SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Under Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the fiscal year ended November 1, 1997
Commission file number 0-6506
NOBILITY HOMES, INC.
(Name of small business issuer in its charter)
Florida 59-1166102
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3741 S.W. 7th Street
Ocala, Florida 34474
(Address of principal executive offices) (Zip Code)
(352) 732-5157
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 par value
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]; No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant on January 16, 1998, computed by reference to
the average bid and asked prices on that date: $26,957,607
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of January 16, 1998: 2,970,954 shares of
common stock
DOCUMENTS INCORPORATED BY REFERENCE Incorporated at
Nobility Homes, Inc. Proxy Statement for the 1998 Part III, Items 10,
Annual Meeting of Shareholders 11, 12 and 13
<PAGE>
PART I
Item 1. Description of Business
Nobility Homes, Inc. (the "Registrant or the "Company"), a
corporation organized under the laws of Florida in 1967, designs,
manufactures and sells a broad line of manufactured homes through a
network of retail sales centers throughout north and central Florida. The
Registrant also sells its manufactured homes on a wholesale basis to
manufactured home dealers and manufactured home parks.
Manufactured Homes
Homes manufactured by the Registrant are available in approximately
100 active models, ranging in size from 636 to 2,153 square feet and
contain from one to five bedrooms. The Registrant's manufactured homes
("homes") are available in single-wide widths of 14 and 16 feet ranging
from 48 to 72 feet in length, double-wide widths of 24, 26, 28 and 32 feet
ranging from 36 to 76 feet in length and triple-wide widths of 36, 38 and
42 feet ranging from 44 to 68 feet in length. During the last four months
of fiscal 1997, the Registrant introduced its commemorative 30th
Anniversary model, a three bedroom, 2 bath home containing 1,272 square
feet. In addition, during 1997 the Registrant introduced a four section
model referred to as a quad. Quads are T-shaped and have a total of 2,128
square feet. The Registrant's homes are sold under the trade names
"Kingswood,""Richwood," "Springwood," "Tropic Isle," "Regency Manor,"
"Regency Manor Special," and "Tropic Manor."
The homes are sold primarily as unfurnished dwellings ready for
permanent occupancy. Interiors are designed and color coordinated in a
range of decors. Depending on the size of the unit and quality of
appliances and other appointments, retail prices for the Registrant's
homes typically range from approximately $14,000 to $60,000. Most of the
prices of the Registrant's homes are considered by it to be within the low
to medium price range of the industry.
Both of the Registrant's manufacturing plants utilize assembly line
techniques in manufactured home production. Both plants manufacture and
assemble the floors, sidewalls, end walls, roofs and interior cabinets for
their homes. The Registrant purchases from outside suppliers various
other components that are built into its homes including the axles,
frames, tires, doors, windows, pre-finished sidings, plywood, ceiling
panels, lumber, rafters, insulation, paneling, appliances, heating units,
lighting and plumbing fixtures, carpeting and drapes. The Registrant is
not dependent upon any one particular supplier for its raw materials or
component parts, nor is it required to carry significant amounts of
inventory to assure itself of a continuous allotment of goods from
suppliers.
The Registrant's two manufacturing plants continued to operate at an
average of approximately 55% of their single shift capacity in fiscal
1997, representing no change from fiscal 1996.
The Registrant generally does not manufacture its homes to be held by
it as inventory (except for model home inventory of its retail network
subsidiary, Prestige Home Centers, Inc.), but, rather, manufactures its
homes after receipt of dealer orders. Although the Registrant attempts to
maintain a consistent level of production of homes throughout the fiscal
year, seasonal fluctuations do occur, with sales of homes generally lower
during the first quarter due to the holiday season.
The sales area for a manufactured home manufacturer is limited by
substantial delivery costs of the finished product to the dealer. The
homes produced by the Registrant are delivered by outside trucking
companies. The Registrant estimates that it can compete effectively
within a range of approximately 300 miles from its manufacturing plants.
During the last two fiscal years, all of the Registrant's sales were made
in Florida.
Retail Sales
Prestige Home Centers, Inc. ("Prestige") operates 15 retail lots in
north and central Florida. Its principal executive offices are located at
the Registrant's headquarters in Ocala, Florida. According to statistics
compiled by Statistical Surveys, Inc. from records on file with the State
of Florida, Prestige has been the largest retail dealer of multi-section
manufactured homes in Florida since 1994, based on number of home sales.
Each of Prestige's retail lots is located within 200 miles of one of
the Registrant's two manufacturing facilities. Prestige leases its retail
lots from unaffiliated parties under leases with terms of between one and
three years with renewal options.
The primary customers of Prestige are young, first-time home buyers
who generally purchase manufactured homes to place on their own homesites.
Prestige operates its retail sales centers with a model home concept.
Each of the homes displayed at its retail sales centers is furnished and
decorated as a model home. Although the model homes may be purchased from
Prestige's model home inventory, generally, customers order homes which
are shipped directly from the factory to their homesite. Prestige sales
generally are to purchasers living within a radius of approximately 100
miles from the selling retail lot.
The Registrant has entered into a joint venture agreement with 21st
Century Mortgage Corporation to provide financing to retail customers
purchasing the Registrant's manufactured homes from Prestige.
Additionally, financing for home purchases is provided by nine other
independent sources that specialize in manufactured housing lending, and
numerous banks which finance manufactured home purchases. Prestige is not
required to sign any recourse agreements with any of these retail
financing sources, nor does Prestige itself finance customers' new home
purchases.
The retail sale of manufactured homes is a highly competitive
business. Because of the large number of retail sales centers located
throughout the Registrant's market area, potential customers typically can
find a sales center within a 100 mile radius of their present home.
Prestige competes with over 100 other retailers in its primary market
area, some of which may have greater financial resources than Prestige.
In addition, manufactured homes offered by Prestige compete with
conventional site-built housing.
Prestige also provides, through its wholly-owned subsidiary, Prestige
Insurance Services, Inc., an independent insurance agent, credit life and
property and casualty insurance to Prestige customers in connection with
their purchase and financing of manufactured homes. Prestige Insurance
Services, Inc. receives a commission on the insurance premium collected at
the time an insurance policy is written and in future years if the
homeowner renews the policy. Its revenues were approximately $34,000,
$16,000 and $24,000 in fiscal 1997, 1996 and 1995, respectively.
Sales to Independent Dealers and Manufactured Home Communities
The Registrant sells its homes on a wholesale basis exclusively
through 3 full-time salespersons to approximately 60 independent dealers.
The Registrant attempts continuously to seek new dealers in the areas in
which it operates as there is ongoing turnover in the dealers with which
it deals at any one time, especially with manufactured home communities as
they achieve full occupancy levels. As is common in the industry, most of
the Registrant's dealers other than its subsidiary, Prestige, are
independent dealers that sell products produced by several manufacturers.
No one dealer accounted for more than 10.0% of the Registrant's total
sales in fiscal 1997.
Dealers generally obtain inventory financing from financial
institutions (usually banks and finance companies) on a "floor plan" basis
whereby the financial institution obtains a security interest in all or
part of the dealer's manufactured home inventory. The Registrant, upon
request of the lending institution, enters into repurchase agreements with
the lending institutions which provide that, in the event of a dealer's
default, the Registrant will, at the lender's request, repurchase the home
provided that the Registrant's liability will not exceed the
manufacturer's invoice price and that the repurchased home is new and
unused. Generally, the repurchase agreement expires within one year after
a home is sold to the dealer, and the repurchase price is limited to
between 70% to 100% of the original invoice price to the dealer, depending
on the length of time that has expired since the original sale.
Generally, repurchase is conditioned upon the dealer's insolvency. Any
losses incurred as a result of such repurchases would be limited to the
difference between the repurchase price and the subsequent resale value of
the home repurchased. The Registrant was not required to repurchase any
homes during fiscal 1997, 1996 or 1995. For additional information, see
Note 13 of "Notes to Consolidated Financial Statements." The Registrant
does not finance retail sales of new homes for its dealers' customers.
The Registrant does not generally offer consigned inventory programs
or other credit terms to dealers and ordinarily receives payment for its
homes within 15 to 30 days of delivery. However, the Registrant offers
extended terms to unrelated park dealers who do a high volume of business
with the Registrant. From time to time, the Registrant has offered
extended terms to TLT, Inc. ("TLT"), an affiliate of the Registrant's
President, which operates three manufactured home communities targeted at
the retiree market, in return for which TLT has granted the Registrant
exclusive sales rights for the manufactured homes sold by the communities
operated by it. See Note 3 of "Notes to Consolidated Financial
Statements" for additional information concerning the terms of sales to
TLT. In order to stimulate sales, the Registrant sells homes to selected
manufactured home communities for display on special terms. The high
visibility of the Registrant's homes in such communities generates
additional sales of the Registrant's homes through such dealers.
The Registrant offers a quarterly or yearly volume bonus award to
those dealers who purchase homes from the Registrant in excess of certain
specified dollar amounts during a specified period. As an additional
dealer incentive, the Registrant may assume certain floor plan financing
costs for a specified number of days for dealers who carry in excess of a
specified level of the Registrant's inventory. During fiscal 1997, 1996
and 1995 the Registrant reimbursed dealers other than TLT $151,920,
$111,539 and $35,644, respectively, as volume bonus awards and for floor
plan financing charges under the programs described above. Volume bonus
awards to TLT, which are granted on the same basis as to other dealers,
were $8,000 in fiscal 1997, $28,000 in fiscal 1996 and $91,000 in fiscal
1995.
Regulation
The manufacture, distribution and sale of homes is subject to
governmental regulation at the federal, state and local levels. The
Department of Housing and Urban Development ("HUD") has adopted national
construction and safety standards that have priority over existing state
standards. Compliance with these standards involves submission to and
approval by an engineering firm approved by HUD of engineering plans and
specifications on all models. HUD's standards also require periodic
inspection by state or other third party inspectors of plant facilities
and construction procedures, as well as inspection of manufactured home
units during construction. In 1994, HUD regulations took effect which
require that manufactured homes be constructed to more stringent
standards. Florida is split between two wind zones. Homes sold in Zone
II, which includes most of north and central Florida, must be able to
withstand winds of up to 100 miles per hour, while homes sold in Zone III,
which covers primarily the coastal areas of south Florida, must be able to
withstand winds up to 110 miles per hour. Homes built to these standards
are significantly stronger than homes built prior to the effective date.
Home set-up was also affected with much stronger tie down anchoring
requirements. Most of the Registrant's homes are sold in Zone II.
HUD also issued thermal standards for manufacturing housing in 1994.
These regulations mandate a much higher insulation throughout the home
including the floor, walls and roof and an improved ventilation system for
the whole house, including kitchen and baths.
The Registrant estimates that compliance with federal, state and
local environmental protection laws will have no material effect upon
capital expenditures for plant or equipment modifications or earnings for
the next fiscal year.
The transportation of homes manufactured by the Registrant is subject
to state regulation. Generally, special permits must be obtained to
transport the home over public highways, and restrictions are imposed to
promote travel safety including those relating to routes, travel periods,
speed limits, safety equipment and size.
Homes manufactured by the Registrant are subject to the requirements
of the Magnuson-Moss Warranty Act and Federal Trade Commission rulings
which regulate warranties on consumer products. The Registrant provides a
limited warranty of one year on the structural components of the homes it
manufactures.
Competition
The manufactured home industry is highly competitive. The initial
investment required for entry into the business of manufacturing homes is
not unduly large. State bonding requirements for entry in the business
vary from state to state. The bond requirement for Florida is $50,000.
The Registrant competes directly with other manufacturers, some of which
are considerably larger than it and possess greater financial resources.
Based on number of units sold, the Registrant ranks 6th in the state of
Florida out of the top 45 manufacturers selling manufactured homes in the
state; however, the Registrant estimates that of those 45 manufacturers
approximately 15 manufacture homes of the same type as the Registrant and
compete in the same market area. The Registrant believes that it is
generally competitive with most of those manufacturers in terms of price,
service, warranty and product performance.
Employees
As of January 2, 1998, the Registrant had 218 full-time employees,
including 64 employed by Prestige. Approximately 116 employees are
factory personnel compared to approximately 131 in such positions a year
ago, and 88 are in management, administrative, supervisory, sales and
clerical positions (including 50 management and sales personnel employed
by Prestige) compared to approximately 93 a year ago. In addition, the
Registrant employs part-time employees when necessary.
The Registrant makes a contribution toward employees' group health
and life insurance. The Registrant, which is not subject to any
collective bargaining agreements, has not experienced any work stoppage or
labor disputes and considers its relationship with employees to be
generally satisfactory.
Item 2. Properties
As of November 1, 1997, two manufacturing plants were owned and
operated by the Registrant as follows:
Depreciated Cost of
Approximate Plant and Property
Location Size at November 1, 1997
Belleview, Florida 33,500 sq. ft. $ 90,535
Ocala, Florida(1) 72,000 sq. ft. 550,448
_________________________
(1) This 72,000 square foot plant is located on approximately 35.5 acres
of land on which an additional two-story structure adjoining the
plant serves as the Registrant's corporate offices.
The Company's Belleview plant is of metal and concrete construction
and the Ocala plant is of metal construction. Both properties are in good
condition and require little maintenance.
Item 3. Pending Legal Proceedings
Certain claims and suits arising in the ordinary course of business
have been filed or are pending against the Company. In the opinion of
management, any related liabilities that might arise would be covered
under terms of the Company's liability insurance policies or would not be
material to the financial statements taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Registrant's Common Stock is listed on the Nasdaq National Market
under the symbol NOBH. The following table shows the range of high and
low sales prices for the Common Stock for each fiscal quarter of 1997 and
1996.
Fiscal Year End (1)
Fiscal November 1, 1997 November 2, 1996
Quarter High Low High Low
1st $15.25 $11.00 $ 9.33 $8.67
2nd 14.75 11.25 11.33 11.00
3rd 13.75 10.50 12.92 12.67
4th 13.62 11.50 15.25 14.75
_______________________________
(1) On January 19, 1996 and August 16, 1996, three-for-two stock splits
in the form of 50% stock dividends were paid to shareholders of
record on December 22, 1995 and July 26, 1996, respectively. Amounts
in the table have been restated to give effect to these two stock
dividends.
At January 23, 1998, the approximate number of record holders of
Common Stock was 262 (not including individual participants in security
position listings).
The payment of cash dividends will be within the discretion of the
Registrant's Board of Directors and will depend, among other factors, on
earnings, capital requirements and the operating and financial condition
of the Registrant. During fiscal 1997 and 1996, no cash dividends were
paid.
On January 5, 1998, the Registrant's Board of Directors authorized a
three-for-two stock split to be effected in the form of a 50% stock
dividend payable on February 20, 1998 to shareholders of record on January
30, 1998. The per share information presented in this report has not been
restated to give effect to this dividend.
Item 6. Selected Financial Data
The following table sets forth Selected Financial Data for each of
the Registrant's last five fiscal years. This information should be read
in conjunction with the financial statements of the Company (including the
related notes thereto) and Management's Discussion and Analysis of the
Financial Condition and Results of Operations, each included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
Years Ended(1)
November 1, November 2, November 4, October 29, October 30,
1997 1996 1995 1994 1993
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Total net sales $41,696 $36,455 $30,806 $23,082 $19,438
Income from
operations 4,759 3,839 2,710 1,585 1,846
Other income 206 47 1,340 374 177
Net income 3,038 2,395 2,957 1,769 1,867
Net income per
share(2) 1.02 .81 1.03 .61 .64
Total assets 18,941 14,871 12,896 11,355 11,438
Long term
obligations -0- -0- 659 764 936
Stockholders
equity 15,294 12,256 9,479 6,481 4,820
</TABLE>
_____________________________
(1) The Company's fiscal year ends on the first Saturday on or after
October 31. Prior to 1995, the Company's fiscal year ended on the
Saturday closest to October 31. The years ended November 2, 1996 and
November 4, 1995 consisted of a fifty-three week period and the years
ended November 1, 1997, October 29, 1994 and October 30, 1993
consisted of a fifty-two week period.
(2) On January 19, 1996 and August 16, 1996, three-for-two stock splits
in the form of 50% stock dividends were paid to shareholders of
record on December 22, 1995 and July 26, 1996, respectively. Amounts
in the table have been restated to give effect to these two stock
dividends.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Registrant's primary focus is young, first time home buyers who
generally purchase their manufactured homes from retail sales centers to
locate on property they own. The Registrant has aggressively pursued this
market through its Prestige retail sales centers, which have become the
principal focus of its business strategy. While the Registrant actively
seeks to make wholesale sales to independent retail dealers, the
Registrant's presence as a competitor limits potential sales to dealers
located in the same geographic areas serviced by its Prestige sales
centers.
The Registrant continues to make sales to the retirement community
market, which is made up of retirees from the north who move to Florida to
enjoy its milder winters and who typically purchase homes to be located on
sites leased from park communities that offer a variety of amenities.
While a portion of the Registrant's sales in this market are made to
communities owned by the Registrant's affiliate, TLT, the importance to
the Registrant of the retirement market continues to diminish, both as a
focus of its efforts and in dollars and as percentage of total sales.
The Company sold 1,190 homes in fiscal 1997, of which 361 homes were
sold to independent dealers, representing sales of $7,466,046, and 17
homes were sold to TLT communities, representing sales of $399,853. In
fiscal 1996, the Company sold 1,087 homes, of which 237 homes were sold to
independent dealers, representing sales of $5,203,547, and 28 homes were
sold to TLT communities, representing sales of $708,196. In fiscal 1995,
the Company sold 1,030 homes, of which 181 homes were sold to independent
dealers, representing sales of $3,874,817, and 55 homes were sold to TLT
communities, representing sales of $1,295,209. The balance of the
Registrant's sales in fiscal 1997, 1996 and 1995, representing 81.1%,
83.8% and 83.2% of net sales, respectively, were made on a retail basis
through Prestige's retail centers.
The Registrant has a product line of approximately 100 active models.
Market demand can fluctuate on a fairly short-term basis; however, the
manufacturing process is such that the Registrant can alter its product
mix relatively quickly in response to changes in the market. During
fiscal 1997, the Registrant's product mix was positively affected by
larger, more expensive multi-wide homes resulting from greater consumer
confidence and the availability of varied types of financing at
competitive rates. Many family buyers today purchase three-, four- or
five-bedroom manufactured homes, compared with the two-bedroom home that
typically appeals to the retirement community market.
During fiscal year 1997, the Company entered into a joint venture
agreement with 21st Century Mortgage Corporation to provide mortgage
financing to retail customers who purchase the Company's manufactured
homes. Through this joint venture which will originate and service loans,
the Company will have more control over the financing aspect of the retail
home sales process and will be able to offer better service to its retail
customers. Management believes that the joint venture will give the
Company an additional potential for profit by providing finance products
to retail customers. In addition, Management believes that the Company,
with more input in the design of unique finance programs for prospective
homebuyers, will be able to stimulate sales at its Prestige retail sales
centers. In an effort to make manufactured homes more competitive with
site-built housing, financing packages are available to provide 30-year
mortgages, an interest rate reduction program, combination
land/manufactured home loans, and a 5% down payment program for qualified
buyers. The Company also maintains outside financing sources that provide
financing for the Company's manufactured homes for retail homebuyers.
