U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition
period from ____________ to ____________
Commission file number 1-9792
CAVALIER HOMES, INC.
(Exact name of Registrant as specified in Its Charter)
Delaware 63-0949734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 41 N. and Cavalier Road,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (205) 747-1575
Securities registered pursuant to Section 12(b) of the Act:
Name of
Each Exchange
Title of Each class on Which Registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant ( I ) 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, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the New
York Stock Exchange as of March 20, 1997, was $149,600,075.
Indicate the number of shares outstanding of each
of the Registrant's classes of common
stock, as of March 20, 1997.
12,212,251
Common, $0.10 par value
Documents Incorporated by Reference
PartIII of this report incorporates by reference certain
portions of the Registrant's Proxy Statement for its
Annual Meeting of Stockholders to be held May 14, 1997.
<PAGE>
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. is a Delaware corporation, with its executive offices
located at Highway 41 North and Cavalier Road, Addison, Alabama 35540. The
Company also maintains administrative offices at 719 Scott Avenue, Suite 600,
Wichita Falls, Texas 76301. Unless otherwise indicated by the context,
references in this report to the "Company" or to "Cavalier" include the Company,
its subsidiaries, divisions of its subsidiaries and their respective
predecessors, if any.
The Company designs and manufactures a wide range of high quality manufactured
homes and markets its homes primarily in the southeast, southwest and midwest
regions of the United States, with a focus on serving the low- to medium-priced
manufactured housing market. During 1996, approximately 80% of the Company's
revenues were generated from sales in its core markets of Alabama, North
Carolina, Texas, South Carolina, Mississippi, Louisiana, Georgia and Tennessee.
At December 31, 1996, the Company operated thirteen facilities. Seven are
located in Alabama, two in North Carolina, two in Texas and one each in Georgia
and Pennsylvania.
The Company's homes are sold under thirty-three brand names. As of December 31,
1996, the Company's homes were sold by over 500 independent dealers (including
115 independent exclusive dealers) operating over 600 retail sales centers. The
Company's homes are normally fully furnished, including appliances, and are
comprised of one or more floor sections.
Through its financial services segment, the Company offers retail installment
sale financing to retail customers of its exclusive dealers and various
insurance products to certain retail and wholesale purchasers of its homes
including both personal and commercial lines of insurance.
Home Manufacturing Operations
At December 31, 1996, the Company, through eight wholly owned subsidiaries,
operated thirteen manufacturing facilities engaged in the production of
manufactured homes. Immediately following the end of 1996, the Company
reorganized these operating subsidiaries and merged them into and combined them
with two new operating subsidiaries, Cavalier Industries, Inc. ("CII"), a
Delaware corporation, (formerly Brigadier Homes of North Carolina, Inc., Astro
Mfg. Co., Inc., Mansion Homes, Inc. and Homestead Homes, Inc.) and Cavalier
Manufacturing, Inc. ("CMI"), a Delaware corporation, (formerly Cavalier Homes of
Alabama, Inc., Buccaneer Homes of Alabama, Inc., Riverchase Homes, Inc. and
Cavalier Town & Country of Texas, Inc.). The former operating subsidiaries will
continue their operations as divisions of CII and CMI. The divisions of CII are
Brigadier Homes of North Carolina (one facility), Astro Homes (one facility),
Mansion Homes (one facility) and Homestead Homes (one facility). The divisions
of CMI are Cavalier Homes of Alabama (three facilities), Buccaneer Homes (three
facilities), Riverchase Homes (one facility) and Town & Country Homes (two
facilities). The management of each of the Company's manufacturing divisions
typically consists of a president or general manager, a production manager, a
general sales manager, a controller, a service manager, a purchasing manager and
a quality control manager. These mid-level management personnel manage, the
Company's manufacturing divisions and typically participate in an incentive
compensation system based upon their respective profitability.
The Company has experienced significant growth during the past five years,
expanding from four production facilities in 1992 to thirteen facilities at the
end of 1996. The Company's facilities normally operate on a single-shift,
five-day week basis. The approximate current annual capacity of the respective
divisions is shown below:
Approximate
Number of Annual Capacity
Manufacturing Division Facilities in Floors
Cavalier Homes of Alabama 3 6,000
- --------
+ Certain items in the report that follows are marked with an asterisk (*),
indicating that they are subject to the "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995 found on page 38 of this
report.
<PAGE>
Buccaneer Homes 3 5,500
Town & Country Homes 2 3,500
Riverchase Homes 1 1,500
Mansion Homes 1 1,500
Brigadier Homes of North Carolina 1 3,000
Homestead Homes 1 2,500
Astro Homes 1 1,500
----- ----------
13 25,000
======= ===========
Additionally, the following table sets forth certain production information for
1996, 1995 and 1994:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- ----------------------------------- ----------------------------------
Number of Homes Sold:
Single-Section Homes 8,505 58% 7,123 60% 6,309 63%
Multi-Section Homes 6,044 42% 4,705 40% 3,733 37%
------------------ ---------------- ------------------ ---------------- ----------------- ----------------
Total Homes 14,549 100% 11,828 100% 10,042 100%
Number of Floors Sold 20,608 16,543 13,799
</TABLE>
Construction of a home begins by welding steel frame members together. The frame
is then moved through the plant, stopping at a number of work stations where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line work
stations. The completed home is usually sold fully furnished and is ready for
connection to customer-supplied water, sewage and electrical systems.
The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, aluminum, galvanized pipe, insulating materials, electrical supplies
and plastics. The Company purchases axles, wheels, tires, kitchen appliances,
laminated wallboard, roof trusses, plumbing fixtures, furniture, carpet, vinyl
floor covering, windows and decorator accessories. Currently, the Company
maintains approximately two to three weeks' inventory of raw materials. The
Company is not dependent on any single source of supply and believes that the
materials and parts necessary for the construction and assembly of its homes are
readily available from other sources.
Certain of the Company's manufacturing facilities currently purchase laminated
wallboards, exterior doors, cabinet doors, roof trusses and certain other
products from joint ventures in which the Company owns an interest. The Company
believes prices obtained by the Company for these products from these joint
ventures are competitive with the Company's other sources of supply.
Because the cost of transporting a manufactured home is significant, there is a
limit to the distance between a manufacturing facility and the dealers it can
service. The Company believes that the location of its manufacturing facilities
in multiple states allows it to serve more dealers in more markets. The Company
generally arranges, at the dealer's expense, for the transportation of finished
homes to dealers using independent trucking companies. Dealers or other
independent installers are responsible for placing the home on site, making
utility connections and providing and installing certain accessory items and
appurtenances, such as decks, carports and foundations.
Products
The Company's homes include both single-section and multi-section models, with
the substantial majority of such products being "HUD Code Homes" which are
manufactured homes that meet the specifications of the National Manufactured
Home Construction and Safety Act of 1974, as amended, and administered by the
U.S. Department of Housing and Urban Development ("HUD"). Single-section homes
are 14 to 16 feet wide, vary in length from 40 to 80 feet and contain between
560 and 1,280 square feet. The multi-section models consist of two or more floor
sections that are joined at the home site, vary in length from 40 to 80 feet and
contain between 880 and 2,128 square feet.
The Company currently produces over 300 different models of manufactured homes
with a variety of decors that are marketed under 33 brand names. The homes
typically include a living room, dining area, kitchen, one to four bedrooms and
one or more bathrooms. Each home contains a cooking range and oven,
refrigerator, hot water heater and central heating. Depending on the customer's
preferences, most homes are sold fully furnished. Customers may also choose many
available
<PAGE>
options including fireplaces, ceiling fans, dishwashers, garbage disposals,
microwave ovens, stereos, bay windows, composition shingle roofs, vinyl siding
and sliding glass patio doors.
During 1995, the Company began manufacturing a series of homes intended to be
located in subdivisions or residential communities and marketed by real estate
developers. These "Developer" homes differ from the Company's traditional
manufactured homes as they have sheetrock walls that have been taped and
textured and residential style roof-lines. These upscale homes can be set on a
permanent foundation and may include garages, porches, decks and other
site-built amenities not found in traditional manufactured homes.
Modular homes are homes designed to meet building codes administered by states
and local authorities, as opposed to the national HUD guidelines. Three of the
Company's manufacturing facilities currently manufacture a limited number of
modular homes meeting applicable regulatory standards.
The Company's product development and engineering personnel design homes in
consultation with operating management, sales representatives and dealers. They
also evaluate new materials and construction techniques and use computer-aided
and other design methods in a continuous program of product development, design
and enhancement. The Company's product development activities do not require
significant capital investments or expenditures.
Independent Dealer Network, Sales and Marketing
As of December 31, 1996, the Company's homes were sold through over 500
independent dealers (including 115 independent exclusive dealers) operating over
600 retail sales centers located in over thirty states. Approximately 80% of the
Company's sales in 1996 were to dealers operating sales centers in the Company's
core markets as follows: Alabama - 18%, North Carolina - 13%, Texas - 13%, South
Carolina - 11%, Mississippi - 8%, Louisiana - 7%, Georgia - 6% and Tennessee -
4%.
The Company has written agreements with most of its independent dealers
requiring each dealer to maintain qualified service staff to perform day-to-day
repair work on the Company's homes sold by the dealer and requiring prompt
payment by the dealer for homes purchased. These agreements may be terminated at
any time by either party, with or without cause, after a short notice period,
generally 30 days. The Company does not have any control over the operations of,
or financial interests in, any of its independent dealers, including any of its
independent exclusive dealers. The Company is not dependent on any single
dealer, and in 1996, the Company's largest dealer accounted for approximately
2.9% of sales.
The Company believes that its independent dealer network enables the Company to
achieve broader distribution of its products than if the Company operated its
own retail sales centers and allows the Company to avoid the substantial
investment in management, capital and overhead associated with company owned
sales centers. To enable dealers to maximize retail market penetration and
enhance customer service, typically only one dealer within a given market area
distributes a particular product line of the Company. The Company believes its
strategy of selling its homes through independent dealers helps to ensure that
the Company's homes are competitive with those of other manufacturers in terms
of consumer acceptability, product design, quality and price. Accordingly, a
component of the Company's business strategy is to continually strengthen its
dealer relations. The Company believes its relations with its independent
dealers, including its independent exclusive dealers, are good. *
Since 1991, the Company has been developing an independent exclusive dealer
network. The Company's independent exclusive dealers market and sell only homes
manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of other manufacturers in
addition to those of the Company. The growth in the Company's number of
exclusive dealers and percentage of total Company sales represented by them is
summarized in the following table:
<TABLE>
<S> <C> <C> <C>
For the Year Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Number of Exclusive Dealers 115 93 73
Percentage of Total Company Sales 44% 39% 37%
</TABLE>
The Company makes installment sale financing through CAC available to the retail
customers of its exclusive dealers and provides these dealers with other
services and support.
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
Each of the Company's manufacturing divisions typically employs a general sales
manager and its own respective sales representatives who are compensated on a
commission basis. The plant-level sales representatives are charged with the
day-to-day servicing of the needs of the Company's independent dealers,
including its independent exclusive dealers. The Company markets its homes
through product promotions, participation in regional manufactured housing shows
and advertisements in local media. As of December 31, 1996, the Company
maintained a sales force of 49 full-time salesmen and 7 full-time general sales
managers.
Retail Financing Activities
A significant factor affecting sales of manufactured homes is the availability
and terms of financing. The Company engages in the business of making retail
installment finance loans to customers of its independent exclusive dealers
through its finance subsidiary, CAC. In addition, the Company's goal is for
CAC's activities to provide the Company with a source of consistent earnings
which may, to a certain extent, be insulated from fluctuating manufactured home
sales volumes. *
CAC seeks to provide highly competitive financing terms to customers of the
Company's independent exclusive dealers. CAC currently offers various
conventional loan programs which require a down-payment ranging from 0% to 20%
of the purchase price, in cash, trade-in value of a previously-owned
manufactured home and/or appraised value of equity in any real property pledged
as collateral. Repayment terms generally range from 84 to 240 months, depending
upon the type of home and amount financed, the amount of the down payment and
the customer's creditworthiness. CAC's loans are secured by a purchase money
security interest in the manufactured home and, in certain instances, a mortgage
on real property pledged as additional collateral. As of December 31, 1996, all
of CAC's outstanding loans were secured. Loans purchased and originated by CAC
normally provide a fixed rate of interest with equal monthly payments and are
non-recourse to the dealer. All of CAC's loans outstanding at December 31, 1996
provided for a predetermined fixed rate of interest. The interest rates
applicable to CAC's loans as of such date generally ranged from 9.25% to 14.00%,
and the approximate weighted average annual percentage interest rate was 10.9%.
Currently, CAC operates in each of the 15 states in which the Company has
independent exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC provides prompt
credit approvals and funding of loans. CAC has established a standardized credit
scoring system to facilitate such prompt decision-making on loan applications.
The most important criteria in the scoring system are the income, employment
stability and credit worthiness of the borrower. The system requires a minimum
score before CAC will consider funding the installment sale contract.
In the event an installment sale contract becomes delinquent, CAC normally
contacts the customer within 10 to 25 days thereafter in an effort to cure the
delinquency. CAC generally repossesses the home after payments have become 60 to
90 days delinquent. After repossession, CAC normally transports the home to one
of the Company's independent dealer's sales center where CAC attempts to resell
the home or contracts with an independent party to remarket the home. To a
limited extent, CAC sells repossessed homes at wholesale.
The Company maintains a reserve for estimated credit losses on installment sale
contracts owned by CAC to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance. * Amounts credited to the reserve were $778,000, $311,000 and
$265,000 in 1996, 1995 and 1994, respectively. Additionally, as a result of
defaults and repossessions the reserve was charged $388,000, $110,000 and
$19,000 in 1996, 1995 and 1994, respectively. The reserve for credit losses at
December 31, 1996 was $941,000, as compared to $551,000 at December 31, 1995,
and $350,000 at December 31, 1994.
In fiscal 1996, 1995 and 1994, CAC repossessed 41, 13 and 3 homes, respectively.
The Company's inventory of repossessed homes was 6 homes at December 31, 1996,
as compared to 6 homes at December 31, 1995, and 2 homes at December 31, 1994.
The Company's net losses resulting from repossessions on CAC originated loans as
a percentage of the average principal amount of such loans outstanding for
fiscal 1996, 1995 and 1994 was 1.40%, .76% and .29%, respectively.
At December 31, 1996 and December 31, 1995, delinquencies expressed as a
percentage of the total number of installment sale contracts which CAC owned
were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Delinquency Percentage
Total Number December 31,1996
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
1,292 1.16% 0.08% 0.00% 1.24%
15 1 0 16
</TABLE>
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Delinquency Percentage
Total Number December 31,1995
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
758 0.26% 0.40% 0.00% 0.66%
2 3 0 5
</TABLE>
At December 31, 1996 and December 31, 1995, delinquencies expressed as a
percentage of the total outstanding principal balance of installment sale
contracts which CAC owned were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Delinquency Percentage
Total Value December 31,1996
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
$ 36,425,000 1.13% 0.09% 0.00% 1.22%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Delinquency Percentage
Total Value December 31,1995
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
$ 19,209,000 0.25% 0.35% 0.00% 0.60%
</TABLE>
There can be no assurance that the Company's future results with respect to
delinquencies and repossessions will be consistent with its past experience as
reflected above.
Certain operating data relating to CAC are set forth in the following table:
<TABLE>
<S> <C> <C> <C>
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Total loans receivable $ 36,425,000 $ 19,209,000 $ 9,825,000
Allowance for credit losses $ 941,000 $ 551,000 $ 350,000
Number of loans outstanding 1,292 758 415
Number of delinquencies 16 5 2
Net loss ratio on average
outstanding principal balance 1.40% 0.76% 0.29%
Weighted average annual
percentage rate 10.9% 11.3% 11.4%
</TABLE>
CAC presently has 4 part-time and 24 full-time employees.
Although the level of CAC's future activities cannot presently be determined,
the Company expects to utilize internally generated working capital and
borrowings under the Company's revolving, warehouse and term loan agreement with
its primary lender (described below under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources") to fund retail installment sale contracts on homes sold by
the Company's independent exclusive dealers and to develop a portfolio of such
installment sale contracts. * The Company believes that its relationships with
its exclusive dealers will assist the development of this portfolio.* During
1995, the Company instituted the Dealership Stock Option Plan which grants
options to purchase the Company's common stock to exclusive dealers that
originate installment sales contracts with CAC. The Company believes this dealer
stock option program will further enhance the growth of CAC. * (For information
relating to the Dealership Stock Option Plan of the Company, see note 7 of
"Notes to Consolidated Financial Statements" which are included herein.)
CAC currently acts principally as a permanent lender on its conventional loans
and holds such loans as long-term receivables. The Company believes that the
term loan component of its warehouse and term loan agreement will facilitate the
Company's attempts to match liabilities and assets of CAC both as to term and
rate, which should reduce exposure from interest rate fluctuations; * however,
there can be no assurance that volatility or a significant change in interest
rates will not materially affect the Company's business, results of operations
or financial condition. Substantially all the installment sale contracts held by
CAC are pledged as collateral to secure the obligations of the Company under its
warehouse and term loan agreement. In the future, CAC may "pool" certain of the
installment sale contracts in its portfolio for sale to institutional or other
investors, either on a full-, partial- or non-recourse basis. *
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
CAC's ability to finance installment sale contracts is dependent on the
availability of funds to the Company. The Company believes that borrowings under
the warehouse and term loan agreement and available working capital generated
from operations will provide CAC with adequate sources of capital to finance its
anticipated purchases and originations of installment sale contracts on the
Company's homes in 1997. * However, if the Company cannot obtain sufficient
sources of capital in the future, the Company would have to curtail its
financing activities until other sources could be obtained. (For further
discussion, see "Liquidity and Capital Resources" in Item 7., Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Retail Insurance Activities
During 1994, the Company formed Cavalier Insurance Agency, Inc. ("CIA"), and
during 1996 acquired Blake Insurance Agency, Inc. ("Blake"), to sell various
insurance products to retail purchasers of the Company's homes, including,
physical damage and extended home warranties. CIA and Blake also sell commercial
lines of insurance products, including general liability and property insurance,
to the Company's independent exclusive dealers and others. At December 31, 1996,
CIA and Blake had 9 full-time employees and 1 part-time employee.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice, substantially all of
the Company's dealers finance their purchases of manufactured homes through
wholesale "floor plan" financing arrangements. Under a typical floor plan
financing arrangement, a financial institution provides the dealer with a loan
for the purchase price of the home and maintains a security interest in the home
as collateral. The financial institution which provides financing to the dealer
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase the financed homes at a declining price
based upon the Company's original invoice price plus, in specific cases, certain
administrative expenses. A portion of purchases by dealers are pre-sold to
retail customers and are paid through retail financing commitments.
The risk of loss under such repurchase agreements is mitigated by the fact that
(i) sales of the Company's manufactured homes are spread over a relatively large
number of independent dealers, the largest of which accounted for approximately
2.9% of the Company's net sales in 1996, (ii) the repurchase obligation expires
on individual homes after a reasonable period of time (generally 12 to 18 months
from invoice date) and also declines during such period based on predetermined
amounts and (iii) the Company is in many cases able to sell homes repurchased
from credit sources in the ordinary course of business without incurring
significant losses. As of December 31, 1996, the Company's contingent liability
under these repurchase and other similar recourse agreements was an amount
estimated to be approximately $80 million. The Company has provided an allowance
for possible repurchase losses of $800,000 as of December 3l, 1996, based on
prior experience and current market conditions. Management currently expects no
material loss in excess of the allowance. *
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, continuous
refinement in design and production procedures as well as price and other market
factors, is an important element in the market acceptance of manufactured homes.
The Company maintains a rigorous quality control inspection program at all
production stages. The Company's manufacturing facilities and the plans and
specifications of its manufactured homes have been approved by a HUD-designated
inspection agency. An independent, HUD-approved third-party inspector checks
each of the Company's manufactured homes for compliance during construction.
The Company provides the initial home buyer with a HUD-mandated, one-year
limited warranty against manufacturing defects in the home's construction.
Warranty services after sale are performed, at the expense of the Company, by
local plant personnel, by independent dealers or, in certain cases, local
independent contractors. In addition to the warranty by the Company, direct
warranties often are provided by the manufacturers of specific components and
appliances.
The Company maintains a full-time service manager at most of its manufacturing
facilities. In addition, the Company has 97 full-time service personnel to
provide on-site service and correct production deficiencies that are
attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
repairs. The Company also has focused
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
on reducing response time to customer service requests. At December 31, 1996,
the Company had established a reserve for future warranty claims of $7.0 million
relating to homes sold, based upon management's assessment of historical
experience factors and current industry trends. *
Competition
The manufactured housing industry is highly competitive, characterized by low
barriers to entry and severe price competition. Competition is based on price,
product features and quality, reputation for service and quality, depth of field
inventory, delivery capabilities, warranty repair service, dealer promotions,
merchandising and terms of dealer and retail consumer financing. The Company
also competes with other manufacturers, some of which maintain their own retail
sales centers, for quality independent dealers. In addition, the Company's
manufactured homes compete with other forms of low-cost housing, including
site-built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly affected by
their ability to obtain satisfactory financing. The Company faces direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources.
The Company intends to increase substantially the level of retail financing
provided through CAC. * The Company believes that increasing the level of
financing by CAC will have a positive impact on the Company's efforts to sell
its products and enhance its competitive ability within the industry. * However,
due to strong competition in the retail finance segment of the industry from
companies much larger than CAC, combined with the limited operating history of
CAC, there can be no assurance that CAC will be able to increase its financing
or that providing this financing will have a positive impact on the Company's
ability to compete.
Regulation
The Company's business is subject to a number of federal, state and local laws,
regulations and codes. Construction of manufactured housing is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974, as
amended, and regulations issued thereunder by HUD, which have established
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state and local regulations on such matters. The National Commission on
Manufactured Housing has held hearings to develop recommendations relating to
the regulation of the manufactured housing industry. This commission has issued
an interim report to Congress which contains a number of recommendations
relating to various aspects of manufactured housing regulation, including
inspection, warranty and enforcement. The Company cannot presently determine
what, if any, legislation may be adopted by Congress or the effect any such
legislation may have on the Company or the manufactured housing industry as a
whole.
The Company's manufacturing facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated inspection agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose the Company to a wide variety of
sanctions, including closing the Company's manufacturing facilities. The Company
believes its manufactured homes meet or surpass all present HUD requirements. *
HUD has promulgated regulations with respect to structural design and wind loads
and energy conservation. The Company's operations were not materially affected
by the regulations; however, HUD has these matters under continuous review and
the Company cannot predict what effect (if any) additional regulations
promulgated by HUD would have on the Company or the manufactured industry as a
whole.
Certain components of manufactured and modular homes are subject to regulation
by the U.S. Consumer Product Safety Commission ("CPSC"), which is empowered to
ban the use of component materials believed to be hazardous to health and to
require the repair of defective components. The CPSC, the Environmental
Protection Agency and other governmental agencies are evaluating the effects of
formaldehyde. Manufactured, modular and site-built homes are all built with
particle board, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that it believes meet
HUD standards for formaldehyde emissions and otherwise comply with HUD
regulations in this regard. *
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
The Company's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description and substance of the Company's warranties are also subject to a
variety of state laws and regulations.
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company
currently does not believe it will be required under existing environmental laws
and enforcement policies to expend amounts which will have a material adverse
effect on its results of operations or financial condition. * However, the
requirements of such laws and enforcement policies have generally become more
strict in recent years. Accordingly, the Company is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
A variety of federal laws affect the financing of manufactured homes, including
the financing activities conducted by CAC. The Consumer Credit Protection Act
(Truth-in-Lending) and Regulation Z promulgated thereunder require substantial
disclosures to be made in writing to a consumer with regard to various aspects
of the particular transaction, including the amount financed, the annual
percentage rate, the total finance charge, itemization of the amount financed
and other matters and also set forth certain substantive limitations on
permissible contract terms. The Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit credit discrimination against any credit
applicant based on certain prohibited bases, and also require that certain
specified notices be sent to credit applicants whose applications are denied.
The Federal Trade Commission has adopted or proposed various trade regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to preserve consumers' claims and defenses. The Government National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for installment manufactured home sale contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive regulations and requirements in order for a manufactured home
installment sale contract to qualify for insurance under the Federal Housing
Authority ("FHA") program, and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection. In addition, the
financing activities of CAC may also become subject to the disclosure
requirements of the Home Mortgage Disclosure Act. In addition to the extensive
federal regulation of consumer credit matters, many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer credit lenders. For example, many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such business in that state, and many states also set
forth a number of substantive contractual limitations regarding provisions that
permissibly may be included in a consumer contract, as well as limitations upon
the permissible interest rates, fees and other charges that may be imposed upon
a consumer. Failure by the Company or CAC to comply with the requirements of
federal or state law pertaining to consumer credit could result in the
unenforceability of the particular contract for the affected consumer, civil
liability to the affected customers, criminal liability and other adverse
results.
Employees
As of December 31, 1996, the Company had 3,155 employees, of whom 2,782 were
engaged in home manufacturing, 65 in sales, 97 in warranty and service, 173 in
general administration, 28 in retail finance services and 10 in insurance
services. At year end, only Astro's employees engaged in manufacturing (142
employees) were covered by a collective bargaining agreement. Management
considers its relations with its employees to be good. *
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage for
each principal facility of the Company, separated by segment as of December 31,
1996. Except as indicated in footnotes to the table, all the facilities are
owned by the Company.
<TABLE>
<S> <C> <C>
Approximate
Location Use (Number of Facilities) Square Footage
Manufacturing
Cavalier Homes of Alabama
Addison, Alabama Manufacturing facilities (3) 326,000 (1)
Riverchase Homes
Haleyville, Alabama Manufacturing facility (1) 78,000 (6)
Buccaneer Homes
Hamilton, Alabama Manufacturing facilities (2) 232,000 (6)
Winfield, Alabama Manufacturing facility (1) 72,000 (2)
Homestead Homes
Cordele, Georgia Manufacturing facility (1) 110,000
Brigadier Homes of North Carolina
Nashville, North Carolina Manufacturing facility (1) 130,000
Mansion Homes
Robbins, North Carolina Manufacturing facility (1) 99,000 (3)
Astro Homes
Shippenville, Pennsylvania Manufacturing facility (1) 134,000
Town & Country Homes
Fort Worth, Texas Manufacturing facility (1) 101,000 (2)
Mineral Wells, Texas Manufacturing facility (1) 81,000 (4)
Financial Services
Hamilton, Alabama Administrative Office 5,000
Haleyville, Alabama Administrative Office 1,000
General Corporate
Addison, Alabama Administrative Office 16,000 (5)
Wichita Falls, Texas Administrative Office 1,000 (3)
</TABLE>
(1) Lease expires on one facility in 1997 and one in 1998.
(2) Lease expires in 1999.
(3) Lease expires in 1998.
(4) Lease expires in 2006.
(5) Included in Cavalier of Alabama lease expiring in 1998.
(6) One facility in Hamilton, Alabama and the facility in Haleyville,
Alabama is subject to an encumbrance arising out of industrial
development bond financing.
In general, the manufacturing facilities are in good condition and are operated
at capacities which range from approximately 77% to 97%.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, the ultimate liability, if any, with respect to
these proceedings is not presently expected to materially affect the financial
position or results of operations of the Company; however, the ultimate
resolution of these matters could result in losses in excess of current
estimates.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK
HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CAV". The following table sets forth, for each of the periods
indicated, the reported high and low closing sale prices per share on the NYSE
for the Company's common stock and the cash dividends paid per share in such
periods. The amounts have been adjusted, as appropriate, to reflect a
five-for-four stock split with respect to the Company's common stock, effected
as a 25%
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
stock dividend paid on August 15, 1995, a three-for-two stock split with respect
to the Company's common stock, effected as a 50% stock dividend paid on February
15, 1996 and a five-for-four stock split with respect to the Company's common
stock, effected as a 25% stock dividend paid on November 15, 1996. All adjusted
prices of the Company's common stock have been rounded to the nearest one-eighth
of one dollar.
<TABLE>
<S> <C> <C> <C>
Closing Sales Price
-----------------------------------------------------------
High Low Dividends
---------------------------- ----------------------------- ----------------
Fiscal Year ended December 31, 1996
Fourth Quarter 17 3/8 10 1/2 0.030
Third Quarter 19 1/8 12 7/8 0.024
Second Quarter 18 3/4 12 1/8 0.024
First Quarter 12 3/8 9 3/8 0.024
Fiscal Year ended December 31, 1995
Fourth Quarter 11 5/8 8 3/4 0.016
Third Quarter 8 3/4 5 1/8 0.016
Second Quarter 5 1/8 4 5/8 0.013
First Quarter 5 3/8 4 1/4 0.013
</TABLE>
As of March 20, 1997, the Company had approximately 5,700 record and beneficial
holders of its common stock, based upon information in securities position
listings by registered clearing agencies upon request of the Company's transfer
agent.
The Company intends to continue to pay regular quarterly dividends. * However,
the payment of dividends on the Company's Common Stock is determined by the
Board of Directors of the Company in light of conditions then existing,
including the earnings of the Company and its subsidiaries, their funding
requirements and financial conditions, certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive covenants which, among other things, limit the aggregate dividend
payments and purchases of treasury stock to 50% of the Company's aggregate net
income for the two most recent fiscal years.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data regarding
the Company for the periods indicated. The statement of income data, the balance
sheet data, and other data of the Company for each of the five years ended
December 31, 1996, have been derived from the consolidated financial statements
of the Company. The Company's audited financial statements as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, including the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere in this report. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements (including the Notes thereto) and the other
financial information contained elsewhere in this report, and with the Company's
consolidated financial statements and the notes thereto appearing in the
Company's previously filed Annual Reports on Form 10-K.
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- --------------- --------------
(in thousands, except per share amounts)
Statement of Income Data
Revenues:
Net sales $ 345,415 $ 272,486 $ 206,442 $ 155,595 $ 106,405
Financial services 3,333 1,764 703 230 60
-------------- -------------- -------------- --------------- --------------
Total revenues 348,748 274,250 207,145 155,825 106,465
Cost of sales 284,024 227,646 176,041 133,423 91,863
Selling, general and administrative 42,869 31,974 22,975 17,049 11,258
-------------- -------------- -------------- --------------- --------------
Operating profit 21,855 14,630 8,129 5,353 3,344
Life insurance proceeds 1,750 - - - -
Other income(expense) - net 944 404 450 201 (20)
-------------- -------------- -------------- --------------- --------------
Income before taxes $ 24,549 $ 15,034 $ 8,579 $ 5,554 $ 3,324
============== ============== ============== =============== ==============
Net income $ 15,366 $ 9,020 $ 5,079 $ 3,333 $ 2,014
============== ============== ============== =============== ==============
Net income per share1 $ 1.25 $ .79 $ .52 $ .41 $ .28
============== ============== ============== =============== ==============
Cash dividend per share1 $ .100 $ .056 $ .032 $ .029 $ .023
============== ============== ============== =============== ==============
Weighted average number of shares
outstanding1 12,258 11,486 9,835 8,092 7,279
============== ============== ============== =============== ==============
Other Data
Capital expenditures $ 7,871 $ 8,035 $ 6,330 $ 2,933 $ 1,124
============== ============== ============== =============== ==============
December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- --------------- --------------
Balance Sheet Data
Working capital $ 8,473 $ 11,121 $ 12,576 $ 5,483 $ 5,328
Total assets $ 115,574 $ 82,626 $ 63,763 $ 31,182 $ 19,966
Long-term debt $ 4,918 $ 4,314 $ 3,207 $ - $ -
Stockholders' equity $ 68,805 $ 46,071 $ 36,460 $ 16,632 $ 9,835
</TABLE>
1 As adjusted for all stock splits paid through November 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal business of the Company since its inception has been the design
and production of manufactured homes. In the first quarter of 1992, the Company,
through its wholly owned subsidiary, CAC, commenced retail installment sale
financing operations, and by the end of 1993 these operations had become
significant enough to require segment reporting by the Company.
The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors that affect the housing market as a whole.
According to the Manufactured Housing Institute, the manufactured housing
industry has posted gains in shipments for 1992, 1993, 1994, 1995 and 1996 of
24%, 21%, 20%, 12% and 7%, respectively. The greatest gains have occurred in the
southeastern United States, which have posted gains in shipments for 1992, 1993,
1994, 1995 and 1996 of 34%, 25%, 21%, 15% and 14%, respectively. The Company
conducts a substantial portion of its business in the southeastern United States
and attributes the strong shipment growth to a reduction of alternative housing,
increased availability of retail financing, increased consumer confidence and
continuing strength in the national economy.
The Company has increased its production capacity to better take advantage of
the growth in the industry, increasing the number of manufacturing facilities
from four facilities at the end of 1992 to thirteen at the end of 1996.
Results of Operations
The following tables summarize, for the periods and dates indicated, certain
financial, operating and balance sheet data including, as applicable, the
percentage of net sales or total revenue:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
--------------------------------------------------------------------------------
STATEMENT OF INCOME SUMMARY 1996 1995 1994
------------------------- ------------------------ ------------------------
(dollars in thousands)
Net Sales $ 345,415 100.0% $ 272,486 100.0% $ 206,442 100.0%
Cost of Sales 284,024 82.2% 227,646 83.5% 176,041 85.3%
------------- ---------- ------------- ---------- ------------- ----------
Gross Profit on Sales $ 61,391 17.8% $ 44,840 16.5% $ 30,401 14.7%
============= ============= =============
Net Sales $ 345,415 $ 272,486 $ 206,442
Financial Services 3,333 1,764 703
------------- ------------- -------------
Total Revenue $ 348,748 100.0% $ 274,250 100.0% $ 207,145 100.0%
============= ============= =============
Selling, General and Administrative $ 42,869 12.3% $ 31,974 11.7% $ 22,975 11.1%
Operating Profit $ 21,855 6.3% $ 14,630 5.3% $ 8,129 3.9%
Net Income $ 15,366 4.4% $ 9,020 3.3% $ 5,079 2.5%
For the Year Ended December 31,
-------------------------------------------------------------
OPERATING DATA SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Installment Loan Originations $ 19,932 $ 10,721 $ 7,309
Capital Expenditures $ 7,871 $ 8,035 $ 6,330
Home Shipments 14,549 11,828 10,042
Floor Shipments 20,608 16,543 13,799
Independent Exclusive Dealers 115 93 73
Home Manufacturing Facilities 13 11 9
Balances as of December 31,
-------------------------------------------------------------
BALANCE SHEET SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Cash and Cash Equivalents $ 24,529 $ 21,005 $ 16,035
Working Capital $ 8,473 $ 11,121 $ 12,576
Current Ratio 1.2 to 1 1.4 to 1 1.5 to 1
Long-Term Debt $ 4,918 $ 4,314 $ 3,207
Ratio of Long-Term Debt to Equity 1 to 14 1 to 9 1 to 11
Installment Loan Portfolio $ 36,531 $ 19,209 $ 9,825
</TABLE>
Net Sales. The Company's net sales for the three years ended December 31, 1996,
1995 and 1994 were $345, $272 and $206 million, respectively. The Company
believes the growth in net sales was primarily the result of continuing
improvement in the industry combined with new and aggressive marketing programs
instituted by the Company during the years indicated, including the Exclusive
Dealer Program and Dealership Stock Option Plan, coupled with the growth in the
Company's manufacturing capacity and a shift in the mix of products sold toward
multi-section homes.
Actual shipments of homes during the three years ended December 31, 1996, 1995
and 1994 were 14,549, 11,828 and 10,042, respectively. During the three year
period ended December 31, 1996, the average price of homes sold rose from
$20,600 in 1994, $23,000 in 1995 to $23,700 in 1996. The increase in the average
selling price was primarily due to changes in construction standards mandated by
the Department of Housing and Urban Development (during the latter part of 1994)
and price increases instituted by the Company during all three years associated
with rising prices in raw materials and the increasing shift in the mix of
products sold to multi-section homes. During the three-year period, the
percentage of multi-section homes sold was 42%, 40% and 37% of total homes sold,
in 1996, 1995 and 1994, respectively.
Gross Profit on Sales. Gross profit on sales is derived by deducting cost of
sales from net sales. Gross profit for the three years ended December 31, 1996,
1995 and 1994 was $61.4, $44.8 and $30.4 million, respectively. The increase in
gross profit was primarily attributable to increased sales volume, efficiencies
achieved as a result of production increases and price increases instituted by
the Company.
Financial Services Revenue. Financial services revenue is derived primarily from
interest on installment sale contracts held by CAC and sale of insurance
products by the Company's wholly owned insurance subsidiary, Cavalier Insurance
Agency, Inc. ("CIA"). Financial services revenue for the years ended December
31, 1996, 1995 and 1994 was approximately $3.3, $1.8 and $0.7 million,
respectively. The increase in financial services revenue was primarily
attributable to the continued growth in the Company's loan portfolio to $36.4,
$19.2 and $9.8 million at the end of 1996, 1995 and 1994, respectively.
Selling, General and Administrative. Selling, general and administrative
expenses during the three years ended December 31,1996,1995 and 1994 were $42.9,
$32.0 and $23.0 million, respectively. The increase in selling, general and
<PAGE>
administrative expenses was attributable to additional expenses and personnel
costs associated with the Company's continued sales growth, increase in the
number of manufacturing facilities operated by the Company, increased operating
expenses of CAC consistent with its growth, increased sales commissions
consistent with the increase in sales and additional employee compensation
expenses paid under the Company's performance compensation plans.
Operating Profit. Operating profit is derived by deducting cost of sales and
selling, general and administrative expense from total revenue. Operating profit
- - manufacturing during the three years ended December 31, 1996, 1995 and 1994
was $21.9, $15.4 and $8.9 million, respectively. The increase in operating
profit - manufacturing was consistent with the increase in net sales during the
periods and increased manufacturing efficiency. Operating profit - financial
services during the three years ended December 31, 1996, 1995 and 1994 was $1.3,
$.6 and $.2 million, respectively. The increase in operating profit - financial
services was primarily attributable to the growth in CAC's loan portfolio during
the periods to $36.4, $19.2 and $9.8 million at the end of 1996, 1995 and 1994,
respectively.
Other Income(Expense):
Interest expense. The interest expense during the three years ended
December 31, 1996, 1995 and 1994 was $560,000, $508,000 and $76,000,
respectively. The increase in interest expense during the three-year period
is primarily attributable to borrowings by the Company to fund CAC.
Life insurance proceeds. During 1996, the Company experienced a
non-recurring gain on life insurance proceeds received as a result of the
death of the Company's President and Chief Executive Officer, Jerry F.
Wilson.
Other income, net. Other income during the three years ended December 31,
1996, 1995 and 1994 was $1.5 million, $912,000 and $526,000, respectively.
Other income is comprised of gain or loss on sales of assets, interest
income (unrelated to financial services) and other investment income and
income or loss on investments recorded under the equity method. The
increase in other income during the three-year period is primarily
attributable to an increase in earnings from investments recorded under the
equity method.
Net Income. Net income for three years ended December 31, 1996, 1995 and 1994,
was $15.4, $9.0 and $5.1 million, respectively. The increase in net income
during the three years was primarily attributable to the increase in net sales
for the period, increased manufacturing efficiency and the increasing growth and
profitability of CAC. Additionally, during the year ended December 31, 1996, the
Company received $1.75 million of life insurance proceeds.
Financial Services. The Company offers retail installment sales financing and
various insurance products through CAC and CIA. The following table summarizes
the operations of CAC and CIA:
<TABLE>
<S> <C> <C> <C>
For the Year Ended December 31,
-------------------------------------------------------------
FINANCIAL SERVICES SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Installment Loan Portfolio $ 36,425 $ 19,209 $ 9,825
Installment Loan Originations $ 19,932 $ 10,721 $ 7,309
Financial Services Revenues - CAC $ 2,991 $ 1,682 $ 660
Financial Services Revenues - CIA $ 342 $ 82 $ 43
Principal Collections $ 2,716 $ 1,337 $ 543
Number of Loans Outstanding 1,292 758 415
Weighted Average Interest Rate 10.9% 11.3% 11.4%
</TABLE>
CAC offers retail installment sales financing for manufactured homes sold
through the Company's independent exclusive dealer network. During the three
years ended December 31, 1996, 1995 and 1994, CAC purchased and originated
$19.9, $10.7 and $7.3 million, respectively, and had collected principal amounts
under such installment contracts of $2.7, $1.3 and $0.5 million, respectively.
At the end of 1996, 1995 and 1994, CAC had aggregated balances in its portfolio
of installment loan obligations of $36.5, $19.2 and $9.8 million, respectively,
and had established allowances for credit losses of $941,000, $551,000 and
$350,000, respectively. The Company expects to continue to expand the operations
of CAC and CIA during 1997 utilizing internally generated capital and borrowings
under a $23 million revolving, warehouse and term-loan agreement (the "Credit
Facility", for a further discussion of the Credit Facility, see "Liquidity and
Capital Resources"). * See Safe Harbor Statement on page 38. The Company expects
that as the operations of CAC and CIA expand, they will have a greater effect
upon the Company's consolidated results of operations and financial condition. *
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
Liquidity and Capital Resources
As of December 31, 1996, 1995 and 1994, the Company had working capital of $8.5,
$11.1 and $12.6 million, respectively. The working capital for 1996 and 1995
decreased, despite strong earnings in both periods and borrowing by CAC of $1.0
million in 1996 and $2.0 million in 1995, primarily due to loan originations by
CAC during 1996 and 1995 of $19.9 and $10.7 million, respectively, and capital
expenditures by the Company during the same periods of $7.9 and $8.0 million,
respectively. The Company's capital expenditures were financed primarily with
internally generated working capital, with the exception of 1994 during which
capital expenditures of $6.3 million were partly financed with $3.8 million
representing a portion of the proceeds of an offering of the Company's Common
Stock. During 1996 and 1995, capital expenditures included normal property,
plant and equipment additions and replacements as well as the opening in 1996 of
two additional manufacturing facilities located in Mineral Wells, Texas and
Hamilton, Alabama. During 1995, the Company opened an additional facility in
Addison, Alabama.
The ratio of current assets to current liabilities for the three years ended
December 31, 1996, 1995 and 1994 was 1.2 to 1, 1.4 to 1 and 1.5 to 1,
respectively. Annualized inventory turnover for the same periods was 25.9, 23.6,
and 22.5, respectively.
The Company entered into the Credit Facility in February 1994 and later amended
it in March of 1996. The facility presently consists of a $23 million revolving,
warehouse and term-loan agreement with its primary lender. The Credit Facility
contains a revolving line of credit which provides for borrowings (including
letters of credit) of up to 80% and 50% of the Company's eligible (as defined)
accounts receivable and inventories, respectively, up to a maximum of $5
million. Interest is payable under the revolving line of credit at the bank's
prime rate. The warehouse and term-loan agreements contained in the Credit
Facility provide for borrowings of up to 80% of the Company's eligible (as
defined) installment sales contracts, up to a maximum of $18 million. Interest
on the term notes is fixed for a period of five years from issuance at a rate
based on five-year treasury securities averaged over the preceding 13 weeks,
plus 2%, with a floating rate for the remaining two years (subject to certain
limits) equal to the bank's prime rate plus .75%. The warehouse component of the
Credit Facility provides for borrowings of up to $2 million with interest
payable at the bank's prime rate plus 1%. However, in no event can the aggregate
borrowings under the warehouse and term-loan agreement exceed $18 million.
