<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 2, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-19292
PATTEN CORPORATION
(Exact name of registrant as specified in its charter)
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)
Registrant's telephone number, including area code: (407) 361-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Name of each exchange
Title of each class on which registered
- ---------------------------------------------------- -----------------------------------------------
<S> <C>
Common Stock, $.01 par value . . . . . . . . . . . New York Stock Exchange, Pacific Stock Exchange
8.25% Convertible Subordinated Debentures
due 2012 . . . . . . . . . . . . . . . . . . . . New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None.
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
in the definitive proxy statement incorporated by reference into Part III of
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $55,578,464 based upon the closing sale
price of the Company's Common Stock on the New York Stock Exchange on June 1,
1995 (or $3.375 per share). The market value of voting stock held by
non-affiliates excludes any shares issuable upon conversion of any 8.25%
Convertible Subordinated Debentures outstanding as of June 1, 1995 and held by
non-affiliates, which are converted at a rate of $8.65 per share. The
$55,578,464 includes 1,136,140 shares of Common Stock held by Franklin
Resources, Inc. or its wholly-owned subsidiaries ("Franklin"). Shares held by
Franklin represent holdings as reported on the most recent Form 13G filed with
the Securities and Exchange Commission, retroactively adjusted to reflect a 5%
stock dividend paid on March 30, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 19,513,797 shares
of Common Stock, $.01 par value, outstanding as of June 1, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's 1995 Annual Report
to Shareholders are incorporated by reference into Part II hereof and
specifically identified portions of the Company's definitive proxy statement to
be filed for its Special Meeting in Lieu of Annual Meeting of Shareholders to
be held on July 20, 1995 are incorporated by reference into Part III hereof.
<PAGE> 2
PATTEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I PAGE
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Acquisition of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Marketing and Sale of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Customer Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loan Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Collection Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sales of Loans/Pledging of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Loan Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
SUMMARY
Patten Corporation, a Massachusetts corporation organized in 1985, together
with its subsidiaries (the "Company"), is the successor to a real estate
business that was formed as a sole proprietorship in 1966. The Company's real
estate operations are managed under three divisions. The Land Division
acquires large acreage tracts of real estate which are subdivided, improved and
sold, typically on a retail basis. The Resorts Division acquires and develops
timeshare properties to be sold in weekly intervals in fully-furnished vacation
units. The Communities Division is engaged in the sale of factory built and
on-site constructed primary residential homes together with land parcels in
certain markets.
The Land Division is segregated into two broad property types offered for sale
to prospective customers, (i) land intended for near-term residential use and
(ii) land intended for general recreational use. Land intended for near-term
residential use is fully improved which generally includes the provision for
water, electricity and telephone as well as the construction of access roads
leading to the subdivided lots. About half of the Company's residential
properties are situated in locations that lend to their use as primary
homesites while the remaining properties are proposed as vacation or secondary
homesite subdivisions. General recreational property is typically used for
hunting, fishing and camping or as a potential homesite in the longer-term.
The Company's Resorts Division, introduced in 1994, is currently responsible
for the development, marketing and sale of a multiphase timeshare property
located in Gatlinburg, Tennessee, which was acquired by the Company in fiscal
1994. Additional acreage was purchased in neighboring Pigeon Forge, Tennessee
in February, 1995. The Pigeon Forge property represents the second, in an
intended series, of timeshare properties to be located in regional vacation
destinations.
The Company has also vertically integrated by offering construction and sale of
homes in certain markets. The Company's Communities Division, introduced in
1994, offers a site-built housing product outside of Charlotte, North Carolina
and Houston, Texas. In addition, factory built manufactured home and lot
packages are being marketed near Colorado Springs, Colorado and Sanford, North
Carolina.
The Company's Land, Resorts and Communities divisions accounted for 79.0%
or $72.6 million, 6.4% or $5.9 million and 14.6% or $13.4 million, respectively,
of consolidated sales of real estate for fiscal 1995. The field operating
profit/(loss) attributable to the Land, Resorts and Communities divisions
accounted for 100.6% or $18.9 million, .7% or $138,000 and (1.3)% or
$(247,000), respectively, of the Company's consolidated field operating profit
for fiscal 1995. See Item 7 of Part II below.
Since 1989, all acquisitions of land have required the prior approval of the
Company's investment committee, which currently consists of executive officers
of the Company (the "Investment Committee"). The Company seeks to reduce its
cash outlay and risks by making small downpayments when contracting to acquire
properties and by completing as many preparations for resale as possible before
actually completing the purchase. Although the Company has historically
acquired substantially all of the inventory it has placed under contract, its
downpayment and any preliminary development costs are the only amounts at risk
if it fails to complete the purchase. See further discussion under
"Acquisition of Inventory."
The Company seeks external sources of capital to fund its property
acquisitions. Such sources generally consist of seller or bank financing. See
Item 7 of Part II below. During fiscal 1995, 1994 and 1993, the Company
financed $23.1 million or 32.3%, $12.8 million or 33.3% and $9.3 million or
36.6%, respectively, of its consolidated property inventory, including
acquisition and development costs.
The Company begins to market parcels in its Land Division as soon as
practicable, with the sale of acquired properties typically being completed
within nine to 24 months from closing of the acquisition. The holding period
may be extended in areas where the subdivision approval process is more
complex. Land Division sales were $72.6 million, $60.3 million and $53.3
million for fiscal 1995, 1994 and 1993, respectively.
3
<PAGE> 4
To minimize the risk associated with holding its timeshare inventory, the
Resorts Division sells timeshare intervals while construction is underway.
Marketing of the first timeshare resort commenced in fiscal 1995 and through
year end (April 2, 1995), the project generated $5.9 million in reportable
sales. An additional $891,000 of sales were pending recognition subject to
completion of unit construction. For further information on the Company's
revenue recognition policy, see Note 1 to the Consolidated Financial Statements
which are incorporated by reference into Item 8, Part II herein from the
Company's 1995 Annual Report to Shareholders.
The Company seeks to minimize market exposure for inventory held by the
Communities Division by limiting the number of homes that are constructed or
purchased on a speculative basis. The Company attempts to obtain contracts for
the sale of its homes prior to proceeding with development. During fiscal
1995, the Communities Division generated sales of $13.4 million, consisting of
$4.9 million from the sale of site-built homes and $8.5 million from the sale
of manufactured homes. During fiscal 1994, the Communities Division generated
sales of $3.1 million. See further discussion under "Marketing and Sale of
Inventory."
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all purchasers who qualify for such financing. The Company also
offers financing of up to 90% of the purchase price to timeshare purchasers.
Communities Division sales are financed by third party lenders and accordingly,
the proceeds of such sales are received entirely in cash. The Company
structures its sales and financing activities so that the purchase money
mortgage loans (the "Receivables") arising from land sales and the contracts
for deed from timeshare sales may be pledged or sold in separate financing
transactions to provide liquidity for the Company. This liquidity allows the
Company to continue to provide financing for the sale of its real estate.
During fiscal 1995, 1994 and 1993, the Company received 23.5%, 34.1% and 43.7%,
respectively, of its aggregate sales of real estate which closed during the
period in the form of land and timeshare receivables and financed the remaining
amounts. See further discussion under "Customer Financing" and Item 7 of Part
II below.
The Receivables originated by the Company are typically packaged in portfolios
and sold, utilized as collateral in financing transactions, or combined in
pools that serve to support issuance of mortgage-backed securities (as either
debt or pass-through securities evidenced by interests in distributions from
such specific pools). In three instances, the Company has elected to have the
issuance of its mortgage-backed securities treated as Real Estate Mortgage
Investment Conduits ("REMICs"). This election permits favorable tax treatment
to investors who purchase securities collateralized by, or representing
undivided fractional interests in, mortgage obligations, which securities
generally have different maturity terms and payment priorities.
The Company's continued growth depends upon obtaining outside sources of
funding to finance new property purchases, fund operations, satisfy debt
obligations and provide loans to purchasers of parcels. In the past, the
Company has funded its activities through various sources, including borrowings
under secured and unsecured lines of credit, sales of Receivables and the sale
of debt and equity securities. These arrangements require the Company to
comply with certain covenants and retain certain contingent liabilities. As of
April 2, 1995, the Company had outstanding $34.7 million of 8.25% convertible
subordinated debentures, $19.5 million in mortgage-backed notes payable and
$20.4 million in lines of credit and notes payable, with an aggregate weighted
average interest rate on all such indebtedness of 9.3%. The Company
anticipates that it will continue to require external sources of funding. See
Item 7 under Part II below.
At April 2, 1995, the Company had 332 full-time and 35 part-time employees.
The Company's executive offices are located at 5295 Town Center Road, Boca
Raton, Florida 33486. Its telephone number at such address is (407) 361-2700.
The Company's common stock is listed on the New York Stock Exchange and on the
Pacific Stock Exchange under the symbol "PAT." The Company's 8.25% convertible
subordinated debentures due 2012 are also listed on the NYSE.
4
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ACQUISITION OF INVENTORY
In order to provide centralized and uniform controls on the type, location and
amount of inventory that the Company acquires, since 1989, all inventory
acquisitions have required the approval of the Investment Committee. The
Investment Committee is presently comprised of George F. Donovan, President and
Chief Executive Officer, Alan L. Murray, Treasurer and Chief Financial Officer,
Daniel C. Koscher, Vice President, Chief Accounting Officer and Assistant
Secretary, and Patrick E. Rondeau, Vice President, Director of Legal Affairs
and Clerk/Secretary (all of whom served as members of the Investment Committee
during fiscal 1995). The Investment Committee reviews each proposed
acquisition to determine whether the property to be acquired meets certain
criteria. The Investment Committee considers such established criteria as the
economic conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. Since May 1990, sales of
property approved by the Investment Committee have resulted in average gross
margins in excess of 55%. No assurances can be given that future sales of
property approved by the Investment Committee will yield comparable gross
margins. Prior to the formation of the Investment Committee, the determination
of whether to buy most properties was typically made by the Company's regional
managers, together with one or more members of the Company's senior management.
Land Division
The Land Division, through the Company's regional offices, and subject to
Investment Committee review and approval, typically acquires inventory that (i)
is located within one to three hours of a major city, (ii) is suitable for
subdivision, (iii) maintains attractive topographical features and (iv) based
upon anticipated resale value, will result in an acceptable profit margin and
cash flow to the Company. Properties acquired by the Company in fiscal 1995
ranged in size from 22 to 20,000 acres. Properties are generally subdivided
for resale into parcels ranging in size from one to 35 acres. In fiscal 1995,
the Company acquired 46,021 acres in 35 separate transactions for a total
purchase price of $28.1 million, or $611 per acre. These figures include a
single purchase consisting of 20,000 acres for a total purchase price of $3.0
million, or $150 per acre. Seller or bank financing of $19.0 million, or 67.6%
of the total purchase price, was obtained.
The Land Division has several specialists who assist regional management in
locating inventory for acquisition. The Company has established contacts with
numerous land owners and real estate brokers in many of its market areas, and
because of such contacts and its long history of acquiring properties, the
Company is generally in a favorable position to learn of available inventory.
The Company's objective is to develop strong relationships with major property
owners and brokers. Regional offices regularly contact property owners, such
as timber companies, financial institutions and real estate brokers, by a
combination of telephone, mail and personal visits. In addition, the Company
occasionally places advertisements in local and national newspapers indicating
an interest in acquiring land. To date, the Company's regional offices have
been able to locate and acquire adequate quantities of inventory which meet the
criteria established by the Investment Committee to support their operational
activities.
Once an appropriate property is located, the Company begins performing due
diligence procedures and enters into a purchase agreement with the seller. It
is generally the Company's policy to advance only a small downpayment of
approximately 1% to 4% of the total purchase price, when signing a contract to
acquire inventory and to limit the liquidated damages associated with
properties under contract for purchase to the amount of its downpayment and any
preliminary development costs. In most cases, the Company is not required to
advance the full purchase price or enter into a note payable obligation until
all regulatory approvals for the subdivision and sale of land have been
obtained. While local approvals are being sought, the Company will, in certain
instances, engage in test marketing of the subdivided parcels and, with the
consent of the seller and the knowledge of prospective purchasers, occasionally
attempt to pre-sell parcels, subject to closing its purchase of the property.
When substantially all approvals have been received, the closing on the
property occurs and the Company obtains title. The time between execution of a
purchase agreement and closing on a property has generally been six to 12
months. Although the Company generally retains the right to cancel purchase
agreements without any loss beyond forfeiture of the downpayment and
preliminary development costs, few purchase agreements have been canceled.
5
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By requiring, in most cases, that all regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy enables the
Company's Land Division to reduce (i) the time during which it actually owns
specific properties, (ii) the market risk associated with holding real estate
and (iii) the risk of acquiring property that may not be suitable for sale. It
also provides a source of available properties to meet customer demand. In
certain instances, however, the Company has acquired properties and then held
such properties until their prime marketing seasons.
As of April 2, 1995, the Land Division had aggregate downpayments of $290,000
associated with 9 properties under contract for purchase. Such properties
represent 15,771 acres with an aggregate purchase price of $14.2 million, or
$900 per acre.
Prior to closing on a purchase of inventory, the Company's policy is to
complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open
space, scenic vistas, recreation, transportation and community growth and
character. To obtain this information, the Company's acquisition specialists
typically consult with various groups and agencies including the appropriate
county and state planning agencies, environmental groups, state heritage
programs, soil conservation agencies and forestry groups. If the Company's
environmental assessment indicates that the proposed subdivision meets
environmental criteria and zoning, building, health and other laws, the Company
develops a formal land use plan, which forms a basis for determining an
appropriate acquisition price. The Company attempts, where possible, to
accommodate the existing topographical features of the land, such as streams,
hills, wooded areas, stone walls, farm buildings and roads. Prior to closing
on an acquisition, the Company will typically have the property surveyed by a
professional surveyor as well as have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company obtains
title insurance on the property.
Resorts Division
The Company's Resorts Division employs due diligence procedures similar to
those used by the Land Division in locating property for future timeshare
resorts. A full property review, including an environmental assessment, is
presented to the Investment Committee for approval prior to purchase. During
the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's
existing attractions to determine that there are a variety of recreational
opportunities available to prospective purchasers. While the Company's Land
Division inventory is expected to turn frequently, the Company anticipates that
its timeshare resorts will generally have a sell-out term in excess of five
years.
Communities Division
In fiscal 1994, the Company expanded its operations to include the construction
and sale of homes primarily as a means to accelerate lot sales in certain
slow-moving projects. The land supporting most of the residential subdivisions
was acquired by the Company in the late 1980's and is currently comprised of
certain properties in Colorado, North Carolina and Texas. In addition to
accelerating the sales of existing lots, the Company's future strategy for this
segment of operations is to seek to capitalize more on its land acquisition and
development expertise than on vertical home construction. Specifically, the
plan is to acquire and develop residential land to be sold to home builders.
Management views this business line as a low-cost, add-on operation which
complements its core retail land sales operation. The first property
introduced under this program consists of 60 acres located in Orlando, Florida.
The property is expected to be sold to a national home builder in fiscal 1996.
Although no assurances can be given, the Company believes that it can compete
effectively as a supplier of land to the home building industry in certain
markets and is actively seeking additional properties with similar demographics
in the southeast region of the United States.
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The Company's net inventory as of April 2, 1995 and March 27, 1994 summarized
by division and classified by major geographic region is set forth in the
tables below.
<TABLE>
<CAPTION>
APRIL 2, 1995
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GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- ----------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 16,658,079 (2) $ 1,115,914 $ --- $ 17,773,993
West . . . . . . . 9,356,508 (3) 433,933 --- 9,790,441
Midwest . . . . . . 7,777,934 (4) --- 5,240,911 13,018,845
Southeast . . . . . 2,781,785 11,575,971 --- 14,357,756
Northeast . . . . . 3,747,468 --- --- 3,747,468
Mid-Atlantic . . . 4,424,821 --- --- 4,424,821
Canada . . . . . . 273,348 --- --- 273,348
------------- ----------- ------------ -------------
Totals . . . . . . $ 45,019,943 $13,125,818 $ 5,240,911 $ 63,386,672
============= =========== ============ =============
MARCH 27, 1994
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GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- ----------------- ------------- --------------- ------------ -------------
Southwest . . . . . . $ 4,051,153 $ 1,134,688 $ --- $ 5,185,841
West . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Midwest . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southeast . . . . . . 6,808,053 4,394,360 --- 11,202,413
Northeast . . . . . . 4,587,051 --- --- 4,587,051
Mid-Atlantic . . . . 5,182,178 --- --- 5,182,178
Canada . . . . . . . 386,584 --- --- 386,584
------------- ------------ ------------ -------------
Totals . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
============= ============ ============ =============
</TABLE>
_________________
(1) Communities Division inventory as of April 2, 1995, consists of land
inventory of $9.9 million and $3.2 million of housing unit
construction-in-progress. As of March 27, 1994, the Communities Division
had $5.4 million of land inventory and $1.2 million of housing unit
construction-in-progress. The increase in land inventory is attributable
to infrastructure development. The Company did not acquire any additional
land inventory intended to be marketed and sold as part of the Communities
Division during fiscal 1995.
(2) During fiscal 1995, the Company acquired two large tracts of land in the
Southwest consisting of 1,434 acres in Texas at a purchase price of
approximately $6.1 million and 4,700 acres in New Mexico for approximately
$3.8 million.
(3) During fiscal 1995, the Company acquired approximately 20,000 acres in a
single transaction in Colorado for $3.0 million.
(4) During fiscal 1995, the Company acquired 1,515 acres in a single
transaction in Missouri for $2.3 million.
In the event that the market for real estate or the economy in general
experiences a downturn in the Company's principal markets, the Company's ability
to sell inventory at current rates of sale could be materially adversely
affected. For further information on the Company's inventory holdings, see
"Uses of Capital" under Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of Part II below.
MARKETING AND SALE OF INVENTORY
Land Division
In general, as soon as a property has been acquired and any appropriate
improvements have been completed, the Company establishes selling prices for
the individual parcels taking into account such matters as regional economic
conditions, quality as a building site, scenic views, road frontage and natural
features such as lakes, mountains, streams, ponds and wooded areas. The
Company also considers recent sales of comparable parcels in the area. Initial
decisions on pricing of parcels in a given area are made by the Company's
regional managers and, in all cases, are subject to approval by the Investment
Committee.
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The most widely used marketing technique is advertisement in major newspapers
in metropolitan areas located within a one to three hour drive from the
property, as well as local newspapers. A sales representative knowledgeable
about the property answers each call, discusses the property with the
prospective purchaser, attempts to ascertain the purchaser's needs and
determine whether the parcel would be suitable for that person, and arranges an
appointment for the purchaser to visit the property. Substantially all
prospective customers inspect a property before purchasing. The Land Division
also conducts direct mail campaigns to market property using brochures
describing available parcels, as well as television and radio advertising.
During fiscal 1995, the Land Division incurred $5.3 million in advertising
expense, or 7.2% of its sales of real estate.
The success of the Company's marketing efforts depends heavily on the knowledge
and experience of its sales personnel (substantially all of whom are employees
of the Company). The Company requires that prior to initiating the marketing
effort for a property, every sales representative walk the property and become
knowledgeable about each parcel and applicable zoning, subdivision and building
code requirements. Continued training programs are conducted, including
training with regional office sales managers, weekly sales meetings, and
frequent meetings with an executive officer of the Company. Additionally, the
sales staff is evaluated against performance standards established by the
executive officers of the Company. Substantially all of a sales
representative's compensation is commission-based.
The Company requires its sales staff to provide each customer with a written
disclosure statement regarding the real estate to be sold prior to the time the
customer signs a purchase agreement. Either a U.S. Department of Housing and
Urban Development ("HUD") lot information statement, where required, or a
Company generated "Vital Information Statement" sets forth relevant information
with respect to, and risks associated with, the property and is signed by every
purchaser. The Company believes that each information statement contains all
material and relevant information a customer requires to make an informed
decision as to whether or not to purchase, such as availability and estimated
cost of utilities, restrictions regarding property usage, status of access
roads and information regarding rescission rights.
After deciding to purchase a parcel, the buyer enters into a contract and pays
the Company a deposit of at least 10% of the purchase price. It is the
Company's policy to give all purchasers the right to cancel purchase agreements
within specified periods after execution in accordance with statutory
requirements. The closing of a land sale usually occurs two to eight weeks
after payment of the deposit. Upon closing of a land sale, the Company
delivers to the buyer a warranty deed and a recent survey of the property.
Title insurance is available at the purchaser's expense.
The following table sets forth certain information regarding sales of parcels
by the Land Division for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Number of parcels sold (1) . . . . . . 2,397 2,489 2,560
Average sales price per parcel (1) . . $ 30,969 $ 25,511 $ 21,368
Gross margins on Land Division sales . 57.2% 51.5% 46.7%
</TABLE>
_________________
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods. The
average sales price per parcel, excluding the effects of deferred sales,
was $30,296, $25,468 and $20,839 for fiscal 1995, 1994 and 1993,
respectively.
8
<PAGE> 9
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal years indicated.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------------------------
APRIL 2, 1995 MARCH 27, 1994 MARCH 28, 1993
----------------------------- ---------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1)
- ----------------- ------------ -------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Southwest . . . . . . . 1,107 $ 34,999 940 $ 27,140 740 $ 22,970
West . . . . . . . . . 339 32,033 242 34,180 292 26,785
Midwest . . . . . . . . 317 28,740 437 22,767 279 23,049
Southeast . . . . . . . 289 28,311 376 26,537 439 15,227
Northeast . . . . . . . 113 19,382 115 17,687 251 15,018
Mid-Atlantic . . . . . 215 23,136 367 20,700 545 23,538
Canada . . . . . . . . 17 10,160 12 13,037 14 12,101
----- -------- ----- --------- ------ ---------
Totals . . . . . . . . 2,397 $ 30,969 2,489 $ 25,511 2,560 $ 21,368
===== ===== =====
</TABLE>
_________________
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods.
For further information on sales attributable to the Company's Land Division,
see "Results of Operations" under Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 of Part II below.
Resorts Division
In the marketing and sale of timeshare intervals, the Company generally targets
family households in the middle income bracket who prefer outdoor recreational
activities at destination locations. The division employs various programs to
reach its target market. The primary means of marketing existing timeshare
property is through direct mail mini-vacation offerings. The division
provides hotel accommodations to prospective purchasers at substantially
reduced prices in exchange for them touring the timeshare resort. Timeshare
resorts are staffed with, among others, sales representatives and an on-site
manager who oversees the day-to-day operations. Sales personnel are generally
experienced in resort sales and undergo ongoing Company sponsored training.
During fiscal 1995, total advertising expense for the division was $1.4 million
or 23.2% of the $5.9 million in reportable sales. An additional $891,000 in
sales have been deferred subject to completion of unit construction. In total,
952 interval sales were made under the Resorts Division. The Company delivers a
deed to timeshare purchasers when the purchase price has been paid in full.
Communities Division
The Company entered the housing industry primarily as a means to accelerate lot
sales in certain markets. During fiscal 1995, the Communities Division sold
110 manufactured homes and accompanying lots for an average sale price of
$77,244. In addition, 23 site-built homes were sold for an average sale price
of $213,640. Marketing of home and lot packages is accomplished primarily
through a combination of print media, supplemented by television advertising.
The Company assists its customers in obtaining conventional bank financing
through local institutions, and accordingly, all sales are received in cash.
The closing on a house sale typically occurs two to six months after payment of
the deposit. Upon closing of a sale, the Company delivers to the buyer a
warranty deed and a recent survey of the property. Title insurance is
available at the purchaser's expense.
Total Sales
During fiscal 1995, sales attributable to the Company's Land, Resorts and
Communities divisions comprised $72.6 million or 79.0%, $5.9 million or 6.4%
and $13.4 million or 14.6%, respectively, of total consolidated revenues
9
<PAGE> 10
from sales of real estate. The Company was not involved in resort operations
and the communities operation was not material for fiscal 1994 and 1993.
The table set forth below outlines the Company's consolidated sales for all
divisions by geographic region for the fiscal years indicated.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED
-------------------------------------------------------------------------------
APRIL 2, 1995 MARCH 27, 1994 MARCH 28, 1993
---------------------- --------------------- ------------------------
GEOGRAPHIC REGION AMOUNT % AMOUNT % AMOUNT %
- ----------------- -------- ------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Southwest . . . . . . . . $ 40,612 44.2 % $ 24,244 38.2 % $ 16,015 30.0 %
West . . . . . . . . . . 14,381 15.7 8,432 13.3 7,710 14.5
Midwest . . . . . . . . . 14,184 15.4 10,645 16.8 6,222 11.7
Southeast . . . . . . . . 15,728 17.1 9,978 15.7 6,728 12.6
Northeast . . . . . . . . 2,190 2.4 2,034 3.2 3,794 7.1
Mid-Atlantic . . . . . . 4,654 5.0 7,899 12.5 12,710 23.8
Canada . . . . . . . . . 173 .2 157 .3 170 .3
-------- ----- -------- ----- --------- -----
Totals . . . . . . . . . $ 91,922 100.0 % $ 63,389 100.0 % $ 53,349 100.0 %
======== ===== ======== ===== ========= =====
</TABLE>
CUSTOMER FINANCING
During fiscal 1995, 1994 and 1993, the Company received in cash 76.5%, 65.9%
and 56.3%, respectively, of the aggregate purchase price of its sales of real
estate that closed during these periods and financed the remaining amounts.
The decrease in the percentage of sales financed by the Company is attributable
to (i) the program commenced by the Company in 1992 directed at obtaining
increased downpayments on financed sales of land real estate, (ii) an increased
willingness on the part of local banks in certain regions to extend more direct
customer lot financing and (iii) expansion of the Company's product lines to
include the construction and sale of homes, the proceeds of which are received
entirely in cash. The Company believes its financing is attractive to
purchasers because buyers find it convenient to handle all facets of the
purchase of real estate through a single source and because downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
Land Division
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all purchasers of its properties who qualify for such financing.
The term of repayment on the financing has historically ranged from five to 15
years although the Company, by offering reduced interest rates, has been
successful in encouraging customers during recent years to finance their
purchases over shorter terms and provide increased downpayments. Management
believes such strategy has improved the quality of its notes receivable in
recent years. A typical land mortgage currently underwritten by the Company
has a term of ten years, bears interest at a variable rate tied to the prime
lending rate and is secured by a first lien on the land. During fiscal 1995,
26% of land purchasers qualified for, and received, Company financing. Such
purchasers made an average downpayment of 22% of the purchase price.
Resorts Division
The Company also offers financing of up to 90% of the purchase price to its
timeshare purchasers. During fiscal 1995, almost all purchasers elected to
receive the Company's financing and provided an average downpayment of 17%.
The typical financing extended by the Company on a timeshare interval provides
for a term of seven years and a fixed interest rate. At the closing, the
Company delivers of a contract for deed to the purchaser. After the obligation
is paid in full, the Company delivers a deed to the purchaser.
10
<PAGE> 11
LOAN UNDERWRITING
Land Division
The Company has established loan underwriting criteria and procedures designed
to reduce credit losses on its loan portfolio. The loan underwriting process
includes reviewing the credit history and verifying employment of the
applicant, verifying income and calculating certain debt-to-income ratios. The
primary focus of the Company's underwriting is to determine the applicant's
ability to repay the loan in accordance with its terms. This assessment is
based on a number of factors, including the relationship of the applicant's
required monthly payment to disposable income. The Company also examines the
applicant's credit history through various credit reporting agencies. In order
to verify an applicant's employment status, the Company generally contacts the
applicant's employer and obtains current pay stubs and recent tax returns and
other tax forms. Loans by the Company are made solely to finance real estate
sold by the Company.
Customer financing on Land Division sales requires the submission of a
completed and signed credit application, purchase and sale agreement and
pre-authorized checking agreement accompanied by a voided check, if applicable,
to the credit department located at the Company's corporate headquarters where
all credit decisions are made. Loan amounts under $50,000 are approved by
designated personnel located in the Company's corporate headquarters. Loan
amounts of $50,000 or more require approval from a senior executive officer.
In addition, rejected applications and any material exceptions to the
underwriting policy are also reviewed by senior management. Customers are
notified of the reasons for credit rejection by mail.
The Company encourages customers to increase their downpayment and reduce the
loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is
one percent greater than the prevailing rate. During fiscal 1995,
approximately 93% of purchasers using the Company's financing participated in
the pre-authorized payment plan.
After the credit decision has been made, the credit department categorizes the
file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer.
Closings are typically conducted at the office of the Company's local attorney
or settlement agent, although in some cases the closing may take place at the
sales site or by mail.
When the original closing documents are received from the closing agent, the
Company verifies that the loan closed under terms approved by the Company's
credit department. A complete quality control audit is performed to verify
that required documents have been received and have been prepared and executed
correctly. If any corrections are required, notification is sent to the
regional office.
A loan file typically includes a copy of the signed security instrument, the
mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage
and an original note endorsement from the Company's subsidiary originating the
sale and the loan to the Company (if applicable). After the initial closing
documents are received, the recorded mortgage and assignment and original title
insurance policy are obtained in order to complete the loan file.
Resorts Division
The Company also extends financing for timeshare sales. Timeshare financing is
not subject to the same loan underwriting criteria established for Land
Division loans. Customer financing on timeshare sales requires (i) receipt of
a minimum downpayment of 10% of the purchase price and (ii) a contract for deed
and other closing documents between the Company and the customer. See
"Collection Policies" below.
11
<PAGE> 12
COLLECTION POLICIES
Land Division
Collection efforts and delinquency information are managed at the Company's
corporate headquarters. Servicing of the mortgage portfolio is handled by a
staff of experienced collectors, assisted by an on-line mortgage collection
computer system. Unless circumstances otherwise dictate, collection efforts
are generally made by mail and telephone. Collection efforts begin when an
account is ten days past due, at which time the Company mails a reminder letter
and attempts are made to contact the borrower via telephone to determine the
reason for the delinquency and to attempt to bring the account current. The
determination of how to work a delinquent loan is based upon many factors,
including the borrower's payment history and the reason for the current
inability to make timely payments. If no agreement is made or the borrower
does not abide by the agreement, collection efforts continue until the account
is brought current or legal action is commenced. If not accelerated sooner, the
Company declares the loan in default when the loan becomes 60 days delinquent.
When the loan is 90 days past due, the accrual of interest is stopped (unless
the loan is considered an in- substance foreclosure loan, in which case all
accrued interest is reversed since the Company's means of recovery in such
cases is determined to be through resale of the underling collateral and not
through collection on the note) and the Credit/Collection Manager determines
the action to be taken. Typically, such loans are foreclosed upon or the
related property is deeded back to the Company.
Resorts Division
Timeshare loans are documented by contracts for deed and the Company retains
title to the unit until the obligation is paid in full. Accordingly, no
foreclosure process is required in the event of a default. In the event that a
contract for deed becomes delinquent 10-15 days, a reminder letter is mailed to
the customer and telephone contact commences. If the customer fails to bring
the account current, a second letter is mailed when the account is 16-21 days
delinquent. After an account is 45 days delinquent, the Company typically
sends a third letter advising the customer that they have 15 days within which
to bring the account current. Under the terms of the contract for deed, the
borrower is in default when the account becomes 60 days delinquent. At this
time a default letter is sent advising the borrower that they have 30 days to
bring the account current or lose their contract interest in the timeshare
unit. When the account becomes 90 days delinquent, the Company forwards a
final letter informing the purchaser that their contract for deed has been
terminated. At such time, the timeshare interval can be resold to a new
purchaser.
At April 2, 1995, 1.8% or $738,000 of the aggregate $41.9 million principal
amount of Company-originated loans (land and timeshare) which were held by the
Company or sold through programs under which the Company has a recourse
liability were more than 30 days past due compared to 3.3% or $1.6 million of
the aggregate $48.9 million principal amount of such loans as of March 27,
1994. In cases of default on lot sales, the Company may take title to the
parcel in lieu of foreclosure. If the Company is unable to obtain a deed in
lieu of foreclosure, the Company forecloses on the mortgage securing such note.
As indicated above, timeshare loans represent contracts for deed and,
accordingly, no foreclosure process is required. Following a default on a
timeshare note, the contract for deed can be terminated. The Company recorded
loan loss provisions of $792,000, $795,000 and $400,000 for fiscal 1995, 1994
and 1993, respectively. In fiscal 1995, the Company charged $642,000 against
its reserve for loan losses to reflect the difference between the unpaid
balance of non-performing notes receivable and the estimated net realizable
value of the reacquired inventory, compared to $797,000 charged in fiscal 1994.
SALES OF LOANS/PLEDGING OF LOANS
Since 1986, the Company has sold or pledged, through its wholly-owned special
purpose financing subsidiaries, substantially all of its mortgage loan
originations, generally retaining the right and obligation to service the
loans. Generally, the Company transfers the mortgage loans to its special
purpose financing subsidiaries, which in turn enter into institutional
financing transactions or securitizations. The loans are typically sold with
limited or no recourse. In the case of loans pledged, the Company generally
must repurchase or replace mortgage loans which are more than 60 to 90 days
delinquent. At April 2, 1995, the Company was subject to limited recourse
requirements on approximately $1.8 million of Receivables sold. The
delinquency on such loans was immaterial at April 2, 1995. See Item 7 of Part
II below.
12
<PAGE> 13
The Company completed three REMIC transactions in 1989, 1992 and 1994. Under
the terms of these transactions, the Receivables are sold to a REMIC trust and
the Company has no obligation to repurchase the Receivables due to default by
the borrowers. The Company does, however, have the obligation to repurchase
the Receivables in the event that there is any material defect in the loan
documentation and related representations and warranties as of the time of
sale. The securities offered by the Company in REMIC financings have not been
registered under federal or state securities laws and may not be resold in the
United States absent registration or an applicable exemption from registration
requirements. See Notes 8 and 9 to the Consolidated Financial Statements which
are incorporated by reference into Item 8, Part II herein from the Company's
1995 Annual Report to Shareholders.
LOAN SERVICING
Mortgage loan servicing includes collecting payments from borrowers and
remitting such funds to the owners of or investors in such loans, accounting
for loan principal and interest, making advances when required, contacting
delinquent borrowers, foreclosing in the event that defaults are not remedied
and performing other administrative duties. The Company's obligation to
provide mortgage loan servicing and its rights to collect fees are set forth in
a servicing agreement. The Company has the obligation and right to service all
the loans it originates and retains the obligation and right with respect to
substantially all the loans it sells. The Company typically receives a
servicing fee of approximately .5% of the outstanding scheduled principal
balance which is deducted from payments received on substantially all of the
Company's servicing portfolio. At April 2, 1995, the Company's loan servicing
portfolio totaled $118.7 million.
CUSTOMER SERVICE
The Company emphasizes customer satisfaction and maintains a full-time customer
service representative in its Boca Raton headquarters to respond to customer
inquiries. At closing, all purchasers are provided with a toll-free customer
service phone number to facilitate any additional information requests.
Customer service surveys are sent to each purchaser to measure customer
satisfaction and to alert the Company to problems, if any.
REGULATION
The real estate industry is subject to extensive regulation. The Company is
subject to compliance with various federal, state and local environmental,
zoning and other statutes and regulations regarding the acquisition,
subdivision and sale of real estate and timeshare interests and various aspects
of its financing operations. The Company believes that it is in compliance in
all material respects with such regulations.
The Company's Land and Communities divisions are subject to the Interstate Land
Sales Full Disclosure Act which establishes strict guidelines with respect to
the marketing and sale of land in interstate commerce. HUD has enforcement
powers with respect to this statute. In some instances, the Company has been
exempt from HUD registration requirements because of the size or number of the
subdivided parcels and the limited nature of its offerings. The Company, at
its discretion, may formally request an exemption advisory opinion from HUD to
confirm the exempt status of any particular offering. Several such exemption
requests have been submitted to and approved by HUD. In those cases where the
Company and its legal counsel determine parcels must be registered to be sold,
the Company files registration materials disclosing financial information
concerning the property, evidence of title and a description of the intended
manner of offering and advertising such property. The Company bears the cost
of such registration, which includes legal and filing fees. Many states also
have statutes and regulations governing the sale of real estate. Consequently,
the Company regularly consults with counsel for assistance in complying with
federal, state and local law. The Company must obtain the approval of numerous
governmental authorities for its acquisition and marketing activities and
changes in local circumstances or applicable laws may necessitate the
application for, or the modification of, existing approvals. The expansion of
such regulation in recent years has increased the average time period from
acquisition to sale of certain property and has imposed additional compliance
costs.
The Company's Resorts Division offers vacation ownership to customers through
the sale of weekly intervals in fully furnished vacation homes. Vacation
ownership is the process by which weekly intervals or undivided, fee simple
interests, are sold in the vacation homes. Many state and local authorities
have imposed restrictions and
13
<PAGE> 14
additional regulations on developers of vacation ownership intervals. The
Company's first resort in Gatlinburg, Tennessee was subject to various
regulatory requirements including state and local approvals. Although these
restrictions have generally increased the cost of selling vacation ownership
intervals, the Company has not experienced material difficulties in complying
with such regulations or operating within such restrictions. The Company
provides its timeshare purchasers with a public disclosure statement in
compliance with state laws which contains, among other things, detailed
information about the surrounding vacinity, the resort and the purchaser's
rights and obligations as an interval owner.
The Company's customer financing activities are also subject to extensive
regulation, including without limitation, Truth-in-Lending-Reg. Z, Fair Debt
Collection Practices Act, Equal Credit Opportunity Act-Reg. B, Electronic Funds
Transfer Act-Reg. E, Home Mortgage Disclosure Act-Reg. C, Unfair or Deceptive
Acts or Practices-Reg. AA and Right to Financial Privacy Act. The Company
believes that it is in compliance in all material respects with such
regulations.
In fiscal 1988, the Company established regional operations in Ontario, Canada.
The Company's operations in Canada are subject to compliance with all
applicable Canadian federal and provincial environmental, zoning, financing and
other statutes regarding the acquisition, subdivision, financing and sale of
real estate. During fiscal 1995, 1994 and 1993, the Company's operations in
Canada accounted for .2%, .3% and .3%, respectively, of the Company's total
real estate sales during those periods.
Management is currently not aware of any pending regulatory contingencies that
are expected to have a materially adverse impact on the Company.
COMPETITION
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business, some of which are larger and have greater financial resources than
the Company. Competition may be generally smaller with respect to the
Company's lot sales in the more rural markets in which it operates. The
Company believes that it can compete on the basis of its reputation and the
price, location and quality of the products it offers for sale, as well as its
experience in land acquisition, development and sale. Although the Resorts
Division competes with various high profile and well established operators, the
Company believes that it can compete on the basis of its general reputation and
the price, location and quality of its timeshare resorts. In its customer
financing activities, the Company competes with banks, mortgage companies,
other financial institutions and governmental agencies offering financing of
real estate. The Company believes that, based on its interest rates and
repayment schedules, the financing packages it offers are competitive with
those of other institutions which offer such financing.
PERSONNEL
As of April 2, 1995, the Company had 332 full-time and 35 part-time employees,
70 of which are located at the Company's headquarters in Boca Raton, Florida
and 297 are located in regional offices throughout the United States and Canada
(the 297 field personnel include 5 divisional presidents, 14 regional and
district managers, 171 sales personnel, 9 acquisition specialists and 98
administrative and other support personnel). None of the Company's employees
are represented by a collective bargaining unit, and the Company believes that
relations with its employees generally are excellent.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George F. Donovan 56 President and Chief Executive Officer
Alan L. Murray 48 Treasurer and Chief Financial Officer
Daniel C. Koscher 37 Vice President, Chief Accounting Officer and Assistant Secretary
Patrick E. Rondeau 48 Vice President, Director of Corporate Legal Affairs and Clerk/Secretary
</TABLE>
GEORGE F. DONOVAN joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993 and Chief Executive
Officer in December 1993. Mr. Donovan also has served as an officer of a
number of other recreational real estate corporations, including Leisure
Management International, of which he was President from 1991 to 1993. From
1989 to 1991, Mr. Donovan served as President and Chief Executive Officer of
Thousand Trails, and from 1988 to 1989 he formed and operated the Donovan
Companies.
ALAN L. MURRAY joined the Company in July 1990 and was elected Treasurer in
September 1990. Mr. Murray was elected Chief Financial Officer in May 1991.
Prior to joining the Company, Mr. Murray had previously held the position of
President of Mount Holly, Inc. and Northeast Country Properties, Inc.,
practiced as a certified public accountant in southern Vermont and western
Massachusetts, held the position of corporate controller of Felters Company and
practiced as a certified public accountant in the audit department of Coopers &
Lybrand.
DANIEL C. KOSCHER joined the Company in 1986. He served as Divisional
Controller of the Company and subsequently as Director of Accounting until he
became Vice President and Chief Accounting Officer in June 1990. Prior to his
employment with the Company, Mr. Koscher held various accounting positions with
the William Carter Company, a manufacturing company located in Needham,
Massachusetts, and Cipher Data Products, Inc., a computer peripheral
manufacturer located in San Diego, California. Mr. Koscher also held the
position of audit agent for the State of Nevada.
PATRICK E. RONDEAU joined the Company in July 1990 and was elected Vice
President and Director of Corporate Legal Affairs in September 1990 and
Clerk/Secretary in February 1993. For more than five years prior to his
employment with the Company, Mr. Rondeau was a senior partner of Freedmen,
DeRosa & Rondeau, located in North Adams, Massachusetts, which firm serves as
legal counsel to the Company on various matters.
The Company's By-Laws provide that, except as otherwise provided by law or the
charter and by-laws of the Company, the President, Treasurer and the Clerk hold
office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period
unless a shorter time is specified in the vote appointing such officer or
officers.
ITEM 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida in
approximately 14,000 square feet of leased space. On April 2, 1995, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern and Western regions of the
United States as well as the Province of Ontario, Canada.
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time becomes
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of real estate. Additionally, from time to time, the Company
becomes involved in disputes with existing and former employees, occasionally
involving charges of wrongful acts by the Company and its officers or other
employees. The Company believes that substantially all of the above are
incidental to its business. The Company is currently a party to certain
claims, proceedings or disputes, some of which are in the administrative stage
and have not yet resulted in civil lawsuits. Based upon the information
available to it, the Company believes that it has various defenses to all
pending or threatened matters and intends to vigorously defend each of the
claims. Although the final results of these claims cannot be predicted with
certainty, it is the present opinion of the Company, after consulting with
counsel, that they will not have a materially adverse effect on the Company's
operations. See Note 11 to the Consolidated Financial Statements which are
incorporated by reference into Item 8, Part II herein from the Company's 1995
Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the NYSE and on the PSE under the
symbol "PAT." The Company's 8.25% Convertible Subordinated Debentures due 2012
are also listed on the NYSE. The following table sets forth, for the periods
indicated, the high and low sales price per share of Common Stock as reported
on the NYSE.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1995 (1):
First Quarter . . . . . . . . . . . . . . . . . . $3 7/8 $3
Second Quarter . . . . . . . . . . . . . . . . . . 3 7/8 2 7/8
Third Quarter . . . . . . . . . . . . . . . . . . 3 5/8 3
Fourth Quarter . . . . . . . . . . . . . . . . . . 3 3/4 2 7/8
High Low
---- ---
Fiscal 1994 (1):
First Quarter . . . . . . . . . . . . . . . . . . $3 7/8 $2 5/8
Second Quarter . . . . . . . . . . . . . . . . . . 4 1/8 3 1/8
Third Quarter . . . . . . . . . . . . . . . . . . 5 3 1/8
Fourth Quarter . . . . . . . . . . . . . . . . . . 4 3 1/8
</TABLE>
_________________
(1) Because the Common Stock dividends declared in April, 1994 and March, 1995
were not material in terms of number of shares issuable nor was the market
price materially affected, no adjustment to the high or low sales prices
has been made to the above table.
As of May 1, 1995, there were approximately 2,100 registered holders of record
of Common Stock and 5,000 holders of Common Stock in "street name."
No cash dividends have been declared on the Company's Common Stock since the
third quarter of fiscal 1990.