Results of Operations
The Company continued to increase revenues during the fiscal year
ended November 1, 1997. Total net sales in 1997 were $41,696,447 compared
to $36,455,195 in 1996 and $30,805,835 in fiscal 1995. Net sales
increased 14.4% in fiscal 1997 and 18.3% in 1996. The increase in sales
in fiscal 1997 over fiscal 1996 was primarily due to the increased
popularity of higher priced homes and increased sales to outside dealers.
The increase in sales in fiscal 1996 over fiscal 1995 was primarily due to
the Company having fifteen retail sales centers in full operation during
the majority of fiscal 1996 following the acquisition of three additional
existing retail sales centers in November 1995. The year ended November
1, 1997 consisted of a fifty-two (52) week period while the years ended
November 2, 1996 and November 4, 1995 each consisted of a fifty-three (53)
week period.
Industry-wide shipments of multi-section manufactured homes measured
in number of units continued to improve for the first eleven months of
1997, up 7% over 1996, while shipments of single section homes declined
approximately 18% for 1997. Combined industry shipments of multi-section
and single-section homes declined 3% in 1997 but were up 9.1% and 11.4%,
respectively, for 1996 and 1995. In fiscal year 1997, approximately 96%
of the Company's home sales were multi-section homes. Florida combined
industry shipments of multi-section and single-section homes increased 8%
in both 1997 and 1996 following a decline of approximately 8.6% for the
first eleven months of calendar 1995. The decline in 1995 followed an
increased demand in 1994 and 1993 for homes in South Florida during the
rebuilding following Hurricane Andrew. Nobility's sales increased by 14%
in fiscal 1997, 18% in fiscal 1996 and 33% in fiscal 1995.
Gross profit as a percentage of net sales was 25.8% in fiscal 1997
compared to 25.5% in 1996 and 23.4% in fiscal 1995. The increase in gross
profit in fiscal 1997 was primarily a result of improvements in the gross
margins at both the manufacturing plants and retail sales centers. The
increase in gross profit in fiscal 1996 was primarily due to increasing
home prices to offset lumber price increases and continuing improvements
in operating efficiency at the Registrants' manufacturing plants.
Selling, general and administrative expenses as a percent of net
sales was 14.4% in fiscal 1997 as compared to 15.0% in 1996 and 14.1% in
fiscal 1995. The decline in fiscal year 1997 selling, general and
administrative expenses as a percent of net sales was primarily due to
better operating efficiencies at the retail sales centers. The increase
in selling, general and administrative expenses in fiscal year 1996 was
primarily due to start-up expenses associated with the addition of the
three retail sales centers in November 1995, coupled with increased
newspaper, radio and television advertising expense.
Other income for fiscal 1997 was $205,665 of which $118,336 was from
interest on short term investments. Other income for fiscal 1996 was
$46,866, down from $1,339,743 for the 1995 fiscal year which consisted of:
(1) $1,000,000 in non-recurring income from the key-man insurance carried
on the former president of Prestige Homes who died in May, 1995 after a
lengthy illness; and (2) $348,884 gain from an installment sale.
As a result of the factors discussed above, earnings for fiscal year
1997 were $3,037,578 or $1.02 per share compared to $2,395,130 or $.81 per
share for fiscal 1996 and $2,957,438 or $1.03 per share for fiscal 1995
which included the non-recurring life insurance proceeds and the gain from
an installment sale discussed above. Earnings per share information for
1995 has been restated to give effect to two separate three-for-two stock
splits in the form of dividends payable on January 19, 1996 and August 16,
1996, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $6,293,924 at November 1, 1997
compared to $2,049,184 at November 2, 1996. Working capital increased to
$11,338,575 in fiscal 1997 compared to $8,762,581 in 1996. In fiscal year
1997, the Company carried all the inventory for the Prestige retail sales
centers and did not incur third party floor plan financing expenses.
Inventories increased to $8,041,471 in 1997 from $7,820,908 at fiscal
year-end 1996. In 1997, accounts receivable declined to $386,019 from
$642,626 at fiscal year-end 1996, and accounts receivable trade, from
related parties declined to $0 at fiscal year-end 1997 from $350,379 at
fiscal year-end 1996.
During fiscal 1997 and 1996, the Company maintained a revolving
credit agreement with a major bank providing for borrowings up to $2.5
million. In July 1996, the Company entered into a second revolving line
of credit agreement with a major bank which provides for borrowings up to
$1,500,000. These two agreements provide the Company with an additional
$4.0 million of working capital for use in connection with its overall
operations. At November 1, 1997, there were no amounts outstanding under
these agreements.
In July 1997 the Company invested $250,000 in a joint venture with
21st Century Mortgage Corporation to provide additional mortgage financing
services to the Company's retail sales centers. The Company generally
does not have any additional capital contribution obligations with respect
to the joint venture, except to the extent the joint venture may be
required to invest in certain subordinated certificates issued in
connection with an asset-backed security. No such investment is
contemplated within the next 12 months.
The Company acquired one additional existing manufactured home retail
sales center in North Central Florida in March 1997 for $85,000 cash. In
January 1997 Prestige closed its sales center in Perry.
Consistent with normal practice, the Company's operations are not
expected to require significant capital expenditures during fiscal 1998.
Working capital requirements for the home inventory for new retail sales
centers will be met with internal sources.
Forward Looking Statements
Certain statements in this report are forward-looking statements
within the meaning of the federal securities laws. Although the Company
believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, there are risks and
uncertainties that may cause actual results to differ materially from
expectations. These risks and uncertainties include, but are not limited
to, competitive pricing pressures at both the wholesale and retail levels,
changes in market demand, adverse weather conditions that reduce sales at
retail centers, the risk of manufacturing plant shutdowns due to storms or
other factors, and the impact of marketing and cost-management programs.
Item 8. Consolidated Financial Statements and Supplementary Data
Financial statements incorporated herein from the Registrant's 1997
Annual Report to Shareholders are attached as Exhibit 13 and are listed at
Part IV, Item 13(a), "Consolidated Financial Statements and Schedules."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of the Registrant is
incorporated by reference pursuant to Instruction G of Form 10-K from the
Registrant's definitive proxy statement for the 1998 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on
or before March 1, 1998.
The following table provides the names, ages and business experience
for the past five years for each of the Executive Officers of the
Registrant. Executive officers are each elected for one year terms.
Executive Officers
Terry E. Trexler (58) Chairman of the Board and President of
Registrant; Mr. Trexler is also President of TLT;
from April 1996 to March 1997, Mr. Trexler was a
director of Citizens National Bank and its
subsidiary, Citi-Bancshares, Inc. and was
Chairman of the Board of Citizens First
Bancshares, Inc. and its subsidiary, Citizens
First Bank of Ocala prior to its acquisition in
April 1996.
Thomas W. Trexler (34) Executive Vice President and Chief Financial
Officer of the Registrant since December 1994 and
a director of the Registrant since February 1993;
President of Prestige Insurance Services, Inc.
since August 1992; President of Prestige since
June 1995 and Vice President from 1991 to June
1995; director of Prestige and Vice President and
director of TLT since September 1991; prior to
September 1991, Mr. Trexler was Vice President of
NationsBank (formerly NCNB National Bank) in
Naples, Florida.
Edward C. Sims (51) Vice President of Engineering of the Registrant.
Jean Etheredge (52) Secretary of the Registrant.
Lynn J. Cramer, Jr. (52) Treasurer of the Registrant.
Thomas W. Trexler, Executive Vice President, Chief Financial Officer
and a director of the Registrant, is the son of Terry E. Trexler, the
Registrant's President and Chairman of the Board. There are no other
family relationships between any directors or executive officers of the
Registrant.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated by
reference pursuant to Instruction G of Form 10-K from the Registrant's
definitive proxy statement for the 1998 annual meeting of shareholders to
be filed with the Commission pursuant to Regulation 14A on or before
March 1, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial
owners and management is incorporated by reference pursuant to Instruction
G of Form 10-K from the Registrant's definitive proxy statement for the
1998 annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A on or before March 1, 1998.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated by reference pursuant to Instruction G of Form 10-K from
the Registrant's definitive proxy statement for the 1998 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on
or before March 1, 1998.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Consolidated Financial Statements and Schedules:
Report of Price Waterhouse LLP
Consolidated Balance Sheets at November 1, 1997 and November 2,
1996
Consolidated Statements of Income for the Years Ended November
1, 1997, November 2, 1996 and November 4, 1995
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended November 1, 1997, November 2, 1996 and November
4, 1995
Consolidated Statements of Cash Flows for the Years Ended
November 1, 1997, November 2, 1996 and November 4, 1995
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K:
None
(c) Exhibits:
3. (a) The Registrant's Articles of Incorporation, as
amended.
(b) Bylaws, as amended March 28, 1994, were attached as an
Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended October 29, 1994 and
are incorporated herein by reference.
10. (a) Joint Venture Agreement with 21st Century Mortgage
Corporation.
(b) Stock Incentive Plan (filed as an Exhibit to the
Registrant's registration statement on Form S-8,
registration no. 333-44769) and incorporated herein by
reference.
13. Consolidated Financial Statements and Schedules from 1997
Annual Report to Shareholders.
21. Subsidiaries of Registrant.
27. Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NOBILITY HOMES, INC.
DATE: January 26, 1998 By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman, President
and Chief Executive Officer
DATE: January 26, 1998 By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive
Vice President and
Chief Financial Officer
DATE: January 26, 1998 By: /s/ Lynn J. Cramer, Jr.
Lynn J. Cramer, Jr., Treasurer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
DATE: January 26, 1998 /s/ Terry E. Trexler
Terry E. Trexler, Director
DATE: January 26, 1998 /s/ Richard C. Barberie
Richard C. Barberie, Director
DATE: January 15, 1998 /s/ Robert Holliday
Robert Holliday, Director
DATE: January 26, 1998 /s/ Robert P. Saltsman
Robert P. Saltsman, Director
DATE: January 26, 1998 /s/ Thomas W. Trexler
Thomas W. Trexler, Director
<PAGE>
EXHIBIT INDEX
3. (a) The Registrant's Articles of Incorporation, as amended.
(b) Bylaws, as amended March 28, 1994, were attached as an
Exhibit to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended October 29, 1994 and are
incorporated herein by reference.
10. (a) Joint Venture Agreement with 21st Century Mortgage
Corporation.
(b) Stock Incentive Plan (filed as an Exhibit to the
Registrant's registration statement on Form S-8,
registration no. 333-44769) and incorporated herein by
reference.
13. Consolidated Financial Statements and Schedules from 1997 Annual
Report to Shareholders.
21. Subsidiaries of Registrant.
27. Financial Data Schedule.
EXHIBIT 3(a)
ARTICLES OF
AMENDMENT TO ARTICLES OF INCORPORATION
OF
NOBILITY HOMES, INC.
This corporation was incorporated on June 2, 1967. Pursuant to
Sections 607.1003 and 607.1004, Florida Business Corporation Act, the
following Amendment to the corporation's Articles of Incorporation were
approved by the board of directors of the Corporation on December 13, 1996
and by shareholders of the corporation on February 28, 1997. The only
voting group entitled to vote on the adoption of the Amendment consists of
the holders of the corporation's common stock. The number of votes cast
by such voting group was sufficient for approval by that voting group.
NOW, THEREFORE, Article III, Section 1 of the corporation's Articles of
Incorporation is hereby amended to read in its entirety as follows:
ARTICLE III
CAPITAL
1. Authorized Capital. The maximum number of shares of stock which
the Corporation is authorized to have outstanding at any one time is
10,500,000 shares (the "Capital Stock") divided into classes as follows:
A. Five hundred thousand (500,000) shares of preferred stock
having a par value of $0.10 per share (the "Preferred Stock"), and
which may be issued in one or more classes or series as further
described in Section 2 of this Article; and
B. Ten million (10,000,000) shares of common stock having a
par value of $0.10 per share (the "Common Stock").
All such shares shall be issued fully paid and nonassessable.
IN WITNESS WHEREOF, the undersigned President of the Corporation has
executed this Amendment this 24th day of March, 1997.
/s/ Terry E. Trexler
Terry E. Trexler, President
<PAGE>
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE
OF INCORPORATION
OF
NOBILITY HOMES, INC.
Pursuant to the provisions of Section 607.181 of the Florida General
Corporation Act, the undersigned corporation adopts the Certificate of
Amendment to its Certificate of Incorporation as set forth below.
The following amendment to Article III, Section 1 of the Certificate
of Incorporation of Nobility Homes, Inc. was duly proposed by the Board of
Directors of the Corporation and was duly adopted by the shareholders of
the Corporation at the Annual Meeting of Shareholders held on February 22,
1980, all in the manner prescribed by the Florida General Corporation Act:
ARTICLE III
Capital Stock
1. Shares Authorized. The maximum number of shares of
capital stock which this corporation is authorized to have
outstanding at any one time is 500,000 shares of preferred
stock, par value $.10 per share, issuable in series pursuant to
Section 2 of this Article III, and 4,000,000 shares of common
stock, par value $.10 per share.
Dated: February 28, 1980
NOBILITY HOMES, INC.
By: /s/ Terry E. Trexler
President
and /s/ Jean Etheredge
Secretary
STATE OF FLORIDA
COUNTY OF MARION
Before me, the undersigned authority, personally appeared Terry E.
Trexler, who is to me well known to be the person described in and who
subscribed the above Certificate of Amendment to the Certificate of
Incorporation, and he did freely and voluntarily acknowledge before me
according to law that he made and subscribed the same for the use and
purposes therein mentioned and set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and my official seal,
at Ocala, in said County and State this 28th day of February, 1980.
/s/ Luann F. Collins
Notary Public, State of Florida
My Commission Expires: May 14, 1983
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NOBILITY HOMES, INC.
We, the undersigned, hereby associate ourselves together for the
purpose of becoming a corporation under the General Corporation Law,
Chapter 508, Florida Statutes 1965.
ARTICLE I
Name
The name of this corporation shall be NOBILITY HOMES, INC.
ARTICLE II
General Nature of Business
1. To engage generally in the manufacturing, assembling,
constructing, fabricating, distribution, and sale of mobile homes and
prefabricated homes.
To engage in manufacturing, distribution, and sale at wholesale
and retail of supplies, materials, components, and accessories for mobile
homes and prefabricated homes.
To engage generally in the financing of the manufacturing, sale,
and distribution of mobile homes and prefabricated homes, and supplies,
materials, and accessories for use in connection therewith.
2. To establish, maintain, and conduct a merchandise business and
businesses of all sorts, either at wholesale or retail, or both, and to
establish and conduct stores, shops, and offices for the transaction of
any and every kind of merchandise business.
3. To manufacture, purchase, or otherwise acquire, own, mortgage,
pledge, sell, assign, and transfer, or otherwise to dispose of, to invest,
trade, deal in, and deal with goods, wares, and merchandise and real and
personal property of every class and description.
4. To engage in the business of factoring and financing sales of
merchandise at wholesale and retail.
5. To acquire by purchase or lease, or otherwise, lands and
interests in lands and to own, hold, improve, develop, and manage any real
estate, to acquire and to erect or cause to be erected on any lands owned,
held, or occupied by the corporation, buildings or other structures with
their appurtenances, and to rebuild, enlarge, alter, or improve any
buildings or other structures now or hereafter erected on any lands so
owned, held, or occupied, and to mortgage, sell, lease, or otherwise
dispose of any lands or interests in lands and in buildings or other
structures, and any stores, shops, suites, rooms, or parts of any
buildings or other structures at any time owned or held by the
corporation.
6. To buy, sell, exchange, and generally deal in real properties,
improved and unimproved, and buildings of every class and description; to
improve, manage, operate, sell, buy, mortgage, lease, or otherwise acquire
or dispose of any property, real or personal, and take mortgages and
assignments of mortgages upon the same; to make and obtain loans upon real
estate, improved or unimproved, and upon personal property, giving or
taking evidences of indebtedness and securing the payment thereof by
mortgage, trust deed, pledge, or otherwise; to enter into contracts to buy
or sell any property, real or personal; to buy and sell mortgages, trust
deeds, contracts, and evidences of indebtedness; to purchase or otherwise
acquire, for the purpose of holding or disposing of the same, real or
personal property of every kind and description, including the good will,
stock, rights, and property of every kind and description, including the
good will, stock, rights, and property of any person, firm, association,
or corporation, paying for the same in cash, stock, or bonds of this
corporation; to draw, make, accept, indorse, discount, execute, and issue
promissory notes, bills of exchange, warrants, bonds, debentures, and
other negotiable or transferable instruments, or obligations of the
corporation, from time to time, for any of the objects or purposes of the
corporation; to carry on all or any of its operations without restriction
or limit as to amount; to purchase, acquire, hold, own, mortgage, sell,
convey, or otherwise dispose of real and personal property of every class
and description in any state, district, territory, colony, or foreign
country subject to the laws of such state, territory, or foreign country.
7. To engage in any commercial, industrial, and agricultural
enterprise calculated or designed to be profitable to this corporation and
in conformity with the laws of the state of Florida.
To generally engage in, do, and perform, any enterprise, act, or
vocation that a natural person might or could do or perform.
To engage in the manufacture, sale, purchase, importing, and
exporting of merchandise and personal property of all manner and
description, to act as agents for the purchase, sale, and handling of
goods, wares, and merchandise of any and all types and descriptions for
the account of the corporation or as factor, agent, procurer, or otherwise
for or on behalf of another.
8. The purposes specified herein shall be construed both as
purposes and powers, and shall be in no wise limited or restricted by
reference to, or inference from, the terms of any other clause in this or
any other article, but the purposes and powers specified in each of the
clauses herein shall be regarded as independent purposes and powers, and
the enumeration of specific purposes and powers shall not be construed to
limit or restrict in any manner the meaning of general terms or of the
general powers of the corporation nor shall the expression of one thing be
deemed to exclude another, although it be of like nature not expressed.
9. To possess, enjoy, and exercise all corporate powers conferred
or authorized by the provisions of Chapter 608, Florida Statutes 1965, now
or hereafter in force.
10. To transact and carry on all or any other business or businesses
which may be necessary, incidental or convenient to the exercise of any or
all of the aforesaid purposes of the corporation; to do all and everything
necessary, suitable or proper for the accomplishment of any of the
purposes, the attainment of any of the objects, or the furtherance of any
of the powers hereinbefore set forth, either alone or in connection with
other corporations, firms or individuals, and either as principals or
agent, and to do every other act or acts, thing or things, incidental or
appurtenant to or growing out of or connected with the aforesaid objects,
purposes, or powers, or any of them.