The Company's growth strategy includes the continued expansion of CAC and the
financial services segment of its business. Accordingly, it is likely that the
Company will incur additional debt, or other forms of leverage, in order to
continue to fund such growth. * The Company believes existing cash and
investment balances, funds available under the Credit Facility and funds
provided by operations will be adequate to fund the Company's operations and
expansion plans for the next twelve months. * However, in order to provide
additional funds that may be necessary for the continued pursuit of the
Company's growth strategies and for operations over the longer term, the Company
may incur, from time to time, additional short and long-term bank indebtedness
and may issue, in public or private transactions, its equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. * There can be no assurance that such additional financing
will be available on terms acceptable to the Company.
Impact of Inflation
The Company generally has been able to increase its selling prices to offset
increased costs, including the costs of raw materials. Sudden increases in costs
as well as price competition can affect the ability of the Company to increase
its selling prices. The Company believes that the relatively moderate rate of
inflation over the past several years has not had a significant impact on its
sales or profitability, but can give no assurance that this trend will continue
in the future. *
Impact of Accounting Statements
During the three years ended December 31, 1996, 1995 and 1994, the Company has
adopted the provisions of various Statements of Financial Accounting Standards
("SFAS") promulgated by the Financial Accounting Standards Board ("FASB"). Such
statements adopted included the provisions of SFAS No. 107 relating to the fair
value of financial instruments, SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, SFAS No. 115, Accounting for Certain Investment in Debt
and Equity Securities, and SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The adopted
statements have had minimal impact on the Company's consolidated financial
statements and only result in increased disclosures.
- --------
* See Safe Harbor Statement on page 38.
<PAGE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
fiscal years beginning after December 15, 1995, and adoption of the recognition
and measurement provisions for nonemployee transactions entered into after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, ("APB No. 25") but are required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has determined that it will continue to account for employee stock-based
transactions under APB No. 25 and will not elect to change to the fair value
method. Adoption of the disclosure provisions of SFAS No. 123 in 1996 related to
such employee stock-based transactions will result in only increased disclosures
regarding pro forma net income and earnings per share as if the Company had
applied the new method of accounting.
During 1995, the Company approved the Dealership Stock Option Plan of Cavalier
Homes, Inc. (the "Dealer Plan") which provides for certain stock option grants
to eligible independent dealerships. Such grants under the Dealer Plan are
considered nonemployee transactions. The Company has adopted the recognition and
measurement provisions of SFAS No. 123 for grants subsequent to December 15,
1995, under the Dealer Plan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table contained on the following page sets forth certain unaudited quarterly
financial data for the two years ended December 31, 1996 and 1995. The Company
believes that the following quarterly financial data includes all adjustments
necessary for a fair presentation, in accordance with generally accepted
accounting principles. The following quarterly financial data should be read in
conjunction with the other financial information contained elsewhere in this
report. The operating results for any interim period are not necessarily
indicative of results for a complete year or for any future period.
<TABLE>
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------------ ------------------ ------------------ ------------------
(in thousands, except per share amounts)
1996
Revenues:
Net sales $ 90,817 $ 88,976 $ 90,838 $ 74,784
Financial services 1,074 867 772 620
------------------ ------------------ ------------------ ------------------
Total revenues 91,891 89,843 91,610 75,404
Gross profit 17,549 16,617 16,967 13,591
Net income 5,361 * 3,609 3,525 2,871
Net income per share1 .43 * .29 .29 .24
1995
Revenues:
Net sales $ 73,018 $ 70,900 $ 70,755 $ 57,813
Financial services 550 484 396 334
------------------ ------------------ ------------------ ------------------
Total revenues 73,568 71,384 71,151 58,147
Gross profit 12,872 12,765 11,662 9,305
Net income 2,611 2,479 2,412 1,518
Net income per share1 .22 .22 .22 .14
</TABLE>
The sum of the quarterly amounts may not equal the annual amounts due to
rounding.
* Includes non-recurring gain of $1,750 or $.14 per share from life insurance
proceeds.
1 Adjusted for the five-for-four stock split paid in August 1995, three-for-two
stock split paid in February 1996 and the five-for-four stock split paid in
November 1996.
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 20
Consolidated Stockholders' Equity 21
Consolidated Statement of Cash Flows 22
Notes to Consolidated Financial Statements 23
Schedule -
II - Valuation and Qualifying Accounts 33
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 8. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
February 28, 1997
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,529 $ 21,005
Marketable securities available for sale (Note 3) 1,097 3,583
Accounts receivable, less allowance for losses of
$800 (1996) and $750 (1995) (Notes 5 and 10) 3,046 1,893
Notes and installment contracts receivable - current
(Notes 4 and 5) 1,086 694
Inventories (Note 5) 12,394 9,541
Deferred income taxes (Note 8) 4,663 3,648
Other current assets 2,475 1,954
---------- ---------
Total current assets 49,290 42,318
---------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 847 582
Buildings and improvements 15,803 10,775
Machinery and equipment 17,144 14,227
---------- ---------
33,794 25,584
Less accumulated depreciation and amortization 9,034 6,690
---------- ---------
Total property, plant and equipment, net 24,760 18,894
---------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $941 (1996) and
$551 (1995) (Notes 4 and 5) 34,504 17,964
GOODWILL, less accumulated amortization
of $588 (1996) and $310 (1995) (Note 2) 3,126 2,213
OTHER ASSETS 3,894 1,237
---------- ---------
TOTAL $ 115,574 $ 82,626
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 951 $ 666
Accounts payable 7,916 7,099
Amounts payable under dealer incentive programs 10,937 6,998
Accrued wages and related withholdings 1,652 1,220
Accrued incentive compensation 2,615 2,019
Estimated warranties 7,000 5,800
Accrued insurance (Note 10) 2,023 1,676
Other accrued expenses 7,722 5,720
---------- ---------
Total current liabilities 40,816 31,198
---------- ---------
DEFERRED INCOME TAXES (Note 8) 1,035 1,043
---------- ---------
LONG-TERM DEBT (Note 5) 4,918 4,314
---------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 5, 6 and 7):
Series A Junior Participating Preferred Stock, $.01 par value;
200,000 shares authorized, none issued
Preferred stock, $.01 par value; 300,000 shares authorized,
none issued
Common stock, $.10 par value; authorized 15,000,000 shares,
issued 12,169,128 shares (1996) and 11,242,439 shares (1995) 1,217 899
Additional paid-in capital 31,057 22,804
Retained earnings 36,531 22,368
Total stockholders' equity 68,805 46,071
---------- ---------
TOTAL $ 115,574 $ 82,626
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
REVENUES:
Net sales $ 345,415 $ 272,486 $ 206,442
Financial services 3,333 1,764 703
---------- ---------
348,748 274,250 207,145
---------- ---------
COST OF SALES (Note 10) 284,024 227,646 176,041
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 7 and 9):
Manufacturing 40,793 30,848 22,430
Financial services 2,076 1,126 545
---------- ---------
326,893 259,620 199,016
---------- ---------
OPERATING PROFIT 21,855 14,630 8,129
---------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (68) (7) (1)
Financial services (492) (501) (75)
Life insurance proceeds 1,750
Other income, net 1,504 912 526
---------- ---------
2,694 404 450
---------- ---------
INCOME BEFORE INCOME TAXES 24,549 15,034 8,579
INCOME TAXES (Note 8) 9,183 6,014 3,500
---------- ---------
NET INCOME $ 15,366 $ 9,020 $ 5,079
========== =========
NET INCOME PER SHARE (Note 6) $ 1.25 $ 0.79 $ 0.52
========== =========
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 6) 12,258,461 11,486,245 9,835,524
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C> <C>
Treasury
Additional Stock - At
Common Paid-in Retained Average
Stock Capital Earnings Cost
BALANCE, JANUARY 1, 1994 $ 360 $ 7,486 $ 9,228 $ (444)
Sale of common stock, net of offering costs (Note 6) 109 12,735
Treasury stock reissued in connection with acquisition (Note 2) 1,695 394
Stock options exercised (Note 7) 2 52
Income tax benefits attributable to exercise of stock options
(Note 7) 86
Cash dividends paid ($.03 per share) (322)
Net income 5,079
---------- --------- -------- --------
BALANCE, DECEMBER 31, 1994 471 22,054 13,985 (50)
Five-for-four stock split effected in the form of a dividend
(Note 6) 118 (118)
Treasury stock reissued and common stock issued in connection with
a purchase option 1 413 50
Stock options exercised (Note 7) 9 689
Income tax benefits attributable to exercise
of stock options (Note 7) 281
Other (215)
Three-for-two stock split effected in the form of a dividend
(Note 6) 300 (300)
Cash dividends paid ($.06 per share) (637)
Net income 9,020
---------- --------- -------- --------
BALANCE, DECEMBER 31, 1995 899 22,804 22,368 $ -
Stock options exercised (Note 7) 68 3,667 ========
Income tax benefits attributable to exercise of stock options
(Note 7) 3,488
Sale of common stock under Employee Stock Purchase Plan (Note 7) 2 238
Common stock issued in connection with acquisitions 5 887
Accrued compensation 216
Five-for-four stock split effected in the form of a dividend
(Note 6) 243 (243)
Cash dividends paid ($.10 per share) (1,203)
Net income 15,366
---------- --------- --------
BALANCE, DECEMBER 31, 1996 $ 1,217 $ 31,057 $ 36,531
========== ========= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
OPERATING ACTIVITIES:
Net income $ 15,366 $ 9,020 $ 5,079
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,763 2,509 1,746
Provision for credit losses and repurchase commitments 389 301 286
(Gain) loss on sale of property, plant and equipment (144) 23 (20)
Equity in earnings of equity investments (289) (237) (304)
Compensation related to issuance of stock options 216
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (489) 863 (409)
Inventories (3,547) 194 (2,372)
Amounts payable under dealer incentive programs 3,831 1,813 779
Accrued wages and related withholdings 346 (244) 84
Estimated warranties 829 1,600 750
Other assets and liabilities 3,565 2,899 4,128
--------- -------- -------
Net cash provided by operating activities 23,836 18,741 9,747
--------- -------- -------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (370) (215) (1,118)
Proceeds from sale of property, plant and equipment 228 63 37
Capital expenditures (7,871) (8,035) (6,330)
Distribution from equity investment 778
Purchases of marketable securities (1,004) (6,076)
Proceeds from maturity of marketable securities 2,479 3,210
Investments in joint ventures (900)
Purchases and originations of installment contracts (19,932) (10,721) (7,309)
Principal collected on installment contracts 2,716 1,337 543
Other 138 55
--------- -------- -------
Net cash used in investing activities (22,872) (15,227) (20,198)
--------- -------- -------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock 240 12,844
Proceeds from long-term borrowings 1,004 2,000 3,700
Payments on long-term debt (1,216) (605) (115)
Proceeds from exercise of stock options 3,735 698 54
Cash dividends paid (1,203) (637) (322)
--------- -------- -------
Net cash provided by financing activities 2,560 1,456 16,161
--------- -------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,524 4,970 5,710
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 21,005 16,035 10,325
--------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,529 $ 21,005 $ 16,035
========= ======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES (Note 7):
Contribution of assets as an equity investment $ 2,396
=========
Reissuance of treasury stock in connection with acquisition $ 1,874
=======
Liabilities assumed in connection with acquisition $ 3,063
=======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc. and its wholly-owned
subsidiaries, (hereinafter collectively referred to as the "Company"). The
Company's 50% or less ownership interests in various joint ventures are
accounted for using the equity method and are included in other assets in
the accompanying consolidated balance sheets. Intercompany profits,
transactions and balances have been eliminated in consolidation.
*
Nature of Operations - The Company designs and manufactures a wide range
of high quality manufactured homes which are sold to a network of
independent dealers located primarily in the southeast, southwest and
midwest regions of the United States. In addition, through its financial
services segment, the Company offers retail installment sale financing and
related insurance products for manufactured homes sold through the
Company's independent exclusive dealer network.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity of
those instruments. Additional information concerning the fair value of
other financial instruments is disclosed in Notes 4 and 5.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of less than 90 days to be cash equivalents.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market. During
1996, 1995 and 1994, the Company purchased raw materials of approximately
$22,200, $7,900 and $7,360 respectively, from certain joint ventures
referred to above.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method. Maintenance and repairs are
expensed as incurred.
Goodwill - Goodwill is amortized over 15 years using the straight-line
method. The Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur.
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped to the dealer. All sales
are final and without recourse except for the contingency described in
Note 10. Interest income on installment contracts receivable is recognized
using the interest method.
Product Warranties - The Company provides a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing
and electrical systems. A liability is provided for estimated future
warranty costs relating to homes sold, based upon management's assessment
of historical experience factors and current industry trends.
<PAGE>
Allowance for Losses on Installment Contracts - The Company has provided
an allowance for estimated future losses resulting from retail financing
activities of Cavalier Acceptance Corporation ("CAC") primarily based upon
management's assessment of historical experience and current industry
trends.
Insurance - The Company's workmen's compensation, product liability and
general liability insurance coverages are provided under incurred loss,
retrospectively rated premium plans. Under these plans, the Company incurs
insurance expense based upon various rates applied to current payroll
costs and sales. Annually, such insurance expense is adjusted by the
carrier for loss experience factors subject to minimum and maximum premium
calculations. Refunds or additional premiums are estimated when
sufficiently reliable data is available in accordance with the consensus
reached in Emerging Issues Task Force Issue No. 93-14, Accounting for
Multiple-Year Retrospectively Rated Insurance Contracts by Insurance
Enterprises and Other Enterprises.
Net Income Per Share - Net income per share is based on the weighted
average number of shares outstanding during each period including the
dilutive effect of stock options.
2. ACQUISITIONS
On October 28, 1994, the Company acquired all of the outstanding stock
of Astro Mfg. Co., Inc. for cash and common stock totaling $5,173. This
acquisition was accounted for using the purchase method.
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1994 has been prepared as though the
acquisition occurred as of January 1, 1994. The pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have been achieved had
the acquisition taken place as of January 1, 1994 or in the future.
Net sales $ 217,213
Net income 5,056
Net income per share .51
3. MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance
sheets at December 31, 1996 and 1995 according to management's intent. As
permitted by A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities issued by the Financial
Accounting Standards Board in November 1995, the Company reassessed the
appropriateness of the classifications of all its marketable securities.
Accordingly, at December 31, 1995 the Company transferred approximately
$2,500 of marketable securities classified as held to maturity to
available for sale. At December 31, 1996 and 1995, the carrying amounts of
marketable securities, which approximate their fair values, were as
follows:
Marketable securities available for sale:
Closed-end funds $ 1,097 $ 1,097
Corporate bonds 1,482
United States Treasury Notes 1,000
Common stocks 4
$ 1,097 $ 3,583
<PAGE>
4. INSTALLMENT CONTRACTS RECEIVABLE
CAC does not exclusively finance sales for any dealer; all dealers have
other financing sources available to offer to their retail customers.
Standard loan programs require minimum down payments, ranging from 0% to
20% of the purchase price of the home, on all installment contracts based
on the creditworthiness of the borrower. In addition, CAC requires the
borrower to maintain adequate insurance on the home throughout the life of
the contract. Contracts are secured by the home which is subject to
repossession by CAC upon default by the borrower.
CAC's portfolio consists of fixed rate contracts with interest rates
generally ranging from 9.25% to 14.0% at December 31, 1996 and 1995. The
average original term of the portfolio was approximately 208 and 187
months at December 31, 1996 and 1995, respectively.
Estimated principal payments under installment contracts receivable are as
follows:
Year Ending December 31,
1997 $ 980
1998 1,088
1999 1,213
2000 1,351
2001 1,506
Thereafter 30,287
Total $ 36,425
At December 31, 1996 and 1995, the estimated fair value of installment
contracts receivable was $36,205 and $20,320, respectively. These fair
values were estimated using discounted cash flows and interest rates
offered by CAC on similar contracts at that time.
Activity in the allowance for losses on installment contracts was as
follows:
1996 1995 1994
Balance, beginning of year $ 551 $ 350 $ 104
Provision for losses 778 311 265
Charge-offs, net (388) (110) (19)
Balance, end of year $ 941 $ 551 $ 350
5. CREDIT ARRANGEMENTS
The Company has a $23,000 revolving, warehouse and term-loan agreement
(the "Credit Facility") with its primary bank, whose president is a
director of the Company. The Credit Facility contains a revolving line of
credit which provides for borrowings (including letters of credit) of up
to 80% and 50% of the Company's eligible (as defined) accounts receivable
and inventories, respectively, up to a maximum of $5,000. Interest is
payable under the revolving line of credit at the bank's prime rate (8.25%
and 8.50% at December 31, 1996 and 1995, respectively).
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as defined)
installment sale contracts, up to a maximum of $18,000. Interest on term
notes is fixed for a period of five years from issuance at a rate based on
the weekly average yield on five-year treasury securities averaged over
the preceding 13 weeks, plus 2%, and floats for the remaining two years
<PAGE>
at a rate (subject to certain limits) equal to the bank's prime rate plus
.75%. The warehouse component of the Credit Facility provides for
borrowings of up to $2,000 with interest payable at the bank's prime rate
plus 1%. However, in no event may the aggregate outstanding borrowings
under the warehouse and term-loan agreement exceed $18,000.
The Credit Facility contains certain restrictive covenants, which limit
the aggregate of dividend payments and purchases of treasury stock to 50%
of consolidated net income for the two most recent years. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CAC and the capital stock of certain of the Company's consolidated
subsidiaries. The bank's commitment under the Credit Facility will expire
in April of 1998.
At December 31, 1996 and 1995, the Company's long-term debt consists of
various fixed and variable rate term loans bearing interest at rates
ranging from 6.19% to 10.15% and 9.40% to 10.15%, respectively.
Principal repayment requirements on long-term debt are as follows:
Year Ending
December 31,
1997 $ 951
1998 1,054
1999 1,156
2000 1,043
2001 663
Thereafter 1,002
Total 5,869
Less current portion 951
Long-term debt $ 4,918
The estimated fair value of outstanding borrowings is $5,715 and $5,224 at
December 31, 1996 and 1995, respectively. These estimates were determined
using rates at which the Company believes it could have obtained similar
borrowings at that time.
Cash paid for interest during the years ended December 31, 1996, 1995 and
1994 was $566, $494 and $62, respectively.
6. STOCKHOLDERS' EQUITY
In 1994, the Company sold 1,090,000 shares of common stock through a
secondary public offering. Net proceeds from the offering were $12,844.
During the years ended December 31, 1996 and 1995, the Company's Board of
Directors declared the following stock splits of the Company's common
stock. All applicable share and per share data have been restated to give
effect to all stock splits.
Declaration Stock Record Distribution
Date Split Date Date
July 17, 1995 5 for 4 July 31, 1995 August 15, 1995
January 22, 1996 3 for 2 January 31, 1996 February 15, 1996
October 16, 1996 5 for 4 October 31, 1996 November 15, 1996
<PAGE>
The Company has adopted a Stockholder Rights Plan. The terms and
conditions of the plan are set forth in a Rights Agreement dated October
23, 1996 between the Company and its Rights Agent. Pursuant to the plan,
the Board of Directors of the Company declared a dividend of one Right (as
defined in the Rights Agreement) for each share of the Company's
outstanding common stock to stockholders of record on November 6, 1996.
The Rights, when exercisable, entitle the holder to purchase a unit of one
one-hundredth share of Series A Junior Participating Preferred Stock, par
value $.01, at a purchase price of $80 per share. Upon certain events
relating to the acquisition of, or right to acquire, beneficial ownership
of 20% or more of the Company's outstanding common stock by a third party,
or a change in control of the Company, the Rights entitle the holder to
acquire, after the Rights are no longer redeemable by the Company, shares
of common stock of the Company (or, in certain cases, securities of an
acquiring person) for each Right held at a significant discount. The
Rights will expire on November 6, 2006, unless redeemed earlier by the
Company at $.01 per Right under certain circumstances.
7. STOCK PLANS
Dealership Stock Option Plan -
During 1995, the Company's Board of Directors approved the
Dealership Stock Option Plan of Cavalier Homes, Inc. (the "Dealer
Plan") under which an aggregate of 562,500 shares of the Company's
common stock may be issued to the eligible independent dealerships
(as defined in the Dealer Plan) at a price equal to the fair market
value of the Company's common stock as of a date during the calendar
quarter determined by the plan administrator for which such option is
to be granted. Options granted under the Dealer Plan are immediately
exercisable and expire three years from the grant date. Options
exercisable and shares available for future grants were 65,939 and
472,410, respectively. All outstanding options are exercisable at
prices ranging from $8.73 to $14.80. Since these options have been
granted to persons other than employees, the Company adopted the
recognition and measurement provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123") for Dealer Plan options granted after December 15, 1995.
Employee and Director Plans:
The Company adopted and the shareholders approved the 1996 Key
Employee Stock Incentive Plan (the "1996 Plan") which provides for
both incentive stock options and non-qualified stock options.
Additionally, the 1996 Plan provides for stock appreciation rights
and awards of both restricted stock and performance shares. Options
are granted at prices and terms determined by the compensation
committee of the Board of Directors. Initially the aggregate number
of shares available under the 1996 Plan is 753,125, (including 3,125
shares canceled from the 1993 Non-qualified Plan) however, on January
1 of each year an additional 1.5% of the then outstanding common
stock becomes available for grant. Options granted under the 1996
Plan generally expire ten years from date of grant.
During 1996, the Company further amended the 1993 Amended and
Restated Non-employee Director Plan (the "1993 Non-employee Directors
Plan") to provide for the issuance of stock options at fair market
value on the date of grant, to non-employee directors, to acquire up
to 625,000 shares of common stock. Options are generally granted upon
a directors initial election to the Board and automatically on an
annual basis thereafter. Options granted under this plan are generally
exercisable after six months from the date of grant and must be
exercised within ten years from such date, except under certain
conditions.
During 1996, the Company adopted the Cavalier Homes, Inc. Employee
Stock Purchase Plan under which an aggregate of 625,000 shares of the
Company's common stock may be issued to eligible employees (as
defined in the Plan) at a price equal to the lesser of 85% of the
market price of the stock as of the first day (January 1 or July 1)
or last day (June 30 or December 31) of the Payment Periods (as
defined). Employees may elect to have a portion of their compensation
withheld, subject to certain limits, to purchase the Company's common
stock.
<PAGE>
The Company also adopted the Cavalier Homes, Inc. Dividend
Reinvestment and Stock Purchase Plan under which the Company may
issue an aggregate of 200,000 shares of the Company's common stock to
eligible participants (as defined in the Plan). Participants in the
Plan may purchase additional shares of the Company's common stock by
reinvesting the cash distributions on all, or part, of their shares,
or by investing both their cash distributions and optional cash
payments. The purchase price of the stock will be the higher of 95%
of the average daily high and low sale prices of the Company's common
stock on the four trading days including and preceding the Investment
Date (as defined in the Plan) or 95% of the average high and low
sales prices on the Investment Date. No shares were sold under this
plan during 1996.
The Company applied Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting
for its employee and director plans. Accordingly, no compensation expense
has been recognized for these plans except where the exercise price was
less than the fair value on the date of grant. Had compensation cost been
determined based on the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under SFAS 123, the
Company's net income and net income per share would approximate the pro
forma amounts below:
1996 1995
Net income:
As reported $ 15,366 $ 9,020
Pro forma $ 13,017 $ 8,923
Net income per share:
As reported $ 1.25 $ 0.79
Pro forma $ 1.06 $ 0.78
The fair value of options granted for 1996 and 1995 were estimated at the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1996 1995
Dividend yield 0.85 % 2.05 %
Expected volatility 0.3985 % 0.4182 %
Risk free interest rate 6.20 % 6.81 %
Expected lives 2.76 years 2.76 years
SFAS 123 does not apply to awards prior to 1995. The effects of applying
SFAS 123 in this pro forma disclosure may not be indicative of future
amounts, and additional awards in future years are anticipated.
With respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense reflected in the Company's financial statements have
been credited to additional paid-in-capital. These benefits, which totaled
$3,488 (1996), $281 (1995), and $86 (1994), represent a noncash financing
transaction for purposes of the consolidated statements of cash flows.
Information regarding all of the Company's stock option plans is
summarized below:
<PAGE>
<TABLE>
<S> <C> <C> <C>
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
Shares under option:
Outstanding at January 1, 1994 1,138,309 $ 3.95
Granted -
Price = Fair Value 460,478 4.77
Exercised (44,529) 1.23
Cancelled (347,404) 4.78
Outstanding at December 31, 1994 1,206,854 4.17
Granted:
Price = Fair Value 123,049 5.86 $ 1.77
Price less than Fair Value 22,299 8.73 2.77
Exercised (174,804) 3.99
Cancelled (43,941) 7.09
Outstanding at December 31, 1995 1,133,457 4.35
Granted:
Price = Fair Value 1,321,633 14.68 4.52
Price less than Fair Value 28,833 13.70 3.75
Exercised (844,883) 4.42
Cancelled (483,431) 15.90
Outstanding at December 31, 1996 1,155,609 $ 11.51
Options exercisable as of December 31, 1996 631,707 $ 10.07
</TABLE>
Stock options available for future grants at December 31, 1996 were
1,670,793 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options
outstanding at December 31, 1996:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisabale
------------------------------------------------------------ ----------------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of As of Contractual Exercise As of Exercise
Exercise Prices 12/31/96 Life Price 12/31/96 Price
$ 0.55 - $10.00 351,233 7.57 $ 5.30 327,326 $ 5.40
$11.50 - $13.60 558,393 9.20 13.35 84,648 11.94
$14.50 - $16.60 245,983 8.50 16.22 219,733 16.31
$ 0.55 - $16.60 1,155,609 8.55 $ 11.51 631,707 $ 10.07
</TABLE>
8. INCOME TAXES
Provision for income taxes consist of:
<PAGE>
1996 1995 1994
Current:
Federal $ 8,416 $ 5,994 $ 3,313
State 1,482 855 581
9,898 6,849 3,894
Deferred:
Federal (610) (734) (333)
State (105) (101) (61)
(715) (835) (394)
Total $ 9,183 $ 6,014 $ 3,500
Total income tax expense for 1996, 1995, and 1994 is different from the
amount that would be computed by applying the expected federal income tax
rate of 35% to income before income taxes. The reasons for this difference
are as follows:
1996 1995
Assets (Liabilities)
Current differences:
Warranty expense $ 2,137 $ 1,731
Inventory capitalized 251 176
Allowance for losses on receivables 652 488
Accrued expenses 1,473 979
Other 150 274
$ 4,663 $ 3,648
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (1,414) $ (1,109)
Other 379 66
$ (1,035) $ (1,043)
Deferred tax assets and liabilities are based on the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities. The approximate tax effects of temporary
differences at December 31, 1996 and 1995 were as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Income tax at expected federal income tax rate $ 8,592 $ 5,262 $ 3,003
State income taxes, net of federal tax effect 1,123 752 343
Non-taxable life insurance proceeds (655)
Non-deductible operating expenses 107 171 110
Effect of graduated tax rates (121) (86)
Other 16 (50) 130
$ 9,183 $ 6,014 $ 3,500
</TABLE>
Cash paid for income taxes for the years ended December 31, 1996, 1995
and 1994 was $5,858, $5,905 and $3,519, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors an Employee 401(k) Retirement Plan covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of their basic compensation as defined in the
<PAGE>
Plan. The amount of the Company's matching contribution is discretionary
as determined by the Board of Directors. Company contributions amounted to
$285, $229 and $175 for the years ended December 31, 1996, 1995 and 1994,
respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Three of the Company's manufacturing facilities are leased under separate
operating lease agreements (the "Related Leases") with partnerships or
companies whose owners are certain officers, directors or stockholders of
the Company. The Related Leases require monthly payments ranging from $9
to $20 and provide for lease terms ending from April 1997 to April 1999 as
well as renewal option periods. The Related Leases also contain purchase
options whereby the Company can purchase the respective manufacturing
facility for amounts ranging from $875 to $2,100 at any time during the
lease terms.
The Company also leases three other manufacturing facilities under
operating leases with unrelated parties. These leases currently require
monthly payments ranging from $3 to $14 and provide for lease terms ending
from March 1999 to October 2006 as well as renewal option periods. The
Company has the option under one of these leases to (i) cancel the lease
at any time after October 2001 with a one year notice and (ii) purchase
the manufacturing facility for $995 at any time during the lease term. The
Company also has the option under one of these leases to cancel the lease
after the first five years with 180 days notice.
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December
31, 1996 are as follows:
Year Ending
December 31,
1997 $ 557
1998 512
1999 196
2000 119
2001 119
Thereafter 553
Total $ 2,056
Total rent expense was $1,130, $1,044 and $832 for the years ended
December 31, 1996, 1995 and 1994, respectively, including rents paid to
related parties of $653 (1996), $723 (1995) and $662 (1994).
Contingent Liabilities and Other:
a. It is customary practice for companies in the manufactured housing
industry to enter into repurchase and other recourse agreements with
lending institutions which have provided wholesale floor plan
financing to dealers. Substantially all of the Company's sales are
made to dealers located primarily in the southeast, southwest and
midwest regions of the United States pursuant to repurchase
agreements with lending institutions. These agreements generally
provide for repurchase of the Company's products from the lending
institutions for the balance due them in the event of repossession
upon a dealer's default. Although the Company was contingently
liable for an amount estimated to be $80,000 under these agreements
as of December 31, 1996, such contingency is reduced by the resale
value of the homes which are required to be repurchased. The Company
has an allowance for losses of $800 (1996) and $750 (1995) based
on prior experience and current market conditions. Management
expects no material loss in excess of the allowance.
<PAGE>
b. Under the insurance plans described in Note 1, the Company is
contingently liable at December 31, 1996 for future retrospective
premium adjustments up to a maximum of approximately $7,300 in the
event that additional losses are reported related to prior years.
c. The Company is a party to various legal proceedings incidental to
its business. In the opinion of management, the ultimate liability,
if any, with respect to these proceedings is not presently expected
to materially affect the financial position or results of operations
of the Company; however, the ultimate resolution of these matters
could result in losses in excess of current estimates.
d. During 1994, the Company entered into split-dollar life insurance
agreements with two of its executive officers which provide for
payment of the related insurance premiums by the Company and also
for reimbursement to the Company of such premiums upon payment of
death benefits under the policies.
11. INDUSTRY SEGMENT INFORMATION
The Company's primary activities are the design, production and wholesale
sale of manufactured homes to a system of independent dealers. The Company
also offers retail financing of its homes through its exclusive
independent dealer network. For purposes of segment reporting, corporate
assets consist primarily of cash, certain property and equipment and other
investments. Operating profit is considered to be income before general
corporate expenses, interest and income taxes.
Financial information for these segments is summarized in the following
table:
<TABLE>
<S> <C> <C> <C> <C>
General
Financial Corporate
Manufacturing Services (Unallocated) Total
Year ended December 31, 1996:
Revenues $ 345,415 $ 3,333 $ 348,748
Operating profit 21,910 1,257 $ (1,312) 21,855
Identifiable assets 69,161 38,175 8,238 115,574
Depreciation and amortization 3,591 129 43 3,763
Capital expenditures 7,434 196 241 7,871
Year ended December 31, 1995:
Revenues $ 272,486 $ 1,764 $ 274,250
Operating profit 15,394 638 $ (1,402) 14,630
Identifiable assets 56,804 22,388 3,434 82,626
Depreciation and amortization 2,443 59 7 2,509
Capital expenditures 7,762 260 13 8,035
Year ended December 31, 1994:
Revenues $ 206,442 $ 703 $ 207,145
Operating profit 8,928 158 $ (957) 8,129
Identifiable assets 45,748 14,179 3,836 63,763
Depreciation and amortization 1,722 14 10 1,746
Capital expenditures 6,330 6,330
</TABLE>
* * * * *
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged Balance at
Beginning of Costs and to Other End of
Period Expenses Accounts Deductions Period
-------------- ---------------- --------------- ---------------- --------------
Allowance for losses on Accounts
Receivable:
Year Ended December 31, 1996 $ 750,000 224,883 50,846 (225,729) $ 800,000
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 650,000 152,554 - (52,554) $ 750,000
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 560,000 62,860 50,000 (22,860) $ 650,000
============== ================ =============== ================ ==============
Allowance for credit losses:
Year Ended December 31, 1996 $ 551,188 778,226 (388,043) $ 941,371
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 350,000 311,190 - (110,002) $ 551,188
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 103,930 265,048 - (18,978) $ 350,000
============== ================ =============== ================ ==============
Accumulated amortization of goodwill:
Year Ended December 31, 1996 $ 309,729 278,663 $ 588,392
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 140,476 169,253 $ 309,729
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 47,405 93,071 $ 140,476
============== ================ =============== ================ ==============
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 1996 $ 188,904 32,346 $ 221,250
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 122,232 66,672 $ 188,904
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 55,560 66,672 $ 122,232
============== ================ =============== ================ ==============
Warranty reserve:
Year Ended December 31, 1996 $ 5,800,000 13,874,316 370,545 (13,044,861) $ 7,000,000
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 4,200,000 11,385,825 - (9,785,825) $ 5,800,000
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 3,100,000 7,740,813 350,000 (6,990,813) $ 4,200,000
============== ================ =============== ================ ==============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see
"Election of Directors," "Executive Officers and Principal Stockholders," and
"Compliance with Section 16(a) of the Exchange Act" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 14, 1997,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders," "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"), "Compensation Committee Interlocks
and Insider Participation," and "Certain Relationships and Related Transactions"
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 14, 1997, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the security ownership of management and certain beneficial
owners, see "Executive Officers and Principal Stockholders" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 14,
1997, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the
Company, see "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships And Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 14, 1997,
which are incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The financial statements contained in this report and the page on which
they may be found are as follows:
Financial Statement Description Form 10-K Page No.
Independent Auditors' Report 17
Consolidated Balance Sheets as of
December 31, 1996 and 1995 18
Consolidated Statements of Income
for the years ended December 31, 1996,
1995 and 1994 20
Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995 and 1994 22
Notes to Consolidated Financial Statements 23
2. The financial statement schedules required to be filed with this report
and the pages on which they may be found are as follows:
Schedule Description Form 10-K Page No.
II Valuation and Qualifying Accounts 33
3. The exhibits required to be filed with this report are listed below. The
Company will furnish upon request any of the exhibits listed upon the receipt of
$15.00 per exhibit, plus $.50 per page, to cover the cost to the Company of
providing the exhibit.
(3) Articles of Incorporation and By-laws.
* (a) The Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.
* (b) The Certificate of Designation of Series A Junior Participating Preferred
Stock of Cavalier Homes, Inc. as filed with the Office of the Delaware Secretary
of State on October 24, 1996 and filed as Exhibit A to Exhibit 4 to the
Company's Registration Statement on form 8-A filed on October 30, 1996, is
incorporated herein by reference.
* (c) The By-laws of the Company, as amended, filed as Exhibit (b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, are
incorporated herein by reference.
(4)
* (a) Articles four, six, seven, nine and ten of the Company's Amended and
Restated Certificate of Incorporation, as amended, included in Exhibit 3(a)
above.
* (b) Article II, Sections 1 through 11; Articles III, Sections 1 and 2; Article
IV, Sections 1 and 2; Article VI, Sections 1 through 6; Article VIII, Sections 1
through 3; Article IX, Section 1 of the Company's By-laws, included in Exhibit
3(c) above.
* (c) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services, LLC, filed as Exhibit 4 to the Company's Current Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.
(10) Material contracts
* (a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services, LLC, file as Exhibit 4 to the Company's Current Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.
<PAGE>
(b) Lease Agreement dated October 16, 1996, between Virginia Cary L.
McDonald and Star Industries, Inc. regarding the lease of the manufacturing
facility located in Robbins, North Carolina.
(c) Assignment and Assumption Agreement between Star Industries, Inc.
and Cavalier Industries, Inc. regarding the lease of the manufacturing facility
located in Robbins, North Carolina.
* (d) Cavalier Homes, Inc. Dividend Reinvestment and Stock Purchase
Plan, filed as Appendix A to the Company's Registration Statement on Form S-3
(Registration No. 333-18213), is incorporated herein by reference.
* ** (e) Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (f) Cavalier Homes, Inc. Employee Stock Purchase Plan, filed as an Appendix
to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (g) Cavalier Homes, Inc. Key Employee Stock Incentive Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (h) Amendments to the Cavalier Homes, Inc. Nonemployee Directors Stock
Option Plan, filed as an Appendix to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders held May 15, 1996, is incorporated herein
by reference.
** (i) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee
Directors Plan.
* (j) Option and Stock Exchange Agreement by and among Wheelhouse
Structures, Inc., Shareholders of Wheel House Structures, Inc. and Cavalier
Homes, Inc. dated as of August 28, 1995, filed as Exhibit 2(a) to the Company's
Registration Statement on Form S-3 (Registration No. 333-00607), as amended, is
incorporated herein by reference.
* (k) Dealership Stock Option Plan of Cavalier Homes, Inc. filed as
Exhibit 4(c) to the Company's Registration Statement on Form S-3 dated September
11, 1995 (Registration No. 33-62487), is incorporated herein by reference.
* (l) Lease Agreement between City of Mineral Wells, Texas and Cavalier Homes of
Texas dated February 27, 1996, filed as Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
* (m) Stock Purchase Agreement, as amended, by and among Astro Mfg. Co., Inc.,
Shareholders of Astro Mfg. Co., Inc.and Cavalier Homes, Inc. dated as of October
14, 1994, filed as Exhibit 2(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, is incorporated herein by reference.
* (n) Holdback agreement between Cavalier Homes, Inc. and Raymond A. Peltcs,
dated October 28, 1994, filed as Exhibit 2(b) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, is incorporated herein by
reference.
* (o) Revolving, Warehouse and Term Loan Agreement among the Company and First
Commercial Bank dated February 17, 1994, filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated
herein by reference.
* (p) Amendments to the Revolving, Warehouse and Term Loan Agreement among the
Company and First Commercial Bank dated March 14, 1996, filed as Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995, are incorporated herein by reference.
(q) Assumption Agreement dated as of January 2, 1997, by and among the
Company, First Commercial Bank and certain subsidiaries of the Company.
* (r) Lease Agreement between Leonard Properties and Cavalier Homes of Texas,
Inc. dated February 17, 1994, and amendment No. 1 thereto, filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K, for the year ended December
31, 1993, and 10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1994, respectively, are incorporated herein by reference.
<PAGE>
* ** (s) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan, filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by reference.
* ** (t) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, as amended,
filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.
(u) Lease between Cavalier Homes of Alabama, Inc. and Robert L. Burdick,
John W Lowe, and Jerry F. Wilson (now Estate of Jerry F. Wilson), as tenants in
common, dated July 30, 1996.
(v) Assignment and Assumption Agreement between Cavalier Homes of Alabama,
Inc. and Cavalier Homes, Inc. regarding the lease between Cavalier Homes of
Alabama, Inc. and Robert L. Burdick, John W Lowe and Jerry F. Wilson (now Estate
of Jerry F. Wilson).
* (w) Commercial Sub-Lease between Winston County Industrial Development
Association and Cavalier Homes of Alabama, Inc., dated March 5, 1993, filed as
Exhibit 10(d) to the Company's Registration Statement on Form S-2 (Registration
No.33-59452), is incorporated herein by reference.
(x) Assignment and Assumption Agreement between Cavalier Homes of Alabama,
Inc. and Cavalier Homes, Inc. regarding the Commercial Sub-Lease between
Cavalier Homes of Alabama, Inc. and Winston County Industrial Development
Association.
* (y) Sub-lease Agreement with Option to Purchase between Winfield
Industrial Development Association, Inc and Buccaneer Homes of Alabama, Inc.
dated May 9, 1994, filed as Exhibit 10(k) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644), is incorporated
herein by reference.
* (z) Lease Agreement with Option to Purchase between Marion County
Industrial Development Association, Inc and Quality Housing Supply, Inc. dated
May 9, 1994, filed as Exhibit 10(l) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644), is incorporated
herein by reference.
(aa) Lease Agreement dated March 1, 1997, between the City of Winfield
and Buccaneer Homes, a division of Cavalier Manufacturing, Inc.
(bb) Lease Agreement dated March 1, 1995, between the Industrial
Development Board of the City of Haleyville, Alabama and Wheel House Properties,
Inc., as assigned to and assumed by Star Industries, Inc. on January 11, 1996,
and as further assigned to and assumed by Cavalier Manufacturing, Inc. in
December 1996.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule. (Filed as an EDGAR exhibit only.)
* Incorporated by reference herein.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
<PAGE>
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Annual Report on Form 10-K
(including statements regarding trends in the industry and the business and
growth and financing strategies of the Company), as well as those statements
specifically designated with an asterisk (*), constitute forward-looking
statements, contain the words "believes," "anticipates," "expects," and words of
similar import, are based upon current expectations and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include those associated with general economic and business conditions;
manufactured housing and retail consumer financing industry trends, cyclicality
and seasonality; availability of consumer and dealer financing; changes and
volatility in interest rates; the sufficiency of reserves established for
installment contract receivables; warranty, product liability and other
litigation arising in the course of the Company's manufacturing and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel; demographic changes; competition; raw material and labor costs
and availability; import protection and regulation; relationships with and
dependence on customers, distributors or dealers; changes in the business
strategy or development plans of the Company; the availability, terms and
deployment of capital; changes in or the failure to comply with government
regulations; and the inability or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of the Company. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAVALIER HOMES, INC.
Registrant
By:/s/ DAVID A. ROBERSON
Its President
Date: March 31, 1996
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.
