<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For period ended December 26, 1993
or
/ / - Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-19292
PATTEN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5295 Town Center Road, Boca Raton, Florida 33486
(Address of principal executive offices) (Zip Code)
</TABLE>
(407) 391-6336
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 23, 1994, there were 17,785,017 shares of Common Stock, $.01
par value per share, outstanding.
<PAGE> 2
PATTEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION (1)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS AT
DECEMBER 26, 1993 AND MARCH 28, 1993 . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED DECEMBER 26, 1993 AND DECEMBER 27, 1992 . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF OPERATIONS - NINE MONTHS
ENDED DECEMBER 26, 1993 AND DECEMBER 27, 1992 . . . . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED DECEMBER 26, 1993 AND DECEMBER 27, 1992 . . . . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . 22
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
(1) With the exception of the Consolidated Balance Sheet at March 28, 1993,
which is audited, the accompanying interim Consolidated Financial Statements
are unaudited but include all adjustments consisting only of normal recurring
accruals and provisions for losses and write-downs which management considers
necessary to present fairly the consolidated financial position of the Company
as of December 26, 1993, the consolidated results of operations for the three
and nine months ended December 26, 1993 and December 27, 1992 and the
consolidated cash flows for the nine months ended December 26, 1993 and
December 27, 1992.
The interim financial information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 28, 1993.
2.
<PAGE> 3
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 26, MARCH 28,
ASSETS 1993 1993
------------ ---------
<S> <C> <C>
Cash and cash equivalents (including restricted cash of
approximately $6.3 million and $5.6 million at December 26,
1993 and March 28, 1993, respectively) . . . . . . . . . . . $ 7,516,667 $ 10,113,748
Contracts receivable, net. . . . . . . . . . . . . . . . . . . 7,870,816 8,699,969
Notes receivable, net. . . . . . . . . . . . . . . . . . . . . 41,429,499 32,771,795
Investment in securities. . . . . . . . . . . . . . . . . . . . 25,716,241 32,031,308
Inventory, net. . . . . . . . . . . . . . . . . . . . . . . . . 42,880,161 31,125,859
Property and equipment, net. . . . . . . . . . . . . . . . . . 3,673,004 3,914,226
Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . 1,728,361 1,289,285
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 4,848,918 2,907,227
------------ -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $135,663,667 $ 122,853,417
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . $ 1,757,012 $ 1,854,023
Accrued liabilities and other. . . . . . . . . . . . . . . . . 8,694,243 11,998,781
Line of credit and notes payable. . . . . . . . . . . . . . . . 13,854,417 14,436,535
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 2,960,081 791,181
Mortgage-backed notes payable. . . . . . . . . . . . . . . . . 23,218,683 12,165,878
Commitments and contingencies. . . . . . . . . . . . . . . . . --- ---
8.25% convertible subordinated debentures. . . . . . . . . . . 34,739,000 34,739,000
------------ -------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 85,223,436 75,985,398
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued. . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Common stock, $.01 par value, 90,000,000 shares authorized;
17,785,017 and 17,083,001 shares outstanding at
December 26, 1993 and March 28, 1993, respectively. . . . . 177,850 170,830
Capital-in-excess of par value. . . . . . . . . . . . . . . . . 61,078,095 59,172,395
Retained earnings (deficit). . . . . . . . . . . . . . . . . . (10,815,714) (12,475,206)
------------ -------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . 50,440,231 46,868,019
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . $135,663,667 $ 122,853,417
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
----------- -----------
<S> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . . . . . . . $14,203,746 $ 12,571,707
Interest income and other . . . . . . . . . . . . . . . . 2,141,100 2,038,696
----------- ------------
16,344,846 14,610,403
COST AND EXPENSES:
Cost of real estate sold . . . . . . . . . . . . . . . . 7,201,356 6,821,342
Selling, general and administrative expense . . . . . . . 6,109,696 5,651,479
Interest expense . . . . . . . . . . . . . . . . . . . . 1,756,211 1,365,194
Provisions for losses and write-downs . . . . . . . . . . 80,000 1,350,000
----------- ------------
15,147,263 15,188,015
----------- ------------
Income (loss) from operations . . . . . . . . . . . . . . . 1,197,583 (577,612)
Other income . . . . . . . . . . . . . . . . . . . . . . . 205,245 1,235,206
----------- ------------
Income before income taxes. . . . . . . . . . . . . . . . . 1,402,828 657,594
Provision (benefit) for income taxes. . . . . . . . . . . . 533,075 (206,233)
----------- ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 869,753 $ 863,827
=========== ============
INCOME PER COMMON SHARE - PRIMARY AND
FULLY DILUTED:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .05 $ .05
=========== ============
Weighted average number of common and common
equivalent shares used to calculate primary and fully
diluted net income per common share . . . . . . . . . . 18,958,777 18,347,681
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
------------ ------------
<S> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . . . . . . $ 45,319,730 $ 41,267,018
Interest income and other . . . . . . . . . . . . . . 5,848,531 8,684,782
------------ ------------
51,168,261 49,951,800
COST AND EXPENSES:
Cost of real estate sold . . . . . . . . . . . . . . . 21,930,211 22,657,176
Selling, general and administrative expense . . . . . 18,913,029 16,926,167
Interest expense . . . . . . . . . . . . . . . . . . . 5,256,257 5,905,341
Provisions for losses and write-downs . . . . . . . . 495,000 1,450,000
------------ ------------
46,594,497 46,938,684
------------ ------------
Income from operations . . . . . . . . . . . . . . . . . 4,573,764 3,013,116
Other income . . . . . . . . . . . . . . . . . . . . . . 1,133,868 1,407,376
------------ ------------
Income before income taxes . . . . . . . . . . . . . . . 5,707,632 4,420,492
Provision for income taxes . . . . . . . . . . . . . . . 2,168,900 1,537,087
------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 3,538,732 $ 2,883,405
============ ============
INCOME PER COMMON SHARE - PRIMARY AND
FULLY DILUTED:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ .19 $ .16
============ ============
Weighted average number of common and common
equivalent shares used to calculate primary and fully
diluted net income per common share . . . . . . . . . 18,689,583 18,291,521
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5.
<PAGE> 6
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Cash received from customers including cash
collected as servicer of notes receivable
to be remitted to investors . . . . . . . . . . . . . . . $35,795,350 $ 30,069,072
Interest received . . . . . . . . . . . . . . . . . . . . 3,835,963 6,103,040
Cash paid for land acquisitions and real estate
development . . . . . . . . . . . . . . . . . . . . . . . (20,383,843) (10,224,505)
Cash paid to suppliers, employees and sales
representatives . . . . . . . . . . . . . . . . . . . . . (20,505,249) (19,266,898)
Interest paid . . . . . . . . . . . . . . . . . . . . . . (4,994,723) (6,971,444)
Net income taxes (paid)/recovered . . . . . . . . . . . . (2,140,603) 135,579
Proceeds from sales of notes receivable . . . . . . . . . --- 49,535
Proceeds from legal settlements . . . . . . . . . . . . . 797,015 ---
Proceeds from amortization of other receivables . . . . . . --- 684,549
Proceeds from borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . . . . . 15,473,364 7,070,334
Proceeds from sale of Class A REMIC Certificates,
net of transaction costs and amount paid to
repurchase notes receivable . . . . . . . . . . . . . . . --- 64,518,404
Proceeds from sale of Class B REMIC Certificates 8,352,973 ---
Payments on borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . . . . . (4,420,559) (60,109,022)
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . 11,809,688 12,058,644
------------ -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment . . . . . . . . . . . . . . . . . (484,311) 389,543
Additions to other long-term assets . . . . . . . . . . . (801,770) (172,829)
------------ --------------
NET CASH FLOW PROVIDED/(USED) BY INVESTING ACTIVITIES . . . . (1,286,081) 216,714
------------ --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility . . . . . . . . . 1,002,152 ---
Payments under line of credit facility . . . . . . . . . . (583,478) (2,070,926)
Payments under repurchase agreement . . . . . . . . . . . (6,500,000) ---
Borrowings under short-term secured debt facility . . . . . 6,500,000 ---
Payments under short-term secured debt facility . . . . . . (6,500,000) ---
Payments on other long-term debt . . . . . . . . . . . . . (7,072,842) (18,423,477)
Proceeds from exercise of employee stock options. . . . . . 34,456 ---
Payment for dividends in lieu of fractional shares. . . . . (976) ---
------------ -------------
NET CASH FLOW USED BY FINANCING ACTIVITIES . . . . . . . . . (13,120,688) (20,494,403)
------------ -------------
Net decrease in cash and cash equivalents . . . . . . . . . . (2,597,081) (8,219,045)
Cash and cash equivalents at beginning of period . . . . . . 10,113,748 15,863,514
------------ --------------
Cash and cash equivalents at end of period . . . . . . . . . 7,516,667 7,644,469
Restricted cash and cash equivalents at end of period . . . . 6,297,051 5,302,368
------------ --------------
Unrestricted cash and cash equivalents at end of period . . . $ 1,219,616 2,342,101
============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,538,732 $ 2,883,405
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,277,856 1,307,609
(Gain)/loss on sale of property and equipment . . . . . . (173,901) 415,330
Provision for losses and write-downs . . . . . . . . . . 495,000 1,450,000
Loss on sale of Class B REMIC Certificates . . . . . . . 238,395 ---
Proceeds from borrowings collateralized
by notes receivable net of principal repayments . . . . 11,052,805 (53,598,128)
(INCREASE) DECREASE IN ASSETS:
Contracts receivable . . . . . . . . . . . . . . . . . . . 829,153 (1,636,278)
Investment in securities . . . . . . . . . . . . . . . . . 6,076,672 (1,829,006)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 1,586,832 11,173,578
Other assets . . . . . . . . . . . . . . . . . . . . . . . (1,947,780) (603,710)
Notes receivable . . . . . . . . . . . . . . . . . . . . . (9,931,427) 53,540,806
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities and other . . . . (3,401,549) (2,599,414)
Deferred income taxes . . . . . . . . . . . . . . . . . . . 2,168,900 1,554,452
------------ -----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . $ 11,809,688 $12,058,644
============ ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES
Inventory acquired through financing . . . . . . . . . . . $ 12,520,984 $ 7,291,013
============ ===========
Inventory acquired through foreclosure,
"insubstance foreclosure" or
deedback in lieu of foreclosure . . . . . . . . . . . . . $ 820,151 $ 2,711,627
============ ===========
Revolving line of credit fee added to
mortgage-backed indebtedness . . . . . . . . . . . . . . . $ --- $ 500,000
============ ===========
Investment in securities . . . . . . . . . . . . . . . . . $ --- $15,836,662
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7.
<PAGE> 8
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. RESULTS OF OPERATIONS
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting only of normal recurring accruals and provisions for loan losses and
write-downs which, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. In addition, a
non-recurring gain of approximately $797,000 attributable to the settlement of
certain litigation is included in other income in the consolidated statement of
operations for the nine months ended December 26, 1993. Other income for the
three and nine month periods ended December 27, 1992 includes the recognition of
a previously deferred gain in the amount of $1.3 million associated with the
prior sale of the Company's interest in a joint venture. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
results of operations for the three and nine month periods ended December 26,
1993 are not necessarily indicative of the results to be expected for the entire
year.