ARTICLE III
Capital Stock
The authorized capital stock of this corporation shall be five
hundred fifty (550) shares of common stock of the par value of $100.00
each.
ARTICLE IV
Initial Capital
The amount of capital with which this corporation shall begin
business is $500.00.
ARTICLE V
Term
This corporation shall have perpetual existence unless sooner
dissolved according to law.
ARTICLE VI
Principal Place of Business
The principal place of business of this corporation shall be at
Ocala, Florida, and the post-office address of the principal office of the
corporation is 103 North Main Street (P.O. Box 1148), Ocala, Florida
32670, with the privilege of having branch offices at other places within
or without the state of Florida.
ARTICLE VII
Number of Directors
The number of directors of this corporation shall be not less than
three nor more than ten as may be specified in the by-laws of the
corporation.
ARTICLE VIII
Names and Addresses of Directors
The names and post-office addresses of the members of the first Board
of Directors, who shall hold office for the first year of existence of the
corporation or until their successors are elected or appointed and have
qualified, are:
NAME ADDRESS
Willard Ayres 103 North Main Street, P.O. Box 1148,
Ocala, Florida 32670
Doris Jean Sharpe 103 North Main Street, P.O. Box 1148,
Ocala, Florida 32670
Bea Connor 103 North Main Street, P.O. Box 1148
Ocala, Florida 32670
ARTICLE IX
Names and Addresses of Subscribers
The names and post-office addresses of each subscriber of the
Certificate of Incorporation are:
NAME ADDRESS
Willard Ayres 103 North Main Street, P.O. Box 1148,
Ocala, Florida 32670
Doris Jean Sharpe 103 North Main Street, P.O. Box 1148,
Ocala, Florida 32670
Bea Connor 103 North Main Street, P.O. Box 1148
Ocala, Florida 32670
ARTICLE X
Miscellaneous
The stock to be issued to the subscribers and stockholders shall be
issued fully paid and shall be non-assessable. The powers of the entire
corporation shall at all times be vested in the Board of Directors, or, if
provision be made therefor under the by-laws, in an executive committee.
IN WITNESS of the foregoing, we have hereunto set our hands and
seals, and authorized to be filed in the office of the Secretary of State
of the state of Florida the foregoing Certificate of Incorporation, on
this the 29th day of May, 1967.
/s/ Willard Ayres (SEAL)
Willard Ayres
/s/ Doris Jean Sharpe (SEAL)
Doris Jean Sharpe
/s/ Bea Connor (SEAL)
Bea Connor
STATE OF FLORIDA
COUNTY OF MARION
I HEREBY CERTIFY that on this the 29th day of May, 1967, personally
came and appeared before me, the undersigned authority, WILLARD AYRES,
DORIS JEAN SHARPE, and BEA CONNOR, to me well known and known to me to be
the individuals described in and who executed the foregoing Certificate of
Incorporation, and that each of them acknowledged before me the execution
of the same for the uses and purposes therein set forth and expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal,
this the day and year first-above written.
/s/ Bonnie N. Kunberger
Notary Public, State of Florida at Large
My Commission expires: June 26, 1970
EXHIBIT 10(a)
OPERATING AGREEMENT
OF
NOBILITY 21, LLC
A TENNESSEE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF JULY 17, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
FORMATION OF COMPANY
Section 2.1 Formation . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Principal Place of Business, Registered Office and
Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4 Term . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5 Management . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
INITIAL MEMBERS AND INTERESTS
Section 3.1 Membership Interests . . . . . . . . . . . . . . . . . . 4
Section 3.2 Registration . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3 Prestige . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
BUSINESS OF COMPANY
Section 4.1 Permitted Businesses . . . . . . . . . . . . . . . . . . 5
Section 4.2 First Right to Buy Contracts . . . . . . . . . . . . . . 5
Section 4.3 Purchase of Contracts . . . . . . . . . . . . . . . . . 5
Section 4.4 Loan Program . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.5 Sales and Services Agreement . . . . . . . . . . . . . . 6
Section 4.6 Dealer Agreement . . . . . . . . . . . . . . . . . . . . 6
Section 4.7 Collection Fee Income to Dealers . . . . . . . . . . . . 6
Section 4.8 Loans to 21st Century . . . . . . . . . . . . . . . . . 7
Section 4.9 Investment of Company Capital . . . . . . . . . . . . . 7
Section 4.10 Transaction Flow Chart . . . . . . . . . . . . . . . . . 7
ARTICLE V
RIGHTS AND DUTIES OF MANAGERS
Section 5.1 Management . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Tenure . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.3 Number and Election of Managers . . . . . . . . . . . . 8
Section 5.4 Certain Powers of Chief Manager and Secretary . . . . . 8
Section 5.5 Restrictions on Authority of the Managers . . . . . . . 8
Section 5.6 Restriction on Managers' Authority . . . . . . . . . . . 9
Section 5.7 Liability for Certain Acts . . . . . . . . . . . . . . . 9
Section 5.8 Managers Have No Exclusive Duty to Company . . . . . . . 9
Section 5.9 Indemnity of the Managers, Employees and Other Agents . 10
Section 5.10 Resignation . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.11 Removal . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.12 Vacancies . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 6.1 Limitation on Liability . . . . . . . . . . . . . . . . 10
Section 6.2 No Liability for Company Obligations . . . . . . . . . . 10
Section 6.3 List of Members . . . . . . . . . . . . . . . . . . . . 10
Section 6.4 Limitation of Actions . . . . . . . . . . . . . . . . . 10
Section 6.5 Company Books . . . . . . . . . . . . . . . . . . . . . 11
Section 6.6 Priority and Return of Capital . . . . . . . . . . . . . 11
Section 6.7 Liability of a Member to the Company . . . . . . . . . . 11
Section 6.8 Members Have No Exclusive Duty to Company . . . . . . . 11
Section 6.9 Restrictions on Authority of Members . . . . . . . . . . 12
ARTICLE VII
MEETINGS OF MEMBERS
Section 7.1 Annual Meetings . . . . . . . . . . . . . . . . . . . . 12
Section 7.2 Special Meetings . . . . . . . . . . . . . . . . . . . . 12
Section 7.3 Place of Meetings . . . . . . . . . . . . . . . . . . . 12
Section 7.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . 12
Section 7.5 Meeting of All Members . . . . . . . . . . . . . . . . . 12
Section 7.6 Record Date . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.7 Voting Lists . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.9 Voting and Approval Rights . . . . . . . . . . . . . . . 13
Section 7.10 Manner of Acting . . . . . . . . . . . . . . . . . . . . 13
Section 7.11 Proxies . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.12 Action by Members Without a Meeting . . . . . . . . . . 13
Section 7.13 Meeting by Telephone . . . . . . . . . . . . . . . . . . 14
Section 7.14 Waiver of Notice . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
Section 8.1 Members' Capital Contributions . . . . . . . . . . . . . 14
Section 8.2 Additional Capital Contributions and Loans by Members . 14
Section 8.3 Payment of Capital Call . . . . . . . . . . . . . . . . 15
Section 8.4 Failure to Meet Capital Call . . . . . . . . . . . . . . 15
Section 8.5 Termination of Capital Call Obligations . . . . . . . . 17
Section 8.6 Capital Accounts . . . . . . . . . . . . . . . . . . . . 17
Section 8.7 Withdrawal or Reduction of Members' Capital
Contributions . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX
DISTRIBUTION TO MEMBERS
Section 9.1 Allocations of Profits and Losses from Operations . . . 19
Section 9.2 Distributions . . . . . . . . . . . . . . . . . . . . . 19
Section 9.3 Limitation Upon Distributions . . . . . . . . . . . . . 19
Section 9.4 Accounting Principles . . . . . . . . . . . . . . . . . 19
Section 9.5 Interest on and Return of Capital Contributions . . . . 19
Section 9.6 Loans to Company . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X
BOOKS AND RECORDS
Section 10.1 Accounting Period . . . . . . . . . . . . . . . . . . . 20
Section 10.2 Records, Audits and Reports . . . . . . . . . . . . . . 20
Section 10.3 Tax Returns . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.4 Tax Matters Member . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI
TRANSFERABILITY
Section 11.1 General . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 11.2 Term of Restriction . . . . . . . . . . . . . . . . . . 21
Section 11.3 Option to Purchase and Sale Upon the Dissolution or
Bankruptcy of Member . . . . . . . . . . . . . . . . . . 21
Section 11.4 Future Interests . . . . . . . . . . . . . . . . . . . . 22
Section 11.5 Purchase of Membership Interest by Members . . . . . . . 22
Section 11.6 Sale to Third Party . . . . . . . . . . . . . . . . . . 22
Section 11.7 Co-Sale Rights . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XII
ADDITIONAL MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIII
DISSOLUTION AND TERMINATION
Section 13.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . 23
Section 13.2 Effect of Dissolution . . . . . . . . . . . . . . . . . 24
Section 13.3 Winding Up . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13.4 Articles of Termination . . . . . . . . . . . . . . . . 24
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.1 Application of Tennessee Law . . . . . . . . . . . . . . 25
Section 14.2 No Action for Partition . . . . . . . . . . . . . . . . 25
Section 14.3 Further Assurances . . . . . . . . . . . . . . . . . . . 25
Section 14.4 Waivers . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14.5 Rights and Remedies Cumulative . . . . . . . . . . . . . 25
Section 14.6 Heirs, Successors and Assigns . . . . . . . . . . . . . 25
Section 14.7 Creditors . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . 25
Section 14.9 Federal Income Tax Elections . . . . . . . . . . . . . . 26
Section 14.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 14.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . 26
Section 14.12 Invalidity . . . . . . . . . . . . . . . . . . . . . . . 26
Section 14.13 Determination of Matters Not Provided for in This
Operating Agreement. . . . . . . . . . . . . . . . . . . 26
Section 14.14 Time . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 14.15 Adoption of Act . . . . . . . . . . . . . . . . . . . . 26
MEMBERS' SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT A - Register of Membership Interests . . . . . . . . . . . . . 28
EXHIBIT B - Sales and Services Agreement . . . . . . . . . . . . . . . 29
EXHIBIT C - Master Dealer Agreement . . . . . . . . . . . . . . . . . . 37
EXHIBIT D - Transaction Flow Chart . . . . . . . . . . . . . . . . . . 41
<PAGE>
OPERATING AGREEMENT
OF
NOBILITY 21, LLC
This Operating Agreement is entered into as of July 17, 1997, by and among
21st CENTURY MORTGAGE CORPORATION and NOBILITY HOMES, INC.
_________________________________________
Nobility Homes is a manufacturer and retail dealer of manufactured
homes. 21st Century is a regulated mortgage corporation which originates,
finances, sells and services manufactured housing contracts. The Members
desire to organize the Company whose purpose will be to assist the
origination, financing, selling and servicing of Homes.
_________________________________________
ARTICLE I
DEFINITIONS
The following terms used in this Operating Agreement shall have the
following meanings (unless otherwise expressly provided herein):
(a) "Act" shall mean the Tennessee Limited Liability Company Act,
contained in Tenn. Code Ann. Section 48-201-101 et seq., as
amended from time to time.
(b) "Articles of Organization" shall mean the Articles of
Organization of the Company as filed with the Secretary of State
of Tennessee as the same may be amended from time to time.
(c) "Capital Call" shall have the meaning ascribed to such term in
Section 8.2 of this Operating Agreement.
(d) "Capital Contribution" shall mean any contribution to the
capital of the Company in cash or property by a Member whenever
made.
(e) "Chief Manager" shall mean the position identified at Tenn. Code
Ann. Section 48-241-101, as amended from time to time, and the
person, or any other persons that succeed him in that capacity,
selected by the Members for that position.
(f) "Code" shall mean the Internal Revenue Code of 1986 or
corresponding provisions of subsequent superseding federal
revenue laws.
(g) "Company" shall refer to Nobility 21, LLC.
(h) "Contracts" shall mean retail installment contracts or other
lien instruments covering the Homes.
(i) "Credit Approval Notice" shall mean the notice issued by 21st
Century to Nobility Homes after receipt of an application for
the purchase of a Contract which contains the terms under which
21st Century will purchase a Contract.
(j) "Credit Approval Rate" means the rate of interest identified in
the Credit Approval Notice as the minimum rate at which 21st
Century will accept and purchase the Contract.
(k) "Financial Rights" shall have the meaning ascribed to such term
in the Act.
(l) "Governance Rights" shall have the meaning ascribed to such term
in the Act.
(m) "Homes" shall mean new and used manufactured homes manufactured
or sold by Nobility Homes, whether now existing or hereafter
sold.
(n) "Initial Capital Contribution" shall mean the initial
contribution to the capital of the Company pursuant to this
Operating Agreement.
(o) "Majority in Interest" shall have the meaning ascribed to such
term in the Act.
(p) "Majority Vote" shall mean one or more Membership Interests of
Members which taken together hold Governance Rights of the
members in excess of fifty percent (50%) of the aggregate of all
Governance Rights held by the Members.
(q) "Manager" shall mean any manager of the Company elected by the
Members according to the terms of this Operating Agreement,
including but not limited to the Chief Manager.
(r) "Member" shall have the meaning ascribed in the Act and shall
mean any Member of the Company.
(s) "Membership Interest" shall have the meaning ascribed in the
Act.
(t) "Nobility Homes" means Nobility Homes, Inc., a Florida
corporation, and its successors and assigns.
(u) "Operating Agreement" shall mean this Operating Agreement as
originally executed and as amended from time to time.
(v) "Person" shall mean any individual or entity, and the heirs,
executors, administrators, legal representatives, successors,
and assigns, of such Person where the context so permits.
(w) "Prestige" shall mean Prestige Home Centers, Inc., a Florida
corporation wholly owned by Nobility Homes, and its successors
and assigns.
(x) "Selling Member" shall have the meaning ascribed to such term in
Section 11.4 of this Operating Agreement.
(y) "Treasury Regulations" shall include proposed, temporary and
final regulations promulgated under the Code in effect as of the
date of filing the Articles of Organization and the
corresponding sections of any regulations subsequently issued
that amend or supersede such regulations.
(z) "21st Century" means 21st Century Mortgage Corporation, a
Delaware corporation, and its successors and assigns.
(aa) "Withdrawal Event" shall have the meaning ascribed to such term
in Section 13.1(a)(iii) of this Operating Agreement.
ARTICLE II
FORMATION OF COMPANY
Section 2.1 Formation. On the date hereof, the organizer of the
Company caused the Company to be organized as a limited liability company
by delivering the executed Articles of Organization to the Secretary of
State of Tennessee in accordance with the provisions of the Act. This
Operating Agreement shall become effective upon its signing by the Members
and the acceptance of the Articles of Organization by the Tennessee
Secretary of State. The organizer of the Company resigns effective
immediately upon the signing of this Operating Agreement by the Members.
Section 2.2 Name. The name of the Company is Nobility 21, LLC.
Section 2.3 Principal Place of Business, Registered Office and
Registered Agent. The principal place of business, registered office and
registered agent of the Company are set forth in the Articles of
Organization. The Company may locate its places of business and registered
office at any other place or places as the Chief Manager may from time to
time deem advisable.
Section 2.4 Term. The term of the Company shall commence on the date
the Articles of Organization are filed with the Secretary of State and
shall continue thereafter until December 31, 2050, or unless earlier
dissolved in accordance with the provisions of this Operating Agreement or
the Act.
Section 2.5 Management. The Company shall be member-managed.
ARTICLE III
INITIAL MEMBERS AND INTERESTS
Section 3.1 Membership Interests. At the time of the execution of this
Operating Agreement, the Members, their Initial Capital Contributions and
their Membership Interests are as follows:
Initial
Governance Financial Capital
Name Rights Rights Contribution
21st Century 50% 50% $250,000
Nobility Homes 50% 50% $250,000
The Members, their addresses and their Membership Interests, as
amended from time to time, are listed on Exhibit A.
Section 3.2 Registration. The Members have been advised that the
Membership Interest of the Company will not be registered under any
federal or state securities laws. Each Member represents and warrants as
follows:
(a) That it is entering into this Agreement and is acquiring the
Membership Interest for its own account, solely for investment
purposes, and not with a view to resell the Membership Interest;
(b) That it has such knowledge and experience in business and
financial matters which enable it to be capable of evaluating
the risk and merits of this investment;
(c) That it is able to bear the economic risks of this investment;
(d) That any security that may be issued will not be resold or
otherwise transferred to or assigned without appropriate
compliance with the registration provisions of the Securities
Act of 1933 and applicable state Blue Sky Laws or exemptions
therefrom and that the certificate to be issued to the
subscriber will contain an appropriate restriction to this
effect; and
(e) That it has been provided with or permitted access to all
information which it deems material to formulating an investment
decision and that such information has been sufficient to make
an informed investment decision.
Section 3.3 Prestige. Nobility Homes hereby represents that Prestige
Home Centers, Inc. is a Florida corporation whose stock is wholly owned by
Nobility Homes. To the extent Nobility Homes incurs any obligations under
the terms of this Agreement, it will also cause Prestige to incur those
obligations to the extent such obligations are applicable to Prestige.
ARTICLE IV
BUSINESS OF COMPANY
Section 4.1 Permitted Businesses. The business of the Company shall be:
(a) To accomplish any lawful business whatsoever or which shall at
any time appear conducive to or expedient for the protection or
benefit of the Company and its assets.
(b) To exercise all other powers necessary to or reasonably
connected with the Company's business which may be legally
exercised by limited liability companies under the Act.
(c) To engage in all activities necessary, customary, convenient, or
incident to any of the foregoing.
Section 4.2 First Right to Buy Contracts. Subject to the existence of
a loan program, Nobility Homes hereby grants to 21st Century the first
right to purchase Contracts subject to the terms and conditions of the
Sales and Services Agreement attached hereto as Exhibit B. Nobility Homes
shall also cause Prestige to grant to 21st Century the first right to
purchase Contracts.
Section 4.3 Purchase of Contracts. In consideration of Nobility Homes
granting to 21st Century the first right to purchase Contracts, 21st
Century agrees to purchase the Contracts from Nobility Homes (and, to the
extent applicable, Prestige) according to the terms of the loan program
offered by 21st Century and ratified by the Members holding a Majority
Vote using underwriting criteria established by 21st Century. 21st Century
shall have no obligation to purchase a Contract until it has evidenced
such acceptance by written notice to Nobility Homes (and, to the extent
applicable, Prestige). All such purchases of Contracts shall be based upon
approval using 21st Century's underwriting criteria.