Signature Title Date
/s/ DAVID A. ROBERSON Director and Principal March 31, 1996
- ---------------------------- Executive Officer
/s/ MICHAEL R. MURPHY Diretor and Principal March 31, 1996
- ---------------------------- Financial and Accounting
Officer
/s/ BARRY DONNELL Chairman of the Board March 31, 1996
- ---------------------------- and Director
/s/ THOMAS A. BROUGHTON, III Director March 31, 1996
- ----------------------------
/s/ JOHN W LOWE Director March 31, 1996
- ----------------------------
/s/ LEE ROY JORDAN Director March 31, 1996
- ----------------------------
/s/ GERALD R. MOORE Director March 31, 1996
- ----------------------------
<PAGE>
INDEX
Page in
Sequentially
Exhibit Numbered
Number Filing
(10) Material Contracts
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule (Filed as an EDGAR exhibit only)
Exhibit 10(b)
LEASE AGREEMENT
THIS LEASE is made as of the 16th day of October, 1996, by and between
VIRGINIA CARY L. McDONALD, a widow (hereinafter called "Landlord"), and STAR
INDUSTRIES, INC., a Delaware corporation, with its principal offices in Wichita
Falls, Wichita County, Texas (hereinafter called "Tenant"). W I T N E S S E T
H:
1. PREMISES. The Landlord, for and in consideration of the rents,
covenants, agreements and stipulations hereinafter contained, to be paid, kept
and performed by the Tenant, has leased and rented, and by these presents does
lease and rent, unto the said Tenant, and said Tenant hereby agrees to lease
and take upon the terms and conditions which hereinafter appear, the following
described real property located in Ritters Township, Moore County, North
Carolina, hereinafter called "Premises," together with all personal property
described in Exhibit A, attached hereto and by reference made a part hereof, to
wit:
A certain tract or parcel of land in Ritters Township,
Moore County, North Carolina, located about 1 mile southeast from the Town of
Robbins fronting on the southwest side of Plant Road (State Road No. 1477) and
the southeast side of Aberdeen, Carolina, and Western Railroad,
adjoining the lands of Morphis, Hamilton, and the grantor, being
described as follows:
Beginning at a pk nail in the center of the intersection of Plant Road
(S.R. No. 1477) with the center of the Aberdeen, Carolina, and Western
Railroad; thence with the center of the railroad N 66 degrees 48' E
38.08 feet to an iron rod, thence leaving said railroad with the
northern line of the grantor common with Morphis S 49 degrees 17' E
84.82 feet to a pk nail in the center of Plank Road (S.R. No. 1477),
the true point of beginning. thence thence thence Thence from said
true point of beginning leaving the road and continuing with the
northern line of the grantor common with Morphis S 49 degrees 17' E
319.17 feet to a concrete monument; thence continuing with the
northern line of the grantor common with Hamilton S 51 degrees 14' E
150.15 feet to a set iron stake; thence with new lines of the grantor
S 33 degrees 51' W 226.94 feet to a fence corner; thence with said
fence S 33 degrees 51' W 439.32 feet to a fence corner; thence N 49
degrees 14' W 613.73 feet to the corner of the fence at a building;
thence with said building S 66 degrees 43' W 25.48 feet to the corner
of said building; thence with said building N 23 degrees 59' W 120.08
feet to the corner of the fence at said building; thence leaving said
building with the fence S 73 degrees 02~ W 25.66 feet to a fence
corner; thence N 46 degrees 39' W 162.69 feet to a fence corner;
thence N 82 degrees 51' W 12.14 feet to a fence corner near the
southeastern right of way of the railroad; thence N 67 degrees 42~ E
227.43 feet to a fence corner; N 82 degrees 52' E 50.40 feet to a
fence corner; N 65 degrees 24' E 66.43 feet to a fence corner; N 17
degrees 32~ W 18.66 feet to a fence corner; thence N 66 degrees 35' E
354.29 feet to a fence corner; thence leaving said fence N 66 degrees
35' E 64.01 feet to a pk nail in the center of the paving of Plank
road (S.R. No. 1477); thence with said road S 67 degrees 54' E 35.36
feet to the true point of beginning, containing 11.42 acresr more or
less, and being a portion of the tract of the A. Allan McDonald Heirs
recorded in Deed Book 435 at Page 854 in the Moore County Registry.
Said
2
McDonald heirs tract ls further described by said deed as
being Lot No. 4 or the C.F. Garner Division as shown on
a plat recorded _n Map Book 5 at Page 59 in the Moore
County Registry.
2. TERM. To have and to hold the same for a term beginning on the 1st day
of November, 1996, and ending on the 31st day of October, 2006, at midnight,
unless the term is sooner terminated as provided in this and subsequent numbered
paragraphs herein.
Tenant shall have the right to terminate this Lease at any
time, after October 31, 2001, without cause, by giving Landlord written notice
at least 365 days in advance of Tenant's selected termination date.
3. RENTAL. Tenant agrees to pay Landlord, by payments to the Landlord
at P.O. Box 378, West End North Carolina 27376, or such other place as the
Landlord may designate in writing from time to time, a yearly rental of
Eighty-Four Thousand and No/100 ($84,000.00) Dollars for the period beginning
November 1, 1996 through October 31, 2006), payable monthly in advance, in
consecutive installments of Seven Thousand and No/100 ($7,000.00) Dollars each
beginning on the 1st day of November, 1996.
4. USE OF LEASED PREMISES. Premises shall be used for manufacturing,
warehousing and other purposes incidental thereto,
but shall not be used for any illegal purposes, nor in any manner so as to
create any nuisance or trespass, nor in any manner to vitiate insurance.
5. UTILITIES. REPAIRS AND MAINTENANCE. The Tenant is to pay all utilities,
including water, sewerage, gas, electricity, fuel, light, heat and power bills
for the leased Premises, or used by Tenant in connection therewith. Tenant
shall keep and maintain the Premises and make all reasonable and necessary
repairs thereto, including, but not limited to, the plumbing, heating, air
conditioning, sewerage and electrical systems, equipment and fixtures.
Provided, Landlord shall be responsible for repair and replacement of the roofs
and outer walls and for replacement, but not repair, of the heating, air
conditioning, plumbing, sewerage, and electrical systems. 6. INSURANCE. The
Tenant agrees to pay and carry the premiums for fire and extended insurance
coverage in the amount of the replacement cost on all of the buildings and
improvements now existing and to be constructed in the future on the Premises
and also on the equipment described in Exhibit "A" hereto. Such insurance shall
name the Landlord and the Tenant as insureds, and any mortgagee as loss payee,
as their respective interest may appear.
Landlord and Tenant acknowledge that upon the execution of
this Lease, Tenant will construct substantial additions and improvements to the
buildings on the Premises and it is agreed that during the term of this Lease,
any insurance proceeds not used for the reconstruction of fixed improvements
shall be divided between Landlord and Tenant as they may mutually agree at that
time, it being understood and agreed herein that Tenant has a right and
interest in a substantial portion of said proceeds.
The Tenant shall carry and pay premiums for public liability
insurance with limits of $300,000.00 for the death or injury of any one person;
$1,000,000.00 for the death or injury to more than one person resulting from
any one occurrence; and $50,000.00 for damage to property. Landlord shall be
named as an additional insured on the liability policy, as her interest may
appear.
All insurance shall be carried in companies authorized to
write such insurance in the state of North Carolina.
Landlord shall be furnished with copies of all policies.
6.1 IMPROVEMENTS TO PREMISES. The parties hereto acknowledge that Tenant
intends to make substantial fixed improvements to the Premises. A11 such
improvements shall be at the sole expense of the Tenant. Upon termination of the
Lease, in the event the Tenant does not exercise its option to purchase as set
out in paragraph 16
hereof, all such fixed improvements shall become the sole property of Landlord.
7. TAXES. All real estate taxes, paving, water and sewer line
assessments on the Premises, and any and all property taxes charged or assessed
against the equipment set forth on Exhibit A, shall be paid by the Tenant.
Tenant shall also pay all property taxes on the personal property located in
the Premises, including, without limitation, inventories, machinery and
equipment owned or leased by Tenant.
8. DAMAGE TO THE PREMISES BY FIRE OR OTHER CASUALTY.
CASUALTY. If all or substantially all of the buildings and improvements on the
leased Premises, or of the leased equipment, should be destroyed or damaged by
storm, fire, lightning, earthquake or other casualty, without the criminal
fault of Tenant, to such an extent as to tender the same untenantable, this
Lease shall terminate.
If less than all, or less than substantially all, of the
buildings and improvements on the leased Premises, or the leased equipment, are
damaged or destroyed as aforesaid and the insurance proceeds are sufficient to
pay in full the costs of repair and/or restoration thereof to as good condition
as they were immediately preceding said damage then, in that event, Landlord
will be
obligated to make such repairs and/or restoration with all due diligence.
Begining with the date of loss and continuing during the period required to
repair or restore same, this Lease shall not terminate, but the rent payable
hereunder shall be reduced in such
proportion as the parties agree. Provided, in the event the loss renders the
plan inoperable, the rent shall abate until the Premises are restored to an
operable condition.
- If less than all, or less than substantially all, of the buildings and
improvements on the leased Premises, or the leased equipment, are damaged or
destroyed as aforesaid and the insurance proceeds are not sufficient to pay in
full the costs of repair and/or restoration to as good condition as they were
immediately preceding said damage, then, in that event, Landlord shall be
obligated to repair and/or restore same with all due diligence and Landlord
shall apply all insurance proceeds payable to Landlord by reason of said loss
as expenditures for repair and/or restoration as they are incurred by Landlord.
In the event Landlord refuses to begin said repair and/or restoration with all
due diligence, said refusal shall be deemed a breach of this Lease Agreement,
but as to this breach only, the Tenant's sole remedies are (a) to agree to bear
one-half of said repair costs in excess of the aforementioned insurance
proceeds payable to Landlord, or (b) to terminate this
Lease. Provided, in the event Tenant agrees to bear one-half of said repair
costs as provided in (a), and Landlord continues to refuse to make said repairs
with all due diligence, then Tenant shall be entitled to all remedies at law
and as provided in this Lease Agreement for a breach. Beginning with the date
of loss and continuing during the period required to repair or restore same,
this Lease shall not terminate, except as provided herein, but the rent payable
hereunder shall be reduced in such proportion as the parties agree, except as
otherwise provided herein. In the event loss renders the plant inoperable,
however, the rent shall abate until the Premises are restored to an operable
condition or until there is a breach of this Lease Agreement as herein
provided.
9. ASSIGNABILITY. This Lease may be assigned or subleased to Mansion
Homes, Inc. by the Tenant or to any other subsidiary of Tenant, by merger or
otherwise without approval of Landlord. Further, Tenant shall have the right to
sublease all or part of the Premises and/or equipment described in Exhibit A
hereto to any other entity only upon the written approval of the Landlord,
which approval the Landlord shall not unreasonably withhold. Provided, that the
business or occupation of the assignee or subtenant, including Mansion Homes,
Inc., or any other subsidiary of Tenant, is not extra-hazardous, disreputable,
or illegal. Further, 8
provided, that the Tenant shall in all such instances remain primarily liable
for the payment of the rent herein reserved and for the performance of all the
other terms of this Lease required to be performed by the Tenant.
10. INDEMNITY. Tenant agrees to indemnify and save harmless -he Landlord
against all claims for damages to persons or property by reason of the use or
occupancy of the leased Premises and equipment, and all expenses incurred by
Landlord because thereof, including attorney's fees and court costs.
11. CONDEMNATION. In the event that title to the Premises, or any part thereof,
is taken under the exercise of the power of eminent domain by any governmental
authority, person, firm or corporation acting under any governmental authority,
Landlord and Tenant shall each be entitled to their separate condemnation
award, provided, Tenant agrees to make no claim relating to the real estate,
personal property and fixtures described in this Lease, except, the new
buildings constructed by Tenant at Tenant's expense. (a) Taking of All or
Substantially All the Premises. If all, or substantially all, of the Premises
are taken by such eminent domain proceeding, this Lease Agreement shall
terminate.
(b) Taking of Less Than All or Less Than Substantially All
the Premises.
If less than all or less than substantially all the
Premises are taken by such eminent domain proceeding, this Lease Agreement
shall continue in full force and effect, but with the following consequences:
(1) If no part of the buildings and parking
located on Premises are taken, and if the efficient utilization of the
buildings and parking area is not impaired by such taking, this Lease
Agreement shall remain in full force and effect, and the rent payable
hereunder shall be reduced in such proportion as the parties
agree.
(2) If any part of the buildings and parking area
located on premises is taken, or if the
efficient utilization of the buildings is impaired by such taking, Landlord
will proceed, as promptly as practicable under the circumstances, to repair,
rebuild or restore the buildings, or to rearrange the plant facilities, so as
to make them suitable for the Tenant's uses, and the rent payable hereunder
shall be reduced to such proportion as the parties agree for the period
beginning with the taking and continuing until completion of the repairs and/or
restorations. In the event such taking renders the buildings inoperable, rent
shall
abate until the Premises are restored to an operable condition unless all or
substantially all of the Premises are taken and in that event the Lease shall
terminate as provided in ll(a).
12. CANCELLATION OF LEASE BY LANDLORD. It is mutually agreed that in
the event the Tenant shall default in the payment of rent herein required, when
due, and fails to cure said default within thirty (30) days after receipt of
written notice thereof from Landlord; or if Tenant shall be in default in
performing any of the terms or provisions of this Lease other than the
provision requiring the payment of rent, and fails to cure such default within
sixty (60) days after the date of receipt of written notice of default from
Landlord; or if Tenant is adjudicated bankruptcy; or if a permanent receiver is
appointed for Tenant's property and such receiver is not removed within sixty
(60) days after written notice from Landlord to Tenant to obtain such removal;
or if, whether voluntarily or involuntarily, Tenant takes advantage of any
debtor relief proceedings under any present or future law, whereby the rent or
any part thereof is, or is proposed to be reduced or payment thereof deferred;
or if Tenant makes an assignment for benefit or creditors; of if Tenant's
effects should be levied upon or attached under process against Tenant, not
satisfied or dissolved within sixty (60) days after written notice from
Landlord 11
to Tenant to obtain satisfaction thereof; then, and in any of said events,
Landlord at her option may at any time (but only during continuance of such
default or condition), terminate this Lease by written notice to Tenant,
whereupon this Lease shall end. After any assignment or subletting of the
entire Premises and/or equipment covered by this Lease, the occurring of any of
the foregoing defaults or events shall affect this Lease only if caused by, or
happening to, the assignee or sublessee. Any notice provided in this paragraph
may be given by Landlord, or her attorney. Upon such termination by Landlord,
Tenant will at once surrender possession of the Premises to Landlord and remove
all of Tenant's effects therefrom, and Landlord may forthwith reenter the
Premises and possess himself thereof, and remove all persons and effects
therefrom, using such force as may be necessary without being guilty of
trespass, forcible entry, or detainer or other tort.
13. SURRENDER OF PREMISES. The Premises shall be surrendered at the
expiration of the Lease to the Landlord in the same order and condition as they
were on the date same were delivered to the Tenant, normal wear and tear
excepted.
14. SURRENDER OF EOUIPMENT. The Tenant shall keep all of the personal
property listed in Exhibit A in good working order and 12
condition and at the expiration of this Lease shall return and deliver all of
such property to the Landlord. It is recognized by the parties that said
personal property may not last as long as the term of this Lease. In the event
that any of said personal property, in Tenant's opinion, wears out, becomes
obsolete or can not be repaired and maintained through the expenditure of
reasonable sums related to its value, then Tenant shall return said property
to Landlord at that time, in its then condition, and it shall be stricken from
Exhibit A and released from the terms of
this Lease.
15. WAIVER OF SUBROGATION. Landlord and Tenant mutually agree to waive any
right of subrogation which they may have against the other for any losses paid
to them on insurance policy or policies carried on the property to the extent
permitted by the terms of said policy or policies. 16. OPTION TO PURCHASE.
(a) Provided Tenant is not in default in the payment of any
obligation of Tenant to Landlord, or of any other covenant by it to be kept
and performed and due to Landlord, and further provided that Tenant does not
terminate this Lease prior to the end of the term in accordance with the
provisions of Paragraph 2 of this Lease, Tenant shall have the sole and
exclusive right, 13
privilege and option to purchase the Premises and the equipment and personal
property described on Exhibit A, attached hereto and made a part hereof.
(b) In the event of the exercise of said option, the
purchase price shall be the sum of $995,000.00. The purchase price shall be
payable in cash or certified funds at closing. Any condemnation awards paid to
Landlord shall reduce the purchase price recited herein by the amount of such
payment, provided Landlord shall not have expended said monies for the repair,
rebuilding, restoration or rearrangement of the improvements to the Premises as
provided for herein.
(c) In the event Tenant desires to exercise this option to
purchase, it shall give Landlord not less than ninety (90) days' written notice
prior to the end of the Lease term.
(d) In the event of exercise of this option to purchase by
Tenant as herein set out, closing of the sale-purchase shall be held on or
before October 31, 2006. Upon receipt of the purchase price, Landlord will
deliver to Tenant a good and sufficient deed for the real property in fee
simple with full covenants of general warranty and Landlord will also deliver
to Tenant bills of sale for the equipment and personal property listed in
Exhibit A attached hereto, all free from any liens and encumbrances. 14
17. SUCCESSORS AND ASSIGNS. It is hereby covenanted and agreed between the
Landlord and Tenant that all covenants,
conditions, agreements and undertakings, contained in this Lease shall extend
to and be binding on the respective heirs, executors, administrators,
successors and assigns of the respective parties hereto.
18. HOLDING OVER. If Tenant remains in possession of Premises after
expiration of the term hereof, with Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a tenant at will at rental
rate in effect at the end of the Lease, and there shall be no renewal of this
Lease by operation of law.
19. RIGHTS CUMULATIVE. All rights, powers and privileges conferred
hereunder upon parties hereto shall be cumulative, but not restrictive to those
given by law.
20. NOTICES. All notices required or desired to be given hereunder shall be
registered or certified United States Mail, return receipt requested, addressed
as follows:
As to Landlord
P.O. Box 378
West End, NC 27376
As to Tenant
P.O. Box 300
Addison, Alabama 35540
15
Either party may from time to time by written notice designate another place to
which notices shall be mailed and the attention of some other person to whom
notices shall be mailed.
21. WAIVER OF RIGHTS. No failure of Landlord to exercise any power given
Landlord hereunder, or to insist upon strict compliance by Tenant with his
obligation hereunder, and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Landlord's right to demand exact
compliance with the terms hereof. In the event any provision in this Agreement
should be breached by either party and thereafter waived by the other party,
such waiver shall be limited to the particular breach so waived and shall not
be deemed to waive any other breach hereunder. 22. TIME OF ESSENCE. Time is of
the essence of this Agreement. 23. ENTIRE AGREEMENT. This Lease contains the
entire agreement of the parties hereto and no representations, inducements,
promises or agreements, oral or otherwise, between the parties, not embodied
herein, shall be of any force or effect. IN WITNESS WHEREOF, the parties hereto
have executed this instrument the day and year first above written.
LANDLORD
VIRGINIA CARY L. McDONALD
TENANT
ATTEST: STAR INDUSTRIES, INC.
Frances Wakefield, Assistant Jerry F Wilson, President
Secretary
(Corporate Seal)
STATE OF NORTH CAROLINA
MOORE COUNTY
I, ______________________, a Notary Public, do hereby certify that VIRGINIA
CARY L. McDONALD personally appeared before me this day and acknowledged that
she signed the foregoing instrument.
Witness my hand and notarial seal this the ____________, 1996.
My Commission Expires:
STATE OF ALABAMA WINSTON COUNTY
day of
Notary Public
I,_________________, a Notary Public, certify that Frances Wakefield personally
came. before me this day and acknowledged that she is the Assistant Secretary
of STAR INDUSTRIES, INC., a Delaware corporation, and that by authority duly
given and as the act of the corporation, the foregoing instrument was signed in
its name by its President, sealed with its corporate seal and attested by her
as Assistant Secretary.
Witness my hand and notarial seal, this the __ day of
_____ , 1996.
Notary Public
My commission expires:
Exhibit 10(c)
STATE OF NORTH CAROLINA )
COUNTY OF ______________ )
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
THIS AGREEMENT is dated as of December 30, 1996 and entered into by and among;
("Assignor"): Star Industries, Inc.,
a Delaware corporation
P.O. Box 300
Addison, Alabama 35540
("Assignee"): Cavalier Industries, Inc.,
a Delaware corporation
P.O. Box 300
Addison, Alabama 35540
("Landlord"): Virgina Cary L. McDonald,
an individual residing in the
State of North Carolina
P.O. Box 378
West End, North Carolina 27376
for the purpose of assigning from Assignor to Assignee a Lease Agreement dated
October 16, 1996, between Virginia Cary L. McDonald, as Landlord, and Star
Industries, Inc., as Tenant ( the "Lease").
R E C I T A L S:
A. Landlord is the owner of the Leased Premises described
in Exhibit A and leased to Assignor pursuant to the terms of the Lease,
including the option to purchase the Leased Premises.
B. Assignor desires to assign unto Assignee all its right,
title and interest in and to the leasehold estate created under the Lease,
including the option to purchase, and Assignee desires to accept such assignment
and to assume all obligations under the Lease arising after the effective date
of the assignment.
NOW THEREFORE, in consideration of the premises and the
covenants and agreements hereinafter undertaken, and for other good and valuable
consideration, receipt of which is hereby acknowledged by the parties, the
parties agree as follows:
1. Effective Date. This assignment shall become effective
on December 30, 1996 (the "Effective Date").
2. Assignment of Leasehold. Assignor does hereby transfer,
sell, convey and assign unto Assignee all of Assignor's right, title and
interest in and to the leasehold estate created under the Lease, including the
option to purchase specifically set forth in said Lease and all other provisions
thereof.
3. Acceptance and Assumption. Assignee hereby accepts the
foregoing transfer and assignment of the leasehold estate as provided in Section
2 above, and specifically assumes and agrees to perform and observe each and
every term and condition to be performed or observed by Tenant pursuant to the
terms and provisions of the Lease effective as of the Effective Date; provided,
however, that Assignee shall have no responsibility whatever for any obligations
of Assignor under the Lease which shall have accrued prior to the Effective
Date.
4. Representations of Assignor. Assignor hereby represents
and warrants unto Assignee that:
(a) the Lease is in full force and effect and Assignor is
not in default thereunder;
(b) Assignor is the Tenant under the Lease and has full
authority to enter into this Agreement; and
(c) Assignor shall observe all conditions and shall perform
all obligations to be observed and performed on the part of the Tenant under the
Lease through the Effective Date of this Agreement.
5. Acknowledgement by Assignee. Assignee hereby acknowledges
(a) that it has reviewed the Lease prior to the execution of
this Agreement, and agrees to be bound as Tenant under the terms, conditions,
covenants and obligations as set forth in the Lease from and after the Effective
Date; and
(b) that it has examined the Lease Premises and that neither
Assignor nor Landlord has made any warranties, covenants or representations with
respect to the condition of the Leased Premises.
6. Surrender of Premises. As of the Effective Date, Assignor
shall surrender to Assignee the premises in good, broom-clean condition, wear
and tear excepted,and shall surrender all keys for the premises to the Assignee.
7. Notices. Section 20 of the Lease is hereby amended
to provide that any notice to be given to Tenant shall be delivered as follows:
Cavalier Industries, Inc.
P.O. Box 300
Addison, Alabama 35540
8. Miscellaneous. All the terms and conditions of the Lease
shall remain and continue in full force and effect, including the option to
purchase. In case of any inconsistency between the Lease and this Agreement,
this Agreement shall govern and control. This Agreement may be amended, modified
or cancelled only be an instrument in writing signed by all parties hereto. This
Agreement may be executed in any number of counterparts, each of which, when so
executed, shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first written above.
ASSIGNOR:
STAR INDUSTRIES, INC.,
a Delaware corporation
Michael R. Murphy
Its President
ASSIGNEE:
CAVALIER INDUSTRIES, INC.,
a Delaware corporation
Michael R. Murphy
Its Vice President
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that Michael R. Murphy, whose name as President of Star
Industries, Inc., a Delaware corporation, is signed to the foregoing instrument
and who is known to me, acknowledged before me on this day that, being informed
of the contents of the foregoing instrument, he, in his capacity as such officer
and with full authority, executed the same voluntarily for and as the act of
said corporation on the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: ______________
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that Michael R. Murphy, whose name as Vice President of
Cavalier Industries, Inc., a Delaware corporation, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the foregoing instrument, he, in his capacity
as such officer and with full authority, executed the same voluntarily for and
as the act of said corporation on the day the same bears date.
Given under my hand this ______ day of ________________________________, 1996.
Notary Public
My Commission expires: __________________
<PAGE>
CONSENT
Virginia Cary L. McDonald ("Landlord"), as landlord under that
certain Lease Agreement (the "Lease") dated October 16, 1996, between Landlord
and Star Industries, Inc. (the "Assignor"), as Tenant, does hereby expressly
consent to the assignment of the leasehold estate created under the Lease by
Assignor unto Cavalier Industries, Inc. (the "Assignee"), on the express
condition that Assignee shall execute an Assignment and Assumption of Lease
Agreement whereby it shall assume all obligations of Assignor under the Lease
from and after the effective date of such Assignment and Assumption Agreement.
Landlord understands that Assignee is a Delaware corporation and based upon such
representation, does hereby agree that, effective simultaneously with the
Assignor's assignment and Assignee's assumption of the Lease, Assignee shall be
substituted for Assignor as Tenant under the Lease.
Dated as of the ______ day of _________________________,
19____.
LANDLORD:
Virginia Cary L. McDonald
STATE OF NORTH CAROLINA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that Virginia Cary L. McDonald, whose name is signed to
the foregoing instrument and who is known to me, acknowledged before me on this
day that, being informed of the contents of the foregoing instrument, she
executed the same voluntarily on the day the same bears date.
Given under my hand this ______ day of __________________________________, 1996.
Notary Public
My Commission Expires: _________________
Exhibit 10(i)
AMENDMENT TO CAVALIER HOMES, INC.
1993 AMENDED AND RESTATED NONEMPLOYEE
DIRECTORS STOCK OPTION PLAN
As directed by the Board of Directors of Cavalier Homes, Inc. ( the "Company")
at its meeting held on January 17, 1991 the 1993 Amended and Restated
Nonemployee Directors Stock Option Plan, as amended from time to time, is hereby
further amended in order to provide for the cancellation of an option to
purchase 25,000 shares with an option price of $15.40 granted on July 16, 1996
under such plan and the issuance of a new option having a lower option price and
for a number of shares of the Comrnon Stock of the Company reduced in proportion
to the lowering of the option price, to be effected by inserting the following
as Section 10.2 of Article X:
ARTICLE X
Section 10.2 Repricing of Option Granted on July 16, 1996.
The Option granted hereunder on July 16, 1996 to purchase 20,000 shares (25,000
shares following the November 1996 five-for-four stock split) of Stock to Gerald
R. Moore, a director who is not also an employee of the Company, at a per share
price of $19.25 ($15.40 after the aforementioned stock split), shall be
canceled, with the cancellation of such Option to be subject to the consent and
approval of the holder thereof and to the termination of the Stock Option
Agreement respecting such Option, and a new Option to purchase 17,250 shares of
Stock shall be granted to the holder of such Option so canceled, with such new
Option and the shales of stock to be issued upon exercise thereof to be subject
to the terms and conditions of the Plan and Stock Option Agreement which shall
set forth such terms and conditions as may be determined by the Administrator to
be consistent with the Plan, including, without limitation, this Section 10.2.
The terms and conditions of such Option shall bc identical to all those of the
Option so canceled, excepting only that the per share price of the Stock subject
to such new Option shall be $10.625 and that the number of shares of Stock
subject thereto shall be reduced to to number indicated in the preceding
sentence.
- ------------------------
Barry B. Donnell
<PAGE>
AMENDMENT TO CAVALIER HOMES, INC.
1993 AMENDED AND RESTATED NONEMPLOYEE
DIRECTORS STOCK OPTION PLAN
As directed by the Board of Directors of Cavalier Homes, Inc. ( the "Company")
at its meeting held on January 17, 1995 the 1993 Amended and Restated
Nonemployee Directors Stock Option Plan, as amended from time to time, is hereby
further amended in order to provide for the cancellation of an option to
purchase 18,750 shares with an option price of $16.625 granted on July 14, 1994
under such plan and the issuance of a new option having a lower option price and
for a number of shares of the Comrnon Stock of the Company reduced in proportion
to the lowering of the option price, to be effected by inserting the following
Article X:
ARTICLE X
REPRICING OF OPTIONS
GRANTED UNDER PLAN
Section 10.1 Repricing of Option Granted on January 14, 1994.
The Option granted hereunder on January 14, 1994 to purchase 6,250 shares of
Stock to each of Thomas A. Broughton, III, Lee Roy Jordan and John W Lowe,
directors who are not also employees of the Company, at a per share price of
$16.625 shall be canceled, with the cancellation of such Option to be subject to
the consent and approval of the holder thereof and to the terminations of the
Stock Option Agreements respecting such Option, and a new Option to purchase
4,085 shares of Stock shall be granted to each of the holders of such Options so
canceled, with such new Options and the shares of stock to be issued upon
exercise thereof to be subject to the terms and conditions of the Plan and Stock
Option Agreements which shall set forth such terms and conditions as may be
determined by the Administrator to be consistent with the Plan, including,
without limitation, this Section 10.1. The terms and conditions of such Options
shall be identical to all those of the Options so canceled, excepting only that
the per share price of the Stock subject to such new Options shall be $10.875
and that the number of shares of Stock subject thereto shall be reduced to to
number indicated in the preceding sentence.
- ------------------------
Barry B. Donnell
Exhibit 10(q)
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (this "Agreement") dated as of
January 2, 1997 is made by and among First Commercial Bank, an Alabama state
banking corporation (the "Lender"), Cavalier Homes, Inc., a Delaware corporation
("Cavalier Homes"), and the other entities whom are presently Borrowers under
that certain Revolving, Warehouse and Term Loan Agreement dated as of February
17, 1994, as heretofore amended (Cavalier Homes and such other Borrowers being
herein referred to as the "Borrowers"), and Cavalier Manufacturing, Inc., a
Delaware corporation ("CMI"), and Cavalier Industries, Inc., a Delaware
corporation ("CII") (each an "Assuming Entity" and collectively, the "Assuming
Entities").
R E C I T A L S :
<PAGE>
Lender and Cavalier Homes, Cavalier Homes of Alabama, Inc., an
Alabama corporation ("CHA"), Cavalier Town & Country of Texas, Inc., a Texas
corporation (formerly Cavalier Homes of Texas, Inc.) ("CT&C"), Star Industries,
Inc., a Delaware corporation ("Star"), Buccaneer Homes of Alabama, Inc., an
Alabama corporation ("BHA"), Brigadier Homes of North Carolina, Inc., a North
Carolina corporation ("BHNC"), Mansion Homes, Inc., a North Carolina corporation
("Mansion"), Homestead Homes, Inc., a Georgia corporation ("Homestead"), and
Cavalier Acceptance Corporation, an Alabama corporation ("Cavalier Acceptance"),
as Borrowers, have heretofore entered into a Revolving, Warehouse and Term Loan
Agreement dated as of February 17, 1994, as amended by that certain First
Amendment to Revolving, Warehouse and Term Loan Agreement dated March 14, 1996
(as the same has been amended to and including the date hereof, the "Loan
Agreement"). Capitalized terms used in this Agreement, unless otherwise defined
herein, will have the meanings given to them in the Loan Agreement.
Under the terms of the Loan Agreement, as amended, Lender has
agreed to lend to Borrowers up to $5,000,000 on a revolving basis (the
"Revolving Loan Commitment") and to Cavalier Acceptance, one of the Borrowers,
up to $18,000,000 pursuant to a warehouse and term loan facility, but solely on
the terms and conditions specified in the Loan Agreement.
Pursuant to an internal reorganization of Cavalier Homes and
certain entities controlled by it, among other things, (i) Star has been
dissolved, effective as of December 30, 1996, and Cavalier Homes, as its sole
stockholder, has assumed all of Star's liabilities and obligations to Lender,
including, without limitation, the Loan Agreement, the Revolving Note and the
other Obligations, (ii) CHA, CT&C, Riverchase Homes, Inc., an Alabama
corporation, and BHA have merged, effective as of January 1, 1997, with and into
CMI, a wholly-owned subsidiary of Cavalier Homes, with CMI assuming all the
liabilities and obligations of such merging entities, including, without
limitation, all of CHA's, CT&C's and BHA's liabilities and obligations to Lender
under the Loan Agreement, the Revolving Loan and the other Obligations, and
(iii) Homestead, Astro Mfg., Co., Inc., a Pennsylvania corporation, BHNC and
Mansion have merged, effective as of January 1, 1997, with and into CII, a
wholly-owned subsidiary of Cavalier Homes, with CII assuming all the liabilities
and obligations of such merging entities, including, without limitation, all of
Homestead's, BHNC's and Mansion's obligations to Lender under the Loan
Agreement, the Revolving Loan and the other Obligations.
Each of the Assuming Entities desires to become obligated as a
Borrower, jointly and severally, with Cavalier Homes and the other Borrowers,
with respect to the Loan Agreement, the Revolving Loan and the other Obligations
and to take all other action necessary to become a Borrower and a Participating
Subsidiary (as such term is hereinafter defined) under the Loan Agreement, and
to cause all of Assuming Entity's Accounts, Inventory and other specified
assets, whether now owned or hereafter acquired, to be included in the
Collateral, as defined in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual agreements herein set forth, and to induce Lender to make Advances
under the Loan Agreement, and in further consideration of the substantial
material benefit to accrue to each of the Assuming Entities from Advances made
and to be made by Lender under the Revolving Loan, the parties hereto agree as
follows:
<PAGE>
1. Each of the Assuming Entities hereby assumes and agrees
that it is and shall be fully liable, jointly and severally with the other
Borrowers, for the Obligations, and all covenants, agreements, warranties and
representations with respect to the Revolving Loan set forth in the Loan
Agreement and the Revolving Note, and hereby agrees that it is and shall be a
party to, and a Borrower under the terms of, the Loan Agreement, the Revolving
Note, and the other Loan Documents, with the same force and effect as would be
the case if Assuming Entity had been named as a Borrower in and had executed and
delivered the Loan Agreement, the Revolving Note, and the other Loan Documents
to Lender at Closing; provided, however, that its liability with respect to the
Obligations shall be limited to an amount equal to the greater of (i) 95% of
Assuming Entity's Net Worth (as hereinafter defined) from time to time; or (ii)
the amount that in a legal proceeding brought within the applicable limitations
period is determined by the final, non-appealable order of a court having
jurisdiction over the issue and the applicable parties to be the amount of value
given by Lender, or received by Assuming Entity, in exchange for the obligations
of Assuming Entity under this Agreement and the Loan Agreement. As used in this
Section 1, "Net Worth" shall mean (x) the fair value of the property of the
Assuming Entity from time to time (taking into consideration the value, if any,
of rights of subrogation, contribution and indemnity), minus (y) the total
liabilities of Assuming Entity (including contingent liabilities [discounted in
appropriate instances], but excluding liabilities of the Assuming Entity under
this Agreement and the Loan Agreement) from time to time.
2. As security for the prompt satisfaction of all Obligations,
each of the Assuming Entities hereby assigns, transfers and conveys to Lender
all of such Assuming Entity's right, title and interest in and to, and grants
Lender a lien on and a security interest in, all amounts that may be owing from
time to time by Lender to Assuming Entity in any capacity, including, without
limitation, any balance or share belonging to Assuming Entity, of any deposit or
other account with Lender, which lien and security interest shall be independent
of any right of set-off which Lender may have.
<PAGE>
3. As further security for the prompt satisfaction of all
Obligations, in addition to any other or further security provided under the
Loan Agreement or any of the Security Documents, each of the Assuming Entities
hereby assigns to Lender all of such Assuming Entity's right, title and interest
in and to, and grants Lender a lien upon and security interest in, all of the
following, wherever located, whether now owned or hereafter acquired, together
with all replacements therefor and proceeds (including, without limitation,
insurance proceeds) thereof (all of which shall constitute original Collateral
under this Agreement and the Loan Agreement):
a. Accounts;
b. Chattel Paper;
c. Contracts;
d. Contract Rights;
e. Documents;
f. Eligible Contracts;
g. General Intangibles;
h. Instruments;
i. Inventory;
j. Rights as seller of Goods and rights to
returned, repossessed or reclaimed Goods;
and
k. All Records pertaining to any of the
Collateral.
4. The foregoing liens shall be first and prior liens except
for Permitted Liens. The Collateral and all of each Assuming Entity's other
property of any kind held by Lender shall stand as one general, continuing
collateral security for all Obligations and may be retained by Lender until all
Obligations have been satisfied in full and Lender's commitment to lend under
the Loan Agreement has been terminated.
5. Each of the Assuming Entities acknowledges that it has had
full and complete access to the underlying papers relating to the Obligations
and all other papers executed by any person in connection with the Obligations,
has reviewed them and is fully aware of the meaning and effect of their
contents. Each of the Assuming Entities is fully informed of all circumstances
that bear upon the risks of executing this Agreement and which a diligent
inquiry would reveal. Each of the Assuming Entities has adequate means to obtain
from the Borrowers on a continuing basis information concerning the financial
condition of any or all of the Borrowers and is not depending on Lender to
provide such information, now or in the future. Each of the Assuming Entities
agrees that Lender shall have no obligation to advise or notify it or to provide
it with any data or information. The execution and delivery of this Agreement is
not a condition precedent (and Lender has not in any way implied that the
execution of this agreement is a condition precedent) to Lender's making,
extending or modifying any loan or any other financial accommodation to or for
such Assuming Entity otherwise than under the Loan Agreement.
<PAGE>
6. Each of the Assuming Entities hereby unconditionally agrees
to pay and perform all of the Obligations, whether now existing or hereafter
incurred or arising (subject to the proviso of Section 1 above).
7. Each of the Assuming Entities hereby specifically
acknowledges and agrees, without limiting the generality of the other provisions
of this Agreement, to be bound by the terms and conditions specified in the Loan
Agreement, as the same may be amended, including, without limitation, agreements
whereby such Assuming Entity appoints Cavalier Homes as its agent and
attorney-in-fact to act on its behalf for all purposes of the Loan Agreement and
the other Loan Documents.
8. Each of the Assuming Entities hereby agrees that the
obligations and liabilities of such Assuming Entity with respect to the
Obligations are joint and several, continuing, absolute and unconditional
(subject to the proviso of Section 1 above). Without limiting the generality of
the foregoing, the obligations and liabilities of each of the Assuming Entities
with respect to the Revolving Loan and the Revolving Note or under the Security
Documents executed by such Assuming Entity shall not be released, discharged,
impaired, modified or in any way affected by (a) the invalidity or
unenforceability of any Loan Document, (b) the failure of the Lender to give
Assuming Entity a copy of any notice given to the Borrowers or any of them, (c)
any modification, amendment or supplement of any obligation, covenant or
agreement contained in any Loan Document, (d) any compromise, settlement,
release or termination of any obligation, covenant or agreement in any loan
document, (e) any waiver of payment, performance or observance by or in favor of
the Borrowers or any of them of any obligation, covenant or agreement under any
Loan Document, (f) any consent, extension, indulgence or other action or
inaction, or any exercise or non-exercise of any right, remedy or privilege with
respect to any Loan Document, (g) the extension of time for payment or
performance of any of the Obligations, (h) the release or discharge of Lender's
claims against any collateral now or at any time hereafter securing any of the
Obligations, the other Borrowers, or any of them, by operation of law or
otherwise or (i) any other matter that might otherwise be raised in avoidance
of, or in defense against an action to enforce, the obligations of each such
Assuming Entity under this Agreement, the Loan Agreement, the Revolving Note or
any other Loan Document.
9. Each of the Assuming Entities covenants and agrees with
Lender as follows:
(a) Such Assuming Entity will not without Lender's
consent (i) sell, lease, transfer or otherwise dispose of, in a single
transaction or a series of related transactions, the whole of its
business or assets or such part thereof as in the opinion of Lender
constitutes a substantial portion thereof; or (ii) liquidate, wind up
or dissolve, or enter into any consolidation, merger, syndication or
other combination or engage in any other reorganization or
recapitalization; provided, however, that Assuming Entity may sell,
lease, transfer or dispose of all or any portion of its business or
assets to any other Consolidated Entity or Consolidated Entities or to
any Borrower or merge into or consolidate with any other Borrower or
one or more of the Consolidated Entities, so long as the entity to
which such business or assets are sold, leased, transferred or disposed
of or which survives or results from any such merger or consolidation
is a Borrower under the Loan Agreement.
(b) Such Assuming Entity will not incur, create,
assume or permit to exist any lien upon any of its properties or assets
of any character, real, personal or mixed, whether now owned or
hereafter acquired, other than liens that constitute Permitted Liens.
(c) Any action taken or attempted to be taken by
Assuming Entity in violation of the provisions of clause (a) above and
any lien incurred, created, assumed or permitted to exist in violation
of the provisions of clause (b) above shall be null, void and of no
force or effect whatsoever.
(d) Such Assuming Entity will execute such financing
statements (including amendments thereto and continuation statements
thereof), in form satisfactory to Lender as Lender may from time to
time specify; pay, or reimburse Lender for paying, all costs and taxes
of filing or recording the same in such public offices as Lender may
designate; deliver such of the Collateral which in the sole judgment of
Lender is best perfected by possession, to Lender or its designated
agent or bailee; and take such other steps as Lender may from time to
time direct, including, without limitation, the noting of Lender's lien
on the Collateral and on any certificates of title therefor, all to
perfect Lender's security interest in the Collateral.
(e) Such Assuming Entity will deliver immediately to
Lender any Chattel Paper or Instruments arising out of the Collateral
usually, but not exclusively, as proceeds. Further, Assuming Entity
hereby agrees that such Chattel Paper or Instruments constitute
original Collateral rather than proceeds; but if proceeds, then
Lender's security interest created by this Agreement in the Chattel
Paper or Instruments shall not be claimed merely as proceeds.
(f) Such Assuming Entity will comply with all of the
obligations, requirements and restrictions in the covenants contained
in Article VII of the Loan Agreement, to the extent they are now
applicable, or may hereafter be amended to be applicable, to a Borrower
that is a Participating Subsidiary.
(g) Such Assuming Entity shall, promptly upon demand
by Lender therefor upon the occurrence and during the continuance of an
Event of Default, execute and deliver to Lender from time to time such
security agreements and other collateral documents, together with any
related financing statements and other instruments, as Lender may
request granting to Lender a lien on any or all real property,
Accounts, Chattel Paper, Contracts, Contract Rights, Documents, General
Intangibles, Instruments, Inventory, rights as seller of Goods and
rights to returned, repossessed or reclaimed Goods, and all Records
pertaining to any of the Collateral of Assuming Entity, all as
collateral security for the Obligations, it being understood and agreed
that the rights of Lender under this clause (g) shall be in addition
to, and cumulative of, all other rights of the Lender under the terms
of the Loan Agreement to require collateral as security for the
Obligations. Any lien granted under this Agreement or under Article V
of the Loan Agreement by Assuming Entity shall secure the Obligations
only to the extent that Assuming Entity is liable therefor under the
terms of this Agreement and the Loan Agreement.
(h) Such Assuming Entity will not exercise any rights
that it may acquire by way of subrogation under this Agreement or any
Subrogation and Contribution Agreement or by any payment made hereunder
or under any of the other Loan Documents or otherwise, until all the
Obligations have been paid in full and the Loan Agreement has been
terminated. If any amount shall be paid to Assuming Entity on account
of any such subrogation rights at any time when all of the Obligations
shall not have been paid in full and the Loan Agreement terminated,
such amount shall be held in trust for the benefit of the Lender and
shall be paid forthwith to the Lender to be credited and applied upon
the Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Documents.
(i) Such Assuming Entity will not amend or waive any
provision of the Subrogation and Contribution Agreement entered into by
Assuming Entities and Borrowers nor consent to any departure by
Borrowers or any other Participating Subsidiary or Participating
Partnership from such Subrogation and Contribution Agreement or from
any similar Subrogation and Contribution Agreements executed by other
Participating Subsidiaries and Participating Partnerships, without
having obtained the prior written consent of Lender to such amendment,
waiver or consent.
10. Each of the Assuming Entities agrees that it is, and for
all purposes of the Loan Agreement, the Revolving Note and the other Loan
Documents shall be, a Borrower and a Participating Subsidiary.
11. Assuming Entities, Borrowers and Lender hereby agree that
Exhibits II.6.1(B), II.6.1(D), II.6.1(I), II.7.2(G), F, G, H, I, J, and K to the
Loan Agreement are hereby supplemented by the respective Supplements attached
hereto which relate to the Assuming Entities.
12. This Agreement shall bind each Assuming Entity's
successors and assigns and shall inure to the benefit of, and be enforceable by,
Lender and its successors and assigns. This Agreement may only be waived,
modified or amended by a written instrument signed by the party against which
the enforcement thereof is sought. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of Alabama,
without regard to such state's rules regarding conflicts of law. If any term of
this Agreement shall be invalid or unenforceable, the remainder of this
Agreement shall remain in full force and effect. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
shall constitute one agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede any inconsistent agreement with respects to the
subject matter hereof and thereof.