2. CONTINGENT LIABILITIES
The Company and its subsidiaries have sold notes receivable, which were
originated through property sales, to banks and other institutional investors.
In the event of default by an obligor of a note receivable, the Company and its
subsidiary that sold the note would have direct responsibility, subject to
limitations in certain cases, for satisfying any outstanding balance. In each
case, a security interest in the property securing the note is maintained and
the Company may repossess the property to satisfy the note.
At December 26, 1993, the Company was contingently liable for notes receivable
sold aggregating $4.9 million. The principal balance of such loans more than
30 days past due totaled $33,966 or 0.7% delinquency. In most cases, the
recourse of the buyer of the loans to the Company terminates when a customer
achieves 30% equity in the property underlying the loan, based on the original
purchase price. At such time, the Company will no longer be contingently
liable.
3. PROVISION FOR LOSSES
Provisions for losses on notes receivable and real estate held for sale
are charged to operations when it is determined that the investment in such
assets is impaired. Management reviews property held for sale, including real
estate reacquired through foreclosure or deed in lieu of foreclosure, on a
regular basis and considers such factors as economic conditions in the area
where the parcel is located, recent selling prices of comparable parcels and
estimated costs to dispose of the parcel in determining any required provisions
for losses. The Company recorded a provision of $1.15 million for the
write-down of inventory to estimated net realizable value during the nine months
ended December 27, 1992 on property located predominately in the Northeast. No
provision for the write-down of inventory was required for the nine months ended
December 26, 1993.
The Company recorded provisions for loan losses totaling $495,000 and $300,000
for the nine months ended December 26, 1993 and December 27, 1992,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a further discussion of the provisions for loan
losses and the write-down of inventory.
8.
<PAGE> 9
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
4. INVENTORY
The Company's inventory holdings are summarized below by product type.
<TABLE>
<CAPTION>
DECEMBER 26, 1993 MARCH 28, 1993
----------------- --------------
<S> <C> <C>
LAND . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,656,955 $ 28,085,361
MANUFACTURED/MODULAR HOMESITES (INCLUDING
MANUFACTURED/MODULAR HOME COSTS OF $495,000 AND
$0 AT DECEMBER 26, 1993 AND MARCH 28, 1993,
RESPECTIVELY). . . . . . . . . . . . . . . . . . . . 5,129,236 3,040,498
TIMESHARE PROPERTY . . . . . . . . . . . . . . . . . . 2,093,970 ---
------------- -------------
$ 42,880,161 $ 31,125,859
============= =============
</TABLE>
5. SALE OF REMIC CERTIFICATES
The Company's wholly-owned subsidiary, Patten Receivables Finance Corporation
VIII ("PRFC VIII") sold its Adjustable Rate REMIC Mortgage Pass-Through
Certificates, Class B, Series 1992-1 for $8.4 million which was received on
July 2, 1993. The loss on the sale of securities approximated $238,000 and is
included as a reduction to interest income and other in the consolidated
statement of operations for the nine months ended December 26, 1993. The Class
B REMIC Certificates along with the Class C and R REMIC Certificates were
originally retained by PRFC VIII in connection with the REMIC transaction
completed in July, 1992 in which PRFC VIII sold $74.7 million of Adjustable
Rate REMIC Mortgage Pass-Through Certificates, Class A, through a private
placement.
6. STOCK DIVIDEND
On August 16, 1993, the Company paid a 4% stock dividend to shareholders of
record at the close of business on July 19, 1993 which represented the issuance
of an additional 683,005 common shares. Because fractional shares were not
issued, the Company also paid approximately $1,000 in the aggregate, to certain
shareholders in lieu of fractional shares of stock. The weighted average
number of common and common equivalent shares used to calculate primary and
fully diluted net income per common share has been adjusted in the consolidated
statement of operations to give effect to the stock dividend, including
retroactive restatement of the net income per common share amounts for the
three and nine months ended December 27, 1992.
9.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES.
Sources of Capital. The Company's capital resources are provided from both
internal and external sources. The Company's primary capital resources from
internal operations include down payments on real estate sales which are
financed, cash sales of real estate, principal and interest payments on the
purchase money mortgage loans ("Receivables") arising from real estate sales
and proceeds from the sale of, or borrowings collateralized by, Receivables.
External sources of liquidity have historically included borrowings under
secured and unsecured lines of credit, seller and bank financing of inventory
acquisitions and the issuance of debt and equity securities. Currently, the
primary external sources of liquidity include seller and bank financing of
inventory acquisitions and development. The Company anticipates that it will
continue to require external sources of liquidity to support its operations.
Net cash provided by the Company's operations was $11.8 million for the nine
months ended December 26, 1993 and $12.1 million for the nine months ended
December 27, 1992. The slight decrease in cash flow provided by operations was
primarily attributable to increased levels of spending for land acquisitions,
land development and income taxes, which were offset by increased cash
collections from customers and proceeds from the sale of the Class B REMIC
Certificates. Cash flows from the pledge of Receivables under credit
facilities, net of repayments under such facilities, together with proceeds
from the sale of senior class instruments through a REMIC transaction generated
only slightly more in proceeds for the prior period versus the comparable
period of the current year.
During the nine months ended December 26, 1993 and December 27, 1992, the
Company received in cash $29.6 million or 64% and $22.6 million or 57%,
respectively, of its sales of real estate that closed during these periods.
The increase in the percentage of cash received is attributable in part, to the
Company's program directed at obtaining increased down payments on financed
sales of real estate as well as encouraging cash sales through the structure of
its compensation program for certain regional office personnel. In addition,
the Company has relied more heavily on its relationships with local banks in
certain regions to finance its sales to customers during the current fiscal
period.
Receivables arising from real estate sales generally are transferred to the
Company's wholly-owned, special purpose finance subsidiaries (the "Receivable
Subsidiaries") and then sold or pledged to institutional lenders. The
Receivable Subsidiaries are generally advanced between 75% and 90% of the face
amount of the mortgage notes by lenders. The Company has also directly sold
Receivables to banks or other institutional investors. The Company is subject
to certain obligations and has certain contingent liabilities with respect to
the Receivables sold. See Note 2 to the Consolidated Financial Statements
included under Item 1, Part I. During the nine months ended December 26, 1993
and December 27, 1992, the Company raised $23.8 million and $81.8 million,
respectively, from the pledge and sale of Receivables. Included in the $81.8
million for the nine months ended December 27, 1992 is $74.7 million which
represents gross proceeds from the sale of senior class instruments from a
REMIC transaction completed in July, 1992.
The Company has a revolving credit facility of $20.0 million secured by
Receivables with a financial institution. Under the terms of this facility, the
Company is advanced proceeds equal to 90% of the outstanding principal balance
of the pledged Receivables. In the event that pledged Receivables become more
than 90 days delinquent, the Company is obligated to repurchase the Receivable
or substitute a performing Receivable. Aggregate repurchases and substitutions
have not been material. The interest rate charged under the facility is prime
plus 2.0%. At December 26, 1993, the outstanding principal balance under the
facility was $11.3 million. Accordingly, the Company has the ability to
borrow up to an additional $8.7 million secured by up to $9.7 million of
Receivables. The principal and interest payments received from the pledged
Receivables are applied to the principal and interest due under this facility.
Management is currently engaged in discussions to renew the revolver which
expires in June, 1994. The indebtedness matures ten years from the date of
the last advance.
10.
<PAGE> 11
The Company has a credit facility with another financial institution to receive
aggregate advances up to $25.0 million secured by Receivables. Under the terms
of this facility, the Company is advanced proceeds equal to 75% of the
outstanding principal balance of the pledged Receivables. In the event that
pledged Receivables become more than 60 days delinquent, the Company is
obligated to repurchase the Receivable or substitute a performing Receivable.
Aggregate repurchases and substitutions have not been material. The interest
rate charged under the facility is 1.75% plus the greater of the prime rate or
commercial paper rate as published in the Wall Street Journal. At December 26,
1993, the outstanding principal balance under this facility was $7.2 million
and the Company had received $8.7 million in aggregate advances from the pledge
of Receivables. The Company has the ability to borrow up to an additional
$16.3 million secured by up to $21.7 million of Receivables. The principal and
interest payments received on the pledged Receivables are applied to the
principal and interest due under this facility. The ability to receive
advances expires in June, 1995. The indebtedness matures in June, 1998.
The Company has a $10 million credit facility with another financial
institution secured by Receivables and inventory. Under the terms of this
facility, the Company was advanced a one-time, initial funding of $850,000
collateralized by $1.7 million of certain, specifically identified Receivables.
The Company is entitled to additional advances equal to 80% of the outstanding
principal balance of future pledged Receivables and advances of up to $3
million secured by inventory to fund the acquisition and development of real
estate. At December 26, 1993, the aggregate outstanding principal balance
under this facility was $5.4 million. Accordingly, the Company has the ability
to borrow up to an additional $4.6 million secured by Receivables and
inventory. The principal and interest payments received from the pledged
Receivables are applied to the principal and interest due under borrowings
secured by Receivables. In addition, 55% of the contract price of land sales
associated with pledged inventory are applied to the principal and interest due
under borrowings secured by inventory. The facility expires in October, 1998.
In addition, the Company is finalizing the terms of a new credit facility with
an existing lender to fund the development costs of its first timeshare project
as well as the subsequent pledge of Receivables arising from timeshare sales.
See further discussion of the Company's timeshare operations under "Uses of
Capital" below.
During the nine months ended December 26, 1993 and December 27, 1992, the
Company financed $12.5 million or 38% and $7.3 million or 42%, respectively, of
its property inventory, including acquisition and development costs.
In addition to the sources of capital available under credit facilities
totaling $29.6 million as discussed above, the balance of the Company's
unrestricted cash and cash equivalents was $1.8 million at January 23, 1994 and
$1.2 million at December 26, 1993. Based upon credit relationships, the
current financial condition of the Company and its operating plan, management
believes the Company has adequate financial resources to satisfy its capital
requirements.
Uses of Capital. The Company's capital resources, both internal and external,
are used to support the Company's operations, including the acquisition and
development of real estate, financing customer purchases, meeting operating
expenses and satisfying the Company's debt obligations.
The Company's net inventory was $42.9 million at December 26, 1993 and $31.1
million at March 28, 1993. The Company attempts to maintain inventory at a
level adequate to support anticipated sales of real estate. In this
connection, inventory levels in the Midwest, Southwest and West have increased
to accommodate expanded sales efforts. The Company intends to continue to
decrease its inventory levels in the Northeast.
With respect to inventory owned as of December 26, 1993, the Company requires
capital to (1) improve land intended for primary homesite or other leisure use
by purchasers, (2) fund its manufactured housing program in select sites, and
(3) develop timeshare property.
Land Costs to improve land typically include expenditures for road
construction, surveys and engineering fees.
11.
<PAGE> 12
Manufactured Homes The Company entered into a dealer agreement with a
national builder of manufactured homes. Under the agreement, the Company
purchases the unit from the builder (utilizing external sources of capital
from a financial institution), when a purchase and sale agreement is executed
between the Company and a customer. Proceeds received at closing are used to
repay the debt obligation to the financial institution. The Company also
expends capital on other infrastructure costs, including road construction,
surveys and engineering fees.