Section 4.4 Loan Program. 21st Century agrees to offer to Nobility
Homes (and, to the extent applicable, Prestige) a loan program plan (i.e.,
downpayment terms, fixed or variable rates, annual percentage rates,
maximum loan amount, computation, allowable insurance, form of
documentation, origination fee and other similar items) comparable to the
prevailing plans offered by two of the largest for-profit national
manufactured housing lenders, which lenders will be determined by the
Members holding a Majority Vote. The Members initially designate Green
Tree Financial and Bank America Home Finance Division of the Bank of
America (collectively, the "Benchmark Lenders") as the comparable lenders
for the purposes of this Agreement. 21st Century may designate new
Benchmark Lenders from time to time upon providing notice to Nobility
Homes. The Members holding a Majority Vote will ratify or reject the loan
programs proposed by 21st Century.
21st Century will establish a benchmark rate (the "Benchmark Rate")
for each loan program offered by 21st Century. The Benchmark Rate shall be
approximately equivalent to the prevailing average annual percentage rate
of the Benchmark Lenders for similar types of loans being purchased in the
marketplace. The loan programs offered by 21st Century shall compete in
the financing marketplace with the Benchmark Lenders, particularly with
regard to products and services offered. The Credit Approval Rate shall
equal the Benchmark Rate for those Contracts to be purchased by 21st
Century subject to its first right to buy Contracts described in Section
4.2 of this Operating Agreement.
21st Century may also agree to purchase Contracts, and Nobility Homes
(and, to the extent applicable, Prestige) may agree to sell Contracts,
using a Credit Approval Rate in excess of the Benchmark Rate with the
terms of such purchase and sale of Contracts to be acceptable to 21st
Century and Nobility Homes (and, to the extent applicable, Prestige).
Nobility Homes will deliver to 21st Century all loan applications for
any Home in a form acceptable to 21st Century. 21st Century shall have two
(2) business days from the date of receipt of the application within which
to respond to Nobility Homes (and, to the extent applicable, Prestige) as
to whether it is willing to purchase the Contract applicable to each such
loan application by issuing a Credit Approval Notice to Nobility Homes
(and, to the extent applicable, Prestige). In the event 21st Century does
not issue a Credit Approval Notice with a Credit Approval Rate equal to
the Benchmark Rate within such two (2) day period or otherwise rejects the
loan application, Nobility Homes (and, to the extent applicable, Prestige)
may thereafter offer the Contract for sale to any other purchaser or
lender.
Section 4.5 Sales and Services Agreement. The Company will enter into
a sales and services agreement with 21st Century in the form attached
hereto as Exhibit B, and the Members hereby authorize the Chief Manager or
Secretary to sign such agreement on behalf of the Company. The Sales and
Services Agreement shall not be amended by the Company without the consent
of the Members holding a Majority Interest.
Section 4.6 Dealer Agreement. Nobility Homes (and, to the extent
applicable, Prestige) will enter into dealer agreements (the "Dealer
Agreement") each in the form attached hereto as Exhibit C prior to the
purchase of Contracts by 21st Century.
Section 4.7 Collection Fee Income to Dealers. In consideration of (i)
Nobility Homes' (and, to the extent applicable, Prestige's) delivery to
21st Century of all loan applications of Nobility Homes' customers for
which 21st Century has an appropriate loan program and for whom Nobility
Homes (and, to the extent applicable, Prestige) are assisting in arranging
financing and (ii) services provided by Nobility Homes (and, to the extent
applicable, Prestige) to 21st Century in connection with the Contract,
such services to include but not be limited to assisting the financing,
closing, marketing and servicing of the Contracts, 21st Century agrees to
pay Collection Fee Income to Nobility Homes (and, to the extent
applicable, Prestige). "Collection Fee Income" shall be an amount equal
to, at the option of Nobility Homes, (i) (a) the customer annual
percentage rate stated on a Contract purchased by 21st Century according
to the terms of this Agreement less (b) the Credit Approval Rate or, at
the option of Nobility Homes, (ii) a premium equal to one-fourth of one
percent (.25%) of the principal amount financed under the terms of the
Contract for each one-eighth of one percent (1/8%) increase in the
customer annual percentage rate (stated in a Contract) in excess of the
Credit Approval Rate. Such Collection Fee Income shall be paid to Nobility
Homes (and, to the extent applicable, Prestige) at the option of Nobility
Homes either (i) from the collection of monthly payments from the customer
which shall be paid within ten (10) days of month end, (ii) at the time
the Contract is purchased from Nobility Homes (and, to the extent
applicable, Prestige) or (iii) a combination of (i) and (ii) above.
Section 4.8 Loans to 21st Century. The Members hereby authorize and
direct the Company to loan all or part of its capital to 21st Century. The
proceeds of such loan shall be used by 21st Century first for the purchase
of Contracts or, in the event Contracts acceptable for purchase under the
terms of this Agreement are not available, as otherwise agreed upon by
Members holding a Majority Vote. Such loans shall be evidenced by
promissory notes whose obligations are secured by liens or security
interests in the Contracts granted by 21st Century to the Company and all
other related loan documents required by the Company. 21st Century will
pay a rate of interest on such loans equal to the same rate paid by 21st
Century to any of its lenders for short term borrowings.
Section 4.9 Investment of Company Capital. The capital of the Company
which is not loaned to 21st Century pursuant to the terms of this
Agreement or distributed to the Members will be invested in the
investments selected by the Chief Manager.
Section 4.10 Transaction Flow Chart. A Flow Chart which summarizes the
structure by which 21st Century, Nobility Homes and the Company will
accomplish the transactions described in Article IV is attached hereto as
Exhibit D.
ARTICLE V
RIGHTS AND DUTIES OF MANAGERS
Section 5.1 Management. The business and affairs of the Company shall
be managed by its Chief Manager. Except for situations in which the
approval of the Members is expressly required by this Operating Agreement
or by applicable law, the Chief Manager shall have full and complete
authority, power and discretion to (a) manage and control the business,
affairs, and properties of the Company, (b) make all decisions regarding
those matters and (c) perform any and all other acts or activities
customary or incident to the management of the Company's business.
The Members shall elect a Secretary of the Company to serve in such
capacity until his successor is elected and to perform the services of the
Secretary as described in the Act. The Members hereby select Tim Williams
as Chief Manager and Richard B. Ray as Secretary/Treasurer and each
Manager shall serve in such capacity until such time as his or her
successor shall have been appointed by the Members according to the terms
of this Operating Agreement.
Section 5.2 Tenure. The Chief Manager and Secretary/Treasurer shall
serve in such capacity until their successors shall have been elected by
Members possessing a Majority Vote.
Section 5.3 Number and Election of Managers. The Members may fix the
number of Managers of the Company in addition to the Chief Manager. Any
Manager shall hold office until the next annual meeting of Members or
until his successor has been elected and qualified. Managers shall be
elected by the affirmative vote of Members holding a Majority Vote.
Managers other than the Chief Manager shall have the power and authority
permitted to them under the terms of the Act and granted to them by the
Members.
Section 5.4 Certain Powers of Chief Manager and Secretary. Subject to
the provisions of the Act, this Operating Agreement and the actions of the
Members, without limiting the generality of Section 5.1, the Chief Manager
and Secretary shall have power and authority granted to them by the Act.
The Chief Manager shall specifically have the power to:
(a) execute and deliver on behalf of the Company the Sales and
Service Agreement between the Company and 21st Century dated as
of the date hereof; and
(b) establish a banking relationship with any bank including such
accounts with such bank as the Chief Manager deems necessary,
appropriate or desirable and execute and deliver all resolutions
as required by such bank in connection with the establishment of
such accounts approved by the Chief Manager and to authorize all
signatories with respect to such accounts.
Section 5.5 Restrictions on Authority of the Managers. Except as
specifically provided by the terms of this Operating Agreement, the
Managers shall not have the authority to, and covenant and agree that they
shall not, do any of the following acts without the approval of the
Members holding a Majority Vote:
(i) Cause or permit the Company to engage in any activity that
is not consistent with the purposes of the Company as set
forth herein;
(ii) Sell or otherwise dispose of all or substantially all of
the Company's assets as part of a single transaction or
plan (except in the ordinary course of business, including
securitization or loan sale transactions);
(iii) Knowingly do any act in contravention of this
Operating Agreement;
(iv) Knowingly do any act which would make it impossible to
carry on the ordinary business of the Company, except as
otherwise provided in this Operating Agreement;
(v) Knowingly perform any act that would cause the Company to
conduct business in a state which has neither enacted
legislation which permits limited liability companies to
organize in such state nor permits the Company to register
to do business in such state as a foreign limited liability
company;
(vi) Cause the Company to voluntarily take any action that would
cause a bankruptcy of the Company;
(vii) Cause the Company to admit any additional Members
other than pursuant to the terms of this Operating
Agreement; or
(viii) Incur indebtedness of the Company, pledge assets of
the Company to secure indebtedness or similarly bind
the Company.
Section 5.6 Restriction on Managers' Authority. Unless authorized to
do so by this Operating Agreement or by the Members of the Company, no
Manager, attorney-in-fact, employee, or other agent of the Company shall
have any power or authority to bind the Company in any way, to pledge its
credit or to render it liable for any purpose.
Section 5.7 Liability for Certain Acts. Each Manager shall act in a
manner he believes in good faith to be in the best interest of the Company
and with such care as an ordinarily prudent person in a like position
would use under similar circumstances. A Manager is not liable to the
Company, its Members or other Managers for any action taken in managing
the business or affairs of the Company if he performs the duty of his
office in compliance with the standard contained in this Section. No
Manager has guaranteed nor shall have any obligation with respect to the
return of a Member's capital contributions or profits from the operation
of the Company. No Manager shall be liable to the Company or to any Member
for any loss or damage sustained by the Company or any Member except loss
or damage resulting from intentional misconduct or knowing violation of
law or a transaction for which such Manager received a personal benefit in
violation or breach of the provisions of this Operating Agreement. Each
Manager shall be entitled to rely on information, opinions, reports, or
statements, including but not limited to financial statements or other
financial data prepared or presented in accordance with the provisions of
the Act.
Section 5.8 Managers Have No Exclusive Duty to Company. The Managers
shall not be required to manage the Company as their sole and exclusive
function and they may have other business interests and may engage in
other activities in addition to and in competition with those relating to
the Company. Neither the Company nor any Member shall have any right, by
virtue of this Operating Agreement, to share or participate in such other
investments or activities of any Manager or to the income or proceeds
derived therefrom. The Managers shall incur no liability to the Company or
to any of the Members as a result of engaging in any other business
venture.
Section 5.9 Indemnity of the Managers. Employees and Other Agents. To
the fullest extent permitted under the Act, the Company shall indemnify
the Managers and make advances for expenses to them with respect to such
matters to the maximum extent permitted under applicable law. The Company
shall indemnify its employees and other agents who are not Managers to the
fullest extent permitted by law, provided that such indemnification in any
given situation is approved by Members owning a Majority Vote.
Section 5.10 Resignation. Any Manager of the Company may resign at any
time by giving written notice to the Members of the Company. The
resignation of a Manager who is also a Member shall not affect the
Manager's rights as a Member and shall not constitute a withdrawal of a
Member.
Section 5.11 Removal. At a meeting called expressly for that purpose,
any number of Managers may be removed at any time, with or without cause,
by the affirmative vote of Members holding a Majority Vote. The removal of
a Manager who is also a Member shall not affect the Manager's rights as a
Member and shall not constitute a withdrawal of a Member.
Section 5.12 Vacancies. The affirmative vote of Members holding a
Majority Vote may appoint any Manager for any term designated by such
Members.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 6.1 Limitation on Liability. Each Member's liability shall be
limited as set forth in this Operating Agreement, the Act and other
applicable law.
Section 6.2 No Liability for Company Obligations. No Member will have
any personal liability for any debts or losses of the Company beyond his
respective Capital Contributions except as provided by law.
Section 6.3 List of Members. Upon written request of any Member, the
Chief Manager shall provide a list showing the names, addresses, and
Membership Interests of all Members and Managers, and the other
information required by the Act.
Section 6.4 Limitation of Actions. Except as specifically provided in
this Operating Agreement, the Company shall not take any of the following
actions without the consent of all the Members:
(a) acquire any stock, membership interests, partnership interests
or substantially all of the assets of any other now existing or
newly formed entity;
(b) issue any Membership Interest or other securities convertible,
exchangeable or exercisable into Membership Interest of the
Company (including without limitation Membership Interest
options or warrants to purchase Membership Interest);
(c) make or permit any material change in the nature of the
Company's business as contemplated on the date hereof;
(d) consummate a merger involving the Company, in which the Company
is not the surviving entity, or any sale, lease or other
disposition of all or substantially all of the Company's assets
or any liquidation, dissolution, recapitalization or
reorganization of the Company;
(e) amend the articles of organization or operating agreement of the
Company;
(f) authorize or approve any liquidation, dissolution,
reorganization or bankruptcy of the Company;
(g) declare or pay any distributions with respect to the Members'
Membership Interests; or
(h) incur, create or assume any indebtedness for the borrowing of
money or incurred in connection with the purchase of any assets
or properties in any single transaction in excess of $10,000 in
the aggregate per year.
Section 6.5 Company Books. The Chief Manager shall maintain and
preserve, during the term of the Company, and for five (5) years
thereafter, all accounts, books, and other relevant Company documents.
Upon reasonable request, each Member shall have the right, during ordinary
business hours, to inspect and copy such Company documents at the
requesting Member's expense. The Company shall distribute to the Members
no later than the fifteenth (15th) day of each month financial statements
for the previous month prepared by the Company in accordance with
generally accepted accounting principles.
Section 6.6 Priority and Return of Capital. Except as may be expressly
provided in this Operating Agreement, no Member shall have priority over
any other Member as to the return of Capital Contributions, profits,
losses, or distributions. This Section shall not apply to loans which a
Member has made to the Company.
Section 6.7 Liability of a Member to the Company. A Member who
receives the return in whole or in part of its capital contribution is
liable to the Company only to the extent now or hereafter provided by the
Act.
Section 6.8 Members Have No Exclusive Duty to Company. In addition to
purchasing Contracts from Nobility Homes, 21st Century may originate the
purchase of loans from other manufactured housing retailers, manufacturers
and other financial institutions (collectively, "Other Originators"). 21st
Century may purchase Contracts from Other Originators and engage in other
activities in addition to and in competition with those interests of
Nobility Homes. Neither the Company nor Nobility Homes shall have any
right by virtue of this Agreement to share or participate in such other
investment or activities of 21st Century or the income or proceeds derived
therefrom. 21st Century shall incur no liability to the Company or any
other Member as the result of engaging in any other business venture.
Section 6.9 Restrictions on Authority of Members. Unless authorized to
do so by this Operating Agreement or by the affirmative vote of Members
holding a Majority Vote or such greater percentage interest of the
Governance Rights as may be required by this Operating Agreement, no
Member shall have the power or authority to bind the Company in any way,
to sell, transfer, lease or otherwise convey or dispose of any asset of
the Company, to pledge the credit of the Company or to render the Company
liable for any purpose.
ARTICLE VII
MEETINGS OF MEMBERS
Section 7.1 Annual Meetings. The annual meeting of the Members shall
be held at such time as shall be determined by resolution of the Members
for the purpose of the transaction of such business as may come before the
meeting.
Section 7.2 Special Meetings. Special meetings of the Members, for any
purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chief Manager or by Members holding at least twenty-five percent
(25%) of all of the Governance Rights of the Members.
Section 7.3 Place of Meetings. The Members may designate any place as
the place of meeting for any meeting of the Members.
Section 7.4 Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purposes for which the meeting is called
shall be delivered not less than ten (10) nor more than twenty (20) days
before the date of the meeting, either personally or by mail, to each
Member entitled to vote at such meeting. Such notice shall be deemed to be
delivered: (a) if sent by first class U.S. mail delivery, on the day of
receipt by the recipient or (b) if notice is sent by certified mail, from
the date received by recipient as evidenced by receipt signed by or on
behalf of recipient. If sent by reputable overnight courier service, such
notice shall be deemed to have been delivered one (1) calendar day after
being deposited with the overnight courier service, addressed to the
Member at his address as it appears on the books of the Company, with all
freight charges thereon prepaid.
Section 7.5 Meeting of All Members. If all of the Members shall meet
at any time and place, either within or outside of the State of Tennessee,
and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting any
lawful action may be taken.
Section 7.6 Record Date. For the purpose of determining Members for
any other purpose, the date on which notice of the meeting is mailed or
the date on which the resolution declaring such distribution is adopted,
as the case may be, shall be the record date for such determination of
Members.
Section 7.7 Voting Lists. At least ten (10) days before each meeting
of the Members, the Chief Manager or other agent having charge of the
membership records of the Company shall make a complete list of the
Members holding Governance Rights and otherwise entitled to vote at the
meeting and any adjournment thereof. The list shall include the name,
address and Membership Interest held by each Member. The list shall be
kept on file at the principal office of the Company for a period of at
least ten (10) days prior to any meeting and shall be subject to
inspection by any Member during such period or during the meeting.
Section 7.8 Quorum. Members holding a Majority Vote, represented in
person or by proxy, shall constitute a quorum at any meeting of Members.
In the absence of a quorum at any such meeting, the Members so represented
may adjourn the meeting from time to time for a period not to exceed sixty
(60) days without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed. The
Members present at a duly organized meeting may continue to transact
business until adjournment notwithstanding the withdrawal during such
meeting of Members holding Governance Rights whose absence would cause
less than a quorum to be present.
Section 7.9 Voting and Approval Rights. Each Member shall have
Governance Rights provided in Section 3.1 of this Operating Agreement.
Section 7.10 Manner of Acting. If a quorum is present, the affirmative
vote of Members holding a Majority Vote represented at the meeting shall
be the act of the Members, unless the vote of a greater or lesser
proportion or number is otherwise required by the Act, by the Articles of
Organization or by this Operating Agreement.
Section 7.11 Proxies. At all meetings of Members, a Member may vote in
person or by proxy executed in writing by the Member. Such proxy shall be
filed with the Chief Manager before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
Section 7.12 Action by Members Without a Meeting. Action required or
permitted to be taken at a meeting of Members may be taken without a
meeting if the action is evidenced by written consents describing the
action taken signed by all of the Members and delivered to the Chief
Manager for inclusion in the minutes or for filing with the Company
records. Action taken under this Section is effective when all of the
Members have signed the consent unless the consent specifies a different
effective date. The record date for determining Members entitled to take
action without a meeting shall be the date the first Member signs a
written consent.
Section 7.13 Meeting by Telephone. Action required or permitted to be
taken at a meeting of the Members may be taken by conference telephone
call during which each participant may simultaneously hear each other
participant.
Section 7.14 Waiver of Notice. When any notice is required to be given
to any Member, a waiver thereof in writing signed by the person entitled
to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice. Attendance at any
meeting by any Member to whom notice of such meeting is required to be
given shall constitute waiver of notice of such meeting by such Member,
unless the Member attends such meeting for the sole and express purpose of
objecting at the beginning of the meeting to the transaction of any
business at the meeting because the meeting has not been lawfully called
or convened.
ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
Section 8.1 Members' Capital Contributions. Each Member shall make its
respective Initial Capital Contribution as provided in Section 3.1 of this
Operating Agreement.
Section 8.2 Additional Capital Contributions and Loans by Members. In
the event 21st Century reasonably determines that (i) the Company is
required to purchase any type of security issued by a purchaser of the
Contracts or (ii) the Company has an additional need for capital in order
to meet any indemnification obligation owed to 21st Century (as
contemplated in Section 3 of the Sales and Services Agreement dated as of
the date hereof between the Company and 21st Century), the Members agree
to make additional capital contributions or loans (such capital
contributions or loans referred to hereinafter as the "Capital Call") to
the Company sufficient to allow the Company to purchase such securities or
meet such indemnification obligation. 21st Century shall determine the
amount of the necessary Capital Call. The remedies available to the
Members for any Member's failure to meet any Capital Call are described in
Section 8.4 of this Agreement.
In the event 21st Century requires a Capital Call from the Members
which results from the need to purchase securities issued by the purchaser
of Contracts as contemplated by Section 8.2(i) of this Agreement, 21st
Century shall determine whether such Capital Call shall take the form of
(a) equity contribution of capital by the Members to the Company or (b) a
loan by the Members to the Company. If the additional capital contribution
is the result of an indemnification obligation of the Company as
contemplated by Section 8.2(ii) of this Agreement, the Capital Call shall
take the form of an equity contribution of capital by the Members of the
Company and shall not take the form of a loan by the Members to the
Company.
If requested by 21st Century to purchase from 21st Century a
participation interest in such securities which have been purchased by
21st Century, the Company shall purchase a participation interest in a
proportion determined by 21st Century equal to the proportion of the
Contracts included as part of the securities. For example, if the
Contracts constitute ten percent (10%) of the retail installment contracts
included in the securities, the Company shall purchase a ten percent (10%)
participation interest in the securities held by 21st Century.
If the Capital Call results from the need to purchase securities
issued by the purchaser of the Contracts as contemplated by Section 8.2(i)
of this Agreement, the Members (subject to consent of 21st Century) may
loan to the Company the amount of additional funds needed on such terms as
determined by the Chief Manager but at an interest rate and principal
amortization identical to the securities purchased with the loan proceeds.
Approval of the Members holding a Majority Vote is required for loans
based upon terms which are not identical to the terms of securities
purchased with the loan proceeds. Repayment of all loans shall be treated
as an operating expense of the Company and payable before payment of any
type of distribution to any Member. The Company shall execute and deliver
such documents as are reasonable and necessary to evidence such security
interest granted by the Company, including, without limitation, security
agreements and UCC-l financing statements.
Section 8.3 Payment of Capital Call. Each Member shall be liable for
and required to pay to the Company such Member's pro-rata share of the
Capital Call based upon the Member's Financial Rights. The Chief Manager
shall follow these procedures for obtaining such capital contributions or
loans:
(a) Written notice setting forth the total amount and each Member's
pro-rata share of any Capital Call shall be forwarded to all
Members. Each Member's payment to the Company shall be due on or
before the fifteenth (15th) calendar day following the receipt
of the notice.
(b) Any Member who fails to respond to the notice within the time
permitted will be deemed to have rejected the Capital Call.
Failure of any Member to meet a Capital Call shall give rise to
the options set forth in Section 8.4 of this Agreement.
Section 8.4 Failure to Meet Capital Call.
(a) If a Member rejects or is deemed to have rejected the Capital
Call made for the purpose of purchasing securities as
contemplated by the term of Section 8.2(i) (and 21st Century has
determined that the Capital Call take the form of an equity
contribution) or to meet an indemnification obligation as
contemplated by the terms of Section 8.2(ii) of this Agreement
(which the terms of this Agreement require to take the form of
an equity contribution), or if a Member who accepted the Capital
Call for either of such purposes fails to pay his pro-rata share
of the Capital Call to the Company within fifteen (15) days from
the receipt of notice of the Capital Call, the Company shall
provide to all Members written notice of such rejection or
failure and the Member who has accepted the Capital Call and has
paid its pro-rata share of the Capital Call within fifteen (15)
days from the receipt of notice of the Capital Call may, at its
option, by majority vote of the Members holding Financial Rights
which have accepted the Capital Call and have paid its pro-rata
share of the Capital Call to the Company within the time
required, elect one of the following options:
(i) Require the Company to return any payments made pursuant
thereto to the Members making such payments.
(ii) Treat the funds paid to the Company in response to the
Capital Call as a loan to the Company at the maximum rate
of interest permitted by law.
(iii) Treat its payments in response to the Capital Call as
additional equity contribution to the Company. In
addition, such Member may elect to make additional
equity contributions to the Company up to the amount
of the Capital Call. In either of such events, the
Financial Rights in the Company held by the Members
shall be recomputed within thirty (30) days after the
date of the Capital Call but to be effective as of the
date of the Capital Call, based upon the adjusted
capital accounts of the Members. The Company shall, if
necessary, issue additional Financial Rights to the
Members making additional capital contributions so
that the percentage of (i) Financial Rights owned by
each Member to (ii) the total outstanding Financial
Rights held by all Members is the same percentage as
(i) the adjusted capital accounts of each Member to
(ii) the total adjusted capital accounts of the
Members. Any Member failing to meet, or rejecting, the
Capital Call shall also at the time of the
recomputation of the Financial Rights (as heretofore
provided) assign all of its Governance Rights to the
Members meeting the Capital Call on a pro-rata basis
determined by the recomputed Financial Rights of such
Members.
(iv) The right to make additional capital contributions as
provided in this Section 8.4(a) must be exercised within
ten (10) days of the date of the delivery of the notice of
the failure of a Member to respond to the Capital Call and
shall be shared pro-rata by all Members desiring to
participate who accepted and paid the Capital Call as
provided herein.
(b) If a Member rejects or is deemed to have rejected the Capital
Call made to purchase securities as contemplated by the terms of
Section 8.2(i) of this Agreement (and 21st Century has
determined that such Capital Call shall take the form of the
loan by the Members of the Company as permitted by the terms of
this Agreement), or if a Member who accepted the Capital Call
for such purpose fails to pay his pro-rata share of the Capital
Call to the Company within fifteen (15) days from the receipt of
notice of the Capital Call, the Company shall provide to all
Members written notice of such rejection or failure and the
Member who has accepted the Capital Call and has paid its pro-
rata share of the Capital Call within fifteen (15) days of the
date of notice of the Capital Call may, at its option, by
majority vote of the Members holding Financial Rights which have
accepted the Capital Call and have paid its pro-rata share of
the Capital Call to the Company within the time required, elect
one of the following options:
(i) Require the Company to return any payments made pursuant
thereto to the Members making such payments.
(ii) Treat its payments in response to the Capital Call as a
loan to the Company which shall bear an interest rate equal
to two percent (2%) in excess of the yield of the purchased
securities. In addition, such Member may elect to make
additional loans to the Company up to the amount of the
Capital Call with the interest rate on such loan to equal
two percent (2%) in excess of the yield on the purchased
securities.
(iii) The right to make additional loans as provided in this
Section 8.4(b) must be exercised within ten (10) days
of the date of the delivery of the notice of the
failure of a Member to respond to the Capital Call and
shall be shared pro-rata by all Members desiring to
participate who accepted and paid the Capital Call as
provided herein.
Section 8.5 Termination of Capital Call Obligations. Any Member may
upon providing six (6) months written notice to the other Member declare
its intent not to meet additional Capital Calls needed to purchase
securities as contemplated by Section 8.2(i) of this Agreement. The
obligation to meet such Capital Calls as provided under the terms of this
Agreement shall cease after such six (6) month period; provided, however,
that the Member's obligation to meet Capital Calls during such six (6)
month period shall remain in full force and effect as provided by the
terms of this Agreement.
Section 8.6 Capital Accounts.
(a) A separate capital account will be maintained for each Member.
Each Member's capital account will be increased by (1) the
amount of money contributed by such Member to the Company; (2)
the fair market value of property contributed by such Member to
the Company (net of liabilities secured by such contributed
property that the Company is considered to assume or take
subject to under Section 752 of the Code); (3) allocations to
such Member of net profits; (4) any items in the nature of
income and gain which are especially allocated to the Member
pursuant to the terms of this Operating Agreement; and (5)
allocations to such Member of income described in Section
705(a)(1)(B) of the Code. Each Member's capital account will be
decreased by (1) the amount of money distributed to such Member
by the Company; (2) the fair market value of property
distributed to such Member by the Company (net of liabilities
secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the
Code); (3) allocations to such Member of expenditures described
in Section 705(a)(2)(B) of the Code; (4) any items in the nature
of deduction and loss that are specially allocated to the Member
pursuant to the terms of this Operating Agreement; and (5)
allocations to the account of such Member of net losses.
(b) In the event of a permitted sale or exchange of a Membership
Interest, the capital account of the transferor shall become the
capital account of the transferee to the extent it relates to
the transferred Membership Interest in accordance with Section
1.704-1(b)(2)(iv) of the Treasury Regulations.
(c) The manner in which capital accounts are to be maintained
pursuant to this Section is intended to comply with the
requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. If in the opinion of the
Company's legal counsel the manner in which capital accounts are
to be maintained pursuant to the preceding provisions of this
Section should be modified in order to comply with Section
704(b) of the Code and the Treasury Regulations thereunder, then
notwithstanding anything to the contrary contained in the
preceding provisions of this Section, the method in which
capital accounts are maintained shall be so modified; provided,
however, that any change in the manner of maintaining capital
accounts shall not materially alter the economic agreement
between or among the Members.
(d) Upon liquidation of the Company (or any Member's Membership
Interest), liquidating distributions will be made in accordance
with the positive capital account balances of the Members, as
determined after taking into account all capital account
adjustments for the Company's taxable year during which the
liquidation occurs. Liquidation proceeds will be paid in
accordance with the terms of this Operating Agreement. The
Company may offset damages for breach of this Operating
Agreement by a Member whose interest is liquidated (either upon
the withdrawal of the Member or the liquidation of the Company)
against the amount otherwise distributable to such Member.
(e) Except as otherwise required in the Act (and subject to Section
8.2), no Member shall have any liability to reserve all or any
portion of a deficit balance in such Member's capital account.
Section 8.7 Withdrawal or Reduction of Members' Capital Contributions.
(a) A Member shall not receive out of the Company's property any
part of such Member's Capital Contribution until all liabilities
of the Company, except liabilities to Members on account of
their Capital Contributions, have been paid or there remains
property of the Company sufficient to pay them.
(b) A Member, irrespective of the nature of such Member's Capital
Contribution, has only the right to demand and receive cash in
return for such Capital Contribution.
ARTICLE IX
DISTRIBUTION TO MEMBERS
Section 9.1 Allocations of Profits and Losses from Operations. The
profits and losses of the Company for each fiscal year will be allocated
to the Members in accordance with their Financial Rights.
Section 9.2 Distributions. All distributions of cash or properties
shall be made to the Members pro-rata in proportion to their respective
Financial Rights on the record date of such distribution. All
distributions of cash or properties shall be made at such time as
determined by the Chief Manager or Members holding a Majority Vote.
Notwithstanding the foregoing, provided that the Chief Manager
determines that such distribution will not violate any written agreement
or instrument to which the Company is a party or pursuant to which it is
bound, or any applicable provision of law, the Company shall, within one
hundred twenty (120) days after the close of any fiscal year in which the
cumulative profits of the Company exceed the cumulative losses of the
Company, distribute to each Member cash in an amount equal to such
Member's Tax Liability (as hereinafter defined) for such fiscal year. For
purposes of this Section 9.2, the term "Tax Liability" shall mean the
product of (a) the excess of such Member's allocable share of the
cumulative profits for such fiscal year over such Member's allocable share
of the cumulative losses of the Company for such fiscal year, and (b) the
aggregate rate of tax applied to such excess assuming that the Member's
income is subject only to federal and Tennessee (or other applicable state
income tax) income taxes at the highest marginal rates for ordinary income
or capital gain, as the case may be, and calculated by reducing the
federal tax to reflect the deductibility of state taxes for federal income
tax purposes. For purposes of this Section 9.2, expenses that would
constitute "miscellaneous itemized deductions" with respect to the Members
within the meaning of Treasury Regulations Section 1.67-1T(b) and 1.67-
2T(b) or their successor regulations shall not be taken into account.
Section 9.3 Limitation Upon Distributions. No distribution shall be
declared and paid unless, after the distribution is made, the assets of
the Company are in excess of all liabilities of the Company, except
liabilities to Members on account of their contributions.
Section 9.4 Accounting Principles. The profits and losses of the
Company shall be determined in accordance with generally accepted
accounting principles applied on a consistent basis.
Section 9.5 Interest on and Return of Capital Contributions. No Member
shall be entitled to interest on its Capital Contribution or to return of
its Capital Contribution, except as otherwise specifically provided for
herein.
Section 9.6 Loans to Company. Nothing in this Operating Agreement
shall prevent any Member from making secured or unsecured loans to the
Company by agreement with the Company. The Company shall repay any loans
prior to making any distribution to a Member.
ARTICLE X
BOOKS AND RECORDS
Section 10.1 Accounting Period. The Company's accounting period shall
be as determined from time to time by the Chief Manager.
Section 10.2 Records, Audits and Reports. Proper and complete records
and books of account shall be kept by the Chief Manager in which shall be
entered fully and accurately all transactions and other matters relating
to the Company's business. The books and records shall be at all times
maintained at the principal executive office of the Company and shall be
open to the reasonable inspection and examination of the Members, or their
duly authorized representatives during reasonable business hours. The
Company and 21st Century agree to require its accountants to provide and
respond to reasonable requests for information from the Members. The
Company shall also cause 21st Century to deliver to Nobility Homes a copy
of the annual audited financial statements of 21st Century and the
quarterly financial statements of 21st Century as prepared by 21st
Century. An annual audit of the Company's financial statements will be
done in the event the Company's financial results are deemed to be
material to the financial results of either Member by the independent
auditor examining the financial statements of that Member. The expense of
the Company's audit will be borne by the Company.
Section 10.3 Tax Returns. The Chief Manager shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies
of such returns, or pertinent information therefrom, shall be furnished to
the Members within a reasonable time after the end of the Company's fiscal
year.
Section 10.4 Tax Matters Member.
(a) To the extent required by law, the Chief Manager shall serve as
the "tax matters member" or "tax matters partner" of the
Company, as that term is defined in the Code. The designation of
the Chief Manager as the "tax matters partner" shall not make
the Chief Manager a "partner" under any laws applicable to
partnerships other than the Code.
(b) As tax matters member, the Chief Manager shall be responsible
for all administrative and judicial proceedings for the
assessment and collection of tax deficiencies or the refund of
tax overpayments arising out of a Member's distributed share of
items of income, deduction, credit or any other Company item (as
defined in the Code or the regulations issued pursuant thereto)
allocated to the Members affecting any Member's tax liability.
(c) The Chief Manager, as tax matters member, shall promptly give
notice to all Members of any inquiries from the Internal Revenue
Service or of any administrative or judicial proceeding pending
before the Internal Revenue Service involving the Company or any
Company item and shall keep the Members advised of the progress
of such proceedings. Such notice shall be in compliance with
such regulations as are issued from time to time by the Internal
Revenue Service.
ARTICLE XI
TRANSFERABILITY
Section 11.1 General. No Member shall have the right to sell, assign,
pledge or otherwise transfer for consideration all or any part of his
Membership Interest except (a) with the consent of all the Members, (b) as
provided in this Operating Agreement or (c) by the Act. Any transfer of
the Membership Interest prohibited by this Agreement shall be void and
without effect or enforceability.
Section 11.2 Term of Restriction. The restriction on transferability of
Membership Interests shall be a continuing restriction, applicable at all
times to all outstanding Membership Interests in the Company. No action by
the Company shall be deemed to have freed any Membership Interest in the
Company or any portion thereof from such restriction. No action by any
Member or Members of the Company shall be deemed to have freed any
Membership Interest in the Company or any portion thereof from such
restriction unless all the Members holding Governance Rights have
specifically agreed in writing to free the Membership Interest from such
restriction. Any subsequent owner of all or any part of a Membership
Interest shall take such interest subject to the restrictions set forth
herein.
Section 11.3 Option to Purchase and Sale Upon the Dissolution or
Bankruptcy of Member. Subject to the terms of this Agreement and with the
consent of the Members holding a Majority Vote (other than the Selling
Member as hereinafter defined), in the event of the dissolution or
bankruptcy of the Member (the "Selling Member"), the remaining Members
shall have the right, at their option, exercisable by written notice to
the Selling Member within sixty (60) days after the date of such
dissolution or filing of any bankruptcy petition, to purchase the
Membership Interest of the Selling Member, and the legal representative of
the Selling Member shall be obligated to consummate the sale of such
Membership Interest. The purchase price of such Membership Interest of the
Selling Member shall be the fair market value of the Membership Interest
as determined by the Members; provided, however, that if the Members
cannot agree on the fair market value, they shall each select an
investment banker to set the fair market value. If such investment bankers
are unable to agree upon the fair market value, they shall mutually select
a third investment banker to determine the fair market value. The fair
market value determined by that investment banker shall be binding upon
all the parties. The fees and expenses of such investment banker incurred
in connection with the establishment of the fair market value of the
Membership Interest shall be borne by the Company. Notwithstanding the
foregoing, the remaining Members wishing to purchase the Membership
Interest of the Selling Member may rescind their offer to purchase without
incurring any liability or obligation within five (5) days after the
determination of the fair market value by the investment banker selected
by the Company. The sale of the Selling Member's Membership Interest shall
occur within thirty (30) days after final determination of the purchase
price.
Section 11.4 Future Interests. This Operating Agreement and the
restrictions and limitations herein shall apply to any Membership Interest
or portion thereof in the Company hereafter acquired by any person by any
means. It is the intent of the parties hereto that this Operating
Agreement shall be binding upon the respective successors, assigns,
representatives, trustees and attorneys-in-fact of any of the present or
future Members of the Company. The Members further agree and declare that
the terms, conditions, provisions and agreements set forth in this
Operating Agreement shall be binding upon any receiver, trustee, debtor-
in-possession, similar manager or agent in a bankruptcy or receivership
proceeding or other involuntary transferee of any Membership Interest or
portion thereof.
Section 11.5 Purchase of Membership Interest by Members. Nobility Homes
shall have the following rights with regard to the transfer of Membership
Interests provided such rights are exercised within six (6) months from
the date of this Agreement or at any time after five (5) years from the
date of this Agreement:
(a) Request in writing that 21st Century purchase Nobility Homes'
Membership Interests in the Company for a price equal to the
Fair Market Value (as hereinafter defined); or
(b) Purchase the Membership Interests in the Company owned by 21st
Century at a purchase price equal to the Fair Market Value (as
hereinafter defined).
