. This accounting change had no effect on previously
reported earnings per share.
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(5) Shareholders' Equity-
---------------------
The Company is authorized to issue up to 2,000,000 preferred shares of
which 1,000,000 are voting. No preferred shares have been issued.
(6) New Pronouncements-
-------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
the standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 is effective for financial
statements for annual periods beginning after December 15, 1997. The
Company adopted this statement in the first quarter of fiscal 1998 with
no impact on the Company's reported consolidated financial position,
results of operations or cash flow.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (SFAS 131), which requires disclosures for each
segment in which the chief operating decision maker organizes these
segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services,
geography, legal structure, management structure and any manner in which
management segregates a company. The Company intends to adopt SFAS 131 in
fiscal 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1
requires computer software costs incurred in the preliminary project
stage to be expensed and provides capitalization criteria for costs
incurred subsequent to the preliminary project stage. The Company adopted
SOP 98-1 in the first quarter of fiscal 1998 with no impact on the
financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires the cost of start-up
activities, such as pre-opening expenses, to be expensed as incurred.
Under the Company's current accounting policies, these pre-opening
expenses are deferred until the manufactured housing village has opened
and then amortized over a one-year period. The Company is required to
adopt the provisions of SOP 98-5 no later than the first quarter of
fiscal 1999. Included in the accompanying June 30, 1998 consolidated
balance sheet is approximately $450,000 of unamortized pre-opening
expenses which would have been expensed had SOP 98-5 already been
implemented.
(7) Reclassifications-
------------------
Certain amounts in the consolidated interim financial statements for 1997
have been reclassified to conform to the 1998 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented include luxury site-built homes, entry level site-built homes,
retail distribution of manufactured homes and reflect the cyclical nature of the
housing industry.
The Company reported consolidated net revenues of $70.4 million for the quarter
ended June 30, 1998, compared to $53.8 million for the same quarter in 1997. Net
loss for the second quarter of 1998 was ($41,000) or ($0.01) per share, compared
to net income of $ 1.0 million or $ 0.22 per share for the first quarter of
1998.
For the six months ended June 30, 1998, consolidated revenues were $123.4
million compared to $98.0 million for the six months ended June 30, 1997. Net
loss for the six months ended June 30, 1998 was ($1.2 million) or ($ 0.24) per
share, compared to $1.5 million or $ 0.32 per share for the six months ended
June 30, 1997.
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The following tables set forth, for the periods indicated, certain information
regarding the Company's operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------------
1998 1997 1998 1997
---------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Zaring Homes, Inc.
Luxury Site-Built Homes
Revenues (1) $ 66,926 $ 52,463 $ 116,803 $ 95,564
Cost of sales 55,142 43,957 97,721 79,537
Interest 1,892 1,607 3,412 3,055
Selling, general and administrative
expenses 7,082 5,487 12,942 10,639
---------- ----------- ----------- ---------
Operating income 2,810 1,412 2,728 2,333
Other income 6 7 14 13
---------- ----------- ----------- ---------
Pretax Luxury Site-Built Income 2,816 1,419 2,742 2,346
HomeMax, Inc.
Retail Distribution Manufactured Homes
Revenues (1) 2,047 1,410 2,977 2,422
Cost of sales 1,845 1,102 2,632 1,857
Interest 597 67 799 87
Selling, general and administrative
expenses 2,713 461 4,820 964
---------- ----------- ----------- ---------
Operating loss (3,108) (220) (5,274) (486)
Other income (expense) 16 (36) 17 28
Minority interest 102 183
---------- ----------- ----------- ---------
Pretax Retail Distribution Loss (2,990) (256) (5,074) (458)
Hearthside Homes, LLC
Entry Level Site-Built Homes
Revenues (1) 1,462 3,667
Cost of sales 1,149 2,864
Interest 104 121
Selling, general and administrative
expenses 507 959
---------- -----------
Operating loss (298) (277)
Other income 15 28
---------- -----------
Pretax Entry Level Site-Built Loss (283) (249)
Corporate income and (expense):
Interest income from subsidiaries, net 999 1,087 1,745 1,801
General and administrative (680) (523) (1,205) (1,160)
---------- ----------- ----------- ---------
Income (loss) before taxes (138) 1,727 (2,041) 2,529
Provision (credit) for income taxes (97) 695 (888) 1,017
---------- ----------- ----------- ---------
Net income (loss) $ (41) $ 1,032 $ (1,153) $ 1,512
========== =========== =========== =========
</TABLE>
Page 15
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Luxury Site-Built Homes
Operating data:
Units
New Orders (2) 191 243 527 441
Closings (1) 262 212 462 390
Backlog (3) 305 314 305 314
Average revenue per closing $ 252 $ 243 $ 251 $ 241
Average value of new order sales $ 266 $ 235 $ 258 $ 239
Sales value of backlog $ 80,574 $ 75,641 $ 80,574 $ 75,641
Retail Distribution Manufactured Homes
Operating data:
Units
New Orders (2) 90 40 163 61
Closings (1) 41 37 60 75
Backlog (3) (4) 143 42 143 42
Average revenue per closing $ 50 $ 36 $ 49 $ 33
Average value of new order sales $ 55 $ 33 $ 55 $ 30
Sales value of backlog $ 8,344 $ 2,802 $ 8,344 $ 2,802
Entry Level Site-Built Homes
Operating data:
Units
New Orders (2) 11 50
Closings (1) 12 31
Backlog (3) 43 43
Average revenue per closing $ 130 $ 121
Average value of new order sales $ 124 $ 127
Sales value of backlog $ 5,654 $ 5,654
</TABLE>
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) New orders represent total new home orders received during the period, net
of cancellations.
(3) Backlog includes new orders which have not yet closed.
(4) 28 contracts with a sales value of $2,326 and 56 contracts with a sales
value of $3,402 were acquired through acquisition for the 3 and 6 month
periods ended June 30, 1997, respectively.
Page 16
<PAGE> 17
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
ZARING HOMES, INC., LUXURY SITE-BUILT HOMES- Net revenues for the three months
ended June 30, 1998 increased 27.6% over the same period 1997. The Company
delivered 262 homes in the second quarter of 1998, compared to 212 homes in
1997, a 23.6% increase. Net revenues for the six months ended June 30, 1998
increased 22.2% over the same period in 1997. The Company delivered 462 homes
during the six months ended June 30, 1998, compared to 390 homes in the
corresponding period in 1997, an 18.5% increase. These increases are
attributable to the continued strength of the luxury housing market and 1998
closings of 36 and 105 homes in the expansion cities of Charlotte and Louisville
for the three and six months ended June 30, 1998 respectively, versus 10 home
closings in Charlotte and Louisville in the six months ended June 30, 1997 (none
in the three months ended March 31, 1997).
Gross profit increased $3.3 million or 38.5% in the second quarter of 1998 as
compared to the second quarter of 1997. Gross profit as a percentage of revenue
increased 1.4% to 17.6% of revenues during the second quarter of 1998. The
increase in gross profit is attributable to, among other factors, the acceptance
of contracts with higher margins in an effort to increase margins, and decreased
subcontractor and other production costs. The six month ended June 30, 1998
gross profit percentage was 16.3% as compared to 16.8% for the corresponding
period in 1997. The decrease in gross profit percentage for the six month period
ended June 30, 1998 was a result of closing low margin contracts accepted in the
first quarter of 1998. Interest expense increased $285,000 and $357,000 in the
three and six months ended June 30, 1998, respectively, compared to the same
periods in 1997. This increase is mainly attributable to a larger investment in
model and market homes and the number of units in process. Selling expenses for
the three and six month period ended June 30, 1998 increased $1.2 million and
$1.6 million, respectively, as compared to the corresponding period in 1997. The
overall selling expense increases occurred as a result of increased sales
staffing levels, design center expenses and sales commissions which are directly
related to closing revenues. As a percentage of revenue, selling expenses
increased from 6.3% during the three month period ended June 30, 1997 to 6.8%
during the three month period ended June 30, 1998. As a percentage of revenue,
selling expenses increased from 6.8% during the six month period ended June 30,
1997 to 6.9% during the six month period ended June 30, 1998. General and
administrative expenses increased $379,000 or 17.4% in the second quarter of
1998, compared to the second quarter of 1997 and $706,000 or 16.9% in the six
months ended June 30, 1998, compared to the six months ended June 30, 1997. This
increase was primarily attributable to increased corporate staffing, additional
office space, and other related expenses. As a percentage of revenue, general
and administrative expenses decreased to 3.8% from 4.1% during the second
quarter 1997 and was relatively consistent at 4.1% for the six month period
ended June 30, 1998. On a combined basis, selling, general and administrative
expenses increased $1.6 million, or 29.1% in the second quarter 1998 compared to
the second quarter of 1997. In addition, selling, general and administrative
expenses increased $2.3 million, or 21.6% for the six months ended June 30,
1998, compared to the corresponding period in 1997. As a percentage of revenues,
selling, general and administrative expenses remained constant at 10.5% and
11.1% for the three and six month period ended June 30, 1998 and 1997,
respectively.
Page 17
<PAGE> 18
As a result of the foregoing, Zaring Homes reported pretax income of $2.8
million or 4.2% of net revenues in the second quarter of 1998, an increase of
$1.4 million or 98.4% from the same period in 1997. For the six month period
ended June 30, 1998, Zaring Homes reported pretax income of $2.7 million or 2.3%
of revenues, an increase of $396,000 or 16.9%.
HOMEMAX, INC., RETAIL DISTRIBUTION MANUFACTURED HOMES- Net revenues for the
three months ended June 30, 1998 increased $637,000 from $1.4 million in the
second quarter of 1997 to $2.0 million in the second quarter of 1998. Net
revenues for the six months ended June 30, 1998 increased $555,000 from $2.4
million for the six months ended June 30, 1997 to $3.0 million for the six
months ended June 30, 1998. HomeMax closed 41 units in the second quarter of
1998, an increase of 10.8% from the 37 units closed in the same period of 1997.
HomeMax closed 60 units for the six month period ended June 30, 1998, a decrease
of 20% from the 75 units closed in the same period of 1997. The overall decrease
for the six month period is attributed to the fact that a new product line was
introduced in the fourth quarter of 1997 in conjunction with the opening of the
Super Model Home Village. Sales of the new product have been strong, as
reflected in the backlog of 143 units as of June 30, 1998, compared to 42 units
in 1997; however, the time from contract to close has lengthened due mainly to
land availability and receipt of customer financing approvals. The total number
of villages opened at June 30, 1998 is seven and it is anticipated that eight
additional villages will be operational by December 31, 1998.
Gross profit was $202,000 or 9.9% for the three months ended June 30, 1998 as
compared to $308,000 or 21.8% for the same period in 1997, a decrease of 34.4%.
Gross profit was $345,000 or 11.6% for the six months ended June 30, 1998 as
compared to $565,000 or 23.3% for the same period in 1997, a decrease of 38.9%.
This decrease is primarily due to the mix of units sold and production expenses
which were not able to be passed on to the consumer. Interest expense increased
$530,000 and $712,000 in the three and six months ended June 30, 1998,
respectively as compared to the corresponding period in 1997. As a percentage of
revenues, interest expense increased from 4.8% in the second quarter of 1997 to
29.2% in the second quarter of 1998. In addition, as a percentage of revenues,
interest expense increased from 3.6% for the six month period ended June 30,
1998 to 26.8% in the corresponding period in 1998. This increase is due to the
increase in the number of HomeMax villages from two as of June 30, 1997 to seven
in 1998. Each village necessitates a significant investment which includes sales
office units, model units and related furnishings. Also contributing to the
increase in interest expense is the increase in the number of units in backlog
and the financing of the infrastructure expansion for selling and administrative
initiatives.
Selling, general and administrative expenses for Home Max, including
infrastructure costs to leverage the expansion efforts, totaled $2.7 million and
$4.8 million for the three and six months ended June 30, 1998, respectively,
compared to $461,000 and $964,000 for the same periods in 1997. In the second
quarter of 1997, HomeMax acquired the assets of one manufactured housing
retailer bringing the total number of villages operated to two. In the second
quarter of 1998, HomeMax operated three acquired manufactured housing retailers
and four Super Model Home Villages. Selling expenses were $709,000 or 34.6% of
Page 18
<PAGE> 19
revenues in the second quarter of 1998 compared to $79,000, or 5.6% of revenues
for the same period in 1997. Selling expenses were $1.5 million or 50% of
revenues for the six month period ended June 30, 1998 compared to $166,000 or
6.9% of revenues for the same period in 1997. This increase is primarily due to
start-up marketing and advertising costs. General and administrative expenses
were $2.0 million in the second quarter of 1998 versus $382,000 for the same
period in 1997, an increase of $1.6 million. General and administrative expenses
were $3.3 million for the six month period ended June 30, 1998 versus $798,000
for the same period in 1997, an increase of $2.5 million. The general and
administrative expense increases were due to the above mentioned expansion
efforts.
As a result of the foregoing, HomeMax reported a pretax loss of $3.0 million in
the second quarter of 1998 compared to $256,000 in the second quarter of 1997.
In addition, HomeMax reported a pretax loss of $5.0 million for the six months
ended June 30, 1998 compared to $458,000 for the corresponding period in 1997.
HEARTHSIDE HOMES, LLC, ENTRY LEVEL SITE-BUILT HOMES- Net revenues for the three
and six months ended June 30, 1998 were $1.5 million and $3.7 million,
respectively. Twelve and 31 homes, respectively, were delivered in the three and
six months ended June 30, 1998.
Gross profit was $313,000, or 21.4% and $803,000, or 21.9% for the three and six
months ended June 30, 1998, respectively. Selling, general and administrative
expenses were $507,000, or 34.7% of revenues and $959,000 or 26.1% of revenues
for the three and six months ended June 30, 1998, respectively, reflecting
Hearthsides expansion into the Nashville, Tennessee and Louisville, Kentucky
markets. Interest expense was $104,000 and $121,000 for the three and six months
ended June 30, 1998, respectively. As a result of the foregoing, Hearthside
reported pretax losses of $283,000 and $249,000 for the three and six months
ended June 30, 1998, respectively.
OTHER OPERATING RESULTS
Interest income from subsidiaries represents the allocation of interest cost to
the subsidiaries. Corporate general and administrative expenses were $680,000
and $1.2 million for the three and six-month period ended June 30, 1998,
respectively, as compared to $523,000 and $1.2 million for the three and six
month period ended June 30, 1997.
YEAR 2000 AND ACCOUNTING SOFTWARE COSTS
The Company has several information improvement initiatives in process. In
particular, the Company plans to replace its core management information system
over the next two years in order to be year 2000 compliant. Management's current
estimate of the cost of the system replacement approximates $3.0 million.
Certain of these costs will be capitalized in accordance with the guidelines
established in Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" issued in March 1998. As of
June 30, 1998, a total of $920,000 of costs has been capitalized in connection
with this project.
Page 19
<PAGE> 20
CAPITAL RESOURCES AND LIQUIDITY
Net cash used for operating activities decreased $1.6 million to $1.3 million
during the six months ended June 30, 1998 as compared to $2.8 million for the
six months ended June 30, 1997. This is a result of a net loss for the six
months ended June 30, 1998 of $1.2 million compared to net income of $1.5
million for the six months ended June 30, 1998 and an increase in the future tax
benefit of $1.5 million offset by increases depreciation and amortization
($566,000), decreased investments in both site-built and manufactured housing
inventories ($674,000), increases in payables, accrued expenses, customer
deposits and income taxes payable ($3.6 million) and other changes in operating
assets and liabilities such as receivables, cash surrender value of life
insurance and other assets ($928,000). Net cash used for investing activities
increased $6.5 million due to greater purchases of property and equipment,
particularly at the HomeMax subsidiary for sales village development. Net cash
provided by financing activities for the six months ended June 30, 1998 was $9.1
million, an increase of $5.4 million over the same period in 1997 due to net
bank borrowings of $9.3 million. The increase in debt was primarily used to
finance property and equipment purchases and support working capital needs.
HomeMax and Zaring National Corporation maintain a $65 million stand alone
credit facility to fund Zaring National Corporation's strategic plan. This is in
addition to the $87.5 million credit facility already in place for Zaring Homes
and Hearthside Homes.
On June 30, 1998, Allen G. Zaring III executed agreements to fund $20 million of
new long-term capital to Zaring National Corporation and its subsidiaries
through two new entities controlled by him: First Cincinnati Leasing, LLC
(Leasing LLC) and First Cincinnati Land, LLC (Land LLC). Leasing LLC purchased
at cost and subsequently leased-back $7.8 million of model homes collectively
from Zaring Homes. Zaring Homes will pay rent equal to the sales price of the
model home times the prime interest rate (8.50% at June 30, 1998). To finance
the purchase of the model homes, on June 30, 1998, Leasing LLC entered into a
loan agreement whereby an amount of up to $10.0 million can be borrowed until
December 31, 1998. As of June 30, 1998, the loan had an outstanding balance of
$7.0 million and bears interest at LIBOR plus 1.75%.