The registrar and transfer agent for the Company's Common Stock is Mellon
Securities Trust Company, c/o Mellon Securities Transfer Services of Ridgefield
Park, New Jersey 07660.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
The selected income statement data, operating data, balance sheet data and
asset quality ratios presented below for the fiscal years ended April 2, 1995,
March 27, 1994 and March 28, 1993 and as of April 2, 1995 and March 27, 1994
have been derived from the Company's Consolidated Financial Statements which
have been audited by Ernst and Young LLP, independent certified public
accountants, and which are incorporated by reference into Item 8, Part II
herein from the Company's 1995 Annual Report to Shareholders, together with its
report thereon, and such financial data are qualified by reference to such
financial statements. The selected data presented below for the years ended
March 29, 1992 and March 31, 1991 and as of March 28, 1993, March 29, 1992 and
March 31, 1991 are derived from the Company's audited consolidated financial
statements which are not included in Item 8, Part II herein.
The selected financial data set forth below should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are incorporated by reference into Item 8 and Item 7,
respectively, Part II herein from the Company's 1995 Annual Report to
Shareholders.
PATTEN CORPORATION
SELECTED FINANCIAL DATA
(Amounts in thousands except for per share data)
<TABLE>
<CAPTION>
APRIL 2, MARCH 27, MARCH 28, MARCH 29, MARCH 31,
1995 1994 1993 1992 1991(3)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Sales of real estate . . . . $ 91,922 $ 63,389 $ 53,349 $ 45,100 $ 63,691
Interest income (1). . . . . 7,264 7,952 10,191 16,515 17,966
--------- --------- --------- --------- ---------
Total revenues . . . . . . . 99,186 71,341 63,540 61,615 81,657
Income (loss) from
operations . . . . . . . . 10,029 6,778 3,604 1,089 ( 49,253)
Net income (loss). . . . . . 6,137 4,931 3,457 1,368 ( 32,189)
Net income (loss) per
common share . . . . . . . .30 .24 .17 .07 ( 1.66)
OPERATING DATA
- --------------
Gross margin on sales of
real estate (2) . . . . . 50.9% 51.5% 46.7% 36.3% 30.2%
Average sales price per
period on parcels sold . . $ 30,296 $ 25,468 $ 20,839 $ 20,967 $ 24,217
Number of land parcels sold. 2,397 2,489 2,560 2,151 2,630
Number of timeshare
intervals sold . . . . . 952 --- --- --- ---
Average sales price per
period on interval sales . $ 7,119 $ --- $ --- $ --- $ ---
Number of homes sold . . . . 133 44 --- --- ---
Average sales price per
period on home sales . . . $ 100,866 $ 70,044 $ --- $ --- $ ---
Average yield earned on
notes receivable at
period end . . . . . . . . 12.4% 10.9% 11.0% 12.1% 13.9%
BALANCE SHEET DATA
- ------------------
Notes receivable, net. . . . $ 39,269 $ 42,882 $ 32,772 $ 102,693 $ 106,923
Inventory, net . . . . . . . 63,387 40,114 31,126 33,749 34,600
Total assets . . . . . . . . 152,222 139,617 122,853 182,193 198,799
Short-term debt. . . . . . . --- --- 6,500 --- ---
Current portion of lines
of credit, notes payable
and mortgage backed debt . 10,856 5,741 5,684 13,503 16,549
Long-term portion of
lines of credit, notes
payable and mortgage
backed debt. . . . . . . . 29,090 31,556 14,418 76,209 89,969
8.25% convertible
subordinated debentures. . . 34,739 34,739 34,739 34,739 34,739
Shareholders' equity . . . . 58,040 51,854 46,868 43,378 42,010
Book value per common share. $ 2.98 $ 2.91 $ 2.74 $ 2.54 $ 2.46
Shares outstanding at end
of year (000's) . . . . . 19,471 17,796 17,083 17,061 17,061
ASSET QUALITY RATIOS
- --------------------
Inventory valuation reserve
to gross inventory (3) . . 3.6% 10.2% 17.1% 29.6% 43.4%
Charge-offs, net of
recoveries, to
average loans. . . . . . . 1.5% 2.1% 2.1% 1.3% 1.5%
Reserve for loan losses
to period end loans. . . . 2.0% 1.5% 1.9% 2.1% 2.6%
</TABLE>
_________________
17
<PAGE> 18
(1) Interest income for fiscal 1995, 1994 and 1993 includes a $411,000 loss, a
$238,000 loss and a $695,000 gain, respectively, from transactions relating
to the private sales of REMIC certificates.
(2) Gross margin is computed as the difference between the sale price and the
related cost of inventory, including the cost of improvements and
amenities, divided by the sale price.
(3) During fiscal 1991, the Company experienced a continued downturn in the
market for real estate, particularly in the Northeast. Accordingly,
significant provisions for the write-down of inventory to estimated net
realizable value and estimated loan losses were recorded which contributed
to the substantial net loss for the fiscal year. The Company's operating
results improved subsequent to fiscal 1991 due, in part, to the gradual
improvement in the real estate market as well as the Company's program to
liquidate inventory in the Northeast in favor of greater geographic
diversification in markets less affected by adverse market conditions. The
inventory reserve to gross inventory ratio has decreased in connection with
the liquidation of the related inventory previously reserved for.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information provided under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 18 - 25 of
the Company's 1995 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries and
the related notes thereto and the report of independent certified public
accountants on pages 26 - 40 of the Company's 1995 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the information
provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors
at Six and Election of Named Directors" and "Certain Transactions and Other
Information" in the Company's definitive proxy statement to be filed for its
Special Meeting in Lieu of Annual Meeting of Shareholders to be held on July
20, 1995 ("Proxy Statement"), which sections are incorporated herein by
reference. Information concerning the executive officers of the Company
appears in Part I of this Annual Report on Form 10-K.
The present members of the Board of Directors of the Company are:
Joseph C. Abeles, Trustee, Abel Associates Trust
George F. Donovan, President and Chief Executive Officer, Patten
Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
Stuart A. Shikiar, General Partner, Omega Advisors
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
SECTION 16 COMPLIANCE
The information provided under the heading "Section 16 Compliance" in the
Company's Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Six and Election of Named Directors," "Board of
Directors and its Committees," "Executive Compensation" and "Certain
Transactions and Other Information" in the Company's Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners: The information
provided under the heading "Proposals 1 and 2 - Fixing of Number of
Directors at Six and Election of Named Directors" in the Company's
Proxy Statement is incorporated herein by reference.
(b) Security ownership of management: The information concerning
beneficial ownership of the Company's common stock by its Directors
and executive officers provided under the heading "Proposals 1 and 2 -
Fixing of Number of Directors at Six and Election of Named Directors"
in the Company's Proxy Statement is incorporated herein by reference.
(c) Changes in control: None. For information regarding the sale of the
beneficial holdings of the Company's Common Stock formerly held by
Harry S. Patten, see "Certain Transactions and Other Information" in
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with management and others: The information provided
under the headings "Proposals 1 and 2 - Fixing of Number of Directors
at Six and Election of Named Directors," "Executive Compensation" and
"Certain Transactions and Other Information" in the Company's Proxy
Statement is incorporated herein by reference.
(b) Certain business relationships: The information concerning
relationships regarding Directors, or nominees for Director, that
exist or have existed during the Company's fiscal year ended April 2,
1995 provided
19
<PAGE> 20
under the headings "Proposals 1 and 2 - Fixing of Number of Directors
at Six and Election of Named Directors" and "Certain Transactions and
Other Information" in the Company's Proxy Statement is incorporated
herein by reference.
(c) Indebtedness of management: The information provided under the
heading "Certain Transactions and Other Information" in the Company's
Proxy Statement is incorporated herein by reference.
(d) Transactions with promoters: None.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) AND (a)(2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES.
1. The following Consolidated Financial Statements of the Company and its
subsidiaries and the report of independent certified public accountants
relating thereto, included in the Company's 1995 Annual Report to
Shareholders on the pages indicated, are incorporated by reference into Item
8 hereof:
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheets as of April 2, 1995 and March 27, 1994 . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Income for each of the three years in the period
ended April 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended April 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows for each of the three years in the period
ended April 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 - 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 - 40
</TABLE>
2. All financial statement schedules are omitted because they are not
applicable or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) LIST OF EXHIBITS.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 23 - 25 hereof, which Exhibit Index is incorporated herein by
reference.
(b) REPORTS ON FORM 8-K.
No reports of Form 8-K were filed during the last quarter of the period covered
by this report.
(c) EXHIBITS.
See (a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES.
None
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PATTEN CORPORATION
(Registrant)
Date: June 9, 1995 By /s/ GEORGE F. DONOVAN
-----------------------------------------------
George F. Donovan, President and Chief Executive
Officer
Date: June 9, 1995 By: /s/ ALAN L. MURRAY
-----------------------------------------------
Alan L. Murray, Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: June 9, 1995 By: /s/ DANIEL C. KOSCHER
-----------------------------------------------
Daniel C. Koscher, Chief Accounting Officer,
Vice President and Assistant Secretary
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 9th day of June, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- ----------------------------------
George F. Donovan
/s/ ALAN L. MURRAY Treasurer and Chief Financial Officer
- ---------------------------------- (Principal Financial Officer)
Alan L. Murray
/s/ DANIEL C. KOSCHER Chief Accounting Officer, Vice President
- ---------------------------------- and Assistant Secretary
Daniel C. Koscher (Principal Accounting Officer)
/s/ JOSEPH C. ABELES Director
- ----------------------------------
Joseph C. Abeles
/s/ RALPH A. FOOTE Director
- ----------------------------------
Ralph A. Foote
/s/ FREDERICK M. MYERS Director
- ----------------------------------
Frederick M. Myers
/s/ BRADFORD T. WHITMORE Director
- ----------------------------------
Bradford T. Whitmore
/s/ STUART A. SHIKIAR Director
- ----------------------------------
Stuart A. Shikiar
</TABLE>
22
<PAGE> 23
PATTEN CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
3.1 Restated Articles of Organization as amended (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended April 2, 1989).
3.2 By-laws of Registrant, as amended May 31, 1991 (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year ended March 31, 1991).
3.3 By-laws of the Registrant, as proposed to be amended and effective as of the day
immediately following the Special Meeting in Lieu of Annual Meeting for 1995.
4.4 Specimen of Common Stock Certificate (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-1, File No. 33-13076).
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's 8.25% Convertible
Subordinated Debentures Due 2012, including Form of Debenture (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-1, File No. 33-13753).
10.17 Registrant's 1988 Outside Directors Stock Option Plan (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year ended March 31, 1987).
10.24 Form of Agreement dated June 27, 1989 between Registrant and Peoples Heritage Savings Bank
relating to sale of mortgage notes receivable (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended April 2, 1989).
10.27 Registrant's Second Amended and Restated 1985 Stock Option Plan (incorporated by reference
to exhibit of same designation to Registration Statement on Form S-1, File No. 3-13753).
10.47 Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by
Patten Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and Patten
Corporation as Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended April 1, 1990).
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and Security Agreement entered
into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Greyhound Real Estate
Finance Company and Patten Corporation as Guarantor (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990).
10.58 Amendment to the Security Agreement entered into as of March 23, 1991, by Patten Receivables
Finance Corporation VI, Greyhound Real Estate Finance Company and Patten Corporation as
Guarantor (incorporated by reference to exhibit of same designation to Annual Report on
Form 10-K for the fiscal year ended March 31, 1991).
10.74 Waiver dated May 11, 1992 together with modification letter dated June 15, 1992 with respect
to the Amended Security Agreement entered into as of March 23,1991 by Patten Receivables
Finance Corporation VI, Greyhound Real Estate Finance Company and Patten Corporation as
guarantor (incorporated by reference to exhibit of same designation to Annual Report on
Form 10-K for the fiscal year ended March 29, 1992).
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 29, 1992).
10.79 Registrant's Retirement Savings Plan (incorporated by reference to Registration Statement
on Form S-8, File No. 33-48075).
</TABLE>
23
<PAGE> 24
PATTEN CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
10.81 Pooling and Servicing Agreement dated June 30, 1992 among Patten Corporation REMIC Trust,
Series 1992-1, Patten Corporation, Patten Receivables Finance Corporation VIII and
First Trust National Association as Trustee (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q for the period ended June 28, 1992).
10.82 Employment Agreement dated as of December 20, 1993 by and between Patten Corporation and
George F. Donovan (incorporated by reference to exhibit of same designation to Quarterly
Report on Form 10-Q for the period ended December 26, 1993).
10.84 Pooling and Servicing Agreement dated as of April 15, 1994, among Patten Receivables
Finance Corporation IX, Patten Corporation, Patten Corporation REMIC Trust, Series
1994-1 and First Trust National Association, as Trustee (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 27, 1994).
10.85 Loan and Security Agreement by and between Patten Corporation and Foothill Capital
Corporation dated as of October 29, 1993 (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended March 27, 1994).
10.86 First Amendment dated December 23, 1993 to Loan and Security Agreement by and between
Patten Corporation and Foothill Capital Corporation dated as of October 29, 1993
(incorporated by reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.87 Loan and Security Agreement dated as of June 11, 1993 by and among Patten Receivables
Finance Corporation III, Patten Corporation and General Electric Capital Corporation
(incorporated by reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.88 Amendment dated May 12, 1993 to Amended and Restated Loan and Security Agreement entered
into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Greyhound Real
Estate Finance Company and Patten Corporation as Guarantor (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 27, 1994).
10.89 Amendment dated February 18, 1994 to Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Greyhound
Real Estate Finance Company and Patten Corporation as Guarantor (incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 27, 1994).
10.90 Loan Agreement dated as of August 12, 1994 by and among Patten Homes, Inc., Patten
Corporation and Branch Banking and Trust Company (incorporated by reference to exhibit of
same designation to Quarterly Report on Form 10-Q for the period ended September 25, 1994).
10.91 Amendment dated June 29, 1994 to Amended and Restated Loan and Security Agreement entered
into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Greyhound Financial
Corporation and Patten Corporation as Guarantor (incorporated by reference to exhibit of
same designation to Quarterly Report on Form 10-Q for the period ended September 25, 1994).
10.92 Loan Agreement dated as of June 29, 1994 by and between Greyhound Financial Corporation and
Properties of the Southwest, Inc. (incorporated by reference to exhibit of same designation
to Quarterly Report on Form 10-Q for the period ended September 25, 1994).
</TABLE>
24
<PAGE> 25
PATTEN CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
10.93 Stock Purchase Agreement dated as of November 22, 1994 by and among Harry S. Patten and the
Purchasers named therein (incorporated by reference to exhibit of same designation to
Current Report on Form 8-K dated November 22, 1994).
10.94 Amendment dated December 14, 1994 to Amended and Restated Loan and Security Agreement entered
into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Greyhound Financial
Corporation and Patten Corporation as Guarantor.
10.95 Amended and Restated Loan and Security Agreement dated as of December 14, 1994, by and
between Greyhound Financial Corporation and Patten Corporation.
10.96 Registrant's 1995 Stock Incentive Plan.
11.1 Statement re: Computation of Earnings Per Share (such information is incorporated by reference
to the Statement of Income of the Consolidated Financial Statements appearing on page 24 of
the Company's 1995 Annual Report to Shareholders, which is an exhibit hereto).
13.1 1995 Annual Report to Shareholders (with the exception of the information incorporated by
reference included in Items 7 and 8, the 1995 Annual Report to Shareholders is not deemed
filed as part of this Annual Report on Form 10-K).
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
25
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED BY-LAWS
OF
PATTEN CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders
shall be held within six months after the end of the corporation's fiscal year
on such date, and at such place and time, as may be determined each year by the
board of directors. If in any year the annual meeting is not held within the
period specified above, a special meeting in lieu thereof may be held at a
later time and any elections held or business transacted at such meeting shall
have the same force and effect as if held or transacted at the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time by the president or by the board of directors and shall
be called by the clerk, or in case of the death, absence, incapacity or refusal
of the clerk, by any other officer, upon written application of one or more
stockholders who hold at least one tenth part in interest of the capital stock
entitled to vote thereat. Such application shall specify the purposes for which
the meeting is to be called and may designate the date, hour and place of such
meeting, provided, however, that no such application shall designate a date not
a full business day or an hour not within normal business hours as the date or
hour of such meeting without the approval of the president or the board of
directors.
SECTION 3. PLACE OF MEETINGS. Meetings of the stockholders may be
held any where within, but not without, the United States.
SECTION 4. NOTICE. Except as hereinafter provided, a written or
printed notice of every meeting of stockholders stating the place, date, hour
and purposes thereof shall be given by the clerk or an assistant clerk (or by
any other officer in the case of an annual meeting or by the person or persons
calling the meeting in the case of a special meeting) at least seven (7) days
before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, by law, by the articles of organization or by these by-laws,
is entitled to such notice, by leaving such notice with him or at his residence
or usual place of business or by mailing it, postage prepaid, addressed to him
at his address as it appears upon the records of the corporation. No notice of
the place, date, hour or purposes of any annual or special meeting of
stockholders need be given to a stockholder if a written waiver of such notice,
executed before or after the meeting by such stockholder or his attorney
thereunto authorized, is filed with the records of the meeting.
SECTION 5. ACTION AT A MEETING. Except as otherwise provided by the
articles of organization, at any meeting of the stockholders a majority of all
shares of stock then issued, outstanding and entitled to vote shall constitute
a quorum for the transaction of any business. Though less than a quorum be
present, any meeting may without further notice be adjourned to a subsequent
date or until a quorum be had, and at any such adjourned meeting any business
may be transacted which might have been transacted at the original meeting.
When a quorum is present at any meeting, the affirmative vote of a
majority of the shares of stock present or represented and entitled to vote
shall be necessary and sufficient to the determination of any questions brought
before the meeting, unless a larger vote is required by law, by the articles of
organization or by these by-laws, provided, however, that any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote in such election.
Except as otherwise provided by law or by the articles of organization
or by these by-laws, each holder of record of shares of stock entitled to vote
on any matter shall have one vote for each such share held of record by him and
a proportionate vote for any fractional shares so held by him. Stockholders
may vote either in person or by
<PAGE> 2
proxy. No proxy dated more than six months before the meeting named therein
shall be valid and no proxy shall be valid after the final adjournment of such
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the
exercise of the proxy the corporation receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving its invalidity shall rest on the
challenger.
Any election by stockholders and the determination of any other
questions to come before a meeting of the stockholders shall be by ballot if so
requested by any stockholder entitled to vote thereon but need not be
otherwise.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting
if all stockholders entitled to vote on the matter consent to the action in
writing and the written consents are filed with the records of the meetings of
stockholders. Such consents shall be treated for all purposes as a vote at a
meeting.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND ELECTION. There shall be a board of not less
than three directors. The number of directors for the ensuing year shall be
determined, and the number of directors so determined shall be elected, at the
annual meeting of the stockholders by such stockholders as have the right to
vote thereon, but the stockholders may, at any special meeting held for the
purpose, increase or decrease the number of directors as thus determined and
elect new directors to complete the number so determined or remove directors to
reduce the number of directors to the number so determined. Except as
otherwise provided by law or by the articles of organization, the board of
directors may, by vote of a majority of the directors then in office, increase
the number of directors determined by the stockholders and elect new directors
to complete the number so determined. No director need be a stockholder.
Notwithstanding the above, if there be only two stockholders the number of
directors may be not less than two, and whenever there shall be only one
stockholder the number of directors may not be less than one.
SECTION 2. TERM. Except as otherwise provided by law, by the articles
of organization or by these by-laws, the directors shall hold office until the
next annual meeting of stockholders and until their successors are chosen and
qualified.
SECTION 3. RESIGNATIONS. Any director may resign by delivering his
written resignation to the corporation at its principal office or to the
president or clerk or if there by one, to the secretary. Such resignation
shall become effective at the time or upon the happening of the condition, if
any, specified therein or, if no such time or condition is specified, upon its
receipt.
SECTION 4. REMOVAL. At any meeting of the stockholders called for the
purpose any director may be removed from office with or without cause by the
vote of a majority of the shares issued, outstanding and entitled to vote in
the election of directors. At any meeting of the board of directors any
director may be removed from office for cause by vote of a majority of the
directors then in office. A director may be removed for cause only after a
reasonable notice and opportunity to be heard before the body proposing to
remove him.
SECTION 5. VACANCIES. Vacancies in the board of directors may be
filled by vote of a majority of the remaining directors or, if not yet so
filled, by the stockholders.
SECTION 6. REGULAR MEETINGS. Regular meetings of the board of
directors may be held at such times and places within or without The
Commonwealth of Massachusetts as the board of directors may fix from time to
time and, when so fixed, no notice thereof need be given. The first meeting of
the board of directors following the annual meeting of the stockholders shall
be held without notice immediately after and at the same place as the annual
meeting of the stockholders or the special meeting held in lieu thereof. If in
any year a meeting of the board of directors is not held at such time and
place, any elections to be held or business to be transacted at such meeting
<PAGE> 3
may be held or transacted at any later meeting of the board of directors with
the same force and effect as if held or transacted at such meeting.
SECTION 7. SPECIAL MEETINGS. Special meetings of the board of
directors may be called at any time by the president or secretary (or, if there
be no secretary, the clerk) or by any director. Such special meetings may be
held anywhere within or without The Commonwealth of Massachusetts. A written,
printed or telegraphic notice stating the place, date and hour (but not
necessarily the purposes) of the meeting shall be given by the secretary or an
assistant secretary (or, if there be no secretary or assistant secretary, the
clerk or an assistant clerk) or by the officer or director calling the meeting
at least forty-eight (48) hours before such meeting to each director by leaving
such notice with him or at his residence or usual place of business or by
mailing it, postage prepaid, or sending it by prepaid telegram, addressed to
him at his last known address. No notice of the place, date or hour of any
meeting of the board of directors need be given to any director if a written
waiver of such notice, executed by him before or after the meeting, is filed
with the records of the meeting, or to any director who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him.
SECTION 8. ACTION AT A MEETING. At any meeting of the board of
directors, a majority of the directors then in office shall constitute a
quorum. Though less than a quorum be present, any meeting may without further
notice be adjourned to a subsequent date or until a quorum be had. When a
quorum is present at any meeting a majority of the directors present may take
any action on behalf of the board except to the extent that a larger number is
required by law, by the articles of organization or by these by-laws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the directors may be taken without a meeting if
all the directors consent to the action in writing and the written consents are
filed with the records of the meetings of the directors. Such consents shall
be treated for all purposes as a vote at a meeting.
SECTION 10. POWERS. The board of directors shall have and may
exercise all the powers of the corporation, except such as by law, by the
articles of organization or by these by-laws are conferred upon or reserved to
the stockholders. In the event of any vacancy in the board of directors, the
remaining directors then in office, except as otherwise provided by law, shall
have and may exercise all of the powers of the board of directors until the
vacancy is filled.
SECTION 11. COMMITTEES. The board of directors may elect from the
board an executive committee or one or more other committees and may delegate
to any such committee or committees any or all of the powers of the board
except those which by law, by the articles of organization or by these by-laws
may not be so delegated. Such committees shall serve at the pleasure of the
board of directors. Except as the board of directors may otherwise determine,
each such committee may make rules for the conduct of its business, but, unless
otherwise determined by the board or in such rules, its business shall be
conducted as nearly as may be as is provided in these by-laws for the conduct
of the business of the board of directors.
SECTION 12. MEETING BY TELECOMMUNICATIONS. Members of the board of
directors or any committee elected thereby may participate in a meeting of such
board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the corporation shall consist
of a president, a treasurer and a clerk and such other officers, including
without limitation a chairman of the board of directors, a secretary and one or
more vice presidents, assistant treasurers, assistant clerks and assistant
secretaries, as the board of directors may from time to time determine.
<PAGE> 4
SECTION 2. QUALIFICATIONS. No officer need be a stockholder or a
director. The same person may hold at the same time one or more offices unless
otherwise provided by law. The clerk shall be a resident of Massachusetts
unless the corporation shall have a resident agent. Any officer may be
required by the board of directors to give a bond for the faithful performance
of his duties in such form and with such sureties as the board may determine.
SECTION 3. ELECTIONS. The president, treasurer and clerk shall be
elected annually by the board of directors at its first meeting following the
annual meeting of the stockholders. All other officers shall be chosen or
appointed by the board of directors.
SECTION 4. TERM. Except as otherwise provided by law, by the articles
of organization or by these by-laws, the president, treasurer and clerk shall
hold office until the first meeting of the board of directors following the
next annual meeting of the stockholders and until their respective successors
are chosen and qualified. All other officers shall hold office until the first
meeting of the board of directors following the next annual meeting of the
stockholders, unless a shorter time is specified in the vote choosing or
appointing such officer or officers.
SECTION 5. RESIGNATIONS. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
president or clerk, or, if there be one, to the secretary. Such resignation
shall be effective at the time or upon the happening of the condition, if any,
specified therein or, if no such time or condition is specified, upon its
receipt.
SECTION 6. REMOVAL. Any officer may be removed from office with or
without cause by vote of a majority of the directors then in office. An
officer may be removed for cause only after a reasonable notice and opportunity
to be heard before the board of directors.
SECTION 7. VACANCIES. Vacancies in any office may be filled by the
board of directors.
SECTION 8. CERTAIN DUTIES AND POWERS. The officers designated below,
subject at all times to these by-laws and to the direction and control of the
board of directors, shall have and may exercise the respective duties and
powers set forth below:
THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the board of
directors, if there be one, shall, when present, preside at all
meetings of the board of directors.
THE PRESIDENT. The President shall have such powers as may
from time to time be delegated by the board of directors. The
president shall preside at all meetings of the stockholders and of the
board of directors, if he is present, unless there be a chairman of
the board of directors who is present at the meeting in which event
the chairman shall preside. The president shall be the chief
executive officer of the corporation.
THE TREASURER. The treasurer shall have such duties and
responsibilities as may be given to the officer by the Board of
Directors or by the chief executive officer.
THE CHIEF FINANCIAL OFFICER. The chief financial officer
shall have such duties and responsibilities as may be given to the
officer by the Board of Directors or by the chief executive officer.
THE CLERK. The clerk shall keep a record of all proceedings
of the stockholders and, if there be no secretary, shall also keep a
record of all proceedings of the board of directors. In the absence
of the clerk from any meeting of the stockholders or, if there be no
secretary, from any meeting of the board of directors, an assistant
clerk, if there be one, otherwise a clerk pro tempore designated by
the person presiding at the meeting, shall perform the duties of the
clerk at such meeting.
THE SECRETARY. The secretary, if there be one, shall keep a
record of all proceedings of the board of directors. In the absence
of the secretary, if there be one, from any meeting of the board of
directors, an
<PAGE> 5
assistant secretary, if there be one, otherwise a secretary pro
tempore designated by the person presiding at the meeting, shall
perform the duties of the secretary at such meeting.
SECTION 9. OTHER DUTIES AND POWERS. Each officer, subject at all
times to these by-laws and to the direction and control of the board of
directors, shall have and may exercise, in addition to the duties and powers
specifically set forth in these by-laws, such duties and powers as are
prescribed by law, such duties and powers as are commonly incident to his
office and such duties and powers as the board of directors may from time to
time prescribe.
ARTICLE IV
CAPITAL STOCK
SECTION 1. AMOUNT AND ISSUANCE. The total number of shares and the
par value, if any, of each class of stock which the corporation is authorized
to issue shall be stated in the articles of organization. The directors may at
any time issue all or from time to time any part of the unissued capital stock
of the corporation from time to time authorized under the articles of
organization, and may determine, subject to any requirements of law, the
consideration for which stock is to be issued and the manner of allocating such
consideration between capital and surplus.
SECTION 2. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates stating the number and the class and the
designation of the series, if any, of the shares held by him, and otherwise in
form approved by the board of directors. Such certificate or certificates
shall be signed by the president or a vice president and by the treasurer or an
assistant treasurer. Such signatures may be facsimiles if the certificate is
signed by a transfer agent, or by a registrar, other than a director, officer
or employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the time of its
issue.
Every certificate issued for shares of stock at a time when such shares
are subject to any restriction on transfer pursuant to the articles of
organization, these by-laws or any agreement to which the corporation is a
party shall have the restriction noted conspicuously on the certificate and
shall also set forth on the face or back of the certificate either (i) the full
text of the restriction or (ii) a statement of the existence of such
restriction and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
Every certificate issued for shares of stock at a time when the
corporation is authorized to issue more than one class or series of stock shall
set forth on the face or back of the certificate either (i) the full text of
the preferences, voting powers, qualifications and special and relative rights
of the shares of each class and series, if any, authorized to be issued, as set
forth in the articles of organization or (ii) a statement of the existence of
such preferences, powers, qualifications and rights and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
SECTION 3. TRANSFERS. The board of directors may make such rules and
regulations not inconsistent with the law, with the articles of organization or
with these by-laws as it deems expedient relative to the issue, transfer and
registration of stock certificates. The board of directors may appoint a
transfer agent and a registrar of transfers or either and require all stock
certificates to bear their signatures. Except as otherwise provided by law, by
the articles of organization or by these by-laws, the corporation shall be
entitled to treat the record holder of any shares of stock as shown on the
books of the corporation as the holder of such shares for all purposes,
including the right to receive notice of and to vote at any meeting of
stockholders and the right to receive any dividend or other distribution in
respect of such shares.
SECTION 4. RECORD DATE. The board of directors may fix in advance a
time, which shall be not more than sixty (60) days before the date of any
meeting of stockholders or the date for the payment of any dividend or the
<PAGE> 6
making of any distribution to stockholders or the last day on which the consent
or dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at such meeting and any adjournment thereof or the right to receive
such dividend or distribution or the right to give such consent or dissent, and
in such case only stockholders of record on such record date shall have such
right, notwithstanding any transfer of stock on the books of the corporation
after the record date; or without fixing such record date the directors may for
any of such purposes close the transfer books for all or any part of such
period.
SECTION 5. LOST CERTIFICATES. The board of directors may, except as
otherwise provided by law, determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, mutilated or destroyed.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall
begin on the first Monday following the closest Sunday to March 31 of any
calendar year and end on the closest Sunday to March 31 of any calendar year.
SECTION 2. CORPORATE SEAL. The seal of the corporation shall be in
such form as shall be determined from time to time by the board of directors.
SECTION 3. CORPORATION RECORDS. The original, or attested copies, of
the articles of organization, by-laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in The Commonwealth of Massachusetts at the
principal office of the corporation in said Commonwealth or at an office of the
transfer agent or of its clerk or of its resident agent, if any. Said copies
and records need not all be kept in the same office. They shall be available
at all reasonable times to inspection by any stockholder for any proper purpose
but not if the purpose for which such inspection is sought is to secure a list
of stockholders or other information for the purpose of selling said list or
information or copies thereof or of using the same for a purpose other than the
interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
SECTION 4. VOTING OF SECURITIES. Except as the board of directors may
otherwise prescribe, the president or the treasurer shall have full power and
authority in the name and on behalf of the corporation, subject to the
instructions of the board of directors, to waive notice of, to attend, act and
vote at, and to appoint any person or persons to act as proxy or attorney in
fact for this corporation (with or without power of substitution) at any
meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
SECTION 5. INDEMNIFICATION. To the extent that there are sums
available to be utilized for payment under any policy of insurance held by the
corporation, of fees, costs, charges or expenses of any officer or director of
the corporation who is a defendant in any action which is covered or which may
be covered by any policy of insurance held by the corporation, the corporation
shall not make payment to the officers or directors of such fees, costs or
expenses.
This by-law is intended solely to require the advancement of such fees,
costs, charges or expenses by the carrier, up to and including the policy
limited to and to the extent to require advancement thereof without regard to
any limitation or exception contained in any policy. This by-law in no way
affects the obligation of the corporation to any officer or director entitled
to payment of fees or expenses by the corporation.
<PAGE> 7
ARTICLE VI
CONTROL SHARE STATUTE
The provisions of Chapter 110D of the Massachusetts General Laws
("Chapter 110D") shall not apply to control share acquisitions (as defined in
Chapter 110D) of the corporation.
ARTICLE VII
AMENDMENTS
These by-laws may be amended or repealed at any annual or special
meeting of the stockholders by the affirmative vote of a majority of the shares
of capital stock then issued, outstanding and entitled to vote provided notice
of the proposed amendment or repeal is given in the notice of the meeting.
If authorized by the articles or organization, these by-laws may also
be amended or repealed in whole or in part, or new by-laws made, by the board
of directors except with respect to any provision hereof which by law, the
articles of organization or these by-laws requires action by the stockholders.
Not later than the time of giving notice of the meeting of stockholders next
following the making, amendment or repeal by the directors of any by-laws,
notice thereof stating the substance of such change shall be given to all
stockholders entitled to vote on amending the by-laws. Any by-law to be made,
amended or repealed by the directors may be amended or repealed by the
stockholders.
<PAGE> 1
Exhibit 10.94
AMENDMENT NO. 10 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY THIS AMENDMENT NO. 10 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment No. 10") dated as of December 14, 1994, PATTEN
RECEIVABLES FINANCE CORPORATION VI, a Delaware corporation ("Borrower"), and
GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender"), for good
and valuable consideration, the receipt of which is hereby acknowledged, hereby
confirm and agree as follows:
ARTICLE 1
INTRODUCTION
1.1 Lender, as successor-in-interest to Greyhound Real Estate Finance
Company, an Arizona corporation, and Borrower are parties to that Amended and
Restated Loan and Security Agreement dated as of January 9, 1990, as amended by
a June 12, 1990 letter amendment, a July 18, 1990 letter amendment, an August
31, 1990 Amendment No. 1 to the Amended and Restated Loan and Security
Agreement, a November 19, 1990 letter agreement, a March 23, 1991 Amendment No.
2 to the Amended and Restated Loan and Security Agreement, a November 21, 1991
Amendment No. 3 to the Amended and Restated Loan and Security Agreement, a
January 30, 1992 Amendment No. 4 to the Amended and Restated Loan and Security
Agreement, a May 11, 1992 letter agreement, an October, 1992 Amendment No. 5 to
the Amended and Restated Loan and Security Agreement, a December 14, 1992
letter agreement, a May 12, 1993 Amendment No. 6 to the Amended and Restated
Loan and Security Agreement, a February 18, 1994 Amendment No. 7 to the Amended
and Restated Loan Agreement, a March 25, 1994 Amendment No. 8 to Amended and
Restated Loan and Security Agreement, and a June 29, 1994, Amendment No. 9 to
Amended and Restated Loan and Security Agreement (collectively, the
"Agreement").
1.2 Borrower and Lender wish to amend the Agreement as more fully
provided below.
ARTICLE 2
AGREEMENT
2.1 Except as otherwise defined herein or unless the context
otherwise requires, capitalized terms used in this Amendment No. 10 shall have
the meaning given to them in the Loan Agreement.
2.2 Paragraph 9.12 of the Loan Agreement is deleted in its entirety
and the following is substituted in its place:
9.12 (a) Lender has entered into a Construction and Receivables Loan
and Security Agreement dated as of February 18, 1994, with Patten, the sole
stockholder and an affiliate of Borrower, which has been amended and restated
pursuant to an Amended and Restated Construction and Receivables Loan and
Security Agreement dated as of December 14, 1994 ("Mountainloft Loan
Agreement") pursuant to which Lender has agreed to make to Patten a
construction loan in the maximum amount of Three Million One Hundred Thousand
Dollars ($3,100,000) ("Mountainloft Construction Loan"; and the Mountainloft
Construction Loan and Mountainloft Receivables Loan collectively, "Mountainloft
Loans"), subject to the terms and conditions of the Mountainloft Loan
Agreement. Lender has entered into a Loan Agreement ("Lake Ridge Loan
Agreement") with Properties of the Southwest, Inc., a Delaware corporation
("PSI"), a wholly-owned subsidiary of Patten, pursuant to which Lender has
agreed to make to PSI a loan in an amount not to exceed Four Million Five
Hundred Thousand Dollars ($4,500,000) ("Lake Ridge Loan"; and the Mountainloft
Loans and Lake Ridge Loan collectively "Mountainloft/Lake Ridge Loans").
Lender is entering into or has entered into a Credit Facility Agreement ("Land
Inventory Credit Facility Agreement") with Patten pursuant to which Lender has
agreed to extend to Patten for use by Patten and its wholly-owned subsidiaries
a revolving line of credit in an amount not to exceed Five Million Dollars
($5,000,000) ("Land Inventory Credit Facility"). As used in this
<PAGE> 2
Agreement, the term "Other Credit Facilities" shall mean at any time, all other
loans and credit facilities then outstanding between PSI, Patten and/or any
Affiliate of Borrower on the one hand, and Lender on the other hand, including,
without limitation, the Lake Ridge Loan, the Mountainloft Loans, and the Land
Inventory Credit Facility; the term "Credit Facility" means any one of the
Other Credit Facilities or this Loan; the term "Lake Ridge Loan Documents"
shall mean the documents now or hereafter executed in connection with the Lake
Ridge Loan, as they may be from time to time renewed, amended, restated or
replaced; and the term "Land Inventory Credit Facility Documents" shall mean
the Land Inventory Credit Facility Agreement and all other documents now or
hereafter executed in connection with the Land Inventory Credit Facility, as
they may be from time to time renewed, amended, restated or replaced; and the
term "Other Credit Facilities Documents" shall mean the documents now or
hereafter executed in connection with the Other Credit Facilities, including,
without limitation, the Lake Ridge Loan Documents, the Mountainloft Loan
Documents, and the Land Inventory Credit Facility Documents, as they may be
from time to time renewed, amended, restated or replaced.
(b) An Event of Default under the Documents shall constitute an
"Event of Default" as that term is defined in any of the other Credit
Facilities, shall, without further condition or delay, permit Lender
to accelerate the payment of such Other Credit Facility, cease funding
under any Other Credit Facility or to foreclose its lien or security
interest on any of the collateral for such Other Credit Facility. An
"Event of Default" as that term is defined in any of the Other Credit
Facilities Documents and/or any act or event which, without further
condition or delay, permits Lender to accelerate the payment of any
Other Credit Facility and/or exercise its remedies to either cease
funding under such Other Credit Facility or foreclose its lien or
security interest on any collateral for any Other Credit Facility
shall constitute an Event of Default under the Documents.
(c) Without limiting the generality of any other provision
contained herein, the Security Interest granted by Borrower hereunder
and all collateral now or hereafter given under the Documents as
security for the Loan is intended to and does secure performance of
the obligations of Patten under the Mountainloft Documents
(collectively "Mountainloft Obligations") and all obligations of
Patten as borrower under the Land Inventory Credit Facility Documents;
and all collateral now or hereafter given under the Mountainloft
Documents as security for the Mountainloft Obligations and/or under
the Land Inventory Credit Facility Documents executed by Patten as
security for Patten's obligations as borrower under the Land Inventory
Credit Facility is intended to and does secure the Obligations.
(d) If an Event of Default exists and Lender is entitled to apply
the proceeds of the Receivables Collateral to the Obligations, it may
apply such proceeds to the Mountainloft Obligations and Patten's
obligations as borrower under the Land Inventory Credit Facility
Documents in such order and manner as Lender may determine.
(e) Notwithstanding anything in this Agreement to the contrary,
in no event shall Lender have any obligation to make any Advance if
after giving effect to the Advance, the sum of the Advance and the
unpaid principal balance of the Loan and the Lake Ridge Loan would
exceed Twenty-Four Million Five Hundred Thousand Dollars
($24,500,000). Notwithstanding anything in this Agreement or the Note
to the contrary, in no event may Borrower prepay the Loan in full
unless the Lake Ridge Loan and all other obligations under the Lake
Ridge Loan Documents are paid in full at the same time.
(f) Notwithstanding anything in this Agreement to the contrary,
in no event shall Lender have any obligation to make any Advance if
after giving effect to the Advance, the sum of the Advance and the
unpaid principal balance of the Loan and the Land Inventory Credit
Facility would exceed Twenty Million Dollars ($20,000,000).
(g) Neither (i) the exercise of the failure to exercise by Lender
of any rights or remedies conferred on it under the Other Credit
Facilities Documents, hereunder or existing at law or otherwise, or
against any security for performance of the Other Credit Facilities
Obligations, (ii) the commencement of an action at law or the recovery
of a judgment at law against another borrower ("Third Party Borrower")
under the Other Credit Facility Documents or any other obligor ("Third
Party Obligor") for the Other Credit Facilities Obligations and the
enforcement thereof through levy or execution or otherwise, (iii) the
taking or institution or any other
2
<PAGE> 3
action or proceeding against a Third Party Borrower or any other Third
Party Obligor nor (iv) any delay in taking, pursuing or exercising any
of the foregoing actions, rights, powers or remedies (even though
requested by Borrower) by Lender or anyone acting for Lender, shall
extinguish or affect the obligations of Borrower hereunder. Borrower
shall be and remain liable hereunder until all the Other Credit
Facilities Obligations until fully paid and performed and for one year
and one day after such payment and performance of all the Other Credit
Facilities Obligations under the Other Credit Facilities Documents
[and without limiting Borrower's obligations under paragraph 9.12(k)],
notwithstanding the previous discharge (total or partial) from further
liability of any Third Party Borrower or any Third Party Obligor.
(h) Borrower hereby expressly waives: (i) notice of the
existence, creation or non-payment of all or any of the Other Credit
Facilities Obligations except as otherwise provided in the Other
Credit Facilities Documents; (ii) presentment, protest, demand,
dishonor, notice of dishonor, pretest and all notices whatsoever with
respect to the Other Credit Facilities Obligations; (iii) all
diligence in collection or protection of or realization on the Other
Credit Facilities Obligations or any part thereof, any obligation
hereunder, or any security for or guarantee of any of the foregoing;
(iv) any defense based upon an election of remedies by Lender or
marshaling of assets; (v) any defense arising because of Lender's
election under Section 1111(b) (2) of the United States Bankruptcy
Code ("Bankruptcy Code") in any proceeding instituted under the
Bankruptcy Code; (vi) any defense based on post-petition borrowing or
the grant of a security interest by a Third Party Borrower under
Section 364 of the Bankruptcy Code; (vii) any duty on the part of
Lender to disclose to Borrower any facts Lender may now or hereafter
know about any Third Party Borrower, regardless of whether Lender has
reason to believe that any such facts materially increase the risk
beyond that which Borrower intends to assume or has reason to believe
that such facts are known to Borrower or has a reasonable opportunity
to communicate such facts to Borrower, because Borrower represents and
warrants that it is fully responsible for being and keeping informed
of the financial condition of Third Party Borrower and of all
circumstances bearing on the risk of non-payment of any obligation
guaranteed hereby; and (viii) any and all suretyship defenses and
defenses in the nature there of under Arizona and/or any other
applicable law, including, without limitation, the benefits of the
provisions of Sections 12-1641 through 12-1646, of the Arizona Revised
Statutes, Sections 17 and 21, A.R.C.P., and all other laws and
procedural rules of similar import.
(i) Without limiting the generality of the foregoing, Borrower
will not assert against Lender any defense of waiver, release,
discharge in bankruptcy, statute of limitations, res judicata, statute
of frauds, anti-deficiency statute, fraud, usury, illegality or
unenforceability which may be available to any Third Party Borrower
with respect to the Other Credit Facilities Documents, or any setoff
available to any Third Party Borrower against Lender, whether or not
on account of a related transactions.