Timeshare Property In November, 1993 the Company purchased property in
Gatlinburg, Tennessee for the site of its first timeshare project. The project
is anticipated to include approximately 150 units. The destination-oriented
project is in close proximity to various attractions including the Smokey
Mountain National Park System. The amenities of the project are intended to
include an exercise/fitness center, pool and certain other recreational
facilities. Units will be sold prior to the completion of construction. The
Company is finalizing the terms of a new credit facility with an existing
lender for development costs of the project as well as the subsequent pledge of
Receivables arising from sales. The units will be sold over an anticipated five
year term commencing in April, 1994.
The following table sets forth the estimated funds required to complete
preparation for the retail sale of inventory owned as of December 26, 1993, by
geographic region and product type. The estimated spending attributable to
land holdings includes all development costs to complete properties for retail
sale. With respect to the Company's manufactured/modular home operations,
estimated funding needs include costs to complete all land development as well
as costs required to finish those housing units on which construction has
commenced. Projected spending on timeshare property represents funds required
to complete Phase I, which is comprised of 18 units as well as certain
infrastructure and amenities which will also serve subsequent phases of the
development.
<TABLE>
<CAPTION>
MANUFACTURED/
MODULAR HOMES TIMESHARE
GEOGRAPHIC REGION LAND INCLUDING SITES PROPERTY
----------------- ---- --------------- -------------
<S> <C> <C> <C>
Northeast . . . . . . . . . . $ 742,853 $ --- $ ---
Mid-Atlantic . . . . . . . . 534,287 --- ---
Southeast . . . . . . . . . . 1,906,903 2,932,682 ---
Midwest . . . . . . . . . . . 3,756,622 --- 3,107,000
Southwest . . . . . . . . . . 9,542,600 --- ---
West . . . . . . . . . . . . 630,981 390,631 ---
Canada . . . . . . . . . . . 11,944 --- ---
------------ ------------- -------------
Totals . . . . . . . . . . . $ 17,126,190 $ 3,323,313 $ 3,107,000
============ ============= =============
</TABLE>
12.
<PAGE> 13
The following tables set forth as of December 26, 1993 and March 28, 1993,
property, net of valuation reserves, owned by the Company classified by major
geographic area and intended use.
<TABLE>
<CAPTION>
DECEMBER 26, 1993
---------------------------------------------------------------------
MANUFACTURED/MODULAR
---------------------- TIMESHARE
GEOGRAPHIC REGION LAND HOMESITES HOMES PROPERTY
----------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
Northeast . . . . . . . . . . $ 4,933,165 $ --- $ --- $ ---
Mid-Atlantic . . . . . . . . 5,767,923 --- --- ---
Southeast . . . . . . . . . . 7,106,965 4,223,390 312,608 ---
Midwest . . . . . . . . . . . 5,724,521 --- --- 2,093,970
Southwest . . . . . . . . . . 6,578,287 --- --- ---
West . . . . . . . . . . . . 5,152,946 411,153 182,085 ---
Canada . . . . . . . . . . . 393,148 --- --- ---
------------ ---------- -------- -------------
Totals . . . . . . . . . . . $ 33,656,955 $4,634,543 $494,693 $ 2,093,970
============ ========== ======== =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1993
----------------------------------------
MANUFACTURED/
MODULAR
GEOGRAPHIC REGION LAND HOMESITES
----------------- ----------- -------------
<S> <C> <C>
Northeast . . . . . . . . . . $ 5,704,551 $ ---
Mid-Atlantic . . . . . . . . 4,726,845 ---
Southeast . . . . . . . . . . 7,808,486 3,040,498
Midwest . . . . . . . . . . . 2,140,237 ---
Southwest . . . . . . . . . . 3,602,591 ---
West . . . . . . . . . . . . 3,654,255 ---
Canada . . . . . . . . . . . 448,396 ---
----------- -------------
Totals . . . . . . . . . . . $28,085,361 $ 3,040,498
=========== =============
</TABLE>
The Company maintains inventory valuation reserves on a property-by-property
basis which serve as contra assets against the historical cost of such parcels.
The Company's inventory valuation reserve specifically includes the following
components: (a) the difference between the historical cost and expected
selling price of the inventory and (b) the costs associated with carrying the
inventory. As parcels are sold, inventory is relieved from the balance sheet
and a charge to cost of sales is recorded in the statement of operations at
historical amounts. In addition, reserves are released and credited against
cost of real estate sold and selling, general and administrative expense
("S,G&A" expense). During the nine months ended December 26, 1993, $720,594
and $959,536 of the Company's inventory reserves were released as credits to
cost of real estate sold and S,G&A expense, respectively, while during the nine
months ended December 27, 1992, $4,180,531 and $1,259,093 of the Company's
inventory reserves were released as credits to cost of real estate sold and
S,G&A expense, respectively.
The Company offers financing of up to 90% of the purchase price of real estate
sold to all purchasers of its properties who qualify for such financing.
During the nine months ended December 26, 1993 and December 27, 1992, the
Company received 36% and 43%, respectively, of its aggregate sales of real
estate which closed during the period in the form of mortgage notes receivable.
At December 26, 1993, $30.5 million of Receivables were pledged as collateral
to secure financings of the Company's Receivable Subsidiaries or other Company
indebtedness while $11.6 million were not pledged or encumbered. At March 28,
1993, $13.9 million of Receivables were pledged as collateral to secure
financings of the Company's Receivable Subsidiaries or other Company
indebtedness while $19.5 million were not pledged or encumbered.
13.
<PAGE> 14
At December 26, 1993, 2.8% or $1.2 million of the aggregate $42.1 million
principal amount of Company-originated loans which were held by the Company
were more than 30 days past due. At March 28, 1993, 5.5% or $1.8 million of the
aggregate $33.4 million principal amount of Company-originated loans which were
held by the Company were more than 30 days past due. The reduction in
delinquency on Company-held loans is the direct result of an expanded
collection effort by mortgage servicing personnel and enhanced credit
underwriting procedures implemented by management during fiscal 1992 and 1993.
In the case of default by a customer on a mortgage note, the Company may
forgive the unpaid balance in exchange for title to the parcel securing such
note. If the Company is unable to obtain a deed in lieu of foreclosure, the
Company forecloses on the mortgage securing such note. Real estate acquired
through foreclosure or deed in lieu of foreclosure is recorded at the lower of
estimated net realizable value or the balance of the loan. Related costs
incurred to reacquire, carry and dispose of the property are capitalized to the
extent deemed recoverable.
The Company recorded loan loss provisions of $495,000 and $300,000 for the nine
months ended December 26, 1993 and December 27, 1992, respectively. The
adequacy of the Company's reserve for loan losses is determined by management
and reviewed on a regular basis, considering historical frequency of default,
loss experience and present and expected economic conditions. Net loan charge-
offs and the quality of Receivables, as evidenced by non-accrual loans, are
among the factors reviewed. The increase in provisions for loan losses
recorded in the current nine month period was primarily attributable to the
determination made by management that the estimated fair value of property
securing certain troubled loans was less than the outstanding balance of the
loans.
The following table outlines the Receivables held by the Company and the
reserve for loan losses at the dates indicated. The reserve for loan losses as
a percentage of Receivables has decreased in response to reduced delinquencies
and improved performance of the portfolio.
<TABLE>
<CAPTION>
DECEMBER 26, MARCH 28, MARCH 29, MARCH 31,
1993 1993 1992 1991
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Receivables................... $ 42,105,686 $ 33,415,872 $ 104,865,965 $ 109,726,685
Reserve for loan losses ...... 676,187 644,077 2,173,425 2,804,133
Reserve as percentage of
Receivables................. 1.61% 1.93% 2.07% 2.56%
</TABLE>
RESULTS OF OPERATIONS.
The real estate market is cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence
and interest rates. Based upon the increase in the level of sales of real
estate, management believes that general economic conditions are improving in
many of its principal markets of operations. However, the real estate markets
in the Northeast and Canada continue to remain depressed and the Company has
experienced reduced levels of sales in the Mid-Atlantic region.
Comparison of Three Months Ended December 26, 1993 and December 27, 1992.
Sales of real estate increased 13.0% to $14.2 million for the three months
ended December 26, 1993 compared to $12.6 million for the three months ended
December 27, 1992.
14.
<PAGE> 15
The following table sets forth certain information regarding sales of parcels
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
------------ ------------
<S> <C> <C>
Number of parcels sold (1) . . . . . . . . . 559 652
Average sales price per parcel (1). . . . . . $ 25,675 $ 18,027
Gross margins on sales of real estate . . . . 49% 46%
Percentage of closed sales financed
by the Company (2) . . . . . . . . . . . . 35% 42%
</TABLE>
(1) Includes sales of real estate deferred under the percentage of completion
method of accounting. The average sales price per parcel, net of the
effects of deferred sales, was $24,403 and $19,311 for the three months
ended December 26, 1993 and December 27, 1992, respectively. See table to
follow outlining number of parcels sold by geographic region.
(2) Computed by dividing the aggregate dollar amount of financed sales of real
estate that closed during the period by the aggregate dollar amount of
total closed sales for the period. Since fiscal 1992, the Company has
encouraged increased cash sales of real estate and increased down
payments by customers in cases where Company financing is used.
The Company's compensation for regional office personnel is
structured to encourage such a program. Management believes this strategy
has led to improved quality of its Receivables.
The improvement in the Company's gross margins for the three months ended
December 26, 1993 is attributable to a greater percentage of real estate sales
being generated outside of the Northeast where higher profit margins are
realized. The acquisition of inventory is subject to the prior approval of
the Company's investment committee. Since May, 1990, the Company has realized
gross margins of approximately 57% on such approved acquisitions. However, the
sale of certain inventory acquired prior to the formation of the investment
committee or sales of inventory reacquired through foreclosure or deed in lieu
of foreclosure will continue to adversely affect overall gross margins.
Specifically, the Company anticipates little or no gross margins on the sale
of the remaining $4.9 million of net inventory holdings in the Northeast and
$393,000 of net inventory holdings in Ontario, Canada.
15.
<PAGE> 16
The table set forth below outlines sales by geographic region for the three
months ended on the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
DECEMBER 26, 1993 DECEMBER 27, 1992
----------------- -----------------
GEOGRAPHIC REGION AMOUNT % AMOUNT %
----------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Northeast . . . . . . $ 455,250 3.2 % $ 508,539 4.0 %
Mid-Atlantic . . . . 1,878,320 13.2 2,445,120 19.5
Southeast . . . . . . 2,799,543 19.7 1,746,617 13.9
Midwest . . . . . . . 2,402,677 16.9 1,448,049 11.5
Southwest . . . . . . 4,200,303 29.6 4,260,774 33.9
West . . . . . . . . 2,396,410 16.9 2,162,608 17.2
Ontario, Canada . . . 71,243 0.5 --- ---
----------- ----- ------------ -----
Totals . . . . . . . $14,203,746 100.0 % $ 12,571,707 100.0 %
=========== ===== ============ =====
</TABLE>
The table set forth below outlines the numbers of parcels sold and the
average sales price per parcel by geographic region for the three months ended
on the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
DECEMBER 26, 1993 DECEMBER 27, 1992
----------------- -----------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1)
----------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Northeast . . . . . . 26 $ 17,510 45 $ 11,404
Mid-Atlantic . . . . 95 19,059 138 18,926
Southeast . . . . . . 92 24,997 150 11,644
Midwest . . . . . . . 92 26,541 50 20,033
Southwest . . . . . . 184 26,556 155 24,024
West . . . . . . . . 64 37,272 114 18,970
Ontario, Canada . . . 6 11,874 --- ---
--- -------- --- --------
Totals . . . . . . . 559 $ 25,675 652 $ 18,027
=== ===
</TABLE>
(1) Includes sales of real estate deferred under the percentage of completion
method of accounting.