Initial (Cavalier Homes, for itself Initial (Lender) Initial (CMI)
and as agent for the other Borrowers)
Initial (CII)
13. JURISDICTION; WAIVERS.
(A) JURY WAIVER. EACH OF THE ASSUMING ENTITIES,
BORROWERS AND LENDER HEREBY:
(1) IRREVOCABLY AND UNCONDITIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OR
COUNTERCLAIM OF ANY TYPE AS TO ANY MATTER ARISING DIRECTLY OR
INDIRECTLY OUT OF OR WITH RESPECT TO THIS AGREEMENT, THE LOAN
AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH; AND
(2) AGREES THAT ANY OF THEM MAY FILE A COPY
OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT BETWEEN THE PARTIES
IRREVOCABLY TO WAIVE TRIAL BY JURY,AND THAT ANY DISPUTE OR CONTROVERSY
OF ANY KIND WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
(B) CONSENT TO JURISDICTION; WAIVER OF VENUE.
EACH OF THE ASSUMING ENTITIES, BORROWERS AND LENDER HEREBY:
(1) KNOWINGLY AND VOLUNTARILY CONSENTS TO
THE PERSONAL JURISDICTION OF ANY COURT OF COMPETENT SUBJECT MATTER
JURISDICTION (WHETHER STATE OR FEDERAL) HOLDING IN BIRMINGHAM,
JEFFERSON COUNTY, ALABAMA, FOR THE DETERMINATION OF ANY CLAIM OR
CONTROVERSY ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT,
THE LOAN AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT, OR ANY
OTHER DOCUMENT EXECUTED IN CONNECTION
HEREWITH OR THEREWITH; AND KNOWINGLY AND VOLUNTARILY WAIVES ANY
OBJECTION TO THE EXERCISE OF PERSONAL JURISDICTION OVER IT BY SAID
COURTS ON THE GROUND THAT IT DOES NOT HAVE THE REQUISITE MINIMUM
CONTACTS WITH THE STATE OF ALABAMA OR THAT EXERCISE OF SUCH
JURISDICTION OTHERWISE FAILS TO MEET THE REQUIREMENTS OF MINIMUM
CONTACTS OR DUE PROCESS UNDER THE CONSTITUTION OF THE UNITED STATES OR
THE STATE OF ALABAMA; AND AGREES THAT SERVICE OF PROCESS ON IT AT ITS
ADDRESS SET FORTH BELOW, OR IN SECTION 10.6 OF THE LOAN AGREEMENT, IN
ACCORDANCE WITH THE PROVISIONS OF THE ALABAMA RULES OF CIVIL PROCEDURE
WILL BE SUFFICIENT NOTICE OF ANY PROCEEDING AGAINST ANY OF THE
UNDERSIGNED IN ANY SUCH COURT, AND WAIVES ANY REQUIREMENT OF OTHER OR
ADDITIONAL SERVICE OF PROCESS OR NOTICE OF ANY SUCH PROCEEDING; AND
FURTHER AGREES THAT EXERCISE OF JURISDICTION OVER IT BY COURTS HOLDING
IN BIRMINGHAM, JEFFERSON COUNTY, ALABAMA SHALL BE IN ADDITION TO, AND
NOT IN LIEU OF, THE EXERCISE OF JURISDICTION OVER IT BY ANY OTHER COURT
OF COMPETENT JURISDICTION, WHETHER WITHIN OR WITHOUT THE STATE OF
ALABAMA; AND
(2) KNOWINGLY AND VOLUNTARILY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY
ACTION OR PROCEEDING AGAINST IT IN ANY COURT MENTIONED HEREINABOVE
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT
AND AGREES NOT TO PLEAD OR CLAIM THE SAME.
14. Each of the Assuming Entities and the other Borrowers, jointly and
severally, agree to pay directly or reimburse Lender, on demand, for all of
Lender's expenses, including the reasonable fees and expenses of its legal
counsel, UCC filing fees and similar expenses, incurred in connection with the
preparation, amendment, modification or enforcement of this Agreement or the
Loan Agreement, and the collection or attempted collection of the Notes.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
ASSUMING ENTITIES:
CAVALIER MANUFACTURING, INC.
By: [L.S.]
Name:
Its:
Address:
Taxpayer Identification #:
CAVALIER INDUSTRIES, INC.
By: [L.S.]
Name:
Its:
Address:
Taxpayer Identification #:
BORROWERS:
CAVALIER HOMES, INC.
for itself and as agent for the other Borrowers
By: [L.S.]
Name:
Its:
LENDER:
FIRST COMMERCIAL BANK
By: [L.S.]
Its:
<PAGE>
SUPPLEMENT TO EXHIBIT II.6.1(B)
Other Corporate and Fictitious Names
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT II.6.1(D)
Mergers, Acquisitions, and Certain Changes
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT II.6.1(I)
Claims, Litigation*
[Information to be provided by Borrowers.]
*Claims not covered by insurance
<PAGE>
SUPPLEMENT TO EXHIBIT II.7.2(G)
Existing Guaranties
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT F
Existing Liens
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT G
Qualification to do Business
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT H
Places of Business
[Information to be provided by Borrowers.]
Locations of Collateral
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT I
Existing Indebtedness
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT J
State of Incorporation of Consolidated Entities
[Information to be provided by Borrowers.]
<PAGE>
SUPPLEMENT TO EXHIBIT K
Cavalier Homes' Ownership of Consolidated Entities
[Information to be provided by Borrowers.]
Exhibit 10(u)
COMMERCIAL SUB-LEASE
The Commercial Sub-Lease and Agreement made as of the ____ day of
_________, 1996, between Jerry F. Wilson, John W Lowe, and Robert Lowell
Burdick, (all of whom are hereinafter collectively referred to as "Landlord"),
whose address is c/o Jerry F. Wilson, Route 6, Box 238, Hamilton, Alabama 35570,
and Cavalier Homes of Alabama, Inc., an Alabama Corporation, (hereinafter
referred to as "Tenant") whose address is P. O. Box 300, Addison, Alabama 35540.
Whereas, Landlord has certain buildings, fixtures, equipment, and
property located at or near Addison, Winston County, Alabama, wherein Landlord
is the Lessee under a Lease Agreement with Option to Purchase with The
Industrial Development Board of the Town of Addison; and,
Whereas, Landlord and Tenant (who will be a sub-lessee of Landlord)
wish to enter into a Commercial Sub-Lease for a period of twenty-four (24)
months with an option to renew for an additional thirty-six (36) months, on the
terms and conditions hereinafter set forth:
<PAGE>
1. DESCRIPTION OF PROPERTY: That Landlord has and does hereby lease
(and/or sub-lease) unto the said Tenant equipment, personal property, and
fixtures described in Schedule "A" attached hereto, (hereinafter referred to as
"Equipment"), and does further lease (and/or sub-lease) the following described
real estate, both of which are situated in or near the Town of Addison, County
of Winston, and State of Alabama, (hereinafter referred to as the "Premises"):
(See Attached Schedule "B" for description of the real estate)
TO HAVE AND TO HOLD the Premises unto the Tenant for an original term
of twenty-four (24) months commencing as stated in paragraph 3(b) herein.
2. RENEWAL TERM. (a) (First Option To Renew). Landlord covenants and agrees
that Tenant shall have the automatic option of extending this lease for
thirty-six (36) months on the same terms and conditions as the original lease,
except as hereinafter stated in paragraph 3.1, provided that unless Tenant fails
to give Landlord thirty (30) days written notice prior to the termination of the
original lease term of its intent not to renew the first option in this lease,
the lease shall automatically renew, provided that at the beginning of the first
option period the Tenant is not in default in the payment of rent or any other
provisions in this lease.
3. RENT. Tenant hereby covenants and agrees to pay Landlord rent for the
Premises as follows:
<PAGE>
(i) Tenant covenants and agrees to pay Landlord as rent for said
Equipment and Premises the sum of Three Hundred Sixty Thousand and No/100
($360,000.00) Dollars for said term. The first rental payment will be due as set
forth in paragraph 3(b) and on the 6th day of each month thereafter payable in
twenty-four (24) consecutive monthly installments, in advance, of rent being in
the sum of Fifteen Thousand and No/100 ($15,000.00) Dollars per month.
(b) The first rental payment due under the original term of this lease
shall be due and payable as of the 6th day of September,1996.
3.1. OPTION TO RENEW (RENT). In the event Tenant renews this lease at
the end of its original term (first option to renew), Tenant covenants and
agrees to pay Landlord as rent for the Equipment and Premises the sum of
Eighteen Thousand and No/100 ($18,000.00) Dollars per month for the renewal term
to be payable in consecutive monthly installments on the 6th day of each month,
and all other terms and conditions of this lease will remain the same.
<PAGE>
4. OPTION TO PURCHASE. (a) Tenant is hereby granted an exclusive option
to purchase the Equipment and Premises by giving ninety (90) days prior written
notice of the exercise of such option to Landlord during the original term of
this lease or during any renewal thereof. (Said option to purchase the Equipment
and Premises being hereinafter referred to as the "Option"). The purchase price
to be paid by Tenant to Landlord at the closing in the event the Option is
exercised and the sale of the Equipment and Premises is consummated pursuant
thereto, shall be the sum of $2,100,000, payable in cash at the closing (the
"Closing") of such sale, and shall be in addition to any rent or other sums
theretofore paid or payable by Tenant to Landlord under this lease through the
period ending on the date of the Closing (the "Closing Date").
<PAGE>
(b) In the event Tenant gives notice to Landlord of the exercise of the
Option, Landlord agrees to use its best efforts to acquire title to the
Equipment and the Premises, which shall be fee simple title in the case of the
Premises, from the Industrial Development Board of the Town of Addison,
including, without limitation, curing any defaults under that certain lease
agreement by and between the Board and the Landlord dated as of June 1, 1984
(the "Prime Lease"), thereafter exercising its option to purchase the Equipment
and the Premises under Section 9.4 of the Prime Lease and terminating the Prime
Lease, and otherwise taking such actions as may be necessary to provide for the
redemption of the Bond, the release of the mortgage on the Mortgaged Realty by
the Trustee, and the discharge of the Indenture. Landlord shall be entitled to
make its obligations to acquire such title contingent upon a contemporaneous
closing of the purchase of the Equipment and Premises pursuant to the Option. In
the event Landlord exercises its best efforts as aforesaid, such acquisition of
title shall be a condition precedent to the enforceability against either
Landlord or Tenant of the Option granted hereunder or the exercise thereof.
(c) Tenant shall have the right, at its expense (except as provided in
subsection (d) hereof), to conduct an examination of Landlord's title to the
Equipment and Premises and, in the judgment of Tenant, exercised in good faith
and based upon such examination, if such title is not at any time in a condition
satisfactory to Tenant, Tenant shall have the right to elect not to consummate
the purchase of the Equipment and the Premises by written notice given to
Landlord at any time prior to the consummation of said purchase. Tenant agrees
to give Landlord prompt notice in the event it obtains knowledge of any fact or
matter constituting a defect in Landlord's title, and in the event the title is
defective, Landlord agrees to use its best efforts to promptly correct said
defect. Tenant's election not to consummate the purchase of the Equipment and
the Premises as herein provided shall not affect this lease nor in any way limit
or affect Tenant's right to exercise the Option at
<PAGE>
a later time during the term of this lease or any renewal thereof as provided in
subsection (a) of this Section 4.
<PAGE>
(d) The Closing of the purchase of the Equipment and Premises provided
for in this Section 4 shall take place at the end of the ninety (90) day notice
period provided for herein, or at such other time as the parties may mutually
agree upon in writing. Conveyance of the Premises shall be made by general
warranty deed with full covenants and warranties of title, free of all
encumbrances except those as may be approved in writing by Tenant, and
conveyance of the Equipment shall be made by a bill of sale providing for a sale
in "As Is" condition but free and clear of all liens, against payment in full in
cash of the purchase price provided for herein. Possession shall be given upon
delivery of the deed and bill of sale. Landlord shall furnish to Tenant, at
Tenant's expense, a current, standard form title insurance binder with respect
to the Premises issued by a reputable title insurance company in the amount of
the purchase price. The title insurance binder shall show merchantable fee
simple title to the Premises in the Landlord, free and clear of all liens,
encumbrances and exceptions, except as may be otherwise approved by Tenant in
writing prior to the consummation of the sale. Tenant shall bear all charges of
the title company for the title premium for the issuance of the title insurance
policy. Landlord further shall furnish, at Tenant's expense, such reasonable
surveys of the Premises as may be reasonably requested by the Tenant.
(e) The right to exercise the Option shall expire upon the expiration
or earlier termination of the original term of this lease if not renewed, and,
if renewed, upon the expiration or earlier termination of the renewal term of
this lease.
<PAGE>
(f) In the alternative to exercising the Option provided for in
subparagraphs (a) through (e) hereof, Tenant shall have the exclusive right and
option (the "Leasehold Option") herein granted by the Landlord to acquire,
subject to the terms and conditions of Section 6.1 of the Prime Lease, the
leasehold interest of the Landlord in the Prime Lease (including the option to
purchase) on any installment payment date, as defined in the Prime Lease. To
exercise the Leasehold Option, the Tenant shall give written notice of the
Landlord not more than ninety (90) days nor less than forty-five (45) days prior
to such installment payment date. The purchase price payable by the Tenant in
the event of the exercise of the Leasehold Option, which shall be payable in
cash at the Closing, shall be $2,100,000. Upon the consummation of such
purchase, the Landlord will assign to Tenant all its right, title and interest
in the Prime Lease, and the Tenant will assume all the obligations of Landlord
under the Prime Lease that accrue after the Closing. Tenant further shall be
entitled to the benefit of the title matters set forth in subparagraph (c) and
(d) hereof. In the alternative to an assignment and assumption of the Prime
Lease, the Landlord and the Tenant recognize and agree that upon the purchase of
the right, title, and interest of the Landlord in and to the Prime Lease
pursuant to the provisions of this subparagraph, the Tenant may elect to
exercise the option to purchase the Project granted in Section 9.4 of the Prime
Lease.
(g) The right to exercise the Leasehold Option shall expire upon the
expiration or earlier termination of the original term of this lease if not
renewed, and, if renewed, upon the expiration or earlier termination of the
renewal term of this lease.
5. TENANT'S PROPERTY. All furniture, machinery, and equipment of every
kind and nature installed or placed upon the leased Premises by Tenant shall
remain the property of Tenant and may be removed by Tenant at or prior to the
expiration or termination of this lease agreement, provided that all terms and
conditions of this lease agreement have been complied with by Tenant, and
provided further, that Tenant repair any damage to the leased building caused by
such removal and shall not permit any damage or weakening of the structural
integrity of said building to occur by such removal.
<PAGE>
Notwithstanding the foregoing, in the event that Tenant shall hereafter
make any structural changes, additions, improvements, alterations or
replacements to the Premises that do not constitute furniture, fixtures,
machinery or equipment, or in the event Tenant makes any substitutions or
replacements of the Equipment, such structural changes, additions, improvements,
alterations or replacements shall be deemed to constitute a part of the
Equipment and Premises, subject to being delivered to Landlord pursuant to
Section 20 hereof or to repossession and reletting pursuant to Section 23
hereof. Tenant agrees to identify by labeling or other conspicuous means any
furniture, machinery, or equipment which belongs to it and does not constitute a
fixture and a part of the Equipment or Premises.
6. LANDLORD'S LIEN. A lien is expressly reserved by Landlord and granted by
Tenant, upon all equipment, building material, inventory, improvements, store
fixtures, water fixtures, gas fixtures, and all other fixtures erected or put in
place upon the Premises by or through Tenant or other occupants for the payment
of rent and also for the satisfaction of any causes of
<PAGE>
actions which may accrue to the Landlord by the provisions of this lease, except
as may be waived in writing by the Landlord.
7. WAIVER OF SUBROGATION. Landlord and Tenant mutually agree to waive any
right of subrogation which they may have against the other for any losses paid
to them on insurance policy or policies carried on the property to the extent
permitted by the terms of said policy or policies.
8. PROOF OF PAYMENT. The burden of proof of payment of rent in case of
controversy shall be upon Tenant.
9. INTERRUPTED POSSESSION. Landlord hereby covenants that if Tenant shall
keep and perform all of the covenants of this lease on the part of Tenant to be
performed, Landlord will guarantee to Tenant the quite, peaceful, interrupted
possession of the Premises.
10. Tenant hereby covenants:
(a) USE FOR LAWFUL PURPOSES. That the Equipment and Premises and all
buildings and improvements thereon shall during the term of this lease be used
only and exclusively for lawful and moral purposes, and no part of the Premises
or improvements thereon shall be used in any manner whatsoever for any purpose
in violation of the laws of the United States, the State of Alabama, or the
ordinances and laws of the City of Addison, and County of Winston;
<PAGE>
(b) O.S.H.A., etc. To save and hold Landlord harmless from any
violations on the Equipment and Premises of the laws of the United States
including but not limited to requirements of Occupational Safety and Health
Association, of the State of Alabama, and the ordinances and laws of the City of
Addison and County of Winston;
(c) NUISANCE. Not to create or allow any nuisance to exist on the Equipment
and Premises, and to abate any nuisance that may arise promptly and free of
expenses to Landlord;
(d) Not to suffer anything to be or remain upon or about the Equipment
and Premises which will invalidate any policy of insurance which Landlord may
nor or hereafter have upon the building or the Equipment and Premises;
(e) INCREASE OF INSURANCE. Not to suffer anything to remain upon or
about the Equipment and Premises nor permit upon the Equipment and Premises any
trade or occupation or cause to be done anything which may render an increased
or extra premium payable for the insurance on the Equipment and Premises or the
building thereon against fire, theft, and extended coverage unless consented to
in writing by the Landlord and if so consented to, Tenant shall pay such
increased or extra premium within ten (10) days after Tenant shall have been
advised of the amount thereof;
<PAGE>
(f) HOLD HARMLESS. To hold Landlord harmless against all damages,
accidents and injuries to persons or property caused by or resulting from, or in
connection with any equipment, power plant, machinery, elevator, elevator shaft,
stairway, signs, awnings, glass, brick, and other building material, hatch, or
other openings, flagpole, or any other things in or pertaining to any other
parts of any building or buildings on the Premises or things in or pertaining to
or upon the said buildings or Equipment and Premises during the term of this
lease or while Tenant is occupying the Equipment and Premises;
(g) INSOLVENCY OR BANKRUPTCY. That, notwithstanding any other
provisions in this lease, in the event of the insolvency or bankruptcy of
Tenant, or in the event of a partial or general assignment for the benefit of a
creditor, at any time thereafter Landlord shall have the right to terminate the
lease immediately.
<PAGE>
11. CONDITION AT OCCUPANCY AND REPAIRS AND/OR REPLACEMENT. Tenant
acknowledges that all the Equipment, appliances, plumbing, electrical, heating
and cooling apparatus, and fixtures, to be in good order by the act of occupancy
and use of the Equipment and Premises, and does hereby covenant and agree that
during the term of this lease the same shall be maintained and replaced if
deemed necessary by Landlord and kept in good order and condition, at Tenant's
expense, and, at the expiration of this lease, to make good all damages to same,
if deemed necessary by the Landlord, either during the term of this lease or at
the expiration thereof. Tenant further agrees, that in the event it deems a
piece of Equipment owned by Landlord to be worn out or obsolete for its
manufacturing purposes, it will replace the worn out Equipment or substitute new
modern Equipment at its sole expense and the new or replacement Equipment will
immediately become the property of the Landlord.
12. REPAIRS AND MAINTENANCE. In addition to those provisions in
paragraph 11 herein, Tenant further agrees that it shall be responsible for all
repairs and replacement to the Equipment, buildings, parking lots, plumbing,
heating and air conditioning systems, electrical, and to the Premises including
but not limited to maintaining the roof on the buildings on the Premises in good
order and to maintain a water tight seal and replace the roof if deemed
necessary by the Landlord, and Tenant shall be responsible for any damage to the
Equipment, buildings, or the Premises which may be caused by a defect in the
roof.
<PAGE>
13. ENVIRONMENTAL MATTERS AND COMPLIANCE. (i) Tenant represents and
warrants that the Tenant's use of the Premises will not violate any
environmental laws and that no substance, chemical, material, or substance the
exposure to which is prohibited, limited or regulated by any Federal, State,
County, Regional, or Local Authority, or which, even if not so regulated, may
pose a hazard to the health and safety to the occupants of the Premises or the
owners of property adjacent thereto. Tenant further represents and warrants that
there are no areas on the Premises where hazardous substances have been disposed
of, or released by Tenant, and Tenant shall give Landlord immediate oral and
written notice of its receipt of any notice of a violation of any law, standard
or regulation covered by this paragraph.
(ii) Tenant hereby agrees to indemnify and hold Landlord harmless from
all loss, cost, damage, claim, and expense incurred by Landlord on account of
the violation of any representations or warranties set forth in this paragraph,
or of Tenant's failure to perform any obligations of this paragraph, or of
Tenant's failure to comply fully with all environmental laws, rules, and
regulations.
<PAGE>
(iii) Tenant shall comply with all applicable, present and future,
local, state, and federal environmental laws and regulations. Tenant shall
notify Landlord immediately if any, hazardous substance, (as defined in CERCLA)
is released, discharged, or disposed of, stored, or discovered on the Premises.
Tenant shall notify Landlord in writing within three (3) days after receiving
written notice from any governmental authority or any individual or entity
claiming violation of any environmental protection law or regulation related to
the Premises, or demanding compliance within any environmental protection law or
regulation, or demanding payment, indemnity, or contribution for any
environmental damage or injury to any natural resources or the Premises.
<PAGE>
(iv) At its sole cost and expense, Tenant shall comply with all
Federal, State, and Local Laws, Regulations and Orders with respect to the
discharge and removal of hazardous substances or toxic waste, pay immediately
when due the cost of removal of any such waste, and keep the Premises free of
any lien imposed pursuant to such laws, rules, regulations, and orders. In
addition, Tenant shall not install or permit to be installed in the Premises,
any substance containing anything deemed hazardous by Federal, State, or Local
laws, rules, regulations, or orders respecting such material. In the event
Tenant fails to comply herewith, then after notice to Tenant and the expiration
of the early of (a) thirty (30) days after written notice, or (b) the cure,
permitted under the applicable law, rule, regulation, or order, Lessee may
either declare this lease to be in default and terminate the lease or cause the
Premises to be freed from the hazardous waste, and contaminates, and the cost of
the removal shall be so much additional indebtedness charged to the Tenant as
rent which shall become immediately due and payable without notice.
(v) For purposes of this entire paragraph thirteen "hazardous
substances" shall mean and include those elements or compounds which are
contained in the list of hazardous substances adopted by the United States
Environmental Protection Agency (EPA) or the list of toxic pollutants designated
by Congress or the EPA or any flammable substances, explosives, radioactive
materials, hazardous materials, hazardous waste, toxic substances, pollutants,
pollution, or related materials which are covered by, or regulated under, any
other Federal, State, or Local Statute, Law, Ordinance, Code, Rule, Regulation,
Order, or Decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance, or
material, as now or at any time hereafter in effect (herein collectively
referred to as the "Environmental Laws").
14. DRAINAGE. Tenant agrees to keep all ditches in good repair and maintain
good drainage around the buildings and to be responsible for any surface water
damage to the buildings, Equipment, parking lots, and Premises.
<PAGE>
15. SEWER SYSTEM. Tenant expressly agrees to accept the sewage and water
systems in good order and to be responsible for any expense to maintain, repair,
replace, or improve said systems.
16. UTILITY CHARGES. Tenant agrees to pay any and all bills for its
utilities, such as electricity, gas, water, telephone, and trash removal, used
by Tenant during the term of this lease and Landlord shall have no obligation
therefor.
17. LIABILITY INSURANCE. That Tenant shall, during the term of this
lease, keep in full force and effect a policy of public liability insurance with
respect to the Equipment and Premises and the business operated thereon by
Tenant, in which the limits of liability shall not be less than Two Million and
No/100 ($5,000,000.00) Dollars per person and Five Million and No/100
($2,000,000.00) Dollars for each accident or occurrence for bodily injury and
the same for property damage. Should Landlord ever desire this limit increased,
Tenant will pay the increased premium, and Tenant shall cause the Landlord to be
a named insured on said policy "as its interest may appear" and furnish Landlord
with a copy thereof and any renewals thereto.
<PAGE>
18. FIRE INSURANCE. Tenant agrees to maintain fire and all risk
extended coverage insurance on the ISO special forms, including earthquake
coverage, on the buildings equal to one hundred (100%) percent of replacement
cost, during the term of this lease, or any renewal thereof; and Tenant agrees
to maintain fire, theft, and all risk extended coverage insurance as the ISO
special forms, including earthquake coverage, on the Equipment in an amount
equal to one hundred (100%) percent of its replacement cost, during the term of
this lease. Landlord shall be the named insured on said insurance policies
covering the buildings and Equipment and be provided with a copy of the
policies. Tenant agrees to pay any increase in said premium after the original
policy term, if any.
19. PROPERTY TAXES. Tenant shall pay the ad valorem taxes on the real
estate and Equipment listed in this lease during the lease term or any renewal
thereof. And, Tenant shall pay all ad valorem taxes assessed on any equipment
placed on the Premises by it and on any inventory or other items subject to said
tax and shall hold the Landlord harmless therefrom.
<PAGE>
20. VACATE PREMISES AT END OF TERM. If at the expiration of this lease
or any renewal thereof, the Option to purchase the Equipment and Premises herein
granted to Tenant has not been exercised, Tenant agrees to deliver up to
Landlord, or Landlord's agents or assigns, the Equipment and the Premises at the
expiration of this lease in good order and condition, and to make good all
damage to the Equipment and buildings and the Premises, ordinary wear and tear
excepted. The said delivery to be made on the day immediately following the last
day of this lease or any renewal thereof, and in the event of failure of Tenant
to deliver the Equipment and Premises on the termination of this lease or any
renewal thereof, Landlord may hold Tenant for any damages that Landlord may have
sustained due to the failure of Tenant to make delivery of the Equipment and the
Premises, until all the Equipment and Premises, with the keys to same, cleared
of all persons and property not belonging to same, be returned to Landlord, or
Landlord's successors or assigns. No demand or notice of such delivery shall be
necessary.
<PAGE>
21. INSPECTION AND RIGHT TO REPAIR. Landlord reserves the right during
the term of this lease or any renewal to enter the Premises at reasonable hours
to show the same to other persons who may be interested in renting or buying the
property, and for the purposes of inspecting the Equipment and Premises, in
order to request Tenant to make such repairs as the Landlord may deem necessary
for the protection and preservation of the Equipment and Premises and the
buildings thereon; but Landlord is not bound to inspect or make any repairs
whatever, not to be held liable for any damages in consequences of the stoppage
of water, sewer, gas or drain pipes by reason of freezing or any other cause of
obstructions, nor for any other defects about the Equipment and Premises and the
buildings thereon, Tenant having examined the same and being satisfied
therewith, but should such obstruction, freezing, stoppages, or other defects
about the Premises and the buildings thereon occur during the term of this lease
or any renewal, or while Tenant is occupying the Premises, then Tenant shall
remedy the same promptly at Tenant's expense unless Landlord by written
agreement undertakes to do the same.
<PAGE>
22. DESTRUCTION OF BUILDING. In the event of the total destruction of,
or partial damage to, the buildings upon the demised Premises by fire or other
casualty, Landlord shall proceed with due diligence and dispatch to repair and
restore the buildings to the conditions to which they existed immediately prior
to the occurrence of such casualty, at Landlord's cost and expense, provided
such cost does not exceed the proceeds of insurance collected on the buildings,
by reason of such casualty, the application of which insurance proceeds are not
prohibited, by reason of any mortgage provision, from being used toward the cost
of restoration and repairing the same; provided, further, that if the unexpired
portion of the term of this lease or any extension thereof shall be one (1) year
or less on the date of such casualty or the cost of repair or restoration, as
estimated by two or more contractors, exceeds the replacement value of the
Equipment and buildings immediately prior to the occurrence of such casualty,
then Landlord may by written notice to the Tenant, within sixty (60) days after
the occurrence of such casualty, terminate this lease. If the insurance proceeds
are insufficient to effect such restoration or repairs, Landlord at its option
may cancel this lease by written notice to Tenant within sixty (60) days after
the occurrence of such casualty.
In the event the repairing and restoring of the buildings cannot be
completed within six (6) months after the date of occurrence of such casualty,
as estimated by two or more reputable contractors, the Tenant shall have the
right to terminate this lease upon giving written notice to Landlord within
thirty (30) days from the date of occurrence of said casualty. From the date of
such damage or destruction until said buildings have been substantially repaired
or restored, an equitable abatement of rent shall be allowed the Tenant.
<PAGE>
23. DEFAULT. If Tenant fails to pay any installment of rent within ten
(10) days of the date it is due, Landlord may, after notifying Tenant in writing
of such default in the payment of rent (unless within five (5) days after
receipt of such notice Tenant cures such default) declare the lease and any
renewal thereof cancelled and terminated. If Tenant defaults in the payment of
any moneys required herein to be paid by Tenant other than rent, or in the
performance of any Tenant's other obligations hereunder, Landlord may, after
once notifying Tenant in writing of such default (unless within thirty (30) days
after such notice Tenant cures such default if the same involves the payment of
money other than rent required herein to be paid by Tenant, or in the case of
default other than in the payment of money. Tenant commences and diligently
prosecutes the curing of such default) declare the lease and any renewal thereof
cancelled and terminated and the remainder of the rent due under the lease shall
be due and payable immediately. If the lease shall terminate as aforesaid or
should Landlord elect not to terminate this lease, in either event Landlord
shall have the immediate right to re-enter and repossess the Equipment and
Premises and the remainder of the rent due under the lease term shall be due and
payable immediately. Landlord shall have the further right (but shall not be
obligated to do so) to relet the Equipment and Premises and the improvements
thereon, if the Landlord elects not to terminate this lease. If Landlord relets
for an amount less than the rental and other charges required by this lease to
be paid by Tenant, then Landlord shall notify Tenant of this deficiency each
month and Tenant shall either receive credit for any amounts paid or pay the
deficiency to Landlord within fifteen (15) days of receipt of such notice. No
entry by Landlord under the provisions of this section shall bar the recovery of
rent or damages for breach or any of the covenants, agreements or conditions on
the part of the Tenant herein contained. The receipt of rent after breach or
condition broken, or delay on the part of Landlord to enforce any right
hereunder shall not be deemed a waiver or forfeiture of Landlord of any of the
rights or remedies provided for herein. The exercise by Landlord of any right or
remedy or of any alternative rights or remedies, granted herein to Landlord
shall not affect or prejudice any other rights or remedies afforded Landlord by
law. Any failure of Landlord promptly to exercise the rights or pursue the
remedies accruing hereunder by reason of any breach or default shall not operate
as a waiver but the right and remedies shall be available to Landlord at any
time or times. Nothing contained in this Section 23 shall limit or affect the
rights granted Landlord by Section 10(g) of this lease.
24. WAIVER OF TERMINATION NOTICE. Both Landlord and Tenant waive notice of
the termination of this lease at the end of the lease period specified or any
renewal thereof.
<PAGE>
25. WAIVER OF BREACH. It is hereby covenanted and agreed that no waiver of
a breach of any of the covenants of this lease shall not be construed to be a
waiver of any succeeding breach of the same or any other covenant.
26. SUCCESSORS AND ASSIGNS. It is hereby covenanted and agreed between
the parties hereto that all covenants, conditions, agreements, and undertakings,
contained in this lease or any renewal thereof shall extend to and be binding on
the respective heirs, executors, administrators, successors and assigns of the
respective parties hereto.
27. BUSINESS ON PREMISES. Unless written consent is otherwise given by
Landlord, the business to be conducted on the Premises throughout the full term
of this lease is the manufacture of mobile homes and manufactured housing and at
no time will the premises be unoccupied or vacant as that term is defined in
Landlord's fire insurance policies.
28. ASSIGNMENT. Tenant shall not have the right to assign the lease or
sub-let all or a portion of the Premises and Equipment without the prior written
consent of Landlord which shall not be unreasonably withheld.
<PAGE>
29. EMINENT DOMAIN. If at any time during the term of this lease or any
renewal thereof, the entire Premises or such portion thereof as shall make the
Premises unusable for Tenant's business, shall be taken or appropriated by
virtue of eminent domain or other similar proceedings, or be condemned for any
public or quasi public use, Tenant shall have the right and privilege of
terminating the lease, by written notice to Landlord within thirty (30) days
after such condemnation or appropriation. All rents and other charges and
payments provided for herein shall be permanently abated from the time of such
taking, appropriation, or injury resulting in the termination of this lease. It
is understood and agreed that in the event of such termination, Landlord and
Tenant will prosecute at their option their respective claims against the public
or private body, herein designated as the taking authority, on the account of
any taking, appropriation, or injury of or to the Premises, and neither party
hereto shall be liable to the other for any recovery to be obtained or recovered
from the taking authority.
30. ATTORNEY FEES. Tenant agrees to pay all costs of collection,
including a twenty-five (25%) percent attorney's fees, if all or any part of the
rent reserved herein is collected after maturity with the aid of any attorney;
also to pay reasonable attorney's fees in the event it becomes necessary for the
Landlord to employ an attorney to force Tenant to comply with any of the
covenants, obligations, or conditions imposed by this lease or any renewal
thereof.
<PAGE>
31. LAW GOVERNING. This lease has been entered into under the laws of the
State of Alabama and the rights and obligations of the parties hereunder shall
be governed and determined according to such laws.
32. ENTIRE AGREEMENT. This lease contains the entire agreement between the
parties with respect to the Equipment and Premises and cannot be changed unless
such change, modification, or amendment is in writing and executed by all
parties to this lease.
33. COUNTERPARTS. This lease may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
34. NOTICE. Any notice provided to be given by the parties hereto shall be
in writing, each to the other, as the case may be, and mailed by Certified
United States Mail, postage prepaid, and directed to Landlord at Route 6, Box
238, Hamilton, Alabama 35570, and to Tenant at P. O. Box 300, Addison, Alabama
35540, or by delivery of any such written notice to the other.
35. HEADINGS. Headings of sections and subsections have been inserted in
this agreement as a matter of convenience and it is agreed that such headings
are not a part of this agreement and will not be used in the interpretation of
any provision hereof.
<PAGE>
IN TESTIMONY WHEREOF, the above named Landlord and Tenant have executed
this and two other original instruments of identical tenor and date, on the day
and year set forth in the first paragraph of this lease.
LANDLORD:
_________________________ _____________________________(L.S.)
Witness Jerry F. Wilson
_________________________ _____________________________(L.S.)
Witness John W Lowe
_________________________ _____________________________(L.S.)
Witness Robert Lowell Burdick
TENANT:
ATTEST: CAVALIER HOMES OF ALABAMA, INC.,
_________________________ By____________________________(L.S.)
David Roberson, Secretary James Caldwell, President
Exhibit 10(v)
STATE OF ALABAMA )
COUNTY OF ___________ )
ASSIGNMENT AND ASSUMPTION OF SUBLEASE AGREEMENT
AND
CONSENT BY SUBLESSOR
THIS AGREEMENT is dated as of December ___, 1996 and entered into by and among;
("Assignor"): Cavalier Homes of Alabama, Inc.,
an Alabama corporation
P.O. Box 300
Addison, Alabama 35540
("Assignee"): Cavalier Homes, Inc.,
a Delaware corporation
P.O. Box 300
Addison, Alabama 35540
("Sublessor"): Estate of Jerry F. Wilson, John W Lowe and
Robert Lowell Burdick,
individuals residing in the State of Alabama
Route 6, Box 238
Addison, Alabama 35540
for the purpose of assigning from Assignor to Assignee, subject to the consent
of Sublessor, a Commercial Sub-Lease Agreement dated July 30, 1996, between
Jerry F. Wilson, John W Lowe and Robert Lowell Burdick, as Sublessor, and
Cavalier Homes of Alabama, Inc., as Tenant ( the "Sublease").
R E C I T A L S:
A. Sublessor is the lessee under a lease agreement with option
to purchase (the "Prime Lease") with the Industrial Development Board of the
Town of Addison pursuant to an industrial revenue bond issue with respect to the
Leased Premises described in Exhibit A.
B. Sublessor subleased the Leased Premises to Assignor
pursuant to the terms of the Sublease, including the option to purchase the
Leased Premises.
C. Assignor desires to assign unto Assignee all its right,
title and interest in and to the leasehold estate created under the Sublease,
including the option to purchase, and Assignee desires to accept such assignment
and to assume all obligations under the Sublease arising after the effective
date of the assignment.
D. Section 28 of the Sublease provides that the leasehold
estate may not be assigned without the prior written consent of the Sublessor,
which shall not be unreasonably withheld, and Sublessor desires to consent to
such assignment.
NOW THEREFORE, in consideration of the premises and the
covenants and agreements hereinafter undertaken, and for other good and valuable
consideration, receipt of which is hereby acknowledged by the parties, the
parties agree as follows:
1. Effective Date. This assignment shall become effective
on December ______, 1996 (the "Effective Date").
2. Assignment of Leasehold. Assignor does hereby transfer,
sell, convey and assign unto Assignee all of Assignor's right, title and
interest in and to the leasehold estate created under the Lease, including the
option to purchase specifically set forth in said Sublease and all other
provisions thereof.
3. Acceptance and Assumption. Assignee hereby accepts the
foregoing transfer and assignment of the leasehold estate as provided in Section
2 above, and specifically assumes and agrees to perform and observe each and
every term and condition to be performed or observed by Tenant pursuant to the
terms and provisions of the Sublease effective as of the Effective Date;
provided, however, that Assignee shall have no responsibility whatever for any
obligations of Assignor under the Sublease which shall have accrued prior to the
Effective Date.
4. Representations of Assignor. Assignor hereby
represents and warrants unto Assignee that:
(a) the Sublease is in full force and effect and Assignor
is not in default thereunder;
(b) Assignor is the Tenant under the Sublease and has
full authority to enter into this Agreement; and
(c) Assignor shall observe all conditions and shall perform
all obligations to be observed and performed on the part of the Tenant under the
Sublease through the Effective Date of this Agreement.
5. Acknowledgement by Assignee. Assignee hereby acknowledges
(a) that it has reviewed the Sublease prior to the execution
of this Agreement, and agrees to be bound as Tenant under the terms, conditions,
covenants and obligations as set forth in the Sublease from and after the
Effective Date; and
(b) that it has examined the Lease Premises and that neither
Assignor nor Sublessor has made any warranties, covenants or representations
with respect to the condition of the Leased Premises.
6. Consent of Sublessor. Sublessor does hereby expressly
consent to the assignment of the leasehold estate created under the Sublease by
Assignor unto Assignee, on the express condition that Assignee shall execute
this Agreement whereby it shall assume all obligations of Assignor under the
Lease from and after the Effective Date. Sublessor understands that Assignee,
Cavalier Homes, Inc. is a Delaware corporation and based upon such
representation, does hereby agree that, effective simultaneously with the
Assignor's assignment and Assignee's assumption of the Sublease, Assignee shall
be substituted for Assignor as Tenant under the Sublease and Assignor shall be
released from all liability under the Sublease from and after the Effective Date
and Assignor thereafter shall not be regarded as a party to the Lease for any
purpose whatsoever.
7. Surrender of Premises. As of the Effective Date,
Assignor shall surrender to Assignee the premises in good, broom-clean
condition, wear and tear excepted, and shall surrender all keys for the
premises to the Assignee.
8. Notices. Section 34 of the Sublease is hereby
amended to provide that any notice to be given to Tenant shall be delivered as
follows:
Cavalier Homes, Inc.
P.O. Box 300
Addison, Alabama 35540
9. Miscellaneous. All the terms and conditions of the Sublease
shall remain and continue in full force and effect, including the option to
purchase. In case of any inconsistency between the Sublease and this Agreement,
this Agreement shall govern and control. This Agreement may be amended, modified
or cancelled only be an instrument in writing signed by all parties hereto. This
Agreement may be executed in any number of counterparts, each of which, when so
executed, shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first written above.
ASSIGNOR:
CAVALIER HOMES OF ALABAMA, INC.,
an Alabama corporation
By:
Its:
ASSIGNEE:
CAVALIER HOMES, INC.,
a Delaware Corporation
By:
Its:
SUBLESSOR:
ESTATE OF JERRY F. WILSON
Judith H. Wilson, as Executor
David A. Roberson, as Executor
John W Lowe
Robert Lowell Burdick
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that _______________, whose name as ______________ of
Cavalier Homes of Alabama, Inc., an Alabama corporation, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the foregoing instrument, he, in his
capacity as such officer and with full authority, executed the same voluntarily
for and as the act of said corporation on the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that _______________, whose name as ______________ of
Cavalier Homes, Inc., a Delaware corporation, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the foregoing instrument, he, in his capacity
as such officer and with full authority, executed the same voluntarily for and
as the act of said corporation on the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that Judith H. Wilson, whose name as Executor of the
Estate of Jerry F. Wilson is signed to the foregoing instrument and who is known
to me, acknowledged before me on this day that, being informed of the contents
of the foregoing instrument, she, in her capacity as such executor and with full
authority, executed the same voluntarily for and as the act of said estate on
the day the same bears date.
Given under my hand this ______ day of __________________________________, 1996.
Notary Public
My Commission Expires: _____________
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that David A. Roberson, whose name as Executor of the
Estate of Jerry F. Wilson is signed to the foregoing instrument and who is known
to me, acknowledged before me on this day that, being informed of the contents
of the foregoing instrument, he, in his capacity as such executor and with full
authority, executed the same voluntarily for and as the act of said estate on
the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that John W Lowe, whose name is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the foregoing instrument, he executed the same
voluntarily on the day the same bears date.
Given under my hand this ______ day of _______________________________, 1996.
Notary Public
My Commission Expires: _____________
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that Robert Lowell Burdick, whose name is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the foregoing instrument, he executed
the same voluntarily on the day the same bears date.
Given under my hand this ______ day of _______________________________, 1996
Notary Public
My Commission Expires: _____________
Exhibit 10(x)
STATE OF ALABAMA )
COUNTY OF ___________ )
ASSIGNMENT AND ASSUMPTION OF SUBLEASE AGREEMENT
AND
CONSENT BY SUBLESSOR
THIS AGREEMENT is dated as of December ____, 1996 and entered into by and among;
("Assignor"): Cavalier Homes of Alabama, Inc.,
an Alabama corporation
P.O. Box 300
Addison, Alabama 35540
("Assignee"): Cavalier Homes, Inc.,
a Delaware corporation
P.O. Box 300
Addison, Alabama 35540
("Sublessor"): Winston County Industrial
Development Association,
an Alabama general partnership
c/o David Roberson
P.O. Box 572
Addison, Alabama 35540
for the purpose of assigning from Assignor to Assignee, subject to the consent
of Sublessor, a Commercial Sub-Lease Agreement dated March 5, 1993, between
Winston County Industrial Development Association, as Sublessor, and Cavalier
Homes of Alabama, Inc., as Tenant ( the "Sublease").
R E C I T A L S:
A. Sublessor is the lessee under a lease agreement with option
to purchase (the "Prime Lease") with the Industrial Development Board of the
Town of Addison pursuant to an industrial revenue bond issue with respect to the
Leased Premises described in Exhibit A.