(j) Anything else contained herein to the contrary
notwithstanding, Lender, from time to time, without notice to
Borrower, may take all or any of the following actions without in any
manner affecting or impairing the obligations of Borrower hereunder:
(i) obtain a lien on or a security interest in any property to secure
any of the Other Credit Facilities Obligations; (ii) retain or obtain
the primary or secondary liability of any party or parties, in
addition to Borrower, with respect to any of the Other Credit
Facilities Obligations; (iii) renew, extend or otherwise change the
time for payment or performance of any of the Other Credit Facilities
Obligations for any period; (iv) release or compromise any liability
of Borrower hereunder or any liability of any nature of any other
party or parties with respect to any of the Other Credit Facilities
Obligations; (v) exchange, enforce, waive, release and apply any
security for the performance of any of the Other Credit Facilities
Obligations and direct the order or manner of sale thereof as Lender
may in Lender's discretion determine; (vi) resort to the Receivables
Collateral for payment of any of the Other Credit Facilities
Obligations, whether or not Lender shall proceed against any other
party primarily or secondarily liable on any of the Other Credit
Facilities Obligations; (vii) agree to any amendment (including,
without limitation, any amendment which changes the amount of interest
to be paid under the Other Credit Facilities Documents or extends the
period of time during which any Third Party Borrower may obtain
advances of the Other Credit Facilities), any alteration of the Other
Credit Facilities Documents or any waiver of any of the provisions of
the Other Credit Facilities Documents and/or exercise Lender's rights
to consent to any action or non-action of any Third Party Borrower
which may violate the covenants and agreements contained in the Other
Credit Facilities Documents, with or without consideration of and on
such terms and conditions as may be acceptable
3
<PAGE> 4
to Lender; or (viii) exercise any of Lender's rights conferred by the
Other Credit Facilities Documents or by law.
(k) Notwithstanding anything herein to the contrary, if at any
time all or any part of any payment theretofore applied by Lender to
any of the Other Credit Facilities Obligations is or must be rescinded
or returned by Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Third
Party Borrower), such Other Credit Facilities Obligations, for
purposes of this paragraph 9.12, to the extent that such payment is or
must be rescinded or returned, shall be deemed to have never been
performed; and this paragraph 9.12 shall continue to be effective or
be reinstated, as the case may be, as to such Other Credit Facilities
Obligations, all as though such application by Lender had not been
made.
(l) Borrower shall have no right of subrogation with respect to
the Other Credit Facilities Obligations or any right of
indemnification, reimbursement or contribution from any Third Party
Borrower or from any other Third Party Obligor with respect to the
Other Credit Facilities Obligations regardless of any payment thereon
resulting from the provisions of this paragraph 9.12 and Borrower
hereby unconditionally waives any such right of subrogation,
indemnification, reimbursement or contribution.
2.3 Borrower will execute and deliver such further instruments
and do such things as in the sole and absolute judgment of Lender are necessary
or desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment No. 10 and any other documents executed in connection herewith,
including, without limitation, amendments to security loan documents and
financing statements.
2.4 This Amendment may not be amended or otherwise modified
except in a writing duly executed by the parties hereto.
2.5 If any one or more of the provisions of this Amendment is
held to be invalid, illegal or unenforceable in any respect or for any reason
(all of which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) of this Amendment shall not be in any respect impaired. In lieu
of each such unenforceable provision, there shall be added automatically as a
part of this Amendment a provision that is legal, valid and enforceable and is
similar in terms to such unenforceable provisions as may be possible.
2.6 This Amendment constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and this
Amendment and the Other Credit Facilities Documents, as amended hereby,
supersedes all prior written or oral understandings and agreements between the
parties in connection with its subject matter.
2.7 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.8 This Amendment may be executed in one or more counterparts,
and any number of which having been signed by all the parties hereto shall be
taken as one original.
2.9 Borrower and Lender hereby ratify and confirm the Loan
Agreement, as amended hereby, in all respects; and, except as expressly amended
hereby, the Loan Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF this instrument is executed as of the date set
forth above.
"BORROWER" PATTEN RECEIVABLES FINANCE
CORPORATION VI, a Delaware
corporation
By: ALAN L. MURRAY
--------------------------------------
Type/Print Name: ALAN L. MURRAY
-------------------------
Title: TREASURER
-----------------------------------
"LENDER" GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation
By: JACK FIELDS, III
--------------------------------------
Type/Print Name: JACK FIELDS, III
-------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------------
5
<PAGE> 1
Exhibit 10.95
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is
entered into as of December 14, 1994, by and between GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation, and PATTEN CORPORATION, a Massachusetts
corporation.
R E C I T A L S
A. Borrower and Lender entered into a Loan and Security Agreement
dated as of February 18, 1994 (as amended, "Existing Loan Agreement"). The
Existing Loan Agreement relates to a construction loan in a maximum aggregate
principal amount not to exceed $3,100,000 ("Existing Construction Loan") and
revolving line of credit receivables loan in a maximum principal amount not to
exceed $5,000,000.00 at any time.
B. Under the terms of the Existing Loan Agreement, the unpaid
principal balance of the Existing Construction Loan may not exceed $2,100,000
at any time and advances are to be made only for the purpose of paying or
reimbursing Borrower for expenses ("Phase One Expenses") incurred in connection
with the construction of the first phase of 18 units in the time-share resort
known as "Mountainloft" in Gatlinburg, Tennessee.
C. Borrower and Lender wish to amend and restate the Existing
Loan Agreement, subject to the terms and conditions set forth below, to allow
Borrower to obtain an advance of the Existing Construction Loan to reimburse
Borrower to satisfy the deed of trust lien in favor of Clayton Brown &
Associates, dated November 15, 1993, and recorded November 18, 1993, in Trust
Book 498, beginning at Page 624, in the Register's Office of Sevier County,
Tennessee, to allow Borrower to obtain advances of the Existing Construction
Loan for the purpose of paying or reimbursing Borrower for the Phase One
Expenses for expenses incurred in connection with the construction of the
second phase, consisting of 25 units, in the Mountainloft resort, and to
eliminate the restriction in the Loan Agreement that the unpaid principal
balance of the Existing Construction Loan not exceed $2,100,000.
1. DEFINITIONS
As used in this Agreement and the other Documents (as defined below)
unless otherwise expressly indicated in this Agreement or the other
Documents, the following terms shall have the following meanings (such
meanings to be applicable equally both to the singular and plural
terms defined).
1.1 "Acquisition Contract": that written agreement between Seller
and Borrower pursuant to which Borrower has purchased the Real
Property, Adjacent Property and certain other related personal
property.
1.2 "Acquisition Contract Assignment": a written assignment to be
delivered to Lender from Borrower and which grants to Lender a
perfected, direct, first and exclusive assignment, subject
only to the Permitted Encumbrances, of and security interest
in all of Borrower's right, title and interest in, to and
under the Acquisition Contract, as it may be from time to time
renewed, amended, restated or replaced.
1.3 "Adjacent Property": the real property described in EXHIBIT I.
1.4 "Adjacent Property Advance": the meaning given to it in
paragraph 2.1.
1.5 "Adjacent Property Advance Note": the "Adjacent Property
Advance Note" in form and substance identical to EXHIBIT D-1
to be made and delivered by Borrower to Lender pursuant to
this Loan Agreement and evidencing the Adjacent Property
Advance, as it may be from time to time renewed, amended,
restated or replaced."
<PAGE> 2
1.6 "Advances": the Construction Loan Advances and the
Receivables Loan Advances; and "Advance": one of the
Advances.
1.7 "Affidavit of Borrower": a sworn Affidavit of Borrower (and
such other parties as Lender may require) in the form of
EXHIBIT J-1D, to accompany a Construction Loan Advance Request
for a Work-Related Advance.
1.8 "Affiliate": with respect to any individual or entity, any
other individual or entity that directly or indirectly,
through one or more intermediaries, controls, or is controlled
by, or is under common control with, such individual or
entity.
1.9 "Agents": the Servicing Agent, the Lockbox Agent, and the
Contracts Escrow Agent.
1.10 "Agreement": this Amended and Restated Loan and Security
Agreement, as it may be from time to time renewed, amended,
restated or replaced.
1.11 "Applicable Usury Law": the usury law chosen by the parties
pursuant to the terms of paragraph 9.10 or such other usury
law which is applicable if such usury law is not.
1.12 "Architect/Engineer": an architect, design professional or
engineer employed by Borrower to perform architectural, design
or engineering services.
1.13 "Architect/Engineer Agreement": with respect to a Phase, a
contract (written or oral, now or hereafter in effect) between
Borrower and an Architect/Engineer for the performance of
architectural or engineering services in connection with such
Phase, as approved by Lender in writing and modified from time
to time with Lender's prior written consent.
1.14 "Articles of Organization": the charter, articles, operating
agreement, partnership agreement, by-laws and any other
written documents evidencing the formation, organization and
continuing existence of an entity.
1.15 "Borrower": Patten Corporation, a Massachusetts corporation;
and, subject to the restrictions on assignment and transfer
contained in this Agreement, its successors and assigns.
1.16 "Borrower's Assignment(s)": a written assignment or
assignments, including, without limitation, the Acquisition
Contract Assignment, Contracts Escrow Assignment, the
Time-Share Program Governing Documents Assignment and the
Time-Share Management Agreement Assignment, which may be
separate from and/or included within the Borrower's Mortgage,
executed by Borrower and creating in favor of Lender, as
security for the Performance of the Obligations, a perfected,
direct, first and exclusive assignment of, subject only to the
Permitted Encumbrances: all leases, sales contracts, rents and
sales and other proceeds pertaining to or arising from the
Real Property or any business of Borrower conducted thereon;
the Architect/Engineer Agreement(s), the Construction
Contract(s), and the other Contracts, Intangibles, Licenses
and Permits; as such assignments may be from time to time
renewed, amended, restated or replaced.
1.17 "Borrower's Mortgage": a deed of trust executed by Borrower
and under the terms of which Borrower has conveyed or granted
in favor of Lender, as security for the Performance of the
Obligations, a perfected, direct, first and exclusive priority
lien, subject only to the Permitted Encumbrances, upon the
Real Property and the Adjacent Property, as it may be from
time to time renewed, amended, restated or replaced.
1.18 "Borrower's Security Agreement": a written security agreement
which may be separate from and/or included within the
Borrower's Mortgage or this Agreement, executed by Borrower
and creating in favor or Lender, as security for the
Performance of the Obligations, a perfected, direct,
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<PAGE> 3
first and exclusive security interest, subject only to the
Permitted Encumbrances, in the Personal Property, as it may be
from time to time renewed, amended, restated or replaced.
1.19 "Borrower's Security Documents": the Borrower's Mortgage, the
Borrower's Security Agreement, the Borrower's Assignments,
this Agreement and all other documents now or hereafter
securing the Obligations, as they may from time to time
renewed, amended, restated or replaced.
1.20 "Borrowing Base": with respect to an Eligible Instrument an
amount equal to the lesser of:
(a) ninety percent (90%) of the unpaid principal balance of
such Eligible Instrument; or
(b) ninety percent (90%) of the present value of the
unmatured installments of principal and interest under
such Eligible Instrument, discounted at the higher of (i)
the applicable interest rate under the terms of the Note
or (ii) the Discount Rate.
1.21 "Business Day": any day other than a Saturday, Sunday or a
day on which banks in Phoenix, Arizona are required to close.
1.22 "Collateral": the Real Property, the Adjacent Property,
Personal Property, Receivables Collateral, Insurance Policies
and any and all other property now or hereafter serving as
security for the Performance of the Obligations, and all
products and proceeds thereof.
1.23 "Completion" or "Completion of the Work" with respect to a
Phase:
(a) completion of such Phase, in accordance with the Plans
and Specifications, the Construction Contract(s), all
applicable laws, regulations and private restrictions,
the Documents, sound construction, engineering and
architectural principles and commonly accepted
safety-standards, free of liens and free of defective
materials and workmanship;
(b) expiration of the statutory period in which mechanics'
liens and similar liens can be filed with respect to such
Phase; and
(c) receipt by Lender of the following in form and substance
satisfactory to it: (i) a certificate of completion from
Borrower and Architect and, if Lender elects, from
Lender's Inspector to the effect that such Phase has been
so completed, all utilities necessary to serve the Real
Property have been connected and are operating, the
Improvements are ready for occupancy for the intended
time-share purposes, and final payment is due under all
Construction Contract(s) between Borrower and a
Contractor; (ii) a certificate of occupancy (or its
equivalent) from the appropriate governmental authority
having jurisdiction over such Phase which has the effect
of allowing the use of Improvements for the intended
time-share purposes; (iii) if applicable laws provide
that the recording of a notice of completion will cause
the expiration upon a date certain of the statutory
period within which mechanics' and similar liens can be
filed, verification of the recording of such notice in
the manner prescribed by such laws; (iv)final lien
waivers; and (v) the re-issued title policy required
pursuant to paragraph 6.4(h).
1.24 "Construction Budget": with respect to a Phase, the detailed
budget cost itemization prepared by Borrower and approved in
writing by Lender which specifies by item the cost and source
of payment of: (a) all labor, materials and services necessary
for Completion of the Work in accordance with the Plans and
Specifications, the Construction Contract(s), the Documents,
all applicable laws, regulations and private restrictions,
sound construction, engineering and architectural principles,
and commonly accepted safety standards; (b) interest on the
portion of the Construction Loan to be allocated to such Phase
unless covered by the Construction Budget; and (c) all other
expenses incidental to the Construction Loan and the
Completion of the Work in connection with such Phase.
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<PAGE> 4
1.25 "Construction Contract": with respect to a Phase, a contract
(written or oral, now or hereafter in effect) between Borrower
and a Contractor, between a Contractor and any other person or
entity relating in any way to the construction of the
Improvements for such Phase, including the performing of labor
and the furnishing of equipment, materials or services (other
than architectural or engineering services), as approved by
Lender in writing and modified from time to time with Lender's
prior written consent.
1.26 "Construction Loan": the loan made pursuant to paragraph
2.1(a).
1.27 "Construction Loan Advance": an advance of the proceeds of
the Construction Loan by Lender on behalf of Borrower in
accordance with the terms and conditions of this Agreement.
1.28 "Construction Loan Advance Request": the written application
of Borrower for a Construction Loan Advance, on Lender's
standard forms specifying in the case of an application for a
Work-Related Advance by name and amount all parties to whom
Borrower is obligated for labor, materials, equipment or
services supplied for the performance of the Work and all
other expenses incidental to the Construction Loan, the Real
Property and the Completion of the Work, and requesting a
Construction Loan Advance for payment of such items,
accompanied by an Affidavit of Borrower and such schedules,
affidavits, releases, waivers, statements, invoices, bills and
other documents as Lender may reasonably request.
1.29 "Construction Loan Borrowing Term": the period commencing on
the date of this Agreement and ending on the close of the
Business Day on June 15, 1995.
1.30 "Construction Loan Commitment Fee": Thirty-One Thousand
Dollars ($31,000).
1.31 "Construction Loan Notes": the Adjacent Property Advance Note
and the Work-Related Advances Note.
1.32 "Contract for Deed": a contract for deed pursuant to which
Borrower has agreed to sell and a third party has agreed to
purchase a Time-Share Interest.
1.33 "Contracts Escrow": the escrow established with Contracts
Escrow Agent pursuant to paragraph 5.4.
1.34 "Contracts Escrow Agent": a licensed escrow agent reasonably
acceptable to Lender and Borrower, to be identified prior to
execution of the Contracts Escrow Assignment, or its successor
under the Contracts Escrow Assignment.
1.35 "Contracts Escrow Assignment": a written assignment to be
made among Borrower, Lender and Contracts Escrow Agent, which
grants to Lender a perfected, direct, first and exclusive
assignment of and security interest in (subject only to the
Permitted Encumbrances), all of Borrower's right, title and
interest in, to and under the Contracts Escrow, as it may be
from time to time renewed, amended, restated or replaced.
1.36 "Contractor": a contractor employed by Borrower to provide
labor and/or to furnish equipment, materials or services for
any portion of the Work.
1.37 "Contracts, Intangibles, Licenses and Permits": the property
so described in EXHIBIT M.
1.38 "Default Rate": the "Default Rate" as defined in and
determined under the Notes.
1.39 "Discount Rate": eleven and one-half percent (11.5%).
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<PAGE> 5
1.40 "Documents": the Notes, the Lockbox Agreement, the Servicing
Agreement, the Services and Fees Agreement, the Environmental
Certificate, this Agreement, the Borrower's Security Documents
and all other documents now or hereafter executed in
connection with the Loans, as they may be from time to time
renewed, amended, restated or replaced.
1.41 "Eligible Instrument": an Instrument which conforms to the
standards set forth in EXHIBIT B. An Instrument that has
qualified as an Eligible Instrument shall cease to be an
Eligible Instrument upon the date of the first occurrence of
any of the following: (a) any installment due with respect to
that Instrument becomes more than 59 days past due unless
cured to Lender's satisfaction; or (b) that Instrument
otherwise fails to continue to conform to the standards set
forth in EXHIBIT B.
1.42 "Environmental Certificate": an environmental certificate
executed by Borrower and such other persons or parties as
required by Lender in form and substance identical to EXHIBIT
C, as it may be from time to time renewed, amended, restated
or replaced.
1.43 "Event of Default": the meaning set forth in paragraph 7.1.
1.44 "Force Majeure Event": an "act of God", a fire, a strike, a
governmental order and/or injunction which is issued by a
court of competent jurisdiction for reasons other than for
Borrower's acts or omissions which would constitute a default
under this Agreement, or a similar event beyond Borrower's
reasonable control.
1.45 "Improvements": with respect to a Phase, (a) the improvements
to be constructed upon, added to or made to the Real Property
as part of such Phase; and (b) furniture, furnishings,
fixtures and/or equipment necessary for the Improvements, all
as set forth in the Plans and Specifications and the
Construction Contract(s) and as described in the Construction
Budget.
1.46 "Incentive Fee": the meaning given to it in paragraph 6.16(c).
1.47 "Incipient Default": an event which after notice and/or lapse
of time would constitute an Event of Default.
1.48 "Instrument": a Contract for Deed which has arisen out of the
sale of a Time-Share Interest by Borrower to a Purchaser.
1.49 "Insurance Policies": the insurance policies that Borrower is
required to maintain and deliver pursuant to paragraph 6.10.
1.50 "Lender": Greyhound Financial Corporation and its successors
and assigns.
1.51 "Lender's Inspector": the meaning given to it in paragraph
8.1.
1.52 "Loans": the Construction Loan and the Receivables Loan; and
"Loan": one of the Loans.
1.53 "Lockbox Agent": Bank One of Arizona, N.A., or its successor
as lockbox agent under the Lockbox Agreement.
1.54 "Lockbox Agreement": an agreement to be made among Lender,
Borrower and Lockbox Agent, which provides for Lockbox Agent
to collect through a lockbox payments under Instruments
constituting part of the Receivables Collateral and to remit
them to Lender, as it may be from time to time renewed,
amended, restated or replaced.
1.55 "Maximum Construction Loan Amount": Three Million One Hundred
Thousand Dollars ($3,100,000).
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<PAGE> 6
1.56 "Maximum Receivables Loan Amount": Five Million Dollars
($5,000,000).
1.57 "Minimum Equity": a cash expenditure to be made by Borrower
for the purpose of paying a portion of the construction costs,
which expenditure shall be equal to the difference, if any,
between the unpaid cost of Completion of the Work and the
Maximum Construction Loan Amount.
1.58 "Minimum Required Time-Share Approvals": all approvals
required from governmental agencies in order to sell
Time-Share Interests and offer them for sale at the Time-Share
Project.
1.59 "Notes": the Construction Loan Note and the Receivables Loan
Note; and "Note": one of the Notes.
1.60 "Obligations": all obligations, agreements, duties, covenants
and conditions of Borrower to Lender which Borrower is now or
hereafter required to Perform under the Documents.
1.61 "Opening Prepayment Date": the date (or if not a Business
Day, the first Business Day thereafter) two (2) years after
the date of the last Receivables Loan Advance.
1.62 "Partial Release Fee": with respect to a Time-Share Interest
to be released from the Borrower's Mortgage, an amount to be
paid at the time of each release and to be determined as
provided in the Borrower's Mortgage.
1.63 "Performance" or "Perform": full, timely and faithful
performance.
1.64 "Permitted Encumbrances": the rights, restrictions,
reservations, encumbrances, easements and liens of record
which Lender has agreed to accept as set forth in EXHIBIT E.
1.65 "Personal Property": the property described in EXHIBIT M.
1.66 "Phase": either of Phase One or Phase Two.
1.67 "Phase One": the first phase of the Resort, which phase
consists of eighteen (18) two bedroom, two bathroom
pre-fabricated Units, an owner center, maintenance building,
sales facility and necessary infrastructure.
1.68 "Phase Two": the second phase of the Resort which phase
consists of two connected buildings containing twenty-five
(25) pre-fabricated Units, with one building containing
fifteen (15) Units and the second building containing the
balance of the Units.
1.69 "Plans and Specifications": with respect to a Phase, the
architectural, structural, mechanical, electrical and other
plans and specifications for the construction of the
Improvements and the completion of the rest of the Work
prepared by Architect(s)/Engineer(s), as approved by Lender as
modified from time to time with Lender's prior written
consent.
1.70 "Prepayment Premium": an amount equal to (a) five percent
(5%) of the outstanding principal balance of the Receivables
Loan in the event of a prepayment of the Receivables Loan
occurring prior to the Opening Prepayment Date or (b) a
percent, determined in accordance with SCHEDULE 1, of the
outstanding principal balance of the Receivables Loan in the
event of a prepayment of the Receivables Loan occurring
subsequent to the Opening Prepayment Date.
1.71 "Principal Work-Related Items": with respect to a Phase, the
Plans and Specifications and all agreements between Borrower
and third parties pertaining to the Work, including, without
limitation, Construction Contract(s) and Architect/Engineer
Agreement(s), as approved by Lender in writing and modified
from time to time with Lender's prior written consent.
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1.72 "Property": the Real Property, Adjacent Property and Personal
Property.
1.73 "Purchaser": a purchaser who has executed a Contract for Deed.
1.74 "Real Property": the real property described in EXHIBIT L.
1.75 "Receivables Assignment": a written assignment of specific
Instruments and the proceeds thereof, delivered by Borrower to
Lender in the form of EXHIBIT A.
1.76 "Receivables Collateral": (a) the Instruments which are now
or hereafter assigned, endorsed or delivered to Lender
pursuant to this Agreement or against which an Advance has
been made; (b) all rights under all documents evidencing,
securing or otherwise pertaining to such Instruments; (c) the
Insurance Policies; (d) all Borrower's rights under any escrow
agreements and accounts pertaining to the foregoing; (e) all
files, books and records of Borrower pertaining to the
foregoing; and (f) the proceeds from the foregoing.
1.77 "Receivables Loan": the loan made pursuant to paragraph
2.1(b).
1.78 "Receivables Loan Advance": an advance of the proceeds of the
Receivables Loan by Lender on behalf of Borrower in accordance
with the terms and conditions of this Agreement.
1.79 "Receivables Loan Borrowing Term": the period commencing on
the date of this Agreement and ending on the close of the
Business Day (or if not a Business Day, the first Business Day
thereafter) on June 15, 1995.
1.80 "Receivables Loan Commitment Fee": Fifty Thousand Dollars
($50,000).
1.81 "Receivables Loan Maturity Date": the date (or if not a
Business Day, the first Business Day thereafter) which is
eighty-four (84) months from the date of the last Receivables
Loan Advance.
1.82 "Receivables Loan Note": the promissory note in form and
substance identical to EXHIBIT D-2 to be made and delivered by
Borrower to Lender pursuant to this Agreement and evidencing
the Receivables Loan Advances, as it may be from time to time
renewed, amended, restated or replaced.
1.83 "Required Completion Assurance Deposit": the definition given
to it in paragraph 6.4(k).
1.84 "Required Completion Date": June 15, 1995, plus such
additional time which is necessary to achieve Completion of
the Work and is due solely to the occurrence of one or more
Force Majeure Events.
1.85 "Resolution": a resolution of a corporation certified as true
and correct by an authorized officer of such corporation, a
certificate signed by the manager of a limited liability
company and such members whose approval is required, or a
partnership certificate signed by all of the general partners
of such partnership and such other partners whose approval is
required.
1.86 "Resort": the time-share resort located at 1149 East Parkway,
Gatlinburg, Tennessee, and being developed by Borrower, which
may ultimately include up to one hundred seventy (170) Units.
1.87 "Security Interest": a perfected, direct, first and exclusive
security interest, subject only to the Permitted Encumbrances,
in and charge upon the property intended to be covered by it.
1.88 "Seller": Clayton Brown & Associates.
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1.89 "Seller Carryback Lien": that Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing from Patten
Corporation, a Massachusetts corporation, to Joe M. Looney,
Trustee for Clayton Brown & Associates, dated November 15,
1993, filed for record November 18, 1993, in Trust Book 498,
Page 624, in the Register's Office of Sevier County,
Tennessee, as thereafter modified, which encumbered the
Adjacent Property.
1.90 "Servicing Agent": Borrower, or its successor as Servicing
Agent under the Servicing Agreement.
1.91 "Servicing Agreement": an agreement to be made between Lender
and Servicing Agent, which provides for Servicing Agent to
perform for the benefit of Lender accounting, reporting and
other servicing functions with respect to the Instruments
constituting part of the Receivables Collateral, as it may be
from time to time renewed, amended, restated or replaced.
1.92 "Term": the duration of this Agreement, commencing on the
date as of which this Agreement is entered into and ending
when all of the Obligations shall have been Performed.
1.93 "Third Party Consents": those consents which Lender requires
Borrower to obtain, or which Borrower is contractually or
legally obligated to obtain, from others in connection with
the transaction contemplated by the Documents.
1.94 "Time-Share Association": The Mountainloft Resort Condominium
Association, Inc., a Tennessee corporation, or such other
association which is provided for in the Time-Share
Declaration to manage the Time-Share Program and in which all
owners of Time-Share Interests will be members.
1.95 "Time-Share Declaration": that "Declaration of Condominium
for Mountainloft Resort, A Condominium," executed by Borrower,
dated March 11, 1994, and recorded on March 15, 1994, in
Official Records Book 516, beginning at Page 324 in the office
of the Register of Deeds, Sevier County, Tennessee, which
creates the Time-Share Program.
1.96 "Time-Share Interest": the estate described in EXHIBIT F in
the Time-Share Project.
1.97 "Time-Share Management Agreement": the management agreement
from time to time entered into between the Time-Share
Association and the Time-Share Manager for the management of
the Time-Share Program.
1.98 "Time-Share Management Agreement Assignment": a written
assignment to be delivered to Lender (and thereafter
redelivered as appropriate) from each Time-Share Manager which
is an Affiliate of Borrower and granting to Lender, as
security for the performance of the Obligations, a direct,
first and exclusive assignment of the Time-Share Management
Agreement, and as it may be from time to time renewed,
amended, replaced or restated.
1.99 "Time-Share Manager": the person from time to time employed
by Time-Share Association to manage the Time-Share Program.
1.100 "Time-Share Program": the program created pursuant to the
Time-Share Declaration by which Purchasers may own Time-Share
Interests in fee simple, enjoy their respective Time-Share
Interests on a recurring basis, and share the expenses
associated with the operation and management of such program.
1.101 "Time-Share Program Consumer Documents": the Instrument, deed
of conveyance, credit application, credit disclosures,
rescission right notices, final subdivision public
reports/prospectuses/public offering statements, exchange
affiliation agreement and other documents used or to be used
by Borrower in connection with the sale of Time-Share
Interests.
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1.102 "Time-Share Program Governing Documents": the Time-Share
Declaration, the Articles of Organization for the Time-Share
Association, any and all rules and regulations from time to
time adopted by the Time- Share Association, the Time-Share
Management Agreement and any subsidy agreement by which
Borrower is obligated to subsidize shortfalls in the budget of
the Time-Share Program in lieu of paying assessments.
1.103 "Time-Share Program Governing Documents Assignment": a
written assignment to be delivered to Lender from Borrower,
which grants to Lender a perfected, direct, first and
exclusive assignment of and security interest of, subject only
to the Permitted Encumbrances, Borrower's rights in, to and
under the Time-Share Program Governing Documents, as it may be
from time to time renewed, amended, restated or replaced.
1.104 "Time-Share Project": Phase One and Phase Two of the Resort
and such other phases of the Resort for which Borrower has
complied with the provisions of paragraph NS 6.5(a) and
6.5(b).
1.105 "Title Insurer (Borrower's Mortgage)": a title company which
is acceptable to Lender and issues the Title Policy
(Borrower's Mortgage).
1.106 "Title Insurer (Purchaser)": a title company which is
acceptable to Lender and issues a Title Policy (Purchaser).
1.107 "Title Policy (Borrower's Mortgage)": an LP-10/ALTA policy of
title insurance in an amount not less than Three Million One
Hundred Thousand Dollars ($3,100,000), insuring Lender's
interest in the Borrower's Mortgage as a perfected, direct,
first and exclusive lien on the Real Property and Adjacent
Property, subject only to the Permitted Encumbrances, issued
by Title Insurer (Borrower's Mortgage) and in form and
substance acceptable to Lender.
1.108 "Title Policy (Purchaser)": a policy of title insurance in an
amount not less than the Borrowing Base of an Instrument,
insuring Lender's interest in the Instrument as a perfected,
direct, first and exclusive lien on the Time-Share Interest
encumbered thereby, subject only to the Permitted
Encumbrances, issued by Title Insurer (Purchaser) and in form
and substance acceptable to Lender.
1.109 "Uncovered Cost of the Work": with respect to a Phase, the
amount equal to the excess (if any) of (a) the remaining
unpaid cost of Completion of the Work over (b) the committed
and undisbursed portion of the Construction Loan allocated to
such Phase and the remaining balance of any Required
Completion Assurance Deposits for such Phase held by Lender.
1.110 "Unit": a dwelling unit in the Resort.
1.111 "Work": with respect to a Phase, the construction of the
Improvements and the acquisition and installation of any and
all furniture, furnishings, fixtures and/or equipment required
for the time- share use of the Phase or by the terms of this
Agreement or shown on or described in the Plans and
Specifications or the Construction Contract(s) or as costs on
the Construction Budget.
1.112 "Work Progress Schedule": with respect to a Phase, the
schedule for the Completion of the Work and parts thereof, as
approved by Lender in writing.
1.113 "Work-Related Advances": all Construction Loan Advances
except the Adjacent Property Advance.
1.114 "Work-Related Advances Maturity Date": the date (or if not a
Business Day, the first Business Day thereafter) twenty-four
(24) months from the date of the initial Work-Related Advance.
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1.115 "Work-Related Advances Note": the promissory note in form and
substance identical to EXHIBIT D-3 to be made and delivered by
Borrower to Lender pursuant to this Agreement and evidencing
the Work-Related Advances, as it may be from time to time
renewed, amended, restated or replaced.
2. LOAN COMMITMENT; USE OF PROCEEDS; RIGHT OF FIRST REFUSAL
2.1 (a) Construction Loan Commitment; Determination of
Construction Loan Advance Amounts; Retainage. Lender
hereby agrees, if Borrower has Performed all the
Obligations then due, to make Construction Loan Advances.
Lender shall make to Borrower a Construction Loan Advance
("Adjacent Property Advance") in the amount of Nine
Hundred Twenty-Five Thousand Dollars ($925,000) to
reimburse Borrower for the payment made to satisfy and
discharge the Seller Carryback Lien. The amount of each
Work-Related Advance will be equal to the costs of the
Work covered by the applicable Construction Loan Advance
Request and allocated for payment out of the Construction
Loan within the Construction Loan Budget for the Phase in
which the Work is included less an amount equal to the sum
of (a) ten percent (10%) of the costs of such Work ("Basic
Retainage") and (b) any additional retainage ("Additional
Retainage") required under the Construction Contract(s);
provided, however, that Work-Related Advances will not be
made for stored or ordered materials not yet incorporated
into the Improvements. The Basic Retainage for a Phase
shall apply to all "hard" costs of the Work for such Phase
and to certain "soft" costs of the Work for such Phase
approved in writing by Lender concurrently with its
approval of the Construction Loan Budget. The Additional
Retainage will be disbursed as part of the next Advance
occurring after Lender has reasonably determined that a
Contractor is entitled to it under the applicable
Construction Contract. The Basic Retainage for a Phase
will be disbursed at the time of Substantial Completion
(as that term is defined in AIA Document A201, 1987
edition) of such Phase to the extent Contractor(s) are
then entitled to it under the Construction Contract(s)
between Borrower and such Contractor(s) prior to final
payment, subject to Lender's right to keep such portion of
the Basic Retainage for a Phase as it may determine to be
necessary to ensure Completion of the Work for such Phase,
with such retained portion to be disbursed promptly after
Completion of the Work for such Phase. Lender shall have
no obligation to make any Construction Loan Advance if
after giving effect to such Advance the sum of all such
Advances exceeds the Maximum Construction Loan Amount.
Furthermore, Lender shall have no obligation to make any
Work-Related Advance, if after given effect to such
Advance, the sum of (i) the unpaid principal balance of
all such Advances, (ii) the committed and undisbursed
portion of the Construction Loan and (iii) the Uncovered
Cost of the Work for all Phases for which Borrower has
requested a Work-Related Advance exceeds Two Million One
Hundred Seventy-Five Thousand Dollars ($2,175,000).
(b) Receivables Loan Commitment; Determination of Receivables
Loan Advance Amounts. Lender hereby agrees, if Borrower
has Performed all of the Obligations then due, to make
Receivables Loan Advances to Borrower for the purposes
specified in paragraph 2.3(b). The amount of a
Receivables Loan Advance shall be equal to (i) the
Borrowing Base of the Eligible Instruments less (ii) the
then unpaid principal balance of the Receivables Loan;
provided, however, at no time shall the unpaid principal
balance of the Receivables Loan exceed the Maximum
Receivables Loan Amount.
(c) Limitation on Total Amount of Advances. Lender shall have
no obligation to make any Advance if after giving effect
to the Advance the sum of (i) the unpaid principal
balances of the Construction Loan and the Receivables
Loan, (ii) the committed and undisbursed portion of the
Construction Loan, and (iii) the Uncovered Cost of the
Work for all Phases for which Borrower has requested a
Work- Related Advance exceeds Five Million Dollars
($5,000,000).
2.2 (a) Construction Loan Non-Revolving. The Construction Loan
shall be non-revolving. All Construction Loan Advances
shall be viewed as a single loan. Borrower shall not be
entitled
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to obtain Construction Loan Advances after the expiration
of the Construction Loan Borrowing Term unless Lender, in
its discretion, agrees in writing with Borrower to make
the Construction Loan Advances thereafter on terms and
conditions satisfactory to Lender. Upon Completion of the
Work, Lender may consider extending additional financing
for phases of construction of the Resort other than Phase
One and Phase Two, but such financing shall not exceed One
Hundred Five Thousand Dollars ($105,000) per Unit. Lender
is not and has not committed to provide any construction
financing in addition to the Construction Loan.
(b) Receivables Loan Revolver. The Receivables Loan is a
revolving line of credit; however, all of the Receivables
Loan Advances shall be viewed as a single loan. Borrower
shall be entitled to availability advances subject to the
limitations of paragraphs 2.1(b) and 2.1(c). Borrower
shall not be entitled to obtain Receivables Loan Advances
after the expiration of the Receivables Loan Borrowing
Term unless Lender, in its discretion, agrees in writing
with Borrower to make Receivables Loan Advances thereafter
on terms and conditions satisfactory to Lender.
(c) Continuation of Obligations Throughout Term. Whether or
not Borrower's right to obtain Advances has terminated,
this Agreement and Borrower's liability for Performance of
the Obligations shall continue until the end of the Term.
2.3 (a) Use of Construction Loan Advances. Borrower will use the
Adjacent Property Advance only for working capital and
other business purposes. Borrower will use Work-Related
Advances only to pay or reimburse itself for the line-item
expenses shown in the Construction Budgets for Phase One
and Phase Two. If the amount needed by Borrower for any
line-item expense set forth in a Construction Budget is
less than the budgeted amount of the line-item expense,
such excess may be re-allocated to other line-items as
approved by Lender in writing, such approval not to be
unreasonably withheld.
(b) Use of Receivables Loan Advances. Borrower will use the
proceeds of the Receivables Loan only for working capital
and other business purposes.
2.4 Lender's Right of First Refusal For Time-Share Project Financing.
Subject to the terms and conditions of this paragraph, Lender shall have the
right of first refusal with respect to all additional construction and
receivables financings for the Resort and/or the Time-Share Project. If
Borrower wishes to have a third party process an application from Borrower for
such financing or Borrower wishes to accept a third party's financing proposal
or a third party's commitment for such financing, Borrower must give Lender
notice of its intent to do so, together with (a) a written copy of Borrower's
application for the subject financing and the prospective third party
investor's agreement to process the application, a copy of the financing
proposal for the subject financing from the third party investor, or a copy of
the commitment for the subject financing from the third party investor, as the
case may be, and (b) all information and other materials delivered to such
prospective investor in connection with the proposed financing. As used above,
the term "application" means a written loan application for financing made by
Borrower which an investor has expressed a willingness to consider and for
which a financing proposal will not be issued as an intermediate step between
the application and the commitment; the term "financing proposal" means a
proposal made by an investor to provide financing to Borrower, which proposal
is an expression of intent by an investor to further consider providing
financing and must be accepted by Borrower as a condition precedent to the
investor's further consideration to providing the financing, but does not
constitute a firm and binding offer to provide financing; and the term
"commitment" means a firm and binding offer by an investor to provide
financing, subject only to approval by Borrower and the completion of due
diligence and closing conditions which do not involve further approval of the
type or amount of investment or the type or quantity of collateral or credit
enhancement by the investor's credit approval authorities. Lender shall have
twenty (20) days from receipt of Borrower's required notice with regard to the
subject financing and the items required to be given to it with such notice (a)
to issue a financing proposal, to extend financing to Borrower upon terms
financially equivalent to or better than those contained in the application,
financing proposal or commitment as the case may be, from the third party
investor or (b) to refuse to do so. Issuance of such a conditional
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financing proposal in a timely manner shall constitute adequate exercise
(albeit conditional) of Lender's right of first refusal. Failure to issue such
a conditional financing proposal in a timely manner shall be deemed to be an
election by Lender to refuse to make the newly requested financing to Borrower.
Lender's election not to make any newly requested financing shall not be deemed
a waiver of any of the terms and conditions of the Documents.
3. SECURITY
3.1 Grant of Security Interest in Receivables Collateral. To
secure the Performance of all of the Obligations, Borrower
hereby grants to Lender a Security Interest in and assigns to
Lender the Receivables Collateral. Such Security Interest
shall be absolute, continuing and applicable to all existing
and future Advances and to all of the Obligations. All of the
Receivables Collateral shall secure repayment of the Loans and
the Performance of the other Obligations. Borrower will
unconditionally assign and deliver to Lender, with full
recourse, all Instruments which are part of the Receivables
Collateral. Lender is hereby appointed Borrower's
attorney-in-fact to take any and all actions in Borrower's
name and/or on Borrower's behalf deemed necessary or
appropriate by Lender with respect to the collection and
remittance of payments (including the endorsement of payment
items) received on account of the Receivables Collateral;
provided, however, that Lender shall not take any action which
is described in paragraph 7.2(c) unless an Event of Default
exists.
3.2 Ineligible Instruments. If a previously Eligible Instrument
which is part of the Receivables Collateral ceases to be an
Eligible Instrument, then within thirty (30) days thereafter
Borrower will either (i) pay to Lender an amount equal to the
Borrowing Base of the ineligible Instrument (calculated
immediately before its ineligibility), together with interest,
costs and expenses, attributable thereto, or (ii) replace such
ineligible Instrument with an Eligible Instrument or Eligible
Instruments having a Borrowing Base in the aggregate not less
than the Borrowing Base of the ineligible Instrument being
replaced. Simultaneously with the delivery of the replacement
Eligible Instrument to Lender for an ineligible Instrument,
Borrower will deliver to Lender all of the items (except for a
"Request for Advance and Certification") required to be
delivered by Borrower to Lender pursuant to paragraph 4.1,
together with a "Borrower's Certificate" in form and substance
identical to EXHIBIT G. If no Event of Default or an
Incipient Default has occurred and is continuing, then within
a reasonable time after such payment or the delivery of a
replacement Eligible Instrument to Lender for an ineligible
Instrument, Lender will reassign and/or endorse to Borrower,
without recourse or warranty of any kind, the ineligible
Instrument. Borrower will prepare the reassignment
instrument, which shall be in form and substance identical to
EXHIBIT G-1, and shall deliver it to Lender for execution.
3.3 Maintenance of Security. Borrower will deliver or cause to be
delivered to Lender and will maintain or cause to be
maintained in full force and effect throughout the Term
(except as otherwise expressly provided in such Document), the
Borrower's Security Documents and all other security required
to be given to Lender pursuant to the terms of this Agreement.
3.4 Partial Releases from Borrower's Mortgage. Borrower shall be
entitled to the release of Time-Share Interests from the
Borrower's Mortgage according to the terms and conditions of
Borrower's Mortgage.
4. ADVANCES
4.1A General Conditions Precedent to Initial Advance. Lender's
obligation to make the initial Advance shall be subject to and
conditioned upon the terms and conditions set forth in the
following subparagraphs and elsewhere in this Agreement having
been satisfied:
(a) Documents. Borrower shall have delivered to Lender the
following Documents, duly executed, delivered and in form
and substance satisfactory to Lender:
(i) the Construction Loan Notes;
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(ii) the Receivables Loan Note;
(iii) the Borrower's Mortgage (it being the intent of
Borrower and Lender that such requirement shall
be satisfied by that Construction Deed of Trust
executed by Borrower in favor of Lender, dated
as of February 18, 1994, and recorded on March
4, 1994, in official records Book T510,
beginning at Page 89, in the office of the
Register of Deeds, Sevier County, Tennessee
("Existing Deed of Trust"), together with an
amendment ("Existing Deed of Trust Amendment")
to the Existing Deed of Trust in form and
substance satisfactory to Lender);
(iv) the Borrower's Security Agreement;
(v) the Acquisition Contract Assignment;
(vi) except as provided in subparagraph 4.1A(d), the
Time-Share Management Agreement Assignment;
(vii) except as provided in subparagraph 4.1A(d), the
Contracts Escrow Assignment;
(viii) except as provided in subparagraph 4.1A(d), the
Time-Share Program Governing Documents
Assignment;
(ix) the other Borrower's Assignments;
(x) the Environmental Certificate;
(xi) UCC financing statements for filing and/or
recording, as appropriate, where necessary to
perfect the Security Interest in the Collateral;
(xii) a favorable opinion or opinions from independent
counsel for Borrower in form and substance
substantially identical to EXHIBIT H;
(xiii) except as provided in subparagraph 4.1A(d), the
Lockbox Agreement;
(xiv) except as provided in subparagraph 4.1A(d), the
Servicing Agreement;
(xv) except as provided in subparagraph 4.1A(d), the
Services and Fees Agreement;
(xvi) the Title Policy (Borrower's Mortgage) (it being
the intent of Borrower and Lender that such
requirement shall be satisfied, if possible, by
Ticor Title Insurance Policy No. 43 6059 061
000000332 dated March 4, 1994 ("Existing Title
Policy"), together with an endorsement to the
Existing Title Policy insuring that the Existing
Deed of Trust has been modified by the Existing
Deed of Trust Amendment, dating the Existing
Title Policy down to the date of recording of
the Existing Deed of Trust Amendment, and
otherwise in form and substance satisfactory to
Lender);
(xvii) the Third Party Consents;
(xviii) this Agreement;
(xix) the documents necessary to modify the PRFC Loan
Documents [as defined in paragraph 10.1(a)] so
as to accomplish the purposes of paragraph
10.1(a); and
(xx) such other documents as Lender may reasonably
require.