The reduction in parcels sold in the Northeast geographic region
(comprised of New York, New Hampshire, Maine, Vermont, Connecticut and
Massachusetts) resulted in part from the effects of the continuing soft economy
in that region and in part from the Company's ongoing effort to de-emphasize
its operations in the Northeast in favor of a broader geographic distribution.
The Company intends to continue to reduce inventory in the Northeast while
increasing inventory in geographic areas with more stimulated real estate
market conditions. Specifically, the Company has experienced significant
increases in parcels sold in the Midwest and Southwest and intends to continue
expansion in these areas subject to changing market conditions. The reduction
in sales of parcels sold in the Mid-Atlantic geographic region resulted from
decreased demand for certain properties in this market.
The substantial increase in the average sales price per parcel from
December 27, 1992 to December 26, 1993 in the Southeast was attributable, in
large part, to the implementation of a revised marketing program directed at
military personnel stationed at a defense site targeted for expansion by the
Federal government. Prior to its revised marketing strategy, the Company had
sold parcels at significantly reduced prices. The increase in the average
sales price per parcel from December 27, 1992 to December 26, 1993 in the West
was attributable to a shift in the location of property offered for sale to
more resort oriented destinations which support greater land values.
16.
<PAGE> 17
Interest income increased 5% to $2.1 million for the third quarter of fiscal
1994 compared to $2.0 million for the third quarter of fiscal 1993. Interest
earnings attributable to the Company's mortgage operations increased during the
current quarter due to an increase in the average outstanding balance of
Receivables. Such increase in earnings was offset by a decrease in
the average interest rate earned on the Company's Receivables portfolio from
11.1% at December 27, 1992 to 10.9% at December 26, 1993. Interest earnings
for the three months ended December 27, 1992 were favorably impacted by a
$208,000 credit for interest associated with a tax refund.
S,G&A expense totaled $6.1 million and $5.7 million for the three months ended
December 26, 1993 and December 27, 1992, respectively. As a percentage of
total revenue, S,G&A expense was 37% and 39% for the comparable periods. The
decrease in S,G&A expense as a percentage of total revenue for the third
quarter of fiscal 1994 primarily reflects the 13% increase in sales of real
estate for the current period without a corresponding increase in fixed
corporate and field overhead. Selling expense, which includes advertising,
marketing and commissions, totaled $2.7 million and $2.1 million for the
periods ended December 26, 1993 and December 27, 1992, respectively. As a
percentage of sales of real estate, such selling expense was 19% and 17% for
the comparable periods. The increase in selling expense as a percentage of
sales of real estate for the current period was attributable to higher levels
of spending for advertising. General and administrative expense totaled $3.4
million and $3.6 million for the three months ended December 26, 1993 and
December 27, 1992, respectively. The decrease in general and administrative
expense was attributable to overhead reductions approximating $230,000
associated with the Company's mortgage operations.
Interest expense totaled $1.8 million and $1.4 million for the third quarters
of fiscal 1994 and 1993, respectively. The rise in interest expense was
primarily attributable to increased borrowings under the Company's
mortgage-backed credit facilities which increased from $12.2 million at
December 27, 1992 to $23.2 million at December 26, 1993.
The Company recorded provisions for loan losses totaling $80,000 and $200,000
for the three months ended December 26, 1993 and December 27, 1992,
respectively. The decrease is attributable to improved overall performance of
Receivables evidenced by reduced delinquency and default rates. The Company
also recorded a provision of $1.15 million for the write-down of inventory to
estimated net realizable value during the third quarter of fiscal 1993. The
provision related to inventory located predominately in the Northeast and
resulted from management's determination to expedite marketing efforts on such
property. No provision for the write-down of inventory was required for the
third quarter of fiscal 1994.
Income from consolidated operations was $1.2 million for the three months ended
December 26, 1993. Consolidated operations for the three months ended December
27, 1992 resulted in a loss of $578,000 due in large part, to the provision for
write-down of inventory recorded during the period.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the third quarter of fiscal 1994 includes a gain of approximately $95,000 on
the disposal of property and equipment. In addition, in September, 1993, the
Company began offering credit life insurance to customers who financed their
purchases of real estate. Accordingly, approximately $18,000 representing
commissions earned on the sales of such credit life policies, net of associated
expenses, is included in other income. Other income for the third quarter of
fiscal 1993 includes the recognition of a previously deferred gain in the
amount of $1.3 million associated with the prior sale of the Company's
interest in a joint venture.
The Company recorded a tax provision of 38% of pre-tax income for the three
months ended December 26, 1993. In the prior year, a tax benefit of $624,000
attributable to the favorable settlement of certain state tax issues was
recorded, which was offset, to some extent, by a provision at 37% of the
remaining pre-tax income.
Net income was $870,000 and $864,000 for the three months ended December 26,
1993 and December 27, 1992 respectively.
17.
<PAGE> 18
Comparison of Nine Months Ended December 26, 1993 and December 27, 1992.
Sales of real estate increased 10% to $45.3 million for the nine months ended
December 26, 1993 compared to $41.3 million for the nine months ended December
27, 1992.
The following table sets forth certain information regarding sales of parcels
for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
DECEMBER 26, DECEMBER 27,
1993 1992
------------ ------------
<S> <C> <C>
Number of parcels sold (1) . . . . . . 1,828 1,991
Average sales price per parcel (1)(2) . $ 24,468 $ 20,794
Gross margins on sales of real estate . 52% 45%
Percentage of closed sales financed
by the Company (3) . . . . . . . . . 36% 43%
</TABLE>
(1) Includes sales of real estate deferred under the percentage of completion
method of accounting. The average sales price per parcel, net of the
effects of deferred sales, was $24,364 and $20,727 for the nine months
ended December 26, 1993 and December 27, 1992, respectively. See table
to follow outlining number of parcels sold by geographic region.
(2) The average sales price per parcel for the nine months ended December 27,
1992 was increased by $646 from the sale of seven bulk parcels for an
aggregate of $1.4 million. From time to time, management has determined
it to be prudent to sell certain parcels in bulk and considers such
factors as market conditions in the area in which the parcel is located
and the estimated cost of carrying the inventory.
(3) Computed by dividing the aggregate dollar amount of financed sales of real
estate that closed during the period by the aggregate dollar amount of
total closed sales for the period.
The improvement in the Company's gross margins for the nine months ended
December 26, 1993 is attributable to a greater percentage of real estate sales
at higher profit margins being generated outside of the Northeast. All
inventory acquisitions require the prior approval of the Company's investment
committee. Since May, 1990, the Company has realized gross margins of
approximately 57% on such approved acquisitions. However, the sale of certain
inventory acquired prior to the formation of the investment committee or sales
of inventory reacquired through foreclosure or deeds in lieu of foreclosure
will continue to adversely affect overall gross margins. Specifically, the
Company anticipates little or no gross margins on the sale of the remaining
$4.9 million of net inventory holdings in the Northeast and $393,000 of
inventory holdings in Ontario, Canada.
18.
<PAGE> 19
The table set forth below outlines sales by geographic region for the nine
months ended on the dates indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------------------------
DECEMBER 26 1993 DECEMBER 27, 1992
---------------- -----------------
GEOGRAPHIC REGION AMOUNT % AMOUNT %
----------------- ------- ------ ------ -----
<S> <C> <C> <C> <C>
Northeast . . . . . . $ 1,648,900 3.6 % $ 3,075,638 7.5 %
Mid-Atlantic . . . . 6,736,094 14.9 10,206,050 24.7
Southeast . . . . . . 6,540,393 14.4 5,764,510 14.0
Midwest . . . . . . . 8,367,940 18.5 5,095,018 12.3
Southwest . . . . . . 14,975,885 33.0 11,182,784 27.1
West . . . . . . . . 6,894,080 15.2 5,722,032 13.9
Ontario, Canada . . . 156,438 0.4 220,986 0.5
------------ ----- ------------ -----
Totals . . . . . . . $ 45,319,730 100.0 % $ 41,267,018 100.0 %
============ ===== ============ =====
</TABLE>
The table set forth below outlines the number of parcels sold and the average
sales price per parcel by geographic region for the nine months ended on the
dates indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------------------------
DECEMBER 26, 1993 DECEMBER 27, 1992
----------------- -----------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1)
----------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Northeast . . . . . 96 $ 17,176 219 $ 14,044
Mid-Atlantic . . . 294 21,281 421 24,648
Southeast . . . . . 262 23,056 382 15,090
Midwest . . . . . . 335 22,700 216 23,470
Southwest . . . . . 631 25,811 502 22,255
West . . . . . . . 198 34,009 235 24,349
Ontario, Canada . . 12 13,037 16 13,812
----- -------- ----- ---------
Totals . . . . . . 1,828 $ 24,468 1,991 $ 20,794
===== =====
</TABLE>
(1) Includes sales of real estate deferred under the percentage of completion
method of accounting.
The significant reduction in parcels sold in Ontario, Canada and in the
Northeast geographic region (comprised of New York, New Hampshire, Maine,
Vermont, Connecticut and Massachusetts) resulted in part from the effects of
the continuing soft economy in that region and in part from the Company's
ongoing effort to de-emphasize its operations in the Northeast in favor of a
broader geographic distribution. The Company intends to continue to reduce
inventory in the Northeast while increasing inventory in geographic areas with
more stimulated real estate market conditions. Specifically, the Company has
experienced a substantial increase in parcels sold through its operations in the
Midwest and Southwest and intends to continue expansion in these areas
subject to changing market conditions. The reduction in parcels sold in the
Mid-Atlantic geographic region resulted from decreased demand for certain
properties in this market.
The substantial increase in the average sales price per parcel from December
27, 1992 to December 26, 1993 in the Southeast was attributable, in large part,
to the implementation of a revised marketing program directed at military
personnel stationed at a defense site targeted for expansion by the Federal
government. Prior to its revised marketing strategy, the Company had sold
parcels at significantly reduced prices. The increase in the average sales
price per parcel from December 27, 1992 to December 26, 1993 in the West was
attributable to a shift in the location of property offered for sale to more
resort oriented destinations which support greater land values.
In July 1992, the Company, through its wholly-owned subsidiary, PRFC VIII,
transferred title to a mortgage pool of $90.5 million in aggregate principal
amount of Receivables to the Patten Corporation REMIC Trust Series 1992-1.