During July, Land LLC, purchased $3.6 million in undeveloped land inventory from
Zaring Homes. Subsequently, Land LLC executed a three year land option contract
with Zaring Homes to repurchase the land with monthly land option contract
payments equal to Land LLC's cost of carry (interest, real estate taxes, sewer
and water). Zaring Homes' purchase price of the land will equal Land LLC's
original cost plus 15%. To secure its performance of the option contract, Zaring
Homes provided an irrevocable letter of credit in the amount of $1.5 million in
favor of Land LLC. To finance the purchase of the land, Land LLC entered into a
loan agreement whereby an amount of up to $10.0 million can be borrowed. As of
July 31, 1998, the loan had an outstanding balance of $3.6 million and bears
interest at LIBOR plus 2.25%.
Page 20
<PAGE> 21
The Company believes its present cash balances, amounts available under existing
borrowing agreements and amounts generated from future operations will provide
adequate funds for its future plans.
PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE
- ------------------------------------------------
The Company periodically reviews the value of land, inventories and intangibles
and determines whether any write-downs need to be recorded to reflect declines
in value. The estimated net realizable value of real estate inventories
represents management's estimate based on present plans and intentions, selling
prices in the ordinary course of business and anticipated economic and market
conditions. Accordingly, the realization of the value of the Company's real
estate inventories and certain intangibles is dependent upon future events and
conditions that may cause actual results to differ from amounts presently
estimated.
INFLATION
- ---------
Housing demand, in general, is affected adversely by increases in interest
rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit, and net income could be
adversely affected.
CAUTIONARY STATEMENTS
- ---------------------
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not related to
historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumption of future
events which may not prove to be accurate. These forward looking statements
involve risks and uncertainties including but not limited to those referred to
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations; Cautionary Statements" in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, filed with the
Securities and Exchange Commission. Readers should carefully review those risk
factors and uncertainties in conjunction with reading this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Page 21
<PAGE> 22
PART II - OTHER INFORMATION
Item 1. Legal Information
-----------------
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business activities which seek
remedies or damages. The Company believes that any liability that may be
determined will not have a material effect on its financial position or results
of operation.
Item 2. None
----
Item 3. None
----
Item 4. None
----
Item 5. None
----
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27, Financial Data Schedule
(b) The Company did not file a report on Form 8-K during the
quarter for which this report is filed.
10.12 Promissory Note between First Cincinnati Leasing LLC and
The Huntington National Bank
10.13 Loan and Security agreement between First Cincinnati
Leasing LLC and The Huntington National Bank
10.14 Loan Agreement between First Cincinnati Land LLC and The
Provident Bank
10.15 Promissory Note between First Cincinnati Land LLC and
The Provident Bank
Page 22
<PAGE> 23
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZARING NATIONAL CORPORATION.
(Registrant)
Date: August 14, 1998 By: /s/Allen G. Zaring III
-------------------------------------------
Allen G. Zaring III
Chairman of the Board, Chief Executive Officer
Date: August 14, 1998 By: /s/Ronald G. Gratz
-------------------------------------------
Ronald G. Gratz
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Page 23
<PAGE> 1
EXHIBIT 10.12
PROMISSORY NOTE
$10,000,000.00 Cincinnati, Ohio
June 30, 1998
FOR VALUE RECEIVED, the undersigned, promises to pay to the order of
The Huntington National Bank (hereinafter called the"Bank"), which term shall
include any holder hereof), at such place as the Bank may designate or, in the
absence of such designation, at any of the Bank's offices, the sum of TEN
MILLION and NO/100 Dollars ($10,000,000.00), or so much thereof as shall have
been advanced by the Bank by December 31, 1998 and not hereafter repaid
(hereinafter called the "Principal Sum") together with interest as hereinafter
provided. The undersigned promise to pay the Principal Sum and the interest
thereon at the times and in the manner hereinafter provided. The proceeds of the
loan evidenced hereby may be advanced in partial amounts during the term hereof
and prior to maturity, provided, that no partial advance of the Principal Sum
shall be for less than $500,000.00, and no partial advance shall be made after
December 31, 1998. Each such advance shall be made to the undersigned upon
receipt by the Bank of disbursement instructions and upon receipt, review and
approval by the Bank of the undersigned's application for an advance, which
shall be in such form and contain such information as the Bank shall from time
to time prescribe.
The Bank shall be entitled to rely on any oral or telephonic
communication requesting an advance and/or providing disbursement instructions
hereunder, which shall be received by it in good faith from anyone reasonably
believed by the Bank to be the undersigned, or the undersigned's authorized
agent. The undersigned agrees that all partial advances made and payments
received by the Bank will be evidenced by entries made by the Bank into its
electronic data processing system and/or internal memoranda maintained by the
Bank. The undersigned further agrees that the sum or sums shown on the most
recent printout from the Bank's electronic data processing system and/or such
memoranda shall be rebuttably presumptive evidence of the amount of Principal
Sum and of the amount of any accrued interest. Each request for an advance shall
constitute a warranty and representation by the undersigned that no event of
default hereunder or under any related loan documents has occurred and is
continuing and that no event or circumstance which would constitute such an
event of default, but for the requirement that notice be given or time elapse or
both, has occurred and is continuing.
This Note is executed and any advances contemplated hereunder are to be
made pursuant to a Loan and Security Agreement dated June 30, 1998 and all the
covenants, representations, agreements, terms and conditions contained therein,
including, but not limited to, additional conditions of default and conditions
to any partial advances, are incorporated herein as if fully rewritten.
<PAGE> 2
INTEREST
- --------
Prior to maturity, unless the Prime Rate Option, as hereafter set
forth, is selected by the undersigned pursuant to the provisions hereof,
interest will accrue on the unpaid balance of the Principal Sum at a variable
rate of interest per annum, which shall change in the manner set forth below,
equal to one and three fourths of one percentage point (1.75%) in excess of the
LIBO Rate, as hereafter defined (the "Contract Rate").
As used herein, LIBO Rate shall mean the rate obtained by dividing (a)
actual or estimated per annum rates of interest offered to U.S. banks for
deposits in U.S. dollars in the London interbank market for one month periods
and in an aggregate amount comparable to the Principal Sum, as offered and
determined by the Bank in its sole discretion based upon information which
appears on page 3750, captioned "British Bankers Assoc. Interest Settlement
Rates", of Telerate, a service of Telerate systems Incorporated (or such other
page that may replace that page on that service for the purpose of displaying
LIBO rates; or, if such service ceases to be available, such other reasonable
comparable money rate service as the Bank may select) or upon information
obtained from any other reasonable procedure, on each Banking Day; by (b) an
amount equal to one (1) minus the stated maximum rate (expressed as a decimal),
if any, of all reserve requirements (including, without limitation any marginal,
emergency, supplemental, special or other reserves) that is specified on each
date the Contract Rate is determined by the Board of Governors on each date the
Contract Rate is determined by the Board of Governors of the Federal Reserve
System (or any successor agency thereto) for determining the maximum reserve
requirement with respect to eurocurrency funding (currently referred to as
("Eurocurrency liabilities" in Regulation D of such Board) maintained by a
member bank of such System, or any other regulations of any governmental
authority having jurisdiction with respect thereto, all as conclusively
determined by Bank, absent manifest error, such sum to be rounded up, if
necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16
of 1.0%) per annum.
As used herein, Banking Day shall mean any day other than a Saturday or
Sunday on which banks are open for business in Cincinnati, Ohio and on which
banks in London, England are open for settlement of payments.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of such authority (whether or not having the force of law),
including without limitation exchange controls, shall make it unlawful or
impossible for the Bank to offer the Contract Rate under this Note, then and in
any such event, the Bank shall promptly give notice thereof to the undersigned.
In such case, the interest shall immediately begin to accrue, without selection
by the undersigned, at the Prime Rate Option.
2
<PAGE> 3
The Prime Rate Option is a rate equal to the Prime Commercial Rate. As
used herein, Prime Commercial Rate shall mean the rate established by the Bank
from time to time based on its consideration of economic, money market, business
and competitive factors. The Prime Rate Option is a rate equal to the Prime
Commercial Rate. Prime Commercial Rate is not necessarily the lowest lending
rate of The Huntington National Bank.
Prior to default hereunder or maturity, the undersigned may select as
the rate of interest applicable to this Note either the LIBO Rate Option or the
Prime Rate Option on a monthly basis effective on the first day of the month
following the date notice is received by the holder of this Note, by written
notice or by facsimile transmission, provided such notice is received by the
holder at least three (3) Banking Days prior to such first day of the month.
Subject to any maximum or minimum interest rate limitation by
applicable law, the Contract Rate shall change automatically, without notice to
the undersigned immediately on each Banking Day with each change in the LIBO
Rate, as applicable, with any change thereto effective as of the opening of
business on the day of the change.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of any such authority (whether or not having the force of
law), shall (a) affect the basis of taxation of payments to the Bank of any
amounts payable by the undersigned for under this Note while interest is acruing
at the Contract Rate (other than taxes imposed on the overall net income of the
Bank by the jurisdiction, or by any political subdivision or taxing authority of
any such jurisdiction, in which the Bank has its principal office), or (b) shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by the Bank, or (c) shall impose any other condition, requirement or
charge with respect to this Note (including, without limitation, any capital
adequacy requirement, any requirement which affects the manner in which the Bank
allocates capital resources to its commitments or any similar requirement), and
the result of any of the foregoing is to increase the cost to the Bank of making
or maintaining the loan evidenced thereby, to reduce the amount of any sum
receivable by the Bank thereon, or to reduce the rate of return on the Bank's
capital, then the undersigned shall pay to the Bank, from time to time, upon
request of the Bank, additional amounts sufficient to compensate the Bank for
such increased cost, reduced sum receivable or reduced rate of return to the
extent the Bank is not compensated therefor in the computation of the interest
rates applicable to the Principal Sum. A detailed statement as to the amount of
such increased cost, reduced sum receivable or reduced rate of return, prepared
in good faith and submitted by the Bank to the undersigned, shall be conclusive
and binding for all purposes relative to the Bank, absent manifest error in
computation. This provision shall survive the payment in full of this Note.
If the undersigned makes any payment of principal on any other date
than as agreed under this Note, or fails to make any payment of principal or
interest when due or at the maturity, the undersigned shall reimburse the Bank
on demand for any resulting loss or expense incurred by the Bank, determined in
the Bank's reasonable opinion, including without limitation any loss
3
<PAGE> 4
incurred in obtaining, liquidating or employing deposits from third parties. A
detailed statement as to the amount of such loss or expense, prepared in good
faith and submitted by the Bank to the undersigned shall be conclusive and
binding for all purposes absent manifest error in computation.
MANNER OF PAYMENT
- -----------------
Payment of the Principal Sum and interest thereon shall be paid as
follows:
(1) All accrued interest, shall be due and payable on the 30th day of
each month, except for the month of February when payment shall be due and
payable on the last day of February, commencing on July 30, 1998, and continuing
each month thereafter until maturity; and
(2) The Principal Sum shall be due and payable: (i) as each Model Home
is sold, on the date of each sale in an amount equal to the amount originally
advanced for each Model Home; and (ii) in three consecutive annual installment
payments beginning on June 30, 1999. Each installment payment of the Principal
Sum, shall be in an aggregate amount equal to not less than one fifth of the
Principal Sum except that the final installment payment shall be for the unpaid
balance. Accrued interest shall be payable on the same dates as installment
payments of the Principal Sum.
LATE CHARGE
- -----------
Any installment payment or other payment not made within 10 days of the
date such payment is due shall be subject to a late charge equal to 5% of the
amount of the payment.
DEFAULT RATE
- ------------
Upon the occurrence of any default by the undersigned, whether by
acceleration or otherwise, interest shall accrue on the unpaid balance of the
Principal Sum and unpaid interest, if any, until paid at a rate equal to two
percent (2%) per annum in excess of the Contract Rate.
MATURITY
- --------
Unless sooner paid in full by prepayment, acceleration or otherwise,
this Note shall mature and the Principal Sum shall be due and payable on June
30, 2001, with all accrued interests and costs as provided herein.
SECURITY
- --------
As security for the payment of the obligations evidenced hereby, and of
all other obligations and liabilities of the undersigned to the Bank, whether
now existing or hereafter arising, the undersigned hereby grants the Bank a
first and best security interest in all of the undersigned's assets, including,
without limitation, all equipment, inventory, receivables,
4
<PAGE> 5
furniture, general intangibles, real property, improvements, fixtures, cash and
leases, and all substitutions and additions thereto, whether existing now or in
the future and the proceeds thereof (all, together with any other property in
which the Bank shall at any time be given a security interest, hereinafter
referred to as the "Collateral") and an Unconditional Guaranty of Payment and
Performance executed by Allen G. Zaring, III. The obligations evidenced hereby
may from time to time be evidenced by another note or notes given in
substitution, renewal or extension hereof, and the Bank's security interest in
or any mortgage on the Collateral shall remain in force and effect
notwithstanding any such substitution, renewal, or extension. All remedies
provided for herein upon any default by the undersigned shall be cumulative and
not exclusive.
If, at the time of payment and discharge hereof, any of the undersigned
shall be then directly or contingently liable to the Bank as maker, indorser,
surety or guarantor of any other Note, bill of exchange, or other instrument,
then the Bank may continue to hold any of the collateral as security therefor,
even though this Note shall have been surrendered to the undersigned. The Bank
shall not be bound to take any steps necessary to preserve any rights in the
Collateral against prior parties. If any obligation evidenced by this Note is
not paid when due, the Bank may, at its option, demand, sue for, collect or make
any compromise or settlement it deems desirable with reference to the
Collateral, and shall have the rights of a secured party under the law of the
State of Ohio, and the undersigned shall be liable for any deficiency.
Upon receipt of payment from the Borrower in the amount of the original
amount advance on any Model Homes, said Model Home shall be released from the
Mortgage and the security interest provided in the Loan and Security Agreement
to the Huntington.
DEFAULT
- -------
Upon the occurrence of any of the following events:
(1) the undersigned fails to make any payment within ten (10) days of
when due hereunder or to perform any obligation of the undersigned to the Bank;
(2) the undersigned fails to do all things necessary to preserve and
maintain the value and collectibility of the Collateral;
(3) any event occurs and continues which constitutes a default by any
of the undersigned under any other obligation to or agreement with the Bank;
(4) the aggregate value of the Collateral material declines in value or
becomes unsatisfactory to the Bank and the undersigned fails to furnish
immediately upon request additional Collateral satisfactory to Bank;
(5) any guarantor revokes its guaranty, or any event occurs and
continues which constitutes a default by any guarantor under its guaranty;
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(6) the undersigned fails to furnish true and complete financial
statements from time to time on request of the Bank as provided in Section 8 of
the Loan and Security Agreement;
(7) the death or dissolution of any of the undersigned, or any
endorser, surety, accommodation party or guarantor;
(8) any representation, warranty or other information given to the Bank
by any of the undersigned, or by any indorser, surety, accommodation party or
guarantor proves to be false, untrue or misleading; or
then the Bank may, at its option, without notice or demand, accelerate the
maturity of the obligations evidenced hereby, which obligations shall become
immediately due and payable. In the event the Bank shall institute any action
for the enforcement or collection of the obligations evidenced hereby, the
undersigned agree to pay all costs and expenses of such action, including
reasonable attorneys' fees, to the extend permitted by law.
GENERAL PROVISIONS
- ------------------
All of the parties hereto, including the undersigned, and any indorser,
surety, accommodation party or guarantor, hereby: (1) severally waive
presentment, notice of dishonor, protest, notice of protest, and diligence in
bringing suit against any party hereto; (2) consent that, without discharging or
modifying the duties of any of them and without notice, the Bank may (A) extend
the time of payment an unlimited number of times before or after maturity, (B)
grant any other indulgence at any time and from time to time to any party
hereto, (C) delay in exercising or omit to exercise any right against, or delay
in taking or omit to take any action to collect from or pursue the Bank's
remedies against, any party hereto, (D) release or modify any collateral,
security or guaranties; and (3) severally waive any claim, right or remedy which
such party may now have or hereafter acquire against any other party or parties
hereto that arises hereunder and/or from the performance by such party hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification or participation in
any claim, right or remedy of the Bank against the other party or parties, or
any security which the Bank now has or hereafter acquires, whether such claim,
right or remedy arises in equity, under contract, by statute, under common law
or otherwise. The Bank shall not be required to pursue any party hereto,
including any guarantor, or to exercise any rights against any Collateral
herefor before exercising any other such rights.
No waiver of any term or condition of this Note shall be effective
unless in writing and signed by the party giving or granting the waiver. No
amendment of any term or condition of this Note shall be effective unless in
writing and signed by the undersigned and the Bank. No failure or delay on the
part of the Bank in exercising any right, power or privilege under this Note,
related loan documents or law nor any course of dealing, shall operate as a
waiver of such right, power or privilege or preclude any other or further
exercise thereof or of any other right, power or privilege.