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(b) Organizational; Time-Share Project and Other Due
Diligence Documents. Borrower shall have delivered to
Lender at least ten (10) Business Days (unless a longer
period is expressly specified) prior to the date of the
Advance:
(i) the Articles of Organization of Borrower;
(ii) the Resolutions of Borrower;
(iii) a Level I environmental assessment of the Real
Property and Adjacent Property;
(iv) evidence that all taxes and assessments on the
Property have been paid;
(v) a title commitment or preliminary title report
for the issuance of the Title Policy (Borrower's
Mortgage), together with copies of all documents
referred to therein;
(vi) unless waived in writing by Lender, a 1988
ALTA/ACSM survey map of the Real Property and
Adjacent Property prepared by a licensed land
surveyor acceptable to Lender, showing the Real
Property and Adjacent Property, evidence of
access to the Real Property and Adjacent
Property, all easements necessary to the
operation and use of the Real Property and
Adjacent Property, and such other details as
Lender may reasonably require;
(vii) all licenses and certificates for the use and
operation of the Real Property and Adjacent
Property for time-share and other intended uses,
including certificates of occupancy and
environmental permits;
(viii) evidence the Real Property and Adjacent Property
is zoned for time-share and other intended uses;
(ix) the Minimum Required Time-Share Approvals;
(x) except as provided in subparagraph 4.1A(d), a
copy of the Time-Share Program Consumer
Documents and the Time-Share Program Governing
Documents;
(xi) the Insurance Policies;
(xii) evidence that the Real Property and Adjacent
Property is not located within a flood prone
area and drainage information;
(xiii) the Acquisition Contract;
(xiv) evidence of the availability of utilities
necessary to serve the Real Property and
Adjacent Property for time-share and other
intended uses;
(xv) evidence of parking for the Real Property
adequate for time-share and other intended uses;
(xvi) a copy of the currently available portion of the
as-built plans and specifications for the Real
Property;
(xvii) a soils test report with respect to the
suitability of the soils on the Real Property
for purposes of constructing the Improvements;
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(xviii) all leases of space or any interest therein to
third parties within the Real Property and
Adjacent Property;
(xix) the items described in paragraph 4.1B if the
Advance includes a Work-Related Advance and the
items described in paragraph 4.1F if the Advance
includes a Receivables Loan Advance;
(xx) in addition to the bonds required pursuant to
the provisions of EXHIBIT J-1, if (A) the
requested Advance is a Work-Related Advance in
respect of Work for Phase Two and (b) Completion
of the Work on that portion of Phase One Units
("Phase One Common Area/ Infrastructure")
excluding the Phase One Units has not occurred,
a payment and performance bond satisfactory to
Lender to ensure lien-free completion of the
incomplete Phase One Common Area/ Infrastructure
issued by a surety and otherwise in form and
substance satisfactory to Lender;
(xxi) evidence that Borrower continues to have
invested in the Property an amount equal to the
Minimum Equity; and
(xxii) such other items as Lender requests which are
reasonably necessary to evaluate the request for
the Advance and the satisfaction of the
conditions precedent to the Advance.
(c) Lender shall have received the following in form and
substance satisfactory to Lender:
(i) seven-year debt maturity schedule for Borrower;
(ii) current lien, litigation and judgment searches
for Borrower conducted in such jurisdictions as
Lender deems appropriate;
(iii) a Dun and Bradstreet report with respect to
Borrower;
(iv) the results of a site inspection to be made by
Lender's employees;
(v) the report of Lender's Inspector with respect to
the Budget, Plans and Specifications, Contracts,
Work Progress Schedule, and other
construction-related items; and
(vi) the pro-forma operating budget of the Time-Share
Association.
(d) Deferral of Satisfaction of Certain Conditions. Borrower
may defer satisfaction of the conditions specified in
items (ix) and (x) of subparagraph 4.1A(b) for a Phase
until the earlier of (i) ten (10) days prior to the first
Work-Related Advance in respect of such Phase, or (ii)
ten (10) days prior to the first Receivables Loan Advance
against Instruments arising from the sale of Time- Share
Interests in such Phase.
4.1B Additional Conditions Precedent for Initial Work-Related
Advance. For the initial Work-Related Advance, Lender's
obligation to make such Advance shall be subject to the
additional terms and conditions set forth in the following
subparagraphs and elsewhere in this Agreement:
(a) Borrower shall have satisfied all conditions set forth in
paragraph 4.1A; and
(b) Borrower shall have satisfied the terms and conditions
set forth in EXHIBIT J-1, including delivery to Lender of
the items called for therein at least ten (10) Business
Days prior to the date of such Work-Related Advance or
such longer period as may be described in EXHIBIT J-1.
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4.1C Additional Conditions Precedent for Subsequent Work-Related
Advance. For each Work-Related Advance after the initial
Work-Related Advance, Lender's obligation to make such Advance
shall be subject to the terms and conditions set forth in
EXHIBIT J-1A, including delivery to Lender of the items called
for therein at least ten (10) Business Days prior to the date
of such Work-Related Advance. In addition, prior to the first
Work-Related Advance for a Phase of Construction other than
Phase One or Phase Two, Borrower shall have delivered to
Lender the items required in EXHIBIT J-1.
4.1D Additional Conditions Precedent for Initial Receivables Loan
Advances. For the initial Receivables Loan Advance, Lender's
obligation to make such Receivables Loan Advance shall be
subject to the additional terms and conditions set forth in
the following subparagraphs and elsewhere in this Agreement:
(a) Borrower shall have satisfied all conditions set forth in
paragraph 4.1A;
(b) Borrower shall have satisfied the terms and conditions
set forth in EXHIBIT J-2, including delivery to Lender of
the items called for therein at least five (5) Business
Days prior to the date of such Receivables Loan Advance;
and
(c) such legal opinions as Lender may require in its
discretion from Borrower's and Lender's counsel.
4.1E Additional Conditions Precedent for Subsequent Receivables
Loan Advances. For each Receivables Loan Advance after the
initial Receivables Loan Advance, Lender's obligation to make
such Receivables Loan Advance shall be subject to the terms
and conditions set forth in EXHIBIT J-2, including delivery of
the items called for therein at least five (5) Business Days
prior to the date of such Receivables Loan Advance.
4.1F General Conditions Precedent to All Advances. Lender's
obligation to fund any Advance is subject to and conditioned
upon the additional terms and conditions set forth in the
following subparagraphs remaining satisfied at the time of
such Advance:
(a) No material adverse change shall have occurred in the
Time-Share Project or in Borrower's business or financial
condition since the date of the latest financial and
operating statements given to Lender by or on behalf of
Borrower.
(b) There shall have been no material, adverse change in the
warranties and representations made in the Documents by
Borrower and/or any surety for the performance of the
Obligations.
(c) Neither an Event of Default nor Incipient Default shall
have occurred and be continuing.
(d) The interest rate applicable to the Advance (before
giving effect to any savings clause) will not exceed the
maximum rate permitted by the Applicable Usury Law.
(e) Borrower shall have paid to Lender the Commitment Fees
and all other fees required to be paid at the time of the
Advance.
(f) Borrower shall not be entitled to any Advance unless on
or before December 20, 1994, all Documents have been
executed by persons required to do so and all conditions
precedent to the Adjacent Property Advance has been
satisfied.
4.1G Conditions Satisfied at Borrower's Expense. The conditions to
Advances shall be satisfied by Borrower at its expense.
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4.2 Limitations on Amount and Frequency of Advances Requests and
Administration Fees. Work-Related Advances and Receivables
Loan Advances shall not be made in amounts less than One
Hundred Thousand Dollars ($100,000) or, if less, the remaining
undisbursed amount of the Loan from which sought. Work-
Related Advances shall not be made more frequently than
monthly. Receivables Loan Advances shall not be made more
frequently than twice monthly; provided, however, that
Borrower will pay to Lender at the time of the second
Receivables Loan Advance made during a month an administrative
fee equal to the greater of (a) twenty-five one-hundredths
percent (.25%) of such Advance or (b) Five Hundred Dollars
($500).
4.3 Disbursement of Advances. Advances may be payable to
Borrower, or if requested by Borrower and approved in writing
by Lender, to others, either severally or jointly with
Borrower, for the credit or benefit of Borrower. Borrower
will pay Lender's reasonable charge in connection with any
wire transfer, which is currently Twenty-five Dollars
($25.00). Lender may, at its option, withhold from any
Advance any sum (including costs and expenses) then due to it
under the terms of the Documents or which Borrower would be
obligated to reimburse Lender pursuant to the Documents if
first paid directly by Lender.
4.4 Interest Reserve Advances. If Borrower has not made a
scheduled interest payment on the Work-Related Advances Note
during the Construction Loan Borrowing Term in accordance with
the terms of the Work- Related Advances Note, Lender, in its
discretion, may make a Work-Related Advance to apply to such
interest payment, whether or not Loan proceeds have been
allocated within the Construction Budget for the payment of
such interest. Borrower hereby authorizes Lender to make such
advances without notice to Borrower.
4.5 No Waiver. Although Lender shall have no obligation to make
an Advance unless and until all of the conditions precedent to
the Advance have been satisfied, Lender may, at its
discretion, make Advances prior to that time without waiving
or releasing any of the Obligations.
5. NOTES; MAINTENANCE OF BORROWING BASE; PRE-PAYMENTS; SERVICING AND
COLLECTION
5.1 Repayment of Loans. The Construction Loan and the Receivables
Loan shall be evidenced by the Construction Loan Notes and the
Receivables Loan Note, respectively, and shall be repaid in
immediately available funds according to the terms of such
Notes and the Documents.
5.2 (a) Partial Release Principal Payments. So long as no Event
of Default or Incipient Default then exists, until
principal, interest and other sums due under the
Documents have been paid, exclusive of principal,
interest and other charges on the Adjacent Property
Advance Note and Receivables Loan Note, Borrower will
make to Lender at the time of each partial release of a
Time-Share Interest from the Borrower's Mortgage a
principal payment equal to the Partial Release Fee
required to be paid in connection with such partial
release.
(b) Receivables Loan Minimum Required Principal Payments. If
for any reason the aggregate principal amount of the
Receivables Loan outstanding at any time shall exceed the
then Borrowing Base of all Eligible Instruments,
Borrower, without notice or demand, will immediately make
to Lender a principal payment in an amount equal to such
excess plus accrued and unpaid interest on such principal
payment unless Borrower has provided sufficient
replacement Eligible Instruments as provided in paragraph
3.2(b).
5.3 (a) Prohibitions on Prepayment; Prepayment Premium. Borrower
may prepay the Work-Related Advances Note in whole or in
part any time. Borrower will not be entitled to prepay
the portion of the Construction Loan evidenced by the
Adjacent Property Advance Note. Borrower will not be
entitled to prepay, in whole or in part, the Receivables
Loan until the Opening Prepayment Date. After the
Opening Prepayment Date, if neither an Event of
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Default nor an Incipient Default has occurred and is
continuing, then Borrower shall have the option to prepay
the Receivables Loan in full, but not in part, upon 60
days prior irrevocable written notice and the
simultaneous payment of the Prepayment Premium on any
date an installment is due on the Receivables Loan Note.
(b) Exceptions to Prepayment Prohibitions. Notwithstanding
anything in paragraph 5.3(a) to the contrary, the
following shall not be deemed to be prepayments
prohibited pursuant to paragraph 5.3(a) or to require the
payment of any Prepayment Premium: (i) principal
payments scheduled under the Adjacent Property Advance
Note or the Receivables Loan Note [including, without
limitation, those payments required pursuant to
paragraphs 5.2(b)]; (ii) prepayments as a result of
casualty to or condemnation of the Property; and (iii)
prepayments of the Receivables Loan resulting from
prepayments of the Receivables Collateral by Purchasers
which have not been solicited by Borrower in breach of
its Obligations under this Agreement or from Performance
by Borrower of its Obligations.
(c) Prepayment Premium Payable for Involuntary Prepayments.
The application of the Prepayment Premium determined in
accordance with SCHEDULE A shall be payable regardless of
whether the prepayment of the Receivables Loan is
required because repayment of such Loan has been
accelerated pursuant to any of Lender's rights under the
Documents.
5.4 (a) Contracts Escrow. To the extent required by Tennessee
Code Section 66-32-113, or other Tennessee law, and not
satisfied by other financial assurances acceptable to the
Commission under 66-32-113, Borrower shall establish the
Contracts Escrow. Contracts Escrow Agent shall hold all
Contracts and the monies deposited thereunder in escrow
according to the terms of the Contracts Escrow
Assignment. Contracts Escrow Agent shall furnish to
Lender at Borrower's sole cost and expense, no later than
the tenth (10th) day of each month following the date of
this Agreement, a report which shows as of the end of the
prior month with respect to each Contract for Deed held
in escrow at any time during the preceding month (i) all
deposits received under the Contracts for Deed, (ii) any
closing or cancellation, and (iii) all disbursements of
funds held by Contracts Escrow Agent with respect to the
Contracts for Deed.
(b) Lockbox Collections and Servicing. Lockbox Agent shall
collect payments on the Instruments constituting part of
the Receivables Collateral and remit collected payments
to Lender on the last Business Day of each and every
month after the date of first Receivables Loan Advance,
according to the terms of the Lockbox Agreement. Payments
shall not be deemed received by Lender until Lender
actually receives such payments from Lockbox Agent;
provided, however, that so long as no Event of Default
exists, Borrower shall be entitled to any interest
accrued on funds held by Lockbox Agent and any other
benefit available from Lockbox Agent because it is
holding such funds. Servicing Agent shall furnish to
Lender at Borrower's sole cost and expense, no later than
the tenth (10th) day of each month commencing with the
first full calendar month following the date of this
Agreement, a report, substantially in the format of
EXHIBIT K, which: (i) shows as of the end of the prior
month with respect to each Instrument which constitutes
part of the Receivables Collateral (A) all payments
received, allocated between principal, interest, late
charges and taxes, (B) the opening and closing balances,
(C) present value, (D) average consumer interest rate,
and (E) extensions, refinances, prepayments, and other
similar adjustments; and (ii) indicates delinquencies of
thirty (30), sixty (60), ninety (90) days and in excess
of ninety (90) days. Borrower will pay without notice or
demand any amount which was due and payable by Borrower
on the last Business Day of the preceding month covered
by such reports within three (3) Business Days of
Borrower's knowledge of such amounts. If such reports
are not timely received, Lender may estimate the amount
which was due and payable. Borrower will pay upon demand
the amount determined by Lender in good faith to be due
and payable. If payment is made on the basis of Lender's
estimate and
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thereafter reports required by this paragraph are
received by Lender, the estimated payment amount shall be
adjusted by an additional payment or a refund to the
correct amount, as the reports may indicate; such
additional amount to be paid by Borrower upon demand and
such refund to be made by Lender within five (5) Business
Days after receipt of written request therefor by
Borrower. At the end of each calendar quarter, Borrower
will deliver or cause the Servicing Agent to deliver to
Lender a current list of the names, addresses and phone
numbers of the obligors on each of the Instruments
constituting part of the Receivables Collateral.
Borrower will also deliver or cause Servicing Agent to
deliver to Lender, promptly after receipt of a written
request for them, such other reports with respect to
Instruments constituting part of the Receivables
Collateral as Lender may from time to time require. GFC
Portfolio Services, Inc., an Arizona corporation
("GPSI"), Borrower and Lender shall enter into
multi-party agreements specifying the rights, duties and
obligations of each party, including, without limitation,
an Oversight and Agency Agreement with respect to GPSI's
oversight and agency functions.
(c) Replacement of Agents. Lender, subject to any additional
restriction thereon contained in the Contracts Escrow
Assignment or in the following sentence, Lockbox
Agreement, or the Servicing Agreements may at any time
and from time to time substitute a successor or
successors to any Agent acting under the Contracts Escrow
Assignment, Lockbox Agreement or the Servicing Agreement.
Lender will not replace any such Agent unless an Event of
Default exists, such Agent is in default of its
obligations under the relevant agreement beyond any
applicable cure period, has defaulted in its obligations
under the relevant agreement on a repeated basis or, in
Lender's sole and absolute judgment, fails to perform its
duties in accordance with standards normally employed by
persons performing similar services for financial
institutions on a compensated basis. If any such Agent
is so removed by Lender or is otherwise removed in
accordance with the terms of the relevant agreement, so
long as no Event of Default exists, Borrower may appoint
any successor Agent, subject to the prior written consent
of Lender not to be unreasonably withheld.
5.5 Application of Proceeds. Any and all payments received by
Borrower with respect to the Obligations (including, without
limitation, payments made with proceeds of the Collateral but
excluding funds set aside/held in escrow prior to the
expiration of a Purchaser's statutory rescission rights) shall
be first applied to the payment of all late charges, costs,
fees and expenses required by the Documents to be paid by
Borrower ("First Priority Application"); then to accrued and
unpaid interest on the Loans (other than the Incentive Fee) in
such order and manner as Lender may determine; then to
principal of the Loans in such order and manner as Lender may
determine; and then to the Incentive Fee. Notwithstanding
anything in the preceding sentence to the contrary, after the
First Priority Application: (a) the remaining proceeds of the
payments made pursuant to paragraph 5.2(a) shall be applied
first to the principal balance of the Work-Related Advances
Note, next to accrued and unpaid interest due under the
Work-Related Advances Note, and then to the Incentive Fee; and
(b) the remaining proceeds of the Receivables Collateral shall
be applied to accrued and unpaid interest due on the
Receivables Loan Note and then to the unpaid principal balance
of the Receivables Loan Note. The provisions of this
paragraph are subject to Lender's rights under Article VII and
the other Documents as to the application of proceeds of the
Collateral following an Event of Default.
5.6 Borrower's Unconditional Obligation to Make Payments. Whether
or not the proceeds from the Collateral shall be sufficient
for that purpose, Borrower will pay when due all payments
required to be made pursuant to any of the Documents,
Borrower's Obligation to make such payments being absolute and
unconditional.
6. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 (a) Good Standing. Borrower is, and will remain at all
times, duly organized, validly existing and in good
standing under the laws of Massachusetts and is
authorized and will remain at
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all times authorized, to do business in Tennessee,
Florida and in each jurisdiction in which it is at any
time selling Time-Share Interests or where at any time
the location or nature of its properties or its business
makes such qualification necessary. Borrower has and
will maintain full authority to Perform the Obligations
and to carry on its business and own its property.
(b) Power and Authority; Enforceability. Borrower has and
will maintain full power and authority to execute and
deliver the Documents and to Perform the Obligations.
All action necessary and required by Borrower's Articles
of Organization and all applicable laws for Borrower to
obtain the Loans, to execute and deliver the Documents
which have been or will be executed and delivered in
connection with the Loans and to perform the Obligations
has been duly and effectively taken. The Documents are
and shall be, legal, valid, binding and enforceable
against Borrower; and do not violate the Applicable Usury
Law or constitute a default or result in the imposition
of a lien under the terms or provisions of any agreement
to which Borrower is a party. No consent of any
governmental agency or any other person not a party to
this Agreement is or will be required as a condition to
the execution, delivery, or enforceability of the
Documents.
(c) Borrower's Principal Place of Business. Borrower's
principal place of business is located in the State of
Florida, and Borrower will not move its principal place
of business except upon not less than sixty (60) days
prior written notice to Lender.
6.2 No Litigation. There is no action, litigation or other
proceeding pending or, to Borrower's knowledge, threatened
before any arbitration tribunal, court, governmental agency or
administrative body against Borrower, which might materially
adversely affect the Performance of the Obligations, the
Time-Share Project, the business or financial condition of
Borrower, or the ability of Borrower to Perform the
Obligations. Borrower will promptly notify Lender if any such
action, litigation or proceeding is commenced or threatened.
6.3 (a) Adequacy of Principal Work-Related Items. The Principal
Work-Related Items for any Phase which have been
delivered to Lender are adequate [or will be adequate at
the initial Advance or such later time as may be
permitted pursuant to paragraph 4.1(c) for the delivery
of such items] and will continue at all times to be
adequate for Completion of the Work for such Phase. The
Principal Work-Related Items for any Phase which have
been delivered to Lender are in full force and effect; no
third party bound thereby is in default of its
obligations thereunder or has threatened to terminate
Borrower's rights thereunder; Borrower has paid all sums
and performed all other obligations it has under them;
and no third party bound thereby has any defense to the
enforcement of Borrower's rights thereunder. No
moratorium or other legal impediment exists or, to the
knowledge of Borrower, is threatened with respect to the
issuance of any permit or approval necessary to use the
Time-Share Project for intended time-share purposes upon
Completion of the Work of either Phase.
(b) Adequacy of Construction Budget. Borrower will cause the
Construction Budget for each Phase to accurately and
completely set forth the types and estimated maximum
amounts of all costs which must be incurred for
Completion of the Work to occur.
(c) Adequacy of Streets and Utilities. All streets,
easements, and utilities (including potable water, storm
and sanitary sewer, gas, electric, telephone and cable
television facilities and garbage removal) necessary for
the Completion of the Work for both Phases and use of the
Real Property for intended time-share purposes have been
completed, paid for in full and are available at the
boundaries of the Real Property. All water and sewer
treatment plants and power generation facilities intended
to serve the Real Property have been constructed and are
operational; and have adequate capacity and size to serve
the intended time-share use of the Real Property.
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(d) No Commencement of Work. No work, equipment, materials,
services or work of any kind that may give rise to any
mechanics or similar statutory lien (whether for work
performed prior to or after recordation of the Borrower's
Mortgage) which will have priority, including, without
limitation, the destruction or removal of existing
Improvements, site work, clearing, grubbing, draining or
fencing of the Real Property, has been or will be
performed or commenced on the Real Property prior to
recordation of the Borrower's Mortgage unless: (i)
Lender has in writing waived such condition in its
discretion; (ii) such work, equipment, materials and
services have been fully disclosed in writing to Lender
and Title Insurer (Borrower's Mortgage); (iii) such work,
equipment, materials and services are satisfactory to
Lender and Lender's Inspector; and Title Insurer
(Borrower's Mortgage) insures the priority of the
Borrower's Mortgage over all such liens.
6.4 Work-Related Covenants. Borrower will with respect to each
Phase:
(a) cause the progress of the Work to occur in substantial
compliance with the Work Progress Schedule, subject to
Force Majeure Events, all in accordance with the Plans
and Specifications, Construction Contract(s), applicable
laws, regulations and private restrictions, the
Documents, sound construction engineering and
architectural principles and commonly accepted safety
standards, lien free and free from defective materials
and workmanship; and cause Completion of the Work to
occur on or before the Required Completion Date;
(b) pay when due all costs, expenses and claims pertaining to
the Work; and deliver to Lender during the course of the
Work in order to monitor and/or provide assurance that
the Work is proceeding lien free in accordance with the
Plans and Specifications, the Construction Contract(s),
applicable laws, regulations and private restrictions,
the Documents, sound construction, engineering and
architectural principles and commonly accepted safety
standards: bills of sale, conveyances and paid invoices
pertaining to the Work; all waivers and releases of lien
or claims on the Real Property and/or the Improvements
which Lender may determine to be necessary or may
otherwise reasonably request for its protection; from
sureties acceptable to Lender, payment and performance
bonds as Lender may reasonably determine to be necessary;
from persons acceptable to Lender, additional engineering
or architectural studies and reports as Lender or
Lender's Inspector may reasonably require; and record all
notices of commencement/ completion and similar notices
permitted by applicable laws and regulations which have
the effect of shortening periods within which mechanics
and similar liens may be filed;
(c) allow Lender, Lender's Inspector and/or its agents and
employees to inspect the Real Property and Work at all
reasonable times, with the reasonable costs of such
inspections to be borne by Borrower;
(d) not enter into any Architect/Engineer Agreement or
Construction Contract except upon terms and with such
parties as Lender may approve in writing, such approval
not to be unreasonably withheld;
(e) deliver all Principal Work-Related Items to Lender
promptly after obtaining them (or at such earlier time as
may be required pursuant to paragraph 4.1);
(f) not amend any of the Principal Work-Related Items except
for change orders which (i) do not change the cost of
Completion of the Work by more than Five Thousand Dollars
($5,000) individually or Twenty-Five Thousand Dollars
($25,000) in the aggregate beyond that shown in the
Construction Budget as originally approved by Lender and
(ii) do not affect the design, structural integrity or
quality of the Improvements;
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(g) perform all its obligations and preserve its rights under
the Principal Work-Related Items and secure the
performance of the other parties to the Principal
Work-Related Items;
(h) deliver to Lender: prior to each Construction Loan
Advance, at Lender's option, an endorsement ("date down
endorsement") issued by the Title Insurer (Borrower's
Mortgage) insuring Lender against any loss by reason of
defects in, mechanic's or similar statutory liens upon or
unmarketability of the title to the Real Property, as
well as insuring that the Borrower's Mortgage, at the
time of each Construction Loan Advance, constitutes a
valid first lien upon the Real Property, subject only to
the Permitted Encumbrances; and promptly after Completion
of the Work has otherwise occurred, a new Title Policy
(Borrower's Mortgage) re-issued pursuant to an LP-10
re-issue package, with an endorsement insuring that the
Improvements are located upon the Real Property;
(i) after obtaining knowledge or receiving notice thereof,
correct or cause to be corrected (i) any material defect
in the Work, (ii) any material departure in the
completion of the Work from the Plans and Specifications
or the Construction Contract(s) (unless expressly
permitted in this Agreement or consented to in writing by
Lender), or any applicable laws, regulations or private
restrictions, sound, construction, engineering or
architectural principles or commonly accepted safety
standards or (iii) any encroachment of any part of the
Improvements on any building line, easement line or
restricted area, or any adjacent landowner's property;
(j) promptly deliver to Lender any and all notices received
by Borrower that it is not complying with applicable
laws, regulations and private restrictions pertaining to
the Work or that the Work is not being completed in
accordance with the Plans and Specifications, the
Construction Contract(s), sound construction, engineering
and architectural principles and commonly accepted safety
standards;
(k) if at any time there exists or appears likely to exist
any Uncovered Cost of the Work, Borrower will notify
Lender within ten (10) Business Days (and in any event
prior to the next Advance) after obtaining knowledge
thereof; within the earlier of such ten (10) Business Day
period or ten (10) Business Days after Lender's demand
that it do so, Borrower will deliver to Lender a cash
deposit ("Required Completion Assurance Deposit") equal
to the Uncovered Cost of the Work; in the event of any
dispute, the necessity for and amount of the Required
Completion Assurance Deposit shall be determined by
Lender; the Required Completion Assurance Deposit may be
deposited in a non-interest bearing account and need not
be segregated from any of Lender's other funds, provided
that Lender will disburse the Required Completion
Assurance Deposit to pay and/or reimburse Borrower for
the costs of the Work prior to any further disbursement
of Work-Related Advances for such purpose, but subject to
the terms and conditions of this Agreement pertaining to
the disbursement of Work-Related Advances; and Lender is
hereby granted a security interest in all Required
Completion Assurance Deposits from time to time held by
Lender;
(l) cause all materials supplied for or intended to be
utilized in the Completion of the Work, but previously
not affixed to or incorporated into the Improvements, to
be stored on the Real Property with adequate safeguards,
as reasonably required by Lender, to prevent loss, theft,
damage or commingling with other materials;
(m) promptly after receipt by Borrower (but in no event later
than the Required Completion Date), deliver to Lender
copies of all certificates of acceptance and/or occupancy
relating to the Work; and
(n) maintain payment and performance bonds satisfactory to
Lender to insure lien-free Completion of any incomplete
Phase One Common Area/ Infrastructure if (i) Borrower has
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requested a Work-Related Advance for Phase Two but not
Phase One and (ii) the Phase One Common
Area/Infrastructure has not been completed.
6.5 (a) Compliance with Laws. Borrower has complied, and will
comply, with all applicable laws and regulations,
including, without limitation, all laws and regulations
of the state in which the Time-Share Project is located
and all other governmental jurisdictions in which the
Time-Share Project is located or in which Time-Share
Interests will be sold or offered for sale.
(b) Sales Activities. Prior to the date of this Agreement,
Borrower has not sold any Time-Share Interest or offered
any Time-Share Interest for sale except for Time-Share
Interests in Phase One and Two which have sold and/or
offered for sale only in the jurisdictions listed in
EXHIBIT F. Borrower will not sell any Time-Share
Interest or offer any Time-Share Interest for sale in any
jurisdiction, unless: (i) Borrower has delivered to
Lender true and complete copies of the Minimum Required
Time-Share Approvals, all other approvals required to be
obtained by Borrower in such jurisdiction prior to
engaging in its proposed conduct, and all other evidence
required by Lender that Borrower has complied with all
laws of such jurisdiction governing its proposed conduct;
and (ii) Borrower has delivered to Lender the Time-Share
Program Consumer Documents and the Time-Share Program
Governing Documents which Borrower will be using in
connection with the Time-Share Project and the sale or
offering for sale of Time-Share Interests and such
documents have been approved by Lender, which approval
shall not be unreasonably withheld. Borrower has already
submitted an application for the issuance of the Minimum
Required Time-Share Approvals, which complies with
applicable laws and regulations and Borrower will
diligently pursue approval of such application and the
issuance of the Minimum Required Time-Share Approvals.
Borrower will maintain an active marketing program for
the sale of Time-Share Interests in Phase Two Units in
conformance with all applicable laws and regulations and
consistent with the provisions of this paragraph and the
terms and conditions of Borrower's Mortgage pertaining to
the sale of Time-Share Interests.
(c) Time-Share Interest Not a Security. Borrower has not
sold or offered for sale any Time-Share Interest as an
investment. Neither the sale nor the offering for sale
of any Time-Share Interest would constitute the sale or
the offering of a security for sale under any applicable
law.
(d) Zoning Compliance. Neither time-share use nor other
transient use and occupancy of the Real Property violates
or will violate or constitute a non-conforming use or
require a variance under any private covenant or
restriction or any zoning, use or similar law, ordinance
or regulation affecting the use or occupancy of the Real
Property.
6.6 (a) Eligible Instruments. Each Instrument which is assigned
to Lender pursuant to this Agreement and against which an
Advance is requested or which is assigned in satisfaction
of Borrower's Obligations under paragraph 3.2 shall be an
Eligible Instrument at the time of assignment. Borrower
further warrants and guarantees the enforceability of the
Receivables Collateral.
(b) No Modification of Receivables Collateral or Payments by
Borrower. Without the prior written consent of Lender,
Borrower will not cancel or materially modify, or consent
to or acquiesce in any material modification (including,
without limitation, any change in the interest rate or
amount, frequency or number of payments) to, or solicit
the prepayment of, any Instrument which constitutes part
of the Receivables Collateral; or waive the timely
performance of the obligations of the Purchaser under any
such Instrument or its security; or release the security
for any such Instrument. Borrower will not pay or
advance directly or indirectly for the account of any
Purchaser any sum required to be deposited or owing by
the
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<PAGE> 24
Purchaser either under any Contract for Deed or under any
Instrument which constitutes part of the Receivables
Collateral.
(c) Fulfillment of Obligations to Purchasers. Borrower at
all times will fulfill and will cause its Affiliates,
agents and independent contractors at all times to
fulfill all obligations to Purchasers. Borrower will
perform all of its obligations under the Time-Share
Program Consumer Documents and the Time-Share Program
Governing Documents.
(d) No Modification of Time-Share Documents. Borrower,
without the prior written consent of Lender, will not
cancel or materially modify any of the Time-Share Program
Consumer Documents or the Time- Share Program Governing
Documents.
(e) Associations; Assessments and Reserves. Each Purchaser
will be and, subject only to its retaining its interest
under a Contract for Deed, will remain a member of the
Time-Share Association upon Borrower's acceptance of such
Contract for Deed. The Time-Share Association has
authority to levy annual assessments to cover the costs
of maintaining and operating the Time-Share Project. To
Borrower's knowledge, at all times after the first
conveyance of a Time-Share Interest, the Time- Share
Association will be solvent; assessments levied from time
to time will be adequate to cover then current costs of
maintaining and operating the Time-Share Project and to
establish and maintain a reasonable reserve for capital
improvements. Borrower will promptly notify Lender in
writing if it has knowledge or has reason to believe that
events (other than general changes in the economy) have
occurred or could occur which could give rise to a
material increase in such costs. Borrower will use its
best efforts to: (i) cause the Time-Share Association to
(A) discharge its obligations under the Time-Share
Program Governing Documents and (B) maintain the reserve
described above; and (ii) so long as Borrower controls
the Time-Share Association, pay to such association not
less often than every twelve (12) months after such
conveyance the difference between (A) the cumulative
total amount of the maintenance and operating expenses
incurred by such association, together with a reasonable
reserve for capital improvements and the amount of any
installment of real property taxes currently due and
payable with respect to the Time-Share Project and
related amenities, through the end of the calendar month
preceding the month in which such payment is made and (B)
the cumulative total amount of assessments payable to the
Time-Share Association by owners or holders of Contracts
for Deed other than Borrower through the end of the
calendar month preceding the month in which such payment
is made.
(f) Title and Condition of Amenities. Except as otherwise
permitted and disclosed by the Time-Share Program
Governing Documents, at all times after the first
conveyance of a Time-Share Interests the Time-Share
Association or the owners of Time-Share Interests in
common will own all the common areas in the Real Property
and other amenities which have been promised or
represented as being available to Purchasers, free and
clear of liens and security interests except for the
Permitted Encumbrances. Borrower will maintain or cause
to be maintained in good condition and repair all
amenities and common areas which have been promised or
represented as being available to Purchasers and all
roads and off-site improvements which are not the
responsibility of the Time- Share Association to maintain
and repair and have not been dedicated to or accepted by
the responsible governmental authority or utility.
Borrower will maintain a reasonable reserve to assure
compliance with the terms of the foregoing sentence.
6.7 Collection of Receivables Collateral. Borrower will undertake
the diligent and timely collection of amounts delinquent under
each Instrument which constitutes part of the Receivables
Collateral and will bear the entire expense of such
collection. Lender shall have no obligation to undertake any
action to collect under any Instrument.
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6.8 Notice of Lender's Interest. Lender may notify persons bound
thereby of the existence of Lender's interest as assignee in
the Receivables Collateral and request from any person bound
by them any information relating to them. Borrower will
deliver such notice under its letterhead if requested.
6.9 (a) Restrictions on Resort Financing. Without the prior
written consent of Lender not to be unreasonably
withheld, Borrower will not incur any additional debt
(including without limitation any contingent or guarantor
liability) with respect to, or in connection with its
ownership and operation of the Property, except for short
term accounts payable incurred in connection with the
operation of the Property and construction and
receivables financings as to which Lender has elected not
to exercise its right of first refusal provided for
herein and which are not secured by any of the Collateral
("Permitted Debt"). Before Borrower's acceptance of any
such third party loan or financing other than the
Permitted Debt, its terms must be presented to Lender for
approval. Borrower agrees that Lender may require as a
condition to its approval that any third parties
providing financing (other than Permitted Debt) to
Borrower deliver to Lender written estoppel certificates
containing notice and cure rights and full subordinations
and otherwise in form and substance satisfactory to
Lender.
(b) Restrictions on Liens or Transfers. Borrower, without
the prior written consent of Lender, will not: (i) sell,
convey, pledge, hypothecate, encumber or otherwise
transfer any security for the Performance of the
Obligations; (ii) permit or suffer to exist any liens,
security interests or other encumbrances on any security
for the Performance of the Obligations, except for the
Permitted Encumbrances and liens and security interests
expressly granted to Lender; or (iii) sell, lease,
transfer or dispose of all or substantially all of its
assets to another entity.
6.10 Insurance. Borrower will pay the cost of and will maintain
and deliver evidence to Lender of insurance policies required
by Lender which are written by insurers and in amounts and on
forms satisfactory to Lender.
6.11 (a) No Misrepresentations. The Documents and all
certificates, financial statements and written materials
furnished to Lender by or on behalf of Borrower in
connection with the Loans do not contain any untrue
statement of a material fact or omit to state a fact
which materially adversely affects or in the future may
materially adversely affect the Collateral, the
Time-Share Project, the business or financial condition
of Borrower, or the ability of Borrower to Perform the
Obligations.
(b) Reliance. Lender's examination, inspection, or receipt
of information pertaining to the Collateral or the
Time-Share Project and its proposed operation shall not
in any way be deemed to reduce the full scope and
protection of the warranties, representations and
Obligations contained in this Agreement.
6.12 (a) Sales Reports. On or before the tenth (10th) day of each
month, Borrower will cause to be furnished to Lender (i)
the reports required pursuant to paragraph 5.4(a) and
(ii) if requested by Lender, a sales report for the prior
month showing the number of sales and closings of
Time-Share Interests and the aggregate dollar amount
thereof, including down payments.
(b) Financial Information. Borrower will furnish or cause to
be furnished to Lender within one hundred twenty (120)
days after each fiscal year of the subject, a copy of the
current annual financial statements of Borrower, and,
subject to the best efforts of Borrower, the Time-Share
Association; and shall furnish or cause to be furnished
to Lender within forty-five (45) days after each interim
quarterly fiscal period of Borrower a copy of the current
financial statements of Borrower for the period
commencing with the first day of the fiscal year and
concluding with such quarter end. Such financial
statements shall contain a balance sheet as of the end of
the relevant fiscal period and statements of income and
of cash flow for such fiscal period (together, in each
case, with the comparable figures for the corresponding
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period of the previous fiscal year), all in reasonable
detail. All financial statements shall be prepared in
accordance with generally accepted accounting principles,
consistently applied. All financial statements of
Borrower shall be certified by the chief financial
officer of Borrower. Annual statements of Borrower shall
be audited and certified by a recognized firm of
certified public accountants reasonably satisfactory to
Lender. Lender acknowledges that, as of the date hereof,
the firm of Ernst & Young is acceptable to it. Together
with such financial statements, Borrower will deliver to
Lender a certificate signed by Borrower's chief financial
officer stating that there exists no Event of Default or
Incipient Default or, if any such Event of Default or
Incipient Default exists, specifying the nature and
period of its existence and what action Borrower proposes
to take with respect to it.
(c) Time-Share Project and Sales Information. Borrower will
deliver to Lender from time to time, as available, and
promptly upon amendment or effective date: current price
lists, sales literature, registrations/consents to sell,
and final subdivision public reports/public offering
statements/prospectuses. Borrower will deliver to Lender
any changes which Borrower proposes or any other person
having the power to do so proposes be made to the
Time-Share Program Consumer Documents and/or the
Time-Share Program Governing Documents last delivered to
Lender, together with a description and explanation of
the changes; and other items requested by Lender which
relate to the Time-Share Interests.
(d) Right to Inspect. Borrower will at its expense permit
Lender and its representatives at all reasonable times to
inspect the Time-Share Project and to inspect, audit and
copy Borrower's books and records.
(e) Association Budgets. Borrower will submit to Lender
annually within ten (10) days after each is available,
proposed annual maintenance and operating budgets of the
Time-Share Association, certified to be adequate by the
Time-Share Manager and a statement of the annual
assessment to be levied upon the owners of Time-Share
Interests; and will use its best efforts to cause to be
made available to Lender for inspection, auditing and
copying, upon Lender's request, the books and records of
the Time-Share Association.
(f) Additional Information. Borrower will make available
such further information as Lender may from time to time
reasonably request.
6.13 Subordination of Indebtedness. All obligations of the
Borrower to Lender under this Agreement and the Notes are
intended to, and do, constitute "Senior Indebtedness" as such
term is defined in and for purposes of, the Indenture dated as
of May 15, 1987 ("Indenture") between the Borrower and Shawmut
Bank, N.A., as trustee, pursuant to which the Borrower's eight
and one-quarter percent (8 1/4%) Convertible Subordinated
Debentures due 2012 ("Debentures") were issued, and will be
entitled to all the benefits associated with being "Senior
Indebtedness" under the Indenture, including, without
limitation, ranking senior to the Debentures.
6.14 No Default for Third Party Obligations. Borrower is not in
default under any other agreement evidencing, guaranteeing or
securing borrowed money or a receivables purchase financing
involving an obligation in excess of Two Hundred Fifty
Thousand Dollars ($250,000) to make a payment of principal or
interest or to repurchase receivables or any other material
default by Borrower permitting the acceleration of the payment
or repurchase obligations of Borrower, which payment or
repurchase obligations entitled to be accelerated are in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate. Borrower is not in violation of or in default under
any material term in any other material agreement, instrument,
order, decree or judgment of any court, arbitration or
governmental authority to which it is a party or by which it
is bound.
6.15 Payment of Taxes. Borrower has filed and will file all tax
returns and has paid and will pay all taxes, assessments,
levies and penalties, if any, required to be filed by it or
paid by it to any governmental or quasi-governmental authority
or subdivision, including real estate taxes and
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assessments relating to the Property, unless and only to the
extent the item shall be contested in good faith and by
appropriate proceedings by Borrower, Borrower shall set aside
and cause on its books adequate reserves with respect to the
contested item and, in connection with any tax assessment,
levy or penalty levied against the Collateral encumbered by
the Borrower's Mortgage, Borrower shall comply with the terms
of the Borrower's Mortgage pertaining to such contest.
Borrower will provide to Lender not more than thirty (30) days
after such taxes and assessments become due evidence that all
taxes and assessments on the Units, Time-Share Project and
Resort common areas and related amenities have been paid in
full.
6.16 Fees, Costs and Expenses.
(a) Commitment Fee and Documentation Fee. Borrower will pay
to Lender the Construction Loan Commitment Fee and the
Receivables Loan Commitment Fee. Lender acknowledges
receipt of Ten Thousand Dollars ($10,000) of the
Construction Loan Commitment Fee. Borrower will pay to
Lender the balance of the Construction Loan Commitment
Fee and the entire Receivables Loan Commitment Fee at the
time the initial Advance is made, but in no event later
than December 20, 1994. Borrower will pay on demand any
and all costs and expenses incurred by Lender in
connection with the initiation, documentation and closing
of the Loans, the making of Advances, the protection of
the Collateral, or the enforcement of the Obligations
against Borrower, including, without limitation, all
attorneys' and other professionals' fees (including
without limitation normal charges for photocopy, telecopy
and computer services), consumer credit reports, and
revenue, documentary stamp, documentary transaction and
intangible taxes. Notwithstanding anything in this
paragraph to the contrary, Borrower will have no
obligation to pay or reimburse Lender for Lender's
attorneys' fees which are incurred in connection with the
original preparation, negotiation and execution of the
Documents delivered prior to or in connection with the
first Advance ("Original Documents") or are otherwise
incurred in connection with the closing of the first
Advance, which are in excess of $27,500, unless caused by
the negligence of Borrower or third parties, the lack of
diligence or cooperation by Borrower or third parties in
the negotiation of the Documents and the closing of the
first Advance, changes requested by Borrower to the
commitment letter from Lender to Borrower dated January
10, 1994, or circumstances which would not reasonably
have been foreseen by Lender or its counsel.
(b) Custodial Fee. In addition to all other fees required to
be paid in connection with the Loan, Borrower shall pay
to Lender a fee ("Custodial Fee") equal to Ten Dollars
($10) per each Instrument which is delivered to Lender in
connection with the Loan and is in the physical custody
of Lender. The Custodial Fee for an Instrument shall be
paid by Borrower to Lender at the time the Instrument is
assigned to Lender. After the Custodial Fee is paid for
an Instrument, no fee shall be payable to Lender for any
Instrument which is delivered to Lender pursuant to
paragraph 3.2(b) in replacement of an Instrument for
which Borrower has paid the Custodial Fee. Once a
Custodial Fee has been paid to Lender, Borrower shall not
be entitled to any reimbursement of any portion hereof.
(c) Incentive Fee. Borrower will pay to Lender, in addition
to all basic interest payable under the Notes and other
charges and fees due under the Documents, an incentive
fee ("Incentive Fee") in an aggregate amount equal to
Seventy-Five Thousand Dollars ($75,000). The Incentive
Fee shall be paid after the principal, interest and
charges of the Work-Related Advances (other than the
Incentive Fee) have been paid in full through payment of
Two Thousand Five Hundred Ten Dollars ($2,510) each time
that a Time-Share Interest is released from the
Borrower's Mortgage. Any remaining balance of the
Incentive Fee shall be due upon the earlier of (a) the
date of Borrower's voluntary prepayment of the
Work-Related Advances in full prior to the Work-Related
Advances Maturity Date, (b) one (1) month before the
Work-Related Advances Maturity Date or (c) the
acceleration of any portion of the Work-Related Advances
Note or the Receivables Loan Note, but in no event later
than May 31, 1996.