PRFC VIII sold $74.7 million in aggregate principal amount of Adjustable Rate
REMIC Mortgage Pass-Through Certificates, Class A, in a private placement
transaction. Pursuant to the 1992 REMIC, the Company or its affiliates
acquired $15.8 million in aggregate principal amount of subordinated
certificates evidencing $9.0 million of Class B Certificates and $6.8 million
of Class C certificates. PRFC VIII has since sold the 1992 Class B
Certificates; see Note 4 under Part 1, Item I of this quarterly report on Form
10-Q.
19.
<PAGE> 20
The REMIC transaction, which led to a non-recurring gain and in a
decrease in the average outstanding balance of Receivables held by the Company,
was the primary reason interest income decreased 33% for the nine months ended
December 26, 1993 to $5.8 million from $8.7 million for the nine months ended
December 27, 1992. In addition, interest income during the current nine month
period was reduced by approximately $238,000 representing the difference
between the carrying value of the 1992 Class B REMIC Certificates and the
selling price. The average interest rate earned on the Company's Receivables
portfolio has decreased from 11.1% at December 27, 1992 to 10.9% at December
26, 1993.
S,G&A expense totaled $18.9 million and $16.9 million for the nine months ended
December 26, 1993 and December 27, 1992, respectively. As a percentage of
total revenue, S,G&A expense was 37% and 34% for the comparable periods. The
increase in S,G&A expense as a percentage of total revenue for the nine months
ended December 26, 1993, partially reflects the decrease in interest income
which resulted from the 1992 REMIC. Selling expense, which includes
advertising, marketing and commissions, totaled $8.0 million and $6.7 million
for the periods ended December 26, 1993 and December 27, 1992, respectively.
As a percentage of sales of real estate, such selling expense was 18% and 16%
for the comparable periods. The increase in selling expense as a percentage of
sales of real estate for the current period was attributable to a $183,336
reduction in the amount of inventory reserves being released as credits to
selling expense coupled with increased spending for advertising. General and
administrative expense totaled $10.9 million and $10.2 million for the nine
months ended December 26, 1993 and December 27, 1992, respectively. The
increase in general and administrative expense is attributable to increased
compensation for certain employees in connection with the Company's improved
profitability.
Interest expense totaled $5.3 million and $5.9 million for the nine
months ended December 26, 1993 and December 27, 1992, respectively. This 11%
decrease in interest expense was primarily attributable to a reduction in the
average outstanding indebtedness for the current nine month period compared
with the comparable period of fiscal 1993. The reduction in the average
indebtedness was achieved through $60.8 million in repayments with a portion of
the proceeds from the REMIC transaction completed in July, 1992. This was
slightly offset by approximately $235,000 in non-refundable financing costs
associated with a public debt offering withdrawn by the Company. The
withdrawal was the result of alternative attractive sources of financing being
obtained by the Company.
The Company recorded provisions for loan losses totaling $495,000 and $300,000
for the nine months ended December 26, 1993 and December 27, 1992,
respectively. The increase is primarily attributable to the determination made
by management that the estimated fair value of property securing certain
troubled loans was less than the outstanding balance of such loans. The
Company also recorded $1.15 million for the write-down of inventory to
estimated net realizable value during the nine months ended December 27, 1992.
Income from consolidated operations was $4.6 and $3.0 million for the
nine months ended December 26, 1993 and December 27, 1992, respectively. The
increase was primarily attributable to increased sales of real estate and
improved gross margins on such sales partially offset by reduced interest
income net of interest expense and increased provisions for loan losses.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the nine months ended December 26, 1993 includes, among other items,
non-recurring income of approximately $797,000 associated with the settlement
of certain litigation. In September, 1993, the Company began offering
credit life insurance to customers who financed their purchases of real estate.
Commissions earned on sales of credit life policies were not material for the
period ended December 26, 1993. Other income for the nine months ended
December 27, 1992 includes, among other items, the recognition of approximately
$1.7 million in income associated with a joint venture, offset by losses on the
disposition of property and equipment.
20.
<PAGE> 21
The Company recorded a provision of 38% of pretax income for the nine months
ended December 26, 1993. The tax provision for the nine months ended December
27, 1992 was comprised of $607,000 attributable to alternative minimum tax on
the gain from the 1992 REMIC transaction, a tax benefit of $624,000 resulting
from the favorable settlement of certain state tax issues and a provision at
37% of the remaining pre-tax income.
Net income was $3.5 million and $2.9 million for the nine months ended December
26, 1993 and December 27, 1992, respectively.
21.
<PAGE> 22
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings have been previously described in Item 1. "Regulation" and Item 3. "Legal Proceedings" included
in the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1993. There has been no material
change in the status of such proceedings.
ITEM 2. CHANGES IN SECURITIES
On June 25, 1993, the Company declared a 4% stock dividend covering 683,005 additional shares of its common stock which
was paid on August 16, 1993 to shareholders of record at the close of business on July 19, 1993. In connection with
the stock dividend, approximately $1,000 in the aggregate was paid to certain shareholders of record in lieu of
fractional shares. The weighted average number of common and common equivalent shares used to calculate primary and
fully diluted net income per common share has been adjusted in the consolidated statements of operations to give
effect to the stock dividend, including retroactive restatement of the net income per common share amounts for the
three and nine months ended December 27, 1992.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Special Meeting in Lieu of the Annual Meeting of Shareholders held on September 9, 1993, the shareholders voted to
elect each of the following persons as directors of the Company: Joseph C. Abeles, George F. Donovan, Ralph A. Foote,
Frederick M. Myers, Harry S. Patten and Bradford T. Whitmore.
ITEM 5. OTHER INFORMATION
On October 1, 1993, the Board of Directors of the Company
appointed George F. Donovan as President (effective October 5, 1993)
and Chief Executive Officer (effective January 1, 1994) of the
Company, with Harry S. Patten (who served as Chairman and Chief
Executive Officer prior to Mr. Donovan's appointment) remaining as
Chairman of the Board. On December 20, 1993, the Company entered into
employment agreements with Messrs. Donovan and Patten. The complete
text of each such employment agreement is attached hereto as Exhibit
99(a) and Exhibit 99(b), respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99(a) Employment Agreement dated as of December 20, 1993 by and
between the Company and George F. Donovan.
99(b) Employment Agreement dated as of December 20, 1993 by and
between the Company and Harry S. Patten.
(b) Report on Form 8-K
None.
</TABLE>
22.
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
PATTEN CORPORATION
Date: February 7, 1994 By: /S/ GEORGE F. DONOVAN
---------------------
George F. Donovan
President and
Chief Executive Officer
Date: February 7, 1994 By: /S/ ALAN L. MURRAY
------------------
Alan L. Murray
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: February 7, 1994 By: /S/ DANIEL C. KOSCHER
---------------------
Daniel C. Koscher
Vice President, Assistant Secretary
and Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
23.
<PAGE> 24
PATTEN CORPORATION
Quarterly Report on Form 10-Q
Exhibit Index
Exhibit Description of Exhibit
- - ------- ----------------------
99(a) Employment Agreement dated as of December 20, 1993 by and between the
Company and George F. Donovan.
99(b) Employment Agreement dated as of December 20, 1993 by and between the
Company and Harry S. Patten.
24.
<PAGE> 1
Exhibit 99(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of December 20, 1993, by and between PATTEN CORPORATION, a Massachusetts
corporation (the "Company"), and GEORGE F. DONOVAN ("Employee").
W I T N E S S E T H:
WHEREAS, the Company currently employs the Employee in the capacity of
President and Chief Operating Officer, and the Employee is a key member of
management of the Company; and
WHEREAS, pursuant to prior action of the Board of Directors of the
Company (the "Board of Directors" or the "Board"), effective January 1, 1994,
Employee shall, in addition to serving as President of the Company, serve as
Chief Executive Officer of the Company, with general executive powers and with
powers and duties commonly incident to such position in accordance with the
Company's by-laws, including having general and active management of the
day-to-day business, operations and affairs of the Company;
WHEREAS, the Company desires that the Employee continue in the employ
and service of the Company, and Employee desires to so continue in the employ
and service of the Company, and the Company and Employee desire to formalize
Employee's employment arrangement with the Company, all upon the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS, Employee, by reason of the nature of Employee's duties and
responsibilities, has been and will be provided access to the Company's trade
secrets and other confidential, proprietary and sensitive competitive
information and the Company desires to maintain the confidentiality of such and
formalize an appropriate agreement with Employee.
NOW, THEREFORE, for and in consideration of the mutual premises,
covenants and agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
1. DUTIES. The Company hereby employs Employee, and Employee
hereby agrees to and accepts employment by the Company, as its President and,
from and after January 1, 1994, as its Chief Executive Officer, for the term
set forth below in paragraph 2, on the terms and subject to the conditions set
forth in this Agreement. During the term of his employment hereunder, (i) from
<PAGE> 2
the date hereof through December 31, 1993, Employee shall be the president and
principal operating officer of the Company, responsible for the general and
active management of the day-to-day business, operations and affairs of the
Company, subject to the direction of the Chairman of the Board and subject to
the direction and control of the Board of Directors, and (ii) from and after
January 1, 1994 (for the term specified in paragraph 2 hereof), Employee shall,
in addition to the foregoing, be the principal executive officer of the
Company, with general executive powers and duties regarding the Company and
with active management of the day-to-day business, operations and affairs of
the Company, subject to the direction and control of the board of directors of
the Company (the "Board of Directors" or the "Board"). Employee shall also
perform such additional duties as may be assigned to Employee from time to time
by the Board in accordance with the Company's by-laws. During the term of
employment, Employee agrees to work on a full- time basis, to devote his full
and exclusive business time and attention to the performance of his duties
hereunder and to carry out his employment in a good and professional manner.
2. TERM. The term of Employee's employment hereunder shall be
from the date hereof through the date of the first meeting of the Board
following the Annual Meeting of Shareholders of the Company in 1994 at which
officers of the Company are appointed (hereinafter, the "1994 Termination
Date"), subject to the termination provisions set forth in paragraphs 5, 6, 7,
8 and 9 hereof; provided, however, that, subject to the termination provisions
set forth in paragraphs 5, 6, 7, 8 and 9 hereof, the term of this Agreement
shall automatically be extended beyond the 1994 Termination Date until such
time as the Company, in its sole judgment and discretion, notifies Employee in
writing of the expiration of his term of employment hereunder, upon not less
than (i) from the date hereof through the 1994 Termination Date, one (1) year's
prior written notice to Employee, (ii) from the day after the 1994 Termination
Date through the first meeting of the Board following the Annual Meeting of
Shareholders of the Company in 1995 at which officers of the Company are
appointed (the "1995 Date"), nine (9) months' prior written notice to Employee,
(iii) from the day after the 1995 Date through the first meeting of the Board
following the Annual Meeting of Shareholders of the Company in 1996 at which
officers of the Company are appointed (the "1996 Date"), six (6) months' prior
written notice to Employee, and (iv) from the day after the 1996 Date through
any date thereafter, one (1) week's prior written notice to Employee.
Notwithstanding the foregoing, the Company may terminate Employee's employment
hereunder at any time without Cause (as such term is defined below), provided
that it provides to Employee the notice and payments required in paragraph 8
below.