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The captions used herein are for reference only and shall not be deemed
a part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
The undersigned agrees that, to the extent that any of the undersigned
make a payment or payments to the Bank, or the Bank receives any proceeds of
Collateral, which payment or payments or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to any of the undersigned, its estate, trustee,
receiver or any other party, including without limitation any guarantor, under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the obligations under this Note or the
part thereof which has been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred.
BORROWER:
FIRST CINCINNATI LEASING LLC,
an Ohio limited liability company
By: /s/ ALLEN G. ZARING, III
--------------------------------
Allen G. Zaring, III
Its: Sole Member and Manager
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EXHIBIT 10.13
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (the "Agreement") is entered into this
30th day of June, 1998 at Cincinnati, Hamilton County, Ohio, by and between THE
HUNTINGTON NATIONAL BANK, a national banking association (the "Huntington") and
FIRST CINCINNATI LEASING LLC, an Ohio limited liability company (the
"Borrower").
WITNESSETH:
WHEREAS, Borrower desires to borrower certain funds from Huntington for
the purpose of acquiring certain real estate and improvements located in various
jurisdictions (collectively referred to as the "Property" and individually as
"Model Home"); and
WHEREAS, subject to the provisions hereof, Huntington has agreed to
make a loan to Borrower for such purposes in an amount not to exceed Ten Million
Dollars ($10,000,000.00) in the lawful currency of the United States of America.
NOW, THEREFORE, in consideration of the foregoing premises, the
covenants and conditions contained herein and other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties agree as follows:
1. LOAN DOCUMENTS. The Loan is evidenced by Borrower's Promissory Note
of even date herewith (the "Note") in the amount of up to Ten Million Dollars
($10,000,000.00), payable to the Huntington, bearing interest and as provided
therein. The Note is secured by a first lien Open-End Mortgage, Assignment of
Rents and Leases and Security Agreement on each Model Home of even date herewith
(collectively the "Mortgage") encumbering the Property. In addition, Borrower
has executed and delivered UCC Financing Statements (the "UCC Financing
Statements") evidencing Huntington's first and best lien security interest in
all of Borrower's assets, including, without limitation, the leases and all
personal property located in, or about the Property, whether existing now or
after acquired. Allen G. Zaring, III (the "Guarantor") has executed an
Unconditional Guaranty of Payment and Performance of even date herewith (the
"Guaranty") wherein Guarantor has guaranteed repayment of the indebtedness
evidenced by the Note and the performance of any and all obligations of the
Borrower to Huntington. The Note, Mortgage, Assignment, UCC Financing
Statements, Guaranty and this Agreement are sometimes hereinafter collectively
referred to as the "Loan Documents".
2. DRAW LOAN. Subject to the terms and conditions contained in this
Agreement, Huntington shall make loans and advances to the Borrower, upon a draw
basis, up to a maximum of Ten Million Dollars ($10,000,000.00) (the "Draw
Loan"). The principal balance of the Draw Loan shall not exceed an amount equal
to ninety percent (90%) of the actual documented cost of each Model Home
provided to and accepted by Huntington as collateral. The Huntington shall have
no obligation to advance any sums pursuant to the Draw Loan at any time after
December 31, 1998 or if at any time and or prior to said date, a set of facts or
circumstances exists, which, by themselves, upon the giving of notice, the lapse
of time, or any one or more of the foregoing, would constitute an "Event of
Default" under this Agreement.
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3. ELIGIBLE HOMES. Borrower shall apply proceeds of the Draw Loan
for the purchase of Model Homes only from Zaring Homes, Inc. "Model Home" means
a home designated as a Model Home in the inventory records of Zaring Homes, Inc.
Homes designated as "Contracted Homes" or "Market Homes" (Speculative Homes) in
the inventory records by Zaring Homes, Inc. are ineligible for purchase by
Borrower with Draw Loan proceeds.
4. TERMS OF DRAW LOAN.
4.1 REPAYMENT. The Borrower agrees to pay Huntington
monthly, the interest on the unpaid balance of the Draw Loan at a rate of
interest set forth in the Note evidencing the Draw Loan, the terms and
conditions of which are incorporated by reference herein. Each advance or draw
request shall be accompanied by such other documents or communications as may be
acceptable to Huntington in its sole and absolute discretion. Repayment of the
Draw Loan shall be made in accordance with the terms of the Note. The Borrower
agrees to pay all of Huntington's out of pocket expenses and all costs and
expenses incidental to or in connection with (a) the Draw Loan, (b) the
enforcement of Huntington's rights in connection therewith, (c) any amendment or
modification of this Agreement, the Loan Documents or any other documents
related thereto, (d) any litigation, contest, dispute, proceeding or action in
any way relating to the Property or to this Agreement or the Loan Documents,
whether any of the foregoing are incurred prior to or after maturity, the
occurrence of any Event of Default or the rendering of a judgment. Such costs
shall include, but not be limited to, reasonable fees and out of pocket expenses
of Huntington's counsel, recording fees, inspection fees, revenue stamps and
note and mortgage taxes.
4.2 DISBURSEMENTS REQUIREMENTS.
4.2.1 The Huntington will disburse the loan proceeds to the
Borrower commencing on the date hereof and terminating at 11:59 p.m.,
Cincinnati, Ohio time on December 31, 1998, upon satisfaction of the following
conditions within thirty (30) days of disbursement:
1) For Each Model Home, a title exam or an
opinion letter from the Borrower's counsel
indicating that the Huntington has a first
and best lien on each Model Home;
2) The Borrower provides the Huntington with a
copy of each deed titled in the name of the
Borrower and a mortgage for each Model Home;
3) The Borrower provides the Huntington with a
certificate of fair market value in form and
substance satisfactory to the Huntington;
and
4) Opinion from the Borrower's Counsel that
each mortgage for each Model Home is
enforceable in accordance with the laws of
the state in which the Model Home is
situated, and secures the full amount of the
Draw Loan.
4.2.2 If it is determined at any time after a disbursement is
made by the Huntington pursuant to Subsection 4.2.1 above, that the Huntington
does not have a first and best lien on any
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Model Home or that any Model Home is not titled in the name of the Borrower, the
Borrower with regards to such Model Home, shall within thirty (30) days of
disbursement perform the following:
1) Take such steps deemed necessary by the
Huntington in its absolute discretion to
insure the Huntington that it has a first
and best lien as to such Model Home; or
2) Substitute such Model Home with a like Model
Home on which the Huntington has a first and
best lien; or
3) Pay down the amount of the Note by the
amount advanced against such Model Home.
5.1 GRANT OF SECURITY INTEREST. The Borrower hereby grants, pledges and
assigns to Huntington a security interest in the following property, whether the
Borrower's interest therein as owner, co-owner, lessor, lessee, consignee,
secured party or otherwise, be now owned or existing or hereafter arising or
acquired, and wherever located, together with all substitutions, replacements,
additions and accessions therefor or thereto, all documents, negotiable
documents, documents of title, warehouse receipts, storage receipts, dock
warrants, express bills, freight bills, airbills, bills of lading, and other
documents relating thereto, all products thereof and all cash and non-cash
proceeds thereof including, but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds: (a) all of Borrower's inventory including, but not limited to, all
improved real property, all goods, merchandise and other personal property
furnished under any contract of service or intended for sale or lease, all
parties, supplies, raw materials, work in process, finished goods, homes,
materials used or consumed in Borrower's business, and repossessed and returned
goods or homes (herein the "Inventory"); (b) all of the Borrower's accounts,
accounts receivable, contract rights, chattel paper, general intangibles, income
tax refunds, preference recoveries or other claims in respect of any transfers
of any kind, instruments, negotiable documents, notes, drafts, acceptances and
other forms of obligations, all books, records, ledger cards, computer programs,
and other documents or property at any time evidencing or relating to the
Borrower's accounts, including, but not limited to, those arising from or in
connection with the Borrower's sale, lease or other disposition of Inventory
(herein the "Accounts"); (c) all of the Borrower's machinery, equipment, tools,
furniture, furnishings and fixtures including, but not limited to, all
manufacturing, fabricating, processing, transporting and packaging equipment,
power systems, heating, cooling and ventilating systems, lighting and
communications systems, electric, gas and water distribution systems, food
service systems, fire prevention, alarm and security systems, laundry systems
and computing and data processing systems (herein the "Equipment"); (d) all of
the Borrower's trade names, trademarks, trade secrets, service marks, data
bases, software and software systems, information systems, discs, tapes,
goodwill, patents, patent applications, copyrights, licenses and franchises
(herein the "Intellectual Property"); and (e) all deposit accounts, whether
general, special, time, demand, provisional, final, all cash or monies wherever
located, any and all deposits or other sums at any time credited by or due from
Huntington to the Borrower, any and all policies, certificates of insurance,
securities, goods, chooses in action, cash and property owned by the Borrower or
in which the Borrower has an interest, which now or hereafter are at any time in
the possession or control of Huntington or in transit by mail or carrier to or
from Huntington, or in the possession of any third party acting in Huntington's
behalf, without regard to whether Huntington received the same in pledge for
safekeeping, as agent for collection or transmission or otherwise, or whether
Huntington has conditionally released the same (herein the "Deposits") (all
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of the Accounts, the Inventory, the Equipment, the Intellectual Property and the
Deposits herein are collectively termed the "Collateral").
The security interest hereby granted is to secure the prompt and full
payment whether at stated or accelerated maturity or otherwise, of any and all
principal, interest, damages, losses, costs, charges, expenses and liabilities,
whether fixed or contingent (collectively the "Indebtedness") and the complete,
faithful and punctual performance of any and all Obligations of the Borrower to
Huntington. The word "Obligations" is used in its most comprehensive sense and
includes, without limitation, all Indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Borrower to Huntington, including, without limitation, the
$10,000,000.00 of even date herewith Promissory Note, whether now existing or
hereafter arising, either created by the Borrower alone or together with another
or others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit or otherwise, and any and all renewals
of or substitutes therefor, including all Indebtedness owed by the Borrower to
Huntington in connection with the Draw Loan.
It is the Borrower's express intention that the continuing security
interest granted hereby, shall extend to all present and future Obligations of
the Borrower to Huntington, whether or not such Obligations are reduced or
extinguished and thereafter increased or reincurred, whether or not such
Obligations are related to the Indebtedness identified above by class, type or
kind and whether or not such Obligations are specifically contemplated as of the
date hereof. The absence of any reference to this Agreement in any documents,
instruments or agreements evidencing or relating to any Obligation secured
hereby shall not limit or be construed to limit the scope or applicability of
this Agreement.
Upon receipt of payment from the Borrower in the amount of the original
amount advance on any Model Homes, said Model Home shall be released from the
Mortgage and the security interest provided herein to the Huntington.
5.2 REPRESENTATIONS AND COVENANTS REGARDING THE PROPERTY AND THE
COLLATERAL. The Borrower represents, warrants and covenants as follows: (a)
Except for the security interest granted hereby and any liens set forth in
Exhibit A, the Borrower is, or as to Property or Collateral arising or to be
acquired after the date hereof, shall be, the sole and exclusive owner of the
Property and the Collateral, and the Property and the Collateral is and shall
remain free from any and all liens, security interests, encumbrances, claims and
interests, and no security agreement, mortgage or deed of trust or similar
instrument, financing statement, equivalent security or lien instrument or
continuation statement covering any of the Property or the Collateral is on file
or of record in any public office; (b) the Borrower shall not create, permit or
suffer to exist, and shall take such action as is necessary to remove, any claim
to or interest in or lien or encumbrance upon the Property or the Collateral
except the security interest granted hereby and any liens or encumbrances set
forth in Exhibit A, and shall defend the right, title and interest of Huntington
in and to the Property and the Collateral against all claims and demands of all
persons and entities at any time claiming the same or any interest therein; (c)
the Borrower's principal place of business and chief executive office is located
at the address set forth in paragraph 10.1 of this Agreement; the records
concerning the Property and the Collateral shall be kept at that address unless
Huntington shall give its prior written
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consent otherwise; and the Borrower has no other place of business or place
where Property or the Collateral is located, except as shown in Exhibit B
attached hereto; (d) at least thirty (30) days prior to the occurrence of any of
the following events, the Borrower shall deliver to the loan officer who is
handling the Borrower's Obligations on behalf of Huntington written notice of
such impending events: (i) a change in the Borrower's principal place of
business or chief executive office; (ii) the opening or closing of any place of
business; or (iii) a change in the Borrower's name, identity or corporate
structure; (e) each Model Home is based on an actual bona fide, and genuine
rendering or performance of services in the ordinary course of the Borrower's
business, documents to be given to Huntington by the Borrower with respect to
the Property will be genuine and accurate; and (f) any and all taxes and fees
relating to the Borrower's business shall be the Borrower's sole responsibility,
and none of said taxes and fees represent a lien on or claim against any of the
Property except for the lien of real estate taxes accrued but not yet due and
payable.
5.3 APPLICATION OF PROCEEDS; SETOFF; GOVERNMENT ACCOUNTS; PERFECTION;
LIEN NOTATION. All amounts received by the Huntington representing payment of
Accounts or proceeds from the sale of the Property, Inventory or of the
Collateral may be applied by the Huntington to the payment of the Obligations in
such order of preference as the Huntington may determine. The Borrower also
authorizes the Huntington at any time, after default by Borrower or Guarantor,
upon simultaneous notice to Borrower, to appropriate and apply any balances,
credits, deposits, accounts or money of the Borrower in the Huntington's
possession, custody or control to the payment of any of the Obligations whether
or not the Obligations are due or matured. If any of the Borrower's Accounts
arise out of contracts with or orders from the United States or any department,
agency or instrumentality thereof, the Borrower shall immediately (a) notify the
Huntington thereof in writing and (b) execute any instrument and take any steps
which the Huntington deems necessary pursuant to the Federal Assignment of
Claims Act of 1940, as amended (41 USC Section 15) in order that all money due
and to become due under such contract or order shall be assigned to the
Huntington. The Borrower agrees to execute, deliver, file and record all such
notices, affidavits, assignments, financing statements and other instruments as
shall in the judgment of the Huntington be necessary or desirable to evidence,
validate and perfect the security interest of the Huntington in the Accounts. If
certificates of title are issued or outstanding with respect to any Inventory or
Equipment, the Borrower will cause the interest of the Huntington to be properly
noted thereon at the Borrower's expense.
5.4 COLLATERAL INSURANCE. The Borrower shall have and maintain
insurance at all times with respect to all Property, Inventory and Equipment
insuring against risks of fire (including so-called extended coverage),
explosion, theft, sprinkler leakage and such other casualties as the Huntington
may designate, containing such terms, in such form, for such amounts, for such
periods and written by such companies as may be satisfactory to the Huntington,
and each such policy shall contain a clause or endorsement satisfactory to the
Huntington that names the Huntington as additional insured and loss payee, as
its interests may appear, and that provides that no act, default or breach of
warranty or condition of the Borrower or any other person shall affect the right
of the Huntington to recover under such policy or policies of insurance or to
pay any premium in whole or in part relating thereto. All policies of insurance
shall provide for thirty (30) days' written minimum notice of cancellation or
alteration to the Huntington. The Borrower shall deliver to the Huntington
certified copies of all policies of insurance and evidence of the payment of all
premiums therefor. The Borrower hereby irrevocably appoints the Huntington (and
any of the Huntington's
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officers, employees or agents designated by the Huntington) as attorney for the
Borrower in obtaining and cancelling such insurance and in making, settling and
adjusting all claims under such policies of insurance, endorsing the name of the
Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance; provided however, the
Borrower shall have the right to settle claims of less than $5,000.00 in total.
In the event of failure to provide insurance as herein provided, the Huntington
may, at its option, provide such insurance, and the Borrower shall pay to the
Huntington, upon demand, the cost thereof. Should the Borrower fail to pay said
sum to the Huntington upon demand, interest shall accrue thereon from the date
of demand until paid in full at the highest rate set forth in any document or
instrument evidencing any of the Obligations.
5.5 BOOKS AND RECORDS. The Borrower shall at all times keep accurate
and complete records of the Property and the Collateral, including without
limitation an inventory and complete and accurate records, and at all reasonable
times and from time to time, shall allow the Huntington, by or through any of
its officers, agents, attorneys or accountants, to examine, inspect and make
extracts from the Borrower's books and records and to arrange for verification
of the Property and the Collateral and to examine and inspect the Property and
the Collateral wherever located. In addition, upon request of the Huntington,
the Borrower shall provide the Huntington with copies of agreements with, from,
and invoices to, the Borrower's customers, and supplier's and copies of all
documents, delivery receipts, and such other documentation and information
relating to the Property and the Collateral as the Huntington may require. The
Borrower shall also place a notation on its books of account to disclose the
Huntington's lien therein.