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6.17 Indemnification. Borrower will INDEMNIFY, PROTECT, HOLD
HARMLESS, and defend Lender, its successors, assigns and
shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the
foregoing, for, from and against any and all losses, costs,
expenses (including, without limitation, court costs, and
attorneys' fees), demands, claims, suits, proceedings (whether
civil or criminal), orders, judgments, penalties, fines and
other sanctions arising from or brought in connection with (a)
the Time-Share Project, the Collateral, Lender's status by
virtue of the Documents, creation of Security Interests, the
terms of the Documents or the transactions related thereto, or
any act or omission of Borrower or any Agent, or their
respective employees or agents, whether actual or alleged
unless such act or omission is caused by Lender's gross
negligence or willful misconduct, and (b) any and all brokers'
commissions or finders' fees or other costs of similar type by
any party in connection with any of the Loans. On written
request by a person or other entity covered by the above
agreement of indemnity, Borrower will undertake, at its own
cost and expense, on behalf of such indemnitee, using counsel
satisfactory to the indemnitee, the defense of any legal
action or proceeding to which such person or entity shall be a
party. At Lender's option, Lender may at Borrower's expense
prosecute or defend any action involving the priority,
validity or enforceability of the Security Interests in the
security for the Performance of the Obligations.
6.18 Restrictions on Expenses. Borrower shall not permit its
selling, general and administrative expenses to exceed fifty
percent (50%) of gross sales revenue generated from the sale
of real estate, calculated at the end of each calendar quarter
on a twelve (12) month rolling basis. As used in this
paragraph, selling, general and administrative expenses shall
mean selling, general and administrative expenses properly
allocable to real estate calculated in accordance with
generally accepted accounting principles, as previously
reflected in the financial statements of Borrower provided to
Lender.
6.19 Net Worth Maintenance. Borrower must maintain a tangible net
worth, determined in accordance with generally accepted
accounting principles, in an amount not less than Forty-Two
Million Dollars ($42,000,000).
6.20 Perfection of Security Interests. Borrower will execute or
cause to be executed all documents and do or cause to be done
all acts necessary for Lender to perfect and to continue the
perfection of the Security Interest of Lender in the
Collateral or otherwise to effect the intent and purposes of
the Documents.
6.21 Survival and Additional Representations, Warranties and
Covenants. The representations, warranties and covenants
contained in this Article VI are in addition to, and not in
derogation of, the representations and warranties contained
elsewhere in the Documents and shall be deemed to be made and
reaffirmed prior to the making of each Advance.
7. DEFAULT
7.1 Events of Default. The occurrence of any of the following
events or conditions shall constitute an Event of Default by
Borrower under the Documents:
(a) failure of Lender to receive from Borrower within five
(5) Business Days of the date when due and payable (i)
any amount payable under any Note or (ii) any other
payment due under the Documents, except for a payment due
at the Maturity Date of a Note for which no grace period
is allowed;
(b) any representation or warranty which is made by a person
other than Lender and is contained in the Documents or in
any certificate furnished to Lender under the Documents
by or on behalf of Borrower proves to be, in any material
adverse respect, false or misleading as of the date
deemed made;
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(c) a default in the Performance of the Obligations set forth
in paragraph 3.2, 6.9(a), 6.9(b)(i), 6.9(b)(iii), 6.10,
6.13, 6.18 or 6.19;
(d) a default in the Performance of the Obligations or a
violation of any term, covenant or provision of the
Documents (other than a default or violation referred to
elsewhere in this paragraph 7.1) which continues
unremedied (i) for a period of five (5) Business Days
after notice of such default or violation to Borrower in
the case of a default under or violation of paragraph
6.9(b)(ii) or any other default or violation which can be
cured by the payment of money alone or (ii) for a period
of twenty (20) Business Days after notice to Borrower in
the case of any other default or violation;
(e) an "Event of Default", as defined elsewhere in any of the
Documents;
(f) any default by Borrower under any other agreement
evidencing, guaranteeing or securing borrowed money or a
receivables purchase financing involving an obligation in
excess of Two Hundred Fifty Thousand Dollars ($250,000)
to make a payment of principal or interest or to
repurchase receivables or any other material default by
Borrower permitting the acceleration of the payment or
repurchase obligations of Borrower, which payment or
repurchase obligations entitled to be accelerated are in
excess of Two Hundred Fifty Thousand Dollars in the
aggregate;
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which
is not paid and discharged or stayed within thirty (30)
days thereafter and when aggregated with all other
judgment(s) or decree(s) that have remained unpaid and
undischarged or stayed for such period is in excess of
Two Hundred Fifty Thousand Dollars ($250,000);
(h) any party holding a lien or security interest in any
Collateral (other than a lien created by a Purchaser
solely with respect to its Time-Share Interest) commences
foreclosure or similar sale thereof;
(i) Borrower shall (i) generally not be paying its debts as
they become due, (ii) file, or consent by answer or
otherwise to the filing against it of a petition for
relief or reorganization, arrangement or liquidation or
any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the
appointment of a custodian, receiver, trustee or other
officer with similar powers for itself or any substantial
part of its property, (v) be adjudicated insolvent, (vi)
dissolve or commence to wind-up its affairs or (vii) take
any action for purposes of the foregoing; or a petition
for relief or reorganization, arrangement or liquidation
or any other petition in bankruptcy or insolvency or the
appointment of a custodian under the laws of any
jurisdiction is filed against it or a custodian is
appointed for Borrower, the Collateral or any material
part of its properties and such proceeding is not
dismissed and appointment vacated within ninety (90) days
thereafter;
(j) a material adverse change in the Collateral, the
Time-Share Project or in the business or financial
condition of Borrower, which change is not enumerated in
this paragraph 7.1 as the result of which Lender in good
faith deems the prospect of Performance of the
Obligations impaired or the Collateral imperiled;
(k) failure of Lender to receive from Borrower, within twenty
(20) days of the date Borrower knows or should have known
of such change, notice of any material change in any
representations or warranties in the Documents or
otherwise made in connection with the Loans;
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(l) an order or decree has been entered by any court of
competent jurisdiction enjoining the intended use of the
Project as a time-share resort and judgment is not
vacated within ninety (90) days after Borrower has
obtained knowledge or notice thereof;
(m) the aggregate principal balance of all Instruments which
constitute part of the Receivables Collateral and have
payments more than sixty (60) days past due exceeds three
percent (3%) of the aggregate principal balance of all
Instruments constituting part of the Receivables
Collateral as of the last day of each month, for three
(3) consecutive months; or
(n) at any time prior to Completion of the Work, Borrower
(i) abandons the Work or (ii) delays construction or
suffers construction to be delayed for any period of
time, for any reason whatsoever not covered by item (i)
above so that Completion of the Work cannot be
accomplished in the ordinary course of construction, in
the reasonable judgment of Lender, on or before the
Required Completion Date.
7.2 Remedies. At any time after an Event of Default has occurred
and while it is continuing, Lender may but without obligation,
in addition to the rights and powers granted elsewhere in the
Documents and not in limitation thereof, do any one or more of
the following:
(a) cease to make further Advances;
(b) declare the Notes (or any one of them), together with
prepayment premiums, the Incentive Fee and all other sums
owing by Borrower to Lender in connection with the
Documents, immediately due and payable without notice,
presentment, demand or protest, which are hereby waived
by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection, foreclosure and other enforcement actions
against Purchasers and other persons obligated on the
Receivables Collateral, (ii) enter into modification
agreements and make extension agreements with respect to
payments and other performances, (iii) release persons
liable for performance, (iv) settle and compromise
disputes with respect to payments and performances
claimed due, all without notice to Borrower, without
being called to account therefor by Borrower and without
relieving Borrower from Performance of the Obligations,
and (v) receive, collect, open and read all mail of
Borrower for the purpose of obtaining all items
pertaining to the Receivables Collateral;
(d) apply the then balance of the Required Completion
Assurance Deposits to the satisfaction of the Obligations
and the Other Loan Obligations [as defined in paragraph
10.1(b)] in such order and manner as Lender may
determine;
(e) for either or both Phases: (i) continue and/or cause
Completion of the Work; (ii) take exclusive possession of
the Property or any part thereof; (iii) expend such funds
as Lender may deem appropriate, including, without
limitation, the Required Completion Assurance Deposit(s)
(if any), any other funds of Borrower held by Lender and
any sums which may remain unadvanced hereunder, to
continue and/or cause Completion of the Work; (iv) demand
and receive performances due under the Principal
Work-Related Items and the other Contracts, Intangibles,
Permits and Licenses; (v) make such changes to the scope
of the Work and to the Principal Work-Related Items and
other Contracts, Intangibles, Permits and Licenses as may
be necessary or desirable in Lender's judgment; (vi) file
claims, institute enforcement actions and otherwise
prosecute and defend all actions or proceedings relating
to the Work, the Principal Work-Related Items and the
other Contracts, Intangibles, Permits and Licenses as
Lender may determine to be necessary or desirable in
Lender's judgment; (vii) pay, settle or compromise all
existing bills and claims which are or may be liens
against any of the Property or as Lender may deem to be
necessary or desirable in Lender's judgment for the
continuance or Completion of the Work related thereto or
the clearance of
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title, all without notice to Borrower; (viii) execute in
Borrower's name all applications, certificates, notices
and other instruments and give all instructions and
communications which may be required or permitted by the
Principal Work-Related Items and other Contracts,
Intangibles, Permits and Licenses, as determined by
Lender; (ix) cancel or surrender any of the Principal
Work- Related Items and the other Contracts, Intangibles
and Deposits and enter into new contracts for the
Completion of the Work and any changes to the scope of
the Work; (x) do any and every act with respect to the
Completion of the Work, the Principal Work-Related Items
and the other Contracts, Intangibles, Permits and
Licenses which Borrower may do in its behalf; (xi) employ
such contractors, subcontractors, suppliers, agents,
attorneys, architects, accountants, appraisers, security
guards and inspectors as Lender may in its judgment deem
necessary or desirable to accomplish any of the above
purposes; and (xii) receive, collect, open and read all
mail of Borrower for the purpose of obtaining all items
pertaining to the Work, the Principal Work-Related Items
and the other Contracts, Intangibles, Permits and
Licenses; and
(f) proceed to protect and enforce its rights and remedies
under the Documents and to foreclose or otherwise realize
upon its security for the Performance of the Obligations,
or to exercise any other rights and remedies available to
it at law, in equity or by statute.
7.3 Application of Proceeds During an Event of Default.
Notwithstanding anything in the Documents to the contrary,
while an Event of Default exists, any cash received and
retained by Lender in connection with the Collateral may be
applied to payment of the Obligations in the manner provided
in paragraph 7.5.
7.4 Uniform Commercial Remedies; Sale; Assembly of Collateral.
(a) UCC Remedies; Sale of Receivables Collateral. Lender
shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code of the State of
Arizona and all other rights and remedies accorded to a
Secured Party at equity or law. Any notice of sale or
other disposition of the Receivables Collateral given not
less than ten (10) Business Days prior to such proposed
action in connection with the exercise of Lender's rights
and remedies shall constitute reasonable and fair notice
of such action. Lender may postpone or adjourn any such
sale from time to time by announcement at the time and
place of sale stated on the notice of sale or by
announcement of any adjourned sale, without being
required to give a further notice of sale. Any such sale
may be for cash or, unless prohibited by applicable law,
upon such credit or installment as Lender may determine.
Borrower shall be credited with the net proceeds of such
sale only when such proceeds are actually received by
Lender in good current funds. Despite the consummation
of any such sale, Borrower shall remain liable for any
deficiency on the Obligations which remains outstanding
following such sale. All net proceeds recovered pursuant
to a sale shall be applied in accordance with the
provisions of paragraph 7.5.
(b) Lender's Right to Execute Conveyances. Lender may, in
the name of Borrower or in its own name, make and execute
all conveyances, assignments and transfers of the
Receivables Collateral sold in connection with the
exercise of Lender's rights and remedies; and Lender is
hereby appointed Borrower's attorney-in-fact for this
purpose.
(c) Obligation to Assemble Collateral. Upon request of
Lender when an Event of Default exists, Borrower shall
assemble the Personal Property and Receivables Collateral
not already in Lender's possession and make it available
to Lender at a time and place designated by Lender.
7.5 Application of Proceeds. The proceeds of any sale of all or
any part of the Receivables Collateral made in connection with
the exercise of Lender's rights and remedies shall be applied
in the following order of priorities: first, to the payment
of all costs and expenses of such sale, including
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without limitation, reasonable compensation to Lender and its
agents, attorneys' fees, and all other expenses, liabilities
and advances incurred or made by Lender, its agents and
attorneys, in connection with such sale, and any other
unreimbursed expenses for which Lender may be reimbursed
pursuant to the Documents; second, to the payment of the other
Obligations, in such order and manner as Lender shall in its
discretion determine, with no amounts applied to payment of
principal until all interest has been paid; and third, to the
payment to Borrower, its successors or assigns, or to
whosoever may be lawfully entitled to receive the same, or as
a court of competent jurisdiction may direct, of any surplus
then remaining from such proceeds.
7.6 Lender's Right to Perform. Lender may, at its option, and
without any obligation to do so, pay, perform and discharge
any and all obligations (including, without limitation, the
Obligations under paragraph 6.10) agreed to be paid or
performed in the Documents by Borrower or any surety for the
Performance of the Obligations if (a) such person fails to do
so and (b) (i) an Event of Default exists or (ii) in the
opinion of Lender, such action must be taken because an
emergency exists or to preserve any of the Collateral or its
value. For such purposes Lender may use the proceeds of the
Receivables Collateral. All amounts expended by Lender in so
doing or in exercising its remedies under the Documents
following an Event of Default shall become part of the
Obligations, shall be immediately due and payable by Borrower
to Lender upon demand, and shall bear interest at the Default
Rate from the dates of such expenditures until paid.
7.7 Non-Exclusive Remedies. No remedy in any Document conferred
on or reserved to Lender is intended to be exclusive of any
other remedy or remedies, but each and every such remedy shall
be cumulative and shall be in addition to every other remedy
given under any Document or now or hereafter existing at law
or in equity. No delay or omission to exercise any right or
power shall be construed to be a waiver of or acquiescence to
any default or a waiver of any right or power; and every such
right and power may be exercised from time to time and as
often as may be deemed expedient.
7.8 Waiver of Marshalling. Borrower, for itself and for all who
may claim through or under it, hereby expressly waives and
releases all right to have the Collateral, or any part of the
Collateral, marshalled on any foreclosure, sale or other
enforcement of Lender's rights and remedies.
7.9 Attorney-in-Fact. For the purpose of exercising its rights
and remedies under paragraphs 7.2(c), 7.2(d) and 7.6, Lender
may do so in Borrower's name or its name and is hereby
appointed as Borrower's attorney-in-fact to take any and all
actions in Borrower's name and/or on Borrower's behalf as
Lender may deem necessary or appropriate in its discretion in
the accomplishment of such purposes.
8. LENDER'S INSPECTOR
8.1 Retention of Lender's Inspector. Lender may retain an
architectural/engineering firm ("Lender's Inspector") to
review the Principal Work-Related Items, the other Contracts,
Intangibles, Permits and Licenses and the budget proposed to
be the Construction Budget and any changes to such items;
inspect the Real Property prior to commencement of the Work
for purposes of determining the condition of the Real Property
and any existing improvements; make periodic inspections of
the Real Property and Work (whether or not Construction Loan
proceeds are to be used to pay or reimburse Borrower for the
costs of such Work) so that Lender may monitor whether
Borrower is in compliance with the terms and conditions of
this Agreement, and certifying that each Construction Loan
Advance Request for a Work-Related Advance is not in excess of
the Work completed and the amount to which Borrower is
entitled under the terms and conditions of this Agreement;
provide evidence satisfactory to Lender prior to the funding
of any Construction Loan Advance that (subject to completion
thereof as part of the Work as contemplated by this
Agreement), all necessary street, easements and utilities are
available to the boundary of the Real Property and that the
respective lines and treatment or generator plants are of
adequate capacity and size for the intended time-share use of
the Property. Furthermore, Lender may require an
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inspection of the Work by Lender's Inspector (a) prior to each
Construction Loan Advance; (b) at least once each month during
the course of completion of the Work; (c) upon Completion; and
(d) at such other times as Lender may, in its judgment, deem
necessary due to actual or suspected non-compliance with the
Plans and Specifications, Construction Contract(s), the
Documents, any law, regulation or private restriction, sound
architectural, engineering or construction principles or
commonly accepted safety standards; or Borrower's failure to
satisfy the requirements of the Documents.
8.2 No Duty of Lender to Supervise, Etc. Lender shall have no
duty to supervise or to review and inspect the Principal
Work-Related Items, the other Contracts, Intangibles, Permits
and Licenses, any budget proposed to be the Construction
Budget, any books and records pertaining thereto or any
changes to such items or the construction of the Work. Any
inspection made by Lender shall be for the sole purpose of
determining whether the Obligations are being Performed and
preserving Lender's rights under these Documents. If Lender,
or Lender's Inspector acting on behalf of Lender, should
review or inspect the Principal Work-Related Items, the other
Contracts, Intangibles, Permits and Licenses, the Construction
Budget, any books and records pertaining thereto or any
changes to such items or the construction of the Work, Lender
and Lender's Inspector shall have no liability or obligation
to Borrower or any third person arising out of such
inspection; and neither Borrower nor any third person shall be
entitled to rely upon any such inspection or review.
Inspection not followed by notice of an Event of Default shall
not constitute (a) waiver of any Event of Default then
existing; (b) an acknowledgment or representation by Lender or
Lender's Inspector that there has been or will be compliance
with the Principal Work-Related Items, the other Contracts,
Intangibles, Permits and Licenses, Construction Budget,
applicable laws, regulations and private restrictions, sound
construction, engineering or architectural principles or
commonly accepted safety standards, or that the construction
is lien free or free from defective materials or workmanship;
or (c) a waiver of Lender's right thereafter to insist that
Completion of the Work occur in accordance with the Principal
Work-Related Items, the other Contracts, Intangibles, Permits
and Licenses, Construction Budget, the Documents, applicable
laws, regulations and restrictions, sound construction,
engineering or architectural principles or commonly safety
standards and free from defective materials and workmanship.
Lender and Lender's Inspector owe no duty of care to Borrower
or any third person to protect against, or inform Borrower or
any third person of, the existence of negligence, faulty,
inadequate or defective design or construction of the Work.
9. CONSTRUCTION AND GENERAL TERMS
9.1 Payment Location. All monies payable under the Documents
shall be paid to Lender at its address set forth in paragraph
9.5 of this Agreement in lawful monies of the United States of
America, unless otherwise designated in the Documents or by
Lender by notice.
9.2 Entire Agreement. The Documents exclusively and completely
state the rights and obligations of Lender and Borrower with
respect to the Loans. No modification, variation,
termination, discharge, abandonment, or waiver of any of the
provisions or conditions of the Documents shall be valid
unless in writing and signed by duly authorized
representatives of the party sought to be bound by such
action. The Documents supersede any and all prior
representations, warranties and/or inducements, written or
oral, heretofore made by Lender concerning this transaction,
including any commitment for financing.
9.3 Powers Coupled with an Interest. The powers and agency hereby
granted by Borrower are coupled with an interest and are
irrevocable until the Obligations have been paid in full and
are granted as cumulative to Lender's other remedies for
collection and enforcement of the Obligations.
9.4 Counterparts. Any Document may be executed simultaneously in
any number of identical copies each of which shall constitute
an original for all purposes.
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9.5 Notices. All notices, requests or demands required or
permitted to be given under the Documents shall be in writing,
and shall be deemed effective (a) upon hand delivery, if hand
delivered; (b) one (1) Business Day after such are deposited
for delivery via Federal Express or other nationally
recognized overnight courier service; or (c) three (3)
Business Days after such are deposited in the United States
mails, certified or registered mail, all with delivery charges
and/or postage prepaid, and addressed as shown below, or to
such other address as either party may, from time to time,
designate in writing. Written notice may be given by telecopy
to the telecopier number shown below or to such other
telecopier number as either party may designate, from time to
time, in writing, provided that such notice shall not be
deemed effective unless it is confirmed within twenty-four
(24) hours by hand delivery, courier delivery or mailing of a
copy of such notice in accordance with the requirements set
forth above.
If to Lender: GREYHOUND FINANCIAL CORPORATION
(two copies) Dial Corporate Center, Dial Tower
1850 North Central Avenue
Phoenix, Arizona 85077-1141
Telecopy: (602) 207-5036
one copy marked "Attention: Vice President -
Law" and the other marked "Attention: Vice
President - Operations Management"
If to Borrower: PATTEN CORPORATION
5295 Town Center Road, Suite 400
Boca Raton, Florida 33486
Attention: Patrick Rondeau, Esq.
9.6 Successors and Assigns. All the covenants of Borrower and all
the rights and remedies of the Lender contained in the
Documents shall bind Borrower, and, subject to the
restrictions on merger, consolidation and assignment contained
in the Documents, its successors and assigns, and shall inure
to the benefit of Lender, its successors and assigns, whether
so expressed or not. Borrower may not assign its rights in
the Documents in whole or in part. Except as may be expressly
provided in a Document, no person or other entity shall be
deemed a third party beneficiary of any provision of the
Documents.
9.7 Severability. If any one or more of the provisions contained
in any Document shall be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained in the
Document shall not in any way be affected or impaired thereby.
9.8 Time of Essence. Time is of the essence in the Performance of
the Obligations.
9.9 Miscellaneous. All headings are inserted for convenience only
and shall not affect any construction or interpretation of the
Documents. Unless otherwise indicated, all references in a
Document to clauses and other subdivisions refer to the
corresponding paragraphs, clauses and other subdivisions of
the Document; the words "herein", "hereof", "hereto",
hereunder" and words of similar import refer to the Document
as a whole and not to any particular paragraph, clause or
other subdivision; and reference to a numbered or lettered
subdivision of an Article, or paragraph shall include relevant
matter within the Article or paragraph which is applicable to
but not within such numbered or lettered subdivision. All
Schedules and Exhibits referred to in this Agreement are
incorporated in this Agreement by reference.
9.10 (A) CHOICE OF LAW. THE DOCUMENTS AND THE RIGHTS, DUTIES AND
OBLIGATIONS OF THE PARTIES THERETO SHALL BE GOVERNED BY
AND
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<PAGE> 35
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS
OF SUCH STATE, THE LAWS OF THE UNITED STATES.
(B) CHOICE OF JURISDICTION; WAIVER OF VENUE. BORROWER: (A)
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF
ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF
SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF
(EXCEPT AS MAY BE SPECIFICALLY PROVIDED TO THE CONTRARY
IN BORROWER'S MORTGAGE), OR, IF LENDER INITIATES SUCH
ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH
ACTION AND THE CHOICE OF SUCH VENUE SHALL IN ALL
INSTANCES BE AT LENDER'S ELECTION; AND (B) WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES
AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR
OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY
CLAIM THAT BORROWER IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM
OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER
FORUM.
(C) WAIVER OF JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE
AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY
OF THE DOCUMENTS WOULD BE BASED UPON DIFFICULT AND
COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY
LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE
TRIED BY A JUDGE SITTING WITHOUT A JURY, AND BORROWER
HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN
ANY SUCH PROCEEDING.
(D) INDUCEMENT TO LENDER. ALL OF THE PROVISIONS SET FORTH IN
THIS PARAGRAPH ARE A MATERIAL INDUCEMENT FOR LENDER'S
MAKING THE LOANS TO BORROWER.
[Borrower (initials AM)]
9.11 Compliance With Applicable Usury Law. It is the intent of the
parties hereto to comply with the Applicable Usury Law.
Accordingly, notwithstanding any provisions to the contrary in
the Documents, in no event shall this Agreement or the
Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by
the Applicable Usury Law.
9.12 NO RELATIONSHIP WITH PURCHASERS. LENDER DOES NOT HEREBY
ASSUME AND SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR
LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING THAT ONLY
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED
TO IT, A COLLATERAL ASSIGNMENT FROM BORROWER OF THE
INSTRUMENTS. EXCEPT AS REQUIRED BY LAW AND FOR FILINGS MADE
WITH THE SECURITIES & EXCHANGE COMMISSION OR ANY STOCK
EXCHANGE ON WHICH BORROWER'S STOCK IS TRADED, BORROWER WILL
NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER
WITH RESPECT TO THE TIME-SHARE PROJECT, THE SALE OF TIME-SHARE
INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF
LENDER.
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<PAGE> 36
9.13 NO JOINT VENTURE. THE RELATIONSHIP OF BORROWER AND LENDER IS
THAT OF DEBTOR AND CREDITOR, AND IT IS NOT THE INTENTION OF
EITHER OF SUCH PARTIES BY THIS OR ANY OTHER INSTRUMENT BEING
EXECUTED IN CONNECTION WITH THE LOANS TO ESTABLISH A
PARTNERSHIP, AND THE PARTIES HERETO SHALL NOT UNDER ANY
CIRCUMSTANCES BE CONSTRUED TO BE PARTNERS OR JOINT VENTURERS.
9.14 Standards Applied to Lender's Actions. Unless otherwise
specifically stipulated elsewhere in the Documents, if a
matter is left in the Documents to the decision, requirement,
request, determination, judgment, opinion, approval, consent,
satisfaction, acceptance, agreement, option or discretion of
Lender, its employees, Lender's counsel or any agent for or
contractor of Lender, such action shall be deemed to be
exercisable by Lender or such other person in its sole and
absolute discretion and according to standards established in
its sole and absolute discretion. Without limiting the
generality of the foregoing, "option" and "discretion" shall
be implied by use of the words "if" or "may".
9.15 Meaning of Subordination. Any subordinations required to be
given under the Documents by third parties to Lender shall
include the subordination of and the deferral of the right to
receive payments on the subordinated obligations except to the
extent expressly permitted in this Agreement; the remittances
to Lender of all prohibited payments received by the third
party; the subordination of all liens, security interests,
assignments and other encumbrances and claims held by the
third party on or against any of Borrower's property to
Lender's interest (whenever acquired) in such property; and an
agreement on the part of the third party not to exercise any
remedies against Borrower so long as all obligations under the
Documents have not been fully satisfied.
10. SPECIAL PROVISIONS
10.1 Cross-Collateralization and Cross-Default of Other Loan
Obligations.
(a) Lender entered into an Amended and Restated Loan and
Security Agreement ("PRFC Loan Agreement") dated as of
January 9, 1990, as amended, with Patten Receivables
Finance Corporation VI, a Delaware corporation ("PRFC"),
an Affiliate and wholly-owned subsidiary of Borrower.
Pursuant to the PRFC Loan Agreement, Lender has committed
to make to PRFC a loan in an amount not to exceed at any
time Twenty Million Dollars ($20,000,000) ("PRFC Loan"),
subject to the terms and conditions of the PRFC Loan
Agreement. Lender has entered into a Loan Agreement
("Lake Ridge Loan Agreement") with Properties of the
Southwest, Inc., a Delaware corporation ("PSI"), a
wholly-owned subsidiary of Patten, pursuant to which
Lender has agreed to make to PSI a loan in an amount not
to exceed Four Million Five Hundred Thousand Dollars
($4,500,000) ("Lake Ridge Loan"). Lender is entering
into or has entered into a Credit Facility Agreement
("Land Inventory Credit Facility Agreement") with
Borrower pursuant to which Lender has agreed to extend to
Borrower a revolving line of credit in an amount not to
exceed Million Five Hundred Thousand Dollars ($5,000,000)
("Land Inventory Credit Facility"). As used in this
Agreement, the term "Other Credit Facilities" shall mean
at any time, all loans and credit facilities other then
the Loans then outstanding between Borrower and/or any
Affiliate of Borrower on the one hand, and Lender on the
other hand, including, without limitation, the Lake Ridge
Loan, the PRFC Loan, and the Land Inventory Credit
Facility; the term "Credit Facility" means any one of the
Other Credit Facilities or this Loan; the term "Lake
Ridge Loan Documents" shall mean the documents now or
hereafter executed in connection with the Lake Ridge
Loan, as they may be from time to time renewed, amended,
restated or replaced; the term "PRFC Loan Documents"
shall mean the PRFC Loan Agreement and all other
documents now or hereafter executed in connection with
the PRFC Loan, as they may be from time to time renewed,
amended, restated or replaced; and the term "Land
Inventory
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<PAGE> 37
Credit Facility Documents" shall mean the Land Inventory
Facility Documents Agreement and all other documents now
or hereafter executed in connection with the Land
Inventory Loan, as they may be from time to time renewed,
amended, restated or replaced; and the term "Other
Credit Facilities Documents" shall mean the documents now
or hereafter executed in connection with the Other Credit
Facilities, including, without limitation, the Lake Ridge
Loan Documents, the PRFC Loan Documents, and the Land
Inventory Credit Facility Documents as they may be from
time to time renewed, amended, restated or replaced.
(b) An Event of Default under the Documents shall constitute
an "Event of Default" as that term is defined in any of
the Other Credit Facilities Documents; or if an "Event of
Default" is not a defined term with respect to any of the
Other Credit Facilities, shall, without further condition
or delay, permit Lender to accelerate the payment of such
Other Credit Facility, cease funding under any Other
Credit Facility or to foreclose its lien or security
interest on any of the collateral for such Other Credit
Facility. An "Event of Default" as that term is defined
in any of the Other Credit Facilities Documents and/or
any act or event which, without further condition or
delay, permits Lender to accelerate the payment of any
Other Credit Facility and/or exercise its remedies to
either cease funding under such Other Credit Facility or
foreclose its lien or security interest on any collateral
for any Other Credit Facility shall constitute an Event
of Default under the Documents.
(c) Without limiting the generality of any other provision
contained herein, the Security Interest granted by
Borrower hereunder and all Collateral given under the
Documents as security for the Loan is intended to and
does secure Performance of all obligations in connection
with advances made to it and all obligations of PRFC
and/or Borrower now or hereafter existing under the PRFC
Loan Documents ("PRFC Loan Obligations"); and all
collateral given under the PRFC Loan Documents as
security for the PRFC Loan Obligations is intended to and
does secure the Obligations. Borrower shall cause PRFC
to execute all amendment documents required by Lender to
reflect this cross-collateralization and other conditions
of the Loans.
(d) If an Event of Default exists and Lender is entitled to
apply the proceeds of the Collateral to the Obligations,
it may apply such proceeds to the Obligations and to the
Land Inventory Credit Facility Obligations and the PRFC
Loan Obligations in such order and manner as Lender may
determine.
(e) If no Event of Default exists, then upon full
satisfaction of all Obligations (other than those
relating to cross-collateralization) under the Documents,
Lender shall release the Collateral, together with any
and all endorsements and assignments reasonably requested
by Borrower in each case without recourse or
representation or warranty of any kind.
(f) Neither (i) the exercise or the failure to exercise by
Lender of any rights of remedies conferred on it under
the Other Credit Facilities Documents, hereunder or
existing at law or otherwise, or against any security for
performance of the obligations under the Other Credit
Facility Documents, (ii) the commencement of an action at
law or the recovery of a judgment at law against another
borrower ("Third Party Borrower") under the Other Credit
Facility Documents or any other obligor ("Third Party
Obligor") for the Other Credit Facilities Obligations and
the enforcement thereof through levy or execution or
otherwise, (iii) the taking or institution or any other
action or proceeding against a Third Party Borrower or
any other Third Party Obligor nor (iv) any delay in
taking, pursuing or exercising any of the foregoing
actions, rights, powers or remedies (even though
requested by Borrower by Lender or anyone acting for
Lender, shall extinguish or affect the Obligations of
Borrower hereunder. Borrower shall be and remain liable
hereunder until all the Other Credit Facilities
Obligations are fully paid and performed of all the Other
Credit Facilities Obligations under the Other Credit
Facilities Documents [and without limiting
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<PAGE> 38
Borrower's obligations under paragraph 9.1(j)],
notwithstanding the previous discharge (total or partial)
from further liability of any Third Party Borrower or any
Third Party obligor.
(g) Borrower hereby expressly waives: (i) notice of the
existence, creation or non-payment of all or any of the
Other Credit Facilities Obligations except as otherwise
provided in the Other Credit Facilities Documents; (ii)
presentment, protest, demand, dishonor, notice of
dishonor, protest and all notices whatsoever with respect
to the Other Credit Facilities Obligations; (iii) all
diligence in collection or protection of or realization
on the Other Credit Facilities Obligations or any part
thereof, any obligation hereunder, or any security for or
guarantee of any of the foregoing; (iv) any defense based
upon an election of remedies by Lender or marshalling of
assets; (v) any defense arising because of Lender's
election under Section 1111(b)(2) of the United States
Bankruptcy Code ("Bankruptcy Code") in any proceeding
instituted under the Bankruptcy Code; (vi) any defense
based on post-petition borrowing or the grant of a
security interest by a Third Party Borrower under Section
365 of the Bankruptcy Code; (vii) any duty on the part of
Lender to disclose to Borrower any facts Lender may now
or hereafter know about any Third Party Borrower,
regardless of whether Lender has reason to believe that
any such facts materially increase the risk beyond that
which Borrower intends to assume or has reason to believe
that such facts are known to Borrower or has a reasonable
opportunity to communicate such facts to Borrower,
because Borrower represents and warrants that it is fully
responsible for being and keeping informed of the
financial condition of any Third Party Borrower and of
all circumstances bearing on the risk of non-payment of
any obligation guaranteed hereby; and (viii) any and all
suretyship defenses and defenses in the nature thereof
under Arizona and/or any other applicable law, including,
without limitation, the benefits of the provisions of
Sections 12-1641 through 12-1646, of the Arizona Revised
Statutes, Sections 17 and 21, A.R.C.P., and all other
laws and procedural rules of similar import.
(h) Without limiting the generality of the foregoing,
Borrower will not assert against Lender any defense of
waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds,
anti-deficiency statute, fraud, usury, illegality or
unenforceability which may be available to any Third
Party Borrower with respect to the Other Credit
Facilities Documents, or any setoff available to any
Third Party Borrower against Lender, whether or not on
account of a related transaction.
(i) Anything else contained herein to the contrary
notwithstanding, Lender, from time to time, without
notice to Borrower, may take all or any of the following
actions without in any manner affecting or impairing the
obligations of Borrower hereunder: (i) obtain a lien on
or a security interest in any property to secure any of
the Other secondary liability of any party or parties, in
addition to Borrower, with respect to any of the Other
Credit Facilities Obligations; (iii) renew, extend or
otherwise change the time for payment or performance of
any of the Other Credit Facilities Obligations for any
period; (iv) release or compromise any liability of
Borrower hereunder or any liability of any nature of any
other party or parties with respect to any of the Other
Credit Facilities Obligations; (v) exchange, enforce,
waive, release and apply any security for the performance
of any of the Other Credit Facilities Obligations and
direct the order or manner of sale thereof as Lender may
in Lender's discretion determine; (vi) resort to the
Collateral for payment of any Other Credit Facilities
Obligations, whether or not Lender shall proceed against
any other party primarily or secondarily liable on any of
the Other Credit Facilities Obligations; (vii) agree to
any amendment (including, without limitation, any
amendment which changes the amount of interest to be paid
under the Other Credit Facilities Documents or extends
the period of time during which any Third Party Borrower
may obtain advances of the Other Credit Facilities), any
alteration of the Other Credit Facilities Documents or
any waiver of any of the provisions of the Other Credit
Facilities Documents and/or exercise Lender's rights to
consent to any action or non-action of any Third Party
Borrower which may violate the covenants and agreements
contained in the Other Credit Facilities Documents, with
or
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<PAGE> 39
without consideration and on such terms and conditions as
may be acceptable to lender; or (h) exercise any of
Lender's rights conferred by the Other Credit Facilities
Documents or by law.
(j) Notwithstanding anything herein to the contrary, if at
any time all or any part of any payment theretofore
applied by Lender to any of the Other Credit Facilities
Obligations is or must be rescinded or returned by lender
for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of any Third
Party Borrower), such Other Credit Facilities
Obligations, for purposes of this paragraph 9.1, to the
extent that such payment is or must be rescinded or
returned, shall be deemed to have never been performed;
and this paragraph 9.1 shall continue to be effective or
be reinstated, as the case may be, as to such Other
Credit Facilities Obligations, all as though such
application by Lender had not been made.
(k) Borrower shall have no right of subrogation with respect
to the Other Credit Facilities Obligations or any right
of indemnification, reimbursement or contribution from
any Third Party Borrower or from any other Third Party
Obligor with respect to the Other Credit Facilities
Obligations regardless of any payment thereon resulting
from the provisions of this paragraph 9.1 and Borrower
hereby unconditionally waives any such right of
subrogation, indemnification, reimbursement or
arbitration.
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their respective name, personally or by their duly authorized
representatives as of the date above written.
"LENDER" GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation
By: JACK FIELDS, III
--------------------------------------------
Type/Print Name: JACK FIELDS, III
-------------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------------------
"BORROWER" PATTEN CORPORATION, a Massachusetts
corporation
By: ALAN L. MURRAY
--------------------------------------------
Type/Print Name: ALAN L. MURRAY
-------------------------------
Title: TREASURER AND CHIEF FINANCIAL OFFICER
-----------------------------------------
40
<PAGE> 1
Exhibit 10.96
PATTEN CORPORATION
1995 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of the Patten Corporation 1995 Stock
Incentive Plan (the "Plan") is to advance the interests of Patten Corporation
(the "Company") and its present and future Affiliates by strengthening the
ability of the Company and its Affiliates to attract, retain and motivate
employees and consultants and independent contractors of the Company and its
Affiliates by providing incentives, opportunities and favorable terms for them
to acquire stock of the Company and to receive other Awards.
The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board shall have the right, at its discretion, to
delegate any and all of its powers under the Plan to the Compensation Committee
of the Board, or such other committees or persons designated by the Board (such
Compensation Committee or other committee or persons designated by the Board is
hereinafter referred to as the "Committee"), as provided in and subject to
Section 14. In the event that the Board appoints a Committee to administer the
Plan, in whole or in part, the Committee's determinations with respect thereto
shall not be subject to approval by the Board. References in the Plan to the
Committee shall be deemed to refer to the Board to the extent the Board has not
delegated administration of the Plan to the Committee, and any references to
the Board shall be deemed references to the Committee if the Board has
delegated its powers.
2. PARTICIPATION. The Committee shall have exclusive power
(except as may be delegated by the Committee as permitted herein) to select the
employees and other individuals performing services for the Company and its
Affiliates who shall be eligible individuals who may participate in the Plan
and be granted Awards under the Plan. Eligible individuals may be selected
individually or by groups or categories, as determined by the Committee in its
discretion. As used herein the term "Participant" means each eligible
individual to whom an Award has been made under any provision of the Plan.
3. AWARDS UNDER THE PLAN.
3.1 Types of Awards. Awards under the Plan ("Awards")
may include, but need not be limited to, one or more of the following types,
either alone or in any combination thereof: (i) Stock Options; (ii) Restricted
Stock; (iii) Unrestricted Stock; (iv) Performance Shares; (v) Loans; (vi)
Supplemental Cash Grants; and (viii) any other type of Award deemed by the
Committee in its discretion to be consistent with the purposes of the Plan.
Stock Options, which include "Nonqualified Stock Options" and "Incentive Stock
Options" or combinations thereof, are rights to purchase shares of the common
stock of the Company ("Shares" or "Stock"). Nonqualified Stock Options and
Incentive Stock Options are subject to the terms, conditions and restrictions
specified in Section 4. Restricted Stock are Shares which are issued subject
to terms, conditions and restrictions specified in Section 5. Unrestricted
Stock are Shares issued without restrictions as described in Section 5.
Performance Shares are contingent awards, subject to terms, conditions and
restrictions described in Section 6, under which the Participant may become
entitled to receive cash, Shares, Other Securities, or other forms of payment,
or any combination thereof, as determined by the Committee. Loans and
Supplemental Cash Grants are other Awards which may be made subject to the
terms described in Section 7.
3.2 Maximum Number of Shares That May be Issued. There
may be issued under the Plan (as Restricted Stock or Unrestricted Stock, in
payment of Performance Shares, pursuant to the exercise of Stock Options, or in
payment of or pursuant to the exercise of other Awards) up to an aggregate of
1,000,000 Shares, subject to adjustment as provided in Section 12. Shares
issued pursuant to the Plan may be either authorized but
1
<PAGE> 2
unissued Shares, treasury Shares, reacquired Shares, or any combination
thereof. If any Shares issued as Restricted Stock or otherwise subject to
repurchase or forfeiture rights are reacquired by the Company pursuant to such
rights, or if any Stock Option or other Award (other than Stock Options or
other Awards issued in respect of such Assumed Options) is canceled, terminates
or expires unexercised, or if any Award payable in Stock or cash (other than
Stock Options or other Awards issued in respect of such Assumed Options) is
satisfied in cash rather than Stock, any Shares that would otherwise have been
issuable pursuant thereto will be available for issuance under new Awards.
3.3 Rights With Respect to Shares and Other Securities.
(a) Unless otherwise determined by the Committee in its
discretion, a Participant to whom an Award of Restricted Stock has been made
(and any person succeeding to such a Participant's rights pursuant to the Plan)
shall have, after issuance of a certificate for the number of Shares awarded
and prior to the expiration of the Restricted Period (as defined in Section 5)
or the earlier repurchase of such Shares as herein provided, ownership of such
Shares, including the right to vote the same and to receive dividends or other
distributions made or paid with respect to such Shares (provided that such
Shares, and any new, additional or different Shares, or Other Securities, or
other forms of consideration which the Participant may be entitled to receive
with respect to such Shares as a result of a stock split, stock dividend or any
other change in the capital structure of the Company, shall be subject to the
restrictions hereinafter described as determined by the Commitee in its
discretion), subject, however, to the options, restrictions and limitations
imposed thereon pursuant to the Plan. Notwithstanding the foregoing, a
Participant with whom any agreement is made to issue Shares in the future,
shall have no rights as a shareholder with respect to Shares related to such
agreement until issuance of a certificate to him.
(b) Unless otherwise determined by the Committee in its
discretion, a Participant to whom a grant of Stock Options, Performance Shares
or any other Award is made (and any person succeeding to such a Participant's
rights pursuant to the Plan) shall have no rights as a shareholder with respect
to any Shares or as a holder with respect to Other Securities, if any, issuable
pursuant to any such Award until the date of the issuance of a stock
certificate to him for such Shares or other instrument of ownership, if any.
Except as provided in Section 12, no adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such stock certificate or other instrument of ownership, if any, is issued.
3.4 Definitions of Certain Terms. Whenever the "Fair
Market Value" of Shares or Other Securities or any other property must be
determined pursuant to any provisions of the Plan, "Fair Market Value" shall be
the amount determined by the Committee as follows:
(i) if the Stock or Other Securities or other property
are then traded on a securities exchange, the closing sale price on
the principal market on which the Stock or Other Securities or other
property are traded on the date in question (or if such price is not
available on such date, on the business day closest to such date for
which such price is available); or
(ii) if the Stock or Other Securities or other property
are then traded in the over-the-counter market, the mean between the
closing bid and asked price of the Stock or Other Securities or other
property on the date in question (or if such prices are not available
on such date, on the business day closest to such date for which such
prices are available), as such price is reported in a publication of
general circulation selected by the Committee; or
(iii) if the Stock or Other Securities or other property
are not then actively traded on an exchange or in the over-the-counter
market, the amount determined in good faith by the Committee.
2
<PAGE> 3
As used herein, a "subsidiary corporation" is any corporation of which
the Company is the owner of at least 50% of the total combined voting power of
all classes of stock of such corporation. "Affiliate" means any entity in
which the Company or any subsidiary corporation has a substantial direct or
indirect equity interest.
An "eligible individual" shall be deemed to refer to any person
eligible to receive an Award under the Plan and shall include (1) employees and
(2) individuals performing services as non-employee independent contractors.
"Section 162(m) employee" means a Participant who, as of the date of
vesting and/or payout of an Award, is one of the group of "covered employees,"
as defined in regulations promulgated under Section 162(m) of the Code.
For purposes of this Plan, a Participant shall be deemed to have
terminated his employment or performance of services for the Company and its
Affiliates by reason of "Disability" if he is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, or the Participant has incurred total and permanent
disability as determined under the provisions of a Company long-term disability
program which is applicable to the Participant.
"Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's misconduct
or dishonesty, any of which is directly and materially harmful to the business
or reputation of the Company or any Affiliate.
"Retirement" means the Participant's retirement from active employment
with the Company or an Affiliate (or ceasing to provide services as an
independent contractor) within or after the calendar year the Participant
attains age sixty (60).
4. STOCK OPTIONS. The Committee may grant Stock Options either
alone, or in conjunction with Performance Shares or other Awards, either at the
time of grant or by amendment thereafter, provided that an Incentive Stock
Option may be granted only to an employee of the Company or its parent or
subsidiary corporation. Incentive Stock Options are Stock Options which are
intended to meet the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). Each Stock Option granted under the Plan
shall be evidenced by an instrument ("Option Agreement") in such form as the
Committee shall prescribe from time to time in accordance with the Plan which
shall comply with the terms and conditions specified in this Section 4 and with
such other terms and conditions, including, but not limited to, restrictions
upon the Stock Option or the Shares issuable upon exercise thereof, as the
Committee, in its discretion, shall establish.
4.1 Option Price. The option price may be less than,
equal to, or greater than, the Fair Market Value of the Shares subject to the
option at the time the Stock Option is granted, as determined by the Committee,
but in no event will the option price be less than 50% of the Fair Market Value
of the underlying Shares at the time the Stock Option is granted; provided,
however, that in the case of an Incentive Stock Option, the option price shall
not be less than the Fair Market Value of the Shares at the time the Incentive
Stock Option is granted, or if granted to an employee who owns stock
representing more than ten percent of the voting power of all classes of stock
of the Company or of its parent or subsidiary corporation (a "10% Employee"),
such option price shall not be less than 110% of such Fair Market Value at the
time the Incentive Stock Option is granted; and provided, further, that in the
case of any Stock Option intended to satisfy the "performance-based" exemption
under Section 162(m) of the Code, the option price shall not be less than the
Fair Market Value of the Share at the time the Stock Option is granted.
However, in no event will the option price be less than the par value of such
Shares.
4.2 Number of Option Shares. The Committee shall
determine the number of Shares to be subject to each Stock Option; provided,
however, that if the Committee determines that a Stock Option should
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satisfy the "performance-based" exemption under Section 162(m) of the Code, the
maximum number of Shares subject to Stock Options which may be granted to any
single Participant during any calendar year is one hundred fifty thousand
(150,000). The number of Shares subject to an outstanding Stock Option may be
reduced on a share-for-share or other appropriate basis, as determined by the
Committee, to the extent that Shares under the Stock Option are used to
calculate the cash, Shares, Other Securities, or other forms of payment, or any
combination thereof, to the extent that any other Award granted in conjunction
with such Stock Option is paid.
4.3 Nontransferability of Stock Options. A Stock Option
may not be sold, assigned, transferred, pledged, or otherwise disposed of by
the optionee, except by will or the laws of descent and distribution, and shall
be exercisable during the optionee's lifetime only by the optionee.
4.4 Exercisability of Stock Options. A Stock Option
shall not be exercisable, as follows:
(a) in the case of any Incentive Stock Option granted to
a 10% Employee, after the expiration of five (5) years from the date
it is granted, and in the case of any other Incentive Stock Option or
any Nonqualified Stock Option, after the expiration of ten (10) years
from the date it is granted; any Stock Option may be exercised during
such period only at such time or times and in such installments as the
Committee may establish in the Option Agreement;
(b) unless payment in full is made for the Share at the
time of exercise and such payment shall be made in such form
(including, but not limited to, cash, check, or, if permitted by the
Committee in the Option Agreement, by delivery to the Company of
Shares, or a promissory note, or an irrevocable undertaking by a
broker to deliver to the Company sufficient funds to pay the exercise
price, or the surrender of another outstanding Award under the Plan,
or any combination thereof) as the Committee may determine in its
discretion;
(c) unless the person exercising the Stock Option has
been, at all times during the period beginning with the date of the
grant of the Stock Option and ending on the date of such exercise,
employed by, otherwise performing services for the Company or an
Affiliate, or a corporation substituting or assuming the Stock Option
in a transaction to which Section 424(a) of the Code is applicable,
except that:
(i) unless otherwise provided in the Option
Agreement, if the optionee ceases to perform services for the
Company or an Affiliate because of Retirement or Disability,
any unvested Stock Option or portion thereof shall fully vest,
and following such Retirement or Disability the Participant
may at any time within a period of three (3) years from the
date of such Retirement or Disability exercise the Stock
Option;
(ii) unless otherwise provided in the Option
Agreement, if the optionee ceases to perform services for the
Company or an Affiliate because of his death, any unvested
Stock Option or portion thereof shall fully vest, and his
estate, personal representative or Beneficiary to whom it has
been transferred pursuant to Section 13 may at any time within
a period of three (3) years from the date of the Participant's
death exercise the Stock Option;
(iii) if the optionee ceases to perform services
for the Company or an Affiliate for Cause, all Stock Options
shall immediately expire and cease to be vested or
exercisable, and the optionee shall have no further rights or
claims with respect thereto; and
(iv) unless otherwise provided in the Option
Agreement, if the optionee ceases to perform services for the
Company or an Affiliate for any reason other than death,
Disability or Retirement, or for Cause, any Stock Option or
portion thereof which was not vested and
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exercisable shall immediately terminate and the optionee shall
have no further rights or claims with respect thereto, and the
Participant may at any time within a period of thirty (30)
days from the date of such termination exercise the Stock
Option to the extent that the Stock Option was exercisable by
him on the date he ceased to perform services;
provided, however, that the Committee may provide specifically in the
Option Agreement for such other period of time during which an
optionee may exercise a Stock Option after termination of the
optionee's services, subject to the overriding limitation that no
Stock Option may be exercised to any extent by anyone after the date
of expiration of the Stock Option.
In the event that an Incentive Stock Option is exercised by an
optionee after the exercise period that applies for purposes of treatment as an
incentive stock option under Section 422 of the Code, such Stock Option shall
thereafter be treated as a Nonqualified Stock Option.
4.5. Restrictions on Incentive Stock Options. In the case
of an Incentive Stock Option, the amount of aggregate Fair Market Value of
Shares (determined at the time of grant of the Stock Option pursuant to Section
4.1) with respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year (under all such plans of the
Company) shall not exceed $100,000. To the extent the limitation in the
preceding sentence would be exceeded with respect to any portion of a Stock
Option otherwise first becoming exercisable for any year in accordance with the
vesting schedule established for an optionee, the Committee may determine at
the time of grant that vesting with respect to such excess amount shall be
deferred until the first subsequent year that such excess amount (or any part
thereof) can become exercisable within the limitation of the preceding sentence
or, in the alternative, that such excess amount become vested as a Nonqualified
Stock Option.
4.6. Restrictions on Shares. Shares purchased by an
optionee upon exercise of a Stock Option may be subject to such transfer and
repurchase restrictions (including without limitation transfer and repurchase
restrictions like those which may be applicable to Restricted Stock under the
provisions of Section 5) as the Committee in its sole discretion shall
establish in the Option Agreement.
5. RESTRICTED STOCK AND UNRESTRICTED STOCK. Each Award of
Restricted Stock under the Plan shall be evidenced by an instrument
("Restricted Stock Agreement") in such form as the Committee shall prescribe
from time to time in accordance with the Plan which shall comply with the terms
and conditions specified in this Section 5, and with such other terms and
conditions as the Committee, in its discretion, shall establish.
5.1. Number of Shares of Restricted Stock. The Committee
shall determine the number of Shares to be issued to a Participant pursuant to
the Award of Restricted Stock, and the extent, if any, to which they shall be
issued in exchange for cash, other consideration, or both; provided, however,
that if the Committee determines that an Award of Restricted Stock should
satisfy the "performance-based" exemption under Section 162(m) of the Code, the
maximum number of Shares of Restricted Stock which may be granted to any single
Participant during any calendar is one hundred fifty thousand (150,000) and
provided further that Restricted Stock may not be issued for a price which is
less than the par value of the Shares.
5.2. Restriction on Transfer; Repurchase Option. Shares
issued to a Participant in accordance with the Award of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise disposed of, except by
will or the laws of descent and distribution, or as otherwise determined by the
Committee in the Restricted Stock Agreement, for such period as the Committee
shall determine from the date on which the Award is granted (the "Restricted
Period").
The Company will have the option to repurchase the Shares subject to
the Award at such price as the Committee shall have fixed in the Restricted
Stock Agreement which option will be exercisable:
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(i) if the Participant's continuous employment or
performance of services for the Company and its Affiliates shall
terminate for any reason or except as otherwise provided in Section
5.3, prior to the expiration of the Restricted Period;
(ii) if, on or prior to the expiration of the Restricted
Period or the earlier lapse of such repurchase option, the Participant
has not paid to the Company an amount equal to any federal, state,
local or foreign income or other taxes which the Company determines is
required to be withheld in respect of such Shares; or
(iii) under such other circumstances as determined by the
Committee in its discretion.
Such repurchase option shall be exercisable on such terms, in such manner and
during such period as shall be determined by the Committee in the Restricted
Stock Agreement.
Each certificate for Shares issued pursuant to an Award of Restricted
Stock shall bear an appropriate legend referring to the foregoing repurchase
option and other restrictions; shall be deposited by the awardholder with the
Company, together with a stock power endorsed in blank; or shall be evidenced
in such other manner permitted by applicable law as determined by the Committee
in its discretion. Any attempt to dispose of any such Shares in contravention
of the foregoing repurchase option and other restrictions shall be null and
void and without effect.
If Shares issued pursuant to an Award of Restricted Stock shall be
repurchased pursuant to the repurchase option described above, the Participant,
or in the event of his death, his personal representative, shall forthwith
deliver to the Secretary or Clerk of the Company the certificates for the
Shares awarded to the Participant, accompanied by such instrument of transfer,
if any, as may reasonably be required by the Secretary of the Company. If the
repurchase option described above is not exercised by the Company, such option
and the restrictions imposed pursuant to the first paragraph of this Section
5.2 shall terminate and be of no further force and effect.
5.3. Termination of Services Under Certain Circumstances.
If a Participant who has been in continuous employment or performance of
services for the Company or an Affiliate since the date on which an Award of
Restricted Stock was granted to him shall, while in such employment,
performance of services, die, or terminate such employment, or performance of
services by reason of Disability or Retirement and any of such events shall
occur prior to the end of the Restricted Period of such Award, the Committee
may determine to cancel the repurchase option (and any and all other
restrictions) on any or all of the Shares subject to such Award; and the
repurchase option shall become exercisable at such time as to the remaining
Shares, if any.
5.4. Other Restrictions. The Committee shall impose such
other conditions and/or restrictions on Restricted Stock as it may deem
advisable including, without limitation, a requirement that Participants pay a
stipulated purchase price therefor, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional and/or individual) and/or
restrictions under applicable federal or state securities laws.
Unless and until the Committee proposes for stockholder vote a change
in the general performance measures set forth below, the attainment of which
shall determine the number of Shares of Restricted Stock that become vested
under the Plan, the performance measure(s) to be used for purposes of grants to
Section 162(m) employees shall be selected from among the following
alternatives:
(a) Return on invested capital in relation to target objectives.
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(b) Share earnings/earnings growth in relation to target
objectives.
(c) Cash flow/cash flow growth in relation to target objectives.
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Restricted Stock that shall not qualify for the "performance-based"
exemption under Section 162(m) of the Code, the Committee may make grants which
do not qualify for such exemption.
5.5. Notice of Election Under Section 83(b). A
Participant making an election under Section 83(b) of the Code with respect to
Restricted Stock must provide a copy thereof to the Company within ten (10)
days of the filing of such election with the Internal Revenue Service.
5.6. Unrestricted Stock. The Committee may, in its
discretion, approve the sale and transfer to a Participant of Shares free of
any transfer restriction or repurchase options ("Unrestricted Stock") for a
price which is not less than the par value of the Shares.
6. PERFORMANCE SHARES. The Award of Performance Shares
("Performance Share Grant") to a Participant will entitle him to receive a
specified amount determined by the Committee (the "Value"), if the terms and
conditions specified herein and in the Award are satisfied. Each Performance
Share Grant shall be subject to the terms and conditions specified in this
Section 6, and to such other terms and conditions, including but not limited
to, restrictions upon any cash, Shares, Other Securities, or other forms of
payment, or any combination thereof, issued in respect of the Performance Share
Grant, as the Committee, in its discretion, shall establish, and shall be
embodied in an instrument (a "Performance Share Agreement") in such form and
substance as is determined by the Committee.
6.1. Description of Performance Shares. The Committee
shall determine the Value or range of a Performance Share Grant to be awarded
to each Participant selected for such an Award and whether or not such a
Performance Share Grant is granted in conjunction with an Award of Stock
Options, Restricted Stock or other Award, or any combination thereof, under the
Plan (which may include, but need not be limited to, deferred Awards)
concurrently or subsequently granted to the Participant (the "Associated
Award"). If the Committee determines that a grant of Performance Shares should
satisfy the "performance-based" exemption under Section 162(m) of the Code, the
maximum payout to any Section 162(m) employee with respect to Performance
Shares granted in any one calendar year shall be five hundred thousand dollars
($500,000).
As determined by the Committee in the Performance Share Agreement, the
maximum value of each Performance Share Grant (the "Maximum Value") shall be:
(i) an amount fixed by the Board at the time the Award is made or amended
thereafter; (ii) an amount which varies from time to time based in whole or in
part on the then current value of a Share, Other Securities or property, or any
combination thereof; or (iii) an amount that is determinable from criteria
specified by the Committee.
Performance Share Grants may be issued in different classes or series
having different names, terms and conditions. In the case of a Performance
Share Grant awarded in conjunction with an Associated Award, the Performance
Share Grant may be reduced on an appropriate basis to the extent that the
Associated Award has been exercised, paid to or otherwise received by the
Participant, as determined by the Committee.
6.2. Performance Objectives. The award period in respect
of any Performance Share Grant shall be a period determined by the Committee.
At the time each Award is made, the Committee shall establish
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performance objectives to be attained within the award period as the means of
determining the Value of such a Performance Share Grant. The performance
objectives shall be based on such measure or measures of performance, which may
include, but need not be limited to, the performance of the Participant, the
Company, one or more of its subsidiaries or one or more of their divisions or
units, or any combination of the foregoing, as the Committee shall determine,
and may be applied on an absolute basis or be relative to industry or other
indices, or any combination thereof.
The Value of a Performance Share Grant shall be equal to its Maximum
Value only if the performance objectives are attained in full, but the
Committee shall specify the manner in which the Value of Performance Share
Grants shall be determined if the performance objectives are met in part. Such
performance measures, the Value or the Maximum Value, or any combination
thereof, may be adjusted in any manner by the Committee in its discretion at
any time and from time to time during or as soon as practicable after the award
period, if it determines that such performance measures, the Value or the
Maximum Value, or any combination thereof, are not appropriate under the
circumstances.
Notwithstanding the foregoing, unless and until the Committee proposes
for stockholder vote a change in the general performance measures set forth
below, the attainment of which shall serve as a basis for the determination of
the number and/or value of Performance Shares granted under the Plan, the
performance measure(s) to be used for purposes of grants to Section 162(m)
employees shall be selected from among the following alternatives:
(a) Return on invested capital in relation to target objectives.
(b) Share earnings/earnings growth in relation to target
objectives.
(c) Cash flow/cash flow growth in relation to target objectives.
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Restricted Stock that shall not qualify for the "performance-based"
exemption under Section 162(m) of the Code, the Committee may make grants which
do not qualify for such exemption.
6.3. Effect of Termination of Services. The rights of a
Participant in Performance Shares awarded to him shall be provisional and may
be canceled or paid in whole or in part, all as determined by the Committee, if
the Participant's employment or performance of services for the Company and its
Affiliates shall terminate for any reason prior to the end of the award period.
6.4. Payment of Performance Shares. The Committee shall
determine whether the conditions of Section 6.1 or 6.2 have been met and, if
so, shall ascertain the Value of the Performance Share Grants. If the
Performance Share Grants have no Value, the Award and such Performance Share
Grants shall be deemed to have been canceled and the Associated Award, if any,
may be canceled or permitted to continue in effect in accordance with its
terms. If the Performance Share Grants have any Value and:
(i) were not awarded in conjunction with an Associated
Award, the Committee shall cause an amount equal to the Value of the
Performance Share Grants earned by the Participant to be paid to him
or his Beneficiary as provided below; or
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(ii) were awarded in conjunction with an Associated Award,
the Committee shall determine, in accordance with criteria specified
by the Board, ( A) to cancel the Performance Share Grants, in which
event no amount in respect thereof shall be paid to the Participant or
his Beneficiary, and the Associated Award may be permitted to continue
in effect in accordance with its terms, ( B) to pay the Value of the
Performance Share Grants to the Participant or his Beneficiary as
provided below, in which event the Associated Award may be canceled,
or ( C) to pay to the Participant or his Beneficiary as provided
below, the Value of only a portion of the Performance Share Grants, in
which event all or a portion of the Associated Award may be permitted
to continue in effect in accordance with its terms or be canceled, as
determined by the Committee.
Such determination by the Committee shall be made as promptly as practicable
following the end of the award period or upon the earlier termination of
employment or performance of services, or at such other time or times as the
Committee shall determine, and shall be made pursuant to criteria specified by
the Committee.
Payment of any amount in respect of the Performance Shares which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the award period or at such other time
or times as the Committee shall determine, and may be made in cash, Shares,
Other Securities, or other forms of payment, or any combination thereof, or in
such other manner, as determined by the Committee in its discretion.
Notwithstanding anything in this Section 6 to the contrary, the Committee may,
in its discretion, determine and pay out the Value of the Performance Shares at
any time during the award period.
7. LOANS; SUPPLEMENTAL CASH GRANTS; OTHER AWARDS.
7.1. Loans. The Company may make a loan to a Participant
("Loan"), either on the date of or after the grant of any Award to the
Participant. A Loan may be made either in connection with the purchase of
Stock under the Award or with the payment of any federal, state and local
income tax with respect to income recognized as a result of the Award. The
Committee will have full authority to decide whether to make a Loan and to
determine the amount, terms and conditions of the Loan, including the interest
rate, whether the Loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the Loan is to be repaid and
the conditions, if any, under which it may be forgiven. However, no Loan may
have a term (including extensions) exceeding ten (10) years in duration.
7.2. Supplemental Cash Grants. In connection with any
Award, the Committee may at the time such Award is made or at a later date,
provide for and grant a cash award to the Participant ("Supplemental Cash
Grant") not to exceed an amount equal to (i) the amount of any federal, state
and local income tax on ordinary income for which the Participant may be liable
with respect to the Award, determined by assuming taxation at the highest
marginal rate, plus (ii) an additional amount on a grossed-up basis intended to
make the Participant whole on an after-tax basis after discharging all the
Participant's income tax liabilities arising from all payments under this
Section 7.2. Any payments under this Section 7.2 will be made at the time the
Participant incurs federal income tax liability with respect to the Award.
7.3. Other Awards. In addition to the types of Awards
specifically described in the foregoing provisions of the Plan, the Committee
may in its discretion determine, describe and award or grant any other type of
Award which is consistent with the terms and purposes of the Plan. Such Awards
may include special Awards relating to a single eligible individual and Awards
made pursuant to special or recurring plans or programs covering groups of
eligible individuals.
8. DEFERRAL OF COMPENSATION. The Committee shall determine
whether or not an Award shall be made in conjunction with deferral of the
Participant's salary, bonus or other compensation, or any combination thereof,
and whether or not such deferred amounts may be (i) forfeited to the Company or
to other Participants, or
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any combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company and its Affiliates), (ii) subject to
increase or decrease in value based upon the attainment of or failure to
attain, respectively, certain performance measures, and/or (iii) credited with
investment equivalents (which may include, but need not be limited to,
interest, dividends or other rates of return) until the date or dates of
payment of the Award, if any.
9. DEFERRED PAYMENT OF AWARDS. The Committee may specify that
the payment of all or any portion of cash, Shares, Other Securities, or any
other form of payment, or any combination thereof, under an Award shall be
deferred until a later date. Deferrals shall be for such periods or until the
occurrence of such events, and upon such terms, as the Committee shall
determine in its discretion. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Shares, Other Securities, other property, or any
combination thereof), together with such additional amounts of investment
equivalents as may be determined by the Committee in its discretion.
10. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN. The terms
of any outstanding Award under the Plan as provided in any instrument may be
amended from time to time by the Committee in its discretion in any manner that
it deems appropriate (including, but not limited to, acceleration of the date
of exercise of any Award and/or payments thereunder); provided that no such
amendment shall adversely affect in a material manner any right of a
Participant under the Award without his written consent, unless the Committee
determines in its discretion that there have occurred or are about to occur
significant changes in the economic, legislative, regulatory, tax, accounting
or cost/benefit conditions which are determined by the Committee in its
discretion to have or to be expected to have a substantial effect on the
performance of the Company, or any subsidiary, Affiliate, division or
department thereof, on the Plan, or on any Award under the Plan. The Committee
may, in its discretion, permit holders of Awards under the Plan to surrender
outstanding Awards in order to exercise or realize the rights under other
Awards, or in exchange for the grant of new Awards, or require holders of
Awards to surrender outstanding Awards as a condition precedent to the grant of
new Awards under the Plan.
11. TERMINATION OF SERVICES BY A PARTICIPANT. For all purposes
under the Plan, the Committee shall determine whether a Participant has
terminated employment by or the performance of services for the Company and its
Affiliates; provided, however, that transfers between the Company and an
Affiliate or between Affiliates, and approved leaves of absence shall not be
deemed such a termination.
12. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Awards shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business or any merger or consolidation of the Company or any
issue of capital stock, bonds, debentures, or Other Securities ahead of or
affecting the Shares or the rights thereof, or the dissolution or liquidation
of the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
The number of Shares covered by any outstanding Award and the price
per share thereof shall be appropriately adjusted for any increase or decrease
in the number of issued Shares resulting from the subdivision or consolidation
of Shares or any other similar capital adjustment, the payment of a stock
dividend or any other increase in such Shares effected without receipt of
consideration by the Company or any other decrease therein effected without a
distribution of cash or property in connection therewith, or any other
extraordinary or unusual event similarly affecting the Shares. Any such
adjustment shall be made by the Committee, in its discretion, and such
adjustment shall be final, conclusive and binding for all purposes of the Plan.
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In the event the Company merges or consolidates with one or more
corporations and the Company is the surviving corporation, thereafter upon any
exercise of an Award, the holder thereof shall be entitled to purchase or
receive in lieu of the number of Shares as to which the Award relates, the
number and class of shares of stock or securities to which the holder would
have been entitled pursuant to the terms of the agreement of merger or
consolidation if immediately prior to such merger or consolidation, the holder
had been the holder of record of Shares as to which the Award related.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated or sells or otherwise disposes of substantially all
of its assets to another corporation while unexercised Stock Options or other
Awards remain outstanding under the Plan:
(i) subject to the provisions of clauses (iii), (iv) and
(v) below, after the effective date of such merger, consolidation or
sale, as the case may be, each holder of an outstanding Stock Option
or other Award shall be entitled, upon exercise of such Stock Option
or other Award, to receive in lieu of Shares of the Company, shares of
such stock or other securities as the holders of Shares received
pursuant to the terms of the merger, consolidation or sale; or
(ii) the Committee may waive any discretionary limitations
imposed with respect to the exercise of the Stock Option or other
Award so that all Stock Options or other Awards from and after a date
prior to the effective date of such merger, consolidation, liquidation
or sale, as the case may be, specified by the Committee, shall become
fully vested or be exercisable in full; or
(iii) any or all outstanding Stock Options or other Awards
may be canceled by the Committee as of the effective date of any such
merger, consolidation, liquidation or sale, provided that notice of
such cancellation shall be given to each holder of a Stock Option or
other Award, and each such holder thereof shall have the right to
exercise such Stock Option or other Award in full (without regard to
any discretionary limitations imposed with respect to the Stock Option
or other Award) during a 30-day period preceding the effective date of
such merger, consolidation, liquidation or sale; or
(iv) any or all outstanding Stock Options or other Awards
may be canceled by the Committee as of the date of any such merger,
consolidation, liquidation or sale, provided that notice of such
cancellation shall be given to each holder of a Stock Option or other
Award, and each such holder thereof shall have the right to exercise
such Stock Option or other Award but only to the extent exercisable in
accordance with any discretionary limitations imposed with respect to
the Stock Option or other Award prior to the effective date of such
merger, consolidation, liquidation or sale; or
(v) the Committee may provide for the cancellation of any
or all outstanding Stock Options or other Awards and for the payment
to the holders thereof of some part or all of the amount by which the
value thereof exceeds the payment, if any, which the holder would have
been required to make to exercise such Stock Option or other Award.
Except as hereinbefore expressly provided, the issuance by the Company
of shares of capital stock of any class or securities convertible into shares
of capital stock of any class for cash or property or for labor or services
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number, class
or price of Shares then subject to outstanding Stock Options or other Awards.
11
<PAGE> 12
13. DESIGNATION OF BENEFICIARY BY PARTICIPANT. Subject to
compliance with applicable securities laws and to the other provisions of this
Plan (including without limitation Section 4.3), a Participant may name a
Beneficiary to receive any benefit or payment to which he may be entitled in
respect of any Award under the Plan in the event of his death, on a written
form to be provided by and filed with the Company, and in a manner determined
by the Committee. A Participant may change his Beneficiary from time to time
in the same manner, unless such Participant has made an irrevocable
designation. Any designation of Beneficiary under the Plan (to the extent it
is valid and enforceable under applicable law) shall be controlling over any
other disposition, testamentary or otherwise, as determined by the Committee in
its discretion. If no designated Beneficiary survives the Participant or is
otherwise in existence on the date on which any amount becomes payable to such
Participant's Beneficiary, such payment will be made to the legal
representatives of the Participant's estate, and the term "Beneficiary" as used
in the Plan shall be deemed to include such person or persons.
14. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board, or by any other Committee appointed by the
Board consisting of not less than two (2) non-employee Directors (such
Compensation Committee or other Committee appointed by the Board is herein
referred to as the "Committee"). The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the
Board. The Committee shall be comprised solely of Directors who are eligible
to administer the Plan pursuant to Rule 16b-3(c)(2) under the Exchange Act and
Prop. Treas. Reg. 1.162-27(e)(3). However, if for any reason the Committee
does not qualify to administer the Plan, as contemplated by Rule 16b-3(c)(2)
under the Exchange Act or Prop. Treas. Reg. 1.162-27(e)(3), the Board may
appoint a new Committee so as to comply with Rule 16b-3(c)(2) and Prop. Treas.
Reg. 1.162-27(e)(3).
The Board or the Committee may delegate the administration of the Plan
in whole or in part, on such terms and conditions, and to such person or
persons as it may determine in its discretion, as it relates to Awards to
persons not subject to Section 16 of the Exchange Act (or any successor
provisions) and to persons who are not Section 162(m) employees.
The Committee shall have full power, except as limited by law, the
Articles of Organization and/or By-Laws of the Company, subject to such other
restricting limitations or directions as may be imposed by the Board from time
to time, to exercise all of the powers vested in it by the terms of the Plan
set forth herein, such powers to include exclusive authority (except as may be
delegated as permitted herein) to select the employees and other individuals to
be granted Awards under the Plan, to determine the type, size and terms of the
Award to be made to each individual selected, to modify the terms of any Award
that has been granted, to determine the time when Awards will be granted, to
establish performance objectives, and to prescribe the form of the instruments
embodying Awards made under the Plan. The Committee is authorized to interpret
the Plan and the Awards granted under the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other
determinations which it deems necessary or desirable for the administration of
the Plan.
The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Award in the manner and to
the extent the Committee deems necessary or desirable to carry it into effect.
Any decision of the Committee (or its delegate as permitted herein) in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned.
No member of the Board or the Committee and no officer of the Company
shall be liable for anything done or omitted to be done by him, by any other
member of the Board or the Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his own
willful misconduct or as expressly provided by statute.
12
<PAGE> 13
15. MISCELLANEOUS PROVISIONS.
15.1. No Rights to Awards or Employment. No employee or
other person shall have any claim or right to be granted an Award under the
Plan. Determinations made by the Committee under the Plan need not be uniform
and may be made selectively among eligible individuals under the Plan, whether
or not such eligible individuals are similarly situated. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or other
person any right to continue to be employed by or perform services for the
Company or any Affiliate, and the right to terminate the employment of or
performance of services by any Participant at any time and for any reason is
specifically reserved.
15.2. Delivery of Written Instruments. No Participant or
other person shall have any right with respect to the Plan, the Shares reserved
for issuance under the Plan or in any Award, contingent or otherwise, until
written evidence of the Award shall have been delivered to the recipient and
all the terms, conditions and provisions of the Plan and the Award applicable
to such recipient (and each person claiming under or through him) have been
met.
15.3. Assignment Prohibition. Notwithstanding anything
contained in this Plan to the contrary, except as may be approved by the
Committee where such approval shall not adversely affect compliance of the Plan
with Rule 16b-3, a Participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
Participant's death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that any Stock Option or similar right offered pursuant to the Plan
shall not be transferable other than by will or the laws of descent and
distribution and shall be exercisable during the Participant's lifetime only by
him.
15.4. Compliance With Applicable Laws. No Shares, Other
Securities, or other forms of payment shall be issued hereunder with respect to
any Award unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
15.5. Rule 16b-3 and Section 162(m). It is the intent of
the Company that the Plan comply in all respects with Rule 16b-3, that any
ambiguities or inconsistencies in construction of the Plan be interpreted to
give effect to such intention and that if any provision of the Plan is found
not to be in compliance with Rule 16b-3, such provision shall be deemed null
and void to the extent required to permit the Plan to comply with Rule 16b-3.
It is the intent of the Company that Awards to Section 162(m) employees may
satisfy for "performance-based" compensation under Section 162(m) of the Code
to the extent that the Committee shall make Awards which the Committee intends
to satisfy such exemption; any ambiguities or inconsistencies in the Plan shall
be interpreted to give effect to such intention.
15.6. Tax Withholding. The Company and its Affiliates
shall have the right to deduct from any payment made under the Plan any
federal, state, local or foreign income or other taxes required by law to be
withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Shares, Other Securities, or other forms of
payment, or any combination thereof, upon exercise, settlement or payment of
any Award under the Plan, that the Participant (or any Beneficiary or person
entitled to act) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If the amount
requested is not paid, the Company may refuse to issue Shares, Other
Securities, or other forms of payment, or any combination thereof.
Notwithstanding anything in the Plan to the contrary the Committee
may, in its discretion, permit an eligible Participant (or any Beneficiary or
person entitled to act) to elect to pay a portion or all of the amount
13
<PAGE> 14
requested by the Company for such taxes with respect to such Award, at such
time and in such manner as the Committee shall deem to be appropriate
including, but not limited to, by authorizing the Company to withhold, or
agreeing to surrender to the Company on or about the date such tax liability is
determinable, Shares, Other Securities, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such Award to such person, having a Fair Market Value equal to
the amount of such taxes.
15.7. Plan Not Funded. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of assets to assure the payment of any Award under
the Plan, and rights to the payment of Awards shall be no greater than the
rights of the Company's general creditors.
15.8. Consent of Participant. By accepting any Award or
other benefit under the Plan, each Participant and each person claiming under
or through him shall be conclusively deemed to have indicated his acceptance
and ratification of, and consent to, any action taken under the Plan by the
Company, the Committee, or the delegates of the Committee.
15.9. Rules of Construction. The masculine pronoun
includes the feminine and the singular includes the plural wherever
appropriate. The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to
the Plan and to Awards granted under the Plan, shall be governed by the
substantive laws but not the choice of law rules, of The Commonwealth of
Massachusetts.
16. PLAN AMENDMENT OR SUSPENSION. The Plan may be amended or
suspended in whole or in part at any time and from time to time by the board,
provided that no amendment shall be effective unless and until the same is
approved by shareholders of the Company where the failure to obtain such
approval would adversely affect the compliance of the Plan with Rule 16b-3 or
the amendment would (i) increase the total number of Shares reserved for
issuance under the Plan, (ii) decrease the option price of any Nonqualified
Stock Option to less than 50% of Fair Market Value on the date of granting the
option, (iii) change the class of persons who may be eligible individuals, or
(iv) extend the termination date of the Plan beyond the date determined in
accordance with Section 17. No amendment of the Plan shall adversely affect in
a material manner any right of any Participant with respect to any Award
theretofore granted without such Participant's written consent, except as
permitted under Section 10.
17. PLAN TERMINATION. This Plan shall terminate upon the earlier
of the following dates or events to occur:
(a) upon the adoption of a resolution of the Board
terminating the Plan; or
(b) ten (10) years from the date the Plan is initially
approved and adopted by the shareholders of the Company in accordance
with Section 18. No Award of an Incentive Stock Option may be granted
under the Plan more than ten (10) years after the date of adoption of
this Plan by the Board.
No termination of the Plan shall materially alter or impair any of the
rights or obligations of any person, without his consent, under any Award
theretofore granted under the Plan, except that subsequent to termination of
the Plan, the Board may make amendments permitted under Section 10.
19. EFFECTIVE DATE AND SHAREHOLDER ADOPTION. The Plan shall
become effective upon the date of its adoption by the Board, subject, however,
to its approval by the shareholders of the Company within 12 months of such
date.
14
<PAGE> 1
Exhibit 13.1
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 downpayments 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 as well as borrowings under secured
lines of credit. The Company anticipates that it will continue to require
external sources of liquidity to support its operations and satisfy its debt
and other obligations.
Net cash provided by the Company's operations was $9.4 million for fiscal 1995,
$16.5 million for fiscal 1994, and $13.3 million for fiscal 1993. During the
current fiscal year, both sales of real estate and the percentage of such sales
received in cash (in lieu of originating Receivables) increased. Accordingly,
cash received from customers on the Consolidated Statement of Cash Flow was
significantly higher than during fiscal 1994. The increased collections from
customers were substantially offset by higher levels of spending associated
with certain expenses, including cash paid for land acquisition and real estate
development, cash paid to suppliers, employees (including sales
representatives) and net income taxes paid. In addition, there was a $19.9
million reduction in cash from borrowings collateralized by Receivables, net of
principal repayments, which was somewhat mitigated by an increase of $14.4
million associated with net cash received from the sale of mortgage-backed
securities. For fiscal 1994, the 23.9% increase in cash flow provided by
operations over fiscal 1993 was primarily attributable to an increase in cash
collections from customers on real estate sales accompanied by $8.4 million in
proceeds from the sale of certain Real Estate Mortgage Investment Conduit
("REMIC") Certificates issued under the Company's 1992 REMIC financing. These
cash flow sources were somewhat offset by increased levels of spending for land
acquisitions and development together with an increase in the amounts paid to
suppliers and employees including sales representatives.
During fiscal 1995, 1994 and 1993, the Company received in cash $67.9 million
or 76.5%, $41.0 million or 65.9% and $28.0 million or 56.3%, respectively, of
its sales of real estate that closed during these periods. The increase in the
percentage of cash received is, in part, attributable to (i) the Company's
program directed at obtaining increased downpayments on financed sales of land
real estate, (ii) an increased willingness on the part of local banks in
certain regions to extend more direct customer lot financing and (iii)
expansion of the Company's product lines to include the construction and sale
of homes in certain markets, the proceeds of which are received entirely in
cash.
Receivables arising from real estate sales generally are transferred to the
Company's wholly-owned, special purpose finance subsidiaries (the "Receivable
Subsidiaries") and then pledged to institutional lenders or sold in connection
with private placement REMIC financings. The Receivable Subsidiaries are
generally advanced between 80% and 90% of the face amount of the mortgage notes
when pledged to lenders. The Company classifies the indebtedness secured by
Receivables as mortgage-backed debt on the Consolidated Balance Sheet. The
Company has also directly sold or pledged Receivables to banks. The Company is
subject to certain obligations and has certain contingent liabilities with
respect to certain of the Receivables sold. See Note 11 to the Consolidated
Financial Statements. During fiscal 1995 and 1994, the Company raised $8.6
million and $20.7 million, respectively, from the pledge of Receivables.
During fiscal 1995, the Company also raised $22.7 million net of transaction
costs, from its 1994 REMIC. During fiscal 1993, the Company raised $74.7
million from the 1992 REMIC before associated costs of $2.1 million and $8.0
million paid to repurchase notes from institutional investors at approximately
par value. The 1994 REMIC is discussed in "Sources of Capital" below. See
also Notes 8 and 9 to the Consolidated Financial Statements for a further
discussion.
<PAGE> 2
The Company has a revolving credit facility of $20.0 million in the aggregate
with a financial institution. This facility provides for borrowings up to
$15.0 million secured by Receivables and up to $5.0 million secured by land
inventory. Under the terms of this facility, the Company is entitled to
advances equal to 90% of the outstanding principal balance of the pledged
Receivables. In the event that pledged Receivables become 90 or more days
delinquent, the Company is obligated to repurchase the Receivable or substitute
a performing Receivable. Aggregate repurchases and substitutions to date have
not been material. The interest rate charged on borrowings secured by
Receivables and land inventory is prime plus 2.0% and prime plus 2.75%,
respectively. At April 2, 1995, the outstanding principal balance under the
facility was $10.6 million, comprised of $9.1 million secured by Receivables
and $1.5 million secured by land inventory. Accordingly, as of April 2, 1995,
the Company had the ability to borrow up to an additional $9.4 million secured
by eligible Receivables and land inventory. All principal and interest
payments received from the pledged Receivables are applied to the principal and
interest due under the receivables portion of this facility. The Company repays
the inventory portion of this facility through lot release payments as the
collateral is sold. In addition, the Company is required to meet certain
minimum debt amortization on the outstanding inventory secured debt. See "Debt
Obligations" below. The ability to receive advances under this facility
expires in June, 1996. The indebtedness secured by Receivables matures ten
years from the date of the last advance and the indebtedness secured by land
inventory matures in December, 1996.
In addition to the revolving credit facility, this same lender also made a $4.5
million term loan to the Company which is secured by a land project in Texas of
which $2.5 million was outstanding as of April 2, 1995. The indebtedness
matures in February, 1996 and interest is charged at a rate of prime plus 2.0%.
The Company also has an agreement with this same lender which provides for
acquisition, development, construction and receivables financing for the first
and second phases of a multi-phase timeshare project in Gatlinburg, Tennessee.
Under the terms of the financing, the lender will advance up to an aggregate of
$3.1 million for acquisition, development and construction with a maximum
borrowing limit of the facility of $5.0 million. At April 2, 1995, there was
$925,000 outstanding and secured by land. No borrowings had been made against
timeshare receivables. The Company was advanced $2.9 million in April, 1995
against timeshare receivables. The interest rate charged under the facility is
prime plus 2.25%. The ability to borrow under the facility expires in June,
1995 and the indebtedness is due December, 1997. The Company is currently
engaged in discussions with the lender to increase the borrowings available
under the facility and to renew the revolver. See "Uses of Capital" below for
a further discussion of the Company's Resorts Division.
The Company has a credit facility with another financial institution which
allows it to receive aggregate advances up to $25.0 million secured by eligible
land Receivables. Under the terms of this facility, the Company is advanced
proceeds equal to 80% of the outstanding principal balance of the pledged
Receivables. 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 April 2, 1995, the outstanding principal balance under this
facility was $5.4 million, and the Company had received $10.6 million in
aggregate advances from the pledge of Receivables. Accordingly, as of that
date, the Company had the ability to borrow up to an additional $14.4 million
secured by, and subject to the availability of, up to $18.0 million of eligible
Receivables. All 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 is currently discussing a renewal of the
facility.
The Company has a $10.0 million revolving credit facility with another
financial institution secured by eligible Receivables and land inventory.
Under the terms of this facility, the Company is entitled to advances equal to
90% of the outstanding principal balance of eligible pledged Receivables and
advances of up to $3.0 million secured by land inventory to fund real estate
acquisition and development costs. Interest is charged at a rate of prime plus
2.0%. At April 2, 1995, the outstanding principal balance of borrowings
secured by Receivables was $5.0 million and the outstanding principal balance
of borrowings secured by land inventory totaled $1.3 million. All principal
and interest payments received on the pledged Receivables are applied to
principal and interest due under the Receivables portion of this facility. The
Company is required to pay the financial institution 55% of the contract price
of land sales associated with pledged inventory when any such inventory is
2
<PAGE> 3
sold until the land indebtedness is paid in full. At April 2, 1995, the
Company had the ability to borrow up to an additional $3.7 million under this
facility. The facility expires in October, 1998.
In addition, the Company's Communities Division, which is engaged in the
construction and sale of primary residential homes in certain markets, has an
agreement with a lender which provides for advances to fund the construction of
houses in a development located in North Carolina. Under the terms of the
financing, the lender will advance up to an aggregate of $5.0 million for
development, secured by land and the housing units under construction. Interest
on outstanding advances is payable monthly and the principal associated with
each advance is due one year after the date of such advance. Interest is
charged at a rate of prime plus 0.75%. At April 2, 1995, there was $965,000
outstanding under this facility and the Company had the ability to borrow up to
an additional $4.0 million. The ability to borrow under the facility expires
in June, 1995. The Company is currently discussing a renewal of the facility.
On May 11, 1994, the Company, through its wholly-owned subsidiary Patten
Receivables Finance Corporation IX (the "Depositor"), sold approximately $27.7
million aggregate principal amount of its mortgage notes receivable (the
"Mortgage Pool") to Patten Corporation REMIC Trust, Series 1994-1 (the "1994
REMIC Trust"), which trust issued four classes of Adjustable Rate REMIC
Mortgage Pass-Through Certificates (the "Certificates"). Each Certificate
evidences a fractional undivided interest in the Mortgage Pool. The
Certificates were issued pursuant to the terms of a Pooling and Servicing
Agreement dated as of April 15, 1994 (the "Pooling Agreement") among the
Company, the Depositor, Patten Corporation REMIC Trust, Series 1994-1 and First
Trust National Association, as trustee. The initial principal balances of the
Class A, Class B and Class C Certificates were $23.3 million, $2.8 million and
$1.6 million, respectively. The Class R Certificates have no initial principal
balance and do not bear interest. The Class A, Class B and Class C
Certificates bear interest at the lesser of (a) the weighted average of the net
mortgage rates of certain of the notes in the Mortgage Pool or (b) the London
interbank offered rate for six month United States dollar deposits plus a
margin of 2.5%, 3.5% and 4.5%, respectively. The 1994 REMIC Trust is comprised
primarily of a pool of fixed and adjustable rate first mortgage loans secured
by property sold by the Company. Collections of principal and interest on the
Mortgage Pool, net of certain servicing and trustee fees, are remitted to
Certificateholders on a monthly basis. The proceeds of collections on the
Mortgage Pool are distributed to the Certificateholders in the order of
priority specified in the Pooling Agreement, with no payments on the Class C or
Class R Certificates until the Class A and Class B Certificates have been paid
in full. On May 11, 1994, the Depositor sold the Class A and Class B
Certificates issued under the Pooling Agreement to an institutional investor
for aggregate proceeds of $26.0 million in a private placement transaction and
retained the Class C and Class R Certificates. A portion of the proceeds from
the transaction were used to repay approximately $13.5 million of outstanding
debt, including $6.8 million of borrowings under a $10.0 million credit
facility secured by notes receivable, $4.3 million of borrowings under a $20.0
million credit facility secured by notes receivable and $2.4 million associated
with amounts paid to retire securities previously sold pursuant to the
Company's 1989 REMIC financing. The balance of the proceeds, after payment of
issuance expenses and fees, resulted in an approximate $12.4 million increase
in unrestricted cash. The Company is paid an annualized servicing fee of .5%
of the scheduled principal balance of those loans in the Mortgage Pool on which
the periodic payment of principal and interest is collected in full. Under the
terms of the Pooling Agreement, the Company has the obligation to repurchase or
replace mortgage loans in the Mortgage Pool which did not conform to the
Company's representations and warranties at the date of sale. In addition, the
Company, as servicer, is required to make advances of delinquent payments to
the extent deemed recoverable. The Company has no obligation, however, to
repurchase or replace mortgage loans solely due to delinquency.