B. Sublessor subleased the Leased Premises to
Assignor pursuant to the terms of the Sublease, including the option to
purchase the Leased Premises.
C. Assignor desires to assign unto Assignee all its right,
title and interest in and to the leasehold estate created under the Sublease,
including the option to purchase, and Assignee desires to accept such assignment
and to assume all obligations under the Sublease arising after the effective
date of the assignment.
D. Section 28 of the Sublease provides that the leasehold
estate may not be assigned without the prior written consent of the Sublessor,
which shall not be unreasonably withheld, and Sublessor desires to consent to
such assignment.
NOW THEREFORE, in consideration of the premises and the
covenants and agreements hereinafter undertaken, and for other good and valuable
consideration, receipt of which is hereby acknowledged by the parties, the
parties agree as follows:
1. Effective Date. This assignment shall become effective
on December ______, 1996 (the "Effective Date").
2. Assignment of Leasehold. Assignor does hereby transfer,
sell, convey and assign unto Assignee all of Assignor's right, title and
interest in and to the leasehold estate created under the Lease, including the
option to purchase specifically set forth in said Sublease and all other
provisions thereof.
3. Acceptance and Assumption. Assignee hereby accepts the
foregoing transfer and assignment of the leasehold estate as provided in Section
2 above, and specifically assumes and agrees to perform and observe each and
every term and condition to be performed or observed by Tenant pursuant to the
terms and provisions of the Sublease effective as of the Effective Date;
provided, however, that Assignee shall have no responsibility whatever for any
obligations of Assignor under the Sublease which shall have accrued prior to the
Effective Date.
4. Representations of Assignor. Assignor hereby
represents and warrants unto Assignee that:
(a) the Sublease is in full force and effect and Assignor
is not in default thereunder;
(b) Assignor is the Tenant under the Sublease and has
full authority to enter into this Agreement; and
(c) Assignor shall observe all conditions and shall perform
all obligations to be observed and performed on the part of the Tenant under the
Sublease through the Effective Date of this Agreement.
5. Acknowledgement by Assignee. Assignee hereby acknowledges
(a) that it has reviewed the Sublease prior to the execution
of this Agreement, and agrees to be bound as Tenant under the terms, conditions,
covenants and obligations as set forth in the Sublease from and after the
Effective Date; and
(b) that it has examined the Lease Premises and that neither
Assignor nor Sublessor has made any warranties, covenants or representations
with respect to the condition of the Leased Premises.
6. Consent of Sublessor. Sublessor does hereby expressly
consent to the assignment of the leasehold estate created under the Sublease by
Assignor unto Assignee, on the express condition that Assignee shall execute
this Agreement whereby it shall assume all obligations of Assignor under the
Lease from and after the Effective Date. Sublessor understands that Assignee,
Cavalier Homes, Inc., is a Delaware corporation and based upon such
representation, does hereby agree that, effective simultaneously with the
Assignor's assignment and Assignee's assumption of the Sublease, Assignee shall
be substituted for Assignor as Tenant under the Sublease and Assignor shall be
released from all liability under the Sublease from and after the Effective Date
and Assignor thereafter shall not be regarded as a party to the Lease for any
purpose whatsoever.
7. Surrender of Premises. As of the Effective Date,
Assignor shall surrender to Assignee the premises in good, broom-clean
condition, wear and tear excepted, and shall surrender all keys for the
premises to the Assignee.
8. Notices. Section 34 of the Sublease is hereby amended
to provide that any notice to be given to Tenant shall be delivered as follows:
Cavalier Homes, Inc.
P.O. Box 300
Addison, Alabama 35540
9. Miscellaneous. All the terms and conditions of the Sublease
shall remain and continue in full force and effect, including the option to
purchase. In case of any inconsistency between the Sublease and this Agreement,
this Agreement shall govern and control. This Agreement may be amended, modified
or cancelled only be an instrument in writing signed by all parties hereto. This
Agreement may be executed in any number of counterparts, each of which, when so
executed, shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first written above.
ASSIGNOR:
CAVALIER HOMES OF ALABAMA, INC.,
an Alabama Corporation
By:
Its:
ASSIGNEE:
CAVALIER HOMES, INC.,
a Delaware corporation
By:
Its:
SUBLESSOR:
WINSTON COUNTY INDUSTRIAL
DEVELOPMENT ASSOCIATION
- -------------------------------
Witness By David A. Roberson
Its Partner
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that _______________, whose name as ______________ of
Cavalier Homes of Alabama, Inc., an Alabama corporation, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the foregoing instrument, he, in his
capacity as such officer and with full authority, executed the same voluntarily
for and as the act of said corporation on the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that _______________, whose name as ______________ of
Cavalier Homes, Inc., a Delaware corporation, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the foregoing instrument, he, in his capacity
as such officer and with full authority, executed the same voluntarily for and
as the act of said corporation on the day the same bears date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
<PAGE>
STATE OF ALABAMA )
____________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County, in said
State, hereby certify that David A. Roberson, whose name as partner of Winston
County Industrial Development Association, an Alabama general partnership, is
signed to the foregoing instrument and who is known to me, acknowledged before
me on this day that, being informed of the contents of the foregoing instrument,
he, in his capacity as such partner and with full authority, executed the same
voluntarily for and as the act of said corporation on the day the same bears
date.
Given under my hand this ______ day of _________________________________, 1996.
Notary Public
My Commission Expires: _____________
EXHIBIT (aa)
LEASE AGREEMENT
Dated March 1, 1997
By and between
CITY OF WINFIELD, ALABAMA
and
BUCCANEER HOMES, a division of Cavalier
Manufacturing, Inc.
a Delaware corporation
The interest of the City of Winfield, Alabama in any rents, revenues
and receipts derived by it under this Lease Agreement has been assigned to First
Commercial Bank, as Trustee under the Trust Indenture dated as of March 1, 1997.
This Lease Agreement was prepared by Heyward C. Hosch of Walston, Wells,
Anderson & Bains, LLP, Financial Center, 505 20th Street North, Suite 500,
Birmingham, Alabama 35203
<PAGE>
38
STATE OF ALABAMA
MARION COUNTY
LEASE AGREEMENT
LEASE AGREEMENT dated as of March 1, 1997, between the CITY OF
WINFIELD, ALABAMA, a municipal corporation and instrumentality under the laws of
the State of Alabama (the "Issuer"), and BUCCANEER HOMES, a division of Cavalier
Manufacturing, Inc., a Delaware corporation (the "User").
Recitals
Pursuant to and for the purposes expressed in Article 2 of Chapter 54
of Title 11 of the Code of Alabama 1975, the Issuer and the User have executed
and delivered this Lease Agreement simultaneously with the issuance and sale by
the Issuer of its $1,500,000 Industrial Development Revenue Bonds (Buccaneer
Homes Project), dated March 1, 1997, under and pursuant to that certain Trust
Indenture dated as of March 1, 1997 from the Issuer to First Commercial Bank, as
trustee, to finance the acquisition, construction and installation of a
"project" within the meaning of the Enabling Law, as more particularly described
in said Trust Indenture.
NOW, THEREFORE, for and in consideration of the premises, and the
mutual covenants and agreements herein contained, the Issuer and the User hereby
covenant, agree and bind themselves as follows:
ARTICLE 1 ARTICLE 1
- --------- ---------
Definitions
For all purposes of this Lease Agreement:
(a) Capitalized terms used herein without definition shall have the
respective meanings assigned thereto in the Indenture.
(b) The following general rules of construction shall apply:
(1) The terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular.
(2) All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for
shall be made, in accordance with generally accepted accounting
principles. All references herein to "generally accepted accounting
principles" refer to such principles as they exist at the date of
application thereof.
(3) All references in this instrument to designated
"Articles", "Sections" and other subdivisions are to the designated
Articles, Sections and subdivisions of this instrument as originally
executed.
(4) The terms "herein", "hereof" and "hereunder" and other
words of similar import refer to this Lease Agreement as a whole and
not to any particular Article, Section or other subdivision.
(c) The following terms shall have the following meanings:
Abatement Agreement means that certain Abatement Agreement dated June
6, 1996 among the User and the Issuer with respect to the abatement of certain
taxes with respect to the Project.
Additional Rental Payments shall mean the payments to be made pursuant
to Section 5.03.
Basic Rental Payments shall mean the Payments payable pursuant to
Section 5.02.
Bond Fund shall mean the fund established pursuant to Section 8.01 of
the Indenture.
Bond Guaranty shall mean that certain Bond Guaranty Agreement dated
March 1, 1997, executed by User in favor of the Trustee.
Bond Payment Date shall mean each date on which any principal of,
premium (if any) or interest on the Bonds is due and payable (whether on the
maturity or due dates thereof, by call for optional or mandatory or
extraordinary redemption, or by acceleration).
Construction Fund shall mean the fund established pursuant to Section
7.02 of the Indenture.
Credit Documents shall mean collectively that certain Credit Agreement
dated March 1, 1997 between the Credit Obligor and the User and all agreements,
documents, guaranties, instruments, notes, notices, and other writings executed
and delivered by the User or any other person or persons which evidence or
provide security for the obligations of the User with respect to the Letter of
Credit, including any amendments or supplements to any thereof from time to time
entered into pursuant to the applicable provisions thereof, until a Substitute
Letter of Credit shall have been accepted by the Trustee, and thereafter "Credit
Documents" shall mean collectively all agreements, documents, instruments,
notes, notices, and other writings which evidence or provide security for the
obligations of the User with respect to such Substitute Letter of Credit.
Credit Obligor Mortgage shall mean that certain Mortgage, Assignment of
Leases and Security Agreement dated as of March 1, 1997 by the Issuer and the
User to the Credit Obligor as security for the obligations of the User to the
Credit Obligor under the Credit Documents.
Enabling Law shall mean Article 2 of Chapter 54 of Title 11 of the Code
of Alabama 1975.
Environmental Law shall mean and include all laws, rules, regulations,
ordinances, judgments, decrees, codes, orders, injunctions, notices and demand
letters of any Governmental Authority applicable to the User or the Project Site
(including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Sections 9601, et seq.) relating to pollution
or protection of human health or the environment, including any relating to
Hazardous Substances.
Equipment shall have the meaning assigned in Demising Clause III of
Article 3.
Financing Documents shall mean the Indenture, the Lease Agreement, the
Bond Guaranty, the Credit Documents, and the Letter of Credit.
Governmental Authority shall mean any federal, state, county,
municipal, or other government, domestic or foreign, and any agency, authority,
department, commission, bureau, board, court or other instrumentality thereof.
Hazardous Substances shall mean and include all pollutants,
contaminants, toxic or hazardous wastes and other substances (including
asbestos, urea formaldehyde, foam insulation and materials containing either
petroleum or any of the substances referenced in Section 101(14) of CERCLA), the
removal of which is required or the manufacture, use, maintenance and handling
of which is regulated, restricted, prohibited or penalized by an Environmental
Law, or, even though not so regulated, restricted, prohibited or penalized,
might pose a hazard to the health and safety of the public or the occupants of
the property on which it is located or the occupants of the property adjacent
thereto.
Improvements shall have the meaning assigned in Demising Clause II of
Article 3.
Indenture shall mean that certain Trust Indenture dated as of March 1,
1997 between the Issuer and the Trustee as originally executed or as it may from
time to time be supplemented, modified or amended by one or more indentures or
other instruments supplemental hereto entered into pursuant to the applicable
provisions thereof.
Indenture Indebtedness shall mean all indebtedness of the Issuer at the
time secured by the Indenture, including without limitation (i) all principal
of, premium (if any) and interest on the Bonds and (ii) all reasonable and
proper fees, charges and disbursements of the Trustee and Paying Agent for
services performed and disbursements made under the Indenture.
Internal Revenue Code shall mean whichever of the following shall be
applicable in the context: the Internal Revenue Code of 1954, as amended; the
Internal Revenue Code of 1986, as amended; and the transition rules of related
legislation.
Issuer shall mean the City of Winfield, Alabama, a municipal
corporation under the laws of the State of Alabama, until a successor shall have
become such pursuant to the applicable provisions of the Indenture and this
Lease Agreement, and thereafter "Issuer" shall mean such successor corporation.
Lease Agreement shall mean this instrument including any amendments or
supplements to such instrument from time to time entered into pursuant to the
applicable provisions thereof.
Lease Default shall have the meaning stated in Article 10 of this Lease
Agreement. A Lease Default shall "exist" if a Lease Default shall have occurred
and be continuing.
Lease Term means the duration of the leasehold estate granted in
Section 5.01 of this Lease Agreement.
Net Proceeds, when used with respect to any insurance or condemnation
award, means the gross proceeds from the insurance or condemnation award with
respect to which that term is used remaining after payment of all reasonable
expenses (including reasonable attorneys' fees and any extraordinary fee of the
Trustee) incurred in the collection of such gross proceeds.
Permitted Encumbrances means, as of any particular time, (i) the
Financing Documents, (ii) liens for taxes, assessments or other governmental
charges or levies not due and payable or which are currently being contested in
good faith by appropriate proceedings, (iii) utility, access and other easements
and rights of way, party walls, restrictions and exceptions that may be granted
or are permitted under this Lease Agreement, (iv) any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right or purchase money security
interest if payment is not yet due and payable under the contract in question,
(v) such minor defects, irregularities, encumbrances, easements, rights of way
and clouds on title as do not, in the opinion of an independent Counsel,
materially impair the Project for the purpose for which it was acquired or is
held by the Issuer, and (vi) such encumbrances, mortgages, and other matters
which appear of public record prior to the date of recording of this Lease
Agreement.
Project shall mean the Project Site, the Improvements and the
Equipment, as the same may at any time exist, and all other property and rights
referred to or intended so to be in Demising Clauses I through III, inclusive,
hereof.
Project Costs shall mean all costs of acquiring, constructing,
equipping and improving the Project, including without limitation:
(1) the purchase price and related costs for the
acquisition of real property or any interest therein,
(2) the cost of labor, materials and supplies
furnished or used in the acquisition, construction and installation
of the Improvements and the costs of acquiring and installing the
Equipment,
(3) acquisition, transportation and installation costs for
personal property and fixtures,
(4) fees for architectural, engineering and supervisory
services,
(5) expenses incurred in the enforcement of any
remedy against any contractor, subcontractor, materialmen, vendor,
supplier or surety,
(6) interest accruing on the Bonds until the Project is
placed in service,
(7) expenses incurred by the Issuer and the User in
connection with the financing of the Project including legal,
consulting and accounting fees,
(8) reimbursement to the User for any of the foregoing costs,
fees and expenses set forth in (1) through (7) above, paid by it with
its own funds.
Project Site shall mean the real property described in Demising Clause
I of Article 3.
<PAGE>
Rental Payments shall mean collectively the Basic Rental Payments and
the Additional Rental Payments.
State shall mean the State of Alabama.
Trustee shall mean First Commercial Bank, until a successor Trustee
shall have become such pursuant to the applicable provisions of the Indenture,
and thereafter "Trustee" shall mean such successor.
Unimproved when used with reference to the Project Site shall mean any
part of the Project Site upon which no part of a building or other structure
rests.
User shall mean Buccaneer Homes, a division of Cavalier Manufacturing,
Inc., and its successors and assigns, and thereafter "User" shall mean such
persons.
ARTICLE 2 ARTICLE 2
- --------- ---------
Representations
SECTION 2.01 Representations by the Issuer
The Issuer makes the following representations
(a) The Issuer has the power under the Enabling Law to enter into the
transactions contemplated by this Lease Agreement and to carry out its
obligations hereunder. By proper corporate action the Issuer has duly authorized
the execution and delivery of this Lease Agreement, the Indenture, and the
Bonds.
(b) The Issuer has determined that the issuance of the Bonds, the
acquisition, construction and equipping of the Project and the leasing of the
Project to the User will promote industry, develop trade and further the use of
the agricultural products and natural and human resources of the State and the
development and preservation of said resources.
(c) The Bonds will be issued and delivered contemporaneously
with the delivery of this Lease Agreement.
(d) Pursuant to Section 11-54-23 of the Code of Alabama 1975, and prior
to the leasing of the Project to the User and prior to the issuance of the
Bonds, the Issuer has found and determined as follows and does hereby represent,
warrant, certify and declare that
(1) This Lease Agreement is made and conditioned upon
completion of the Project and provides for payment to the Issuer of
such rentals as shall be sufficient to pay the principal of and
interest on the Bonds, the amount necessary in each year to pay the
said principal of and interest on the Bonds being as follows:
<TABLE>
<S> <C> <C> <C> <C>
Year Principal Interest Total
1998 $120,000 73,402.50 193,402.50
1999 125,000 68,602.50 193,602.50
2000 130,000 63,227.50 193,227.50
2001 140,000 57,377.50 197,377.50
2002 145,000 50,797.50 195,797.50
2003 150,000 43,765.00 193,765.00
2004 160,000 36,265.00 196,265.00
2005 170,000 28,105.00 198,105.00
2006 175,000 19,265.00 194,265.00
2007 185,000 9,990.00 194,990.00
</TABLE>
(2) The Issuer has determined that it is not advisable to
establish or maintain any reserves or reserve funds in connection with
the retirement of the Bonds or the maintenance of the Project.
(3) The terms of this Lease Agreement provide that the User
shall maintain the Project and carry all proper insurance with respect
thereto and this Lease Agreement provides for payment of such rentals
as shall be sufficient therefor.
SECTION 2.02 Representations by the User
The User makes the following representations:
(a) The User is duly organized and validly existing as a corporation
under the laws of the State of Delaware, is duly qualified to do business in the
State of Alabama, is not in violation of any provisions of its documents of
organization or the laws of the State of Delaware or Alabama, has power to enter
into this Lease Agreement, and by proper action has duly authorized the
execution and delivery of this Lease Agreement.
(b) The financing of the Project through the issuance of the Bonds and
the leasing of the Project to the User has induced the User to enlarge, expand
and improve existing operations in the State as provided in the Enabling Law.
(c) The User intends to operate the Project for manufacturing,
production, assembling, processing, storing and distribution of such
agricultural, manufactured or mineral products as the User shall determine and
in such a manner that it will constitute a "project" within the meaning of the
Enabling Law.
(d) This Lease Agreement is necessary to promote and further the
financial and economic interests of the User and the assumption by the User of
its obligations hereunder will result in direct financial benefits to the User.
ARTICLE 3ARTICLE 3
Demising Clauses
The Issuer, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the User
to be paid, kept and performed, does hereby demise and lease to the User, and
the User does hereby lease, take and hire from the Issuer, the following
property:
I.
The real property described on Exhibit A hereto and all other
real property, or interests therein, acquired by the Issuer with
proceeds of the Bonds or with funds advanced or paid pursuant to this
Lease Agreement (the "Project Site"), together with all easements,
permits, licenses, rights-of-way, contracts, leases, tenements,
hereditaments, appurtenances, rights, privileges and immunities
pertaining or applicable to said real property.
II.
All buildings, structures and other improvements now or
hereafter constructed or situated on the Project Site, including
without limitation all buildings, structures and other improvements
constructed on the Project Site with proceeds of the Bonds or with
funds advanced or paid by the User pursuant to this Lease Agreement
(the "Improvements").
III.
The machinery, equipment, personal property and fixtures
described on Exhibit B attached hereto and all other machinery,
equipment, personal property and fixtures acquired with the proceeds of
the Bonds or with funds advanced or paid by the User pursuant to this
Lease Agreement, together with all personal property and fixtures
acquired in substitution therefor or as a renewal or replacement
thereof (the "Equipment").
SUBJECT, HOWEVER, to Permitted Encumbrances.
ARTICLE 4ARTICLE 4
Acquisition of the Project
SECTION 4.01 Agreement to Acquire
(a) Simultaneously with the delivery of this Lease Agreement the Issuer
shall cause the Bond proceeds to be deposited in the Construction Fund. The
Issuer shall cause the Bond proceeds to be advanced to the User by withdrawal
from the Construction Fund, in accordance with the requirements of the
Indenture, for the payment of Project Costs at such times and in such amounts as
shall be directed by the User. The Bond proceeds shall be used solely for the
payment of Project Costs as provided in the Indenture.
(b) The User will acquire and construct the Project with all reasonable
dispatch and due diligence and will cause the Project to be placed in service as
promptly as practicable. The Issuer will not execute any contract or purchase
orders for the Project without the prior written consent of the User.
(c) Compliance with laws and regulations necessary to realize any sales
and use tax exemption with respect to the acquisition, construction and
equipping of the Project shall be the sole responsibility of the User and the
Issuer does not assume any responsibility or give any assurance with respect to
any possible exemption from sales and use taxes.
(d) The User may, with the prior written consent of the Credit Obligor
except as provided below, cause changes or amendments to be made in the plans
and specifications for such acquisition and construction of the Project,
provided (1) such changes or amendments will not change the nature of the
Project to the extent that it would not constitute a "project" as authorized by
the Enabling Law, and (2) such changes or amendments will not materially affect
the utility of the Project for its intended use. The User may, without the
consent of the Credit Obligor, make changes to the plans and specifications for
the Project which do not increase the total cost of the Project by more than
$100,000 in the aggregate for all such changes. The Issuer will make only such
changes or amendments in the plans and specifications for the acquisition and
construction of the Project as may be requested in writing by the User.
(e) The Issuer and the User shall from time to time each appoint by
written instrument an agent or agents authorized to act for each respectively in
any or all matters relating to the acquisition and construction of the Project
and payments to be made out of the Construction Fund. One of the agents
appointed by the User shall be designated its Project Supervisor. Either the
Issuer or the User may from time to time revoke, amend or otherwise limit the
authorization of any agent appointed by such party to act on such party's behalf
or designate another agent or agents to act on such party's behalf, provided
that there shall be at all times at least one agent authorized to act on behalf
of the Issuer, and at least one agent (who shall be the Project Supervisor)
authorized to act on behalf of the User, with reference to all the foregoing
matters. The Project Supervisor at any time designated by the User is hereby
irrevocably appointed as agent for the Issuer to issue and execute, for and in
the name and behalf of the Issuer and without any further approval of the board
of directors or any officer, employee or other agent thereof, a payment request
or requisition on the Construction Fund.
(f) In the event the proceeds derived from the sale of the Bonds are
insufficient to pay in full all Project Costs, the User shall be obligated to
complete the acquisition and construction of the Project at its own expense and
the User shall pay any such deficiency and shall save the Issuer whole and
harmless from any obligation to pay such deficiency. The User shall not by
reason of the payment of such deficiency from its own funds be entitled to any
diminution in Rental Payments.
SECTION 4.02 No Warranty of Suitability of Issuer
THE USER RECOGNIZES THAT SINCE THE PLANS AND SPECIFICATIONS FOR
ACQUIRING AND CONSTRUCTING THE PROJECT ARE FURNISHED BY IT, THE ISSUER MAKES NO
WARRANTY, EITHER EXPRESS OR IMPLIED, NOR OFFERS ANY ASSURANCES THAT THE PROJECT
WILL BE SUITABLE FOR THE USER'S PURPOSES OR NEEDS OR THAT THE PROCEEDS DERIVED
FROM THE SALE OF THE BONDS WILL BE SUFFICIENT TO PAY IN FULL ALL PROJECT COSTS.
SECTION 4.03 Pursuit of Remedies Against Vendors, Contractors
and Subcontractors and Their Sureties
The User may, in its own name or in the name of the Issuer, prosecute
or defend any action or proceeding or take any other action involving any
vendor, contractor, subcontractor or surety under any contract or purchase order
for acquisition and construction of the Project which the User deems reasonably
necessary, and the Issuer hereby irrevocably appoints the User as its agent with
respect to any such action or proceeding and agrees that it will cooperate fully
with the User and will take all action requested by the User in any such action
or proceeding. Any amounts recovered by way of damages, refunds, adjustments or
otherwise in connection with the foregoing shall be paid into the Construction
Fund and applied as provided for funds on deposit therein. The User will pay all
costs, fees and expenses incurred which are not paid from the Construction Fund.
SECTION 4.04 Completion of the Project
(a) The completion of the Project shall be evidenced to the Trustee by
a certificate signed by the Project Supervisor on behalf of the User stating
that (1) construction of the Improvements has been completed in accordance with
the plans and specifications approved by the User, (2) the Equipment has been
acquired and installed in accordance with the User's instructions, (3) all
Project Costs have been paid, and (4) all facilities and improvements necessary
in connection with the Project have been acquired and installed and all costs
and expenses incurred in connection therewith have been paid. Notwithstanding
the foregoing, such certificate shall state that it is given without prejudice
to any rights against any vendor, contractor, subcontractor or other person not
a party to this Lease Agreement which exist at the date of such certificate or
which may subsequently come into being. The Issuer and the User will cooperate
in causing such certificate to be furnished to the Trustee.
(b) After the delivery of the aforesaid certificate to the Trustee, any
moneys then remaining in the Construction Fund shall be transferred to the Bond
Fund and applied as provided therein.
ARTICLE 5ARTICLE 5
Duration of Lease Term
and Rental Provisions
SECTION 5.01 Duration of Term
The term of this Lease Agreement and of the lease herein made shall
begin on the date of the delivery of this Lease Agreement and, subject to the
provisions of this Lease Agreement, shall continue until midnight of March 1,
2007. The Issuer will deliver to the User possession of the Project on the
commencement date of the Lease Term, subject to the inspection and other rights
reserved in this Lease Agreement, and the User will accept possession thereof at
such time; provided, however, the Issuer will be permitted such possession of
the Project as shall be necessary and convenient for it to construct or install
any additions or improvements and to make any repairs or restorations required
or permitted to be constructed, installed or made by the Issuer pursuant to the
provisions hereof.
SECTION 5.02 Basic Rental Payments; Draws Under Letter of CreditBasic
Rental Payments; Draws Under Letter of Credit
(a) On or before 10:00 a.m. (Birmingham, Alabama time) on each Bond
Payment Date, the User shall pay to the Trustee, for the account of the Issuer,
as Basic Rent for the use an occupancy of the Project, an amount equal to the
principal of, premium (if any) and interest on the Bonds due and payable on such
Bond Payment Date; provided, however, that (i) any amount already on deposit in
the Bond Fund on the due date of such Basic Rental Payment and available for the
payment of the principal of, premium (if any) and interest on the Bonds on such
Bond Payment Date shall be credited against the amount of such Basic Rental
Payment, and (ii) any amount drawn by the Trustee pursuant to the Letter of
Credit for the payment of the principal of, premium (if any) and interest on the
Bonds on such Bond Payment Date shall be credited against such Basic Rental
Payment.
(b) On each Bond Payment Date prior to 10:00 a.m. (Birmingham, Alabama
time) the Trustee shall, without making any prior claim or demand on the User
for the payment of Basic Rental Payments with respect to Bonds make a draw on
the Letter of Credit in an amount equal to the amount of principal of, premium
(if any) and interest on the Bonds due and payable on such Bond Payment Date.
The User shall receive a credit against Basic Rental Payments for the amount so
drawn.
(c) The User hereby authorizes and directs the Trustee to draw moneys
under the Letter of Credit in accordance with the provisions of the Indenture
and this Lease Agreement to the extent necessary to pay the principal of,
premium (if any) and interest on the Bonds when due and payable pursuant to the
Indenture and the Letter of Credit.
(d) All Basic Rental Payments shall be made in funds immediately
available to the Trustee at its Principal Office on or before the related Bond
Payment Date.
(e) If any Basic Rental Payment is due on a day which is not a Business
Day, such payment may be made on the first succeeding day which is a Business
Day with the same effect as if made on the day such payment was due.
(f) The User acknowledges, covenants, and agrees that until the
Indenture Indebtedness is paid in full the User shall make Basic Rent Payments
in such amounts and at such times as shall be necessary to enable the Trustee to
pay in full in accordance with the Indenture the principal of, premium (if any)
and interest on the Bonds when and as the same becomes due and payable.
SECTION 5.03 Additional Rental Payments
(a) The User shall make Additional Rental Payments as follows:
(1) the acceptance fee of the Trustee and the annual (or other
regular) fees, charges and expenses of the Trustee and the Paying
Agent.
(2) any amount to which the Trustee may be entitled under
Section 13.07 of the Indenture; and
(3) the reasonable expenses of the Issuer incurred at the
request of the User, or in the performance of its duties under any of
the Financing Documents, or in connection with any litigation which may
at any time be instituted involving the Project, the Financing
Documents, or in the pursuit of any remedies under the Financing
Documents.
(b) All Additional Rental Payments shall be due and payable within
10 days after receipt by the User of an invoice therefor.
SECTION 5.04 Advances by Issuer or Trustee
If the User shall fail to perform any of its covenants in this Lease
Agreement, the Issuer or the Trustee may, at any time and from time to time,
after written notice to the User if no Lease Default exists, make advances to
effect performance of any such covenant on behalf of the User. Any money so
advanced by the Issuer or the Trustee, together with interest at the base or
prime rate of the Trustee plus 2%, shall be paid upon demand.
SECTION 5.05 Indemnity of Issuer, Trustee and Paying Agent
(a) The User covenants and agrees to pay and to indemnify and hold the
Issuer and the Trustee (and each officer, director, employee, member and agent
of each thereof) harmless against, any and all liabilities, losses, damages,
claims or actions (including all reasonable attorneys' fees and expenses of the
Issuer and Trustee), of any nature whatsoever incurred by the Issuer and the
Trustee without gross negligence or willful misconduct on their part arising
from or in connection with their performance or observance of any covenant or
condition on their part to be observed or performed under any of the Financing
Documents, including without limitation, (i) any injury to, or the death of, any
person or any damage to property at the Project, or in any manner growing out of
or connected with the use, nonuse, condition or occupation of the Project or any
part thereof, (ii) any damage, injury, loss or destruction of the Project, (iii)
any other act or event occurring upon, or affecting, any part of the Project,
(iv) violation by the User of any contract, agreement or restriction affecting
the Project or the use thereof of which the User has notice and which shall have
existed at the commencement of the Lease Term hereof or shall have been approved
by the User, or of any law, ordinance or regulation affecting the Project or any
part thereof or the ownership, occupancy or use thereof, (v) any violation of,
or non-compliance of the Project Site with, Environmental Laws, or the presence
of Hazardous Substances now or hereafter on or under or included in the Project
Site and any investigation, clean up or removal of, or other remedial action or
response costs with respect to, any Hazardous Substances now or hereafter
located on or under or included in the Project Site, or any part thereof, that
may be required by any Environmental Law or Governmental Authority (specifically
including without limitation any and all liabilities, damages, fines, penalties,
response costs, investigatory or other costs pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sections 9601 et seq.) and including without limitation claims alleging
non-compliance with Environmental Laws which seek relief under or are based on
state or common law theories such as trespass or nuisance, and (vi) liabilities,
losses, damages, claims or actions arising out of the offer and sale of the
Bonds or a subsequent sale or distribution of any of the Bonds, unless the same
resulted from a representation or warranty of the Issuer or the Trustee in any
of the Financing Documents or any certificate delivered by the Issuer or the
Trustee pursuant thereto being false or misleading in a material respect and
such representation or warranty was not based upon a similar representation or
warranty of the User furnished to the Issuer or the Trustee in connection
therewith.
(b) The User hereby agrees that the Issuer and the Trustee shall not
incur any liability to the User, and shall be indemnified against all
liabilities, in exercising or refraining from asserting, maintaining or
exercising any right, privilege or power of the Issuer or the Trustee under any
of the Financing Documents if the Issuer or the Trustee as the case may be is
acting in good faith and without willful misconduct or in reliance upon a
written request by the User.
(c) If any indemnifiable party (whether the Issuer or the Trustee)
shall be obligated to pay any claim, liability or loss, and if in accordance
with all applicable provisions of this Section the User shall be obligated to
indemnify and hold such indemnifiable party harmless against such claim,
liability or loss, then, in such case, the User shall have a primary obligation
to pay such claim, liability or loss on behalf of such indemnifiable party and
may not defer discharge of its indemnity obligation hereunder until such
indemnifiable party shall have first paid such claim, liability or loss and
thereby incurred actual loss.
(d) The covenants of indemnity by the User contained in this Section
shall survive the termination of this Lease Agreement with respect to events or
occurrences happening prior to or upon the termination of this Lease Agreement
and shall remain in full force and effect until the commencement of an action
with respect to any such event or occurrence shall be prohibited by law.
SECTION 5.06 Obligations of User Unconditional
The obligation of the User to make all Rental Payments and all other
payments provided for herein and to perform and observe the other agreements and
covenants on its part herein contained shall be absolute and unconditional,
irrespective of any rights of set-off, recoupment or counterclaim it might
otherwise have against the Issuer. The User will not suspend or discontinue any
such payment or fail to perform and observe any of its other agreements and
covenants contained herein or terminate any of the Financing Documents, for any
cause whatsoever, including, without limiting the generality of the foregoing,
any acts or circumstances that may constitute an eviction or constructive
eviction, failure of consideration or commercial frustration of purpose, the
invalidity or unenforceability of the Bonds or any of the Financing Documents or
any provision thereof, the invalidity or unconstitutionality of the Enabling Law
or any provision thereof, any damage to or destruction of the Project or any
part thereof, the taking by eminent domain of title to or the right to temporary
use of all or any part of the Project, any failure of the Credit Obligor to make
a payment pursuant to the Letter of Credit or to reinstate the appropriate
amount thereof, any change in the tax or other laws or administrative rulings,
actions or regulations of the United States of America or of the State or any
political or taxing subdivision of either thereof, or any failure of the Issuer
to perform and observe any agreement or covenant, whether express or implied,
any duty, liability or obligation arising out of or in connection with this
Lease Agreement. Notwithstanding the foregoing, the User may, at its own cost
and expense and in its own name or in the name of the Issuer, prosecute or
defend any action or proceeding, or take any other action involving third
persons which the User deems reasonably necessary in order to secure or protect
its rights of use and occupancy and the other rights hereunder. The provisions
of the first and second sentences of this Section shall apply only so long as
any of the Bonds remains Outstanding.
SECTION 5.07 This Lease a Net Lease
The User recognizes, understands and acknowledges that it is the
intention hereof that this Lease Agreement be a net lease and that as long as
any of the Bonds are Outstanding all Basic Rent be available for payment of the
principal of, premium (if any) and interest on the Bonds and that all Additional
Rent shall be available for the purposes specified therefor. This Lease
Agreement shall be construed to effectuate such intent.
ARTICLE 6 ARTICLE 6
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Maintenance, Alterations, Replacements,
Taxes and Insurance
SECTION 6.01 Maintenance and Repairs, Alterations and Improvements,
Party Walls; and Liens; Utility Charges
(a) The User shall, at its own expense, (1) keep the Project in as
reasonably safe condition as its operations permit, (2) from time to time make
all necessary and proper repairs, renewals and replacements thereto, including
external and structural repairs, renewals and replacements, and (3) pay all gas,
electric, water, sewer and other charges for the operation, maintenance, use and
upkeep of the Project.
(b) The User may, at its own expense, make structural changes,
additions, improvements, alterations or replacements to the Improvements that it
may deem desirable, provided such structural changes, additions, improvements,
alterations or replacements do not change the character of the Project as a
"project" under the Enabling Law, and that such additions, improvements,
alterations or replacements will not adversely affect the utility of the Project
or substantially reduce its value. All such changes, additions, improvements,
alterations and replacements whether made by the User or the Issuer shall become
a part of the Project and shall be covered by this Lease Agreement.
(c) The User may connect or "tie-in" walls of the Improvements and
utility and other facilities located on the Project Site to other structures and
facilities owned or leased by it on real property adjacent to the Project Site.
The User may use as a party wall any wall of the Improvements which is on or
contiguous to the boundary line of real property owned or leased by it, and in
the event of such use, each party hereto hereby grants to the other a ten-foot
easement adjacent to any such party wall for the purpose of inspection,
maintenance, repair and replacement thereof and the tying in of new
construction. If the User utilizes any wall of the Improvements as a party wall
for the purpose of tying in new construction that will be utilized under common
control with the Project, the User may also remove any non-loadbearing wall
panel in the party wall; provided however, if the adjacent property ceases to be
operated under common control with the Project, the User shall, at its own
expense, install wall panels similar in quality to those that have been removed.
Prior to the exercise of any one or more of the rights granted by this
subsection (c), the User shall demonstrate to the reasonable satisfaction of the
Issuer and Trustee that the operation of the Project will not be adversely
affected by the exercise of such rights.
(d) The Issuer shall also, upon request of the User, grant such utility
and other similar easements over, across or under the Project Site as shall be
necessary or convenient for the furnishing of utility and other similar services
to the Project or to real property adjacent to or near the Project Site and
owned or leased by the User; provided that such easements shall not adversely
affect the operation of the facilities forming a part of the Project.
SECTION 6.02 Removal of, Substitution and Replacement for
Equipment
If the User in its sole discretion determines that any item of
Equipment has become inadequate, obsolete, worn-out, unsuitable, undesirable or
unnecessary in the operation of the Project, the User may remove such Equipment
from the Improvements or the Project Site and (on behalf of the Issuer) sell,
trade in, exchange or otherwise dispose of it without any responsibility or
accountability to the Issuer or the Trustee therefor, provided that the User
shall either:
(a) substitute and install in or on the Project Site other
personal property or fixtures which shall (1) have equal or greater
utility (but not necessarily the same value or function) in the
operation of the Project, (2) be free of all liens and encumbrances
except for purchase money liens or encumbrances reasonably acceptable
to the Trustee, (3) be the sole property of the Issuer, subject to the
demise hereof, (4) be held by the User on the same terms and conditions
as the items originally comprising the Equipment, and (5) not impair
the Project or change the nature of the Project as a "project" under
the Enabling Law; or
(b) forthwith upon such sale apply the price or amount
obtained upon the sale of such Equipment to the redemption of the
principal of the Bonds in accordance with the terms thereof.
SECTION 6.03 Installation of Machinery and Equipment Owned or Leased by
the User or Subject to a Security Interest in Third Parties
(a) The User, may, at its own expense, or permit any sublessee of the
Project to, at its own expense, install at the Project any machinery, equipment
or other personal property which will facilitate the operation of the Project.
Any such property which is installed and does not constitute a part of the
Project under the terms of this Lease Agreement shall be and remain the property
of the User or such sublessee and may be removed thereby at any time while no
Event of Default exists under this Lease Agreement; provided, that any damage to
the Project occasioned by such removal shall be repaired by such party at its
own expense.
(b) If (i) any machinery, equipment or other personal property is
leased by the User or the User shall have granted a security interest in any
such property in connection with the acquisition thereof by the User, (ii) such
property is installed or is located on the Project Site, and (iii) such property
does not constitute a part of the Project under the terms of this Lease
Agreement, then the lessor of such property or the party holding a security
interest therein, as the case may be, may remove such property from the Project
Site even though an Event of Default may then exist hereunder or this Lease
Agreement may have been terminated following an Event of Default hereunder,
provided, that the foregoing permission to remove shall be subject to the
agreement by such lessor or secured party to repair at its own expense any
damage to the Project occasioned by such removal.
SECTION 6.04 Insurance
(a) The User will take out and continuously maintain in effect the
following insurance with respect to the Project, paying as the same become due
all premiums with respect thereto:
(1) Insurance to the extent of the full insurable value of the
Project against loss or damage by fire, tornado, windstorm, flood and
other hazards and casualties, with uniform standard extended coverage
endorsement limited only as may be provided in the standard form of
extended coverage endorsement at the time in use in the State.
(2) Insurance against liability for bodily injury to or death
of persons and for damage to or loss of property occurring on or about
the Project or in any way related to the condition or operation of the
Project, in the minimum amounts of $1,000,000 for death of or bodily
injury to any one person, $3,000,000 for all death and bodily injury
claims resulting from any one accident, and $500,000 for property
damage.
(3) Flood insurance under the national flood insurance program
established by the Flood Disaster Protection Act of 1973, as at any
time amended, only during such times while the Project is eligible
under such program, in an amount at least equal to the principal amount
of the Bonds Outstanding or to the maximum limit of coverage made
available with respect to the Project under said Act, whichever is
less.
(4) Title insurance in an amount equal to the initial stated
amount of the Letter of Credit, insuring the mortgage on the Project
created by the Financing Documents subject to no liens and encumbrances
other than such encumbrances as shall be approved by the Trustee and
the Credit Obligor. Any proceeds of such title insurance shall be
applied, at the direction of the Credit Obligor, to cure the title
defect in respect of which such proceeds are made available or shall be
deposited with the Trustee and applied to the redemption of the Bonds
in accordance with the terms thereof.
(5) Use and occupancy insurance (or business interruption or
risk insurance) covering suspension or interruption of the User's
operations at the Project in whole or in part, with such exemptions as
are customarily imposed by insurers, covering a period of suspension or
interruption of at least six months with a minimum limit in an amount
equal to 100% of the maximum amount to be paid as Rental Payments and
other payments under Article 5 hereof during the then current or any
subsequent year.
(6) During the period of acquisition and construction of any
part of the Project builders' risk insurance in the amount of the full
replacement value of the Project against all losses which are normally
covered by such builders' risk insurance. The User may satisfy its
obligations with respect to the builder's risk insurance by causing
such insurance to be carried by a construction contractor for any part
of the Project.
(b) All policies evidencing the insurance required by the terms of the
preceding paragraph shall be taken out and maintained in generally recognized
responsible insurance companies, qualified under the laws of the State to assume
the respective risks undertaken. All such insurance policies shall name as
either loss payee or additional insureds the Credit Obligor, the Issuer and the
Trustee (as their respective interests shall appear) and shall contain, where
appropriate, standard mortgage clauses providing for all losses thereunder in
excess of $50,000 to be paid to the Trustee; provided that all losses (including
those in excess of $50,000) may be adjusted by the User, subject, in the case of
any single loss in excess of $50,000, to the approval of the Trustee. The User
may insure under a blanket policy or policies.
(c) Each insurance policy required to be carried by this Section shall
contain, to the extent obtainable, an agreement by the insurer that (1) the User
may not, without the consent of the Credit Obligor, the Issuer and Trustee,
cancel such insurance or sell, assign or dispose of any interest in such
insurance, policy or any proceeds thereof, (2) such insurer shall notify the
Credit Obligor, the Issuer and the Trustee if any premium is not paid when due
or if any such policy is not renewed prior to the expiration thereof, and (3)
such insurer shall not materially amend or cancel any such policy except on 30
days' prior written notice to the Credit Obligor, the Issuer and the Trustee.
(d) The User shall deposit with the Trustee a certificate or
certificates of the respective insurers attesting the fact that all policies
evidencing the insurance required to be carried by this Section are in force and
effect. Upon the expiration of any such policy, the User shall furnish to the
Trustee evidence reasonably satisfactory to the Trustee that such policy has
been renewed or replaced by another policy or that there is no necessity
therefor under this Lease Agreement.
ARTICLE 7 ARTICLE 7
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Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.01 Damage and Destruction
(a) If no Lease Default shall have occurred and be continuing and the
Letter of Credit is in effect and the Credit Obligor has not dishonored any
draws thereunder and there has not been instituted insolvency proceedings with
respect to the Credit Obligor, then all Net Proceeds of insurance resulting from
claims for losses in respect of damage to or destruction of the Project (in
whole or in part) shall be applied as provided in the Credit Obligor Mortgage.