For the purpose of this Agreement, "Fair Market Value" shall mean the
value of the Membership Interest as determined by mutual agreement of 21st
Century and Nobility Homes; provided, however, if the Members are unable
to agree on the Fair Market Value, then each Member shall select an
investment banker and the investment bankers will attempt to mutually
agree upon the Fair Market Value of the Membership Interest. If such
investment bankers are unable to mutually agree on the Fair Market Value,
then they shall mutually select a third investment banker to determine the
Fair Market Value of the Membership Interest. The Fair Market Value as
determined pursuant to this paragraph shall be final and binding on all
parties. The fees and expenses of all investment bankers performing
services described in this paragraph shall be borne by the Company.
Section 11.6 Sale to Third Party. If Nobility Homes requests 21st
Century to purchase its Membership Interests as permitted by the terms of
Section 11.5(a), and 21st Century rejects the request to purchase, 21st
Century hereby consents to Nobility Homes' sale of its Membership
Interests to a third party and such consent shall constitute the consent
for the purposes required by the terms of this Agreement.
Section 11.7 Co-Sale Rights. In the event a Member is permitted
according to the terms of this Agreement to sell all or any part of its
Membership Interests to a third party, each Member agrees that the other
Member shall have a co-sale right to sell an equal interest of its
Membership Interests to such third party and that no Member may sell its
Membership interests to such third party unless the other Member is also
permitted the right to sell an equal amount of its Membership Interests to
such third party.
ARTICLE XII
ADDITIONAL MEMBERS
From the date of the formation of the Company, any Person acceptable to
all the Members may become a Member of this Company.
ARTICLE XIII
DISSOLUTION AND TERMINATION
Section 13.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the
following events:
(i) When the period fixed for the duration of the Company shall
expire pursuant to the terms of this Operating Agreement;
(ii) By the unanimous written agreement of all Members;
(iii) Subject to the terms of Section 13.1(b) of this
Operating Agreement, upon delivery of written notice
of termination by any Member to the Company and the
other Members; or
(iv) Upon the resignation, removal, bankruptcy, insolvency or
dissolution of a Member, merger in which the Company is not
the surviving organization, or the occurrence of any other
event which terminates the continued membership of a Member
in the Company pursuant to any provision of the Act (a
"Withdrawal Event"), unless the business of the Company is
continued by the consent of the remaining Members holding a
Majority in Interest within ninety (90) days after the
Withdrawal Event and there are at least two (2) remaining
Members.
(b) Notwithstanding the terms of Section 13.1 of this Operating
Agreement, a Member shall not have the right to withdraw and
cause the dissolution and termination of the Company for a
period beginning six (6) months from the date of this Agreement
and continuing until five (5) years from the date of this
Agreement, except in the event there is a change in management
of either Member after a six (6) month period but prior to the
five (5) years from the date of this Agreement. For 21st
Century, "change in management" shall mean if both of the
following officers are no longer an active officer of 21st
Century: Tim Williams and Richard B. Ray. In the case of
Nobility Homes, "change in management" shall mean if both of the
following officers are no longer an active officer of Nobility
Homes: Terry E. Trexler and Thomas W. Trexler. In the event a
Member exercises any power to terminate its Membership Interest
by withdrawing in violation of the terms of this Operating
Agreement, the Company and the remaining Members may enforce all
legal and equitable remedies available against such withdrawing
Member.
(c) Notwithstanding the terms of Section 13.1 of this Operating
Agreement, the following events shall not cause a dissolution of
the Company:
(i) Acquisition of a Member's complete Membership Interest by
the Company; and
(ii) Assignment of a Member's Governance Rights as permitted by
the Act and the terms of the Operating Agreement to the
extent that the assigning Member retains no Governance
Rights.
Section 13.2 Effect of Dissolution. Upon dissolution, the Chief Manager
shall file a notice of dissolution pursuant to the terms of the Act, and
the Company shall cease to carry on its business, except as permitted by
the Act.
Section 13.3 Winding Up.
(a) If the Company is dissolved and its affairs are to be wound up,
the Chief Manager shall liquidate Company assets, allocate
profits and losses, discharge liabilities and distribute
remaining assets.
(b) Upon completion of the winding up, liquidation, and distribution
of the assets, the Company shall be deemed terminated.
(c) The Chief Manager shall comply with any applicable requirements
of the Act pertaining to the winding up of the affairs of the
Company and the final distribution of its assets.
Section 13.4 Articles of Termination. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been
made therefor and all of the remaining property and assets have been
distributed to the Members, articles of termination shall be executed and
verified by the person signing the articles which articles shall set forth
the information required by the Act. Originals of such articles of
dissolution shall be delivered to the Tennessee Secretary of State. Upon
the filing of the articles of dissolution, the existence of the Company
shall cease, except for the purpose of suits, other proceedings and
appropriate action as provided in the Act. The Chief Manager shall have
authority to distribute any Company property discovered after dissolution,
convey real estate and take such other action as may be necessary on
behalf of and in the name of the Company.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.1 Application of Tennessee Law. This Operating Agreement,
and the application of interpretation hereof, shall be governed
exclusively by its terms and by the laws of the State of Tennessee, and
specifically the Act.
Section 14.2 No Action for Partition. No Member has any right to
maintain any action for partition with respect to the property of the
Company.
Section 14.3 Further Assurances. The Members hereby covenant and agree
to execute and deliver, or cause to be executed and delivered, and to do
or make, or cause to be done or made, upon the reasonable, any and all
instruments, papers, deeds, acts or things, supplemental, confirmatory or
otherwise, as may be reasonably required by any Member for the purpose of
effecting the terms of this Agreement and operating the Company as
contemplated by the terms of this Operating Agreement.
Section 14.4 Waivers. The failure of any party to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Operating Agreement shall not prevent a subsequent act,
which would have originally constituted a violation, from having the
effect of an original violation.
Section 14.5 Rights and Remedies Cumulative. The rights and remedies
provided by this Operating Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive the right to use
any or all other remedies. Such rights and remedies are given in addition
to any other rights the parties may have by law, statute, ordinance, or
otherwise.
Section 14.6 Heirs, Successors and Assigns. Successors and Assigns.
Each and all of the covenants, terms, provisions, and agreements herein
contained shall be binding upon and inure to the benefit of the parties
hereto and, to the extent permitted by this Operating Agreement, their
respective heirs, legal representatives, successors, and assigns.
Section 14.7 Creditors. None of the provisions of this Operating
Agreement shall be for the benefit or enforceable by any creditors of the
Company.
Section 14.8 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement.
Section 14.9 Federal Income Tax Elections. All elections required or
permitted to be made by the Company under the Code shall be made by the
Chief Manager as determined in his sole discretion.
Section 14.10 Notices. Except where otherwise specifically provided
herein to the contrary, any and all notices, offers, demand, or elections
required or permitted to be made under this Operating Agreement
("Notices") shall be in writing, signed by the party giving such Notice,
and shall be deemed given and effective (i) sent by telecopy and confirmed
by certified mail, (ii) on the third (3rd) business day (which term means
a day when the United States Postal Service or its legal successor
("Postal Service") is making regular deliveries of mail on all of its
regularly appointed weekday rounds in Knoxville, Tennessee) following the
day (as evidenced by proof of mailing) upon which such notice is
deposited, postage prepaid, certified mail, return receipt requested, with
the Postal Service, and addressed to the other party at such party's
respective address as set forth below, or at such other address as the
other party may hereafter designate by Notice or (iii) when hand-delivered
(either in person by the party giving such notice, or by its designated
agent, or by commercial courier).
Section 14.11 Amendments. Any amendment to this Operating Agreement of
Membership shall be made in writing and signed by Members holding a
Majority Vote.
Section 14.12. Invalidity. The unenforceability of any particular
provision of this Operating Agreement shall not affect the other
provisions hereof, and the Operating Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted. If
any particular provision herein is construed to be in conflict with the
provisions of the Act, the Act shall control and such invalid or
unenforceable provisions shall not affect or invalidate the other
provisions hereof, and this Operating Agreement shall be construed in all
respects as if such conflicting provisions were omitted.
Section 14.13 Determination of Matters Not Provided for in This Operating
Agreement. The Members holding a Majority Vote shall decide any questions
arising with respect to the Company and this Operating Agreement which are
not specifically or expressly provided for in this Operating Agreement or
under the Act.
Section 14.14 Time. TIME IS OF THE ESSENCE OF THIS OPERATING AGREEMENT,
AND TO ANY PAYMENTS, ALLOCATIONS, AND DISTRIBUTIONS SPECIFIED UNDER THIS
OPERATING AGREEMENT.
Section 14.15 Adoption of Act. Except as otherwise provided in the
Articles of Organization or this Operating Agreement, the Company hereby
adopts the provisions of the Act.
MEMBERS' SIGNATURE PAGE
Each of the undersigned agrees to become a Member in Nobility 21,
LLC, and each shall be bound by all the terms of the Operating Agreement
to which this signature page is attached.
21st CENTURY MORTGAGE CORPORATION
By: /s/ Richard B. Ray
Richard B. Ray
Title: Chief Financial Officer
NOBILITY HOMES, INC.
By: /s/ Thomas W. Trexler
Thomas W. Trexler
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
Nobility 21, Limited Liability Company
Operating Agreement - Exhibit A
Register of Membership Interests
<TABLE>
<CAPTION>
Financial Governance Capital
Name and Address of Member Date Right Rights Contribution
<S> <C> <C> <C> <C>
21st Century Mortgage Corporation 7/17/97 50% 50% $250,000
607 Market Street
Knoxville, Tennessee 37902
Attention: Chief Financial Officer
Nobility Homes, Inc. 7/17/97 50% 50% $250,000
3741 S.W. 7th Street
Ocala, Florida 34474
Attention: Thomas W. Trexler
</TABLE>
<PAGE>
EXHIBIT B
SALES AND SERVICES AGREEMENT
by and between
21st CENTURY MORTGAGE CORPORATION,
a Delaware corporation
and
NOBILITY 21, LLC,
a Tennessee limited liability company
DATED: JULY ____, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. Assignment of Collections . . . . . . . . . . . . . . . . . . . 31
2. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 32
4. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . 33
5. Prior Transactions . . . . . . . . . . . . . . . . . . . . . . 33
6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 34
9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 34
10. Modification; Waiver . . . . . . . . . . . . . . . . . . . . . 34
11. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13. Independent Contractor . . . . . . . . . . . . . . . . . . . . 34
14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 34
15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
SIGNATURE PAGE
<PAGE>
SALES AND SERVICES AGREEMENT
This Sales and Services Agreement (the "Agreement") is made and entered
into as of July ____, 1997 by and between 21st CENTURY MORTGAGE
CORPORATION, a Delaware corporation ("21st Century"), and NOBILITY 21,
LLC, a Tennessee limited liability company (the "Company").
_______________________________
21st Century originates, finances, sells and services manufactured
housing sales contracts and sells insurance products for manufactured
housing. The Company promotes the purchase of manufactured housing sales
contracts (the "Contracts") originated from sales of manufactured homes
manufactured or sold by Nobility Homes, Inc. or its wholly owned
subsidiary Prestige Homes, Inc. (such corporations referred to
collectively hereinafter as "Nobility Homes"). 21st Century seeks to
purchase from Nobility Homes and resell or pledge the Contracts to third
party purchasers or lenders (collectively, the "Investors"). 21st Century
has agreed to assign to the Company a portion of the collections from the
sale of the Contracts to Investors by 21st Century. The Company has agreed
to indemnify 21st Century for certain losses incurred by 21st Century from
its sale of Contracts to Investors.
_______________________________
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the sufficiency of which are hereby acknowledged, 21st Century and
the Company agree as follows.
1. Assignment of Collections. 21st Century hereby agrees to assign to
the Company an amount equal to collections and proceeds received
from all Contracts including but not limited to (a) the collections
received on a monthly basis by 21st Century in connection with
Contracts pledged to Investors and (b) the proceeds from any sale of
the Contracts after deducting the following amounts:
(a) service fees paid to 21st Century based upon the schedule
attached hereto as Exhibit A;
(b) service fees (other than service fees already paid to 21st
Century) which may be paid to unrelated parties and not to
include any service fees described hereinafter;
(c) accrued interest due to Investors under the terms of the
agreements with the Investors;
(d) principal components due to Investors under the terms of the
agreements with the Investors;
(e) reserve funds for the Contracts which were required by
agreements with Investors;
(f) reimbursements from Contract obligors to 21st Century for
insurance escrow premiums paid by 21st Century;
(g) FHA insurance premiums paid by 21st Century in connection with
Contracts; and
(h) other costs which are incurred by 21st Century in connection
with payment to the Investors of all-in cost of funds as
required by the Investors.
The amount distributed to the Company is referred to collectively
hereinafter as the "Net Collections." 21st Century shall identify in
writing for the Company the Contracts which have been sold or pledged
to the Investors.
2. Payment. 21st Century shall deliver the Net Collections under the
terms of this Agreement by (a) the tenth (10th) day of each month or
the first business day thereafter in the event the tenth day is not
a day on which financial institutions are open or (b) the tenth
(10th) day after any sale of Contracts. Any amounts owed to the
Company by 21st Century under the terms of this Agreement will be
paid solely from payments or proceeds received by 21st Century
pursuant to the Contracts.
3. Indemnification. In consideration of 21st Century assigning the Net
Collections, the Company hereby agrees to indemnify, hold harmless
and release 21st Century and its officers, directors, employees,
stockholders and agents from and against:
(a) Any and all claims, expenses, demands, liabilities, suits,
damages or costs incurred as the result of a default by the
maker of any Contract whose Net Collections have been assigned
to the Company pursuant to the terms of this Agreement;
(b) All losses, expenses (including reasonable attorneys' fees and
expenses) and all other costs of repossession, refurbishing or
liquidation of any Contract whose Net Collections have been
assigned to the Company pursuant to the terms of this Agree-
ment; and
(c) Any and all other claims, expenses, demands, liabilities,
suits, damages or costs incurred in connection with the
Contracts whose Net Collections have been assigned to the
Company pursuant to the terms of this Agreement.
4. Reimbursement. In the event 21st Century incurs any loss which is
to be indemnified by the Company under the terms of this Agreement,
21st Century will give notice to the Company by means of written
report of the amount of the loss. The Company shall reimburse 21st
Century for any loss indemnified under the terms of this Agreement
within thirty (30) days following the date such notice is given by
21st Century except to the extent 21st Century is directly paid for
such loss.
5. Prior Transactions. For the purpose of determining the Contracts
attributable to the Company, 21st Century shall credit to the
Company the outstanding unpaid principal amount determined as of the
date of this Agreement of Contracts originated by Nobility Homes
prior to the date of this Agreement which have been purchased by
21st Century.
6. Termination. Either party shall have the right to terminate this
Agreement upon providing prior written notice to the other party.
Notwithstanding the termination of this Agreement, this Agreement
shall continue to remain in full force and effect for not less than
three hundred ninety-five (395) days after the final payment
received by 21st Century under any Contract whose Net Collections
have been assigned by 21st Century to the Company pursuant to the
terms of this Agreement as of the date of such termination.
7. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be deemed to have
been duly given if in writing and delivered personally, or mailed
first class, postage prepaid, registered or certified mail, as
follows:
If to 21st Century:
21st Century Mortgage Corporation
607 Market Street
Knoxville, Tennessee 37902
Attention: Mr. Richard B. Ray
If to the Company:
Nobility 21, LLC
c/o 21st Century Mortgage Corporation
607 Market Street
Knoxville, Tennessee 37902
Attention: Mr. Richard B. Ray
with a copy to:
Nobility Homes, Inc.
3741 S.W. 7th Street
Ocala, Florida 34474
Attention: Mr. Tom Trexler
21st Century and the Company may change the address to which such
communications are to be directed to it by giving written notice to
the other party in the manner provided in this Section.
8. Governing Law. This Agreement shall be construed in accordance with
Tennessee law.
9. Entire Agreement. This Agreement constitutes the entire agreement
among the parties in respect of the transaction contemplated hereby
and supersedes and prior agreements, arrangements and undertakings
relating to the subject matter hereof. No covenant or condition not
expressed in this Agreement shall affect or be effective to
interpret, change or restrict this Agreement.
10. Modification; Waiver. No modification, waiver, termination,
rescission, discharge or cancellation of this Agreement, and no
waiver or any provision of or default under this Agreement shall
affect the right of 21st Century or the Company thereafter to
enforce any other provision or to exercise any right or remedy in
this Agreement.
11. Assignment. All of the terms, covenants, representations,
warranties and conditions of this Agreement shall be binding upon,
and inure to the benefit of and be enforceable by, the parties
hereto and their respective successors, assigns and other legal
representatives. This Agreement and the rights and obligations
hereunder shall not be assigned without the written consent of the
parties hereto.
12. Costs. Except as otherwise expressly provided herein, each party
hereto shall be responsible for its own costs in connection with
this Agreement and the transactions contemplated hereby, including
without limitation fees and expenses of attorneys. Notwithstanding
the terms of this Agreement, the costs for enforcing the terms of
this Agreement as a result of either party failing to fulfill its
obligations hereunder, including all costs and expenses of any
attorneys, shall be paid by the party failing to perform its
obligations.
13. Independent Contractor. The parties expressly understand and agree
that 21st Century is acting as an independent contractor unrelated
to the Company. Nothing in this Agreement is intended to create a
relationship, express or implied, of employer or employee or
principal agent or partnership between 21st Century and the Company.
14. Further Assurances. The parties to this Agreement hereby covenant
and agree to execute and deliver, or cause to be executed and
delivered, and to do or make, or cause to be done or made, upon
reasonable requests, any and all instruments, papers, deeds or
things, supplemental, confirmatory or otherwise, as may be
reasonably required for the purpose of effecting the terms of this
Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts and each shall be considered an original and together
they shall constitute one Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
21st CENTURY MORTGAGE CORPORATION
By:______________________________
Tim Williams
Title: President
NOBILITY 21, LLC
By:_______________________________
Richard B. Ray
Title: Secretary/Treasurer
<PAGE>
EXHIBIT A
SERVICE FEES SCHEDULE
OUTSTANDING PRINCIPAL SERVICE FEE EXPRESSED AS A
BALANCE OF CONTRACTS SERVICED PERCENTAGE OF THE OUTSTANDING
AS OF FIRST DAY OF EACH MONTH PRINCIPAL BALANCE OF ALL
CONTRACTS
$ 0.00 to $ 50,000,000 1.50%
$ 50,000,000 to $100,000,000 1.25%
In excess of $100,000,000 1.00%
<PAGE>
EXHIBIT C
MANUFACTURED/MODULAR HOME DEALER AGREEMENT
THIS AGREEMENT made and entered into this day of _________________,
1997 between NOBILITY HOMES, INC., and all of its majority owned
subsidiaries ("Dealer"), whose address is 3741 Southwest Seventh Street,
Ocala, Florida 34474 and 21st CENTURY MORTGAGE CORPORATION ("Lender"),
Post Office Box 477, Knoxville, Tennessee 37901. Lender and Dealer desire
to enter into an Agreement whereby Lender will purchase retail installment
contracts or other lien instruments (hereafter called "Contracts")
covering new and used manufactured/modular homes (hereafter called
"Property") sold by Dealer to its Customers, together with all of Dealer's
right, title and interest in the Property, all insurance policies,
guarantees and warranties in connection therewith, and all proceeds
thereof.