5.6 COLLATERAL ADMINISTRATION. (a) The Borrower shall promptly perform,
on request of the Huntington, such acts as the Huntington may determine to be
necessary or advisable to create, perfect, maintain, preserve, protect and
continue the perfection of any mortgage, lien and security interest provided for
in this Agreement or otherwise to carry out the intent of this Agreement,
including, without limitation, obtaining waivers or other similar documents
reasonably necessary to permit the enforcement of the remedies of the Huntington
hereunder, (b) further, the Borrower shall not (i) extend, amend or otherwise
modify the terms of any Account, (ii) amend, modify or waive any term or
condition of any contractual obligation related thereto or (iii) redate any
invoice or sale or make sales on extended dating beyond that customary in the
Borrower's industry.
5.7 PRESERVATION AND DISPOSITION OF COLLATERAL. (a) Prior to the
placement of any Collateral in or upon any real property which the Borrower has
leased or mortgaged, the Borrower shall have obtained a waiver from the lessee,
with respect to the rights (whether present or future) of the lessee or
mortgagee with respect to that Collateral. The Borrower shall advise the
Huntington promptly, in writing and in reasonable detail, (i) of any material
encumbrance or claim asserted against any of the Collateral; (ii) of any
material change in the composition of the Collateral; and (iii) of the
occurrence of any other event that would have a material adverse effect upon the
aggregate value of the Collateral or upon the security interest of the
Huntington; (b) the Borrower shall not sell or otherwise dispose of the
Collateral, except that the Borrower may sell or otherwise dispose of the
Inventory in the ordinary course of its business; (c) the Borrower shall keep
the Collateral in good condition and shall not misuse, abuse, secrete, waste or
destroy any of the same; (d) the Borrower shall not use the Collateral in
violation of any statute, ordinance, regulation, rule, decree or order; (e) the
Borrower shall not permit to become liens or encumbrances any taxes,
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assessments, charges or levies upon the Collateral or in respect to the income
or profits therefrom; and (f) at its option, the Huntington may discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
the Collateral and may pay for the maintenance and preservation of the
Collateral. The Borrower agrees to reimburse the Huntington upon demand for any
payment made or any expense incurred (including reasonable attorneys' fees) by
the Huntington pursuant to the foregoing authorization. Should the Borrower fail
to pay said sum to the Huntington upon demand, interest shall accrue thereon,
from the date of demand until paid in full, at the highest rate set forth in any
document or instrument evidencing any of the Obligations.
5.8 EXTENSIONS AND COMPROMISES. With respect to any Property or
Collateral, the Borrower assents to all extensions or postponements of the time
of payment thereof or any other indulgence in connection therewith, to each
substitution, exchange or release of Property or Collateral, to the addition or
release of any party primarily or secondarily liable, to the acceptance of
partial payments thereon and to the settlement, compromise or adjustment
thereof, all in such manner and at such time or times as the Huntington may deem
advisable. The Huntington shall have no duty as to the collection or protection
of Property or Collateral or any income therefrom, nor as to the preservation of
rights against prior parties, nor as to the preservation of any right pertaining
thereto, beyond the safe custody of Property or Collateral in the possession of
the Huntington.
5.9 FINANCING STATEMENTS. At the request of the Huntington, the
Borrower shall join with the Huntington in executing, delivering and filing one
or more financing statements in a form and content satisfactory to the
Huntington and shall pay the cost of filing the same in all public offices
wherever filing is deemed by the Huntington to be necessary or desirable. A
carbon, photographic or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement.
5.10 HUNTINGTON'S APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby
irrevocably constitutes and appoints the Huntington and any officer or agent
thereof, with full power of substitution, as the Borrower's true and lawful
attorney-in-fact with full irrevocable power and authority in its place and
stead and in its name or in the Huntington's own name, from time to time in the
Huntington's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to the Huntington the power and right, on behalf of the
Borrower, without notice to or assent: (a) to execute, file and record all such
financing statements, deeds, closing statements, certifications, affidavits,
certificates of title and other certificates of registration and operation and
similar documents and instruments as the Huntington may deem necessary or
desirable to protect, perfect and validate the Huntington's security interest in
the Property or the Collateral; (b) to receive, collect, take, indorse, sign,
compromise, assign and deliver in the Borrower's or the Huntington's name, any
and all checks, notes, drafts, or other documents or instruments relating to the
Property or the Collateral; and (c) upon the occurrence of an Event of Default,
(i) to notify postal authorities to change the address for delivery of the
Borrower's mail to an address designated by the Huntington, (ii) to open such
mail delivered to the designated address, (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Property or the
Collateral; (iv) to commence and prosecute any
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suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Property and the Collateral or any part thereof and
to enforce any other right in respect of any Property or the Collateral; (v) to
defend any suit, action or proceeding brought with respect to any Property or
the Collateral; (vi) to negotiate, settle, compromise or adjust any account,
suit, action or proceeding described above and, in connection therewith, to give
such discharges or releases as the Huntington may deem appropriate; and (vii)
generally, to sell, transfer, convey, pledge, make any agreement with respect to
or otherwise deal with any of the Property or the Collateral as fully and
completely as though the Huntington were the absolute owner thereof for all
purposes, and to do, at the Huntington's option and the Borrower's expense, at
any time or from time to time, all acts and things which the Huntington deems
necessary to protect, preserve or realize upon the Property or the Collateral
and the Huntington's security interest therein, in order to effect the intent of
this Agreement.
The Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the
Huntington hereunder are solely to protect its interests in the Property and the
Collateral and shall not impose any duty upon the Huntington to exercise any
such powers. The Huntington shall be accountable only for amounts that the
Huntington actually receives as a result of the exercise of such powers and
neither the Huntington nor any of its officers, directors, employees or agents
shall be responsible to the Borrower for any act or failure to act, except for
the Huntington's own gross negligence or willful misconduct.
5.11 NO CONSEQUENTIAL DAMAGES. No claim may be made by the Borrower,
any of its officers, directors, or agents against the Huntington or its
affiliates, directors, officers, employees, attorneys or agents for any special,
direct, indirect, or consequential damages in respect of any breach or wrongful
conduct (whether the claim therefor is based on contract, tort or duty imposed
by law) in connection with, arising out of or in any way related to the
transactions contemplated and relationship established by this Agreement, or any
act, omission or event occurring in connection therewith, and the Borrower
hereby waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
5.12 REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default;
(i) the Huntington shall have the rights and remedies of a secured party under
this Agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Ohio or any other
applicable state law; and (ii) the Huntington shall have the right to foreclose
Mortgages on the Property in accordance with the terms of each Mortgage. Without
limiting the generality of the foregoing, the Huntington shall have the right to
take possession of the Collateral and all books and records relating to the
Collateral and for that purpose the Huntington may enter upon any premises on
which the Collateral or books and records relating to the Collateral or any part
thereof may be situated and remove the same therefrom. The Borrower expressly
agrees that the Huntington, without demand of performance or other demand,
advertisement or notice of any kind (except the notices specified below of time
and place of public sale or disposition or time after which a private sale or
disposition is to occur) to or upon the Borrower or any other person or entity
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
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the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or sell or otherwise dispose of and deliver
the Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any of the Huntington's offices
or elsewhere at such prices as the Huntington may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Huntington shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption. The Borrower further agrees, at the Huntington's request, to
assemble the Collateral and to make it available to the Huntington at such
places as the Huntington may reasonably select. The Borrower further agrees to
allow the Huntington to use or occupy the Borrower's premises, without charge,
for the purpose of effecting the Huntington's remedies in respect of the
Collateral. The Huntington shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any or all of the Collateral or in any
way relating to the rights of the Huntington hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations, in such order as the Huntington may elect, and only after so paying
over such net proceeds and after the payment by the Huntington of any other
amount required by any provision of law, need the Huntington account for the
surplus, if any. To the extent permitted by applicable law, the Borrower waives
all claims, damages and demands against the Huntington arising out of the
repossession, retention, sale or disposition of the Collateral. The Borrower
agrees that the Huntington need not give more than seven days' notice (which
notification shall be deemed given when mailed, postage prepaid, addressed to
the Borrower at its address set forth in this Agreement, or when telecopied or
telegraphed to that address or when telephoned or otherwise communicated orally
to the Borrower or any of its agents at that address) of the time and place of
any public sale or of the time after which a private sale may take place and
that such notice is reasonable notification of such matters. The Borrower shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all amounts to which the Huntington is
entitled. The Borrower shall also be liable for the costs of collecting any of
the Obligations or otherwise enforcing the terms thereof or of this Agreement,
including reasonable attorneys' fees.
6. WARRANTIES AND REPRESENTATIONS. The Borrower warrants and
represents to the Huntington:
6.1 ORGANIZATION AND AUTHORITY. The Borrower (a) is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Ohio; (b) has all requisite power and authority and all necessary
licenses and permits to own and operate and to carry on its business as now
conducted and as presently proposed to be conducted; and (c) is not doing
business or conducting any activity in any jurisdiction in which it has not duly
qualified and become authorized to do business.
6.2 BORROWING IS LEGAL AND AUTHORIZED. (a) The Manager of the Borrower
has duly authorized the execution and delivery of this Agreement and of the Loan
Documents and other related documents contemplated herein; this Agreement, the
Loan Documents and other documents executed in connection with this Agreement
will constitute valid and binding obligations of the Borrower enforceable in
accordance with their respective terms; (b) the execution of this Agreement
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and Loan Documents and documents and the compliance by the Borrower with all the
provisions of this Agreement (i) are within the powers of the Borrower; and (ii)
are legal and will not conflict with, result in any breach in any of the
provisions of, constitute a default under, or result in the creation of any lien
or encumbrance upon any property of the Borrower under the provisions of any
agreement, charter instrument, article of organization, operating agreement,
bylaw, or other instrument to which the Borrower is a party or by which it may
be bound; (c) there are no limitations in any indenture, contract, agreement,
mortgage, deed of trust or other agreement or instrument to which the Borrower
is now a party or by which the Borrower may be bound with respect to the payment
of principal or interest on any indebtedness, or the Borrower's ability to incur
indebtedness including the Loan Documents and other documents to be executed in
connection with this Agreement.
6.3 TAXES. All tax returns required to be filed by the Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Borrower, or upon any of its properties, which are
due and payable have been paid. The Borrower does not know of any proposed
additional tax assessment against it. The accruals for taxes on the books of the
Borrower for its current fiscal period are adequate.
6.4 COMPLIANCE WITH LAW. The Borrower (a) is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject,
including without limitation any laws, rulings or regulations relating to the
Employee Retirement Income Security Act of 1974 or Section 4975 of the Internal
Revenue Code and (b) has not failed to obtain any licenses, permits, franchises
or other governmental or environmental authorizations necessary to the ownership
of its properties or to the conduct of its business, which violation or failure
might adversely affect the business, prospects, profits, properties or condition
(financial or otherwise) of the Borrower.
6.5 FULL DISCLOSURE. The Borrower has disclosed to the Huntington in
writing all facts, including, without limitation, all threatened or pending
litigation, administrative proceedings, and arbitration proceedings which
materially affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Borrower or the ability of the Borrower to
perform this Agreement.
6.6 NO INSOLVENCY. On the date of the Borrower's entering into the Draw
Loan and after giving effect to all indebtedness of the Borrower (including the
Draw Loan), (a) the Borrower will be able to pay its obligations as they become
due and payable; (b) the present fair saleable value of the Borrower's assets
exceeds the amount that will be required to pay its probable liability on its
obligations as the same become absolute and matured; (c) the sum of the
Borrower's property at a fair valuation exceeds the Borrower's indebtedness; and
(d) the Borrower will have sufficient capital to engage in the Borrower's
business. The Borrower's grant of collateral for the Draw Loan constitutes fair
consideration and reasonably equivalent value because of the receipt of the
proceeds of the Draw Loan.
6.7 GOVERNMENT CONSENT. Neither the nature of the Borrower or of its
business or properties, nor any relationship between the Borrower and any other
entity or person, nor any circumstance in connection with the execution of this
Agreement, is such as to require a consent, approval or authorization of, or
filing, registration or qualification with, any governmental or other
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authority on the part of the Borrower as a condition to the execution and
delivery of this Agreement and the Loan Documents and the other documents
contemplated herein.
6.8 TITLE TO PROPERTIES. The Borrower has good and marketable title to
all the Property and other assets in which it has a property interest, free from
any liens and encumbrances, except as set forth on Exhibit A attached to this
Agreement and incorporated by reference herein. The Borrower has not agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of the Property or its other assets whether now owned or
hereafter acquired to be subject to a lien or encumbrance.
6.9 NO DEFAULTS. No event has occurred and no condition exists which
would constitute an Event of Default pursuant to this Agreement. The Borrower is
not in violation in any material respect of any term of any agreement, articles
of organization, operating agreement, charter instrument, bylaw or other
instrument to which it is a party or by which it may be bound.
6.10 ENVIRONMENTAL PROTECTION. The Borrower (a) has no actual knowledge
of the permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used by the
Borrower, of any spills, releases, discharges, leaks, or disposal of Hazardous
Substances that have occurred or are presently occurring on, under, or onto any
Model Home, or of any spills, releases, discharges, leaks or disposal of
Hazardous Substances that have occurred or are occurring off the location of any
Model Home as a result of the Borrower's improvement, operation, or use of the
Property which would result in non-compliance with any of the Environmental Laws
(as hereinafter defined); (b) is and has been in compliance with all applicable
Environmental Laws; (c) knows of no pending or threatened environmental civil,
criminal or administrative proceedings against the Borrower relating to
Hazardous Substances; (d) knows of no facts or circumstances that would give
rise to any future civil, criminal or administrative proceeding against the
Borrower relating to Hazardous Substances; and (e) will not permit any of its
employees, agents, contractors, subcontractors, or any other person occupying or
present on the Property to generate, manufacture, store, dispose or release on,
about or under the Property any Hazardous Substances which would result in the
Property or any other of its assets not complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., the Water Quality Act of 1987, 33 U.S.C. Section
1251, et seq., and the Clean Air Act, 42 U.S.C. Section 7401, et seq., and any
state or local statute ordinance, law, code, rule, regulation or order
regulating or imposing liability (including strict liability) or standards of
conduct regarding Hazardous Substances (hereinafter the "Environmental Laws"),
but does not include such substances as are permanently incorporated into a
structure or any part thereof in such a way as to preclude their subsequent
release into the environment, or the permanent or temporary storage or disposal
of household hazardous substances by tenants, and which are thereby exempt from
or do not give rise to any violation of the forementioned Environmental Laws.
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6.11 CAPITAL STRUCTURE. The certified member list of the Borrower set
forth in Exhibit C attached hereto and incorporated by reference herein
accurately represents to the Huntington the following: (a) the classes of
membership of the Borrower and value of each such class, all as authorized by
the Borrower's Articles of Organization and the number of units of each such
class of membership issued and outstanding, the registered owner or holder
(legally or beneficially) thereof, and the certificate numbers, if any,
evidencing the foregoing. The Borrower does not have outstanding any other
member, debt or other equity security, or any other instrument convertible to an
equity security of the Borrower, or any commitment, understanding, agreement or
arrangement to issue, sell or have outstanding any of the foregoing.
6.12 WARRANTIES AND REPRESENTATIONS. On the date of each draw or
advance pursuant to the Loan, the warranties and representations set forth in
Section 6 hereof shall be true and correct on and as of such date with the same
effect as though such warranties and representations had been made on and as of
such date, except to the extent that such warranties and representations
expressly relate to an earlier date.
7. BORROWER BUSINESS COVENANTS. The Borrower covenants that on and
after the date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the Indebtedness provided for herein remains
unpaid:
7.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay before they
become delinquent (a) all taxes, assessments and governmental charges or levies
imposed upon it, the Property or any other of its property; and (b) all claims
or demands of materialmen, laborers, supplies, mechanics, carriers,
warehousemen, landlords, bailees and other like persons, any of the foregoing
which, if unpaid, might result in the creation of a lien or encumbrance upon its
property.
7.2 MAINTENANCE OF PROPERTIES AND EXISTENCE. The Borrower shall (a)
maintain its Property and all other assets in good condition and make all
renewals, replacements, additions, betterments and improvements thereto which
are deemed necessary by the Borrower; (b) maintain, with financially sound and
reputable insurers, insurance with respect to the Property and all other assets
and business against such casualties and contingencies, of such types (including
but not limited to fire and casualty, public liability, products liability,
larceny, embezzlement or other criminal misappropriation insurance) and in such
amounts as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated, with each such
policy of insurance containing a clause or endorsement satisfactory to the
Huntington that names the Huntington as additional insured and loss payee, as
its interests may appear, and that provides that no act, default or breach of
warranty or condition of the Borrower or any other person shall affect the right
of the Huntington to recover under such policy or policies of insurance or to
pay any premium in whole or in part relating thereto, (c) keep true books of
records and accounts in which full and correct entries will be made of all its
business transactions, and reflect in its financial statements adequate accruals
and appropriations to reserves; (d) do or cause to be done all things necessary
(i) to preserve and keep in full force and effect its existence, rights and
franchises, and (ii) to maintain its status as a limited liability company duly
organized and existing and in good standing under the laws of the state of Ohio;
and (e) not be in violation of any laws, ordinances, or governmental rules and
regulations or fail to obtain any licenses, permits, franchises or other
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governmental authorizations necessary to the ownership of the Property, its
other assets or to the conduct of its business, which violation or failure to
obtain might materially and adversely affect the business, prospects, profits,
properties or condition (financial or otherwise) of the Borrower.