The Company continues to seek outside (seller, bank or similar financial
institution) financing for its property acquisitions and development. During
fiscal 1995, 1994 and 1993, the Company financed $23.1 million or 32.3%, $12.8
million or 33.3% and $9.3 million or 36.6%, respectively, of its property
inventory, including acquisition and development costs.
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including, without limitation, the following
financial covenants:
(i) Maintain net worth of at least $42.0 million.
3
<PAGE> 4
(ii) Maintain a leverage ratio of not more than 4.0 to 1.0. The
leverage ratio is defined as consolidated indebtedness of the
Company divided by consolidated net worth.
(iii) Maintain an adjusted leverage ratio of not more than 2.0 to
1.0. The adjusted leverage ratio is defined as consolidated
indebtedness of the Company excluding the convertible
subordinated debentures divided by consolidated net worth
including the convertible subordinated debentures.
(iv) Selling, general and administrative expenses are not to exceed
50% of gross sales revenue from sales of real estate.
At April 2, 1995, and for each reporting period during fiscal 1993, 1994 and
1995, the Company was in compliance with each of such covenants.
Debt Obligations. The following table sets forth the minimum contractual
principal payments required on the Company's lines of credit and notes payable
as well as its scheduled principal reductions with respect to mortgage-backed
indebtedness for years subsequent to April 2, 1995.
<TABLE>
<CAPTION>
LINES OF CREDIT MORTGAGE-BACKED
AND NOTES PAYABLE NOTES PAYABLE
----------------- -----------------
<S> <C> <C>
Fiscal 1996 . . . . . . . . . . . . $ 8,269,501 $ 2,586,463
Fiscal 1997 . . . . . . . . . . . . 4,970,261 2,858,250
Fiscal 1998 . . . . . . . . . . . . 2,114,499 2,999,385
Fiscal 1999 . . . . . . . . . . . . 3,140,176 3,170,513
Fiscal 2000 . . . . . . . . . . . . 801,011 3,367,031
Thereafter . . . . . . . . . . . . . 1,135,898 4,533,076
------------- -------------
Total . . . . . . . . . . . . . . . $ 20,431,346 $ 19,514,718
============= =============
</TABLE>
Installments due on lines of credit and notes payable primarily consist of
payments due on indebtedness secured by property inventory. In most instances,
as inventory is sold, the Company is required to repay the creditor a
predetermined percentage of the selling price or a predetermined price per
acre. When the Company provides financing for its customer, the Company is
required to pay the creditor with cash from other operating activities,
principally with the proceeds from the pledge or sale of Receivables.
The installments due on mortgage-backed notes payable are based upon the
principal payments collected from customers on the pledged Receivables. Under
the terms of the mortgage-backed note agreements, the Company is not required
to advance delinquent customer payments to the creditor. The Company is,
however, obligated to repurchase or replace notes receivable which are
delinquent more than a specified number of days, typically 60 or 90, in
accordance with the terms of the respective agreements. Replacements and
repurchases have never been material.
See Notes 6 and 8 to the Consolidated Financial Statements for a further
discussion of the material terms of the Company's debt obligations.
In addition to the sources of capital available under credit facilities
totaling $35.7 million as discussed above, the balance of the Company's
unrestricted cash and cash equivalents was $2.4 million at April 2, 1995.
Based upon existing credit relationships, the current financial condition of
the Company and its operating plan, management believes the Company has, or can
obtain, adequate financial resources to satisfy its anticipated capital
requirements.
Uses of Capital. The Company's capital resources are used to support the
Company's operations, including (i) the acquisition and construction of
inventory, (ii) providing financing for customer purchases, (iii) meeting
operating expenses and (iv) satisfying the Company's debt obligations.
4
<PAGE> 5
The Company's net inventory was $63.4 million at April 2, 1995 and $40.1
million at March 27, 1994. Inventory increased primarily to: (i) support the
continued growth in retail land sales, (ii) accommodate an expanded revenue
base with the introduction of timeshare development and sales and (iii) allow
for certain properties to be marketed over a longer term. Management
recognizes the inherent risk of carrying increased levels of inventory.
Therefore, certain parcels acquired for development and sale on a retail basis
have been identified for bulk sale under a newly created marketing program.
With respect to inventory owned as of April 2, 1995, the Company requires
capital to (i) improve land intended for recreational, vacation, retirement or
primary homesite use by purchasers, (ii) fund its housing operation in certain
locations and (iii) develop timeshare property.
The Company estimates that the total cash required to complete preparation for
the retail sale of the consolidated inventories owned as of April 2, 1995 was
approximately $80.2 million (not including housing unit costs subsequent to
fiscal 1996 which the Company is not able to determine at this time.) The
Company anticipates spending $31.4 million of such cash requirements in fiscal
1996 as follows:
Land Division The Company expects to expend $15.9 million to improve land
which typically includes expenditures for road and utility construction,
surveys and engineering fees.
Communities Division The Company expects to expend $3.0 million for the
purchase of factory built manufactured homes, building materials and other
infrastructure costs, including road and utility construction, surveys and
engineering fees.
Resorts Division The Company expects to expend $12.5 million for building
materials, amenities and other infrastructure costs including road and utility
construction, surveys and engineering fees.
The table below outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of April 2, 1995.
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,
available financing and interest rates. Accordingly, no assurances can be
given that historical gross margins which the Company has experienced will not
decline in the future as a result of changing economic conditions and consumer
demand. Because the Company does not typically engage in speculative
homebuilding, prospective home purchasers are pre-qualified and a purchase
contract exists prior to the Company commencing unit construction.
Accordingly, the table excludes development associated with future home sales.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL
----------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . . . $10,903,004 $ 590,565 $ --- $ 11,493,569
West . . . . . . . . . . . 1,445,635 305,153 --- 1,750,788
Midwest . . . . . . . . . . 2,043,024 --- 12,465,040 14,508,064
Southeast . . . . . . . . . 695,245 2,076,705 --- 2,771,950
Northeast . . . . . . . . . 26,812 --- --- 26,812
Mid-Atlantic . . . . . . . 798,689 --- --- 798,689
Canada . . . . . . . . . . 679 --- --- 679
----------- --------------- --------------- --------------
Total estimated spending
in fiscal 1996 . . . . . . 15,913,088 2,972,423 12,465,040 31,350,551
Total estimated spending
subsequent to fiscal 1996. 21,949,839 1,620,529 25,269,551 48,839,919
Net inventory at
April 2, 1995. . . . . . . 45,019,943 13,125,818 5,240,911 63,386,672
----------- --------------- --------------- --------------
Total estimated cost basis
of fully developed
inventory. . . . . . . . . $82,882,870 $ 17,718,770 $ 42,975,502 $ 143,577,142
=========== =============== =============== ==============
</TABLE>
5
<PAGE> 6
The Company's net inventory as of April 2, 1995 and March 27, 1994 summarized
by division is set forth in the tables below.
<TABLE>
<CAPTION>
APRIL 2, 1995
-------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
----------------- ---------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 16,658,079(2) $ 1,115,914 $ --- $ 17,773,993
West . . . . . . . 9,356,508(3) 433,933 --- 9,790,441
Midwest . . . . . . 7,777,934(4) --- 5,240,911 13,018,845
Southeast . . . . . 2,781,785 11,575,971 --- 14,357,756
Northeast . . . . . 3,747,468 --- --- 3,747,468
Mid-Atlantic . . . 4,424,821 --- --- 4,424,821
Canada . . . . . . 273,348 --- --- 273,348
--------------- ------------ ------------ -------------
Totals . . . . . . $ 45,019,943 $ 13,125,818 $ 5,240,911 $ 63,386,672
=============== ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, 1994
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
----------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Southwest . . . . . . $ 4,051,153 $ 1,134,688 $ --- $ 5,185,841
West . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Midwest . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southeast . . . . . . 6,808,053 4,394,360 --- 11,202,413
Northeast . . . . . . 4,587,051 --- --- 4,587,051
Mid-Atlantic . . . . 5,182,178 --- --- 5,182,178
Canada . . . . . . . 386,584 --- --- 386,584
--------------- ------------ ------------ -------------
Totals . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
=============== ============ ============ =============
</TABLE>
_________________
(1) Communities Division inventory as of April 2, 1995, consists of land
inventory of $9.9 million and $3.2 million of housing unit
construction-in-progress. As of March 27, 1994, the Communities Division
had $5.4 million of land inventory with $1.2 million of housing unit
construction-in-progress. The increase in land inventory is attributable
to infrastructure development. The Company did not acquire any additional
land inventory intended to be marketed and sold as part of the Communities
Division during fiscal 1995.
(2) During fiscal 1995, the Company acquired two large tracts of land in the
Southwest consisting of 1,434 acres in Texas at a purchase price of
approximately $6.1 million and 4,700 acres in New Mexico for approximately
$3.8 million.
(3) During fiscal 1995, the Company acquired approximately 20,000 acres in a
single transaction in Colorado for $3.0 million.
(4) During fiscal 1995, the Company acquired 1,515 acres in a single
transaction in Missouri for $2.3 million.
The Company attempts to maintain inventory at a level adequate to support
anticipated sales of real estate in its various operating regions. In addition
to product diversification, the Company has sought broader geographic
distribution of its land projects and increased its land holdings in the
Southwestern, Western, Midwestern and Southeastern regions of the United States
to accomodate strong consumer demand and expanded sales efforts. At the same
time, the Company plans to continue to reduce its current real estate holdings
in the Northeastern and certain parts of the Mid-Atlantic regions due to
continued overall soft economic and real estate market conditions.
The Company currently maintains inventory valuation reserves which totaled $2.4
million at April 2, 1995 and $4.6 million at March 27 ,1994, for certain land
properties acquired prior to fiscal 1990. During fiscal 1995, $1.0 million and
$1.2 million of the Company's inventory reserves were released as credits to
cost of real estate sold and selling, general and administrative (S,G&A)
expense, respectively, as the inventory was sold. During fiscal 1994,
approximately $765,000 and $1.1 million of the Company's inventory reserves
were released as credits to cost of real estate sold and S,G&A expense,
respectively. During fiscal 1993, approximately $5.0
6
<PAGE> 7
million and $1.7 million of the Company's inventory reserves were released as
credits to cost of real estate sold and S,G&A expense, respectively. See Note
4 to the Consolidated Financial Statements for a further discussion of
valuation reserves.
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all purchasers of its properties who qualify for such financing.
The Company also offers financing of up to 90% of the purchase price to
timeshare purchasers. During fiscal 1995, 1994 and 1993, the Company received
23.5%, 34.1% and 43.7%, respectively, of its aggregate sales of real estate
which closed during the period in the form of land and timeshare receivables.
The decrease in the percentage of sales financed by the Company is attributable
to (i) the program commenced by the Company in 1992 directed at obtaining
increased downpayments on financed sales of land real estate, (ii) an increased
willingness on the part of local banks in certain regions to extend more direct
customer lot financing and (iii) expansion of the Company's product lines to
include the construction and sale of homes, the proceeds of which are received
entirely in cash. At April 2, 1995, $28.2 million of Receivables were pledged
as collateral to secure financings of the Company's Receivable Subsidiaries or
other Company indebtedness, while $11.9 million of Receivables were not pledged
or encumbered. This $11.9 million of Receivables includes $4.3 million of
timeshare receivables, of which $3.3 million were hypothecated in April, 1995
under a credit facility. At March 27, 1994, $34.1 million of Receivables were
pledged as collateral to secure financings of the Company's Receivable
Subsidiaries or other Company indebtedness while $9.4 million of Receivables
were not pledged or encumbered. There were no timeshare receivables outstanding
as of March 27, 1994. The reduction in encumbered notes at April 2, 1995 was
partially attributable to the 1994 REMIC. Pursuant to the 1994 REMIC, the
Company retired indebtedness secured by Receivables and included the released
Receivables in the pool of Receivables sold to the REMIC trust. The 1994 REMIC
transaction was treated as a sale.
At April 2, 1995, 1.8% or $738,000 of the aggregate $41.9 million principal
amount of Company-originated loans which were held by the Company or sold
through programs under which the Company has a recourse liability were more
than 30 days past due. Of the $41.9 million principal amount of loans, $40.1
million were held by the Company, while approximately $1.8 million were sold
with limited recourse. In most cases, the recourse to the Company terminates
when the principal balance of the loan becomes 70% or less of the original
selling price of the property underlying the loan. At March 27, 1994, 3.3% or
$1.6 million of the aggregate $48.9 million principal amount of
Company-originated loans which were held by the Company or sold through
programs under which the Company has a recourse liability were more than 30
days past due. Management believes that the decrease in the delinquency rate
during the current period was attributable to the Company's ongoing program of
expanded collection efforts and strengthened underwriting criteria involved in
the origination and servicing of Receivables. At April 2, 1995, the
loan-to-value ratio of Receivables which were secured by land and serviced by
the Company was 55.5% while the loan-to-value ratio was 79.6% for receivables
secured by timeshare intervals. The loan-to-value ratio of Receivables secured
by land and serviced by the Company was 59.1% and 62.7% at March 27, 1994 and
March 28, 1993, respectively. Loan-to-value ratio represents the outstanding
principal balance of loans as a percentage of the original purchase price of
real estate sold.
In cases of default by a customer on a land 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 reacquired
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. Timeshare loans represent contracts for deed.
Accordingly, no foreclosure process is required. Following a default on a
timeshare note, the purchaser ceases to have any right to use the applicable
unit and the timeshare interval can be resold to a new purchaser.
The Company recorded loan loss provisions of $792,000, $795,000 and $400,000
for fiscal 1995, 1994 and 1993, respectively. The adequacy of the Company's
reserve for loan losses is determined by management and reviewed on a regular
basis, considering, among other factors, historical frequency of default, loss
experience, present and expected economic conditions as well as the quality of
Receivables, as evidenced by loans more than 30 days past due. See "Results of
Operations" for a further discussion of the provision for loan losses.
7
<PAGE> 8
In April, 1994, the Board of Directors authorized the repurchase of up to $4
million principal amount of the Company's 8.25% convertible subordinated
debentures due 2012 in the open market from time to time subject to the
Company's financial condition and liquidity, the terms of its credit
agreements, market conditions and other factors. The Company has not purchased
any of its convertible subordinated debentures under this program through April
2, 1995.
8
<PAGE> 9
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes.
The table below sets forth certain information derived from the Company's
Statements of Income and the percentages which certain items in the
Consolidated Statements of Income bear to total revenues.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED
-------------------------------------------------------------------
APRIL 2, 1995 MARCH 27, 1994 MARCH 28, 1993
---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales of real estate (1) . . . . . . $91,922 92.7% $63,389 89.0 % $53,349 84.0%
Interest income and other (2) . . . . 7,264 7.3 7,952 11.0 10,191 16.0
------- ----- ------- ----- ------- -----
Total revenues . . . . . . . . . . . 99,186 100.0 71,341 100.0 63,540 100.0
COSTS AND EXPENSES:
Cost of real estate sold . . . . . . 45,106 45.5 30,773 43.1 28,450 44.8
Selling, general and
administrative expense . . . . . . 36,521 36.8 26,444 37.1 22,652 35.6
Interest expense . . . . . . . . . . 6,737 6.8 6,551 9.2 7,284 11.5
Provision for losses and
write-downs . . . . . . . . . . . 792 0.8 795 1.1 1,550 2.4
------- ----- ------- ----- ------- -----
Total costs and expenses . . . . . . 89,156 89.9 64,563 90.5 59,936 94.3
------- ----- ------- ----- ------- -----
INCOME FROM OPERATIONS . . . . . . . 10,030 10.1 6,778 9.5 3,604 5.7
Other income . . . . . . . . . . . . 372 1,175 1,727
------- ------- -------
Income before income taxes . . . . . 10,402 7,953 5,331
Provision for income taxes . . . . . 4,265 3,022 1,874
------- ------- -------
NET INCOME . . . . . . . . . . . . . $ 6,137 6.2% $ 4,931 7.0 % $ 3,457 5.4%
======= ===== ======= ===== ======= =====
Gross margins on sales of
real estate (3) . . . . . . . . . 50.9% 51.5 % 46.7%
===== ===== =====
</TABLE>
_________________
(1) Sales of real estate for fiscal 1995 include land sales of $72.6 million
along with $13.4 million and $5.9 million attributable to the Company's
Communities and Resorts divisions, respectively. Sales of real estate in
fiscal 1994 include land sales of $60.3 million and $3.1 million from the
Company's Communities Division. Sales of real estate in fiscal 1993 were
derived solely from the Company's land operation.
(2) Revenues for the years ended April 2, 1995, March 27, 1994 and March 28,
1993, include a $411,000 loss, a $238,000 loss and a $695,000 gain,
respectively, from transactions relating to the private sales of REMIC
certificates. See Note 8 to the Consolidated Financial Statements for
additional information.
(3) The weighted average gross margin realized in fiscal 1995 of 50.9% includes
57.2%, 12.0% and 62.2% from the Company's Land, Communities and Resorts
divisions, respectively. The weighted average gross margin realized in
fiscal 1994 of 51.5% includes gross margins of 52.1% and 39.2% from the
Company's Land and Communities divisions, respectively.
9
<PAGE> 10
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,
available financing and interest rates. Management believes that general
economic conditions have strengthened in many of its principal markets of
operation. However, based upon a slow economic recovery in the Northeast,
Canada and certain areas of the Mid-Atlantic region, the Company has
experienced reduced levels of sales. A downturn in the economy in general or
in the market for real estate could have a material adverse affect on the
Company.
The Company's real estate business is currently operated through three
divisions. The Land Division acquires large acreage tracts of real estate
which are subdivided, improved and sold, typically on a retail basis. The
Resorts Division acquires and develops timeshare properties to be sold in
weekly intervals in fully-furnished vacation units. The Communities Division
is engaged in the sale of factory built and on-site constructed primary
residential homes together with land parcels in certain markets. Revenue
recognition for each of the Company's operating divisions is discussed in Note
1 to the Consolidated Financial Statements.
The following table sets forth selected financial data for the business units
comprising the consolidated operations of the Company for the year ended April
2, 1995. The Company was not involved in resort operations and the communities
operation was not material during the year ended March 27, 1994. Accordingly,
results of operations for fiscal 1994 are not presented.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEAR ENDED APRIL 2, 1995
-----------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate (1) . . . . . . $ 72,621 100.0 % $ 13,415 100.0 % $ 5,886 100.0 % $ 91,922 100.0%
Cost of real estate sold . . . . . . 31,082 42.8 11,799 88.0 2,225 37.8 45,106 49.1
-------- --------- -------- ---------- -------- -------- -------- ---------
Gross profit . . . . . . . . . . . . 41,539 57.2 1,616 12.0 3,661 62.2 46,816 50.9
Field selling, general and
administrative
expense (2) . . . . . . . . . . . . . 22,647 31.2 1,863 13.9 3,523 59.9 28,033 30.5
-------- --------- -------- ---------- -------- -------- -------- ---------
Field operating profit
(loss) (3) . . . . . . . . . . . . . $ 18,892 26.0 % $( 247) (1.9 )% $ 138 2.3 % $ 18,783 20.4%
======== ========= ======== ========== ======== ======== ======== =========
</TABLE>
_________________
(1) The Company's Resorts Division generated revenues of $6.8 million from the
sale of 952 intervals which reflects an average sales price per unit of
$7,119 for the year ended April 2, 1995. The figures reported above
exclude $891,000 of interval sales and $238,000 of field operating profit
which have been deferred under the percentage of completion method of
accounting. In addition, cost of sales includes the write-off of certain
nonrefundable expenses for a resort property reviewed, but not acquired in
fiscal 1995.
(2) Aggregate general and administrative expenses from corporate overhead
totaling $8.5 million have been excluded from the table.
(3) The table presented above outlines selected financial data. Accordingly,
interest income, interest expense, other income and income taxes have been
excluded.
Consolidated sales of real estate increased 45.0% to $91.9 million for fiscal
1995 compared to $63.4 million for fiscal 1994. Fiscal 1994 sales increased
18.8% to $63.4 million compared with $53.3 million for fiscal 1993.
10
<PAGE> 11
The following table sets forth certain information regarding sales of parcels
associated with the Company's Land Division for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
--------- ---------- -----------
<S> <C> <C> <C>
Number of parcels sold (1) . . . . . . . . . 2,397 2,489 2,560
Average sales price per parcel (1) . . . . . $ 30,969 $ 25,511 $ 21,368
Gross margins on Land Division sales . . . . 57.2% 51.5% 46.7%
</TABLE>
_________________
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods. The
average sales price per parcel, excluding the effects of deferred sales,
was $30,296, $25,468 and $20,839 for fiscal 1995, 1994 and 1993,
respectively.
While the number of parcels sold during the current period decreased by
approximately 3.7%, the average sales price increased by 21.4%. The decrease
in parcels sold resulted, in part, from reduced sales in the Mid-Atlantic
region where the Company has reduced its presence in favor of markets with
stronger economic conditions. The Company also sold fewer parcels in the
Midwest and Southeast due to a temporary shortage of ready-to-market lots.
Additional lakefront property has been acquired in these regions and marketing
efforts have commenced. The decrease in parcels sold in the Mid-Atlantic,
Southeast and Midwest regions were offset, in part, by increased parcels sold
in the Southwestern and Western regions of the United States. The Company
continues to reduce inventories in the Northeast, an action which began in the
early 1990's.
The increase in the average sales price was largely attributable to the
Company's Southwestern operations where increased consumer demand for a wide
variety of inventory offered to the Texas market, including very desirable
waterfront properties, prompted higher average selling prices. Higher sales
prices in the Midwest and Southeast were also achieved due, in part, to the
sale of several lakefront properties which maintained higher average unit sale
prices.
The table set forth below outlines the numbers of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal years indicated.
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------------------------------
APRIL 2, 1995 MARCH 27, 1994 MARCH 28, 1993
----------------------------- ---------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1)
- ----------------- ------------ -------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Southwest . . . 1,107 $ 34,999 940 $ 27,140 740 $ 22,970
West . . . . . 339 32,033 242 34,180 292 26,785
Midwest . . . . 317 28,740 437 22,767 279 23,049
Southeast . . . 289 28,311 376 26,537 439 15,227
Northeast . . . 113 19,382 115 17,687 251 15,018
Mid-Atlantic . 215 23,136 367 20,700 545 23,538
Canada . . . . 17 10,160 12 13,037 14 12,101
------ --------- ----- -------- ----- --------
Totals . . . . 2,397 $ 30,969 2,489 $ 25,511 2,560 $ 21,368
====== ===== =====
</TABLE>
_________________
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods.
11
<PAGE> 12
The Company's Investment Committee, consisting primarily of executive officers,
approves all property acquisitions. In order to be approved for purchase by
the Committee, all land properties under contract for purchase are expected to
achieve certain minimum economics including a minimum gross margin. The sale
of certain inventory acquired prior to the formation of the Investment
Committee and 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 $3.7 million of net inventory in the Northeast which the Company
continues to liquidate.
Prospective timeshare properties are also expected to achieve minimum economics
including a minimum gross margin in excess of that for the average land
property. Prior to the deferral of $891,000 in revenues under the percentage
of completion method of accounting, the Company's Resorts Division generated
revenues of $6.8 million from the sale of 952 intervals which reflects an
average sales price per unit of $7,119 for fiscal 1995. Net of deferred
revenues, Resorts Division sales totaling $5.9 million represent approximately
6.4% of consolidated revenues from the sale of real estate.
During fiscal 1995, the Company's Communities Division generated 133 sales at
an average sales price of $100,866 contributing a total of $13.4 million in
sales revenue, or approximately 14.7% of total consolidated revenues from sales
of real estate. The 133 sales consist of 110 manufactured homes with an
average sales price of $77,243 and 23 site-built homes with an average sales
price of $213,640. In addition, at April 2, 1995, there was $5.0 million in
backlog of home sales for future delivery representing 41 contracts. The $5.0
million in backlog of home sales was comprised of $1.8 million for manufactured
homes and $3.2 million for site-built homes, substantially all of which are
expected to close throughout the four quarters of fiscal 1996.
12
<PAGE> 13
The tables set forth below outline sales by geographic region and division for
the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 2, 1995
-------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
- ----------------- ------------ ----------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . $ 38,600,075 $ 2,012,112 $ --- $40,612,187 44.2 %
West . . . . . . . 10,859,280 3,521,637 --- 14,380,917 15.7
Midwest . . . . . . 8,297,375 --- 5,886,427 14,183,802 15.4
Southeast . . . . . 7,846,343 7,881,426 --- 15,727,769 17.1
Northeast . . . . . 2,190,110 --- --- 2,190,110 2.4
Mid-Atlantic . . . 4,654,483 --- --- 4,654,483 5.0
Canada . . . . . . 172,722 --- --- 172,722 .2
------------ ----------- --- ------- -----
Totals . . . . . . $ 72,620,388 $13,415,175 $5,886,427 $91,921,990 100.0 %
============ =========== ========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 27, 1994
-----------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES TOTAL %
- ----------------- ------------ ----------- -------------- ---------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 23,855,291 $ 388,890 $ 24,244,181 38.2 %
West . . . . . . . 8,069,444 362,356 8,431,800 13.3
Midwest . . . . . . 10,520,147 125,716 10,645,863 16.8
Southeast . . . . . 8,196,901 1,780,995 9,977,896 15.7
Northeast . . . . . 2,034,000 --- 2,034,000 3.2
Mid-Atlantic . . . 7,474,934 424,000 7,898,934 12.5
Canada . . . . . . 156,438 --- 156,438 .3
------------ ------------- -------------- ------
Totals . . . . . . $ 60,307,155 $ 3,081,957 $ 63,389,112 100.0 %
============ ============= ============== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 28, 1993
------------------------------
GEOGRAPHIC REGION TOTAL LAND %
- ----------------- ------------ --------
<S> <C> <C>
Southwest . . . . . $ 16,015,278 30.0 %
West . . . . . . . 7,710,066 14.5
Midwest . . . . . . 6,221,792 11.7
Southeast . . . . . 6,727,728 12.6
Northeast . . . . . 3,793,753 7.1
Mid-Atlantic . . . 12,709,697 23.8
Canada . . . . . . 170,502 .3
------------ -----
Totals . . . . . . $ 53,348,816 100.0 %
============ =====
</TABLE>
Interest income was $7.3 million for the year ended April 2, 1995, compared to
$8.0 million and $10.2 million for fiscal 1994 and 1993, respectively. The
Company's interest income is earned from its mortgage note receivables,
securities retained pursuant to REMIC financings and cash and near-cash
investments. The table set forth below outlines interest income earned from
each category of asset for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------- ------------ -------------
INTEREST EARNED ON:
- -------------------
<S> <C> <C> <C>
Receivables held and excess servicing $ 4,561,825 $ 4,460,919 $ 5,907,375
from whole-loan sales . . . . . . . . . . .
Securities retained in connection with
REMIC financings . . . . . . . . . . . . . . 2,145,274 3,255,086 3,573,261
Cash and near-cash investments . . . . . . . 556,660 235,518 710,571
------------- ------------ -------------
Totals . . . . . . . . . . . . . . . . . . . $ 7,263,759 $ 7,951,523 $ 10,191,207
============= ============ =============
</TABLE>
13
<PAGE> 14
In May, 1994, the Company completed a REMIC transaction. See the description
of this transaction under Note 8. This securitization of Receivables yielded
the Company approximately $12.4 million of unrestricted cash. Accordingly, the
Company's average cash and near-cash equivalents for the current year increased
over the prior year, resulting in increased interest income earned from these
low-risk instruments. The 1994 REMIC transaction was accomplished by combining
Receivables held by the Company with Receivables reacquired by the Company
through the repurchase and retirement of securities that had been issued in
connection with a 1989 REMIC transaction. This newly formed pool of
Receivables was securitized and four classes of certificates were created for
the 1994 REMIC. The subordinated certificates retained by the Company in
connection with the 1994 REMIC had a lower carrying value than the certificates
retired in connection with the collapse of the 1989 REMIC and therefore less
interest was accreted on these securities for the current year versus those
held in the prior year. Interest earned on Receivables held and excess
servicing from whole-loan sales decreased from $5.9 million during fiscal 1993
to $4.5 million for fiscal 1994. The 24.5% decrease is primarily attributable
to a reduction in the average outstanding balance of Receivables held by the
Company. Average Receivables held declined from $48.1 million for fiscal 1993
to $39.8 million for fiscal 1994. The decrease in Receivables held was
primarily attributable to the sale of Receivables through the 1992 REMIC
transaction.
S,G&A expense totaled $36.5 million, $26.4 million and $22.7 million for fiscal
1995, 1994 and 1993, respectively. As a percentage of sales of real estate,
S,G&A expenses were 39.7%, 41.7% and 42.5% for the same periods. S,G&A expense
is expected to increase as greater levels of sales are achieved. A significant
portion of these expenses are variable relative to sales and profitability
levels, and therefore, increase with corresponding growth in sales of real
estate. Due to revenue recognition criteria, particularly for the Company's
Resorts Division, certain fixed general and administrative expenses were
incurred during fiscal 1995, although the corresponding revenues were deferred
for recognition until a future period. At April 2, 1995, approximately $891,000
of Resorts Division sales along with $372,000 of S,G&A expense and $238,000 of
operating profit have been deferred.
Interest expense totaled $6.7 million, $6.6 million and $7.3 million for fiscal
1995, 1994 and 1993, respectively. The different levels of interest expense
for the periods were attributable to both changes in average outstanding debt
and changes in the Company's cost of funds.
The Company recorded provisions for loan losses totaling $792,000, $795,000 and
$400,000 for fiscal 1995, 1994 and 1993, respectively. The Company originated
approximately the same principal amount of Receivables for each of the last two
fiscal years and the reserve for loan losses represents approximately the same
percentage of gross Receivables at the end of each period. Furthermore,
management believes that the overall performance of its serviced mortgage
portfolio has improved as evidenced by delinquency at each period end.
However, additional write-downs have been recorded during the most recent year
for certain property securing troubled loans that had been in the foreclosure
process for an extended period of time. These loans were successfully
foreclosed during the current year. Because of the lengthy period from
delinquency of a loan to resolve through foreclosure, additional recovery costs
were incurred. The subject loans were originated by the Company in the late
1980's and, in most cases, were secured by Northeast land. The Company has
made substantial progress in working through the foreclosure backlog and does
not believe that the $1.3 million in loans currently in the foreclosure process
will require any material amount of additional reserves.
Income from consolidated operations was $10.0 million, $6.8 million and $3.6
million for fiscal 1995, 1994 and 1993, respectively. The improvements are
primarily the result of increased sales of real estate.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
year ended April 2, 1995 was not material to the Company's results of
operations. Other income for fiscal 1994 and 1993 includes, among other items,
non-recurring income associated with the settlement of certain litigation.
14
<PAGE> 15
The Company recorded a tax provision of 41% of pre-tax income for the year
ended April 2, 1995. The provision was 38% and 35% of pre-tax income for fiscal
1994 and 1993, respectively. The Company has fully utilized its operating loss
carryforwards associated with certain state income taxes which resulted in a
higher effective tax rate for the current year.
Net income was $6.1 million, $4.9 million and $3.5 million for the year ended
April 2, 1995, March 27, 1994 and March 28, 1993, respectively.
15
<PAGE> 16
REPORT OF MANAGEMENT
We have prepared the consolidated financial statements and other sections of
this annual report and are responsible for all information and representations
contained therein. Such consolidated financial information was prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, based on our estimates and judgments.
The Company maintains accounting and internal control systems which were
designed to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records adequate for preparation of
financial information. The systems are established and monitored in accordance
with written policies which set forth management's responsibility for proper
internal accounting controls and the adequacy of these controls subject to
continuing independent review by external auditors.
The consolidated financial statements have been audited by Ernst & Young LLP,
Independent Certified Public Accountants, in accordance with generally accepted
auditing standards. In connection with their audit, Ernst & Young LLP has
developed an understanding of our accounting and financial controls and
conducted such tests and related procedures as they consider necessary to
render their opinion on our consolidated financial statements.
The financial data contained in this annual report was subject to review by the
Audit Committee of the Board of Directors. The Audit Committee, composed of
three directors who are not employees, meets periodically during the year with
Ernst & Young LLP and with management to review accounting, auditing, internal
control and financial reporting matters.
We believe that our policies and procedures provide reasonable assurance that
operations are conducted in conformity with applicable laws and with our
commitment to a high standard of business conduct.
GEORGE F. DONOVAN
George F. Donovan
President and Chief Executive Officer
ALAN L. MURRAY
Alan L. Murray
Treasurer and Chief Financial Officer
DANIEL C. KOSCHER
Daniel C. Koscher
Vice President, Chief Accounting Officer
and Assistant Secretary
April 26, 1995
16
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Patten Corporation
We have audited the accompanying consolidated balance sheets of Patten
Corporation as of April 2, 1995 and March 27, 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended April 2, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Patten
Corporation at April 2, 1995 and March 27, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended April 2, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Ernst & Young LLP
West Palm Beach, Florida
April 26, 1995
17
<PAGE> 18
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 2, MARCH 27,
1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $5.2 million and $5.0 million at April 2, 1995
and March 27, 1994, respectively) . . . . . . . . . . . . . . . $ 7,588,475 $ 9,308,047
Contracts receivable, net . . . . . . . . . . . . . . . . . . . . . 13,051,254 9,928,602
Notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . 39,269,269 42,881,842
Investment in securities . . . . . . . . . . . . . . . . . . . . . 18,097,917 26,469,714
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . 63,386,672 40,113,942
Property and equipment, net . . . . . . . . . . . . . . . . . . . . 4,801,824 3,634,478
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . 1,739,555 1,724,387
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,287,393 5,556,201
-------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152,222,359 $ 139,617,213
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,134,753 $ 1,906,170
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . 11,292,846 10,079,007
Lines of credit and notes payable . . . . . . . . . . . . . . . . . 20,431,346 11,524,150
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 5,069,719 3,742,928
Mortgage-backed notes payable . . . . . . . . . . . . . . . . . . . 19,514,718 25,772,299
Commitments and contingencies . . . . . . . . . . . . . . . . . . . --- ---
8.25% convertible subordinated debentures . . . . . . . . . . . . . 34,739,000 34,739,000
-------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 94,182,382 87,763,554
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Common stock, $.01 par value, 90,000,000 shares authorized;
19,470,734 and 17,795,974 shares outstanding at
April 2, 1995 and March 27, 1994, respectively . . . . . . . . . 194,707 177,960
Capital-in-excess of par value . . . . . . . . . . . . . . . . . . 66,839,599 61,099,625
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . ( 8,994,329 ) ( 9,423,926 )
-------------- -------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 58,039,977 51,853,659
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . $ 152,222,359 $ 139,617,213
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . $ 91,921,990 $ 63,389,112 $ 53,348,816
Interest income and other . . . . . . . . . . 7,263,759 7,951,523 10,191,207
------------- ------------- ------------
99,185,749 71,340,635 63,540,023
COSTS AND EXPENSES:
Cost of real estate sold . . . . . . . . . . 45,105,841 30,773,203 28,449,739
Selling, general and administrative expense . 36,520,817 26,443,598 22,651,903
Interest expense . . . . . . . . . . . . . . 6,737,687 6,551,153 7,284,153
Provision for losses and write-downs . . . . 792,000 795,000 1,550,000
------------- ------------- ------------
89,156,345 64,562,954 59,935,795
------------- ------------- ------------
Income from operations . . . . . . . . . . . 10,029,404 6,777,681 3,604,228
Other income . . . . . . . . . . . . . . . . 372,443 1,174,770 1,726,398
------------- ------------- ------------
Income before income taxes . . . . . . . . . 10,401,847 7,952,451 5,330,626
Provision for income taxes . . . . . . . . . 4,264,758 3,021,931 1,873,837
------------- ------------- ------------
NET INCOME . . . . . . . . . . . . . . . . . $ 6,137,089 $ 4,930,520 $ 3,456,789
============= ============= ============
INCOME PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . . .
$ .30 $ .24 $ .17
============= ============= ============
Weighted average number of common and
common equivalent shares 20,453,941 20,472,505 19,990,598
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 2, 1995, MARCH 27, 1994 AND MARCH 28, 1993
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED
STOCK $.01 PAR EXCESS OF EARNINGS
ISSUED VALUE PAR VALUE (DEFICIT) TOTAL
----------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance March 29, 1992 . . . . 17,061,001 $170,610 $59,139,615 $( 15,931,995 ) $ 43,378,230
Shares issued to employees
upon exercise of qualified
stock options . . . . . . . 22,000 220 32,780 --- 33,000
Net income . . . . . . . . . . --- --- --- 3,456,789 3,456,789
----------- --------- ------------ ------------- ------------
Balance March 28, 1993 . . . . 17,083,001 170,830 59,172,395 ( 12,475,206 ) 46,868,019
4% stock dividend . . . . . . . 683,005 6,830 1,871,434 ( 1,878,264 ) ---
Cash payment for dividends
in lieu of fractional
shares . . . . . . . . . . . --- --- --- ( 976 ) ( 976 )
Shares issued to employees
upon exercise of qualified
stock options . . . . . . . . 29,968 300 55,796 --- 56,096
Net income . . . . . . . . . . --- --- --- 4,930,520 4,930,520
----------- --------- ------------ -------------- ------------
Balance March 27, 1994 . . . . 17,795,974 177,960 61,099,625 ( 9,423,926 ) 51,853,659
4% stock dividend . . . . . . . 711,076 7,111 2,570,540 ( 2,577,651 ) ---
5% stock dividend . . . . . . . 925,751 9,257 3,115,152 ( 3,124,409 ) ---
Cash payment for dividends
in lieu of fractional
shares . . . . . . . . . . . --- --- --- ( 5,432 ) ( 5,432 )
Shares issued to employees
upon exercise of qualified
stock options . . . . . . . . 37,933 379 54,282 --- 54,661
Net income . . . . . . . . . . --- --- --- 6,137,089 6,137,089
----------- --------- ------------ ------------- ------------
Balance April 2, 1995 . . . . . 19,470,734 $ 194,707 $ 66,839,599 $( 8,994,329 ) $ 58,039,977
=========== ========= ============ ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers including net cash
collected as servicer of notes receivable to be
remitted to investors . . . . . . . . . . . . . . . . $ 78,667,484 $ 50,738,479 $ 39,218,756
Interest received . . . . . . . . . . . . . . . . . . 5,409,259 5,194,172 7,385,143
Cash paid for land acquisitions and real estate
development . . . . . . . . . . . . . . . . . . . . . ( 48,374,125 ) ( 25,618,038 ) ( 16,121,269 )
Cash paid to suppliers, employees and sales
representatives . . . . . . . . . . . . . . . . . . . ( 33,337,031 ) ( 27,635,318 ) ( 22,878,531 )
Interest paid . . . . . . . . . . . . . . . . . . . . . ( 6,287,133 ) ( 5,811,807 ) ( 7,919,977 )
Net income taxes paid . . . . . . . . . . . . . . . . . ( 3,097,292 ) ( 2,292,671 ) ( 526,587 )
Land gains taxes paid . . . . . . . . . . . . . . . . . --- --- ( 997,181 )
Proceeds from sales of notes receivable . . . . . . . --- --- 49,535
Proceeds from borrowings collateralized by
notes receivable . . . . . . . . . . . . . . . . . . 8,587,550 20,693,016 7,495,243
Payments on borrowings collateralized by
notes receivable . . . . . . . . . . . . . . . . . . ( 14,845,131 ) ( 7,086,595 ) ( 60,629,366 )
Net proceeds from REMIC transactions . . . . . . . . . 22,706,101 8,352,973 64,559,769
Proceeds from amortization of other receivables . . . . --- --- 3,713,417
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . 9,429,682 16,534,211 13,348,952
------------ ------------ ------------
INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment. . . . . . . . . . . . . . . . ( 1,316,255 ) ( 719,516 ) 221,145
Additions to other long-term assets . . . . . . . . . . ( 259,109 ) ( 869,316 ) ( 232,829 )
------------ ------------ ------------
NET CASH FLOW USED BY INVESTING ACTIVITIES. . . . . . . . ( 1,575,364 ) ( 1,588,832 ) ( 11,684 )
------------ ------------ ------------
FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit
facilities . . . . . . . . . . . . . . . . . . . . . 3,916,436 152,342 ( 1,831,806 )
Borrowings under repurchase agreement . . . . . . . . . --- --- 6,500,000
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. . . . . . . . . . . . ( 13,539,555 ) ( 9,458,542 ) ( 23,788,228 )
Proceeds from exercise of employee stock options. . . . 54,661 56,096 33,000
Payments for dividends in lieu of fractional shares . . ( 5,432 ) ( 976 ) ---
------------ ------------ ------------
NET CASH FLOW USED BY FINANCING ACTIVITIES . . . . . . . ( 9,573,890 ) ( 15,751,080 ) ( 19,087,034 )
------------ ------------ ------------
Net decrease in cash and cash equivalents . . . . . . . . ( 1,719,572 ) ( 805,701 ) ( 5,749,766 )
Cash and cash equivalents at beginning of year . . . . . 9,308,047 10,113,748 ( 15,863,514
------------ ------------ ------------
Cash and cash equivalents at end of year . . . . . . . . $ 7,588,475 $ 9,308,047 $ 10,113,748
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 6,137,089 $ 4,930,520 $ 3,456,789
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation and amortization . . . . . . . . . . 1,301,125 1,660,475 1,556,735
(Gain)/loss on sale of property and equipment . . ( 54,519 ) ( 173,902 ) 417,578
Provision for losses and write-downs. . . . . . . 792,000 795,000 1,550,000
Interest accreted on investment in securities . . ( 2,222,724 ) ( 3,029,775 ) ( 2,849,135 )
Write-off of portion of debt issuance costs . . . --- --- 1,344,733
Proceeds from borrowings collateralized by
notes receivable net of principal repayments. . ( 6,257,581 ) 13,606,421 ( 53,693,123 )
(INCREASE) DECREASE IN ASSETS:
Contracts receivable . . . . . . . . . . . . . . . ( 3,122,652 ) ( 1,228,633 ) ( 3,579,717 )
Investment in securities . . . . . . . . . . . . . 13,268,891 8,591,369 ( 2,606,000 )
Inventory . . . . . . . . . . . . . . . . . . . . ( 4,452,058 ) 4,556,303 10,890,778
Other assets . . . . . . . . . . . . . . . . . . . 1,264,688 ( 2,656,580 ) 3,374,615
Notes receivable . . . . . . . . . . . . . . . . . ( 993,790 ) ( 11,601,107 ) 53,006,185
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities
and other . . . . . . . . . . . . . . . . . . . . 2,442,422 ( 1,867,627 ) ( 1,411,638 )
Deferred income taxes . . . . . . . . . . . . . . 1,326,791 2,951,747 1,891,152
------------- ------------ -------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES. . . . $ 9,429,682 $ 16,534,211 $ 13,348,952
============= ============ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES:
Inventory acquired through financing. . . . . . . $ 17,680,680 $ 12,806,899 $ 9,301,548
============= ============ =============
Inventory acquired through foreclosure,
"insubstance foreclosure" or deedback in
lieu of foreclosure . . . . . . . . . . . . . . $ 1,139,993 $ 737,487 $ 677,899
============= ============ =============
Revolving line of credit fee added to
mortgage-backed indebtedness. . . . . . . . . . $ --- $ --- $ 500,000
============= ============ =============
Forgiveness of indebtedness owed to creditors
in exchange for real estate . . . . . . . . . . $ --- $ --- $ 562,000
============= ============ =============
Investment in securities retained in
connection with sale of notes receivable. . . . $ 2,674,370 $ --- $ 15,836,662
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of Patten Corporation and all
wholly owned subsidiaries (the "Company"). All significant intercompany
transactions are eliminated.