NOW, THEREFORE, in consideration of the premises contained herein
Lender and Dealer agree as follows:
1. Purchase Terms. The purchase by Lender of contracts shall be
without recourse except as described below, or as specifically
authorized by an officer of Dealer in regards to a specific Contract
sold to Lender. Lender will be under no obligation to purchase any
Contract from Dealer which Lender, in its sole discretion,
determines to be unacceptable. Purchase price of each Contract
acceptable to Lender shall be an amount equal to the unpaid balance
of the amount financed less Lender's finance charges thereon as
agreed upon (including but not limited to prepaid finance charges),
and less any charges stated in each Contract for any insurance
premiums. Upon purchase of a Contract from Dealer, all payments
accrued from the date of Customer's execution of the Contract shall
be paid to Lender and deemed fully earned; provided, however, such
payments shall be paid to Lender only if such Contract has been
funded within two (2) business days after the Lender has received a
complete Contract with all related supporting documents.
(a) Dealer will assign conventional contracts to Lender with
repurchase until two payments have been paid by customer to
Lender.
(b) Dealer will assign FHA Contracts to Lender with repurchase
until four payments have been paid by customer to Lender.
2. Dealer Warranties. Dealer warranties as follows: The facts presented
with each contract are true; the collateral shall be free and clear
of all liens and encumbrances except that created by such contracts,
the first and superior lien evidenced by such contracts will be
assigned to Lender; all contracts will be genuine and all things it
purports to be; Dealer has good title to the property and has the
right to transfer title; the contract is not usurious; the property
shall have been sold to Customer in a bona fide time sale
transaction; that all parties have the legal capacity to contract;
none of the parties are minors; that the documentation involved in
any contract shall be legally sufficient and enforceable; the
property shall have been properly delivered and accepted by
Customer, Dealer has fulfilled all obligations to Customer; down
payments shown on contracts will have been made in cash or its
equivalent Lender approved trade-in value and no part of the down
payment will have been directly or indirectly loaned by the Dealer
to the Customer.
Dealer agrees that in the event the Customer successfully asserts
against Lender and receives a judgment in a court of law or similar
judicial body for any claim, defense or counterclaim against payment
of any amount owing under a Contract or in defense of repossession
on the assertion, either oral or written, that the property is
defective, not as represented by Dealer, or that Dealer refuses to
honor any warranty or service agreement of Dealer or manufacturer,
then Dealer agrees to repurchase the affected Contract for an amount
equal to the sum of the unpaid balance of the amount financed under
such Contract plus accrued but unpaid finance charges plus Lender's
costs and expenses, including attorneys' fees incurred by Lender.
3. Dealer Default. The following shall constitute Dealer default:
Breach of any warranty contained herein, failure to perform any
covenants contained herein, failure to perform any other obligation
secured hereby when the same should be performed, filing of a
petition by or against Dealer under the bankruptcy or like law;
appointment of a receiver; or assignment for the benefit of
creditors. Also, the insolvency or cessation of business by Dealer,
or any surety or guarantor of Dealer's obligations, the
reorganization or merger of Dealer, the occurrence of any sale or
offer of sale by Dealer of all or a substantial part of Dealer's
assets other than in the ordinary course of business.
4. Dealer Obligation For Early Default. In the event of repossession
of Property financed with a Contract before payment of two (2)
monthly payments or before payment of four (4) bi-weekly payments on
a conventional loan by obligor under the Contract or before four (4)
monthly payments have been paid by obligor under an FHA insured
Contract, Dealer will repurchase such Contract for the unpaid
balance of the amount financed plus accrued but unpaid finance
charges plus Lender's costs and expenses, including attorneys' fees
incurred by Lender.
5. Dealer's Obligation in Event of Repossession. If an event of
default occurs under a Contract, the Dealer will, upon Lender's
request, repossess the manufactured home and at the direction of
Lender will refurbish the home. Dealer will resell the home from
Dealer's place of business for a price to be determined by the
Lender. Lender will reimburse Dealer for reasonable cost of
repossession and refurbishing the home. Lender will pay a commission
to Dealer in an amount agreed to between the parties, but in no
event shall the commission rate exceed 10% of the resale price;
provided, however, the Dealer will pay fifty percent (50%) of such
commission to the sales person selling the repossessed home. Lender
shall not be obligated to reimburse Dealer for the cost of
repossession, refurbishing or for the sales commission if the Dealer
is obligated to repurchase the Contract. If the Dealer is obligated
to repurchase the Contract and the customer defaults on the
Contract, the Dealer will pay to the Lender within thirty (30) days
of Lender's request the loan payoff amount due on the defaulted
Contract.
6. Lender Authorization to Sign. Dealer authorizes Lender or its agent
to sign and endorse Dealer's name upon checks or other forms of
payment that may come into possession of Lender. Lender is
authorized to sign Contracts, Certificates of Title, Manufacturer
Statement of Origin and other documents necessary to carry out the
intent of this Agreement. Lender may refinance, rewrite, extend,
substitute Customers, or in any other manner deal with the customers
and their contract without Dealer's consent and without affecting
Dealer's obligations under this Agreement.
Dealer agrees to cooperate in executing financing statements or other
documents necessary to enable Lender to perfect its security interest
in any such property. If Dealer fails to cooperate in executing
financing statements presented by Lender for signature, Dealer hereby
grants Lender an irrevocable power of attorney with all power to sign
all such financing statements as attorney-in-fact in Dealer's name as
debtor, if such signature is required under the applicable commercial
laws.
7. Additional Security Interest. Dealer hereby grants Lender a
security interest in any Collection Fee Income, reserve account or
other property rights established for Dealer's benefit prior to or
subsequent to the date of this Agreement, whether such reserve,
participation or other amounts earned by Dealer are considered to be
an account, general intangible or other category of tangible or
intangible personal property. Upon termination of this Agreement,
such security interest shall continue until all of Dealer's
obligations to Lender are satisfied.
8. Assignment By Lender. Lender is authorized to assign their rights
and obligations under this Agreement to others who would purchase
contracts covered by this Agreement.
9. Binding Effect. This Agreement shall be applicable to all contracts
purchased after the date of this Agreement. It shall bind the
parties and their respective heirs, successors, assigns and
affiliate companies.
10. Solicitation for Insurance. Lender has the right to sell casualty
and life insurance coverage placed on Contracts or provide
information to insurance companies for the purpose of sale or
solicitation of coverage on those customers who have not purchased
insurance through the Dealer or any affiliate of Dealer. This
provision does not prohibit Dealer from soliciting customers for
renewal of insurance coverage. Commissions received by Lender from
insurance coverage placed on Contracts (as reasonably determined by
Lender) shall be paid to Nobility 21, LLC or its successors and
assigns.
11. Payments To Employees. Lender will not pay anything of value
directly or indirectly to an employee of the Dealer without written
consent of Dealer.
IN WITNESS WHEREOF the foregoing Agreement is hereby executed and
sealed by the Parties this ____ day of_______________, 1997.
LENDER:
21st CENTURY MORTGAGE CORPORATION
By:______________________________
Richard B. Ray
Title: Secretary
DEALER:
NOBILITY HOMES, INC.
By:______________________________
Thomas W. Trexler
Title: Executive Vice President and
Chief Financial Officer
EXHIBIT 13
Nobility Homes, Inc.
Consolidated Financial Statements
November 1, 1997 and
November 2, 1996
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and
Stockholders of Nobility Homes, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Nobility Homes, Inc. and its subsidiaries at
November 1, 1997 and November 2, 1996, and the results of their operations
and their cash flows for each of the three years in the period ended
November 1, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Orlando, Florida
December 17, 1997
<PAGE>
Nobility Homes, Inc.
Consolidated Balance Sheets
November 1, 1997 and November 2, 1996
__________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,293,924 $ 2,049,184
Accounts receivable 386,019 642,626
Accounts receivable - trade, from related parties - 350,379
Inventories 8,041,471 7,820,908
Deferred income taxes - current 150,100 145,400
Prepaid expenses and other current assets 113,857 368,466
---------- ----------
Total current assets 14,985,371 11,376,963
Property, plant and equipment, net 1,285,112 1,166,429
Investment in joint venture 263,024 -
Deferred income taxes - noncurrent 697,100 707,200
Other assets 1,710,023 1,620,046
---------- ----------
Total assets $ 18,940,630 $ 14,870,638
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,592,980 $ 1,368,168
Accrued compensation 606,651 302,365
Accrued expenses and other current liabilities 1,044,186 899,743
Income taxes payable 402,979 44,106
---------- ----------
Total current liabilities 3,646,796 2,614,382
---------- ----------
Stockholder's equity:
Preferred stock, $.10 par value, 500,000 shares
authorized, none issued - -
Common stock, $.10 par value, 10,000,000 and
4,000,000 shares authorized, respectively, and
3,436,790 shares issued in 1997 and 1996 343,679 343,679
Additional paid-in capital 2,345,715 2,345,715
Retained earnings 14,284,507 11,246,929
Less treasury stock at cost, 465,836
shares in 1997 and 1996 (1,680,067) (1,680,067)
---------- ----------
Total stockholders' equity 15,293,834 12,256,256
---------- ----------
Commitments and contingent liabilities (Note 13) - -
---------- ----------
Total liabilities and stockholders' equity $ 18,940,630 $ 14,870,638
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Income
For the year ended November 1, 1997, November 2, 1996 and November 4, 1995
__________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 41,296,594 $ 35,738,608 $ 29,119,703
Net sales - related parties 399,853 716,587 1,686,132
----------- ----------- -----------
Total net sales 41,696,447 36,455,195 30,805,835
Less cost of goods sold (30,926,601) (27,159,157) (23,584,591)
----------- ----------- -----------
Gross profit 10,769,846 9,296,038 7,221,244
Selling, general and administrative
expenses (6,010,933) (5,456,774) (4,348,797)
Interest expense on floor plan
financing - - (162,752)
----------- ----------- -----------
Operating income 4,758,913 3,839,264 2,709,695
----------- ----------- -----------
Other income (expense):
Life insurance proceeds - - 1,000,000
Gain on related party installment
sale - - 348,884
Interest income 118,336 19,544 33,842
Interest expense - (62,849) (72,172)
Miscellaneous income 87,329 90,171 29,189
----------- ----------- -----------
205,665 46,866 1,339,743
----------- ----------- -----------
Income before provision for
income taxes 4,964,578 3,886,130 4,049,438
Less provision for income taxes (1,927,000) (1,491,000) (1,092,000)
----------- ----------- -----------
Net income $ 3,037,578 $ 2,395,130 $ 2,957,438
=========== =========== ===========
Weighted average share outstanding 2,970,954 2,961,970 2,882,990
Earnings per share $ 1.02 $ .81 $ 1.03
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended November 1, 1997, November 2, 1996 and November 4,
1995
__________________________________________________________________________
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance at October 29, 1994 $ 172,473 $ 1,934,921 $ 5,894,361 $ (1,520,880) $ 6,480,875
Common stock issued for
acquisition of retail
centers (23,529 shares) 2,353 197,647 - - 200,000
Treasury stock purchased
(19,600 shares) - - - (159,187) (159,187)
Stock split, three-for-two,
effective December 22, 1995 64,122 (64,122) - - -
Stock split, three-for-two,
effective July 26, 1996 96,182 (96,182) - - -
Net income - - 2,957,438 - 2,957,438
------- --------- ---------- ---------- ----------
Balance at November 4, 1995 335,130 1,972,264 8,851,799 (1,680,067) 9,479,126
Common stock issued for
acquisition of retail
center (18,000 shares) 1,800 250,200 - - 252,000
Stock options exercised
(5,000 shares at $5.00
per share and 15,000
shares at $7.00 per share) 2,000 128,000 - - 130,000
Stock split, three-for-two,
effective December 22, 1995 1,900 (1,900) - - -
Stock split, three-for-two,
effective July 26, 1996 2,849 (2,849) - - -
Net income - - 2,395,130 - 2,395,130
------- --------- ----------- ---------- ----------
Balance at November 2, 1996 343,679 2,345,715 11,246,929 (1,680,067) 12,256,256
Net income - - 3,037,578 - 3,037,578
------- --------- ---------- ---------- ----------
Balance at November 1, 1997 $ 343,679 $ 2,345,715 $ 14,284,507 $ (1,680,067) $ 15,293,834
======= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Cash Flows
For the years ended November 1, 1997, November 2, 1996 and
November 4, 1995
__________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,037,578 $ 2,395,130 $ 2,957,438
Adjustments to reconcile net income
to net cash flows provided by
operating activities:
Depreciation and amortization 174,375 144,519 114,861
Gain on related party installment sale - - (348,884)
Deferred income taxes (4,700) 7,300 945,730
Deferred income taxes - noncurrent 10,100 (12,895) (847,005)
Undistributed earnings in joint venture (13,024) - -
(Increase) decrease in:
Accounts receivable 256,607 (77,935) (165,737)
Accounts receivable - trade, from
related parties 350,379 605,658 (164,026)
Inventories (213,671) (939,776) (2,145,476)
Prepaid expenses and other current
assets 260,859 (25,654) 74,593
Increase (decrease) in:
Accounts payable 224,812 (85,655) 360,649
Accrued compensation 304,286 (173,762) 227,834
Accrued expenses and other current
liabilities 144,443 71,472 108,320
Income taxes payable 358,873 44,106 -
--------- --------- ----------
Net cash flows provided by operating
activities 4,890,917 1,952,508 1,118,297
--------- --------- ----------
Cash flows from investing activities:
Purchase of plant and equipment, net (241,758) (239,039) (163,204)
Acquisition of retail center (85,000) - -
Investment in joint venture (250,000) - -
Issuance of notes receivable - (25,778) -
Collections of notes receivable - 25,668 17,605
Collections of note receivable from
related party installment sale - - 297,584
Increase in receivable from Officer for
life insurance premiums (19,975) (19,975) (19,975)
Increase in cash surrender value of
life insurance (49,444) (47,564) (97,062)
--------- --------- ----------
Net cash flows (used in) provided
by investing activities (646,177) (306,688) 34,948
--------- --------- ----------
Cash flows from financing activities:
Decrease in floor plan financing - - (1,553,602)
Principal payments on note payable
to stockholders - - (266,666)
Additions to notes payable - cash
surrender value of life insurance - 24,929 31,459
Principal payments on notes payable - (683,997) (15,919)
Proceeds from exercise of stock options - 130,000 -
Purchase of treasury stock - - (159,187)
--------- --------- ----------
Net cash flows used in financing
activities - (529,068) (1,963,915)
--------- --------- ----------
Increase (decrease) in cash and cash
equivalents 4,244,740 1,116,752 (810,670)
Cash and cash equivalents at
beginning of year 2,049,184 932,432 1,743,102
--------- --------- ----------
Cash and cash equivalents at end of year $ 6,293,924 $ 2,049,184 $ 932,432
========= ========= ==========
Supplemental disclosure of cash flow
information:
Interest paid $ - $ 50,839 $ 183,624
========= ========= ==========
Income taxes paid $ 1,612,500 $ 1,200,000 $ 920,000
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
November 1, 1997 and November 2, 1996
__________________________________________________________________________
1. Reporting Entity and Significant Accounting Policies
OPERATIONS
The consolidated financial statements include the accounts of
Nobility Homes, Inc. ("Nobility"), its wholly-owned subsidiary,
Prestige Home Centers, Inc. ("Prestige") and Prestige's wholly-owned
subsidiary, Prestige Insurance Services, Inc., an independent
insurance agency (collectively the "Company"). The Company is
engaged in the manufacture and sale of manufactured homes to various
dealerships, including their own retail sales centers, and
manufactured housing communities throughout Florida. The Company has
two manufacturing plants located in and near Ocala, Florida.
Prestige currently operates fifteen Florida retail sales centers in
Ocala (3), Tallahassee, St. Augustine, Tampa, Chiefland (2), Lake
City, Auburndale, Jacksonville (2), Brooksville, Inverness and
Tavares.
All intercompany accounts and transactions of Nobility and its
wholly-owned subsidiary have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the first Saturday on or after
October 31. Prior to 1995, the Company's fiscal year ended on the
Saturday closest to October 31. The year ended November 1, 1997
consisted of a fifty-two week period and the years ended November 2,
1996 and November 4, 1995 consisted of a fifty-three week period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents in the accompanying
consolidated financial statements represent bank deposits and a
certificate of deposit.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost of
finished home inventories is determined on the specific
identification method. Other inventory costs are determined on a
first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated over
their estimated useful lives using the straight-line method. Routine
maintenance and repairs are charged to expense when incurred. Major
replacements and improvements are capitalized. Gains or losses are
credited or charged to earnings upon disposition.
INVESTMENT IN JOINT VENTURE
During fiscal 1997, the Company contributed $250,000 for a 50%
interest in a joint venture engaged in providing mortgage financing
on manufactured homes. This investment is accounted for under the
equity method of accounting.
OTHER ASSETS
Other assets includes Cash Surrender Value of Life Insurance,
Receivable from Officer for Life Insurance Premiums and Goodwill (see
Note 4).
REVENUE RECOGNITION
The Company recognizes revenue on the sale of a manufactured home
when title transfers to an unrelated third party. Gross profit on
sales of manufactured homes to certain related parties is deferred
until these manufactured homes are sold to unrelated third parties,
at which point the gross profit is recognized as earnings in the
accompanying consolidated financial statements.
GAIN ON RELATED PARTY INSTALLMENT SALE
Gain on related party installment sale represents gain associated
with the sale of the Company's limited partnership interest in a
manufactured housing community. The final amount recognized upon
collection of the related note receivable appears in the fiscal 1995
consolidated financial statements.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities primarily includes
customer deposits of approximately $510,000 and $451,000, other
accrued expenses of approximately $515,000 and $390,000 and deferred
gross profit on related party sales of approximately $19,000 and
$58,000, as of November 1, 1997 and November 2, 1996, respectively.
WARRANTY COSTS
Estimated costs related to product warranties are accrued as the
manufactured homes are sold and are included in accrued expenses in
the accompanying consolidated financial statements.