7.3 SALE OF ASSETS; MERGER; SUBSIDIARIES; TRADENAMES. The Borrower will
not, except in the ordinary course of business, sell, lease, transfer or
otherwise dispose of, any of its assets. The Borrower will not without the prior
written consent of the Huntington, consolidate with, merge into, or make
investments in any other entity, or permit any other entity to consolidate with
or merge into it. The Borrower shall not acquire all or substantially all of the
assets or business of any other Borrower, person or entity. The Borrower has no
subsidiaries and conducts business only in the name of the Borrower. The
Borrower will not create or acquire any subsidiaries or conduct business under
any other tradenames without the prior written consent of the Huntington.
7.4 NEGATIVE PLEDGE. The Borrower will not cause or permit or agree or
consent to cause or permit in the future (upon the happening of a contingency or
otherwise), any of the Property or any of its real or personal property, whether
now owned or hereafter acquired, to become subject to a mortgage, deed of trust,
lien or encumbrance, of any type except: liens for real estate taxes accrued but
not yet due and payable.
7.5 OTHER BORROWINGS AND CONTINGENT LIABILITIES. Except for the Draw
Loan, the Borrower will not (a) create or incur any indebtedness for borrowed
money or advances, including through the execution of capitalized lease
agreements, or (b) guarantee, indorse or otherwise become surety for or upon the
obligations of others, except by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
7.6 SALE OF ACCOUNTS; NO CONSIGNMENT. The Borrower shall not sell,
assign, or encumber, except to the Huntington, any of its Accounts or notes
receivable. The Borrower shall not acquire or possess any of its Property or
Inventory on consignment.
7.7 OWNERSHIP AND MANAGEMENT. The Borrower shall not permit any change
in its ownership or management.
7.8 TANGIBLE NET WORTH. The Borrower shall maintain at all times a
tangible net worth, as determined on December 31, 1998, and quarterly
thereafter, of not less than $1,000,000.00.
7.9 TRANSACTIONS WITH AFFILIATES. The Borrower shall not directly or
indirectly enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any of its affiliates, relatives of members,
members, or any affiliates of either of the foregoing, on terms that are less
favorable to the Borrower than those which might be obtained at the time from
persons or entities who are not affiliated with the Borrower or its
shareholders, except for the transactions outlined in the Lease documents and
purchase agreement between the Borrower and Zaring Homes, Inc. "Affiliate" shall
mean any individual, partnership, corporation, or other entity which, directly
or indirectly, is in control of, is controlled by, or is under common control
with Borrower. For the purposes of this definition, control of such entity shall
mean the power, direct or indirect, to vote five percent or more of the
securities, units or other measures having ordinary voting power for the
election of directors,
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management committees, or similar committees of such entity, or the power to
direct or cause the direction of the management and policies of such entity,
whether by contract or otherwise.
7.10 INTEREST COVERAGE RATIO. The Borrower shall maintain an Interest
Coverage Ratio of not less than 1.1 to 1.0. "Interest Coverage Ratio" shall mean
for any quarter, determined on a year to date basis, a ratio of EBIT for that
period to "Cash Interest Expense". "EBIT" of the Borrower shall mean (i) the net
income (or deficit) of the Borrower for such period, which, in accordance with
GAAP (as defined in Section 10.6) would be included as net income on the
statements of income of the Borrower plus (ii) the aggregate amounts deducted in
determining such net income in respect of (a) all amounts paid (without
duplication) as interest on all indebtedness and obligations of the Borrower for
such period, all as determined in conformity with GAAP and (b) income taxes for
such period, each determined in accordance with GAAP. "Cash Interest Expense"
shall mean all amounts paid (without duplication) as interest on all obligations
and indebtedness of the Borrower for the preceding quarter, determined on a year
to date basis, less (i) interest paid other than in cash and (ii) amortization
of financing fees and debt discount directly related to this Agreement.
7.11 COMPLIANCE CERTIFICATE. The Borrower shall deliver to the
Huntington within 15 days after the end of each quarter a Compliance Certificate
(as hereinafter defined) stating that Zaring Homes, Inc. is in full compliance
with the terms, covenants, and conditions of its Amended and Restated Credit
Agreement dated as of February 28, 1998. For purposes of this Agreement
"Compliance Certificate" shall mean an agreement in the form and content
satisfactory to the Huntington.
7.12 LOANS AND ADVANCES. The Borrower will not make any loans or
advances to any person, corporation or entity.
7.13 ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION. The Borrower hereby
agrees to indemnify the Huntington and hold the Huntington harmless from and
against any and all loss, damage, cost, expense or liability (including strict
liability) directly or indirectly arising from or attributable to the
generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or during the term of the Loans) of Hazardous
Substances on, under or about the Property or any other asset of the Borrower
(whether by the Borrower or any employees, agents, contractor or subcontractors
of the Borrower or any predecessor in title or any third persons occupying or
present on the Property or any other asset of the Borrower), or the breach of
any of the representations and warranties regarding the Property or any other
asset of the Borrower, including, without limitation: (a) those damages or
expenses arising under the Environmental Laws; (b) the costs of any repair,
cleanup or detoxification of the Property or any other asset of the Borrower,
including the soil and ground water thereof, and the preparation and
implementation of any closure, remedial or other required plans; (c) damage to
any natural resources; and (d) all reasonable costs and expenses incurred by the
Huntington in connection with clauses (a), (b) and (c) including, but not
limited to reasonable attorneys', experts and consultant's fees.
7.14 MAINTENANCE OF ACCOUNTS. The Borrower shall maintain its sole and
exclusive banking relationship with the Huntington, including, without
limitation, all of its operating, daily
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deposit and cash management accounts at the Huntington. All profits and excess
cash shall be invested with the Huntington.
7.15 OTHER COVENANTS. The Borrower will perform, observe and comply
with such other covenants as the Huntington may from time to time reasonably
require of the Borrower to assure the repayment in full of all of the
Obligations and the complete and timely performance by the Borrower of all the
covenants of the Borrower hereunder.
8. FINANCIAL INFORMATION AND REPORTING. The Borrower shall deliver
the following to the Huntington: (a) monthly reports as to model inventory
covered under this Agreement; (b) within forty-five (45) days after the end of
each fiscal quarter, financial statements, including a balance sheet and
statements of income and expenses comparing the information for the current
period with the information for the same period of the preceding year, certified
by the sole member or sole manager of the Borrower as fairly representing the
Borrower's financial condition as of the end of such period; (c) within 90 days
of the end of each fiscal year, reviewed financial statements prepared in
accordance with GAAP (as defined in Section 10.6) consistently applied and
certified by independent public accountants satisfactory to the Huntington,
containing a balance sheet, statements of income and surplus, statements of cash
flows and reconciliation of capital accounts, along with any management letters
written by such accountants; (d) immediately upon becoming aware of the
existence of any set of facts or circumstances which, by themselves, upon the
giving of notice, the lapse of time, or any one or more of the foregoing, would
constitute a breach of any of the terms or conditions of this Agreement or an
Event of Default under this Agreement, a written notice specifying the nature
and period of existence thereof and what action the Borrower is taking or
proposes to take with respect thereto; and (e) at the request of the Huntington,
such other information as the Huntington may from time to time reasonably
require.
9. DEFAULT.
9.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the
following occurs and is continuing: (a) the Borrower fails to make any payment
of principal or interest on the Note executed in connection with this Agreement
on or before the date such payment is due or within ten (10) days of when it is
due; (b) the Borrower fails to perform or observe any covenant contained in
Sections 3,4, 5,6,7 or 8 of this Agreement and remains uncured for a period of
thirty (30) days from the date of such failure to perform; (c) the Borrower
fails to comply with any other provision of this Agreement, and such failure
continues for more than ten (10) days after such failure shall first become
known to the sole Manager or the Sole Member of the Borrower; (d) any warranty,
representation or other statement by or on behalf of the Borrower contained in
this Agreement or in any instrument furnished in compliance with or in reference
to this Agreement is false or misleading in any material respect, or the
Borrower or Guarantor fails to perform or observe any covenant contained in the
Note, Loan Document or other agreement in favor of the Huntington; (e) the
Borrower becomes insolvent or makes an assignment for the benefit of creditors,
or consents to the appointment of a trustee, receiver or liquidator; (f)
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
are instituted by or against the Borrower; (g) a final judgment or judgments for
the payment of money aggregating in excess of $100,000.00 is or are outstanding
against the Borrower and any such judgment or judgments have not been discharged
in full or stayed; (h) the occurrence of any event which allows the acceleration
of the maturity of any
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indebtedness of the Borrower to the Huntington, any of the Huntington's
affiliates, or any other person, corporation or entity under any indenture,
agreement or undertaking; (i) the default by, dissolution of, or death of any
Guarantor, insurer or other surety for the Borrower with respect to any
obligation or liability to the Huntington; or (j) the aggregate value of the
Property furnished as security materially declines in value, and the Borrower
does not immediately, upon request, furnish additional security satisfactory to
the Huntington.
9.2 ADDITIONAL EVENT OF DEFAULT. In the event the Borrower fails to
provide the Huntington with evidence satisfactory to the Huntington in its sole
and absolute discretion that a mortgage or deed of trust on any particular Model
Home(s) is not a first and best lien, subject only to (i) covenants, conditions
and restrictions and easements that do not impair the intended use of the Model
Home(s) in question, and (ii) real estate taxes and assessments, if any, that
are accrued, but not yet due and payable, then the Borrower may (a) repay the
principal of the Note lent against the Model Home(s) in question, with accrued
interest, or (b) propose to substitute other property in lieu of the Model
Home(s) in question, said other property being property that is acceptable to
the Huntington in its sole and absolute discretion, or (c) have the existence of
said defect(s) constitute an Event of Default if not cured to the sole and
absolute discretion of the Huntington within thirty (30) days of the sending of
notice of the defect.
9.3 DEFAULT REMEDIES. If an Event of Default exists, the Huntington
may immediately exercise any right, power or remedy permitted to the Huntington
by law or any provision of this Agreement, and shall have, in particular,
without limiting the generality of the foregoing, the right to declare the
entire principal and all interest accrued on the Note then outstanding pursuant
to this Agreement to be forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower.
10. MISCELLANEOUS.
10.1 NOTICES. (a) All communications under this Agreement, the Note,
the Loan Documents or any other document executed in conjunction herewith shall
be in writing and shall be mailed by certified, return receipt requested mail,
postage prepaid, (1) if to the Huntington, at the following address, or at such
other address as may have been furnished in writing to the Borrower by the
Huntington:
The Huntington National Bank
105 W. Fourth Street, Suite 400
Cincinnati, Ohio 45202-5800
Attn: Paul D. Carlin
(2) if to the Borrower, at the following address, or at such other address as
may have been furnished in writing to the Huntington by the Borrower:
First Cincinnati Leasing LLC
C/O 11300 Cornell Park Drive
Cincinnti, Ohio 45242
Attn: Allen G. Zaring, III
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(b) any notice so addressed and mailed by certified mail shall be deemed to be
given when so mailed.
10.2 ACCESS TO ACCOUNTANTS. The Borrower hereby irrevocably authorizes
its certified public accountants to provide to the Huntington any and all
information that the Huntington requests from time to time with regard to the
Borrower, and to discuss with the Huntington from time to time any and all
matters relating to the Borrower. In furtherance of the foregoing, the Borrower
hereby waives any privilege or claim of confidentiality to the extent such might
otherwise prevent the Borrower's accountants from providing such information to
the Huntington or discussing such matters with the Huntington.
10.3 REPRODUCTION OF DOCUMENTS. This Agreement, the Loan Documents and
all documents relating hereto, including, without limitation, (a) consents,
waivers and modifications which may hereafter be executed, (b) documents
received by the Huntington at the closing or otherwise, and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Huntington, may be reproduced by the Huntington by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and the Huntington may destroy any original document so reproduced. The
Borrower agrees and stipulates that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by the Huntington in the regular course of business) and
that any enlargement, facsimile or further reproduction of such reproduction
shall likewise be admissible in evidence.
10.4 SURVIVAL, SUCCESSORS AND ASSIGNS. All warranties, representations,
and covenants made by the Borrower herein or on any certificate or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the Huntington and shall survive the
closing of the Draw Loan and disbursement of funds regardless of any
investigation made by the Huntington on its behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Borrower. This Agreement shall inure to the benefit of and be binding
upon the heirs, successors and assigns of each of the parties.
10.5 AMENDMENT AND WAIVER, DUPLICATE ORIGINALS. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Borrower and the Huntington; provided
however that nothing herein shall change the Huntington's sole discretion (as
set forth elsewhere in this Agreement) to make draws, advances, determinations,
decisions or to take or refrain from taking other actions. No delay or failure
or other course of conduct by the Huntington in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
10.6 UNIFORM COMMERCIAL CODE AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES. Unless the context otherwise requires, all terms used herein which
are defined in the Uniform Commercial Code as enacted in the State of Ohio shall
have the meaning stated therein. All accounting terms not defined herein shall
be determined in accordance with generally accepted
17
<PAGE> 18
accounting principles, consistently applied, as set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements and pronouncements of the
Financial Accounting Standards Board ("GAAP"). The Borrower's fiscal year begins
on January 1, and ends on December 31, and the Borrower will not change its
fiscal year without the prior written consent of the Huntington.
10.7 ENFORCEABILITY AND GOVERNING LAW. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction, as to such
jurisdiction, shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No delay or
omission on the part of the Huntington in exercising any right shall operate as
a waiver of such right or any other right. All of the Huntington's rights and
remedies, whether evidenced hereby or by any other agreement or instrument,
shall be cumulative and may be exercised singularly or concurrently. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio. The Borrower agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement may be instituted in a state or
federal court of appropriate subject matter jurisdiction in the State of Ohio;
waives any objection which it may have now or hereafter to the venue of any
suit, action or proceeding; and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed by their respective duly authorized officers as of the day and
year first above written.
Signed and acknowledged FIRST CINCINNATI LEASING LLC,
in the presence of: an Ohio limited liability company
Ronald G. Gratz By: /s/ ALLEN G. ZARING, III
- ----------------------------------- --------------------------------
Printed Name: Ronald G. Gratz Allen G. Zaring, III
----------------------
Richard J. Erickson Its: Sole Member and Manager
- -----------------------------------
Printed Name: Richard J. Erickson
----------------------
THE HUNTINGTON NATIONAL BANK
Ronald G. Gratz By: Paul D. Carlin
- ----------------------------------- --------------------------------
Printed Name: Ronald G. Gratz Paul D. Carlin
----------------------
Richard J. Erickson Its: Vice President
- ----------------------------------- -------------------------------
Printed Name: Richard J. Erickson
----------------------
18
<PAGE> 19
STATE OF OHIO
HAMILTON COUNTY SS:
On this 30th day of June, 1998, before me, a Notary Public in and for
said County and State, personally appeared Allen G. Zaring, III, sole member and
Manager of First Cincinnati Leasing LLC, a limited liability company, in his
capacity as the duly authorized Member and Manager of First Cincinnati Leasing
LLC, the company which executed the foregoing instrument, and acknowledged that
he did so sign the foregoing instrument as such Member and Manager and that such
signing is his free act and deed as such Member and Manager, and the free act
and deed of said company for the uses and purposes therein mentioned.
In Witness Whereof, I have hereunto set my hand and official seal.
{Seal} Marsha L (Ward) Todd
-------------------------------------------
Notary Public
My Commission Expires:
MARSHA L. TODD
Notary Public, State of Ohio
My commission expires Jan. 14, 2002
STATE OF OHIO
HAMILTON COUNTY SS:
On this 30th day of June, 1998, before me, a Notary Public in and for
said County and State, personally appeared Paul D. Carlin, Vice Pres. of The
Huntington National Bank, a national banking association which executed the
foregoing instrument, signed the same, and acknowledged to me that he did so
sign said instrument in the name and upon behalf of said association as such
officer, and by authority of a resolution of its Board of Directors; and that
such signing is his free act and deed as such officer, and the free act and deed
of said association.
IN WITNESS WHEREOF, I have hereunto set my name and official seal.