3. COMPENSATION. (a) Salary. During the term of Employee's
employment under this Agreement, the Company covenants and agrees that, in
consideration of the services performed and to
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<PAGE> 3
be performed hereunder, it will pay to Employee, at its regular and
customary intervals for payment, a minimum salary at the rate of $250,000.00
per annum, subject to increase from time to time in the sole judgment and
discretion of the Board.
(b) Bonus. Employee shall also be eligible to
receive cash bonuses, payable annually, pursuant to the incentive bonus
schedule for senior management approved by the Board and attached hereto as
Annex I (or as otherwise approved by the Board or the Compensation Committee of
the Board). Any such bonuses shall be paid within 90 days following the
applicable fiscal year end.
4. BENEFITS. Employee shall be entitled to the following
benefits (if applicable) during the period of his employment hereunder:
(a) Employee shall be entitled, in accordance with the
Company's general policies and procedures for management personnel, to
participation in any pension, savings, 401(k), stock option, employee stock
ownership and profit-sharing plans, health insurance, leave, vacation and other
employment benefits as are made available from time to time by the Board to or
for the benefit of Company management. Information regarding all such
policies, plans and arrangements of the Company have been made available to
Employee.
(b) During his term of employment, Employee shall be
entitled to prompt reimbursement of all reasonable expenses actually paid or
incurred by Employee, against invoices therefor, in the course of and pursuant
to the performance of his duties hereunder and in connection with promoting or
carrying out the business of the Company. Employee agrees to maintain adequate
documentary proof and written records, in such detail as the Company may
reasonably request, of all fees, costs and expenses to be reimbursed by the
Company hereunder.
5. DISABILITY. In the event that Employee shall be incapacitated
by reason of mental or physical disability during the term of his employment
hereunder such that he is substantially prevented from performing his duties
and services hereunder for a period of 45 consecutive days, or for shorter
periods aggregating 75 days during any 12-month period (a "Disability"), the
Company thereafter shall have the right to terminate Employee's employment
under this Agreement by sending written notice of such termination to Employee
or his legal representative and thereupon Employee's employment hereunder shall
immediately terminate. Upon such termination, Employee shall be entitled to
receive and shall be paid by the Company, on a monthly basis, his monthly
compensation as in effect on the date of termination for the lesser of (i) six
(6) months and (ii) the remaining term of this Agreement. Employee shall
accept such payments in full discharge and release of the
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<PAGE> 4
Company of and from any further obligations under this Agreement. Such
discharge and release shall not affect any rights or remedies which may be
available to Employee otherwise than under this Agreement.
6. DEATH. In the event of Employee's death during the term of
his employment hereunder, Employee's designated beneficiary or, if no such
beneficiary shall have been designated by Employee, the estate of Employee,
shall be entitled to receive and shall be paid by the Company any and all of
Employee's salary compensation in effect on the date of his death, and any
other amounts due to Employee (and unpaid), in each case through the date of
death. Employee shall be entitled to no payments or benefits following the
date of death. Such payments shall be in full discharge and release of the
Company of and from any further obligations under this Agreement. Such
discharge and release shall not affect any rights or remedies which may be
available to Employee (or Employee's estate) otherwise than under this
Agreement.
7. TERMINATION BY THE COMPANY FOR CAUSE.
(a) The Company shall have the right to terminate the
employment of Employee hereunder for cause (as used herein, "Cause") at any
time if:
(i) Employee shall be convicted by a court of
competent and final jurisdiction of any crime (whether or not involving the
Company) which constitutes a felony in the jurisdiction involved or shall be
habitually drunk or intoxicated in public or otherwise commit acts of moral
turpitude in such a manner as to materially and adversely reflect upon the
reputation of the Company or its senior management; or
(ii) Employee shall commit any act of
embezzlement, fraud or similar dishonest and injurious conduct against or with
respect to the Company; or
(iii) Employee shall demonstrate willful and
injurious misconduct in connection with the performance of his duties and
responsibilities under this Agreement (and/or as assigned to him from time to
time by the Board in accordance with the provisions hereof); or
(iv) Employee shall demonstrate reckless or grossly
negligent and injurious conduct in connection with the performance of, or a
gross disregard for, his duties and responsibilities under this Agreement
(and/or as assigned to him from time to time by the Board in accordance with
the provisions hereof).
(b) Any determination to terminate Employee for Cause
pursuant to paragraph 7(a) hereof shall be made in the good faith judgment of
the Board after Employee has been provided a reasonable
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<PAGE> 5
opportunity to be heard, which judgment shall be final and binding upon
Employee. In the event that the employment of Employee shall be terminated by
the Company for Cause pursuant to this paragraph 7, Employee shall be entitled
to receive his salary, and any other amounts properly due from the Company to
Employee (and unpaid), through the date of such termination. Employee shall
accept payment pursuant to this subparagraph 7(b) in full discharge and release
of the Company of and from any further obligations under this Agreement.
Nothing contained in this paragraph 7 shall constitute a waiver or release by
the Company of any rights or claims it may have against Employee, including,
but not limited to, any claims or rights pursuant to paragraph 10 hereof or
arising from actions or omissions which may give rise to an event causing
termination of this Agreement pursuant to this paragraph 7.
8. TERMINATION WITHOUT CAUSE; MITIGATION & SET-OFF.
(a) The Company may by written notice to Employee terminate
Employee's employment hereunder at any time without Cause (i.e., for any reason
other than for Cause), provided that it delivers to Employee written notice of
such termination and provides to Employee the payments required in this
paragraph 8. Upon termination of Employee's employment other than for Cause
pursuant to this paragraph 8, Employee shall be paid the salary compensation to
which Employee is entitled under paragraph 3 hereof, at the Company's regular
and customary intervals for such payment, (i) if Employee is so terminated
between the date hereof and the 1994 Termination Date, through the date which
is one (1) year following the date of Employee's notice of termination, (ii) if
Employee is so terminated between the day after the 1994 Termination Date and
the 1995 Date, through the date which is nine (9) months following the date of
Employee's notice of termination, (iii) if Employee is so terminated between
the day after the 1995 Date and the 1996 Date, through the date which is six
(6) months following the date of Employee's notice of termination, and (iv) if
Employee is so terminated at any time after the day after the 1996 Termination
Date, through the date which is one (1) week following the date of Employee's
notice of termination. Employee shall accept such payments in full discharge
and release of the Company of and from any further obligations under this
Agreement. Such discharge and release shall not affect any rights or remedies
which may be available to Employee otherwise than under this Agreement.
(b) In the event of a termination of Employee's employment
under Section 8(a) hereof, or any notification by the Company of the expiration
of Employee's term of employment under Section 2 hereof, Employee shall make
reasonable efforts to mitigate the damage, cost and expense to the Company by
seeking alternative employment. Notwithstanding any other term or provision of
this Agreement, to the extent that Employee receives compensation (whether in
the form of salary, bonus or otherwise) from such other employment, the
payments to be made by the Company
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<PAGE> 6
under any provision of this Agreement shall be correspondingly reduced,
dollar-for-dollar, against such compensation received by Employee through such
other employment. Employee covenants and agrees that he will provide the
Company, or cause such other employer to provide the Company, with such
employment, payroll and other records as may be necessary or appropriate for
the Company to make the appropriate set-off calculations under this Section
8(b).
9. TERMINATION BY EMPLOYEE. Employee may by written notice to
the Company terminate Employee's employment hereunder, provided that he
delivers to the Company not less than six (6) months advance written notice of
such termination (the six-month period between such notice and termination
being referred to herein as the "Termination Period"). During the Termination
Period, so long as Employee performs his duties and responsibilities as
required in accordance with this Agreement (and so long as the Company is not
entitled to terminate Employee for Cause pursuant to paragraph 7 hereof, in
which case the provisions of paragraph 7, and not this paragraph 9, shall
apply), Employee shall be entitled to the salary, bonus and benefits (to the
extent earned, accrued and payable) described in paragraphs 3 and 4 hereof, in
each case, payable at the Company's regular and customary intervals for such
payment or benefit, through the date of termination. Employee shall be
entitled to no payments or benefits following the date of any termination under
this paragraph 9. Employee shall accept such payments and benefits in full
discharge and release of the Company of and from any further obligations under
this Agreement. Such discharge and release shall not affect any rights or
remedies which may be available to Employee otherwise than under this
Agreement.
10. RESTRICTIVE COVENANTS.
(a) Employee recognizes and acknowledges that
confidential, proprietary and sensitive competitive information may exist and
come into Employee's possession, from time to time during the course of
Employee's employment with the Company, with respect to the business,
operations and prospects of the Company. Accordingly, and as a material
inducement to the Company to enter into this Agreement, Employee covenants and
agrees that he will not, during or after his term of employment hereunder,
except if required or if appropriate and in the best interests of the Company
in connection with the proper performance of his duties hereunder, disclose, or
assist or permit the unauthorized disclosure of, any confidential, proprietary
or sensitive competitive information relating to the Company to any individual
or entity. The provisions of this paragraph 10(a) shall not apply to
information which is or shall become generally known to the public or the trade
(except by reason of Employee's breach of his obligations hereunder),
information which is or shall become available in trade or other publications
(except by reason of Employee's breach of his obligations hereunder), and
information which Employee is required to disclose by law or by order of a
court of competent jurisdiction
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<PAGE> 7
(but only to the extent specifically required by law or ordered by such court
and, when reasonably possible, only then if Employee shall have given the
Company reasonable prior notice of such intended disclosure so that it has the
opportunity to seek a protective order if it deems such appropriate).
(b) As used in this Agreement, confidential, proprietary
and/or sensitive competitive "information" shall mean and include any and all
studies, plans, reports, surveys, analyses, sketches, drawings, notes, records,
recordings, computer software, programs or memory, unpublished memoranda or
documents, and all other material nonpublic information relating to the
Company's activities, affairs, business, operations or prospects, including,
without limitation, all methods, processes, techniques, shop practices,
equipment, research data, marketing and sales information, personnel data,
customer lists, supplier lists, employee lists, financial data, and all other
techniques, know-how and trade secrets which presently or in the future are in
the possession of the Company. Such "information" shall not include general
knowledge, expertise or skills gained by Employee with respect to the industry
or markets in which the Company operates.
(c) Also as a material inducement to the Company to enter
into this Agreement, Employee covenants and agrees that, so long as he is
employed hereunder, Employee shall work exclusively for the Company, and shall
not, directly or indirectly, engage (either as principal, agent, consultant or
lender, or through any corporation, firm or organization in which he may be an
officer, director, employee, shareholder, partner, lender, member, trustee or
with which he is otherwise affiliated or derives some financial benefit) in any
business for profit in the United States, nor shall he work for or advise any
person(s) engaged in any such business, which is engaged in any business
competitive with the business of the Company.
(d) Employee shall advise the Company's Board of
Directors in writing of any matter in which Employee is or will become involved
or interested which appears to present a conflict of interest with the
interests of the Company and Employee will promptly comply with any action
requested by the Board to resolve or remedy any such conflict as, when and if
such arises.
(e) Notwithstanding any other term or provision of this
or any other agreement, if any suit or proceeding is instituted by the Company
pertaining to this paragraph 10, the Company, in addition to any other relief
to which it may be entitled, shall be entitled to its costs, expenses and
attorney's fees incurred in connection with any such suit or proceeding.