(b) If no Lease Default shall have occurred and be continuing and the
Letter of Credit is not in effect, or if the Credit Obligor has dishonored any
draw thereunder or if there has been instituted insolvency proceedings with
respect to the Credit Obligor, then the following provisions shall apply in
event of damage to or destruction of the Project(in whole or in part):
(1) If the Project is destroyed (in whole or in part) or is
damaged the User shall continue to make Rental Payments and will
promptly give written notice of such damage and destruction to the
Trustee and the Issuer. All Net Proceeds of insurance resulting from
claims for such losses shall be paid to the Trustee and deposited in
the Construction Fund, whereupon (i) the User, or the Issuer at the
User's direction, shall proceed promptly to repair, rebuild or restore
the property damaged or destroyed to substantially the same condition
in which it existed prior to the event causing such damage or
destruction, with such changes, alterations and modifications
(including the substitution and addition of other property) as may be
desired by the User and as will not impair the operating unity or
productive capacity of the Project or its character as a "project"
under the Enabling Law, and (2) the Issuer shall cause withdrawals to
be made from the Construction Fund to pay the costs of such repair,
rebuilding or restoration, either on completion thereof or as the work
progresses. The balance (if any) of Net Proceeds remaining after the
payment of all of the costs of such repair, rebuilding or restoration
shall be applied to the redemption of Bonds in accordance with the
provisions thereof and of the Indenture, or, if none of the Bonds are
then Outstanding, shall be paid to the User.
(2) In the event the Net Proceeds are not sufficient to pay in
full the costs of repairing, rebuilding and restoring the Project as
provided in this Section, the User shall nonetheless complete the work
thereof and shall pay that portion of the costs thereof in excess of
the amount of said proceeds or shall pay to the Trustee for the account
of the Issuer the moneys necessary to complete said work. The User
shall not by reason of the payment of such excess costs (whether by
direct payment thereof or payment to the Trustee therefor) be entitled
to any reimbursement from the Issuer or any abatement or diminution of
the Rental Payments hereunder.
(3) Anything in this Section to the contrary notwithstanding,
if, as a result of such damage or destruction the User is entitled to
exercise an option to purchase the Project and duly does so in
accordance with the applicable provisions of Section 11.03 hereof, then
neither the User nor the Issuer shall be required to repair, rebuild or
restore the property damaged or destroyed, and so much (which may be
all) of any Net Proceeds referable to such damage or destruction as
shall be necessary to provide for full payment of the Indenture
Indebtedness shall be paid to the Trustee and the excess thereafter
remaining (if any) shall be paid to the User.
(c) If a Lease Default has occurred and is continuing, and the Letter
of Credit is not in effect or the Credit Obligor has dishonored any draw
thereunder or there has been instituted insolvency proceedings with respect to
the Credit Obligor, then all Net Proceeds of insurance resulting from claims for
losses in respect to damage to or destruction of the Project (in whole or in
part) shall be applied to the redemption of the Bonds in accordance with the
terms thereof.
SECTION 7.02 Condemnation
(a) If no Lease Default shall have occurred and be continuing and the
Letter of Credit is in effect and the Credit Obligor has not dishonored any
draws thereunder and there has not been instituted insolvency proceedings with
respect to the Credit Obligor, then all Net Proceeds resulting from any taking
by eminent domain of the Project (in whole or in part) shall be applied as
provided in the Credit Obligor Mortgage.
(b) If no Lease Default shall have occurred and be continuing and the
Letter of Credit is not in effect, or if the Credit Obligor has dishonored any
draw thereunder or if there has been instituted insolvency proceedings with
respect to the Credit Obligor, then the following provisions shall apply in
event of any taking by eminent domain of the Project (in whole or in part):
(1) In the event that title to, or the temporary use of, the
Project or any part thereof shall be taken under the exercise of the
power of eminent domain and as a result thereof the User is entitled to
exercise an option to purchase the Project and duly does so in
accordance with the applicable provisions of Section 11.03 hereof, so
much (which may be all) of the Net Proceeds referable to such taking,
including the amounts awarded to the Issuer and the Trustee and the
amount awarded to the User for the taking of all or any part of the
leasehold estate of the User in the Project created by this Lease
Agreement, as shall be necessary to provide for full payment of the
Indenture Indebtedness shall be paid to the Trustee and the excess of
such Net Proceeds remaining (if any) shall be paid to the User.
(2) If as a result of such taking, the User is not entitled to
exercise an option to purchase the Project under Section 11.03 hereof,
or, having such option, fails to exercise the same in accordance with
the terms thereof or notifies the Issuer and the Trustee in writing
that it does not propose to exercise such option, the User shall be
obligated to continue to make the Rental Payments and the entire Net
Proceeds hereinabove referred to shall, be paid to the Trustee and
applied in one or more of the following ways as shall be directed in
writing by the User:
(i) To the restoration of the remaining improvements
located on the Project Site to substantially the same
condition in which they existed prior to the exercise of the
power of eminent domain;
(ii) To the acquisition, by construction or
otherwise, by the Issuer of other lands or improvements
suitable for the User's operations at the Project, which land
or improvements shall be deemed a part of the Project and
available for use and occupancy by the User without the
payment of any Rental Payments other than that herein provided
to the same extent as if such land or other improvements were
specifically described herein and demised hereby, and which
land or improvements shall be acquired by the Issuer subject
to no liens or encumbrances.
(3) Any balance of such Net Proceeds remaining after the
application thereof as provided in subsection (b) of this Section shall
be applied to the redemption of the Bonds in accordance with the terms
thereof, or, if the Indenture Indebtedness is paid in full, shall be
paid to the User.
(4) The Issuer shall cooperate fully with the User in the
handling and conduct of any prospective or pending condemnation
proceeding with respect to the Project or any part thereof and shall,
to the extent it may lawfully do so, permit the User to litigate in any
such proceeding in the name and behalf of the Issuer. In no event shall
the Issuer settle, or consent to the settlement of, any prospective or
pending condemnation proceeding without the prior written consent of
the User.
(5) The User shall be entitled to the Net Proceeds of any
award or portion thereof made for damage to or taking of its own
property not included in the Project, provided that any Net Proceeds
resulting from the taking of all or any part of the leasehold estate of
the User in the Project created by this Lease Agreement shall be paid
and applied in the manner provided in this Section 7.02.
(c) If a Lease Default has occurred and is continuing, and the Letter
of Credit is not in effect or the Credit Obligor has dishonored any draw
thereunder or there has been instituted insolvency proceedings with respect to
the Credit Obligor, then all Net Proceeds of condemnation awards resulting from
condemnation of the Project (in whole or in part) shall be applied to the
redemption of the Bonds in accordance with the terms thereof.
ARTICLE 8 ARTICLE 8
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Assignment, Subleasing, Mortgaging and the Bonds
SECTION 8.01 Provisions Relating to Assignment and
Subleasing
With the consent of the Trustee and the Credit Obligor, except as
provided below, the User may assign this Lease Agreement and the leasehold
interest created hereby and may sublet the Project or any part thereof, subject,
however, to the following conditions:
(1) No such assignment or subleasing and no dealings or
transactions between the Issuer or the Trustee and any assignee or
sublessee shall in any way relieve the User from primary liability for
any of its obligations hereunder. In the event of any such assignment
or subleasing the User shall continue to remain primarily liable for
the payment of all Rental Payments herein provided to be paid by it and
for the performance and observance of the other agreements and
covenants on its part herein provided to be performed and observed by
it.
(2) The User will not assign the leasehold interest created
hereby nor sublease the Project to any person unless the operations of
such assignee or sublessee are consistent with, and in furtherance of,
the purpose of the Enabling Law. The User shall, prior to any such
assignment or sublease, demonstrate to the reasonable satisfaction of
the Trustee that the operations of such assignee or sublessee will
preserve the character of the Project as a "project" under the Enabling
Law, if applicable, and deliver to the Trustee an Opinion of Bond
Counsel acceptable to the Trustee to the effect that such assignment or
sublease will not cause the interest on the Bonds to be Taxable.
(3) The User shall, within 30 days after the delivery thereof,
furnish to the Issuer and the Trustee a true and complete copy of each
such assignment or sublease.
SECTION 8.02 Assignment of Lease Agreement and Rents by the
Issuer
The Issuer has, simultaneously with the delivery of this Lease
Agreement, assigned its interest in and pledged any money receivable under this
Lease Agreement (other than certain rights to indemnification and reimbursement)
to the Trustee as security for payment of the Bonds, and the User hereby
consents to such assignment and pledge. The Issuer has in the Indenture
obligated itself to follow the instructions of the Trustee or the Owners or a
certain percentage thereof in the election or pursuit of any remedies herein
vested in it. The Trustee shall have all rights and remedies herein accorded to
the Issuer and any reference herein to the Issuer shall be deemed, with the
necessary changes in detail, to include the Trustee, and the Trustee and the
registered owners of the Bonds are deemed to be third party beneficiaries of the
covenants, agreements and representations of the User herein contained. Neither
the Issuer nor the User will unreasonably withhold any consent herein or in the
Indenture required of either of them. The User shall not be deemed to be a party
to the Indenture or the Bonds and reference in this Lease Agreement to the
Indenture and the Bonds shall not impose any liability or obligation upon the
User other than its specific obligations and liabilities undertaken in this
Lease Agreement.
SECTION 8.03 Transfer or Encumbrance Created by Issuer; Corporate
Existence of Issuer
(a) Without the prior written consent of the Trustee, the Credit
Obligor, and the User, the Issuer (1) will not sell, transfer or convey the
Project or any part thereof, except as provided in this Lease Agreement, and (2)
will not create or incur or suffer or permit to be created or incurred or to
exist any mortgage, lien, charge or encumbrance on the Project or any part
thereof.
(b) The Issuer shall not consolidate with or merge into any other
corporation or transfer its property substantially as an entirety, except as
provided in the Indenture.
SECTION 8.04 Redemption of Bonds
(a) The Issuer will redeem any or all of the Bonds upon the occurrence
of any event or contingency requiring the mandatory redemption of Bonds, all in
accordance with the applicable provisions of the Bonds and the Indenture.
(b) If no Lease Default exists, the Issuer will exercise any right of
optional redemption with respect to the Bonds only upon the written request of
the User.
ARTICLE 9 ARTICLE 9
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Covenants of the User
Until the Indenture Indebtedness is paid in full:
(a) The User shall not do or permit anything to be done at the Project
that will affect, impair or contravene any policies of insurance that may be
carried on the Project. The User will, in the use of the Project and the public
ways abutting the same comply with all lawful requirements, the violation of
which would have a material adverse effect on the Project, of all governmental
bodies; provided, however, the User may, at its own expense in good faith
contest the validity or applicability of any such requirement.
(b) The User shall permit the Issuer, the Trustee, the Credit Obligor
and their duly authorized agents at all reasonable times to enter upon, examine
and inspect the Project.
(c) The User will maintain proper books of record and account, in which
full and correct entries will be made, in accordance with generally accepted
accounting principles, of all its business and affairs. The User shall furnish
to the Trustee with reasonable promptness such financial information of the User
as the Trustee shall reasonably request.
(d) The User will duly pay and discharge all taxes, assessments and
other governmental charges and liens lawfully imposed on the User and upon the
properties of the User, and the Project; provided, however, the User will not be
required to pay any taxes, assessments or other governmental charges so long as
in good faith it shall contest the validity thereof by appropriate legal
proceedings, the User has given notice of such contest to the Trustee, the User
has established adequate reserves therefor, and no part of the Project shall, in
the opinion of the Trustee, be subject to loss or forfeiture.
(e) The User will comply with all valid laws, ordinances, regulations
and requirements applicable to it or to its property and the Project.
(f) Except as otherwise permitted in the Credit Documents, the User
will maintain and preserve its existence as a corporation under the laws of the
State of Delaware and will not voluntarily dissolve without first discharging
its obligations under this Agreement and will not in any manner transfer or
convey any substantial portion of its properties, assets or licenses without
receipt of present and adequate consideration therefor.
(g) The User will do, execute, acknowledge and deliver such further
acts, conveyances, mortgages, financing statements and assurances as the Issuer
or the Trustee shall require for accomplishing the purposes of the Financing
Documents. The User will cause this Lease Agreement, any amendments to this
Lease Agreement and other instruments of further assurance, including financing
statements and continuation statements, to be promptly recorded, registered and
filed, and at all times to be kept recorded, registered and filed in such places
as may be required by law fully to preserve and protect the rights of the Issuer
and the Trustee to all property comprising the Project.
ARTICLE 10ARTICLE 10
Events of Default and Remedies
SECTION 10.01 Events of Default
Any one or more of the following shall constitute an event of default
(a "Lease Default") under this Lease Agreement (whatever the reason for such
event and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any Basic Rental Payment when
such Basic Rental Payment becomes due and payable; or
(2) default in the performance, or breach, of any covenant or
warranty of the User in this Lease Agreement (other than a covenant or
warranty, a default in the performance or breach of which is elsewhere
in this Section specifically described), and the continuance of such
default or breach for a period of 30 days after there has been given,
by registered or certified mail, to the User and the Credit Obligor by
the Issuer or by the Trustee a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice
is a "notice of default" hereunder, provided that if such default is of
a kind which cannot reasonably be cured within such thirty-day period,
the User shall have a reasonable period of time within which to cure
such default, provided that it begins to cure the default promptly
after its receipt of such written notice and proceeds in good faith,
and with due diligence, to cure such default; or
(3) The dissolution or liquidation of the User or the filing
by the User of a voluntary petition in bankruptcy, or failure by the
User promptly to lift any execution, garnishment or attachment of such
consequence as will impair its ability to carry on its operations at
the Project, or the User's seeking of or consenting to or acquiescing
in the appointment of a receiver of all or substantially all its
property or of the Project, or the adjudication of the User as a
bankrupt, or any assignment by the User for the benefit of its
creditors, or the entry by the User into an agreement of composition
with its creditors, or if a petition or answer is filed by the User
proposing the adjudication of the User as a bankrupt or its
reorganization, arrangement or debt readjustment under any present or
future federal bankruptcy code or any similar federal or state law in
any court, or if any such petition or answer is filed by any other
person and such petition or answer shall not be stayed or dismissed
within 60 days.
(4) The occurrence of an event of default under any of the
other Financing Documents; or
(5) Receipt by the Trustee of written notice from the Credit
Obligor that an event of default has occurred and is continuing under
the Credit Documents or any other related documents to which the User
and the Credit Obligor are parties signatory thereto.
SECTION 10.02 Remedies on Default
Whenever any such Lease Default shall have happened and be continuing,
the Issuer or the Trustee may, with the consent of the Credit Obligor, take any
of the following remedial steps:
(1) Declare all installments of Basic Rental Payments for the
remainder of the Lease Term to be immediately due and payable,
whereupon the same shall become immediately due and payable;
(2) Reenter the Project, without terminating this Lease
Agreement, and, upon ten days' prior written notice to the User and
Credit Obligor, relet the Project or any part thereof for the account
of the User, for such term (including a term extending beyond the Lease
Term) and at such rentals and upon such other terms and conditions,
including the right to make alterations to the Project or any part
thereof, as the Issuer may, with the approval of the Trustee and Credit
Obligor, deem advisable, and such reentry and reletting of the Project
shall not be construed as an election to terminate this Lease Agreement
nor relieve the User of its obligations to pay Basic Rent and
Additional Rent or to perform any of its other obligations under this
Lease Agreement, all of which shall survive such reentry and reletting,
and the User shall continue to pay Basic Rent and all Additional Rent
provided for in this Lease Agreement until the end of the Lease Term,
less the net proceeds, if any, of any reletting of the Project after
deducting all of the Issuer's and Trustee's expenses in connection with
such reletting, including, without limitation, all repossession costs,
brokers' commissions, attorneys' fees, alteration costs and expenses of
preparation for reletting;
(3) Terminate this Lease Agreement, exclude the User from
possession of the Project and, if the Issuer or Trustee elects so to
do, lease the same for the account of the Issuer, holding the User
liable for all rent due up to the date such lease is made for the
account of the Issuer; or
(4) Take whatever legal proceedings may appear necessary or
desirable to collect the Rental Payments then due, whether by
declaration or otherwise, or to enforce any obligation or covenant or
agreement of the User under this Lease Agreement or by law.
SECTION 10.03 Availability of Remedies
(a) No remedy herein conferred upon or reserved to the Issuer or the
Trustee is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Lease Agreement or now or hereafter existing
at law or in equity or by statute. No delay or omission to exercise any right or
power accruing upon any default shall impair any such right or power or shall be
construed to be a waiver thereof but any such right or power may be exercised
from time to time and as often as may be deemed expedient.
(b) In the event any agreement contained in this Lease Agreement should
be breached by either party and thereafter waived by the other party, such
waiver shall be limited to the particular breach so waived and shall not be
deemed to waive any other breach hereunder.
(c) All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Lease Agreement invalid or
unenforceable.
SECTION 10.04 Agreement to Pay Attorneys' Fees and Expenses
In the event the User should default under any of the provisions of
this Lease Agreement and the Issuer or the Trustee (in its own name or in the
name and on behalf of the Issuer) should employ attorneys or incur other
expenses for the collection of rent or the enforcement of performance or
observance of any obligation or agreement on the part of the User herein
contained, the User will on demand therefor pay to the Issuer or the Trustee (as
the case may be) the reasonable fee of such attorneys and such other reasonable
expenses so incurred.
ARTICLE 11ARTICLE 11
OPTIONS
SECTION 11.01 Options to Terminate
The User shall have, if it is not in default hereunder, the option to
cancel or terminate the term of this Lease Agreement at any time after full
payment of the Indenture Indebtedness and termination of the Letter of Credit by
giving the Issuer notice in writing of such termination and such termination
shall forthwith become effective. This Lease Agreement may not be terminated
prior to payment in full of the Indenture Indebtedness even if all amounts due
hereunder have been paid in full.
SECTION 11.02 Option to Renew
There shall be no option to renew the term of this Lease Agreement.
SECTION 11.03 Option to Purchase Prior to Payment of the Bonds
(a) The User, if not in default hereunder, shall have the option to
purchase the Project at any time prior to the full payment of the Indenture
Indebtedness if any of the following shall have occurred:
(i) The Project or any part thereof shall have been damaged or
destroyed (A) to such extent that, in the opinion of the User, it
cannot be reasonably restored within a period of four consecutive
months substantially to the condition thereof immediately preceding
such damage or destruction, or (B) to such extent that, in the opinion
of the User, the User is thereby prevented from carrying on its normal
operations at the Project for a period of four consecutive months, or
(C) to such extent that the cost of restoration thereof would exceed by
more than $50,000 the Net Proceeds of insurance carried thereon
pursuant to the requirements of this Lease Agreement; or
(ii) Title to the Project or any part thereof or the leasehold
estate of the User in the Project created by this Lease Agreement or
any part thereof shall have been taken under the exercise of the power
of eminent domain by any governmental authority or person, firm or
corporation acting under governmental authority, which taking may
result, in the opinion of the User, in the User being thereby prevented
from carrying on its normal operations at the Project for a period of
four consecutive months; or
(iii) As a result of any changes in the Constitution of the
State or the Constitution of the United States of America or of
legislative or administrative action (whether state or Federal), or by
final decree, judgment or order of any court or administrative body
(whether state or Federal) entered after the contest thereof by the
User in good faith, this Lease Agreement shall have become void or
unenforceable or impossible of performance in accordance with the
intent and purpose of the parties as expressed herein, or unreasonable
burdens or excessive liabilities shall have been imposed on the Issuer
or the User, including without limitation, the imposition of taxes of
any kind on the Project or the income or profits of the Issuer
therefrom, or upon the interest of the User therein, which taxes were
not being imposed on the date of this Lease Agreement;
(b) To exercise such option, the User shall, within 30 days following
the event authorizing the exercise of such option, give written notice to the
Issuer and to the Trustee and shall specify therein the date of closing such
purchase, which date shall be not less than 30 days from the date such notice is
mailed, and shall make arrangements satisfactory to the Trustee for the giving
of the required notice for the redemption of the Bonds. The purchase price
payable by the User in the event of its exercise of the option granted in this
Section shall be that amount required to pay in full all Indenture Indebtedness
and shall be paid to the Trustee.
(c) Upon the exercise of the option granted in this Section and the
payment of the option price, any Net Proceeds of insurance or condemnation award
then on hand or thereafter received shall be paid to the User.
SECTION 11.04 Option to Purchase Project After Payment of the
Indenture Indebtedness
(a) The User shall have the option to purchase the Project at any time
following full payment of the Indenture Indebtedness for a purchase price of
$10.00. To exercise the option granted in this Section, the User shall notify
the Issuer of its intention so to exercise such option prior to the proposed
date of purchase and shall on the date of purchase pay such purchase price to
the Issuer. The User may not purchase the Project prior to payment in full of
all Indenture Indebtedness even if all amounts due hereunder shall have been
paid in full.
(b) In the event the option granted in this Section 11.04 has not been
exercised prior to the end of the Lease Term, then said option shall
automatically be considered to be exercised upon the end of the Lease Term
unless the User gives written notice prior thereto that it does not elect to
exercise such option.
(c) For the purposes hereof reference is hereby made to the decision
of the Alabama Supreme Court in Town of Uniontown v. Landmark Dev. Co., 469
So.2d 565 Ala. 1985).
SECTION 11.05 Option to Purchase Portions of Project Site
(a) The User, if not in default hereunder, shall have the option to
purchase any Unimproved portion of the Project Site at any time and from time to
time with the prior written consent of the Trustee and for a purchase price
equal to the pro-rata cost of such portion of the Project Site to be so
purchased, provided that the User furnish the Issuer and the Trustee with the
following:
(1) A notice in writing containing (i) an adequate legal
description of that portion of the Project Site with respect to which
such option is to be exercised, which portion may include rights
granted in party walls, the right to "tie-into" existing utilities, the
right to connect and join any building, structure or improvement with
existing structures, facilities and improvements on the Project Site,
and the right of ingress or egress to and from the public highway which
shall not interfere with the use and occupancy of existing structures,
improvements and buildings, and (ii) a statement that the User intends
to exercise such option to purchase such portion of the Project Site on
a date stated.
(2) A certificate of an Independent Engineer or of an
Independent Architect made and dated not more than 90 days prior to the
date of the purchase and stating that, in the opinion of the person
signing such certificate, (i) the portion of the Project Site with
respect to which the option is exercised is not needed for the
operation of the then existing Project and (ii) the severance of such
portion of the Project Site and the location or construction thereon of
buildings, structures and improvements, if any, will not impair the
usefulness of the then existing Project or the means of ingress and
egress to and from the remaining portions of the Project or impair or
deny highway access, rail access or utility services to such remaining
portions of the Project.
(3) An amount of money equal to the purchase price computed as
provided in this Section, which amount shall be paid to the Trustee and
applied to the redemption of the Bonds in accordance with the terms
thereof.
(b) Upon receipt of the notice and certificate required in this Section
to be furnished by the User and the payment by the User to the Trustee of the
purchase price, the Issuer will promptly deliver to the User the documents
referred to in Section 11.06.
(c) If such option relates to portions of the Project Site on which
transportation or utility facilities are located, the Issuer shall retain an
easement to use such transportation or utility facilities to the extent
necessary for the efficient operation of the Project.
(d) No purchase effected under the provisions of this Section shall
affect the obligation of the User for the payment of Rent and other payments in
the amounts and at the times provided in this Lease Agreement or the performance
of any other agreement, covenant or provision hereof, and there shall be no
abatement or adjustment in Rent by reason of the release of any such portion of
the Project Site and the obligations of the User shall continue in all respects
as provided in this Lease Agreement, excluding, however, any portion of the
Project Site so purchased.
SECTION 11.06 Conveyance of Exercise of Option to Purchase
At the closing of the purchase pursuant to the exercise of any option
to purchase granted herein, the Issuer shall upon receipt of the purchase price
deliver to the User documents conveying to the User the property with respect to
which such option was exercised, as such property then exists, subject to the
following: (a) all easements or other rights, if any, required to be reserved by
the Issuer under the terms and provisions of the option being exercised by the
User; (b) those liens and encumbrances, if any, to which title to said property
was subject when conveyed to the Issuer; (c) those liens and encumbrances
created by the User or to the creation or suffering of which the User consented;
and (d) those liens and encumbrances resulting from the failure of the User to
perform or observe any of the agreements on its part contained in this Lease
Agreement.
ARTICLE 12 ARTICLE 12
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Internal Revenue Code
SECTION 12.01 Covenants Regarding Section 103 and Sections 141-150 of
the Code
(a) The Issuer and the User do each hereby covenant and agree for the
benefit of the Owners that neither the Issuer nor the User will take any action,
omit to take any action, permit any action to be taken or fail to require any
action to be taken, which would cause the interest on the Bonds to be or become
includable in gross income for federal income taxation. Without limiting the
generality of the foregoing, the User covenants and agrees that (a) the proceeds
of the Bonds shall not be used or applied in such manner as to cause any Bond to
be or become an "arbitrage bond" as that term is defined in Section 148 of the
Code, (b) ninety-five percent (95%) or more of the net proceeds will be used for
the acquisition, construction, reconstruction, or improvement of land or
property of a character subject to the allowance for depreciation, within the
meaning of Section 144(a) of the Code, (c) the proceeds will be used solely for
the acquisition and construction of the Project, which shall constitute
facilities solely for the manufacturing, including processing, of tangible
personal property, or for issuance expenses, or shall be rebated to the United
States of America as provided in this Lease Agreement and the Indenture, and no
part of the proceeds will be used by the User, directly or indirectly, for
working capital or to finance inventory, or to acquire any facility or asset
which may not be financed, in whole or in part, with the proceeds of obligations
the interest on which is excludable from gross income for federal income
taxation, (d) the net proceeds shall not be used for the acquisition,
construction, reconstruction or improvement of any property which would cause
the average maturity of the Bonds to exceed one hundred twenty percent (120%) of
the average reasonably expected economic life of the facilities financed with
the net proceeds of the Bonds, within the meaning of Section 147(b) of the Code,
(e) none of the net proceeds shall be used to acquire (directly or indirectly)
any land (or any interest therein) to be used for farming purposes; (f) less
than twenty-five percent (25%) of the net proceeds shall be used to acquire
(directly or indirectly) the Project Site or any other land (or any interest
therein), (g) none of the net proceeds shall be used to acquire any property or
any interest therein (including, without limitation, buildings, structures,
facilities, improvements, equipment, machinery or other personal property) the
first use of which property was not pursuant to such acquisition with the
proceeds, (h) neither the Bonds nor any proceeds therefrom shall ever be
federally guaranteed, as such term is defined in Section 149(b) of the Code,
except as expressly permitted by said Section 149(b), (i) neither the User nor
any related person shall ever have allocated to it and outstanding tax-exempt
facility-related bonds (as such term is used in Section 144(a) (10) of the Code)
in an aggregate principal amount exceeding $40,000,000, (j) no party shall ever
be allowed to use or otherwise occupy or derive any benefit whatsoever from the
Project, or any part thereof, if the effect of the foregoing shall result in a
test period beneficiary (as defined in Section 144(a) (10) of the Code) having
allocated to it and outstanding in excess of $40,000,000 in aggregate principal
amount of tax-exempt facility related bonds, (k) no more than two percent of the
face amount of the Bonds shall be used to pay issuance costs.
(b) The Issuer has elected and does hereby elect to have the provisions
relating to the $10,000,000 limit in Section 144(a)(4) of the Code apply to the
Bonds.
(c) The Issuer and the User will each cooperate to assure compliance
with the provisions of Section 12.03 of this Lease Agreement and Article XVI of
the Indenture.
SECTION 12.02 User's Obligation Upon Determination of Taxability
(a) Upon the occurrence of a Determination of Taxability, the Trustee
shall notify the User in writing that all Outstanding Bonds shall be subject to
mandatory redemption on the date specified by the Trustee in accordance with the
Indenture irrespective of whether the User has violated any covenant or
representation in this Lease Agreement. Within seven days after the receipt of
such notice the User shall purchase the Project from the Issuer for the price
specified in subsection (b) of this Section, which purchase price shall be paid
to the Trustee.
(b) The price payable by the User for the Project in the event of a
Determination of Taxability shall be equal to the amount required to redeem the
Bonds in accordance with the terms thereof and to pay in full all Indenture
Indebtedness. There shall be credited against such payment otherwise required by
this paragraph all amounts which have been paid to the Trustee pursuant to the
Letter of Credit with respect to such payment of the Bonds then Outstanding.
(c) Any other options of the User to purchase the Project shall be
superseded by its mandatory obligation to purchase the Project pursuant to this
section 12.02.
SECTION 12.03 Federal Rebate Payments
The provisions of Article XVI of the Indenture are incorporated herein
by reference, and the User shall comply with said provisions and shall perform
and discharge all obligations, duties and responsibilities imposed upon the User
under said Article, including without limitation the payment of all required
rebates to the United States of America.
ARTICLE 13 ARTICLE 13
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Provisions of General Application
SECTION 13.01 Covenant of Quiet Enjoyment
So long as the User performs and observes all the covenants and
agreements on its part herein contained, it shall peaceably and quietly have,
hold and enjoy the Project during the Lease Term subject to all the terms and
provisions hereof.
SECTION 13.02 Investment of Funds
The Issuer shall cause any money held as a part of the Special Funds
which may by the terms of the Indenture be invested to be so invested or
reinvested by the Trustee solely at the request of, and solely as directed by,
the User and as provided in the Indenture.
SECTION 13.03 Issuer's Liabilities Limited
(a) The covenants and agreements contained in this Lease Agreement
shall never constitute or give rise to a personal or pecuniary liability or
charge against the general credit of the Issuer, and in the event of a breach of
any such covenant or agreement, no personal or pecuniary liability or charge
payable directly or indirectly from the general assets or revenues of the Issuer
shall arise therefrom. Nothing contained in this Section, however, shall relieve
the Issuer from the observance and performance of the covenants and agreements
on its part contained herein.
(b) No recourse under or upon any covenant or agreement of this Lease
Agreement shall be had against any past, present or future officer or member of
the governing body of the Issuer, or of any successor either directly or through
the Issuer, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Lease Agreement is solely a corporate obligation, and that
no personal liability whatever shall attach to, or is or shall be incurred by,
any officer or member of the governing body of the Issuer or any successor
corporation, or any of them, under or by reason of the covenants or agreements
contained in this Lease Agreement.
SECTION 13.04 Prior Agreements
Excepting the Abatement Agreement and any deed, bill of sale, or other
instrument by which the Project, any part thereof, or any interest therein has
been transferred and conveyed by the User to the Issuer, this Lease Agreement
shall completely and fully supersede all prior agreements, both written and
oral, between the Issuer and the User relating to the acquisition of the Project
Site, the construction of the Improvements, the acquisition and installation of
the Equipment, the leasing of the Project and any options to purchase. Neither
the Issuer nor the User shall hereafter have any rights under such prior
agreements, except as otherwise herein provided, but shall look solely to this
Lease Agreement for definition and determination of all of their respective
rights, liabilities and responsibilities relating to the Project.
SECTION 13.05 Execution Counterparts
This Lease Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall constitute but one and the
same instrument.
SECTION 13.06 Binding Effect; Governing Law
This Lease Agreement shall inure to the benefit of, and shall be
binding upon, the Issuer, the User and their respective successors and assigns.
This Lease Agreement shall be governed exclusively by the applicable laws of the
State.
SECTION 13.07 Enforceability
In the event any provision of this Lease Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provision hereof.
SECTION 13.08 Article and Section Captions
The Article and Section headings and captions contained herein are
included for convenience only and shall not be considered a part hereof or
affect in any manner the construction or interpretation hereof.
SECTION 13.09 Notices
(a) Any request, demand, authorization, direction, notice, consent, or
other document provided or permitted by this Lease Agreement to be made upon,
given or furnished to, or filed with, the Issuer, the User, the Trustee or the
Credit Obligor shall be sufficient for every purpose hereunder if in writing and
(except as otherwise provided in this Lease Agreement) either (i) delivered
personally to the party or, if such party is not an individual, to an officer,
or other legal representative of the party to whom the same is directed
(provided that any document delivered personally to the Trustee must be
delivered to a corporate trust officer at its Principal Office during normal
business hours) at the hand delivery address specified in Section 1.10 of the
Indenture or (ii) mailed by first-class, registered or certified mail, postage
prepaid, addressed as specified in Section 1.10 of the Indenture. Any of such
parties may change the address for receiving any such notice or other document
by giving notice of the change to the other parties as provided in this Section.
(b) Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not an
individual, to an officer, or other legal representative of the party) at the
address specified pursuant to this Section, or, if sent by mail, three days
after such notice or document is deposited in the United States mail, proper
postage prepaid, addressed as provided above.
SECTION 13.10 Amendment of Indenture and this Lease Agreement
(a) The Issuer will not cause or permit the amendment of the Indenture
or the execution of any amendment or supplement to the Indenture without the
prior written consent of the User and the Credit Obligor. The Issuer and the
User shall have no power to modify, alter, amend or terminate this Lease
Agreement without the prior written consent of the Credit Obligor. Prior to the
payment in full of the Indenture Indebtedness, the Issuer and the User shall
have no power to modify, alter, amend or terminate this Lease Agreement without
the prior written consent of the Trustee and then only as provided in the
Indenture.
(b) This Lease Agreement may not be amended unless there has first been
delivered to the Trustee and the User an opinion of Bond Counsel that such
action will not, whether solely or in conjunction with any other fact or
circumstance, cause the interest on the Bonds to be or to become Taxable.
<PAGE>
IN WITNESS WHEREOF, the Issuer and the User have each caused this Lease
Agreement to be executed in its name, under seal, and the same attested, by
officers thereof duly authorized thereunto, and the parties hereto have caused
this Lease Agreement to be dated as of March 1, 1997.
CITY OF WINFIELD, ALABAMA
By
Mayor
S E A L
Attest: _________________________________
Its City Clerk
BUCCANEER HOMES,
a division of Cavalier Manufacturing, Inc.
By
Its
S E A L
Attest: _________________________________
Its _____________________________
<PAGE>
STATE OF ALABAMA )
MARION COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that William D. Sager, whose name as Mayor of the City of
Winfield, Alabama, a municipal corporation, is signed to the foregoing Lease
Agreement and who is known to me, acknowledged before me on this day that, being
informed of the contents of said Lease Agreement, he, as such officer and with
full authority, executed the same voluntarily for and as the act of said
municipal corporation.
Given under my hand and seal this the 6th day of March, 1997.
------------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: June 19, 2000
<PAGE>
STATE OF ALABAMA )
MARION COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that _______________________, name as ______________ of
Buccaneer Homes, a division of Cavalier Manufacturing, Inc., a Delaware
corporation, is signed to the foregoing Lease Agreement, and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Lease Agreement, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and seal this the ___________ day of
______________, 1997.
------------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: ________________________________________
<PAGE>
44
EXHIBIT A
TO
LEASE AGREEMENT
DATED AS OF MARCH 1, 1997
BETWEEN
CITY OF WINFIELD, ALABAMA
AND
BUCCANEER HOMES, a division of Cavalier
Manufacturing, Inc.
Description of Real Property
The description of the Project Site is set forth on the
following page.
A tract of land containing 12.8434 acres, situated in the Northeast 3 of the
Northwest 3 of Section 18, Township 13 South, Range 12 West, Marion County,
Alabama, Being more particularly described as follows: Commence at the Northeast
corner of the Northeast 3 of the Northwest 3 of said Section 18; thence run S.
01 degree 18'34"E., along the East boundary of said NE3 of NW3, a distance of
51.22 feet to a point on the South right-of-way of Third Avenue North (a paved
City of Winfield Street with a 50.0 foot wide right-of-way indicated); thence
run N. 88 degrees 24'51"W., along the South right-of-way of said avenue, a
distance of 60.08 feet to a capped rebar situated at its intersection with the
West right-of-way of a 60.0 foot wide Industrial Park Road (a paved City of
Winfield Street), said rebar being the point of beginning for the tract herein
described to-wit: thence run S. 01 degrees 18'34"E., parallel to, the East
boundary of the above said NE3 of NW3, a distance of 917.62 feet to a capped
rebar situated at its intersection with the North right-of-way of a proposed
60.0 foot wide Industrial Park Road; thence run N. 89 degrees 55'45"W, along the
Northerly right-of-way of said proposed road, a distance of 19.79 feet to a one
inch iron pipe (found), thence continue N. 89 degrees 55'45"W., along the
Northerly right-of-way of said proposed road, a distance of 600.95 feet to a one
inch iron pipe (found) under an old barbed wire fence; thence run N. 00 degree
00'W., along said old fence, a distance of 765.00 feet to an old one-inch
diameter pipe found at the South base of a creosote crosstie post; thence run S.
85 degrees 04'47"E., a distance of 30.50 feet to a capped rebar; thence run N.
00 degree 04'02"W., a distance of 170.00 feet to a capped rebar situated on the
South right-of-way of the above said Third Avenue North; thence run S. 88
degrees 24'51"E., along the South right-of-way of said right-of-way, a distance
of 569.80 feet to the point of beginning.
NOTE: Description furnished by grantor and Jack W. Loden, Surveyor, Ala. Reg.
No. 10681, dated June 3, 1996.
<PAGE>
A tract of land containing 11.96 acres, situated in the North 1/2 of the
Northwest 1/4 of Section 18, Township 13 South, Range 12 West, Marion County,
Alabama and being more particularly described as follows: Commence at the
Northeast corner of the West 1/2 of the Northeast 1/4 of Northwest 1/4 of said
Section 18, thence run South along the Easterly boundary of said West 1/2-NE
1/4-NW 1/4, a distance of 220.00 feet to a one-inch iron pipe situated at the
South base of a 10 inch by 6 inch diameter creosote post, said iron pipe being
the point of beginning for the tract herein described to-wit: thence continue
South along the Easterly boundary of said West 1/2-NE 1/4-NW 1/4 and along an
old barbed wire fence, a distance of 825.00 feet to a capped rebar; thence with
an interior angle of 90 degrees 00', run West, a distance of 749.00 feet to a
capped rebar situated on the Easterly right-of-way of Marion County Highway
Number 69; thence with an interior angle of 75 degrees 54' to chord, run in a
Northeasterly direction along the Easterly right-of-way of said highway, and
along the arc of a curve to the right (chord bearing=N, 14 degrees 06' E.) for a
chord distance of 199.87 feet to the P.T. of said curve; thence with an interior
angle of 176 degrees 13' from chord, run N. 17 degrees 53' E. and continue along
the Easterly right-of-way of said highway, a distance of 675.63 feet to a
one-inch angle iron & steel post (found); thence with an interior angle of 106
degrees 31', run S. 88 degrees 38' E., parallel to the North line of the above
said Section 18, and along an old barbed wire and 6 foot high cyclone fence, a
distance of 493.00 feet to the point of beginning, thus forming a closing
interior angle of 91 degrees 22 minutes.
LESS AND EXCEPT:
A tract of land containing 1.02 acres, situated in the North 1/2 of the
Northwest 1/4 of Section 18, Township 13 South, Range 12 West, Marion County,
Alabama, being more particularly described as follows: Commence at the Northeast
corner of the West 1/2 of the Northeast 1/4 of Northwest 1/4 of said Section 18;
thence run S. 00 degrees 00' E. along the West boundary of said West 1/2 of NE
1/4 of NW 1/4, a distance of 220.00 feet to a one-inch iron pipe situated at the
South base of a 10 inch by 6 inch diameter creosote post; thence continue S. 00
degrees 00' E. along the easterly boundary of said West 1/2 of NE 1/4 of NW 1/4
and along an old barbed wire fence, a distance of 765.00 feet to a one inch
diameter iron pipe, said pipe being the point of beginning for the tract herein
described to-wit; thence continue S. 00 degrees 00' E. along the Easterly
boundary of said West 1/2 of NE 1/4 of NW 1/4 and along an old barbed wire
fence, a distance of 60.00 feet to a capped rebar; thence run N. 90 degrees 00'
W. along the south boundary of the Buccaneer Homes of Alabama, Inc. tract, a
distance of 749.00 feet to a capped rebar located on the Easterly right-of-way
of Marion County Highway Number 69; thence run N. 14 degrees 04' E. along the
Easterly right-of-way of said highway, a distance of 61.86 feet to a point;
thence run N. 90 degrees 00' E., parallel to, the south boundary of said
Buccaneer tract, a distance of 733.93 feet to the point of beginning.
<PAGE>
EXHIBIT B
TO
LEASE AGREEMENT
DATED AS OF MARCH 1, 1997
BETWEEN
CITY OF WINFIELD, ALABAMA
AND
BUCCANEER HOMES, a division of Cavalier
Manufacturing, Inc.
EQUIPMENT LIST
Description of Personal Property and Fixtures
Heating and air conditioning and ventilating equipment, electrical
equipment, plumbing fixtures and furnishings, fire detection, suppression and
extinguishment apparatus, equipment and fixtures, and building materials and
supplies to be incorporated in the Project.
<PAGE>
<TABLE>
<S> <C>
LEASE AGREEMENT
TABLE OF CONTENTS
RECITALS..........................................................................................................1
ARTICLE 1
Definitions................................................ 1
ARTICLE 2
Representations
SECTION 2.01 Representations by the Issuer............................................................ 6
SECTION 2.02 Representations by the User.............................................................. 7
ARTICLE 3
Demising Clauses.............................................. 8
ARTICLE 4
Acquisition of the Project
SECTION 4.01 Agreement to Acquire..................................................................... 9
SECTION 4.02 No Warranty of Suitability of Issuer..................................................... 10
SECTION 4.03 Pursuit of Remedies Against Vendors, Contractors and
Subcontractors and Their Sureties........................................................ 10
SECTION 4.04 Completion of the Project................................................................ 10
ARTICLE 5
Duration of Lease Term
and Rental Provisions
SECTION 5.01 Duration of Term......................................................................... 11
SECTION 5.02 Basic Rental Payments; Draws Under Letter of Credit...................................... 11
SECTION 5.03 Additional Rental Payments............................................................... 12
SECTION 5.04 Advances by Issuer or Trustee............................................................ 12
SECTION 5.05 Indemnity of Issuer, Trustee and Paying Agent............................................ 13
SECTION 5.06 Obligations of User Unconditional........................................................ 14
SECTION 5.07 This Lease a Net Lease................................................................... 14
ARTICLE 6
Maintenance, Alterations, Replacements,
Taxes and Insurance
SECTION 6.01 Maintenance and Repairs, Alterations and Improvements, Party
Walls; and Liens; Utility Charges........................................................ 15
SECTION 6.02 Removal of, Substitution and Replacement for Equipment................................... 16
SECTION 6.03 Installation of Machinery and Equipment Owned or Leased by
the User or Subject to a Security Interest in Third Parties.............................. 16
SECTION 6.04 Insurance................................................................................ 17
ARTICLE 7
Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.01 Damage and Destruction................................................................... 18
SECTION 7.02 Condemnation............................................................................. 20
ARTICLE 8
Assignment, Subleasing, Mortgaging and the Bonds
SECTION 8.01 Provisions Relating to Assignment and Subleasing......................................... 21
SECTION 8.02 Assignment of Lease Agreement and Rents by the Issuer.................................... 22
SECTION 8.03 Transfer or Encumbrance Created by Issuer; Corporate .......................................