Marsha L (Ward) Todd
-------------------------------------------
{Seal} Notary Public
My Commission Expires:
MARSHA L. TODD
Notary Public, State of Ohio
My commission expires Jan. 14, 2002
19
<PAGE> 20
This instrument was prepared by:
Michael G. Reed, Esq.
PORTER, WRIGHT, MORRIS & ARTHUR
250 East Fifth Street, Suite 2200
Cincinnati, OH 45202
(513) 381-4700
20
<PAGE> 21
EXHIBIT A
PERMITTED LIENS
NONE
21
<PAGE> 22
EXHIBIT B
PLACE OF BUSINESS AND LOCATION OF COLLATRAL
NONE
22
<PAGE> 23
EXHIBIT C
CERTIFIED MEMBER LIST
23
<PAGE> 1
EXHIBIT 10.14
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into this 10th
day of July, 1998, by and between FIRST CINCINNATI LAND LLC, an Ohio limited
liability company, 11300 Cornell Park Drive, Cincinnati, Ohio 45242 (the
"Borrower"), and THE PROVIDENT BANK, an Ohio banking corporation, One East
Fourth Street, Cincinnati, Ohio 45202 (the "Lender").
RECITALS:
WHEREAS, Borrower contemplates acquisition of certain real property
(the "Real Property") pursuant to the terms of certain Contract(s) For Purchase
And Sale Of Real Estate (individually a "Purchase Contract" and collectively
"Purchase Contracts") substantially in the form of the Purchase Contract
attached hereto as Exhibit "A"; and
WHEREAS, Borrower has applied to Lender for a loan in the aggregate
amount of Ten Million and 00/100 Dollars ($10,000,000.00) (the "Loan"), and
Lender has agreed to make the Loan in accordance with the terms of a certain
promissory note in the principal amount of Ten Million and 00/100 Dollars
($10,000,000.00) (the "Note"), various real estate security documents in such
form(s) as shall be required by the Lender (individually a "Mortgage" and
collectively "Mortgages") and such other security documents as are described
herein, upon the terms and conditions of this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loan that
Lender shall disburse the Loan proceeds pursuant to the terms, conditions and
provisions of this Agreement in order to assure that each Mortgage will, at all
times during the term of the Loan, constitute a good, best and first lien upon
the Real Property.
NOW, THEREFORE, to induce the Lender to make the Loan, and in
consideration thereof Borrower and Lender agree as follows:
1. Making the Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
set forth herein, Lender agrees to lend to Borrower in one or more advances
(individually an "Advance" and collectively "Advances") an amount not to exceed
Ten Million and 00/100 Dollars ($10,000,000.00), which Loan proceeds shall be
used by Borrower to purchase the Real Property. All Advances shall be made on or
before December 23, 1998, after which no Advances shall be made.
2. Security. The Note will be secured by the Mortgages, together with
the Note, Guaranties executed by Allen G. Zaring, III, Allen G. Zaring, IV and
Mark B. Zaring (collectively, the "Guarantors"), Assignment/Security
Agreement-Securities Account, Environmental Indemnity
<PAGE> 2
2
Agreement, $1,500,000.00 Standby Letter of Credit, this Agreement and all other
documents executed in connection with the Loan and each Advance, all as the same
may be further amended, extended or modified, are collectively referred to as
the "Loan Documents."
3. Procedure for Funding the Loan. The Loan shall be funded in
one or more Advances simultaneously with Borrower's purchase of part of the Real
Property pursuant to a Purchase Contract ("Individual Closing") in accordance
with the following procedures:
(1) The Lender shall fund the Advance in an amount equal to
the purchase price paid by the Borrower ("Purchase Price") for that part of the
Real Property described in the Purchase Contract which is the subject of the
Individual Closing.
(2) The funding of the Advance and the purchase by Borrower
shall take place at the offices of Lender on the third business day following
Lender's receipt of the following documents ("Closing Day"), each of which must
be satisfactory to Lender as determined in its discretion:
(a) Executed Loan Documents;
(b) Executed Purchase Contract which is the subject
of the Individual Closing;
(c) Joint Certification from Borrower and seller
under the Purchase Contract ("Seller") that the Purchase Price is identical to
the actual cash paid by the Seller when it purchased the Real Property described
in the Purchase Contract without any mark-up or cost, expense or interest
allocations;
(d) title insurance commitment or policy from a title
insurance company acceptable to Lender ("Title Company") evidencing that title
to the Real Property described in the Purchase Contract is marketable, free from
liens and encumbrances, without exception as to survey or mechanic's liens and
containing such other endorsements requested by Lender in a form satisfactory to
Lender;
(e) an outline survey or plot plan of the Real
Property described in the Purchase Contract certified by surveyor and prepared
in a manner sufficient for the Title Company to delete the survey exception from
its title commitment;
(f) evidence satisfactory to Lender that public
liability and property damage coverage are being carried in amounts acceptable
to Lender and naming Lender as an additional insured;
<PAGE> 3
3
(g) evidence satisfactory to Lender that no work of
any kind in connection with construction of improvements has been done upon the
Real Property described in the Purchase Contract or materials placed thereon;
(h) such other documents, instruments, opinions or
assurances as Lender or its counsel may request; and
(i) all settlement fees and recording fees, if any,
and other customary and usual fees incurred by Lender, but chargeable to
Borrower in accordance with the terms hereof.
4. Covenants of Borrower. Borrower hereby covenants with
Lender that with respect to the Real Property which becomes the subject matter
of an Advance that Borrower will:
(a) prevent the filing of, or promptly pay, any liens
against the Real Property, provided the Borrower need not pay any lien so long
as the validity thereof is being contested in good faith and provision for the
payment thereof is made by Borrower in form and manner satisfactory to Lender;
(b) use the Loan proceeds solely for the payment of
the Purchase Price of the Real Property and all related loan costs and fees;
(c) permit the duly authorized agents of Lender at
any reasonable time to enter upon and inspect the Real Property;
(d) comply with all laws, ordinances or other
governmental regulations affecting the Real Property;
(e) furnish to Lender such financial information of
Borrower and Guarantors as Lender may from time to time reasonably require;
(f) upon demand by Lender, pay all costs and expenses
required to satisfy the conditions of this Agreement, including, without
limiting the generality of the foregoing, the following:
(1) all taxes and recording expenses,
including stamp, intangibles and documentary taxes, if any;
(2) fees for title insurance, title updates,
appraisals and out-of-pocket expenses of Lender;
<PAGE> 4
4
(3) all fees and expenses of representatives of
Lender and counsel for Lender in connection with the Loan; and
(g) at all times during the term of this Agreement, comply
with all applicable federal, state, and local laws, regulations, administrative
rulings, orders, ordinances, and the like, pertaining to Borrower or the Real
Property.
5. Representations and Warranties. Borrower represents and warrants to
Lender that as of the date of the execution hereof and during the term of the
Loan, that:
(a) Borrower has not and shall not incur any Indebtedness
except for the Loan. "Indebtedness" means all the obligations of Borrower which,
in accordance with generally accepted accounting principles consistently
applied, would be classified as indebtedness upon a balance sheet, including any
footnotes thereto, of Borrower;
(b) Borrower shall deliver to Lender in May of each year the
federal tax return and a financial statement for the Borrower and each Guarantor
for the year ended immediately prior to each May;
(c) Borrower does not and shall not engage in any business
activities other than the purchase of the Real Property pursuant to the Purchase
Contracts and the sale of the Real Property pursuant to the terms of certain
Option To Repurchase Real Estate agreements ("Option Agreements") to be made
between Borrower, as optionor, and the sellers under the Purchase Contracts, as
optionee, which Option Agreements shall be in substantially the same form as
that attached hereto as Exhibit "B";
(d) That no work or construction has commenced nor have any
materials been delivered for construction of improvements on the Real Property
prior to the date of the execution of this Agreement. Borrower further agrees
not to commence or cause to commence any work or construction, nor to allow any
materials to be delivered, on the Real Property during the term of this
Agreement;
(e) The execution, delivery and performance by Borrower of the
Note, this Loan Agreement and the other Loan Documents and the execution,
delivery and performance by Guarantors of the Guaranties do not and will not (i)
to the best of its knowledge, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to Borrower or Guarantors; (ii) result
in the creation or imposition of any lien, charge, security interest or other
encumbrance upon any property or assets of Borrower or Guarantors other than as
described in such documents; nor (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other
<PAGE> 5
5
material agreement, lease or instrument to which Borrower or Guarantors are a
party or by which Borrower or Guarantors, or properties owned by Borrower or
Guarantors, may be bound or affected;
(f) Each of the Loan Documents constitutes the legal, valid
and binding obligation of Borrower and Guarantors, enforceable in accordance
with the terms thereof except, as the same may be limited by bankruptcy,
moratorium, insolvency or similar laws affecting the enforcement of creditors'
rights generally;
(g) The Real Property which is the subject matter of an
Advance is not subject to any mortgage, pledge, security interest, title
retention lien or other encumbrance except liens for current real and personal
property taxes and assessments not delinquent, easements and restrictions of
record and interests herein granted to Lender;
(h) No litigation or proceeding of any governmental body or
any other person, firm or corporation is presently pending or threatened which
would have a materially adverse effect upon the financial condition of Borrower
or affect the title to the Real Property;
(i) The Real Property is properly zoned for its intended
purpose, to-wit: residential, single family, planned unit development (PUD);
(j) Except as permitted by the express terms hereof, Borrower
shall not, without the prior written consent of Lender, further mortgage,
assign, convey, sell, or otherwise dispose of the Real Property which is the
subject matter of an Advance or any part thereof, or the income therefrom, or
permit any such action to be taken;
(k) All tax returns and reports of Borrower required by law to
be filed have been duly filed and all taxes, assessments, contributions, fees
and other governmental charges (other than those presently payable without
penalty or interest and those currently being contested in good faith) upon
Borrower or its respective properties or assets or income which are due and
payable, have been paid;
(l) None of the financial statements, certificates or other
statements furnished to Lender by or on behalf of Borrower and the Guarantors in
connection with the Loan, and none of the representations and warranties in this
Agreement, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein or
herein not misleading;
(m) None of the Real Property is located within a one hundred
(100) year flood plain; and
<PAGE> 6
6
(n) All disbursements pursuant to the terms of this Agreement
will be utilized solely in accordance with the provisions hereof.
6. Events of Default. Upon the occurrence of a default under any of the
Mortgages or any other Loan Document, then the outstanding principal of the
Note, together with interest accrued and unpaid thereon, shall become
immediately due and payable without further notice or demand, and Lender may
take such action as it may deem appropriate to enforce payment of the
outstanding principal and/or interest due on the Note and apply any part of any
funds then in its hands to the payment of the Note. Upon the occurrence of an
event of default, Borrower irrevocably constitutes and appoints Lender to be its
true and lawful attorney for it and in its name, and Lender is hereby
irrevocably authorized and empowered to enter into and upon the Real Property
which is the subject matter of an Advance and take charge thereof, and do
whatsoever, in the sole judgment of the Lender, it shall reasonably deem
necessary to be done to protect Lender's interest in such Real Property.
Notwithstanding anything to the contrary contained in any Loan Document, a
default under any Loan Document by Borrower ("Contract Default") shall not be
deemed to occur until the expiration of a fifteen (15) day grace period
following the time when such Contract Default would otherwise be deemed to occur
under such Loan Document. Provided Borrower cures such Contract Default during
the grace period, then no such Contract Default shall be deemed to have occurred
under the Loan Documents.
7. Releases. Provided there is no default under the Loan Documents and
provided there is no condition which exists that, with the passage of time,
would create a default, Lender hereby covenants and agrees to release from the
lien of a Mortgage the Real Property described in such Mortgage upon the payment
to Lender of an amount equal to one hundred fifteen percent (115%) of the
Purchase Price paid by Borrower for such encumbered Real Estate ("Release
Price"). Upon receipt of the Release Price, eighty-six and ninety-six one
hundredths percent (86.96%) of the Release Price shall be applied to reduce the
indebtedness due on the Loan and thirteen and four one hundredths percent
(13.04%) of the Release Price shall be deposited into Borrower's Investment
Management Account No. 135000248 with Lender ("IM Account"), which IM Account
shall be pledged to Lender pursuant to the terms of the Assignment/Security
Agreement-Securities Account as collateral security for the Loan.
8. Miscellaneous.
(a) No Waiver; Cumulative Remedies. No failure by Lender to
exercise and no delay by it in exercising any right, power or privilege
hereunder shall preclude any other further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
<PAGE> 7
7
(b) Construction. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with the
laws of the State of Ohio.
(c) Survival of Agreements. All agreements, representations
and warranties made in this Agreement shall survive the making of the Loan
hereunder.
(d) Successors. This Agreement shall be binding upon and shall
inure to the benefit of the Borrower and Lender and to their respective heirs,
personal representatives, successors and assigns. Borrower shall not have the
right to assign this Agreement or any rights hereunder without the prior written
consent of Lender.
(e) Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original.
(f) Cost of Loan. Borrower shall pay to Lender on the date
hereof an origination fee in connection with the making of the Loan in the
amount of Twenty-Five Thousand and 00/100 Dollars ($25,000.00). Borrower shall
also pay all the costs incurred by Lender in the making of the Loan and each
Advance and the administration thereof, including title examination and title
insurance fees, all title examination update fees necessary in connection with
the title policy issued hereunder, survey fees, inspection fees and attorney's
fees, and shall have the right to automatically charge Borrower's loan account
to pay such fees and expenses.
(g) Waiver of Jury Trial; Jurisdiction. As a specifically
bargained inducement for Lender to extend credit to Borrower: (i) the
undersigned hereby expressly waives the right to trial by jury in any lawsuit or
proceeding related to this Agreement or arising in any way from the indebtedness
or transactions involving Lender and the Borrower, and (ii) the undersigned
hereby designates all courts of record, state and federal, sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, as forums
where any action, suit or proceeding in respect of or as arising from or out of
this Agreement, its making, validity or performance, may be prosecuted as to all
parties, their successors and assigns; and by the foregoing designation, the
undersigned consents to the jurisdiction and venue of such courts.
Remainder of page intentionally left blank. Signature
page follows.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed and delivered as of the day and year first above written.
BORROWER:
FIRST CINCINNATI LAND LLC, an Ohio
limited liability company
By: /s/ ALLEN G. ZARING, III
-----------------------------
Name: Allen G. Zaring, III
Title: Member
LENDER:
THE PROVIDENT BANK, an Ohio banking
corporation
By: /s/ DUANE DEWEY
-----------------------------
Name: Duane Dewey
Title: Sr.Vice President
<PAGE> 9
-2-
EXHIBIT "A"
CONTRACT FOR PURCHASE AND SALE OF REAL ESTATE
(UNIMPROVED LAND - OHIO)
This Contract for Purchase and Sale of Real Estate (this "Contract") is
made as of the _____ day of _______________, 1998 (the "Effective Date") between
ZARING HOMES, INC., an Ohio corporation whose address is 11300 Cornell Park
Drive, Cincinnati, Ohio 45242 ("Seller"), and FIRST CINCINNATI LAND LLC, an Ohio
limited liability company whose address is 11300 Cornell Park Drive, Cincinnati,
Ohio 45242 ("Purchaser"). Seller and Purchaser agree as follows:
1. RECITALS. Seller owns the tract or tracts of unimproved real property
identified on attached Exhibit A, including all easements and
appurtenances thereto (the "Property"). Purchaser desires to purchase
the Property from Seller and Seller desires to sell the Property to
Purchaser on the terms contained in this Contract, including Seller's
option to repurchase the Property as described in Paragraph 3(c),
below. Purchaser intends to hold the Property for investment and has no
intention to develop or otherwise improve the Property.
2. PURCHASE PRICE. The purchase price for the Property will be as set
forth on attached Exhibit A (the "Purchase Price"). The Purchase Price
reflects Seller's direct acquisition and development costs plus an
allocation of indirect costs exclusive of selling, general, and
administrative costs. The Purchase Price will be paid to Seller in
immediately available funds at the Closing (as described below).