Cash and Cash Equivalents
The Company invests cash in excess of immediate operating requirements in cash
equivalent short-term time deposits and money market instruments generally with
original maturities of three months or less. The Company maintains cash and
cash equivalents with various financial institutions. These financial
institutions are located throughout the country and Company policy is designed
to limit exposure to any one institution. However, a significant portion of
the Company's unrestricted cash is maintained with a single bank and,
accordingly, the Company is subject to credit risk. Periodic evaluations of
the relative credit standing of financial institutions maintaining Company
deposits are performed to evaluate and mitigate, if necessary, credit risk.
At April 2, 1995 and March 27, 1994, cash and cash equivalents included
restricted cash of approximately $5.2 million and $5.0 million, respectively,
primarily associated with funds restricted under mortgage-backed note
agreements and customer deposits on real estate maintained in escrow accounts.
Investment in Securities
The Company's investment in securities consists of the subordinated
certificates which were retained by the Company in connection with its 1992 and
1994 REMIC transactions. The certificates are being carried at their initial
allocated basis plus income accreted using the estimated effective yield rates.
The income accreted on the investment in securities is reported in interest
income. The carrying value of the certificates approximates fair market value.
Inventory
Real estate acquired for sale is carried at the lower of cost, including costs
of improvements and amenities incurred subsequent to acquisition, or estimated
net realizable value. Real estate reacquired through foreclosure or deedback
in lieu of foreclosure is recorded at the lower of estimated net realizable
value or the balance of the loan. Costs incurred to reacquire, carry and
dispose of the property are capitalized to the extent deemed recoverable.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method based on the estimated useful lives of the related assets.
Contracts Receivable and Revenue Recognition
The Company's real estate business is currently operated through three
divisions. The Land Division acquires large acreage tracts of real estate
which are subdivided, improved and sold, typically on a retail basis. The
Resorts Division acquires and develops timeshare property to be sold in weekly
intervals in fully furnished vacation units. The Communities Division is
engaged in the development and sale of primary residential homes at selected
sites together with land parcels. Revenue recognition for each of the
Company's operating divisions is discussed below.
The Company recognizes revenue on retail land sales when a minimum of 10% of
the sales price has been received in cash, collectibility of the receivable
representing the remainder of the sales price is reasonably assured, the
23
<PAGE> 24
Company has completed substantially all of its obligations with respect to any
development related to the real estate sold and any rescission period has
passed.
Other land sales include large-acreage bulk transactions as well as land sales
to investors and developers. The Company recognizes revenue on such other land
sales when the buyer's initial and continuing investment are adequate to
demonstrate a commitment to pay for the property, which requires a minimum of
20% of the sales price to be received in cash, the collectibility of the
receivable representing the remainder of the sales price is reasonably assured,
the Company has completed substantially all of its obligations with respect to
any development related to the real estate sold and any rescission period has
passed.
With respect to its Resorts Division sales, the Company recognizes revenue when
a minimum of 10% of the sales price has been received in cash, any statutory
rescission period has passed and the Company has completed substantially all of
its obligations with respect to any development related to the unit sold.
In cases where all development has not been completed, the Company recognizes
revenue on land and timeshare sales in accordance with the percentage of
completion method of accounting.
The Company recognizes revenue on Communities Division sales when the unit is
complete and title is transferred to the buyer.
The excess of sales price over legally binding deposits received is recorded as
contracts receivable. Contracts receivable are converted into cash and/or notes
receivable generally, within sixty days. All related costs are recorded prior
to, or at the time, a sale is recorded.
Provision for Losses and Write-downs
Provisions for losses on notes receivable, real estate held for sale and real
estate reacquired through foreclosure or deed in lieu of foreclosure are
charged to operations when it is determined that the investment in such assets
is, in management's judgement, deemed to be impaired.
Income Taxes
Deferred income taxes are provided for the tax effects of differences between
the financial and tax bases of assets and liabilities and for operating losses
that are available to offset future taxable income. Deferred income taxes have
been reduced by the tax effect of net operating loss carryforwards to the
extent that deferred tax liabilities are comprised of temporary differences
which are expected to reverse during the statutory carryforward period.
Income Per Common Share
Income per common share is determined by dividing net income by the weighted
average number of common shares outstanding after giving effect to all dilutive
common equivalent shares outstanding during each period. The common equivalent
shares reflect the dilutive impact of shares reserved for outstanding stock
options. 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 Income to give effect to
certain stock dividends, including retroactive restatement of the net income
per common share amounts for the prior two fiscal years presented.
Reclassifications
Certain reclassifications have been made on the Consolidated Statement of Cash
Flows for the prior years to conform to the current year presentation.
24
<PAGE> 25
Fiscal Year End
The By-Laws of the Company provide for its fiscal year to end on the Sunday
closest to the end of March. Accordingly, the current fiscal year, which began
on March 28, 1994 and ended on April 2, 1995, resulted in a fifty-three week
reporting period for the Company's Consolidated Statement of Income and
Consolidated Statement of Cash Flows. Each quarterly period for fiscal 1995
included thirteen weeks, with the exception of the period ended January 1,
1995, which included fourteen weeks.
2. NOTES RECEIVABLE
The weighted average interest rate on notes receivable was 12.4% and 10.9% at
April 2, 1995 and March 27, 1994, respectively. Substantially all of the
Company's notes receivable bear interest at a variable rate. Accrual of
interest on notes receivable greater than 90 days past due is excluded from
income.
The table below sets forth activity in the reserve for estimated loan losses.
<TABLE>
<S> <C>
Reserve for loan losses, March 28, 1993 . . . . . . $ 644,077
Provision for losses . . . . . . . . . . . . . . . 795,000
Charge-offs . . . . . . . . . . . . . . . . . . . . ( 797,113)
----------
Reserve for loan losses, March 27, 1994 . . . . . . 641,964
Provision for losses . . . . . . . . . . . . . . . 792,000
Charge-offs . . . . . . . . . . . . . . . . . . . . ( 642,029)
----------
Reserve for loan losses, April 2, 1995 . . . . . . $ 791,935
==========
</TABLE>
Installments due on notes receivable held by the Company during each of the
five fiscal years subsequent to April 2, 1995 are set forth below.
<TABLE>
<CAPTION>
FISCAL PAYMENTS ON
YEAR NOTES RECEIVABLE
- ------- ----------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . $ 4,236,030
1997 . . . . . . . . . . . . . . . . . . . 3,996,534
1998 . . . . . . . . . . . . . . . . . . . 4,165,826
1999 . . . . . . . . . . . . . . . . . . . 4,454,788
2000 . . . . . . . . . . . . . . . . . . . 4,763,756
Thereafter . . . . . . . . . . . . . . . . . . . 18,444,270
-------------
Total . . . . . . . . . . . . . . . . . . . $ 40,061,204
=============
</TABLE>
3. INVESTMENT IN SECURITIES
The Company's investment in securities includes $3.0 million and $15.1 million
of securities retained by the Company in connection with the 1994 and 1992
REMIC private placement transactions, respectively. See Note 8. These
securities consist of certain subordinated traunches, on which interest is
accreted at effective yield rates which currently range from 11.1% to 16.1%.
Such effective yield rates reflect interest at pass-through rates, the
arbitrage resulting from rate differentials between the notes in the REMIC pool
and pass-through rates, along with the effect of estimated prepayments and
foreclosure losses.
4. INVENTORY AND PROPERTY UNDER CONTRACT
The Company's net inventory holdings as of April 2, 1995 and March 27, 1994,
summarized by division are outlined in the following tables:
25
<PAGE> 26
<TABLE>
<CAPTION>
APRIL 2, 1995
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- ----------------- ---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . . $ 16,658,079 $ 1,115,914 $ --- $ 17,773,993
West . . . . . . . . . . 9,356,508 433,933 --- 9,790,441
Midwest . . . . . . . . . 7,777,934 --- 5,240,911 13,018,845
Southeast . . . . . . . . 2,781,785 11,575,971 --- 14,357,756
Northeast . . . . . . . . 3,747,468 --- --- 3,747,468
Mid-Atlantic . . . . . . 4,424,821 --- --- 4,424,821
Canada . . . . . . . . . 273,348 --- --- 273,348
------------- ------------- ----------- --------------
Totals . . . . . . . . . $ 45,019,943 $ 13,125,818 $ 5,240,911 $ 63,386,672
============= ============= =========== ==============
<CAPTION>
MARCH 27, 1994
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- ----------------- ---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . . $ 4,051,153 $ 1,134,688 $ --- $ 5,185,841
West . . . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Midwest . . . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southeast . . . . . . . . 6,808,053 4,394,360 --- 11,202,413
Northeast . . . . . . . . 4,587,051 --- --- 4,587,051
Mid-Atlantic . . . . . . 5,182,178 --- --- 5,182,178
Canada . . . . . . . . . 386,584 --- --- 386,584
------------- ------------ ----------- --------------
Totals . . . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
============= ============ =========== ==============
</TABLE>
_________________
(1)Communities Division inventory as of April 2, 1995, includes land inventory
of $9.9 million and $3.2 million of housing unit construction-in-progress.
Communities Division inventory as of March 27, 1994, includes land inventory
of $5.4 million and $1.2 million of housing unit construction-in-progress.
Based on an ongoing internal review, no provisions for the write-down of
inventory to the lower of cost or estimated net realizable value were recorded
by the Company for fiscal 1995 and 1994. During fiscal 1993, the Company
recorded a $1.15 million provision for the write-down of inventory. The
Company maintains inventory valuation reserves on a property-by-property basis.
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 expected costs to dispose of the inventory,
including S,G&A expense and, in certain cases, interest expense. As parcels
are sold, inventory is relieved from the balance sheet and a charge to cost of
sales is recorded on the statement of income at historical amounts. In
addition, reserves are released as credits against cost of real estate sold,
S,G&A expense and interest expense. During fiscal 1995, $1.0 million and $1.2
million of the Company's inventory reserves were released as credits against
cost of real estate sold and S,G&A expense, respectively. During fiscal 1994,
$765,000 and $1.1 million of the Company's inventory reserves were released as
credits against cost of real estate sold and S,G&A expense, respectively.
During fiscal 1993, $5.0 million and $1.7 million of the Company's inventory
reserves were released as credits against cost of real estate sold, and S,G&A
expense, respectively. In addition, approximately $2.2 million of reserves
were used during fiscal 1993 to write-off certain capitalized indirect
acquisition costs and other costs deemed unrecoverable.
The table below sets forth activity in the inventory valuation reserve.
<TABLE>
<S> <C>
Inventory valuation reserve, March 28, 1993 . . . . . . . $ 6,427,525
Write-downs . . . . . . . . . . . . . . . . . . . . . . . ( 1,863,922)
------------
Inventory valuation reserve, March 27, 1994 . . . . . . . 4,563,603
Write-downs . . . . . . . . . . . . . . . . . . . . . . . ( 2,191,207)
------------
Inventory valuation reserve, April 2, 1995 . . . . . . . $ 2,372,396
============
</TABLE>
26
<PAGE> 27
5. PROPERTY AND EQUIPMENT
The table below sets forth the property and equipment held by the Company at
the period end indicated.
<TABLE>
<CAPTION>
APRIL 2, MARCH 27,
1995 1994
------------ -------------
<S> <C> <C>
Land, buildings and building improvements . . . . . . $ 3,589,280 $ 2,541,522
Office equipment, furniture and fixtures . . . . . . 3,740,558 4,259,594
Aircraft . . . . . . . . . . . . . . . . . . . . . . 1,192,895 911,628
Vehicles and equipment . . . . . . . . . . . . . . . 419,743 1,083,664
------------ -------------
8,942,476 8,796,408
Accumulated depreciation and amortization . . . . . . ( 4,140,652 ) ( 5,161,930 )
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 4,801,824 $ 3,634,478
============ =============
</TABLE>
6. LINES OF CREDIT AND NOTES PAYABLE
The Company has outstanding borrowings with various financial institutions and
other lenders which have been used to finance the acquisition of inventory and
to fund operations. Significant financial data related to the Company's
borrowing facilities is set forth below.
<TABLE>
<CAPTION>
APRIL 2, MARCH 27,
1995 1994
------------ -------------
<S> <C> <C>
Lines of credit (see Item A) . . . . . . . . . . . . . $ 4,652,255 $ 735,819
Notes and mortgage notes secured by certain
inventory and property and equipment with
interest rates ranging from 6.2% to 12.0%.
Maturities range from 1996 to 2005 . . . . . . . . . 15,779,091 10,659,874
Lease obligations with a weighted average
interest rate of 13.8% at March 27, 1994,
which matured during fiscal 1995 . . . . . . . . . . --- 128,457
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,431,346 $ 11,524,150
============ =============
</TABLE>
The table below sets forth the contractual minimum principal payments required
on the Company's lines of credit and notes payable. Such minimum contractual
payments may differ from actual payments due to the effect of principal
payments required on a lot release basis for certain of the above obligations.
<TABLE>
<CAPTION>
FISCAL MINIMUM
YEAR PRINCIPAL PAYMENT
---- -----------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,269,501
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,970,261
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,114,499
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,140,176
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801,011
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135,898
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,431,346
=============
</TABLE>
Further information on the Company's inventory lines of credit is set forth
below. Lines of credit for the pledge of Receivables is discussed in Note 8.
27
<PAGE> 28
ITEM A.
The Company has a $10.0 million line of credit facility with a financial
institution which provides for advances against pledged notes receivable less
advances, not to exceed $3.0 million at any time, collateralized by land
inventory. At April 2, 1995 and March 27, 1994, outstanding indebtedness of
$1.3 million and $736,000, respectively, were secured by inventory with an
aggregate book value of $3.0 million and $3.5 million, respectively. The
Company is required to pay the financial institution 55% of the sales price
when any such inventory is sold until the land indebtedness is paid in full.
Interest on outstanding borrowings secured by inventory was charged at a rate
of prime plus 2.0% at April 2, 1995 and prime plus 3.0% at March 27, 1994. The
indebtedness matures in October, 1998. The Company also had outstanding
borrowings under this line of credit of $5.0 million secured by $6.8 million of
notes receivable at April 2, 1995 and $7.0 million secured by $10.0 million of
notes receivable at March 27, 1994. Such borrowings secured by notes
receivable are included in mortgage-backed notes payable. See Note 8.
In addition, the Company has a $5.0 million subline of credit with another
financial institution of which $1.5 million is outstanding at April 2, 1995.
Interest is charged at the prime lending rate plus 2.75% and the indebtedness
matures in December, 1996. (The aggregate commitment under this facility is
$20.0 million for acquisition and Receivable financing.) See Note 8.
The Company has another subline of credit with this same financial institution
which provides for advances of up to $3.1 million, secured by certain property,
with interest on outstanding borrowings at prime plus 2.25%. At April 2, 1995,
the Company had $925,000 outstanding under the facility, secured by land
inventory. The indebtedness matures in December, 1997. (The aggregate
commitment under this facility is $5.0 million for construction and receivable
financing.)
The Company has another $5.0 million line of credit with a lender for the
construction of homes for a development in North Carolina of which $965,000 is
outstanding at April 2, 1995. Interest is charged at the prime lending rate
plus .75%. The indebtedness matures in February, 1996.
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including, without limitation, requirements to
(i) maintain net worth of at least $42 million, (ii) maintain certain minimum
leverage ratios, (iii) limit S,G&A expense to 50% of revenues, and (iv) comply
with various other restrictive covenants. The Company was in compliance with
such covenants at April 2, 1995, and for each reporting period during fiscal
1994 and 1995.
7. CONVERTIBLE SUBORDINATED DEBENTURES
In May, 1987, the Company issued $46.0 million of its 8.25% Convertible
Subordinated Debentures due 2012 (the "Debentures"). The Debentures were
issued at face value. During fiscal 1989 and fiscal 1988, the Company
purchased and retired $3.3 million and $8.0 million, respectively, of its
outstanding Debentures. Accordingly, $34.7 million principal amount of
Debentures were outstanding at April 2, 1995 and March 27, 1994.
The Debentures are convertible at any time prior to maturity, unless previously
redeemed, into Common Stock of the Company at a current conversion price of
$8.65 per share, subject to adjustment under certain conditions. The Debentures
are redeemable at any time, at the Company's option, in whole or in part. The
redemption price for the 12-month period beginning May 15, 1994, was 102.475%
of the face amount. The redemption premium declines .825% each 12-month period
thereafter until May 15, 1997, at which time the redemption price is 100% of
the face amount. The Company is obligated to redeem annually 10% of the
principal amount of the Debentures originally issued, commencing May 15, 2003.
Such redemptions are calculated to retire 90% of the principal amount of the
Debentures prior to maturity.
Under financial covenants of the Indenture pursuant to which the Debentures
were issued, the Company is required to maintain net worth of not less than
$29.0 million. Should net worth fall below $29.0 million for two consecutive
28
<PAGE> 29
quarters, the Company is required to make an offer to purchase 20% of the
outstanding Debentures at par, plus accrued interest. The Debentures are
unsecured and subordinated to all senior indebtedness of the Company. Interest
is payable semi-annually on May 15 and November 15.
8. SALE/PLEDGE OF NOTES RECEIVABLE
The Receivables Subsidiaries, which are wholly owned consolidated finance
subsidiaries of the Company, have pledged or sold notes receivable since 1986.
The information provided below summarizes the activities of the Company and its
Receivables Subsidiaries with respect to the sale and pledge of notes
receivable. As of the current fiscal year end, only Receivables secured by
land have been sold or pledged.
Mortgage-Backed Notes Payable
In prior fiscal years, Patten Receivables Finance Corporation ("Patten
Receivables I"), Patten Receivables Finance Corporation II ("Patten Receivables
II") and Patten Receivables Finance Corporation III ("Patten Receivables III")
issued notes payable secured by notes receivable. In July 1992, the
indebtedness issued under these subsidiaries was retired and a substantial
portion of the related notes receivable were sold to a trust under the 1992
REMIC. See discussion of 1992 REMIC below. The indebtedness was retired at
face amount and the Company was not subject to a prepayment penalty. In
connection with these transactions, approximately $2.5 million of cash was
released from restrictive reserve accounts.
Patten Receivables Finance Corporation VI ("Patten Receivables VI") has
indebtedness under a $15.0 million revolving credit line with a financial
institution secured by notes receivable. The indebtedness matures in March,
2005. The pledged notes receivable were acquired by Patten Receivables VI from
the Company at face value. At April 2, 1995, the notes receivable had a
weighted average interest rate of 11.9%. Payments received on the notes
receivable are applied to reduce principal outstanding on the indebtedness
weekly and pay interest monthly. Interest is calculated on the weighted
average indebtedness outstanding for the month at a rate of prime plus 2.0%.
The outstanding indebtedness was $9.1 million and $12.1 million at April 2,
1995 and March 27, 1994, respectively. The principal balance outstanding on
the notes receivable was $11.4 million and $14.1 million at April 2, 1995 and
March 27, 1994, respectively. The indebtedness is guaranteed by the Company.
The pledged notes receivable are serviced by the Company.
In connection with the acquisition of a subsidiary during the year ended April
3, 1988, the Company assumed borrowing of $1.6 million under a $2.0 million
term facility with a financial institution secured by notes receivable. The
debt matures in June, 1997. At April 2, 1995, the notes receivable had a
weighted average interest rate of 11.7%. Payments received on the notes
receivable are applied to reduce principal outstanding on the indebtedness and
pay interest monthly. Interest is calculated daily on the unpaid principal
balance of the indebtedness at a rate of prime plus 2.0%. The outstanding
indebtedness was $11,000 and $160,000 at April 2, 1995 and March 27, 1994,
respectively. The principal balance on the notes receivable was $88,000 and
$236,000 at April 2, 1995 and March 27, 1994, respectively. The pledged notes
receivable are serviced by the Company.
On June 11, 1993, Patten Receivables III entered into a $25.0 million credit
facility arrangement with a financial institution. The ability to receive
advances expires in June, 1995 and the indebtedness, which is secured by notes
receivable, matures in June, 1998. The pledged notes receivable were acquired
by Patten Receivables III from the Company at face value. At April 2, 1995,
the notes receivable had a weighted average interest rate of 12.6%. Payments
received on the notes receivable are applied to reduce principal outstanding on
the indebtedness daily and pay interest monthly. Interest is calculated on the
weighted average indebtedness outstanding for the month at a rate of 1.75% plus
the greater of the prime rate or commercial paper rate as published in The Wall
Street Journal. At April 2, 1995, the principal outstanding on the pledged
notes receivable and the outstanding indebtedness under the credit facility was
$9.8 million and $5.4 million, respectively. At March 27, 1994, the principal
outstanding on the pledged notes receivable and the outstanding indebtedness
under the credit facility was $9.8 million and $6.5 million, respectively. The
pledged notes receivable are serviced by the Company.
29
<PAGE> 30
In addition to notes pledged by the Receivables Subsidiaries, certain notes
owned directly by the Company are pledged to secure a $10.0 million revolving
credit facility with another financial institution. The facility expires in
October, 1998. The Company is entitled to advances equal to 90% of the
outstanding principal balance of pledged notes receivable less advances, not to
exceed $3.0 million at any time, collateralized by land inventory. At April 2,
1995, the outstanding indebtedness of $5.0 million was secured by $6.8 million
of notes receivable. See Item A of Note 6. At March 27, 1994, the outstanding
indebtedness of $7.0 million was secured by $10.0 million of notes receivable.
Payments received on the notes receivable are applied to reduce principal
outstanding on the indebtedness daily and to pay interest monthly. Interest is
calculated on the weighted average indebtedness outstanding for the month at a
rate of prime plus 2.0%. The pledged notes receivable are serviced by the
Company.
Installments due on mortgage-backed notes payable based upon principal payments
due on notes receivable in each of the five fiscal years subsequent to April 2,
1995 is set forth below:
<TABLE>
<CAPTION>
FISCAL MINIMUM
YEAR PRINCIPAL PAYMENT
- ------ -----------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 2,586,463
1997 . . . . . . . . . . . . . . . . . . . . . . . 2,858,250
1998 . . . . . . . . . . . . . . . . . . . . . . . 2,999,385
1999 . . . . . . . . . . . . . . . . . . . . . . . 3,170,513
2000 . . . . . . . . . . . . . . . . . . . . . . . 3,367,031
Thereafter . . . . . . . . . . . . . . . . . . . . . . . 4,533,076
------------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 19,514,718
============
</TABLE>
Sales of Notes Receivable/Sales of Interests in Notes Receivable
In February, 1988, Patten Receivables Finance Corporation V sold Amortizing
Collateralized Real Estate Securities evidencing a participation in a pool of
notes receivable. In connection with the 1992 REMIC transaction, the Company
reacquired the pool of mortgage notes receivable at approximately par value.
See discussion of 1992 REMIC below. Approximately $2.3 million of cash
previously restricted under Patten Receivables Finance Corporation V was
released in connection with the 1992 REMIC transaction.
REMIC Transactions
The Company has completed private placement transactions which it has elected
to treat as Real Estate Mortgage Investment Conduits ("REMICs"). The REMICs
involved the securitization of certain mortgage notes receivable which were
sold to trusts. Information with respect to the REMICs completed in fiscal
1993 and 1995 is set forth below.
On July 24, 1992, the Company sold $90.5 million aggregate principal amount of
its notes receivable to a REMIC trust (the "1992 REMIC Trust"), resulting in
net proceeds to the Company of $64.6 million and a $695,000 gain. The 1992
REMIC Trust issued four classes of REMIC certificates representing ownership
interest in the pool of notes comprising such trust. Collections of principal
and interest on the notes in the 1992 REMIC Trust, net of certain servicing and
trustee fees, are remitted to certificate holders on a monthly basis based on
an established order of priority. In connection with the 1992 REMIC
transaction, the Company retained certain subordinated classes of certificates.
On May 11, 1994, the Company sold approximately $27.7 million aggregate
principal amount of its mortgage notes receivable to a REMIC trust (the "1994
REMIC Trust"), resulting in aggregate proceeds to the Company of $26.0 million
and a $411,000 loss. The 1994 REMIC Trust issued four classes of REMIC
certificates representing ownership interest in the pool of notes comprising
such trust. Collections of principal and interest on the notes in the 1994
REMIC Trust, net of certain servicing and trustee fees, are remitted to
certificate holders on a monthly basis based on an established order of
priority. In connection with the 1994 REMIC transaction, the Company retained
certain subordinated classes of certificates.
30
<PAGE> 31
The subordinated certificates retained by the Company in connection with the
two REMIC transactions discussed above are included in the Consolidated Balance
Sheets as investment in securities. See Note 3.
The Company is paid an annualized servicing fee of .5% of the scheduled
principal balance of those notes in the 1992 and 1994 REMIC trusts on which the
periodic payment of principal and interest is collected in full. Under the
terms of the respective servicing agreements, the Company has the obligation to
repurchase or replace mortgage notes in the trusts which did not materially
conform to the Company's representations and warranties at the date of sale.
In addition, the Company, as servicer, is required to make advances of
delinquent payments to the extend deemed recoverable. The Company has no
obligation, however, to repurchase or replace mortgage notes solely due to
delinquency. Income recognized from servicing the notes in REMIC trusts
totaled $401,000, $464,000 and $259,000 for fiscal 1995, 1994 and 1993,
respectively.
31
<PAGE> 32
9. RECEIVABLES SUBSIDIARIES
Presented below is summarized financial information for the Company's
Receivables Subsidiaries. See Note 8.
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF APRIL 2, 1995
-----------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VIII IX TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash - principally restricted $ 160,805 $ 138,359 $ 1,774,195 $ 316,691 $ 2,390,050
Interest receivable . . . . . . . . 49,327 51,322 --- --- 100,649
Notes receivable . . . . . . . . . 9,807,568 11,438,250 --- --- 21,245,818(1)(2)
Investment in securities . . . . . --- --- 15,050,840 3,047,077 18,097,917
Debt issuance costs . . . . . . . . 243,151 367,278 --- --- 610,429
----------- ----------- ----------- ---------- -----------
Total assets . . . . . . . . . . . $10,260,851 $11,995,209 $16,825,035 $3,363,768 $42,444,863
=========== =========== =========== ========== ===========
LIABILITIES AND EQUITY
Accrued trustee fees and
interest payable . . . . . . . . $ 47,871 $ 90,093 $ --- $ --- $ 137,964
Payable to certificate holders
(cash collected as servicer
for the servicing period) . . . . --- --- 2,164,898 126,169 2,291,067
Mortgage-backed notes payable . . . 5,393,131 9,072,745 --- --- 14,465,876(2)
Capital contributed from
Patten Corporation,
principally restricted . . . . . 4,819,839 2,832,361 14,660,127 3,237,589 25,549,916
Common stock . . . . . . . . . . . 10 10 10 10 40
----------- ----------- ----------- ---------- -----------
Total liabilities and equity . . . $10,260,851 $11,995,209 $16,825,035 $3,363,768 $42,444,863
=========== =========== =========== ========== ===========
</TABLE>
_________________
(1) Approximately $11.3 million of notes receivable, net of reserve for loan
losses, have not been pledged by the Receivables Subsidiaries and,
accordingly, are included in the consolidated accounts of Patten
Corporation.
(2) In addition to mortgage-backed indebtedness on the part of the Receivables
Subsidiaries, the consolidated accounts of Patten Corporation include
approximately $5.0 million of mortgage-backed indebtedness secured by $6.8
million of notes receivable owned directly by the Company along with
$11,000 of indebtedness assumed in connection with the previous acquisition
of a subsidiary. See Note 8, "Mortgage-Backed Notes Payable".
32
<PAGE> 33
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF MARCH 27, 1994
----------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VIII IX TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash - principally restricted . . . $ 79,232 $ 139,492 $ 1,277,155 $ 1,636,602 $ 3,132,481
Interest receivable . . . . . . . . 39,968 51,859 2,048 --- 93,875
Notes receivable . . . . . . . . . 9,772,350 14,086,191 --- --- 23,858,541(1)
Investment in securities . . . . . --- --- 13,150,226 13,319,488 26,469,714
Debt issuance costs . . . . . . . . 317,034 185,834 --- --- 502,868
----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . $10,208,584 $14,463,376 $14,429,429 $14,956,090 $54,057,479
=========== =========== =========== =========== ===========
LIABILITIES AND EQUITY
Accrued trustee fees and
interest payable . . . . . . . . $ 44,526 $ 68,688 $ 4,000 --- $ 117,214
Payable to certificate holders
(cash collected as servicer
for the servicing period) . . . . --- --- 267,291 1,668,415 1,935,706
Mortgage-backed notes payable . . . 6,464,146 12,068,207 --- --- 18,532,353(2)
Capital contributed from
Patten Corporation,
principally restricted . . . . . 3,699,902 2,326,471 14,158,128 13,287,665 33,472,166
Common stock . . . . . . . . . . . 10 10 10 10 40
----------- ----------- ----------- ----------- -----------
Total liabilities and equity . . . $10,208,584 $14,463,376 $14,429,429 $14,956,090 $54,057,479
=========== =========== =========== =========== ===========
</TABLE>
_________________
(1) Approximately $19.0 million of notes receivable, net of reserve for loan
losses, have not been pledged by the Receivables Subsidiaries and,
accordingly, are included in the consolidated accounts of Patten
Corporation.
(2) In addition to mortgage-backed indebtedness on the part of the Receivables
Subsidiaries, the consolidated accounts of Patten Corporation include
approximately $7.1 million of mortgage-backed indebtedness secured by
certain notes receivable owned directly by the Company along with $160,000
of indebtedness assumed in connection with the previous acquisition of a
subsidiary. See Note 8, "Mortgage-Backed Notes Payable".
33
<PAGE> 34
<TABLE>
<CAPTION>
STATEMENTS OF INCOME FOR THE YEAR ENDED APRIL 2, 1995
-----------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VIII IX TOTAL
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Interest income - notes
receivable/securities . . . . . $1,186,957 $1,398,850 $1,731,352 $372,707 $4,689,866
Interest expense . . . . . . . . 573,662 1,064,209 --- --- 1,637,871
Other expense . . . . . . . . . . 2,221 2,342 35 --- 4,598
Amortization of debt
issuance costs . . . . . . . . 86,930 38,708 --- --- 125,638
---------- ---------- ---------- -------- ----------
662,813 1,105,259 35 --- 1,768,107
---------- ---------- ---------- -------- ----------
Income . . . . . . . . . . . . . $ 524,144 $ 293,591 $1,731,317 $372,707 $2,921,759
========== ========== ========== ======== ==========
<CAPTION>
STATEMENTS OF INCOME FOR THE YEAR ENDED MARCH 27, 1994
------------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VIII IX TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Notes receivable/securities $ 843,349 $1,465,073 $1,362,716 $1,428,664 $5,099,802
Cash investments . . . . . . . . --- --- 31,224 --- 31,224
---------- ---------- ---------- ---------- ----------
843,349 1,465,073 1,393,940 1,428,664 5,131,026
Interest expense . . . . . . . . 416,924 978,122 --- --- 1,395,046
Trustee and mortgage
service fees . . . . . . . . . --- --- 12,521 --- 12,521
Other expense . . . . . . . . . . 2,442 3,759 --- --- 6,201
Amortization of debt
issuance costs . . . . . . . . 97,067 47,772 --- --- 144,839
---------- ---------- ---------- ---------- ----------
516,433 1,029,653 12,521 --- 1,558,607
---------- ---------- ---------- ---------- ----------
Income . . . . . . . . . . . . . $ 326,916 $ 435,420 $1,381,419 $1,428,664 $3,572,419
========== ========== ========== ========== ==========
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
STATEMENTS OF INCOME FOR THE YEAR ENDED MARCH 28, 1993
----------------------------------------------------------------
PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES
VI VII VIII TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Notes receivable/securities . . . . $1,334,958 $1,076,652 $1,801,137 $4,212,747
Cash investments . . . . . . . . . --- 31,549 --- 31,549
---------- ---------- ---------- ----------
1,334,958 1,108,201 1,801,137 4,244,296
Interest expense . . . . . . . . . 866,115 --- --- 866,115
Trustee and mortgage
service fees . . . . . . . . . . . --- 9,922 --- 9,922
Other expense . . . . . . . . . . . 4,369 10,329 12 14,710
Amortization of debt
issuance costs . . . . . . . . . . 41,986 --- --- 41,986
---------- ---------- ---------- ----------
912,470 20,251 12 932,733
---------- ---------- ---------- ----------
Income . . . . . . . . . . . . . . $ 422,488 $1,087,950 $1,801,125 $3,311,563
========== ========== ========== ==========
</TABLE>
Income tax expense, provision for loan losses and valuation reserves related to
asset recoverability issues are provided in the Patten Corporation Consolidated
Statements of Income for fiscal 1993, 1994 and 1995.
35
<PAGE> 36
10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . $ 2,299,245 $ 31,582 $ 815,109
Deferred . . . . . . . . 380,195 2,443,387 437,376
----------- ------------ ------------
2,679,440 2,474,969 1,252,485
Foreign:
Current . . . . . . . . . 8,068 --- (404,031)
Deferred . . . . . . . . --- --- (523,434)
----------- ------------ ------------
8,068 --- (927,465)
State:
Current . . . . . . . . . 630,654 38,601 1,510,225
Deferred . . . . . . . . 946,596 508,361 38,592
----------- ------------ ------------
1,577,250 546,962 1,548,817
Total . . . . . . . . . . $ 4,264,758 $ 3,021,931 $ 1,873,837
=========== ============ ============
</TABLE>
Income before income taxes (excluding Canadian operations) was $10.4 million in
fiscal 1995, $7.8 million in fiscal 1994 and $5.3 million in fiscal 1993. The
fiscal 1994 current tax provision was offset by refunds and overpayments
resulting from the reduction in amounts originally estimated during fiscal
1993.
The reasons for the difference between the provision for income taxes and the
amount which results from applying the federal statutory tax rate of 34% in
fiscal 1995, 1994 and 1993, to income before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Income tax expense at statutory
rate . . . . . . . . . . . . . . . . . . . $ 3,536,628 $ 2,703,833 $ 1,812,413
Effect of state taxes, net of federal
tax benefit . . . . . . . . . . . . . . . 728,130 318,098 1,400,225
Rate differential due to Alternative
Minimum Tax ("AMT") . . . . . . . . . . . --- --- (523,533)
Effect of net operating loss . . . . . . . . --- --- (832,879)
Other . . . . . . . . . . . . . . . . . . . . --- --- 17,611
------------ ------------ -----------
$ 4,264,758 $ 3,021,931 $ 1,873,837
============ ============ ===========
</TABLE>
36
<PAGE> 37
The provision for deferred income taxes results from temporary differences
which arise as a result of differences between the amounts of reported assets
and liabilities in the Consolidated Financial Statements and their tax bases.
Temporary differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------
APRIL 2, MARCH 27, MARCH 28,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Contracts receivable, not recorded for tax
purposes until closing and title passage. . . $ 1,088,705 $( 114,859 ) $( 50,615 )
Mortgage notes receivable accorded
installment sales treatment . . . . . . . . . ( 213,723 ) 2,607,327 (11,522,327 )
Accrued interest expense . . . . . . . . . . . 83,968 101,784 498,401
Loss reserve . . . . . . . . . . . . . . . . . ( 61,488 ) 154,972 737,460
Accumulated depreciation . . . . . . . . . . . 19,104 ( 392,330 ) ( 326,461 )
Loss carryforwards . . . . . . . . . . . . . . 3,665,634 808,289 11,622,235
Accrued inventory cost . . . . . . . . . . . . ( 156,496 ) ( 337,378 ) ---
Investment in REMIC . . . . . . . . . . . . . . ( 114,488 ) ( 396,898 ) ---
AMT credit . . . . . . . . . . . . . . . . . . ( 2,906,075 ) 616,000 ( 616,000 )
Other . . . . . . . . . . . . . . . . . . . . . ( 78,350 ) ( 95,160 ) ( 390,159 )
------------ ------------ ------------
$ 1,326,791 $ 2,951,747 $( 47,466 )
============ ============ ============
</TABLE>
The Company files a consolidated federal income tax return. At April 2, 1995,
the Company had tax loss carryforwards of approximately $3.8 million which
begin to expire in 2004.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") effective April 1, 1991. SFAS
No. 109 requires the use of the liability method of accounting for income
taxes. At April 2, 1995 and March 27, 1994, deferred income taxes consist of
the following components:
<TABLE>
<CAPTION>
APRIL 2, MARCH 27,
1995 1994
----------- -----------
<S> <C> <C>
Deferred state and federal tax liabilities:
Installment sales treatment of notes . . . . . . . . . . . . $ 9,289,703 $ 9,503,426
Deferred foreign tax liability due to installment
sale treatment of notes . . . . . . . . . . . . . . . . . 185,000 185,000
Deferred state and federal loss
carryforwards/AMT credits . . . . . . . . . . . . . . . . ( 4,217,559) ( 5,247,120)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 187,425) ( 698,378)
----------- -----------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . $ 5,069,719 $ 3,742,928
=========== ===========
</TABLE>
11. CONTINGENCIES
The Company sold notes receivable to banks prior to fiscal 1993. The
delinquency on the loans sold was not material.
The Company is party to certain ordinary course litigation. Although no
assurances can be given, the potential outcome is not expected to have a
materially adverse effect on the Company's operations.
37
<PAGE> 38
12. STOCK OPTIONS AND EMPLOYEE RETIREMENT SAVINGS PLAN
Employee Stock Option Plan
Under the Company's Employee Stock Option Plan, options may be granted at
prices not less than the fair market value on the date of grant. A summary of
stock option activity, adjusted for stock dividends, is presented below.
<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES OPTION PRICE OF SHARES
RESERVED OPTIONS PER SHARE EXCERCISABLE
-------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Balance at March 28, 1993 . . . . . . 1,678,681 882,837 185,030
Granted . . . . . . . . . . . . . . . --- 400,750 $2.41 - $3.61
Forfeited . . . . . . . . . . . . . . --- (185,624) $1.31 - $12.26
Exercised . . . . . . . . . . . . . . (29,968) (29,968) $1.31 - $2.77
Stock dividend . . . . . . . . . . . 70,380 41,475
--------- -----------
Balance at March 27, 1994 . . . . . . 1,719,093 1,109,470 204,737
Granted . . . . . . . . . . . . . . . --- 250,000 $3.21
Forfeited . . . . . . . . . . . . . . --- (431,428) $1.31 - $12.26
Exercised . . . . . . . . . . . . . . (37,933) (37,933) $1.31 - $2.41
Stock dividends . . . . . . . . . . . 158,157 72,313
--------- -----------
Balance at April 2, 1995 . . . . . . 1,839,317 962,422 286,529
========= ===========
</TABLE>
As of April 2, 1995, there were 333 individuals eligible to participate in the
employee stock option plan and 93 were participating. The plan expires in
September, 1995. The Company plans to seek shareholder approval for a new
employee stock option plan at a meeting to be held July 20, 1995.
Outside Directors Plan
In fiscal 1988, the Company's shareholders adopted a stock option plan covering
the Company's non-employee Directors (the "Director Plan"). The Director Plan
provided for the grant to the Company's non-employee directors (the "Outside
Directors") of non- qualified stock options to purchase up to an aggregate of
150,000 shares of common stock at a price not less than the fair market value
at the date of grant. The Director Plan was amended and adopted by the
Company's shareholders in September, 1991 to increase the number of issuable
shares from 150,000 to 300,000. The number of issuable shares is adjusted to
reflect changes in capitalization and, accordingly, the shares increased to
reflect the 4% stock dividend paid in fiscal 1994 and the two stock dividends
of 4% and 5% paid in fiscal 1995. The Board of Directors has approved an
amendment to increase the number of shares covered under the plan by 200,000
(up to a total, after adjustments to date, of 540,704 shares). The Company
will seek shareholder approval for the amendment at a meeting to be held July
20, 1995. A summary of stock option activity, adjusted for stock dividends,
related to the Company's Director Plan is presented below.
<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES OPTION PRICE OF SHARES
RESERVED OPTIONS PER SHARE EXCERSISABLE
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at March 28, 1993 . . . . . . 300,000 170,000 55,000
Granted . . . . . . . . . . . . . . . --- 60,000 $2.96
Stock dividend . . . . . . . . . . . 12,000 6,800
------- -------
Balance at March 27, 1994 . . . . . . 312,000 236,800 104,000
Granted . . . . . . . . . . . . . . . --- 75,000 $3.69
Stock dividends . . . . . . . . . . . 28,704 25,535
------- -------
Balance at April 2, 1995 . . . . . . 340,704 337,335 186,474
======= =======
</TABLE>
38
<PAGE> 39
Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) Retirement
Savings Plan. The plan became effective on April 1, 1992. All employees at
least 21 years of age with one year of employment with the Company are eligible
to participate in the plan. Employer contributions to the plan are at the sole
discretion of the Company and were not material to the operations of the
Company for fiscal 1995, 1994 and 1993.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended April 2, 1995
and March 27, 1994 is presented below (in 000's except for per share
information).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
JUNE 26, SEPT. 25, JAN. 1, APRIL 2,
1994 1994 1995 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of real estate . . . . . . $ 22,044 $ 25,384 $ 19,254 $ 25,240
Interest income . . . . . . . . . 1,451 1,756 1,974 2,083
Gross profit . . . . . . . . . . 11,312 13,502 9,470 12,532
Provision for losses . . . . . . 165 250 187 190
Net income . . . . . . . . . . . $ 1,278 $ 2,118 $ 881 $ 1,860
Income per common share $ .06 $ .10 $ .05 $ .09
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
JUNE 27, SEPT. 26, DEC. 26, MARCH 27,
1993 1993 1993 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of real estate . . . . . . $ 13,318 $ 17,798 $ 14,204 $ 18,069
Interest income . . . . . . . . . 1,744 1,964 2,141 2,103
Gross profit . . . . . . . . . . 6,911 9,476 7,003 9,226
Provision for losses . . . . . . 150 265 80 300
Net income . . . . . . . . . . . $ 987 $ 1,682 $ 870 $ 1,392
Income per common share: $ .05 $ .08 $ .04 $ .07
</TABLE>
39
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Patten Corporation of our report dated April 26, 1995, included in the 1995
Annual Report to Shareholders of Patten Corporation.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-26613) pertaining to the Second Amended and Restated
1985 Stock Option Plan of Patten Corporation and in the related Prospectus,
(ii) the Registration Statement (Form S-8 No. 33-16292) pertaining to the 1987
Employee Stock Purchase Plan of Patten Corporation and in the related
Prospectus, (iii) the Registration Statement (Form S-8 No. 33-26614) pertaining
to the 1988 Outside Directors Stock Option Plan of Patten Corporation and in
the related Prospectus and (iv) the Registration Statement (Form S-8 No.
33-48075) pertaining to the Patten Corporation Retirement Savings Plan and in
the related Prospectus of our report dated April 26, 1995, with respect to the
consolidated financial statements of Patten Corporation incorporated herein by
reference for the year ended April 2, 1995.
ERNST & YOUNG LLP
West Palm Beach, Florida
June 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PATTEN CORPORATION FOR THE YEAR ENDED 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-02-1995
<PERIOD-START> MAR-28-1994
<PERIOD-END> APR-02-1995
<EXCHANGE-RATE> 1
<CASH> 7,588,475
<SECURITIES> 0
<RECEIVABLES> 53,112,458
<ALLOWANCES> 791,935
<INVENTORY> 63,386,672
<CURRENT-ASSETS> 0
<PP&E> 8,942,476
<DEPRECIATION> 4,140,652
<TOTAL-ASSETS> 152,222,359
<CURRENT-LIABILITIES> 0
<BONDS> 34,739,000
<COMMON> 194,707
0
0
<OTHER-SE> 57,845,270
<TOTAL-LIABILITY-AND-EQUITY> 152,222,359
<SALES> 91,921,990
<TOTAL-REVENUES> 99,185,749
<CGS> 45,105,841
<TOTAL-COSTS> 81,626,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 792,000
<INTEREST-EXPENSE> 6,737,687
<INCOME-PRETAX> 10,401,847
<INCOME-TAX> 4,264,758
<INCOME-CONTINUING> 6,137,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,137,089
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