Existence of Issuer........................................................................... 22
SECTION 8.04 Redemption of Bonds...................................................................... 23
ARTICLE 9
Covenants of the User........................................... 23
ARTICLE 10
Events of Default and Remedies
SECTION 10.01 Events of Default....................................................................... 24
SECTION 10.02 Remedies on Default..................................................................... 25
SECTION 10.03 Availability of Remedies................................................................ 26
SECTION 10.04 Agreement to Pay Attorneys' Fees and Expenses........................................... 26
ARTICLE 11
OPTIONS
SECTION 11.01 Options to Terminate.................................................................... 27
SECTION 11.02 Option to Renew......................................................................... 27
SECTION 11.03 Option to Purchase Prior to Payment of the Bonds........................................ 27
SECTION 11.04 Option to Purchase Project After Payment of the Indenture Indebtedness ................ 28
SECTION 11.05 Option to Purchase Portions of Project Site............................................. 28
SECTION 11.06 Conveyance of Exercise of Option to Purchase............................................ 29
ARTICLE 12
Internal Revenue Code
SECTION 12.01 Covenants Regarding Section 103 and Sections 141-150 of the ............................ 30
Code
SECTION 12.02 User's Obligation Upon Determination of Taxability...................................... 31
SECTION 12.03 Federal Rebate Payments................................................................. 31
ARTICLE 13
Provisions of General Application
SECTION 13.01 Covenant of Quiet Enjoyment............................................................. 32
SECTION 13.02 Investment of Funds..................................................................... 32
SECTION 13.03 Issuer's Liabilities Limited............................................................ 32
SECTION 13.04 Prior Agreements........................................................................ 32
SECTION 13.05 Execution Counterparts.................................................................. 33
SECTION 13.06 Binding Effect; Governing Law........................................................... 33
SECTION 13.07 Enforceability.......................................................................... 33
SECTION 13.08 Article and Section Captions............................................................ 33
SECTION 13.09 Notices................................................................................. 33
SECTION 13.10 Amendment of Indenture and this Lease Agreement......................................... 34
TESTIMONIAL......................................................................................................35
SIGNATURES.......................................................................................................35
ACKNOWLEDGMENTS...............................................................................................36-37
EXHIBIT A
EXHIBIT B
</TABLE>
<PAGE>
Exhibit (bb)
LEASE AGREEMENT
THIS LEASE AGREEMENT dated as of March 1, 1995 is entered into by THE
INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HALEYVILLE, ALABAMA, a public
corporation organized under the laws of the State of Alabama (the "Issuer"), and
Wheel House Properties, Inc., an Alabama corporation (the "Corporation").
Recitals
The Issuer has duly authorized the issuance of its revenue bond (the
"Bond") under and pursuant to a Mortgage and Indenture dated as of March 1, 1995
(the "Indenture") between the Issuer and SouthTrust Bank of Marion County, a
banking corporation with its principal office in the City of Hamilton, Alabama
(the "Bondholder").
The Bond to be issued under the Indenture shall be issued as a single
bond in the principal amount of $1,100,000 and shall be designated Industrial
Development Revenue Bond (Wheel House Properties, Inc. Project) (the "Bond").
The proceeds of the Bond shall be applied by the Issuer to pay the costs of
acquiring certain real property and acquiring, constructing and installing
improvements, structures, facilities, fixtures and related personal property
thereon for the manufacturing, processing and assembling of manufactured housing
and related products (such real property, improvements, structures, facilities,
fixtures, and related personal property being hereinafter referred to as the
"Project").
Pursuant to this Lease Agreement the Issuer has agreed to lease the
Project to the Corporation and the Corporation has agreed to pay rentals to the
Issuer at times and in amounts sufficient to pay when due the principal of and
interest on the Bond.
The Bond shall be a limited obligation of the Issuer payable solely out
of the rentals payable by the Corporation pursuant to this Lease Agreement and
any other revenues, rentals or receipts derived by the Issuer from the leasing
or sale of the Project. Pursuant to the Indenture, as security for the payment
of the Bond, the Issuer shall assign and pledge to the Bondholder all right,
title and interest of the Issuer in and to this Lease Agreement (except for
certain rights to indemnification and reimbursement of expenses granted to the
Issuer) and shall mortgage the Project to the Bondholder. As additional security
for the payment of the Bond the Corporation has guaranteed the payment of the
Bond pursuant to a Bond Guaranty Agreement dated as of March 1, 1995 (the
"Guaranty") to the Bondholder.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant, agree and bind
themselves as follows:
ARTICLE 1ARTICLE 1
Definitions and Other Provisions
of General Application
SECTION 1.01......Definitions
For all purposes of this Lease Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.
(2) All accounting terms not otherwise defined herein have the meanings
assigned to them, and all computations herein provided for shall be made, in
accordance with generally accepted accounting principles. All references herein
to "generally accepted accounting principles" refer to such principles as they
exist at the date of application thereof.
(3) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
subdivisions of this instrument as originally executed.
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Lease Agreement as a whole and not to any
particular Article, Section or other subdivision.
(5) The term "person" shall include any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization and
any government or any agency or political subdivision thereof.
Authorized Corporation Representative shall have the meaning assigned
thereto in the Indenture.
Authorized Issuer Representative shall have the meaning assigned
thereto in the Indenture.
Basic Rent shall mean that portion of the rent payable under Section
5.02(a) hereof.
Bond shall mean the Bond executed and delivered pursuant to the
Indenture.
Bondholder shall mean the person named as the "Bondholder" in the
recitals to this instrument and its successors and assigns, as the registered
owner of the Bond.
Bond Payment Date shall mean a date on which any installment of the
principal of (and premium, if any) or interest on the Bond is due and payable,
whether at the stated maturity or due date or on a date fixed for optional or
mandatory redemption or prepayment of the Bond.
Bond Register shall mean the register or registers for the registration
and transfer of the Bond maintained by the Issuer pursuant to Section 4.04 of
the Indenture.
Business Day shall mean a day, other than a Saturday or Sunday, on
which commercial banking institutions are open for business in the State.
Construction Fund shall mean the fund established pursuant to Section
5.02 of the Indenture.
Corporation shall mean Wheel House Properties, Inc., an Alabama
corporation, and its successors and assigns.
Counsel shall mean a person qualified to practice law in any State of
the United States or in the District of Columbia who shall be appointed by the
Corporation and acceptable to the Bondholder.
Enabling Law shall mean Division 1, Article 4, Chapter 54, Title 11
(Section 11-54-80 et seq.) of the Code of Alabama 1975.
Engineer shall mean a person qualified to practice as an engineer under
the laws of the State, who shall be appointed by the Corporation and acceptable
to the Bondholder.
Environmental Law shall mean and include all laws, rules, regulations,
ordinances, judgments, decrees, codes, orders, injunctions, notices and demand
letters of any Governmental Authority applicable to the Corporation or the
Project Site (including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
9601, et seq.) relating to pollution or protection of human health or the
environment, including any relating to Hazardous Substances.
Equipment shall have the meaning assigned in Demising Clause III.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended.
Event of Default shall have the meaning assigned in Article 10. An
Event of Default shall "exist" if an Event of Default shall have occurred and be
continuing.
Federal Securities shall mean direct obligations of, or obligations the
payment of which is guaranteed by, the United States of America.
Governmental Authority shall mean any federal, state, county,
municipal, or other government, domestic or foreign, and any agency, authority,
department, commission, bureau, board, court or other instrumentality thereof.
Hazardous Substances shall mean and include all pollutants,
contaminants, toxic or hazardous wastes and other substances (including, but not
limited to, asbestos, urea formaldehyde, foam insulation and materials
containing either petroleum or any of the substances referenced in Section
101(14) of CERCLA), the removal of which is required or the manufacture, use,
maintenance and handling of which is regulated, restricted, prohibited or
penalized by an Environmental Law, or, even though not so regulated, restricted,
prohibited or penalized, might pose a hazard to the health and safety of the
public or the occupants of the property on which it is located or the occupants
of the property adjacent thereto.
Guaranty shall have the meaning assigned in the recitals to this
instrument.
Improvements shall have the meaning assigned in Demising Clause II.
Indenture shall mean that certain Mortgage and Indenture dated as of
March 1, 1995 between the Issuer and the Bondholder, including any amendments or
supplements to such instrument.
Independent, when used with respect to any person, shall mean a person
who (1) is in fact independent, (2) does not have any direct financial interest
or any material indirect financial interest in the Corporation, the Issuer or in
any other obligor upon the Bond or in any related party of the Corporation, the
Issuer or such other obligor, and (3) is not connected with any of the
Corporation, the Issuer or such other obligor as an officer, employee, partner,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
Issuer shall mean the person named as the "Issuer" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of the Indenture, and thereafter
"Issuer" shall mean such successor corporation.
<PAGE>
Lease Agreement shall mean this instrument, including any amendments or
supplements hereto.
Lease Payments shall mean and include all payments of whatever nature
or purpose to be made by the Corporation hereunder and all financial obligations
of the Corporation undertaken hereby, and shall include, without limiting the
generality of the foregoing, all amounts to be paid pursuant to Sections 5.02,
5.04 and 6.06 hereof.
Lease Term shall mean the duration of the leasehold estate granted in
Section 5.01 of this Lease Agreement.
Municipality shall mean the City of Haleyville, Alabama.
Net Proceeds when used with respect to any insurance or condemnation
award, means the gross proceeds from the insurance or condemnation award with
respect to which that term is used remaining after payment of all reasonable
expenses (including reasonable attorneys' fees and any extraordinary fee of the
Bondholder) incurred in the collection of such gross proceeds.
Paying Agent shall mean any person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on the Bond on behalf of the
Issuer.
Permitted Encumbrances shall mean: (1) this Lease Agreement (2) liens
for taxes, assessments and other governmental charges that are not delinquent or
are currently being contested in good faith by appropriate proceedings and for
which adequate reserves have been established by the Corporation, (3)
mechanics', workmen's, repairmen's, materialmen's, warehouseman's and carrier's
liens and other similar liens for charges which are not delinquent or which are
being contested in good faith by appropriate proceedings and for which, in the
opinion of the Bondholder, adequate reserves have been established by the
Corporation, and (4) such minor defects, irregularities and encumbrances as do
not, in the opinion of Bondholder, in the aggregate materially impair the use of
the Project, taken as a whole, for the purposes for which it is held by the
Issuer.
<PAGE>
Project shall mean the collectively the Project Site, the Improvements,
the Equipment, and all other property and rights referred to or intended so to
be in Demising Clauses I through III, inclusive, hereof.
Project Costs shall mean all costs of acquiring, constructing,
equipping and improving the Project, including without limitation:
(1) the purchase price and related costs for the acquisition
of real property or any interest therein,
(2) the cost of labor, materials and supplies furnished or
used in the acquiring, construction, installation or equipping, of the
Improvements,
(3) acquisition, transportation and installation costs for
personal property and fixtures,
(4) fees for architectural, engineering and supervisory
services,
(5) expenses incurred in the enforcement of any remedy
against any contractor, subcontractor, materialmen, vendor, supplier or surety,
(6) interest accruing on the Bond until the Project is placed
in service,
(7) expenses incurred by the Issuer and the Corporation in
connection with the financing of the Project, including legal, consulting and
accounting fees,
(8) reimbursement to the Corporation for any of the foregoing
costs, fees and expenses set forth in (1) through (7) above, paid by it
with its own funds.
Project Site shall mean the real estate described in Demising Clause I.
Qualified Investments shall have the meaning assigned in the Indenture.
<PAGE>
Special Funds shall mean the Construction Fund and any other fund or
account established pursuant to the Indenture.
State shall mean the State of Alabama.
Unimproved when used with reference to the Project Site means any part
or parts of the Project Site upon the surface of which no part of a building or
other structure rests.
SECTION 1.02......Date of Lease Agreement
The date of this Lease Agreement is intended as and for a date for the
convenient identification of this Lease Agreement and is not intended to
indicate that this Lease Agreement was executed and delivered on said date.
SECTION 1.03......Separability Clause
If any provision in this Lease Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
SECTION 1.04......Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 1.05......Successors and Assigns
All covenants and agreements in this Lease Agreement by the Issuer or
the Corporation shall bind their respective successors and assigns whether so
expressed or not.
SECTION 1.06......Governing Law
This Lease Agreement shall be construed in accordance with and governed
by the laws of the State.
SECTION 1.07......Execution Counterparts
This Lease Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall constitute but one and the
same instrument.
SECTION 1.08......Covenant of Quiet Enjoyment
So long as the Corporation performs and observes all the covenants and
agreements on its part herein contained, it shall peaceably and quietly have,
hold and enjoy the Project during the Lease Term subject to all the terms and
provisions hereof.
SECTION 1.09....Issuer's Liabilities Limited
This Lease Agreement is entered into under and pursuant to the
provisions of the Enabling Law. No provision hereof shall be construed to impose
a charge against the general credit of the Issuer or any personal or pecuniary
liability upon the Issuer except to apply the proceeds to be derived from the
sale of the Bond and the revenues and receipts to be derived from any leasing or
sale of the Project or any part thereof as provided herein and in the Indenture.
SECTION 1.10......Prior Agreements Canceled
This Lease Agreement shall completely and fully supersede the
Inducement Agreement dated October 12, 1994 and all other prior agreements, both
written and oral, between the Issuer and the Corporation relating to the
acquisition and construction of the Project, the leasing of the Project and any
options to renew or to purchase; excepting however (a) any deed or other
instrument by which the Project Site, or any part thereof, or any interest
therein,has been transferred and conveyed to the Issuer and (b) the Abatement
Agreement dated October 12, 1994 and any other agreement between the Issuer and
the Corporation providing for applicable State tax exemptions to apply to the
Corporation and the Project. Neither the Issuer nor the Corporation shall
hereafter have any rights under such prior agreements but shall look solely to
this Lease Agreement for definition and determination of all of their respective
rights, liabilities and responsibilities relating to the Project.
SECTION 1.11......Notices
All notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or mailed by
registered or certified mail, postage prepaid, addressed as follows:
(1) if to the Issuer, at City Hall, Haleyville, Alabama 35565;
(2) if to the Corporation, at P. O. Box 928, Haleyville, Alabama 35565;
(3) if to the Bondholder, at P. O. Box 1567, Hamilton, Alabama 35570.
A duplicate copy of each notice, certificate or other communication given
hereunder by either the Issuer or the Corporation to the other shall also be
given to the Bondholder. The Issuer, the Corporation and the Bondholder may, by
notice given hereunder, designate any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.
SECTION 1.12......The Special Funds
(a) The Issuer shall cause any money held as a part of the Special
Funds to be invested or reinvested in Qualified Investments at the request of,
and as directed by, the Corporation.
(b) If, after full payment of the Bond, there is any surplus remaining
in the Special Funds, the Issuer will promptly pay such surplus to the
Corporation.
ARTICLE 2
Representations and Warranties
SECTION 2.01.Representations by the Issuer
The Issuer makes the following representations:
(1) The Issuer is duly organized under the provisions of the Enabling
Law and has the legal authority and power to enter into the transactions
contemplated by this Lease Agreement and to carry out its obligations hereunder.
The Issuer is not in default under any of the provisions contained in its
certificate of incorporation, as the same may have at any time been amended, its
bylaws or the laws of the State. By proper corporate action the Issuer has duly
authorized the execution and delivery of this Lease Agreement.
(2) The Issuer has determined that the issuance of the Bond, the
acquisition, construction, and equipping of the Project and the leasing of the
same to the Corporation will be in furtherance of the purposes of the Issuer's
incorporation and the Enabling Law.
(3) The Bond will be issued and delivered contemporaneously
with the delivery of this Lease Agreement.
Representations by the Corporationntations by the Corporation
The Corporation makes the following representations:
(1) The Corporation is duly incorporated under the laws of the State
and is duly qualified to do business in the State, is not in violation of any
provisions of its certificate of incorporation, its by-laws, or the laws of the
State, has power to enter in to this Lease Agreement, and by proper corporate
action has duly authorized the execution and delivery of this Lease Agreement.
(2) The financing of the Project through the issuance of the Bond and
the leasing of the Project to the Corporation has induced the Corporation to
locate the Project in the State and thereby enlarge, expand and improve its
existing operations in the State.
(3) The Corporations intends to operate the Project for the
manufacturing, processing, storing, warehousing and distributing of manufactured
housing and related products and in such a manner that it will constitute a
"project" within the meaning of the Enabling Law.
ARTICLE 3
Demising Clauses
The Issuer, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Corporation to be paid, kept and performed, does hereby assign, demise and lease
to the Corporation, and the Corporation does hereby accept, lease, take and hire
from the Issuer, the following property:
I.
The following described real property located in Marion County,
Alabama, within the corporate limits of the Municipality (the "Project Site"),
together with all easements, permits, licenses, rights-of-way, contracts,
leases, tenements, hereditaments, appurtenances, rights, privileges and
immunities pertaining or applicable to said real property:
A parcel of land lying and being situated in the SW 1/4-SE 1/4 of
Section 26, Township 9 south, Range 11 west, Marion County, Alabama and
being more particularly described as follows: Commence at a 1" square
steel tube marking the Northeast corner of SW 1/4-SE 1/4 and run thence
S-00E 47' 50"-E along the east line of SW 1/4-SE 1/4 a distance of
425.50 feet to a 1/2" capped iron pin in a county road and being the
point of beginning; thence continue S-00E 47' 50"-E along the east line
of SW 1/4-SE 1/4 a distance of 553.25 feet to a 1" square steel tube on
the north right of way of railroad; run thence N-75E 30' 27"-W along
said right of way a distance of 712.85 feet to a 1/2" capped iron pin;
run thence N-05E 47' 42"-E a distance of 338.69 feet to a 1/2" capped
iron pin in the center of a road, being a point on a curve concave to
the left and having a central angle of 17E 37' 40" left, a radius of
1273.26 feet and a arc of 391.73 feet; run thence S-89E 12' 56"-E along
said curve a distance of 377.51 feet chord and a arc of 378.90 feet to
a 1/2" capped iron pin marking the P.T. thereof, and being the P.C. of
a curve concave to the left and having a central angle of 6E 10' 02"
left, a radius of 1961.03 feet and a arc of 211.08 feet; run thence
N-79E 10' 32"-E along said curve a distance of 210.98 feet chord and a
arc of 211.08 feet to a 1/2" capped iron pin marking the P.T. thereof;
run thence N-86E 57' 30"-E a distance of 63.67 feet to the point of
beginning. Containing 6.59 acres, more or less.
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II.
All buildings, structures, improvements and fixtures now or hereafter
constructed, situated or located on the Project Site, as the same may at any
time exist (the "Improvements").
III.
The machinery, equipment, personal property and fixtures described on
Exhibit A attached hereto and all other machinery, equipment, personal property
and fixtures acquired with the proceeds of the Bond or with funds advanced or
paid by the Corporation pursuant to this Lease Agreement, together with all
personal property and fixtures acquired in substitution therefor or as a renewal
or replacement thereof (the "Equipment").
SUBJECT, HOWEVER, to Permitted Encumbrances.
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ARTICLE 4
The Project
SECTION 4.01......Acquisition of Project; Payment of Excess
(a) The Issuer will acquire, construct and install the Project at the
direction of the Corporation and from the principal proceeds derived from the
sale of the Bond the Issuer will pay all Project Costs.
(b) The Issuer and the Corporation shall from time to time each appoint
by written instrument an agent or agents authorized to act for each respectively
in any or all matters relating to the acquisition, construction, and equipping
of the Project and payments to be made out of the Construction Fund. One of the
agents appointed by the Corporation shall be designated its Project Supervisor.
Either the Issuer or the Corporation may from time to time, by written notice
also filed with the Bondholder, revoke, amend or otherwise limit the authority
of any agent appointed by such party to act on such party's behalf or designate
another agent or agents to act on such party's behalf, provided that there shall
be at all times at least one agent authorized to act on behalf of the Issuer,
and at least one agent (who shall be the Project Supervisor) authorized to act
on behalf of the Corporation, with reference to all the foregoing matters. In
the event that the Issuer is unavailable or unable to issue, or, after
reasonable request made to the Issuer by the Corporation, the Issuer fails or
refuses to issue, a payment requisition from the Construction Fund for payment
of any Project Costs, the Project Supervisor then designated by the Corporation,
who is hereby irrevocably appointed as agent for the Issuer for such purposes,
may issue and execute, also for and in the name and behalf of the Issuer and
without any approval of any officer, employee or other agent thereof, a payment
requisition on the Construction Fund.
(c) The Issuer will continue such acquisition, construction and
installation with all reasonable dispatch and due diligence and will cause the
Project to be completed in accordance with the final approved plans and
specifications therefor as promptly as practicable. The Corporation will
promptly give written instructions with respect to, and will request the Issuer
to enter into, such contracts and purchase orders for material, supplies, and
equipment, and will take whatever other action may be provided for in this Lease
Agreement, as shall be necessary to complete the Project as aforesaid. The
Issuer will assume or accept the assignment of such contracts and purchase
orders entered into by the Corporation prior to the execution and delivery of
this Lease Agreement for the acquisition, construction and equipping of the
Project, all as the Corporation may request. The Issuer will not execute any
contracts or purchase orders for the Project without the prior written consent
of the Corporation.
(d) The Corporation may cause changes or amendments to be made in said
final plans and specifications for the Project and in the list of machinery,
equipment and personal property for the Project, provided that (1) such changes
or amendments will not change the nature of the Project to the extent that it
would not constitute a "project" as authorized by the Enabling Law, and (2) such
changes or amendments will not materially affect the utility of the Project for
its intended use. The Issuer will make only such changes or amendments in the
plans and specifications for the Project as may be requested in writing by the
Corporation.
(e) Compliance with laws and regulations necessary to realize any sales
and use tax exemption with respect to the acquisition, construction and
equipping of the Project shall be the sole responsibility of the Corporation and
the Issuer does not assume any responsibility or give any assurance with respect
to any possible exemption from sales and use taxes. In any event, there shall be
printed, stamped, endorsed or otherwise noted on each purchase order or contract
for any part of the Project a legend reading substantially as follows:
"LIMITED LIABILITY OF BOARD. Any property acquired by The Industrial
Development Board of the City of Haleyville, Alabama (the "Board")
pursuant to this contract or purchase order will become a part of an
industrial project (the "Project") leased or to be leased by Wheel
House Properties, Inc., an Alabama corporation. The Board's liability
for the payment of any moneys that may come due under this contract or
purchase order is limited solely to (1) the available proceeds of the
Board's revenue bonds, if and when issued for the Project, (2) any
moneys made available to the Board for such payment, and (3) any
revenues, rentals or receipts derived by the Board from the leasing or
sale of the Project or any part thereof."
(f) In the event proceeds of the Bond are insufficient to pay in full
all Project Costs, the Corporation shall complete the acquisition, construction
and installation of the Project at its own expense and the Corporation shall pay
any such deficiency and shall save the Issuer whole and harmless from any
obligation to pay such deficiency. The Corporation shall not by reason of the
payment of such deficiency from its own funds be entitled to any diminution in
the payment of the rents hereunder, nor shall the rent be increased as a result
of such payments.
SECTION 4.02......No Warranty of Suitability by Issuer
THE CORPORATION RECOGNIZES THAT SINCE THE PLANS, SPECIFICATIONS AND
DIRECTIONS FOR ACQUIRING, CONSTRUCTING AND INSTALLING THE PROJECT ARE FURNISHED
BY IT, THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, NOR OFFERS ANY
ASSURANCES THAT THE PROJECT WILL BE SUITABLE FOR THE CORPORATIONS'S PURPOSES OR
NEEDS OR THAT THE PROCEEDS DERIVED FROM THE SALE OF THE BOND WILL BE SUFFICIENT
TO PAY IN FULL ALL PROJECT COSTS.
SECTION 4.03......Issuer to Pursue Remedies Against Vendors,
Contractors and Subcontractors and Their Sureties
In the event of default of any vendor, contractor or subcontractor
under any contract or purchase order made by it for acquisition, construction or
installation of the Project, the Issuer will promptly proceed (subject to the
Corporation's advice to the contrary), either separately or in conjunction with
others, to exhaust the remedies of the Issuer against the vendor, contractor or
subcontractor so in default and against his surety (if any) for the performance
of such contract or purchase order. The Issuer will advise the Corporation of
the steps it intends to take in connection with any such default and the
Corporation will pay all costs, fees and expenses incurred which are not paid
from the Construction Fund. If the Corporation shall so notify the Issuer, the
Corporation may, in its own name or in the name of the Issuer, prosecute or
defend any action or proceeding or take any other action involving any such
vendor, contractor, subcontractor or surety which the Corporation deems
reasonably necessary, and in such event the Issuer will cooperate fully with the
Corporation and will take all action necessary to effect the substitution of the
Corporation for the Issuer in any such action or proceeding. Any amounts
recovered by way of damages, refunds, adjustments or otherwise in connection
with the foregoing shall be paid into the Construction Fund.
SECTION 4.04......Completion of the Project
(a) The completion of the Project shall be evidenced to the Bondholder
by a certificate signed by an Authorized Issuer Representative and an Authorized
Corporation Representative stating that (1) construction and installation of the
Improvements constituting a part of the Project has been completed in accordance
with the plans and specifications approved by the Corporation, (2) all personal
property and fixtures constituting a part of the Project have been acquired and
installed in accordance with the Corporation's instructions, (3) all labor,
services, materials and supplies in connection with such construction,
acquisition and installation have been paid for, and (4) all facilities
necessary in connection with the Project have been constructed, acquired and
installed and all costs and expenses incurred in connection therewith have been
paid. Notwithstanding the foregoing, such certificate shall state that it is
given without prejudice to any rights against any vendor, contractor,
subcontractor or other person not a party to this Lease Agreement which exist at
the date of such certificate or which may subsequently come into being. The
Issuer and the Corporation will cooperate with each other in causing such
certificate to be furnished to the Bondholder.
(b) After the delivery of the aforesaid certificate to the Bondholder,
any moneys then remaining in the Construction Fund shall be applied as provided
in Section 5.04 of the Indenture.
SECTION 4.05......Title Insurance
(a) The Corporation shall pay the cost of obtaining a title insurance
policy in an amount equal to the principal amount of the Bond, insuring the
first mortgage in the Project created by the Indenture. Such policy of insurance
shall be taken out in a generally recognized responsible insurance company,
qualified under the laws of the State to assume the risks undertaken, and shall
name the Bondholder as the insured. Any proceeds of such title insurance shall
be applied to the prepayment of the Bond on the earliest Business Day for which
the required notice may be given, as provided in the Bond.
ARTICLE 5
Duration of Lease Term
and Rental Provisions
SECTION 5.01......Duration of Term
(a) The term of this Lease Agreement shall begin on the date of the
delivery of this Lease Agreement and, subject to the provisions of this Lease
Agreement, shall continue until midnight of February 28, 2035.
(b) Upon payment in full of the Bond and all fees and expenses of the
Bondholder and any Paying Agent, the Corporation shall be entitled to the use
and occupancy of the Project from the date of such payment until the expiration
of the Lease Term without the payment of any further rent under Article 5
hereof, provided, all references in this Lease Agreement to the Bond, the
Indenture and the Bondholder shall be ineffective and the Bondholder shall not
thereafter have any rights hereunder, saving and excepting those that shall have
theretofore vested, but otherwise such use and occupancy of the Project by the
Corporation shall be on all of the terms and conditions hereof, except that the
Corporation shall not be required to carry any insurance for the benefit of the
Bondholder.
SECTION 5.02......Rental and Payment Provisions; Net Lease
(a) Basic Rent. Not later than each Bond Payment Date, the Corporation
shall pay to the Bondholder in immediately available funds for the account of
the Issuer an amount equal to the principal of and interest on the Bond maturing
and coming due on such Bond Payment Date (herein called "Basic Rent").
(b) Additional Rent. The Corporation shall pay as additional
rent to the Bondholder the reasonable fees, charges and expenses of the
Bondholder for necessary services rendered by it and expenses incurred by it
under the Indenture, as and when the same become due.
(c) Prepayment of the Bond. The Corporation acknowledges and agrees
that prepayment of the Bond is required in certain events, and the Corporation
hereby covenants and agrees to make available to the Issuer for such prepayment
all funds required to be so provided in such events.
(d) Net Lease. The Corporation recognizes, acknowledges and agrees that
it is the intention hereof that this Lease Agreement be a net lease and that
until the Bond is fully paid Basic Rent shall be in such amounts and shall be
due at such times as shall be required to pay the installments of principal of
and interest on the Bond as the same mature and become due and payable and all
additional rent shall be available for the purposes specified therefor. This
Lease Agreement shall be construed to effectuate such intent.
SECTION 5.03......Advances by Issuer or Bondholder
In the event that the Corporation fails to perform or observe any of
its covenants in this Lease Agreement, the Issuer or the Bondholder, after first
notifying the Corporation of any such failure may (but shall not be obligated
to) make advances to effect performance or observance of such covenants on
behalf of the Corporation. All amounts so advanced therefor by the Issuer or the
Bondholder, together with interest thereon from the date of advancement at New
York Prime Rate (as defined in the Bond) per annum or the maximum rate of
interest allowed by law, whichever is less, shall become an additional
obligation payable by the Corporation to the Issuer or to the Bondholder upon
demand and secured hereby.
SECTION 5.04......Indemnity of Issuer and Bondholder
(a) The Corporation agrees to pay, and to indemnify and hold the Issuer
and the Bondholder harmless against, any and all liabilities, losses, damages,
claims or actions (including all reasonable attorneys' fees and expenses of the
Issuer or the Bondholder, as the case may be), of any nature whatsoever incurred
by the Issuer or the Bondholder, as the case may be, without gross negligence on
its part, arising from or in connection with the ownership of any interest in
the Project or the leasing thereof and granting of security interests therein,
or its performance or observance of any covenant or condition on its part to be
observed or performed under this Lease Agreement or the Indenture, including
without limitation, (1) any injury to, or the death of, any person or any damage
to property at the Project, or in any manner growing out of or connected with
the use, nonuse, condition or occupation of the Project or any part thereof, (2)
any damage, injury, loss or destruction of the Project, (3) any other act or
event occurring upon, or affecting, any part of the Project, (4) violation by
the Corporation of any contract, agreement or restriction affecting the Project
or the use thereof or of any law, ordinance or regulation affecting the Project
or any part thereof or the ownership, occupancy or use thereof, and (5)
liabilities, losses, damages, claims or actions arising out of the offer and
sale of the Bond or a subsequent sale of the Bond or any interest therein,
unless the same resulted from a representation or warranty of the Issuer in this
Lease Agreement or any certificate delivered by the Issuer pursuant thereto
being false or misleading in a material respect and such representation or
warranty was not based upon a similar representation or warranty of the
Corporation furnished to the Issuer in connection therewith. The covenants of
indemnity by the Corporation contained in this Section shall survive the
termination of this Lease Agreement.
(b) The Corporation hereby agrees that (1) the Issuer shall not incur
any liability to the Corporation, and (2) the Issuer shall be indemnified
against all liabilities with respect to any action taken by the Issuer in
exercising or refraining from asserting, maintaining or exercising any right,
privilege or power of the Issuer under the Indenture if the Issuer is acting in
good faith and without gross negligence or in reliance upon a written request by
the Corporation.
(c) The Corporation further agrees to indemnify the Bondholder for, and
to hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
exercise or performance of any of its powers, rights, or duties under the
Indenture.
SECTION 5.05......Obligations of Corporation Unconditional.
(a) The obligations of the Corporation to make all rental and other
payments required under Section 5.02 hereof and the other provisions of this
Lease Agreement and to perform and observe the other agreements and covenants on
its part herein contained shall be absolute and unconditional, irrespective of
any rights of set-off, recoupment or counterclaim the Corporation might
otherwise have against the Issuer or the Bondholder. The Corporation will not
suspend or discontinue any such payment or fail to perform and observe any of
its other agreements and covenants contained herein or terminate this Lease
Agreement for any cause whatsoever, including, without limiting the generality
of the foregoing, failure of the Issuer to complete the Project; any acts or
circumstances that may constitute an eviction or constructive eviction; failure
of consideration or commercial frustration of purpose; the invalidity of, or of
any provision contained in, this Lease Agreement, the Indenture or the Bond; or
any damage to or destruction of the Project or any part thereof, or the taking
by eminent domain of title to or the right to temporary use of all or any part
of the Project; or any change in the tax or other laws or administrative
rulings, actions or regulations of the United States of America or of the State
or any political or taxing subdivision of either thereof; or any failure of the
Issuer to perform and observe any agreement or covenant, whether express or
implied, or any duty, liability or obligation arising out of or in connection
with this Lease Agreement. Notwithstanding the foregoing, the Corporation may,
at its own cost and expense and in its own name or in the name of the Issuer,
prosecute or defend any action or proceeding, or take any other action involving
third persons which the Corporation deems reasonably necessary in order to
secure or protect its rights of use and occupancy and the other rights
hereunder. The provisions of the first and second sentences of this Section 5.05
shall apply only so long as the Bond remains outstanding.
ARTICLE 6
Maintenance, Alterations, Replacements, Insurance; and Environmental Compliance
SECTION 6.01......Maintenance and Repairs
(a) The Corporation will, at its own expense, (1) keep the Project in
as reasonably safe condition as operations permit, (2) from time to time make
all necessary and proper repairs, renewals and replacements thereto, and (3) pay
all gas, electric, water, sewer and other charges for the operation,
maintenance, use and upkeep of the Project.
(b) The Corporation will not permit any mechanics' or other liens to
stand against the Project or the Project Site for labor or material furnished
it. The Corporation may, however, in good faith contest any such mechanics' or
other liens and in such event may permit any such liens to remain unsatisfied
and undischarged during the period of such contest and any appeal therefrom
unless by such action the lien of the Indenture on the Project or any part
thereof, or the Project or any part thereof shall be subject to loss or
forfeiture, in either of which events such mechanics' or other liens shall be
promptly satisfied.
(c) The Corporation may, at its own expense, make structural changes,
additions, improvements, alterations or replacements to the Improvements that
they may deem desirable, provided that the Corporation demonstrate to the
satisfaction of the Bondholder that such additions, improvements, alterations or
replacements will not adversely affect the utility of the Project or
substantially reduce its value and will not change the character of the Project
as a "project" under the Enabling Law. In lieu of making such additions,
improvements or alterations itself, the Corporation may furnish to the Issuer
the funds necessary therefor, in which case the Issuer will proceed to make such
changes, additions, improvements, alterations or replacements. All such changes,
additions, improvements, alterations and replacements whether made by the
Corporation or the Issuer shall become a part of the Project and shall be
covered by this Lease Agreement and the Indenture.
(d) The Corporation may connect or "tie-in" walls of the Improvements
and utility and other facilities located on the Project Site to other structures
and facilities owned or leased by the Corporation on real property adjacent to
the Project Site. The Corporation may use as a party wall any wall of the
Improvements which is on or contiguous to the boundary line of real property
owned or leased by Corporation, and in the event of such use, each party hereto
hereby grants to the other a ten-foot easement adjacent to any such party wall
for the purpose of inspection, maintenance, repair and replacement thereof and
the tying in of new construction. If the Corporation utilizes any wall of the
Improvements as a party wall for the purpose of tying in new construction that
will be utilized under common control with the with the Project, the Corporation
may also remove any non-loadbearing wall panel in the party wall; provided,
however, if the adjacent property ceases to be operated under common control
with the Project, the Corporation will at its expense, install wall panels
similar in quality to those that have been removed. Prior to the exercise of any
one or more of the rights granted by this subsection (d), the Corporation shall
demonstrate to the satisfaction of the Bondholder that the operation of the
Project will not be adversely affected thereby.
(e) The Issuer will also, upon request of the Corporation, grant such
utility and other similar easements over, across or under the Project Site as
shall be necessary or convenient for the furnishing of utility and other similar
services to the Project or to real property adjacent to or near the Project
Site; provided that such easements shall not adversely affect the operation of
the facilities forming a part of the Project.
SECTION 6.02......Removal of, Substitution and Replacement for
Equipment
The Issuer and the Corporation recognize that portions of the Equipment
may from time to time become inadequate, obsolete, wornout, unsuitable,
undesirable or unnecessary in the operation of the Project, but the Issuer shall
not be under any obligation to renew, repair or replace any such Equipment. If
the Corporation in its sole discretion determines that any item of Equipment has
become inadequate, obsolete, wornout, unsuitable, undesirable or unnecessary in
the operation of the Project, the Corporation may remove such Equipment from the
Project Site and (on behalf of the Issuer) sell, trade in, exchange or otherwise
dispose of it without any responsibility or accountability to the Issuer or the
Bondholder therefor, provided that the Corporation shall either substitute and
install in or on the Project Site other personal property or fixtures having
equal or greater utility (but not necessarily the same value or function) in the
operation of the Project, which such substituted personal property or fixtures
shall be: (a) free of all liens and encumbrances, (b) the sole property of the
Issuer, and (c) a part of the Equipment subject to the demise hereof and to the
lien of the Indenture held by the Corporation on the same terms and conditions
as the items originally comprising the Equipment; provided, however, such
removal and substitution shall not impair the operating unity of the Project or
change the nature of the Project as a "project" under the Enabling Law.
SECTION 6.03......Taxes, Other Governmental Charges and Utility Charges
(a) The Corporation will pay, as the same respectively become due, (1)
all taxes and governmental charges of any kind whatsoever that may at any time
be lawfully assessed or levied against or with respect to the Project or any
other property installed or brought by the Corporation on the Project Site,
including without limitation any taxes levied on or with respect to the
revenues, income or profits of the Issuer from the Project and any other taxes
levied upon or with respect to the Project which, if not paid, will become a
lien on the Project prior to or on a parity with the lien of the Indenture or a
charge on the revenues and receipts from the Project prior to or on a parity
with the charge thereon and pledge or assignment thereof created and made in the
Indenture and including any ad valorem taxes assessed upon the Corporation's
interest in the Project, and (2) all assessments and charges lawfully made by
any governmental body for public improvements that may be secured by a lien on
the Project, provided, that with respect to special assessments or other
governmental charges that may lawfully be paid in installments over a period of
years, the Corporation shall be obligated to pay only such installments as are
required to be paid during the Lease Term. The foregoing provisions of this
Section shall be effective only so long as any part of the principal of or the
interest on the Bond remains outstanding and unpaid.
(b) The Corporation may, at its expense and in its name and behalf or
in the name and behalf of the Issuer, in good faith contest any such taxes,
assessments and other charges and, in the event of any such contest, may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom, provided that during such
period enforcement of such contested items shall be effectively stayed. The
Issuer, at the expense of the Corporation, will cooperate fully with the
Corporation in any such contest.
SECTION 6.04......Insurance Required
(a) The Corporation will take out and continuously maintain in effect
the following insurance with respect to the Project, paying as the same become
due all premiums with respect thereto:
(1) Insurance to the extent of the full replacement cost of
the Project, unless the insurer certifies to the Bondholder that the
insured amount will be sufficient to pay the Bond in full after giving
effect to any co-insurance provision, against loss or damage by fire,
tornado and windstorm, with uniform standard extended coverage
endorsement limited only as may be provided in the standard form of
extended coverage endorsement at the time in use in the State.
(2) Insurance against liability for bodily injury to or death
of persons and for damage to or loss of property occurring on or about
the Project or in any way related to the condition or operation of the
Project, in the minimum amounts of $2,000,000 combined single limit for
any one occurrence and $2,000,000 in the aggregate for any one year.
(3) Flood insurance under the national flood insurance program
established by the Flood Disaster Protection Act of 1973, as at any
time amended, at all times while the Project is eligible under such
program, in a amount at least equal to the unpaid principal amount of
the Bond or to the maximum limit of coverage made available with
respect to the Project under said Act, whichever is less.
(4) During the period of acquisition and construction of any
part of the Project, builders' risk insurance in the amount of the full
replacement value of the Project against all losses which are normally
covered by such builders' risk insurance. The Corporation may satisfy
their obligations with respect to the builder's risk insurance by
causing such insurance to be carried by a construction contractor for
any part of the Project.
(5) Use and occupancy insurance (or business interruption or
risk insurance) covering suspension or interruption of the
Corporation's operations at the Project in whole or in part, with such
exemptions as are customarily imposed by insurers, covering a period of
suspension or interruption of at least six months with a minimum limit
in an amount equal to 100% of the maximum amount to be paid as Basic
Rent, additional rent and other payments under Section 5.02 hereof
during the then current or any subsequent year.
(b) All policies evidencing the insurance required by the terms of this
Section shall be taken out and maintained in generally recognized responsible
insurance companies, qualified under the laws of the State to assume the
respective risks undertaken. All such insurance policies shall name as insureds
the Issuer, the Bondholder and the Corporation (as their respective interests
shall appear) and shall contain standard mortgage clauses providing for all
losses thereunder in excess of $25,000 to be paid jointly to the Bondholder and
the Corporation; provided that all losses (including those in excess of $25,000)
may be adjusted by the Corporation, subject, in the case of any single loss in
excess of $25,000, to the approval of the Bondholder. The Corporation may insure
under a blanket policy or policies.
(c) Each insurance policy required to be carried by this Section shall
contain, to the extent obtainable, an agreement by the insurer that (1) the
Corporation may not, without the consent of the Bondholder, cancel or materially
amend such insurance or sell, assign or dispose of any interest in such
insurance, such policy or any proceeds thereof, (2) such insurer will notify the
Issuer and the Bondholder if any premium shall not be paid when due or any such
policy shall not be renewed prior to the expiration thereof, and (3) such
insurer shall not cancel any such policy except on thirty (30) days' prior
written notice to the Issuer and the Bondholder.
(d) All policies evidencing the insurance required to be carried by
this Section shall be deposited with the Bondholder; provided, however, that in
lieu thereof the Corporation may deposit with the Bondholder a certificate or
certificates of the respective insurers attesting the fact that such insurance
is in force and effect. Prior to the expiration of any such policy, the
Corporation will furnish to the Bondholder evidence reasonably satisfactory to
the Bondholder that such policy has been renewed or replaced by another policy
or that there is no necessity therefor under this Lease Agreement.
(e) Anything in this Section to the contrary notwithstanding, the
Corporation shall have the right to change insurers from time to time as it
deems necessary or desirable.
SECTION 6.05......Installation By Corporation of Own Machinery and
Equipment
The Corporation may, at its own expense, install in the Improvements or
on the Project Site any personal property or fixtures which in the judgment of
the Corporation will facilitate the operation of the Project. Any such personal
property or fixtures which is so installed and does not constitute a
substitution or replacement for the Equipment pursuant to Section 6.02 hereof
shall be and remain the property of the Corporation and may be removed by the
same at any time and from time to time while there is no default under the terms
of this Lease Agreement; provided, however, that any damage to the Project
occasioned by such removal shall be repaired by the party removing such property
at its own expense.
SECTION 6.06......Environmental Compliance
(a) The Corporation shall (1) not, and shall not permit any other
person to, bring any Hazardous Substances onto the Project Site except any such
Hazardous Substances that are used in the ordinary course of the business as to
be conducted on the Project Site and that are handled, stored, used and disposed
of in accordance with applicable Environmental Laws; (2) if any other Hazardous
Substances are brought or found on the Project Site, immediately remove and
properly dispose of the same in accordance with applicable Environmental Laws;
(3) cause the Project Site and the operations conducted thereon (including all
operations conducted thereon by other persons) to comply with all Environmental
Laws; (4) permit the Bondholder from time to time to inspect the Project Site
and observe the operations thereon; (5) undertake any and all preventive,
investigatory and remedial action (including emergency response, removal, clean
up, containment and other remedial action) that is (A) required by any
applicable Environmental Law or (B) necessary to prevent or minimize any
property damage (including damage to any of the Project Site), personal injury
or harm to the environment, or the threat of any such damage or injury, by
releases of or exposure to Hazardous Substances in connection with the Project
Site or the operations on the Project Site; (6) promptly give notice to the
Bondholder in writing if the Corporation should become aware of (A) any spill,
release or disposal of any Hazardous Substances, or imminent threat thereof, at
the Project Site, in connection with the operations on the Project Site, or at
any adjacent property that could migrate to, through or under the Project Site,
(B) any violation of Environmental Laws regarding the Project Site or operations
on the Project Site, and (C) any investigation, claim or threatened claim under
any Environmental Law, or any notice of violation under any Environmental Law,
involving the Corporation or the Project Site; and (7) deliver to the
Bondholder, at the Bondholder's request, copies of any and all documents in the
Corporation's possession or to which the Corporation has access relating to
Hazardous Substances or Environmental Laws and the Project Site and the
operations on the Project Site, including laboratory analyses, site assessments
or studies, environmental audit reports and other environmental studies and
reports.