ADVERTISING
Advertising for Prestige retail sales centers consists primarily of
newspaper, radio and television advertising. All costs are expensed
as incurred. Advertising expense amounted to approximately $710,100,
$568,300 and $422,400 for fiscal 1997, 1996 and 1995, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes
("SFAS 109"), which utilizes an asset and liability approach. SFAS
109 requires the recognition of deferred taxes for the expected
future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
TREASURY STOCK
Treasury stock is recorded at its cost to the Company and is
presented as a reduction to stockholders' equity in the accompanying
consolidated financial statements.
EARNINGS PER SHARE
Earnings per share information was retroactively restated to give
effect to the stock splits as discussed in Note 14. Earnings per
share are computed by dividing net income by the weighted average
number of common shares outstanding during the period.
CONCENTRATION OF CREDIT RISK
The Company's customers are concentrated in the State of Florida. No
single customer accounted for over 10% of the Company's sales.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of those
instruments. The fair value of the revolving line of credit,
revolving credit agreement and floor plan financing is assumed to
approximate the recorded value because there have not been any
significant changes in market conditions or specific circumstances
since the instruments were originally recorded.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121, which was effective in fiscal 1997,
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. There was no
significant impact on the Company's consolidated financial statements
as a result of adopting this new standard. In the event that facts
and circumstances indicate that the carrying value of a long-lived
assets, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated
future undiscounted cash flows associated with the asset to the
asset's carrying amount to determine if a write down to market value
or discounted cash flow is required.
2. Acquisitions
On March 28, 1997, the Company acquired a manufactured home retail
sales center in Florida in an asset acquisition for $85,000. This
transaction was accounted for using the purchase method of
accounting. The purchased assets were recorded at the estimated fair
value at the date of acquisition. Approximately $37,000 of goodwill
was recorded for the acquisition, which is being amortized on a
straight-line basis over 15 years. The results of operations of the
acquired business has been included in the consolidated financial
statements from the date of acquisition.
3. Related Party Transactions
RECEIVABLE FROM OFFICER FOR LIFE INSURANCE PREMIUMS
The Company funds premiums for the President on two split-dollar life
insurance policies with a face value of $1,000,000. Commencing in
fiscal year 1996, the Company paid premiums for the Executive Vice
President on a split-dollar life insurance policy with a total value
of $1,200,000. These policies insure the President and the Executive
Vice President and name their respective families as beneficiary.
The cumulative premiums advanced under these arrangements amounted to
$518,535 and $498,560 at November 1, 1997 and November 2, 1996,
respectively. The advances are non-interest bearing. Net cash
surrender value of approximately $668,500 and $591,700 at November 1,
1997 and November 2, 1996, respectively, was pledged to the Company
as security for advances under this arrangement.
AFFILIATED ENTITIES
The President, Chairman of the Board of Directors and 49% stockholder
of the Company (the "President") owns 100% of the stock of TLT, Inc.
TLT, Inc. is the general partner of three limited partnerships which
are developing manufactured housing communities in Central and North
Florida (the "TLT Communities"). The President owns between a 23%
and a 100% direct and indirect interest in each of these limited
partnerships. The TLT Communities purchased manufactured homes
exclusively from the Company during fiscal 1997, 1996 and 1995.
The Company sells manufactured homes to unaffiliated customers under
various terms which require payment between 15 and 180 days from the
date of shipment. The Company charges the same sales price to both
unaffiliated customers and related party customers. As discussed in
Note 1, the Company defers gross profits on sales to TLT Communities,
a related party, until such time as the manufactured homes are sold
to a retail buyer.
The following summarizes the portion of the Company's net sales and
deferred gross profit for the years ended November 1, 1997,
November 2, 1996 and November 4, 1995 resulting from related party
transactions:
<TABLE>
<CAPTION>
1997 1996 1995
Net Deferred Net Deferred Net Deferred
Sales Profit Sales Profit Sales Profit
<S> <C> <C> <C> <C> <C> <C>
TLT, Inc. and TLT
Communities $ 399,853 $ 19,279 $ 716,587 $ 58,000 $ 1,280,109 $ 124,695
======= ====== ======= ====== ========= =======
</TABLE>
Beginning in 1990, the Company made advances to TLT, Inc. to fund
working capital needs of the TLT Communities in return for exclusive
sales rights at these communities. As of November 1, 1997 and
November 2, 1996, advances amounted to $1,919,000. These advances
are non-interest bearing and have been fully reserved since 1991. No
additional amounts have been advanced for working capital needs since
1993.
The Company provides certain accounting services for TLT, Inc. and
the TLT Communities at no charge in return for exclusive sales rights
at these communities.
The Company has a volume rebate program for all dealers which pays
rebates based upon sales volume. Volume rebates are recorded as a
reduction of sales in the accompanying financial statements. Volume
rebates for the TLT Communities amounted to approximately $8,000 in
1997, $28,000 in 1996 and $91,000 in 1995.
4. Other Assets
Other assets at November 1, 1997 and November 2, 1996 are comprised
of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash surrender value of life insurance $ 964,151 $ 914,707
Receivable from Officer for life
insurance premiums 518,535 498,560
Goodwill 227,337 206,779
--------- ---------
$ 1,710,023 $ 1,620,046
========= =========
</TABLE>
The Company owns certain life insurance policies with a total face
value of approximately $960,000. These policies insure the President
of the Company and name the Company as beneficiary. The accompanying
consolidated financial statements include the cash surrender value of
these policies as a noncurrent other asset in the amount of $964,151,
and $914,707 as of November 1, 1997 and November 2, 1996,
respectively.
The Company received $1,000,000 from the proceeds of a life insurance
policy on the former President of Prestige who died during fiscal
1995. This amount has been included as a component of other income
in the accompanying consolidated statement of income.
Goodwill represents costs in excess of the fair value of net assets
of businesses acquired and is amortized using the straight-line
method over 15 years. The Company periodically reviews goodwill to
assess recoverability. An impairment would be recognized if a
permanent decline in value were to occur.
5. Inventories
Inventories at November 1, 1997 and November 2, 1996 are summarized
as follows:
1997 1996
Raw materials $ 540,279 $ 554,255
Work-in-process 75,022 95,279
Finished homes 6,501,759 6,302,097
Pre-owned manufactured homes 340,751 311,133
Model home furniture 583,660 558,144
--------- ---------
$ 8,041,471 $ 7,820,908
========= =========
The finished homes, pre-owned manufactured homes and model home
furniture are maintained at the Prestige retail sales centers.
6. Property, Plant and Equipment
Property, plant and equipment along with their estimated useful lives
and related accumulated depreciation as of November 1, 1997 and
November 2, 1996 are summarized are follows:
<TABLE>
<CAPTION>
Range
of Lives
in Years 1997 1996
<S> <C> <C> <C>
Land - $ 286,639 $ 286,639
Land and leasehold improvements 10-20 269,291 214,133
Buildings and improvements 15-40 1,331,988 1,221,332
Machinery and equipment 3-10 492,331 477,870
Furniture and fixtures 3-10 267,564 243,325
---------- ----------
2,647,813 2,443,299
Less accumulated depreciation (1,362,701) (1,276,870)
---------- ----------
$ 1,285,112 $ 1,166,429
========== ==========
</TABLE>
Depreciation expense totaled approximately $158,200, $129,700 and
$114,900 for fiscal 1997, 1996 and 1995, respectively.
7. Income Taxes
The provision for income taxes for the years ended November 1, 1997,
November 2, 1996 and November 4, 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current tax expense:
Federal $ 1,669,600 $ 1,282,000 $ 843,000
State 252,000 215,000 150,000
--------- --------- ---------
1,921,600 1,497,000 993,000
Deferred tax expense 5,400 (6,000) 99,000
--------- --------- ---------
Provision for income taxes $ 1,927,000 $ 1,491,000 $ 1,092,000
========= ========= =========
</TABLE>
The following table shows the reconciliation between the statutory
federal income tax rate and the actual provision for income taxes for
the years ended November 1, 1997, November 2, 1996 and November 4,
1995.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Provision - federal statutory tax rate $ 1,688,000 $ 1,331,000 $ 1,328,000
Increase (decrease) resulting from:
State taxes, net of federal tax
benefit 167,000 131,000 99,000
Permanent differences:
Proceeds from officers life
insurance - - (340,000)
Other 72,000 29,000 5,000
--------- --------- ---------
Provision for income taxes $ 1,927,000 $ 1,491,000 $ 1,092,000
========= ========= =========
</TABLE>
The types of temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts that give rise
to deferred tax assets and deferred tax liabilities are as follows
(these numbers are shown net of tax):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts $ 722,000 $ 722,000
Deferred gross profit on related party sales 7,400 22,000
Accrued expenses 80,200 83,900
Reserve for warranty expense 62,500 39,500
------- -------
Total deferred tax assets 872,100 867,400
------- -------
Gross deferred tax liabilities:
Depreciation (24,900) (14,800)
------- -------
Total deferred tax liabilities (24,900) (14,800)
------- -------
Net deferred tax asset $ 847,200 $ 852,600
======= =======
</TABLE>
The Company believes that, based upon the lengthy and consistent
history of profitable operations, it is probable that the net
deferred tax assets of $847,200 at November 1, 1997 will be realized
on future tax returns, primarily from the generation of future
taxable income.
8. Financing Agreements
REVOLVING LINE OF CREDIT
On July 17, 1996, the Company entered into a revolving line of credit
agreement ("line of credit") with a bank which provides for
borrowings up to $1,500,000. The line of credit is payable on demand
and provides for monthly interest on the outstanding balance at the
30-day LIBOR rate plus 2.25% (7.94% at November 1, 1997). The line
of credit is due on demand and includes certain restrictive covenants
relating to tangible net worth, minimum levels of working capital and
acquiring new debt.
REVOLVING CREDIT AGREEMENT
The Company also maintains a revolving credit agreement (the
"Agreement") with a bank which provides for borrowings up to
$2,500,000. The Agreement expires on demand and provides for
interest at the bank prime rate less 0.5% (8.0% at November 1, 1997)
on the outstanding balance.
The outstanding balance, if any, has been netted against cash and
cash equivalents in the consolidated balance sheet due to the legal
right of offset established by a Cash Management Agreement with the
bank. The outstanding advance was repaid on the first business day
of fiscal year 1996. Interest expense under the Agreement was
approximately $0, $26,000 and $19,800 for 1997, 1996 and 1995,
respectively.
There are no commitment fees or compensating balance arrangements
associated with the line of credit or the Agreement. At November 1,
1997 there were no borrowings outstanding under either credit
facility.
FLOOR PLAN FINANCING
The Company has floor plan arrangements with certain finance
companies to finance a portion of its inventory. Amounts are
borrowed on individual manufactured homes up to the invoice price.
These loans bear interest at annual rates up to 1.50% above the prime
interest rate, with interest payable monthly, and are secured by the
related manufactured home. These loans are due at the earlier of the
sale of the manufactured home to retail customers or various terms
which range from 360 days to 540 days.
There were no amounts outstanding at November 1, 1997 or November 2,
1996. The Company incurred interest expense under these arrangements
of approximately $0 in 1997 and 1996, respectively, and $163,000 in
1995.
9. Stockholders' Equity
Authorized preferred stock may be issued in series with rights and
preferences designated by the Board of Directors at the time it
authorizes the issuance of such stock. The Company has never issued
any preferred stock.
On December 18, 1995, an investor relations consultant exercised
certain stock options granted in February 1993 to purchase 20,000
shares of common stock. The shares were purchased at an exercise
price of $5.00 per share for 5,000 shares and $7.00 per share for the
remaining 15,000 shares.
10. Stock Option Plan
In September 1996, the Company's Board of Directors adopted a stock
incentive plan (the "Plan"), approved by the Shareholders on February
28, 1997, which authorizes the issuance of options to purchase common
stock. The Plan provides for the granting of options for the
purchase of up to 300,000 shares of common stock to key employees and
non-employee directors at a price not less than 100% of the fair
market value of the underlying shares at the date of grant. The
options granted in fiscal 1996 are exercisable after one or more
years and expire no later than ten years from the date of grant or
upon termination of employment, retirement or death. The options
granted in fiscal 1997 are exercisable after one or more years and
expire no later than six years from the date of grant or upon
termination of employment, retirement or death. Options available for
future grant were 175,000 and 200,000 at November 1, 1997 and
November 2, 1996, respectively. Options were held by 30 persons at
November 1, 1997.
Information with respect to options granted at November 1, 1997 is as
follows:
<TABLE>
<CAPTION>
Stock Weighted Weighted
Option Average Stock Average
Number of Price Exercise Options Exercise
Shares Range Price Exercisable Price
<S> <C> <C> <C>
Shares under option:
Outstanding at November 4, 1995 - $ - $ - - $ -
Granted 100,000 13.25 13.25
Exercised - - -
Canceled - - -
------- ------------ ------ --------- ------
Outstanding at November 2, 1996 100,000 13.25 13.25 - -
------- ------------ ------ --------- ------
Granted 25,000 12.75 12.75
Exercised - -
Canceled - -
------- ------------ ------ ---------- ------
Outstanding at November 1, 1997 125,000 $ 12.75-$13.25 $ 13.15 20,000 $ 13.25
======= ============ ====== ========== ======
</TABLE>
The following table summarizes information about the Plan's stock
options at November 1, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of exercise prices Outstanding Life (years) Price Outstanding Price
<C> <C> <C> <C> <C> <C>
$12.75 25,000 5.8 $12.75 - -
$13.25 100,000 8.8 $13.25 20,000 $13.25
-------
125,000
=======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost
for the Company's option plans been determined based on the fair
value at the grant dates, as prescribed by SFAS 123, the Company's
net income and earnings per share would have been as follows:
1997 1996
Net income:
As reported $ 3,037,578 $ 2,395,130
Pro forma $ 2,937,508 $ 2,395,130
Earnings per share:
As reported $ 1.02 $ .81
Pro forma $ .99 $ .81
The fair value of each option is estimated on the date of grant using
the minimum value method with the following assumptions used for
grants during the applicable period: dividend yield of 0% for both
periods; risk-free interest rates of 6.41%-6.60% for options granted
during the year ended November 2, 1996 and 6.13%-6.25% for options
granted during the year ended November 1, 1997; a weighted average
expected option term of 3-5 years for both periods; and a volatility
factor of 46% for both periods.
11. Employee Benefit Plan
The Company has a defined contribution retirement plan (the "Plan")
qualifying under Section 401(k) of the Internal Revenue Code. The
Plan covers employees who have met certain service requirements. Ten
percent of employee contributions are matched at a 60% rate by the
Company. The Company contribution charged to operations was
approximately $17,900 in fiscal 1997 and $0 in fiscal 1996 and 1995,
respectively.
12. Significant Fourth Quarter Adjustment
The Company recorded an adjustment in the fourth quarter of 1995 to
defer gross profit on certain intercompany and related party sales,
primarily due to additional inventory at new retail sales centers.
The adjustment amounted to approximately $322,000 and represented a
charge to the earnings of the Company. This adjustment impacts all
quarters previously presented by the Company for fiscal 1995.
13. Commitments and Contingent Liabilities
LEASES - OPERATING
The Company leases the property for the Prestige retail sales centers
from various unrelated entities under operating lease agreements
expiring through September 1999. The Company also leases certain
equipment under operating leases. Total lease expense amounted to
approximately $414,100, $413,000 and $360,000 in fiscal 1997, 1996
and 1995, respectively.
REPURCHASE AGREEMENTS
The Company is contingently liable under terms of repurchase
agreements covering dealer floor plan financing arrangements. These
arrangements, which are customary in the industry, provide for the
repurchase of homes sold to dealers in the event of default on
payments by the dealer to the dealer's financing source. The
contingent liability under these agreements amounted to approximately
$2,097,000, $1,270,000 and $781,000 at November 1, 1997, November 2,
1996 and November 4, 1995, respectively. The risk of loss is spread
over numerous dealers and financing institutions and is further
reduced by the resale value of any homes which may be repurchased.
There were no homes repurchased in 1997, 1996 or 1995.
OTHER CONTINGENT LIABILITIES
Certain claims and suits arising in the ordinary course of business
have been filed or are pending against the Company. In the opinion
of management, any related liabilities that might arise would not
have a material adverse effect on the Company's financial position or
results of operations.
14. Stock Splits
On November 7, 1995 and July 9, 1996, the Company declared a three-
for-two stock split in the form of a stock dividend, payable on
January 31, 1996 and August 16, 1996 to stockholders of record as of
December 22, 1995 and July 26, 1996, respectively. Fiscal 1995
stockholders' equity has been restated to give retroactive
recognition to the stock splits in prior periods by reclassifying
from additional paid-in-capital to common stock the par value of the
1,650,530 shares arising from the splits. In addition, all
references in the financial statements to per share amounts of the
Company's common stock have been restated.
15. Subsequent Event
THREE-FOR-TWO STOCK SPLIT (UNAUDITED)
On January 6, 1998, the Company declared a three-for-two stock split
in the form of a stock dividend, payable on February 20, 1998 to
shareholders of record as of January 30, 1998. The information is
labeled unaudited because this transaction has not been consummated,
and the number of shares which will be issued cannot be verified.
Accordingly, no adjustments have been made to the consolidated
financial statements. The pro forma effect on weighted average
shares outstanding, earnings per share and the consolidated balance
sheets is as follows:
<TABLE>
<CAPTION>
Unaudited
1997 1996
<S> <C> <C>
Weighted average shares outstanding 2,970,954 2,961,970
Shares issued for stock split 1,485,477 1,485,477
---------- ----------
Weighted average shares outstanding,
as restated 4,456,431 4,447,447
========== ==========
Earnings per share, as restated $ .68 $ .54
========== ==========
Pro forma stockholders' equity
Common stock $ 492,227 $ 492,227
Additional paid-in-capital 2,197,167 2,197,167
Retained earnings 14,284,507 11,246,929
Treasury stock (1,680,067) (1,680,067)
---------- ----------
Total stockholders' equity $ 15,293,834 $ 12,256,256
========== ==========
</TABLE>
Exhibit 21
Subsidiaries of Registrant
Prestige Home Centers, Inc.
Prestige Insurance Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUDICIAL
STATEMENTS OF NOBILITY HOMES, INC. AS OF AND FOR THE YEAR ENDED NOVEMBER 1,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 6,293,924
<SECURITIES> 0
<RECEIVABLES> 386,019
<ALLOWANCES> 0
<INVENTORY> 8,041,471
<CURRENT-ASSETS> 14,985,371
<PP&E> 2,647,815
<DEPRECIATION> 1,362,703
<TOTAL-ASSETS> 18,940,630
<CURRENT-LIABILITIES> 3,646,796
<BONDS> 0
0
0
<COMMON> 343,679
<OTHER-SE> 14,950,155
<TOTAL-LIABILITY-AND-EQUITY> 18,940,630
<SALES> 41,696,447
<TOTAL-REVENUES> 41,696,447
<CGS> 30,926,601
<TOTAL-COSTS> 6,010,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,964,578
<INCOME-TAX> 1,927,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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