3. CLOSING. The Closing will occur within thirty (30) days after the
Effective Date, at a time and place mutually acceptable to the parties.
a. Seller will convey good and marketable fee simple title to the
Property to Purchaser at the Closing by general warranty deed or
deeds in recordable form (the "Deed"), free, clear and
unencumbered, subject to non-delinquent real estate taxes and
assessments, legal highways, easements, covenants, and
restrictions of record as of the Effective Date ("Permitted
Exceptions"). If all or any portion of the Property is registered
land, Seller will deliver to Purchaser the registered land owner's
duplicate for the Property at the Closing so that the Deed can be
recorded. Mortgages and liens on the Property, if any, will be
paid by Seller at or prior to the Closing. Exclusive possession of
the Property, subject to the Permitted Exceptions, will be
delivered to Purchaser at the Closing.
b. Seller will deliver to Purchaser at the Closing a title affidavit
as to those items or facts within Seller's control in form
typically required by Purchaser's title insurance company and
sufficient to allow such title company to delete the "standard
exceptions" in a title insurance policy. Seller will deliver to
Purchaser at the Closing lien releases, affidavits and other
documents satisfactory to Purchaser's counsel indemnifying
Purchaser from all liability and expense, including without
limitation
2
<PAGE> 10
-3-
attorneys' fees, that Purchaser may incur in connection with
unrecorded mechanics' liens in the event of any work being
completed or performed, or material being furnished at, on or
about the Property.
c. Seller and Purchaser will execute and deliver at the Closing an
Option to Repurchase Real Estate in the form of attached Exhibit 1
(the "Option") under which Purchaser will grant to Seller an
option to repurchase the Property from Purchaser for a period of
three (3) years from the date of Closing.
d. Seller will be responsible for the preparation of the Deed, the
Option, and for all conveyance fees or transfer taxes, if any, in
connection with the conveyance of the Property. Purchaser will be
responsible for the cost of recording the Deed. Seller will pay
all real estate taxes and assessments current as of Closing and
thereafter in accordance with the terms of the Option.
4. INFORMATION REGARDING THE PROPERTY. Seller shall deliver to Purchaser,
within five (5) days of the Effective Date, all documents or materials
in Seller's possession or control regarding the Property, including,
without limitation, planning and zoning documents, surveys, title
reports, feasibility studies, soil tests, environmental assessments,
and engineering drawings.
5. CONDITION OF THE PROPERTY. Except for the representations and
warranties contained in this Contract, Purchaser acknowledges that
Seller has made no representations or warranties concerning the
Property, that Purchaser is purchasing the Property in its "AS IS"
condition, that Purchaser is relying solely upon its own investigation
of the Property with respect to the condition, character and size of
the Property, and that Purchaser has completed such investigation prior
to the execution of this Contract.
6. REPRESENTATIONS AND WARRANTIES. As a material inducement for the
execution and delivery of this Contract by Purchaser, Seller represents
and warrants to Purchaser (and shall be deemed to represent and warrant
to Purchaser on the date of the Closing) that:
a. Seller owns good and marketable fee simple title to the Property
free, clear and unencumbered, other than the Permitted Exceptions
and liens (not in excess of the Purchase Price) to be released by
Seller at the Closing. Seller has the right and authority to enter
into this Contract and has obtained all consents and approvals to
convey the Property.
b. To the best of Seller's knowledge, the Property has not been used
for a disposal of any hazardous or toxic waste materials, nor has
the Property ever contained nor does it currently contain any
hazardous or toxic waste materials, in violation of any
applicable, federal, state, or local environmental laws or
regulations, nor has any "clean up" of the Property occurred
pursuant to those laws or regulations which could give rise to
liability on the part of Purchaser or Purchaser's successors in
interest to reimburse any governmental authority for the costs of
such cleanup, or create a lien
3
<PAGE> 11
-4-
or encumbrance on the Property, nor has any landfill has occurred
on the Property and no debris has been buried or placed on the
Property.
c. Seller has not received notice from any governmental or
quasi-governmental body or agency with respect to any actual or
threatened taking of the Property or change in zoning of the
Property nor does Seller have any knowledge of any actual or
threatened taking or change in zoning.
d. Seller has not entered into any other contracts, agreements or
understandings, verbal or written, for the sale, transfer, lease
or occupancy of all or of any portion of the Property.
There is no litigation, administrative action or other proceeding
pending or threatened against Seller or the Property which could
result in a lien, charge or encumbrance against all or any part of
the Property. No attachments, execution proceedings, liens or
insolvency proceedings are pending or threatened against Seller or
the Property or contemplated by Seller.
There are no public improvements which have been ordered to be made or
assessed, and there are no special, general or other assessments
pending, threatened against or affecting the Property and Seller
has not made and has no knowledge of any commitments made to any
governmental unit or agency, utility company, authority, school
board, or to any other organization or individual relating to the
Property which would impose any obligations upon Purchaser to make
any contributions of money or land or to install or maintain any
improvements.
The Property does not contain any cemetery lands and Seller is unaware
of any archeological or paleontelogical resources which might
adversely affect or delay the development of the Property.
No examination of the Property will be deemed to constitute a waiver or
a relinquishment on the part of Purchaser of its rights to rely on the
covenants, representations, warranties and agreements made by Seller or
upon the tests, reports, plans, drawings and agreements provided to
Purchaser by Seller.
7. AUTHORITY. Concurrently with the execution of this Contract by Seller,
Seller shall deliver to Purchaser a certified copy of the resolution of
Seller's board of directors authorizing Seller to execute this
Contract, the Option, and to consummate the transaction which is the
subject of this Contract. Concurrently with the execution of this
Contract by Purchaser, Purchaser shall deliver to Seller a certified
copy of the resolution of Purchaser's manager(s) authorizing Purchaser
to execute this Contract, the Option, and to consummate the transaction
which is the subject of this Contract.
8. CONDEMNATION. If any time after the date of Purchaser's execution of
this Contract but prior to the Closing (i) the Property is condemned,
in whole or in part, or (ii) any notice of condemnation shall be given,
then Purchaser, at its option, may terminate this Contract by
4
<PAGE> 12
-5-
written notice to Seller or proceed with the Closing. If Purchaser
elects to proceed with the Closing, then Purchaser may either apply the
proceeds of any condemnation award to reduce the Purchase Price or
accept an assignment of such proceeds or award.
9. BREACH AND REMEDIES. In the event of a breach of this Contract by
either party, the other party will be entitled to all rights and
remedies available at law or in equity. The parties shall each
indemnify and hold the other harmless from and against all costs and
damages (including attorneys' fees and court costs) incurred as a
result of such breach.
10. BROKERS. Purchaser and Seller hereby represent and warrant to each
other that they have not dealt with any broker in connection with this
transaction who has in any way participated as the procuring cause of
the sale of the Property. Purchaser and Seller will indemnify each
other from and against any and all claims for commissions or fees by
brokers or other persons claiming through them.
11. NOTICES. All notices will be in writing and will be delivered by United
States Mail, certified return receipt requested, or by hand delivery or
reputable overnight courier to the address stated above or at such
other address as the parties may specify from time to time in
accordance with this paragraph. All notices will be effective upon
receipt.
12. GENERAL.
a. This Contract constitutes the entire agreement between Seller
and Purchaser with respect to the Property and supersedes any
other prior communications, representations or statements with
respect to the transaction contemplated herein.
b. This Contract may not be modified, altered or amended in any
manner except by an agreement in writing executed by the
parties.
c. If any provision of this Contract is determined to be invalid,
the remainder of this Contract will be valid, enforceable and
effective.
d. This Contract will be interpreted and governed by the laws of
the State of Ohio.
e. This Contract will inure to the benefit of and bind the
parties and their respective successors and assigns.
Notwithstanding the foregoing, this Contract may only be
assigned with the prior written consent of the other party.
f. This Contract may be signed in counterparts, each of which
will constitute one and the same instrument.
g. Time is of the essence to this Contract. If a date specified
for performance by either or both parties falls on a weekend
or legal holiday, the time for performance shall be extended
to the next business day.
5
<PAGE> 13
-6-
h. Unless otherwise expressly provided herein, this provisions of
this Contract will survive the Closing and delivery of the
Deed for three (3) years following the date of the Closing.
Signed as of the Effective Date by the duly authorized officers or
representatives of the Purchaser and Seller.
PURCHASER: SELLER:
FIRST CINCINNATI LAND LLC, ZARING HOMES, INC.,
an Ohio limited liability company an Ohio corporation
By: By:
--------------------------------- ---------------------------------
Print Name: Print Name:
------------------------- -------------------------
Title: Title:
--------------------------------- ------------------------------
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A -- Term Sheet
EXHIBIT 1 -- Form of Option
6
<PAGE> 14
-7-
EXHIBIT A
TERM SHEET
Property: Parkside, Mason, Ohio
(legal description attached)
Total Acres in Property: 41.0133 acres
Total Purchase Price: $965,645.62
Purchase Price Per Acre: $23,544.69
7
<PAGE> 15
-8-
EXHIBIT "B"
OPTION TO REPURCHASE REAL ESTATE
(UNIMPROVED LAND - OHIO)
This Option to Repurchase Real Estate (this "Option") is made as of the
_____ day of _______________, 1998 (the "Effective Date") between FIRST
CINCINNATI LAND LLC, an Ohio limited liability company whose address is 11300
Cornell Park Drive, Cincinnati, Ohio 45242 ("Seller"), and ZARING HOMES, INC.,
an Ohio corporation whose address is 11300 Cornell Park Drive, Cincinnati, Ohio
45242 ("Purchaser"). Seller and Purchaser agree as follows:
1. GRANT OF OPTION. In consideration of the payments and mutual promises
hereinafter set forth, Seller hereby grants to Purchaser the exclusive
right and option to repurchase from Seller on the terms hereinafter set
forth all or any portion of unimproved real property identified on
attached Exhibit A, including all easements and appurtenances thereto
(the "Property").
2. OPTION PAYMENTS. In consideration for the granting of this Option,
Purchaser shall make the following payments (collectively, the "Option
Payments") to Seller. All Option Payments are non-refundable.
a. Commencing on the Effective Date and continuing throughout
the term of this Option, Purchaser shall pay to Seller monthly
payments in an amount determined with reference to the annual
interest payable by Seller to The Provident Bank ("Provident")
pursuant to the terms of a promissory note executed by Seller
in favor of Provident (the "Note") in connection with a
mortgage loan on the Property (the "Loan"). Such payments will
be due and payable on or before the first day of each calendar
month during the term of this Option without demand, deduction
or setoff. A payment due for any partial period at the
beginning or end of the term of this Option will be prorated.
Seller will notify Purchaser in writing of the initial amount
of monthly payment, and such amount will remain in effect for
succeeding months until Seller notifies Purchaser in writing of
a different monthly payment based on a change in the interest
rate pursuant to the Note. The formula to be used for the
calculation of monthly payments is as follows: (i) Purchase
Price (as defined in the Contract for Purchase and Sale of Real
Estate (the "Contract") between Purchaser (as seller) and
Seller (as purchaser) and as set forth on attached Exhibit A)
of the Property then subject to this Option, multiplied by (ii)
the annual interest rate then in effect pursuant to the Note,
divided by (iii) twelve (12).
b. Purchaser will pay when due (or promptly reimburse Seller
upon written demand, if Seller pays) all real estate taxes and
assessments (including all CAUV recoupment attributable to the
period of Purchaser's ownership of the Property and/or
development activities of Purchaser on the Property) levied or
assessed upon the Property and payable during the term of this
Option. If Purchaser does not exercise its right to repurchase
the Property, then at the expiration or termination of this
8
<PAGE> 16
-9-
Option, Purchaser will pay Seller an amount equal to real
estate taxes and assessments on the Property attributable to
the earlier of (i) the date on which any termination of this
Option is effective, or (ii) the Expiration Date. Such amount
will be calculated based upon the most recently issued real
estate tax bill. In addition, Purchaser will pay to Seller all
CAUV recoupment attributable to the period of Purchaser's
ownership of the Property and/or development activities of
Purchaser on the Property.
c. Purchaser will pay when due all charges for water, storm or
sanitary sewer, drainage, refuse collection, gas, fuel,
electricity, telephone and all other utilities serving the
Property during the term of this Option, if any.
d. Subject to Purchaser's reimbursement for premiums as
provided below, throughout the term of this Option, Seller will
maintain public liability insurance for the Property with
single limits of not less than $1,000,000 for personal injury
and death, aggregate limits of not less than $3,000,000 for
personal injury and death and $500,000.00 for property damage
as well as excess umbrella liability insurance affording
additional insurance coverage with limits of at least
$10,000,000. All insurance policies will name Purchaser and any
mortgage holder as an additional named insured as their
interests may appear. Seller will provide Purchaser with a
certificate of insurance certifying as to the existence of such
insurance and agreeing to notify such parties thirty (30) days
in advance of any termination of such coverage. Upon written
demand from Seller, Purchaser will reimburse Seller for the
insurance premiums attributable to such liability insurance.
e. Upon written demand from Seller, Purchaser will reimburse
Seller for any actual out-of-pocket costs and expenses
attributable to the Property and paid by Seller in connection
with the Loan, including but not limited to loan commitment
fees, appraisal fees, title exams, title insurance premiums,
surveys, and attorney fees for Provident's counsel required to
be paid by Seller.
f. The parties acknowledge that Seller may collaterally assign
its rights in this Option to Provident. At Purchaser's option,
Purchaser may, without further authorization from Seller, make
any of the foregoing payments directly to Provident if
Purchaser has reason to believe that Seller is in default
under the Note or any other document executed in connection
with the Loan, and any such payment to Provident shall
constitute payment to Seller hereunder.
g. Seller may terminate this Option if Purchaser fails to make
any Option Payment within ten (10) days after receipt of
written notice from Seller that such Option Payment is due but
unpaid, in which event the Additional Payment (as defined
below) shall be immediately due and payable.
3. TERM OF OPTION. The term of this Option shall commence on the
Effective Date and shall expire at 5:00 p.m. E.S.T. on July ____, 2001
(the "Expiration Date"). Purchaser may
9
<PAGE> 17
-10-
terminate this Option prior to the Expiration Date upon ninety (90)
days' prior written notice to Seller and payment of the Additional
Payment as required by Paragraph 6.
4. EXERCISE OF OPTION. Purchaser may exercise its right to repurchase at
any time (and from time to time if Purchaser desires to purchase only a
portion of the Property) up to and including the Expiration Date. If
Purchaser elects to exercise its right to repurchase, Purchaser shall
deliver written notice to Seller on or before 5:00 p.m. on the
Expiration Date.
5. ACQUISITION PRICE. If Purchaser exercises its right to repurchase,
Purchaser shall pay to Seller in immediately available funds at the
Closing (as defined below) an amount equal to one hundred fifteen
percent (115%) of the Purchase Price (the "Acquisition Price"). The
formula for calculating the Acquisition Price is as follows: (i) total
acreage being repurchased, multiplied by (ii) Purchase Price per acre
for the Property set forth on Exhibit A, multiplied by (iii) 115%. None
of the Option Payments described in Paragraph 2 shall be applied to the
Acquisition Price.
6. OTHER OPTIONS/ADDITIONAL PAYMENT. Concurrently with or subsequent to
the execution of this Option, Purchaser, Zaring Homes Kentucky LLC
("ZHK"), and Zaring Homes of Indiana, L.L.C. ("ZHI") as purchasers are
executing other options to repurchase real estate from Seller
substantially in the form of this Option for other property owned by
Seller in Tennessee, North Carolina, Kentucky, and Indiana
(collectively, the "Other Options"). Purchaser shall pay to Seller the
sum of One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Additional Payment") in immediately available funds on the earlier of
(i) the date on which any termination of this Option is effective, (ii)
the date on which any termination of any of the Other Options is
effective, or (iii) the first business day following the Expiration
Date of this Option, unless Seller has defaulted under this Option or
under one or more of the Other Options or unless all of the following
occur in which event the Additional Payment shall not be paid: (a)
Purchaser pays Seller the Acquisition Price for all of the Property
pursuant to the terms of this Option; and (b) all of the purchasers
under the Other Options pay Seller the acquisition prices for all of
the properties which are the subject of the Other Options.
7. LETTER OF CREDIT. Concurrently with the execution of this Option by
Purchaser, Purchaser shall provide to Seller an irrevocable letter of
credit in the amount of the Additional Payment (the "Letter of Credit")
to secure Purchaser's obligations contained in this Option. The Letter
of Credit shall contain terms and be issued by a bank reasonably
acceptable to Seller and shall be maintained in effect throughout the
term of this Option. If the Letter of Credit expires prior to
thirty-one (31) days after the Expiration Date of this Option,
Purchaser shall deliver to Seller a replacement Letter of Credit no
later than thirty-one (31) days prior to the expiration date of the
Letter of Credit then in effect. Upon receipt of the replacement Letter
of Credit, Seller shall return the original Letter of Credit to
Purchaser. Upon receipt of (i) the Acquisition Price for all of the
Property and the acquisition prices for all of the properties covered
by the Other Options, or (ii) the Additional Payment, Seller shall
return the Letter of Credit to Purchaser.
10
<PAGE> 18
-11-
8. SELLER'S RIGHT. If a change in control of Purchaser, ZHK, ZHI, or
Zaring National Corporation (Purchaser's parent corporation) occurs
during the term of this Option, Seller may at any time thereafter
terminate this Option upon ninety (90) days' prior written notice to
Purchaser ("Seller's Notice"). Purchaser shall pay the Additional
Payment to Seller within ninety (90) days after the date of Seller's
Notice, if any of the following occur: (i) Purchaser does not elect to
exercise its right to repurchase and/or Purchaser does not pay to
Seller the Acquisition Price for all of the Property pursuant to this
Option; (ii) any one or more of the purchasers under the Other Options
do not elect to exercise their options to repurchase and/or any one or
more of the purchasers under the Other Options do not pay to Seller the
acquisition prices for all of the properties which are the subject of
the Other Options.