11. INJUNCTION. Employee acknowledges that the services to be
rendered by him are of a special, unique and extraordinary character, that, in
connection with such services, he will have
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<PAGE> 8
access to confidential, proprietary and/or sensitive competitive information
vital to the Company's business, operations and prospects and that therefore
the restrictive covenants set forth in paragraph 10 are fair and reasonable,
are material to this Agreement and have materially induced the Company to enter
into this Agreement and provide the benefits to Employee provided hereunder.
Accordingly, Employee consents and agrees that if he violates or breaches any
of the provisions of paragraph 10, the Company would sustain irreparable harm
and, therefore, in addition to any other remedies which may be available to it,
the Company shall be entitled to apply to any court of competent jurisdiction,
and Employee hereby irrevocably agrees to submit to any such court's venue and
jurisdiction, for an injunction restraining Employee from committing or
continuing any such violation of this Agreement, or for such other equitable or
special relief that the Company shall deem appropriate in view of such
violation. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedy or remedies including, without
limitation, recovery of damages, permitted at law or in equity.
12. MODIFICATIONS OF RESTRICTIONS. In the event that any of the
provisions contained in this Agreement (including without limitation the
provisions of paragraph 10) shall be held to be in any way an unreasonable
restriction on Employee or otherwise void or unenforceable, then the court so
holding may reduce the territory and/or period of time in which such
restriction operates, or modify or eliminate any such restriction, to the
extent necessary to render such paragraph enforceable to the maximum extent
provided hereunder.
13. ATTORNEYS' FEES. In the event of any litigation arising out
of or relating to this Agreement, the unsuccessful party in such litigation
shall pay to the successful party all fees, costs and expenses incurred therein
by the successful party, including, without limitation, reasonable attorneys'
fees, and including costs and attorneys' fees for all appellate proceedings,
which costs, expenses and fees shall be included in and made a part of any
judgment or award rendered in such litigation.
14. NOTICES. All notices, requests, demands, waivers, consents,
approvals or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given or delivered (i) when delivered,
if delivered personally or by recognized overnight courier, or (ii) three days
after being sent, if sent by certified or registered mail, postage prepaid,
return receipt requested, in each case, to the following addresses:
<TABLE>
<S> <C>
If to the Company, to: Patten Corporation
5295 Town Center Road
Suite 400
Boca Raton, FL 33486
Attention: Chairman of the Board
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
If to Employee, to: George F. Donovan
c/o Patten Corporation
5295 Town Center Road
Suite 400
Boca Raton, FL 33486
</TABLE>
Any party may by written notice change the address to which notice or
other communications to it are to be delivered or mailed. The Company's
address shall automatically change to any new address for the Company's
principal executive offices.
15. EMPLOYEE'S ADDRESS. Upon termination of Employee's employment
hereunder for any reason and for a period of two (2) years thereafter, Employee
shall advise the Company of his home and business addresses and phone numbers,
and the identity of his employer, including any changes therein.
16. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes, and shall not be modified or affected by, any
offer, proposal, statement, promise, assurance, reference, warranty,
representation, arrangement or agreement, oral or written, made by or for
either party. Whenever the masculine pronoun is used, it includes the feminine
pronoun, and the singular includes the plural, and vice versa, where the
context requires. This Agreement may not be amended or modified except by an
instrument in writing signed by the Company and Employee. The waiver by either
party of any breach of this Agreement shall not operate or be construed as a
waiver of any subsequent breach hereof.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns and upon
Employee and his heirs, executors, administrators, or other legal
representatives. This Agreement is not assignable by Employee.
18. HEADINGS. Paragraph and subparagraph captions and headings in
this Agreement are for convenience of reference only and shall not effect the
construction, meaning or interpretation hereof.
19. LAW APPLICABLE. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida (without reference to the conflict of laws provisions thereof).
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto in separate counterparts, each of which
shall be an original and all of which together shall constitute one and the
same agreement, which
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<PAGE> 10
agreement shall become effective when one or more counterparts have been
executed by each party and delivered to each other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PATTEN CORPORATION
By: /s/ HARRY S. PATTEN
-------------------------
Name: Harry S. Patten
Title: Chairman and Chief
Executive Officer
EMPLOYEE
/s/ GEORGE F. DONOVAN
----------------------------
GEORGE F. DONOVAN
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<PAGE> 1
Exhibit 99(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of December 20, 1993, by and between PATTEN CORPORATION, a Massachusetts
corporation (the "Company"), and HARRY S. PATTEN ("Employee").
W I T N E S S E T H:
WHEREAS, the Company currently employs the Employee in the capacity of
Chairman of the Board and Chief Executive Officer, and the Employee is a key
member of management of the Company; and
WHEREAS, pursuant to prior action of the Board of Directors of the
Company (the "Board of Directors" or the "Board"), effective January 1, 1994,
(i) Employee shall continue to serve as the Chairman of the Board of the
Company, with powers and duties commonly incident to such position in
accordance with the Company's by-laws, including supervising the implementation
of the policies and procedures approved by the Board and assisting in the
formulation, evaluation and development of short and long term goals and
strategic planning of the Company and (ii) Employee shall no longer serve as
Chief Executive Officer of the Company;
WHEREAS, the Company desires that the Employee continue in the employ
and service of the Company, and Employee desires to so continue in the employ
and service of the Company, among other things, to provide for a smooth and
orderly transition of the senior management of the Company, and the Company and
Employee desire to formalize Employee's employment arrangement with the
Company, all upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, Employee, by reason of the nature of Employee's duties and
responsibilities, has been and will be provided access to the Company's trade
secrets and other confidential, proprietary and sensitive competitive
information and the Company desires to maintain the confidentiality of such and
formalize an appropriate agreement with Employee.
NOW, THEREFORE, for and in consideration of the mutual premises,
covenants and agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
1. DUTIES. The Company hereby employs Employee, and Employee
hereby agrees to and accepts employment by the Company, as its Chairman of the
Board (or, alternatively, pursuant to paragraph
<PAGE> 2
13 below, as its management consultant), for the term set forth below in
paragraph 2, on the terms and subject to the conditions set forth in this
Agreement. During the term of his employment hereunder (whether as Chairman of
the Board or as a management consultant), subject to the direction and control
of the Board, (i) Employee shall be available to consult with the Board (and
any appropriate committees of the Board) regarding supervising the
implementation of the policies and procedures approved by the Board and
assisting in the formulation, evaluation and development of short and long term
goals and strategic planning of the Company, and (ii) Employee shall be
available to consult and work together with the Company's President and Chief
Executive Officer regarding (a) matters relating to the strategic planning or
direction of the Company, (b) the acquisition of land or of timesharing
projects, (c) changes in senior personnel of the Company, and (d) the Company's
entering into any new line of business or joint venture or the Company's
entering into any new financing arrangements. Employee shall also perform such
additional duties as may reasonably be assigned to Employee from time to time
by the Board. During the term of employment, Employee agrees to work on a
full-time basis, to devote his full and exclusive business time and attention
to the performance of his duties hereunder and to carry out his employment in a
good and professional manner.
2. TERM. The term of Employee's employment hereunder (whether as
Chairman of the Board or as a management consultant) shall be from the date
hereof through December 31, 1996 (hereinafter, the "Termination Date"), subject
to the termination provisions set forth in paragraphs 5, 6, 7, 8 and 9 hereof;
provided, however, that Employee shall serve as Chairman of the Board of the
Company at the pleasure of the Board and only so long as Employee is duly
elected and serves as a director of the Company and selected (and not removed
or terminated) by the Board to serve in such capacity in accordance with the
Company's by-laws.
3. COMPENSATION. During the term of Employee's employment under
this Agreement, the Company covenants and agrees that, in consideration of the
services performed and to be performed by Employee hereunder (whether as
Chairman of the Board or as a management consultant), it will pay to Employee,
at its regular and customary intervals for payment, a salary at the rate of
$325,000.00 per annum.
4. BENEFITS. Employee shall be entitled to the following
benefits (if applicable) during the period of his employment hereunder:
(a) Employee shall be entitled, in accordance with the
Company's general policies and procedures for management personnel, to
participation in any pension, savings, 401(k), stock option, employee stock
ownership and profit-sharing plans, health insurance
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<PAGE> 3
and other employment benefits as are made available from time to time by the
Board to or for the benefit of Company management. Information regarding all
such policies, plans and arrangements of the Company have been made available
to Employee.
(b) During his term of employment, Employee shall be
entitled to prompt reimbursement of all reasonable expenses actually paid or
incurred by Employee, against invoices therefor, in the course of and pursuant
to the performance of his duties hereunder and in connection with promoting or
carrying out the business of the Company. Employee agrees to maintain adequate
documentary proof and written records, in such detail as the Company may
reasonably request, of all fees, costs and expenses to be reimbursed by the
Company hereunder.
5. DISABILITY. In the event that Employee shall be incapacitated
by reason of mental or physical disability during the term of his employment
hereunder such that he is substantially prevented from performing his duties
and services hereunder for a period of 45 consecutive days, or for shorter
periods aggregating 75 days during any 12-month period (a "Disability"), the
Company thereafter shall have the right to terminate Employee's employment
under this Agreement by sending written notice of such termination to Employee
or his legal representative and thereupon Employee's employment hereunder shall
immediately terminate. Upon such termination, Employee shall be entitled to
receive and shall be paid by the Company, on a monthly basis, his monthly
compensation as in effect on the date of termination for the lesser of (i) one
(1) year and (ii) the remaining term of this Agreement. Employee shall accept
such payments in full discharge and release of the Company of and from any
further obligations under this Agreement. Such discharge and release shall not
affect any rights or remedies which may be available to Employee otherwise than
under this Agreement.
6. DEATH. In the event of Employee's death during the term of
his employment hereunder, Employee's designated beneficiary or, if no such
beneficiary shall have been designated by Employee, the estate of Employee,
shall be entitled to receive and shall be paid by the Company any and all of
Employee's salary compensation in effect on the date of his death, and any
other amounts due to Employee (and unpaid), in each case through the date of
death. Employee shall be entitled to no payments or benefits following the
date of death. Such payments shall be in full discharge and release of the
Company of and from any further obligations under this Agreement. Such
discharge and release shall not affect any rights or remedies which may be
available to Employee (or Employee's estate) otherwise than under this
Agreement.