9. CHANGE IN CONTROL. For purposes of Paragraph 8, a change in control
will be deemed to have occurred under any of the following
circumstances:
a. The occurrence of any transaction that causes Allen G. Zaring III
("Zaring") to own, directly or indirectly, less than twenty-five
percent (25%) of the issued and outstanding stock of Purchaser or less
than twenty-five percent (25%) of the membership interests in ZHK or
ZHI. For purposes of this Option, ownership of stock and ownership of
membership interests will be determined in accordance with the rules of
constructive ownership provided in section 267(c) of the Internal
Revenue Code of 1986, as amended, by treating those rules as applying
to ownership of interests in a limited liability company as well as
ownership of stock in a corporation.
b. The sale or transfer of all or substantially all of the assets
of either Zaring National Corporation, Purchaser, ZHK, or ZHI.
10. CLOSING. If Purchaser exercises its right to repurchase, the Closing
will occur within thirty (30) days after the date of Purchaser's
written notice to Seller as described in Paragraph 4 or within ninety
(90) days after the date of Seller's Notice, whichever is applicable,
at a time and place mutually acceptable to the parties. The following
terms and conditions will apply:
a. Seller will convey good and marketable fee simple title to the
Property to Purchaser at the Closing by limited warranty deed or deeds
in recordable form (the "Deed"), free, clear and unencumbered, subject
to non-delinquent real estate taxes and assessments, legal highways,
easements, covenants, and restrictions of record as of the Effective
Date ("Permitted Exceptions"). If all or any portion of the Property is
registered land, Seller will deliver to Purchaser the registered land
owner's duplicate for the Property at the Closing so that the Deed can
be recorded. Mortgages and liens on the Property, if any, will be paid
by Seller at or prior to the Closing. Exclusive possession of the
Property, subject to the Permitted Exceptions, will be delivered to
Purchaser at the Closing.
b. Seller shall deliver to Purchaser at the Closing all documents or
materials in Seller's possession or control regarding the portion of
the Property being repurchased, including, without limitation, planning
and zoning documents, surveys, title reports, feasibility studies, soil
tests, environmental assessments, and engineering drawings.
11
<PAGE> 19
-12-
c. Seller will deliver to Purchaser at the Closing a title affidavit as
to those items or facts within Seller's control in form typically
required by Purchaser's title insurance company and sufficient to allow
such title company to delete the "standard exceptions" in a title
insurance policy. Seller will deliver to Purchaser at the Closing lien
releases, affidavits and other documents satisfactory to Purchaser's
counsel indemnifying Purchaser from all liability and expense,
including without limitation attorneys' fees, that Purchaser may incur
in connection with unrecorded mechanics' liens in the event of any work
being completed or performed, or material being furnished at, on or
about the Property.
d. Seller will be responsible for the preparation of the Deed and for
all conveyance fees or transfer taxes, if any, in connection with the
conveyance of the Property. Purchaser will be responsible for the cost
of recording the Deed.
e. All of the representations and warranties from Purchaser (as seller)
to Seller (as purchaser) contained in the Contract shall be deemed to
run from Seller to Purchaser and shall survive the Closing for a period
of three (3) years. Except for such representations and warranties,
Purchaser acknowledges that Seller has made no representations or
warranties concerning the Property, that Purchaser is purchasing the
Property in its "AS IS" condition, that Purchaser is relying solely
upon its own investigation of the Property with respect to the
condition, character and size of the Property, and that Purchaser shall
have completed such investigation prior to exercising its right to
repurchase the Property.
f. If any time after the date of Purchaser's notice pursuant to
Paragraph 4 but prior to the Closing (i) the Property is condemned,
in whole or in part, or (ii) any notice of condemnation shall be
given, then Purchaser, at its option, may revoke its election to
repurchase the Property by written notice to Seller or proceed with
the Closing. If Purchaser elects to proceed with the Closing, then
Purchaser may either apply the proceeds of any condemnation award to
reduce the Purchase Price or accept an assignment of such proceeds
or award.
g. If Purchaser is repurchasing only a portion of the Property, then
Purchaser at its expense shall obtain all necessary approvals for
the proposed subdivision of the Property and shall provide all
documentation necessary to ensure that the portion of the Property
not being repurchased is transferable as a separate parcel,
including but not limited to a survey and metes and bounds legal
description for the portion of the Property not being repurchased if
required.
11 SIGNAGE. Seller hereby acknowledges and approves of existing signage
and advertising displayed on the Property and agrees that such signage,
and any reasonable replacement thereof, may be maintained on the
Property.
12 BROKERS. Purchaser and Seller hereby represent and warrant to each
other that they have not dealt with any broker in connection with this
transaction who has in any way participated as the procuring cause of
the sale of the Property. Purchaser and Seller will indemnify each
12
<PAGE> 20
-13-
other from and against any and all claims for commissions or fees by
brokers or other persons claiming through them.
13 BREACH AND REMEDIES. In the event of a breach of this Option by either
party, the other party will be entitled to all rights and remedies
available at law or in equity. The parties shall each indemnify and
hold the other harmless from and against all costs and damages
(including attorneys' fees and court costs) incurred as a result of
such breach.
14 NOTICES. All notices will be in writing and will be delivered by United
States Mail, certified return receipt requested, or by hand delivery or
reputable overnight courier to the address stated above or at such
other address as the parties may specify from time to time in
accordance with this paragraph. All notices will be effective upon
receipt.
15 GENERAL.
a. This Option constitutes the entire agreement between Seller
and Purchaser with respect to the Property and supersedes any
other prior communications, representations or statements with
respect to the transaction contemplated herein.
b. This Option may not be modified, altered or amended in any
manner except by an agreement in writing executed by the parties.
c. If any provision of this Option is determined to be invalid,
the remainder of this Option will be valid, enforceable and effective.
d. This Option will be interpreted and governed by the laws of
the State of Ohio.
e. This Option will inure to the benefit of and bind the parties
and their respective successors and assigns. Notwithstanding the
foregoing, this Option may only be assigned with the prior written
consent of the other party.
f. This Option may be signed in counterparts, each of which will
constitute one and the same instrument.
g. Time is of the essence to this Option. If a date specified for
performance by either or both parties falls on a weekend or legal
holiday, the time for performance shall be extended to the next
business day.
h. This Option shall not be recorded. However, Seller, at the
request of Purchaser, shall execute and deliver to Purchaser an
instrument sufficient in form suitable to place notice of this Option
of record.
13
<PAGE> 21
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Signed as of the Effective Date by the duly authorized officers or
representatives of the Purchaser and Seller.
Signed and acknowledged SELLER:
in the presence of: FIRST CINCINNATI LAND LLC,
an Ohio limited liability company
- -------------------------------------
Print Name:
-------------------------- By:
--------------------------------
Print Name:
------------------------
Title:
-----------------------------
- -------------------------------------
Print Name:
--------------------------
PURCHASER:
ZARING HOMES, INC.,
an Ohio corporation
- -------------------------------------
Print Name:
-------------------------- By:
--------------------------------
Print Name:
------------------------
Title:
-----------------------------
- -------------------------------------
Print Name:
--------------------------
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me, a notary public,
this ____ day of _____________, 1998 by _____________________________, a/the
__________________ of FIRST CINCINNATI LAND LLC, an Ohio limited liability
company, on behalf of such company.
---------------------------------------------
Notary Public
14
<PAGE> 22
-15-
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me, a notary public,
this ____ day of _____________, 1998 by _____________________________, a/the
__________________ of ZARING HOMES, INC., an Ohio corporation, on behalf of such
corporation.
---------------------------------------------
Notary Public
15
<PAGE> 23
EXHIBIT A
TERM SHEET
Property: Parkside, Mason, Ohio
(legal description attached)
Total Acres in Property: 41.0133 acres
Total Purchase Price: $965,645.62
Purchase Price Per Acre: $23,544.69
16
<PAGE> 1
EXHIBIT 10.15
PROMISSORY NOTE
Date of Note: July 10, 1998
Amount of Note: Ten Million and 00/100 Dollars ($10,000,000.00)
Maturity Date: July 10, 2001
Interest Rate: The "Interest Rate" shall be two and one-quarter percent(2-1/4%)
in excess of the Libor Rate (as defined below) computed on a three hundred sixty
(360) day year charged daily for the actual number of days elapsed. Any change
in the Interest Rate due to a change in the Libor Rate shall be effective
immediately upon and after the date of each change in the Libor Rate.
Interest Period: The "Interest Period" means the period commencing on the
Closing Date and ending one month thereafter, provided that:
(i) any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(iii) any Interest Period which begins before the Termination
Date and would otherwise end after the Termination Date shall end on the
Termination Date.
Libor Rate: The "Libor Rate" means the rate (rounded upward to the next highest
1/100 of 1%) obtained by dividing (x) the rate of interest per annum determined
by Lender equal to the offered rates for deposits in U.S. Dollars for thirty
(30) day periods commencing of the first date of the applicable Interest Period
for which the rate is determined as the rate appears on the Telerate system as
of 11:00 a.m. (London, England time) on the date which is two (2) Business Days
preceding the first day of the Interest Period, for a period comparable to the
duration of the Interest Period and in an amount comparable to the amount of the
Loan to be outstanding during the Interest Period, by (y) a percentage equal to
100% minus the stated maximum rate of all reserves required to be maintained
against "Libor Rate liabilities" as specified in Regulation D (or against any
other category of liabilities which includes deposits by reference to which the
interest rate on Libor Rate loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States office of a
bank to United States residents) on such date to any member bank of the Federal
Reserve System.
<PAGE> 2
Capitalized Terms: Capitalized terms used herein not otherwise defined shall
have the meanings assigned to them in the Loan Agreement of even date herewith
between Lender and Borrower ("Loan Agreement").
FOR VALUE RECEIVED, the undersigned ("Borrower"), does hereby covenant
and promise to pay to the order of THE PROVIDENT BANK, an Ohio banking
corporation, or its successors or assigns, at its principal office located at
One East Fourth Street, Cincinnati, Ohio, 45202 ("Lender"), or at such other
place as the Lender may designate to Borrower in writing from time to time, in
legal tender of the United States, the sum of Ten Million and 00/100 Dollars
($10,000,000.00), or so much thereof as shall be advanced by the Lender to
Borrower ("Principal Amount") pursuant to the Loan Agreement between Borrower
and Lender, together with interest at the Interest Rate, as set forth on the
first page hereof, on the Principal Amount until this Note is paid in full.
Borrower shall pay a late payment premium of five percent (5%) of any principal
or interest payment made more than ten (10) days after the due date which shall
be due with any such late payment.
All accrued and unpaid interest under this Note shall be payable in
arrears commencing on August 1, 1998, and on the first day of each calendar
month thereafter until this Note is paid in full.
The Principal Amount, together with all accrued and unpaid Interest,
shall be due and payable on the Maturity Date.
Payments under this Note shall be applied first to the payment of sums
advanced by the Lender, if any, as provided in this Note, the Loan Agreement,
the Mortgages or in any other document executed as collateral security for the
Note ("Loan Documents"); second, to interest which became due previously; third,
to interest which became due for the month for which payment is being made;
fourth, to the payment of late charges provided herein; and the balance to
principal, until the full amount of principal and interest has been paid, or
until the unpaid balance of this Note matures, if sooner.
This Note is executed in connection with the Loan Agreement and is
secured by the Mortgages and the other Loan Documents, which Loan Agreement,
Mortgages and other Loan Documents specify various defaults (each, a "Default").
Upon Borrower's failure to pay any interest or principal payment when due under
this Note or upon the occurrence of a Default, all sums owing on this Note may,
at the Lender's option, be declared immediately due and payable without demand
or notice. It shall also be a Default under this Note in the event of the
dissolution of the Borrower or the death of any guarantor of the indebtedness
evidenced hereby.
During the continuance of a Default, the Principal Amount outstanding
shall bear interest at three percent (3%) per annum in excess of the Interest
Rate in effect from time to time ("Default Rate").
2
<PAGE> 3
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceedings (whether at the trial or appellate level), or should this Note be
placed in the hands of attorneys for collection upon the occurrence of a
Default, Borrower agrees to pay, in addition to the principal, premium and
interest due and payable hereon, all costs of collection, including reasonable
attorneys' fees and expenses.
All parties to this Note, whether Borrower, principal, surety,
guarantor or endorser, hereby jointly and severally waive presentment for
payment, demand, protest, notice of protest, notice of dishonor and any other
notice required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note or any endorsement or guaranty
of this Note, except as provided in the Mortgages, and consent to all
forbearance or waiver of any term hereof or release or discharge by the holder
hereof of any of the Borrower, guarantors, endorsers or sureties or the release,
substitution or exchange of any security for the payment hereof or the failure
to act on the part of the holder or any other indulgence shown by the holder
from time to time, in one or more instances (without notice to or further assent
from the Borrower, guarantors, endorsers or sureties) and the Borrower,
guarantors, endorsers or sureties agree that no such action, failure to act or
failure to exercise any right or remedy on the part of the holder shall in any
way affect or impair the obligations of the Borrower hereunder or of any
guarantors, endorsers or sureties or be construed as a waiver by the holder of
or otherwise affect any of the holder's rights under this Note, under any
endorsement or guaranty of this Note or under any document or instrument
evidencing any security for payment of this Note.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any change or
modification is sought.
Anything herein to the contrary notwithstanding, the obligations of
Borrower under this Note, the Loan Agreement, the Mortgages or other Loan
Documents shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt of any such payment by the Lender would
be contrary to provisions of law applicable to the Lender limiting the maximum
rate of interest that may be charged or collected by the Lender.
The Borrower shall have the right to prepay, in whole or in part, the
Principal Amount outstanding and all accrued interest thereon without penalty.
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER TO EXTEND CREDIT TO
BORROWER, THE BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM THE
INDEBTEDNESS OR TRANSACTIONS INVOLVING THE LENDER AND THE BORROWER.
3
<PAGE> 4
The Borrower and all endorsers authorize any attorney-at-law, including
an attorney engaged by Lender or any holder of this Note, to appear in any court
of record in Hamilton County, Ohio, or in any court of record in the
jurisdiction in which the Borrower or any endorser against which or whom a
judgment is then sought may then reside, or in any court of record in the
jurisdiction in which the property described in the Mortgages is located, after
the indebtedness evidenced hereby, or any part thereof, becomes due, and waive
the issuance and service of process and confess judgment against the Borrower or
any endorser in favor of the Lender for the amount then appearing due, together
with costs of suit and thereupon to release all errors and waive all rights of
appeal and stay of execution, but no such judgment or judgments against any one
of the undersigned shall be a bar to a subsequent judgment or judgments against
any one or more than one of such persons or entities against whom judgment has
not been obtained thereon. This warrant of attorney to confess judgment is a
joint and several warrant of attorney. The foregoing warrant of attorney shall
survive any judgment; and if any judgment be vacated for any reason, the Lender
or any holder hereof nevertheless may hereafter use the foregoing warrant of
attorney to obtain an additional judgment or judgments against the Borrower and
all endorsers or any one or more of them. The borrower hereby expressly waives
any conflict of interest that the holder's attorney may have in confessing such
judgment against Borrower and expressly consents to the confessing attorney
receiving a legal fee from the holder for confessing such judgment against
Borrower.
[Remainder of page intentionally left blank. Signature page follows.]
4
<PAGE> 5
- -------------------------------------------------------------------------------
"WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE."
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the day and year first above written.
BORROWER:
FIRST CINCINNATI LAND LLC
By: /s/ ALLEN G. ZARING, III
---------------------------------
Name: Allen G. Zaring, III
Its: Member
This is to certify that this Note was executed in my presence on the
date hereof by Borrower whose signature appears above in the capacity indicated.
/s/ MARSHA L. (WARD) TODD
---------------------------------
My commission expires:
1/14/02
---------------------------------
Marsha L. Todd
Notary Public, State of Ohio
My commission expires Jan. 14, 2002
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZARING
NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,292
<SECURITIES> 0
<RECEIVABLES> 1,503
<ALLOWANCES> 0
<INVENTORY> 113,337
<CURRENT-ASSETS> 0
<PP&E> 21,200
<DEPRECIATION> (4,847)
<TOTAL-ASSETS> 146,662
<CURRENT-LIABILITIES> 0
<BONDS> 45,863
0
0
<COMMON> 25,131
<OTHER-SE> 24,304
<TOTAL-LIABILITY-AND-EQUITY> 146,662
<SALES> 123,447
<TOTAL-REVENUES> 123,447
<CGS> 103,217
<TOTAL-COSTS> 123,302
<OTHER-EXPENSES> 19,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,587
<INCOME-PRETAX> (2,041)
<INCOME-TAX> (888)
<INCOME-CONTINUING> (1,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,153)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