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<PAGE> 4
7. TERMINATION BY THE COMPANY FOR CAUSE.
(a) The Company shall have the right to terminate the
employment of Employee hereunder for cause (as used herein, "Cause") at any
time if:
(i) Employee shall be convicted by a court of
competent and final jurisdiction of any crime (whether or not involving the
Company) which constitutes a felony in the jurisdiction involved or shall be
habitually drunk or intoxicated in public or otherwise commit acts of moral
turpitude in such a manner as to materially and adversely reflect upon the
reputation of the Company or its senior management; or
(ii) Employee shall commit any act of
embezzlement, fraud or similar dishonest and injurious conduct against or with
respect to the Company; or
(iii) Employee shall demonstrate willful and
injurious misconduct in connection with the performance of his duties and
responsibilities under this Agreement (and/or as assigned to him from time to
time by the Board in accordance with the provisions hereof); or
(iv) Employee shall demonstrate reckless or grossly
negligent and injurious conduct in connection with the performance of, or a
gross disregard for, his duties and responsibilities under this Agreement
(and/or as assigned to him from time to time by the Board in accordance with
the provisions hereof); or
(v) Employee shall voluntarily resign as Chairman of
the Board or as a director of the Company, or Employee shall for any reason
choose or determine not to stand for re-appointment as Chairman of the Board or
re-election as a director of the Company (it being understood and agreed that
if Employee properly stands for re-appointment as Chairman or re-election as a
director and such re-appointment or re-election is not approved by the
directors or the shareholders, respectively, such will not serve as a basis for
the termination of Employee for Cause hereunder).
(b) Any determination to terminate Employee for Cause
pursuant to paragraph 7(a) hereof shall be made in the good faith judgment of
the Board after Employee has been provided a reasonable opportunity to be
heard, which judgment shall be final and binding upon Employee. In the event
that the employment of Employee shall be terminated by the Company for Cause
pursuant to this paragraph 7, Employee shall be entitled to receive his salary,
and any other amounts properly due from the Company to Employee (and unpaid),
through the date of such termination. Employee shall accept payment pursuant
to this subparagraph 7(b) in full discharge and release of the Company of and
from any further obligations under this Agreement. Nothing contained in this
paragraph 7 shall
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<PAGE> 5
constitute a waiver or release by the Company of any rights or claims it may
have against Employee, including, but not limited to, any claims or rights
pursuant to paragraph 10 hereof or arising from actions or omissions which may
give rise to an event causing termination of this Agreement pursuant to this
paragraph 7.
8. TERMINATION WITHOUT CAUSE. The Company may by written notice
to Employee terminate Employee's employment hereunder at any time without Cause
(i.e., for any reason other than for Cause), provided that it delivers to
Employee written notice of such termination and provides the payments required
in this paragraph 8. Upon termination of Employee's employment other than for
Cause pursuant to this paragraph 8, Employee shall be paid the salary
compensation to which Employee is entitled under paragraph 3 hereof, at the
Company's regular and customary intervals for such payment, through the
Termination Date. Employee shall accept such payments in full discharge and
release of the Company of and from any further obligations under this
Agreement. Such discharge and release shall not affect any rights or remedies
which may be available to Employee otherwise than under this Agreement.
9. TERMINATION BY EMPLOYEE. Employee may by written notice to
the Company terminate Employee's employment hereunder, provided that he
delivers to the Company not less than sixty (60) days advance written notice of
such termination (the sixty day period between such notice and termination
being referred to herein as the "Termination Period"). During the Termination
Period, so long as Employee performs his duties and responsibilities as
required in accordance with this Agreement (and so long as the Company is not
entitled to terminate Employee for Cause pursuant to paragraph 7 hereof, in
which case the provisions of paragraph 7, and not this paragraph 9, shall
apply), Employee shall be entitled to the salary described in paragraph 3
hereof, payable at the Company's regular and customary intervals for such
payment, through the date of termination. Employee shall be entitled to no
payments or benefits following the date of any termination under this paragraph
9. Employee shall accept such payments and benefits in full discharge and
release of the Company of and from any further obligations under this
Agreement. Such discharge and release shall not affect any rights or remedies
which may be available to Employee otherwise than under this Agreement.
10. RESTRICTIVE COVENANTS.
(a) Employee recognizes and acknowledges that
confidential, proprietary and sensitive competitive information may exist and
come into Employee's possession, from time to time during the course of
Employee's employment with the Company, with respect to the business,
operations and prospects of the Company. Accordingly, and as a material
inducement to the Company to enter into this Agreement, Employee covenants and
agrees that he will not, during or after his term of employment hereunder,
except if
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<PAGE> 6
required or if appropriate and in the best interests of the Company in
connection with the proper performance of his duties hereunder, disclose, or
assist or permit the unauthorized disclosure of, any confidential, proprietary
or sensitive competitive information relating to the Company to any individual
or entity. The provisions of this paragraph 10(a) shall not apply to
information which is or shall become generally known to the public or the trade
(except by reason of Employee's breach of his obligations hereunder),
information which is or shall become available in trade or other publications
(except by reason of Employee's breach of his obligations hereunder), and
information which Employee is required to disclose by law or by order of a
court of competent jurisdiction (but only to the extent specifically required
by law or ordered by such court and, when reasonably possible, only then if
Employee shall have given the Company reasonable prior notice of such intended
disclosure so that it has the opportunity to seek a protective order if it
deems such appropriate).
(b) As used in this Agreement, confidential, proprietary
and/or sensitive competitive "information" shall mean and include any and all
studies, plans, reports, surveys, analyses, sketches, drawings, notes, records,
recordings, computer software, programs or memory, unpublished memoranda or
documents, and all other material nonpublic information relating to the
Company's activities, affairs, business, operations or prospects, including,
without limitation, all methods, processes, techniques, shop practices,
equipment, research data, marketing and sales information, personnel data,
customer lists, supplier lists, employee lists, financial data, and all other
techniques, know-how and trade secrets which presently or in the future are in
the possession of the Company. Such "information" shall not include general
knowledge, expertise or skills gained by Employee with respect to the industry
or markets in which the Company operates.
(c) Also as a material inducement to the Company to enter
into this Agreement, Employee covenants and agrees that, so long as he is
employed hereunder, Employee shall work exclusively for the Company, and shall
not, directly or indirectly, engage (either as principal, agent, consultant or
lender, or through any corporation, firm or organization in which he may be an
officer, director, employee, shareholder, partner, lender, member, trustee or
with which he is otherwise affiliated or derives some financial benefit) in any
business for profit in the United States, nor shall he work for or advise any
person(s) engaged in any such business, which is engaged in any business
competitive with the business of the Company.
(d) Employee shall advise the Company's Board of
Directors in writing of any matter in which Employee is or will become involved
or interested which appears to present a conflict
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<PAGE> 7
of interest with the interests of the Company and Employee will promptly comply
with any action requested by the Board to resolve or remedy any such conflict
as, when and if such arises.
(e) Notwithstanding any other term or provision of this
or any other agreement, if any suit or proceeding is instituted by the Company
pertaining to this paragraph 10, the Company, in addition to any other relief
to which it may be entitled, shall be entitled to its costs, expenses and
attorney's fees incurred in connection with any such suit or proceeding.
11. INJUNCTION. Employee acknowledges that the services to be
rendered by him are of a special, unique and extraordinary character, that, in
connection with such services, he will have access to confidential, proprietary
and/or sensitive competitive information vital to the Company's business,
operations and prospects and that therefore the restrictive covenants set forth
in paragraph 10 are fair and reasonable, are material to this Agreement and
have materially induced the Company to enter into this Agreement and provide
the benefits to Employee provided hereunder. Accordingly, Employee consents
and agrees that if he violates or breaches any of the provisions of paragraph
10, the Company would sustain irreparable harm and, therefore, in addition to
any other remedies which may be available to it, the Company shall be entitled
to apply to any court of competent jurisdiction, and Employee hereby
irrevocably agrees to submit to any such court's venue and jurisdiction, for an
injunction restraining Employee from committing or continuing any such
violation of this Agreement, or for such other equitable or special relief that
the Company shall deem appropriate in view of such violation. Nothing in this
Agreement shall be construed as prohibiting the Company from pursuing any other
remedy or remedies including, without limitation, recovery of damages,
permitted at law or in equity.
12. MODIFICATION OF RESTRICTIONS. In the event that any of the
provisions contained in this Agreement (including without limitation the
provisions of paragraph 10) shall be held to be in any way an unreasonable
restriction on Employee or otherwise void or unenforceable, then the court so
holding may reduce the territory and/or period of time in which such
restriction operates, or modify or eliminate any such restriction, to the
extent necessary to render such paragraph enforceable to the maximum extent
provided hereunder.
13. MANAGEMENT CONSULTANT. In the event that Employee shall cease
to be Chairman of the Board of the Company prior to the Termination Date for
any reason other than a termination of employment hereunder pursuant to
paragraphs 5 (Disability of Employee), 6 (death of Employee), or 7 (termination
of Employee for Cause) hereof, then Employee shall immediately and
automatically upon such cessation be employed as a management consultant of the
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<PAGE> 8
Corporation, with the duties set forth in paragraph 2 hereof and for the term
set forth in paragraph 1 hereof, in each case, subject to the terms and
conditions of this Agreement.
14. ATTORNEYS' FEES. In the event of any litigation arising out
of or relating to this Agreement, the unsuccessful party in such litigation
shall pay to the successful party all fees, costs and expenses incurred therein
by the successful party, including, without limitation, reasonable attorneys'
fees, and including costs and attorneys' fees for all appellate proceedings,
which costs, expenses and fees shall be included in and made a part of any
judgment or award rendered in such litigation.
15. NOTICES. All notices, requests, demands, waivers, consents,
approvals or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given or delivered (i) when delivered,
if delivered personally or by recognized overnight courier, or (ii) three days
after being sent, if sent by certified or registered mail, postage prepaid,
return receipt requested, in each case, to the following addresses:
<TABLE>
<S> <C>
If to the Company, to: Patten Corporation
5295 Town Center Road
Suite 400
Boca Raton, FL 33486
Attention: President
If to Employee, to: Harry S. Patten
270 Sloan Road
Williamstown, MA 01267
</TABLE>
Any party may by written notice change the address to which notice or
other communications to it are to be delivered or mailed. The Company's
address shall automatically change to any new address for the Company's
principal executive offices.
16. EMPLOYEE'S ADDRESS. Upon termination of Employee's employment
hereunder for any reason and for a period of two (2) years thereafter, Employee
shall advise the Company of his home and business addresses and phone numbers,
and the identity of his employer, including any changes therein.
17. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes, and shall not be modified or affected by, any
offer, proposal, statement, promise, assurance, reference, warranty,
representation, arrangement or agreement, oral or written, made by or for
either party. Whenever the masculine pronoun is used, it includes the feminine
pronoun, and the singular includes the plural, and vice versa, where the
context requires. This Agreement may not be amended or modified except by an
instrument in writing signed by the Company and Employee. The
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<PAGE> 9
waiver by either party of any breach of this Agreement shall not operate or be
construed as a waiver of any subsequent breach hereof.
18. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns and upon
Employee and his heirs, executors, administrators, or other legal
representatives. This Agreement is not assignable by Employee.
19. HEADINGS. Paragraph and subparagraph captions and headings in
this Agreement are for convenience of reference only and shall not effect the
construction, meaning or interpretation hereof.
20. LAW APPLICABLE. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida (without reference to the conflict of laws provisions thereof).
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto in separate counterparts, each of which
shall be an original and all of which together shall constitute one and the
same agreement, which agreement shall become effective when one or more
counterparts have been executed by each party and delivered to each other
party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PATTEN CORPORATION
By: /s/ GEORGE F. DONOVAN
-------------------------
Name: George F. Donovan
Title: President
EMPLOYEE
/s/ HARRY S. PATTEN
----------------------------
HARRY S. PATTEN
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