(b) If the Bondholder at any time reasonably believes that the
Corporation is not complying with all applicable Environmental Laws or the
requirements hereof regarding the same, or that a material spill, release or
disposal of Hazardous Substances has occurred on or under the Project Site, the
Bondholder may require the Corporation to furnish to the Bondholder an
environmental audit or site assessment reasonably satisfactory to the Bondholder
with respect to the matters of concern to the Bondholder. Such audit or
assessment shall be performed at the expense of the Corporation by a qualified
consultant approved by the Bondholder.
(c) The Corporation hereby warrants that, to the best of the
information, knowledge and belief thereof (1) there are no civil, criminal or
administrative environmental proceedings involving the Project Site that are
pending or to the knowledge of the Corporation threatened; (2) the Corporation
knows of no facts or circumstances that might give rise to such a proceeding in
the future; (3) the Project Site is in compliance with all applicable federal,
state and local statutory and regulatory environmental requirements; and (4) the
Project Site is free from any and all Hazardous Substances.
(d) The Corporation shall defend, indemnify and save harmless the
Bondholder from and against any and all claims, causes of action, judgments,
damages, fines, penalties, and other losses, costs and expense, including
reasonable attorneys' fees and costs of investigation and litigation, asserted
against or suffered by the Bondholder that are related to or arise out of or
result from the presence of Hazardous Substances now or hereafter on or under or
included in the Project Site or in violation of any Environmental Law, and any
clean up or removal of, or other remedial action with respect to, any Hazardous
Substances now or hereafter located on or under or included in the Project Site,
or any part thereof, that may be required by any Environmental Law or
Governmental Authority. The provisions of this Section 6.06 shall survive the
termination of this Lease Agreement with respect to claims and losses asserted
against or suffered by the Bondholder.
ARTICLE 7
Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.01......Damage and Destruction
(a) If the Project or the Project Site is damaged to such extent that
the claim for loss resulting from such destruction or damage is not greater than
$25,000, the Corporation will continue to pay Basic Rent and all other
additional rent and payments required to be paid hereunder and will promptly
repair, rebuild or restore the property damaged and will apply for such purpose
so much as may be necessary of Net Proceeds of insurance resulting from claims
for such losses, as well as any additional moneys of the Corporation necessary
therefor. If the cost of such repairs, rebuilding and restoration is less than
the amount of Net Proceeds of the insurance referable thereto, the Corporation
may retain the amount by which such insurance proceeds exceed said total cost.
(b) If the Project or the Project Site is destroyed or is damaged to
such extent that the claim for loss resulting from such destruction or damage is
in excess of $25,000, the Corporation will continue to pay Basic Rent and all
other additional rent and payments required to be paid hereunder and will
promptly give written notice of such damage and destruction to the Bondholder
and the Issuer. All Net Proceeds of insurance resulting from claims for such
losses shall be paid to the Bondholder, whereupon (1) the Corporation, or the
Issuer at the direction of the Corporation, will proceed promptly to repair,
rebuild or restore the property damaged or destroyed to substantially the same
condition in which it existed prior to the event causing such damage or
destruction, with such changes, alterations and modifications (including the
substitution and addition of other property) as may be desired by the
Corporation and as will not impair the operating unity of the Project or its
character as a "project" under the Enabling Law, and (2) the Bondholder will pay
the costs of such repair, rebuilding or restoration, either on completion
thereof, or as the work progresses, upon appropriate verification of costs. The
balance, if any, of Net Proceeds of insurance remaining after the payment of all
of the costs of such repair, rebuilding or restoration shall be applied to the
redemption of the Bond in whole or in part (depending on the amount of such
excess) in the same manner and order specified in Section 8.07 of the Indenture
for moneys collected or held by the Bondholder, or, if the Bond is fully paid,
shall be paid to the Corporation.
(c) In the event the Net Proceeds of insurance are not sufficient to
pay in full the costs of repairing, rebuilding and restoring the Project as
provided in this Section, the Corporation will nonetheless complete the work
thereof and will pay that portion of the costs thereof in excess of the amount
of said Net Proceeds or will pay to the Bondholder for the account of the Issuer
the moneys necessary to complete said work. The Corporation shall not by reason
of the payment of such excess costs (whether by direct payment thereof or
payment to the Bondholder therefor) be entitled to any reimbursement from the
Issuer or any abatement or diminution of the rents payable hereunder.
(d) Anything in this Section to the contrary notwithstanding, if as a
result of such damage or destruction (regardless of whether the loss resulting
therefrom is greater than $25,000 or not) the Corporation is entitled to
exercise an option to purchase the Project and duly does so in accordance with
Section 11.03 hereof, then neither the Corporation nor the Issuer shall be
required to repair, rebuild or restore the property damaged or destroyed, and so
much (which may be all) of any Net Proceeds referable to such damage or
destruction as shall be necessary to provide for full payment of the Bond shall
be paid to the Bondholder and the excess thereafter remaining (if any) shall be
paid to the Corporation.
SECTION 7.02 Condemnation
(a) If title to, or the temporary use of, the Project or the Project
Site or any part thereof shall be taken under the exercise of the power of
eminent domain, the Corporation shall be obligated to continue to make the
rental and other payments required to be paid under this Lease Agreement, and
the entire Net Proceeds referable to such taking, including the amounts awarded
to the Issuer and the Bondholder and the amount awarded to the Corporation for
the taking of all or any part of the leasehold estate of the Corporation in the
Project, shall be paid to the Bondholder and applied in one or more of the
following ways as shall be directed in writing by the Corporation:
(1) To the restoration of the remaining Improvements located
on the Project Site to substantially the same condition in which they
existed prior to the exercise of the power of eminent domain.
(2) To the acquisition by construction or otherwise, of other
structures, facilities and improvements suitable for the operations of
the Corporation (the same to be subject to this Lease Agreement and the
Indenture and be covered thereby) provided such acquisition shall
become a part of the Project and shall not result in the creation or
establishment of any liens or encumbrances on the Project prior to the
lien of the Indenture.
(b) In the event the Net Proceeds are not sufficient to fully provide
for the foregoing, the Corporation will nonetheless complete the work thereof
and will pay to the Bondholder for the account of the Issuer that portion of the
costs thereof in excess of the amount of the Net Proceeds or will pay the moneys
necessary to complete said work. The Corporation shall not by reason of the
payment of such costs (whether by direct payment thereof or payment to the
Bondholder therefor) be entitled to any reimbursement from the Issuer or any
abatement or diminution of the rents payable hereunder.
(c) Any balance of such Net Proceeds remaining after the application
thereof as provided in subsection (a) of this Section shall be applied to the
redemption of the Bond in whole or in part (depending on the amount of such
excess) in the same manner and order specified in Section 8.07 of the Indenture
for moneys collected or held by the Bondholder, or, if the Bond is fully paid,
shall be paid to the Corporation.
(d) The Issuer shall cooperate fully with the Corporation in the
handling and conduct of any prospective or pending condemnation proceeding with
respect to the Project or any part thereof and will, to the extent it may
lawfully do so, permit the Corporation to litigate in any such proceeding in the
name and behalf of the Issuer. In no event will the Issuer settle, or consent to
the settlement of, any prospective or pending condemnation proceeding without
the prior written consent of the Corporation.
(e) Anything in this Section to the contrary notwithstanding, if as a
result of such taking, the Corporation is entitled to exercise an option to
purchase the Project and duly do so in accordance with Section 11.03 hereof,
then any Net Proceeds referable to such taking as shall be necessary to provide
for full payment of the Bond shall be paid to the Bondholder, and the excess
thereafter remaining (if any) shall be paid to the Corporation.
(f) The Corporation shall be entitled to the Net Proceeds of any award
or portion thereof made for damage to or taking of its own property not included
in the Project.
ARTICLE 8
Certain Provisions Relating to Assignment,
Subleasing, Mortgaging and Redemption of the Bond
SECTION 8.01......Provisions Relating to Assignment and Subleasing
The Corporation may assign this Lease Agreement and the leasehold
interest created hereby and may sublet the Project or any part thereof, subject,
however, to the following conditions:
(a) No such assignment or subleasing and no dealings or
transactions between the Issuer or the Bondholder and any assignee or
sublessee shall in any way relieve the Corporation from primary
liability for any of its obligations hereunder. In the event of any
such assignment or subleasing the Corporation shall continue to remain
primarily liable for the payment of all rentals herein provided to be
paid by it and for the performance and observance of the other
agreements and covenants on its part herein provided to be performed
and observed by it.
(b) The Corporation will not assign the leasehold interest
created hereby nor sublease the Project or any part thereof to any
person, firm, partnership, corporation or entity of any description
whatsoever unless the operations of such assignee or sublessee are
consistent with, and in furtherance of, the purpose of the Enabling
Law.
(c) The Corporation will not assign the leasehold interest
created hereby nor sublease the Project or any part thereof to any
person if such assignment or sublease would cause or result in the
interest on the Bond becoming includable in gross income for federal
income tax purposes.
(d) The Corporation shall furnish to the Issuer and the
Bondholder a true and complete copy of each such assignment or sublease
promptly after the delivery thereof and shall assign its rights
thereunder to the Issuer and the Bondholder as additional security for
the obligations of the Corporation hereunder.
SECTION 8.02......Assignment of Lease Agreement and Rents by the Issuer
(a) The Issuer has, simultaneously with the delivery of this Lease
Agreement, assigned its interest in and pledged any money receivable under this
Lease Agreement (other than certain rights to indemnification and reimbursement)
to the Bondholder as security for payment of the principal of and the interest
on the Bond and the Corporation hereby consents to such assignment and pledge.
The Issuer has in the Indenture obligated itself to follow the instructions of
the Bondholder in the election or pursuit of any remedies herein vested in it.
The Bondholder shall have all rights and remedies herein accorded to the Issuer
and any reference herein to the Issuer shall be deemed, with the necessary
changes in detail, to include the Bondholder, and the Bondholder is deemed to be
a third party beneficiary of the covenants, agreements and representations of
the Corporation herein contained.
(b) Prior to the payment in full of the Bond, the Issuer and the
Corporation shall have no power to modify, alter, amend or terminate this Lease
Agreement without the prior written consent of the Bondholder. The Issuer will
not amend the Indenture or any indenture supplemental thereto without the prior
written consent of the Corporation. Neither the Issuer nor the Corporation will
unreasonably withhold any consent herein or in the Indenture required of either
of them.
(c) The Corporation shall not be deemed to be a party to the Indenture
or the Bond, and reference in this Lease Agreement to the Indenture and the Bond
shall not impose any liability or obligation upon the Corporation other than its
specific obligations and liabilities undertaken in this Lease Agreement.
SECTION 8.03......Restrictions on Mortgage or Sale of Project by
Issuer; Consolidation or Merger of, or Transfer of Assets by, Issuer
Except as provided in the Indenture, the Issuer will not mortgage,
sell, assign, transfer, convey or grant a security interest in the Project, or
merge or consolidate with, or transfer its assets to, any person.
SECTION 8.04......Redemption of the Bond
(a) Upon the occurrence of any event which gives rise to any mandatory
redemption of the Bond, the Issuer will redeem any or all of the same in
accordance with the respective provisions thereof and the Indenture.
(b) If the Bond is subject to optional redemption, the Issuer will, but
only upon the written request of the Corporation, redeem the same in accordance
with the respective provisions thereof and the Indenture.
(c) On any redemption or prepayment date with respect to the Bond, the
Corporation shall pay to the Bondholder for the account of the Issuer the
applicable redemption price with respect to the Bond.
ARTICLE 9
Covenants of the Corporation
SECTION 9.01......Covenants of the Corporation
The Corporation hereby covenants and agrees that, so long as the Bond
is outstanding:
(a) The Corporation will not do or permit anything to be done at the
Project that will affect, impair or contravene any policies of insurance that
may be carried on or with respect to the Project or any part thereof. The
Corporation will comply with all valid laws, regulations, ordinances, and
requirements applicable to the Project.
(b) The Corporation will permit the Issuer, the Bondholder, and their
respective duly authorized agents at all reasonable times to enter upon, examine
and inspect the Project and in the event of default as hereinafter provided, the
Corporation will permit a public accountant or firm of public accountants
designated by the Bondholder to have access to, inspect, examine and make copies
of the books and records, accounts and data of the Corporation.
(c) The Corporation will maintain proper books of record and account,
in which full and correct entries will be made, in accordance with generally
accepted accounting principles, of all its business and affairs. The Corporation
shall furnish to the Issuer and to the Bondholder with reasonable promptness
such financial statements and data as may be reasonably requested thereby,
including without limitation annual financial statements of the Corporation and
annual operating statements with respect to the Project.
(d) The Corporation will maintain and preserve its corporate existence
and organization, and its authority to do business in the State and will not
voluntarily dissolve without first discharging its obligations under this Lease
Agreement and will comply with all valid laws, ordinances, regulations and
requirements applicable to it or to its property and the Project.
(e) The Corporation will not transfer or dispose of all, substantially
all, or any substantial portion, of it assets (either in a single transaction or
in a series of related transactions) without the prior written consent of the
Bondholder.
(f) The Corporation will not sell, assign, mortgage, pledge, transfer
or convey all or any part of its interest in this Lease Agreement or in the
Project, provided, however the foregoing shall not impair or restrict the right
of the Corporation as elsewhere permitted under this Lease Agreement to assign
this Lease Agreement and the leasehold interest created hereby or to sublet the
Project or any part thereof.
(g) The Corporation will duly pay and discharge all taxes, assessments
and other governmental charges and liens lawfully imposed on the Corporation,
upon the properties and interests of the Corporation, and the Project.
(h) The Corporation shall file, record, refile and rerecord all
financing statements, continuation statements, documents or other notices as are
necessary to perfect and to maintain the Issuer's title to and interest in the
Project and to perfect and maintain the security interest of the Bondholder in
the Project and shall submit evidence of such filing, recording, refiling and
rerecording to the Bondholder.
(i) The Corporation hereby represents and warrants that (1) the
execution and delivery of this Lease Agreement and the Guaranty will not involve
any prohibited transactions within the meaning of ERISA or Section 4975 of the
Internal Revenue Code, as amended; (2) based upon ERISA and the regulations and
published interpretations thereunder, the Corporation is in compliance in all
material respects with the applicable provisions of ERISA; (3) no "Reportable
Event" as defined in Section 4043(b) of Title IV of ERISA, has occurred with
respect to any plan maintained by the Corporation; and (4) there are no liens on
the real or personal property of the Corporation pursuant to Section 4068 of
ERISA.
<PAGE>
ARTICLE 10
Events of Default and Remedies
SECTION 10.01.....Events of Default Defined
The following shall be events of default under this Lease Agreement and
the term "event of default" shall mean, whenever used in this Lease Agreement,
any one or more of the following events:
(1) Failure to pay any installment of Basic Rent that has become due
and payable by the terms of this Lease Agreement and such failure continues for
a period of five Business Days after written notice specifying such failure and
requesting that such payment be made has been received by the Corporation.
(2) Failure by the Corporation to observe and perform any covenant,
condition or agreement on its part to be observed or performed pursuant to this
Lease Agreement or the Guaranty, other than as referred to in subsection (a) of
this Section, for a period of fifteen days after written notice, specifying such
failure and requesting that it be remedied, given to the Corporation by the
Issuer or the Bondholder, provided that if such default is of a kind which
cannot reasonably be cured within such fifteen-day period, the Corporation shall
have a reasonable period of time within which to cure such default, provided
that it begins to cure the default promptly after its receipt of such written
notice and proceeds in good faith, and with due diligence, to cure such default.
(3) The dissolution or liquidation of the Corporation; or the filing by
the Corporation of a voluntary petition in bankruptcy; or failure by the
Corporation promptly to lift any execution, garnishment or attachment of such
consequence as will impair the ability of the same to perform its obligations
hereunder; the Corporation's seeking of or consenting to or acquiescing in the
appointment of a receiver of all or substantially all the property thereof or of
the Project; or the adjudication of the Corporation as a bankrupt; or any
assignment by the Corporation for the benefit of its creditors; or the entry by
the Corporation into an agreement of composition with its creditors; or if a
petition or answer is filed by the Corporation proposing the adjudication of the
same as a bankrupt or its reorganization, arrangement or debt readjustment under
any present or future federal bankruptcy code or any similar federal or state
law in any court; or if any such petition or answer is filed by any other person
and such petition or answer shall not be stayed or dismissed within one hundred
twenty days.
(4) Any warranty, representation or other statement by or on behalf of
the Corporation and contained in this Lease Agreement or in the Guaranty or in
any other document or certificate furnished by the Corporation in connection
with the issuance of the Bond shall be false, untrue or misleading in any
material respect at the time made and the same shall not be made good or
remedied within thirty days after written notice thereof to the Corporation by
the Bondholder or the Issuer.
(5) An event of default under the Indenture or the Guaranty.
SECTION 10.02.....Remedies on Default
Whenever any such event of default shall have happened and be
continuing, the Bondholder may take any of the following remedial steps:
(1) Declare all installments of Basic Rent payable under this Lease
Agreement for the remainder of the Lease Term to be immediately due and payable,
whereupon the same shall become immediately due and payable.
(2) Reenter the Project Site, without terminating this Lease Agreement,
and, upon ten days' prior written notice to the Corporation, relet the Project
or any part thereof for the account of the Corporation, for such term (including
a term extending beyond the Lease Term) and at such rentals and upon such other
terms and conditions, including the right to make alterations to the Project or
any part thereof, as the Bondholder may deem advisable, and such reletting of
the Project shall not be construed as an election to terminate this Lease
Agreement nor relieve the Corporation of its obligations to pay Basic Rent and
additional rent or to perform any of its other obligations under this Lease
Agreement, all of which shall survive such reentry and reletting, and the
Corporation shall continue to pay Basic Rent and all additional rent provided
for in this Lease Agreement until the end of the Lease Term, less the net
proceeds, if any, of any reletting of the Project after deducting all of the
Bondholder's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokers' commissions, attorneys' fees,
alteration costs and expenses of preparation for reletting.
(3) Terminate this Lease Agreement, exclude the Corporation from
possession of the Project and, if the Bondholder elects so to do, lease the same
for the account of the Issuer, holding the Corporation liable for all rent due
up to the date such lease is made for the account of the Issuer.
(4) Have and exercise with respect to any or all personal property and
fixtures included in the Project, all rights, remedies and powers of a secured
party under the Alabama Uniform Commercial Code including without limitation the
rights and powers set forth in the Indenture with respect thereto.
(5) Take whatever legal proceedings may appear necessary or desirable
to collect the rent then due, whether by declaration or otherwise, or to enforce
any obligation or covenant or agreement of the Corporation under this Lease
Agreement or by law.
To the extent permitted by law, the Corporation expressly waives any notice of
sale or disposition of the Project and any rights or remedies of the Bondholder
or Issuer with respect to, and the formalities prescribed by law relative to,
the sale or disposition of the Project or to the exercise of any other right or
remedy of the Bondholder or Issuer existing after default. To the extent that
such notice is required and cannot be waived, the Corporation agrees that if
such notice is given to the Corporation in accordance with the provisions
hereof, at least ten days before the time of the sale or other disposition, such
notice shall be deemed reasonable and shall fully satisfy any requirements for
giving said notice.
SECTION 10.03.....No Remedy Exclusive
No remedy herein conferred upon or reserved to the Issuer or the
Bondholder is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Lease Agreement or now or
hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof but any such right
or power may be exercised from time to time and as often as may be deemed
expedient.
SECTION 10.04.....Agreement to Pay Attorneys' Fees and Expenses
In the event the Corporation should default under any of the provisions
of this Lease Agreement and the Issuer or the Bondholder (in its own name or in
the name and on behalf of the Issuer) should employ attorneys or incur other
expenses for the collection of rent or the enforcement of performance or
observance of any obligation or agreement on the part of the Corporation herein
contained, the Corporation will on demand therefor pay to the Issuer or the
Bondholder (as the case may be) the reasonable fee of such attorneys and such
other expenses.
SECTION 10.05.....No Additional Waiver Implied by One Waiver
In the event any agreement contained in this Lease Agreement should be
breached by either party and thereafter waived by the other party, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder.
<PAGE>
SECTION 10.06.....Remedies Subject to Applicable Law
All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Lease Agreement invalid or
unenforceable.
ARTICLE 11
Options
SECTION 11.01.....Options to Terminate
The Corporation shall have, if not in default hereunder, the option to
cancel or terminate this Lease Agreement at any time after full payment of the
Bond by giving the Issuer notice in writing of such termination and such
termination shall forthwith become effective.
SECTION 11.02...Option to Renew
There shall be no option to renew the term of this Lease Agreement.
SECTION 11.03...Option to Purchase Project Prior to Payment of the Bond
Anything in this Lease Agreement to the contrary notwithstanding, the
Corporation shall, if not in default hereunder, have the option to purchase the
Project at any time prior to the full payment of the Bond then outstanding, if
any of the following shall have occurred:
(a) The Project or the Project Site or any part thereof shall have been
damaged or destroyed (1) to such extent that, in the opinion of the Corporation,
it cannot be reasonably restored within a period of two consecutive months
substantially to the condition thereof immediately preceding such damage or
destruction, or (2) to such extent that, in the opinion of the Corporation, the
Corporation is thereby prevented from carrying on its normal operations at the
Project for a period of two consecutive months; or (3) to such extent that the
cost of restoration thereof would exceed the Net Proceeds of insurance carried
thereon pursuant to the requirements of this Lease Agreement; or
(b) Title to the Project or the Project Site or any part thereof or the
leasehold estate of the Corporation in the Project created by this Lease
Agreement or any part thereof shall have been taken under the exercise of the
power of eminent domain by any governmental authority or person, firm or
corporation acting under governmental authority, which taking may result in the
Corporation being thereby prevented from carrying on its normal operations at
the Project or the Project Site for a period of two consecutive months; or
(c) As a result of any changes in the Constitution of the State or the
Constitution of the United States of America or of legislative or administrative
action (whether state or Federal), or by final decree, judgment or order of any
court or administrative body (whether state or Federal) entered after the
contest thereof by the Corporation in good faith, this Lease Agreement shall
have become void or unenforceable or impossible of performance in accordance
with the intent and purpose of the parties as expressed herein, or unreasonable
burdens or excessive liabilities shall have been imposed on the Issuer or the
Corporation, including without limitation, the imposition of taxes of any kind
on the Project or the income or profits of the Issuer therefrom, or upon the
interest of the Corporation therein, which taxes were not being imposed on the
date of this Lease Agreement.
To exercise such option, the Corporation shall, within sixty days
following the event authorizing the exercise of such option, give written notice
to the Issuer and to the Bondholder and shall specify therein the date of
closing such purchase. The purchase price payable by the Corporation in the
event of the exercise of the option granted in this Section shall be such an
amount as shall be required to prepay the entire unpaid principal amount of the
Bond then outstanding, together with interest thereon to the date of such
payment, in the same manner and order as specified in Section 8.07 of the
Indenture. The prepayment price shall be paid by the Corporation to the
Bondholder.
Upon the exercise of the option granted herein and the prepayment of
the Bond as provided in this Section, any Net Proceeds of insurance or
condemnation award then on hand or thereafter received shall be paid to the
Corporation.
SECTION 11.04.....Option to Purchase Project After Payment of the Bond
If no Event of Default exists hereunder, the Corporation shall have the
option to purchase the Project at any time following full payment of the Bond
for a purchase price of one hundred dollars plus the expenses of the Issuer
incurred in connection therewith. To exercise the option granted in this
Section, the Corporation shall notify the Issuer of its intention so to exercise
such option prior to the proposed date of purchase and shall on the date of
purchase pay such purchase price to the Issuer. In the event the option granted
in this Section 11.04 has not been exercised prior to the end of the Lease Term,
then said option shall automatically be considered to be exercised upon the end
of the Lease Term.
SECTION 11.05 Option to Purchase Unimproved Project Site
(a) The Corporation, if not in default hereunder, shall also have the
option to purchase, with the prior written consent of the Bondholder, any
Unimproved part of the Project Site at any time and from time to time at and for
a purchase price equal to the pro rata cost thereof to the Corporation, provided
that they furnish the Issuer and the Bondholder with the following:
(a) A notice in writing containing (1) an adequate legal description of
that portion of the Project Site with respect to which such option is
to be exercised, which portion may include rights granted in party
walls, the right to "tie-into" existing utilities, the right to connect
and join any building, structure or improvement with existing
Improvements on the Project Site, and the right of ingress or egress to
and from the public highway which shall not interfere with the use and
occupancy of existing Improvements, (2) a statement that the
Corporation intends to purchase such portion of the Project Site on a
date stated, (3) a description of the buildings, structures, or
improvements to be erected on the portion to be purchased and (4) a
statement that the use to which such portion of the Project Site will
be devoted will be in furtherance of the purpose for which the Issuer
was organized.
(b) A certificate of an Independent Engineer dated not more than ninety
days prior to the date of the purchase and stating that, in the opinion
of the person signing such certificate, (1) the portion of the Project
Site with respect to which the option is exercised is not needed for
the operation of the Project, (2) the buildings, structures or
improvements described in the above certificate can be constructed on
the real property to be purchased and (3) the severance of such portion
of the Project Site from the Project and the construction thereon of
the buildings, structures and improvements above referred to will not
impair the usefulness of the Improvements or the means of ingress
thereto and egress therefrom.
(c) An amount of money equal to the purchase price computed as provided
in this Section, which amount shall be applied to the prepayment of the
principal of the Bond on the earliest Business Day for which the
required notice may be given, as provided in the Bond.
(b) Upon receipt by it of the notice and certificate required in this
Section to be furnished by the Corporation and the payment by the Corporation to
the Bondholder of the purchase price, the Issuer will promptly deliver to the
Corporation the documents referred to in Section 11.06 hereof and will secure
from the Bondholder a release from the lien of the Indenture of the portion of
the Project Site with respect to which the Corporation shall have exercised the
option granted in this Section.
(c) If such option relates to a portion of the Project Site on which
transportation or utility facilities are located, the Issuer shall retain an
easement to use such transportation or utility facilities to the extent
necessary for the efficient operation of the Project.
(d) No purchase effected under the provisions of this Section shall
affect the liability or the obligation of the Corporation for the payment of
Basic Rent and additional rent in the amounts and at the times provided in this
Lease Agreement or the performance of any other agreement, covenant or provision
hereof, and there shall be no abatement or adjustment in rent by reason of the
release of any such realty except as specified in this Section and the
obligation and the liability of the Corporation shall continue in all respects
as provided in this Lease Agreement, excluding, however, any realty so
purchased.
SECTION 11.06.....Conveyance on Exercise of Option to Purchase
At the closing of the purchase pursuant to the exercise of any option
to purchase granted herein, the Issuer will upon receipt of the purchase price
deliver to the Corporation documents conveying to the Corporation the property
with respect to which such option was exercised, as such property then exists,
subject to the following: (1) those liens and encumbrances, if any, to which
title to said property was subject when conveyed to the Issuer; (2) those liens
and encumbrances created by the Corporation or to the creation or suffering of
which the Corporation consented; and (3) those liens and encumbrances resulting
from the failure of the Corporation to perform or observe any of the agreements
on its part contained in this Lease Agreement.
ARTICLE 12
Internal Revenue Code
SECTION 12.01..... Covenants Regarding the Code
The parties hereto recognize that the Bond is being sold on the basis
that the interest payable on the Bond is excludable from gross income of the
Bondholder for federal income taxation under Section 103 of the Internal Revenue
Code of 1986, as amended (the "Code"). The Issuer and Corporation do each hereby
covenant and agree with the Bondholder that neither the Corporation nor the
Issuer will take any action, or omit to take any action, permit any action to be
taken, or fail to require any action to be taken, with respect to the Project or
the Bond, that would cause the interest on the Bond to be or become includable
in the gross income of the registered owners thereof for federal income
taxation, and further covenant and agree that: (i) the proceeds of the Bond
shall not be used or applied in such manner as to cause the Bond to be or become
an "arbitrage bond" as that term is defined in Section 148 of the Code; (ii)
ninety-five percent (95%) or more of the net proceeds of the Bond will be used
for the acquisition, construction, reconstruction, or improvement of land or
property of a character subject to the allowance for depreciation, within the
meaning of Section 144 of the Code; (iii) the proceeds of the Bond will be used
for the acquisition, construction and equipping of the Project or for issuance
expenses with respect to the Bond, or shall be rebated to the United States of
America as provided in the Indenture, and no part of the proceeds of the Bond
are to be used by the Corporation, directly or indirectly, for working capital,
or to finance inventory, or to acquire any facility or asset which may not,
under the Code, be financed in whole or in part with the proceeds of obligations
the interest on which is excludable from gross income for federal income
taxation; (iv) the proceeds of the Bond shall not be used for the acquisition,
construction, reconstruction or improvement of any property which would cause
the average maturity of the Bond to exceed 120 percent of the average reasonably
expected economic life of the facilities financed with the net proceeds of the
Bond, within the meaning of Section 147(b) of the Code; (v) neither the Bond nor
any of the proceeds therefrom shall ever be federally guaranteed, within the
meaning of Section 149(b) of the Code, except as expressly provided in said
Section 149(b); (vi) none of the proceeds of the Bond shall be used to acquire
(directly or indirectly) any land (or any interest therein) to be used for
farming purposes; (vii) less than twenty-five percent (25%) of the proceeds of
the Bond shall be used to acquire (directly or indirectly) any land (or any
interest therein); (viii) none of the net proceeds of the Bond shall be used to
acquire any property, or any interest therein (including without limitation
buildings, structures, facilities, improvements, equipment, machinery or other
personal property) the first use of which property was not pursuant to such
acquisition with the proceeds of the Bond; (ix) no person shall ever be allowed
to use, occupy, or otherwise derive any benefit whatsoever from the Project, or
any part thereof, if the effect thereof shall result in a test period
beneficiary (as defined in Section 144(a) (10) of the Code) having allocated to
it and outstanding tax-exempt facility-related bonds (as defined in Section
144(a) (10) of the Code) in an aggregate principal amount exceeding $40,000,000;
and (x) no more than two percent (2%) of the proceeds of the Bond shall be used
to finance the issuance costs of the Bond; (xi) during the applicable period,
the $10,000,000 limit on bonds and capital expenditures as set forth in Section
144(a)(4) shall not be exceeded; and (xii) the proceeds of the Bond shall not be
used for the payment of any Project Cost paid or incurred prior to the date of
the Inducement Agreement (October 12, 1994) and the Bond is being issued within
not more than one year after completion of the Project.
SECTION 12.02 Corporation's Obligation If Interest on the Bond Is
Determined To Be Includable in Gross Income for Federal Income
TaxationCorporation's Obligation If Interest on the Bond Is Determined To Be
Includable in Gross Income for Federal Income Taxation.
(a) If the Commissioner of Internal Revenue makes a determination that
interest on the Bond is not excludable from gross income for federal income
taxation pursuant to Section 103 for any reason other than the operation of
Section 147(a) of the Code, and the Corporation exhausts (at its sole expense)
or fails to pursue in a timely manner any administrative or judicial remedy
available to it with respect to such determination, the Issuer or the Bondholder
shall notify the Corporation in writing that the outstanding Bond shall be
prepaid on the next practicable interest payment date, irrespective of whether
the Corporation has violated any covenant or representation in this Lease
Agreement. Within thirty days after the receipt of such notice the Corporation
shall either
(i) purchase the Project from the Issuer for the price
specified in subsection (b) of this Section, which purchase price shall
be paid to the Bondholder, or
(ii) pay to the Bondholder the sum specified in subsection (b)
of this Section, in which event the Corporation shall be entitled to
the use and occupancy of the Project until the expiration of the term
provided for herein without the payment of any further rent, but
otherwise on all of the terms and conditions hereof, except that the
Corporation shall not be required to carry any insurance for the
benefit of the Bondholder.
Any other options of the Corporation to purchase the Project shall be superseded
by its mandatory obligation to elect one of the alternatives set forth in this
subsection (a).
(b) The price payable by the Corporation for the Project in the event
interest on the Bond is determined to be includable in gross income for federal
income taxation as provided in subsection (a), or the amount payable to the
Bondholder in lieu of purchasing the Project, shall be equal to the sum of the
following:
(i) the outstanding principal amount of the Bond plus
accrued interest thereon to the date of prepayment;
(ii) the Bondholder's fees and expenses under the Indenture
accrued and to accrue until the prepayment of the Bond; and
(iii) a premium for each principal installment of the Bond the
interest on which has been determined to be taxable (whether or not
such installment has been paid) equal to 3% of the principal amount of
such principal installment on the Bond determined to be taxable.
(c) Upon payment by the Corporation of the amount specified in
subsection (b) of this Section, the Issuer shall call the outstanding Bond for
prepayment on the next practicable interest payment date. The Issuer shall cause
the Corporation to pay to the registered owner of the Bond, in addition to the
outstanding principal amount of such Bond and the interest accrued thereon to
the prepayment date, that portion of the premium (calculated under clause (iii)
of subsection (b) of this Section) allocable to such principal amount, and the
Issuer shall cause the Corporation to pay to the last registered owner of each
taxable principal installment of the Bond all or a portion of the principal
amount which has already been paid, the premium (calculated under clause (iii)
of subsection (b) of this Section) allocable to such taxable principal
installment of the Bond.
SECTION 12.03 Federal Rebate Payments.Federal Rebate Payments.
The provisions of Article 9 of the Indenture with respect to federal
rebate payments are incorporated herein by reference, and the Corporation shall
comply with said provisions and shall perform and discharge all obligations,
duties and responsibilities imposed upon the Corporation under said Article,
including without limitation the payment of all required rebates to the United
States of America and the maintenance of all records with respect thereto.
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Corporation have each caused
this Lease Agreement to be executed and the corporate seal thereof affixed
hereto and the same attested by officers thereof duly authorized thereunto.
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HALEYVILLE,
ALABAMA
By__________________________________
Its Chairman
S E A L
Attest: _______________________________
Its Secretary
WHEEL HOUSE PROPERTIES, INC.
By__________________________________
Its President
S E A L
Attest: _______________________________
Its Secretary
<PAGE>
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that John Slatton, whose name as Chairman of the Board of
Directors of The Industrial Development Board of the City of Haleyville,
Alabama, a public corporation, is signed to the foregoing Lease Agreement and
who is known to me, acknowledged before me on this day that, being informed of
the contents of said Lease Agreement, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said public
corporation.
Given under my hand and seal this the ___ day of March, 1995.
-----------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: ___________________
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, undersigned, a Notary Public in and for said County in said State,
hereby certify that James H. Masdon whose name as President of Wheel House
Properties, Inc., an Alabama corporation, is signed to the foregoing Lease
Agreement and who is known to me, acknowledged before me on this day that, being
informed of the contents of said Lease Agreement, he, as such officer and with
full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and seal this the ___ day of March, 1995.
-----------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: ______________________
<PAGE>
------------------------------------------------------------------
LEASE AGREEMENT
------------------------------------------------------------------
The Industrial Development Board
of the City of Haleyville, Alabama
and
Wheel House Properties, Inc.
(an Alabama corporation)
Dated as of March 1, 1995
------------------------------------------------------------------
This Lease Agreement was prepared by Charles Hayes of Walston,
Stabler, Wells, Anderson & Bains, Financial
Center, 505 North 20th Street, Suite 500, Birmingham, Alabama 35203
------------------------------------------------------------------
<PAGE>
EXHIBIT A
to
Lease Agreement
dated as of
March 1, 1995
from
The Industrial Development Board
of the City of Haleyville, Alabama
to
Wheel House Properties, Inc.
--------------------------------------------------------
Foam spraying system for rafters Sealer spray system for ceiling Ceiling
compound spray system
Electrical hoist, including dollies and electrical wire gathering system
Overhead tram systems Jig tables for sidewalls Partitions, floors and endwalls
Additional manufacturing equipment, including but not limited to, saws,
dust systems, roller beds, scaffolding, air lines, roll over plates, nose
wheels, compressors, hand tools, cabinet tables, for lifts and material carts.
Office equipment and furniture, including for employee rooms.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Page
Parties...........................................................................................................1
Recitals..........................................................................................................1
ARTICLE 1
Definitions and Other Provisions
of General Application
SECTION 1.01 Definitions................................................................ 2
SECTION 1.02 Date of Lease Agreement.................................................... 6
SECTION 1.03 Separability Clause........................................................ 6
SECTION 1.04 Effect of Headings and Table of ........................................... 7
Contents
SECTION 1.05 Successors and Assigns..................................................... 7
SECTION 1.06 Governing Law.............................................................. 7
SECTION 1.07 Execution Counterparts..................................................... 7
SECTION 1.08 Covenant of Quiet Enjoyment................................................ 7
SECTION 1.09 Issuer's Liabilities Limited............................................... 7
SECTION 1.10 Prior Agreements Canceled.................................................. 7
SECTION 1.11 Notices.................................................................... 8
SECTION 1.12 The Special Funds.......................................................... 8
ARTICLE 2
Representations and Warranties
SECTION 2.01 Representations by the Issuer.............................................. 8
SECTION 2.02 Representations by the Corporation......................................... 9
ARTICLE 3
Demising Clauses
ARTICLE 4
The Project
SECTION 4.01 Acquisition of Project; Payment of ........................................ 11
Excess Project Costs.
SECTION 4.02 No Warranty of Suitability by Issuer....................................... 12
SECTION 4.03 Issuer to Pursue Remedies Against ......................................... 13
Vendors, Contractors and
Subcontractors and Their Sureties
SECTION 4.04 Completion of the Project.................................................. 13
SECTION 4.05 Title Insurance............................................................ 14
<PAGE>
ARTICLE 5
Duration of Lease Term
and Rental Provisions
SECTION 5.01 Duration of Term........................................................... 14
SECTION 5.02 Rental and Payment Provisions; Net ........................................ 14
SECTION 5.03 Advances by Issuer or Bondholder........................................... 15
SECTION 5.04 Indemnity of Issuer and Bondholder......................................... 15
SECTION 5.05 Obligations of Corporation ................................................ 16
ARTICLE 6
Maintenance, Alterations, Replacements, Insurance; and
Environmental Compliance
SECTION 6.01 Maintenance and Repairs.................................................... 17
SECTION 6.02 Removal of, Substitution and Replacement .................................. 18
for Equipment
SECTION 6.03 Taxes, Other Governmental Charges and ..................................... 19
Utility Charges
SECTION 6.04 Insurance Required......................................................... 20
SECTION 6.05 Installation By Corporation of Own ........................................ 21
Machinery and Equipment
SECTION 6.06 Environmental Compliance................................................... 22
ARTICLE 7
Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.01 Damage and Destruction..................................................... 23
SECTION 7.02 Condemnation............................................................... 25
ARTICLE 8
Certain Provisions Relating to Assignment,
Subleasing, Mortgaging and Redemption of the Bond
SECTION 8.01 Provisions Relating to Assignment and Subleasing.................................... 26
SECTION 8.02 Assignment of Lease Agreement and Rents ............................................ 27
by the Issuer
SECTION 8.03 Restrictions on Mortgage or Sale of ................................................ 27
Project by Issuer; Consolidation or
Merger of, or Transfer of Assets by,
Issuer
SECTION 8.04 Redemption of the Bond.............................................................. 28
<PAGE>
ARTICLE 9
Covenants of the Corporation
SECTION 9.01 Covenants of the Corporation .............................................. 28
ARTICLE 10
Events of Default and Remedies
SECTION 10.01 Events of Default Defined.................................................. 30
SECTION 10.02 Remedies on Default........................................................ 31
SECTION 10.03 No Remedy Exclusive ....................................................... 32
SECTION 10.04 Agreement to Pay Attorneys' Fees and ...................................... 32
Expenses
SECTION 10.05 No Additional Waiver Implied by One ....................................... 32
Waiver
SECTION 10.06 Remedies Subject to Applicable Law......................................... 33
ARTICLE 11
Options
SECTION 11.01 Options to Terminate....................................................... 33
SECTION 11.02 Option to Renew............................................................ 33
SECTION 11.03 Option to Purchase Project Prior to ....................................... 33
Payment of the Bond
SECTION 11.04 Option to Purchase Project After Payment .................................. 34
of the Bond
SECTION 11.05 Option to Purchase Unimproved Project Site ............................... 35
SECTION 11.06 Conveyance on Exercise of Option to ....................................... 36
Purchase
ARTICLE 12
Internal Revenue Code
SECTION 12.01 Covenants Regarding the Code............................................................ 36
SECTION 12.02 Corporation's Obligation If Interest on ................................................ 38
the Bond Is Determined To Be
Includable in Gross Income for Federal Income
Taxation
SECTION 12.03 Federal Rebate Payments................................................................. 39
Testimonium......................................................................................................34
Signatures.......................................................................................................34
Acknowledgments..................................................................................................35
EXHIBIT A - Description of Equipment
</TABLE>
Exhibit 11
Statement re Computation of Per Share Earnings
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands except per share amounts)
<TABLE>
<S> <C> <C> <C>
For the Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
PRIMARY AND FULLY DILUTED
Net Income $ 15,366 $ 9,020 $ 5,079
=============== =============== ===============
SHARES:
Primary
Average common shares outstanding 11,833,415 11,071,665 9,624,174
Dilutive effect if stock options
were exercised 425,046 414,580 211,350
--------------- --------------- ---------------
Average common shares outstanding
as adjusted (primary) 12,258,461 11,486,245 9,835,524
=============== =============== ===============
Fully Diluted
Average common shares outstanding 12,258,461 11,486,245 9,835,524
Additional dilutive effect if
stock options were excercised
(fully) - - -
--------------- --------------- ---------------
Average common shares outstanding
as adjusted (fully diluted) 12,258,461 11,486,245 9,835,524
=============== =============== ===============
Primary and Fully Diluted Net
Income per Common Share $ 1.25 $ .79 $ .52
=============== =============== ===============
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
Cavalier Homes, Inc.
Cavalier Manufacturing, Inc.
Cavalier Industries, Inc.
Cavalier Acceptance Corporation
Cavalier Insurance Agency, Inc.
Blake Insurance Agency, Inc.
Exhibit 23
Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-20842, 33-20859, 33-86232, 333-06371, 333-04953, 333-19833 and 33-86236 of
Cavalier Homes, Inc. on form S-8, and to the incorporation by reference in
Registration Statements Nos. 33-63060 (as amended), 33-86348 (as amended),
33-62487 (as amended), 333-18213 (as amended), 333-00607 (as amended) of
Cavalier Homes, Inc. on Form S-3 of our report dated February 28, 1997,
appearing in this Annual Report on Form 10-K of Cavalier Homes, Inc. for the
year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 24529000
<SECURITIES> 1097000
<RECEIVABLES> 3846000
<ALLOWANCES> 800000
<INVENTORY> 12394000
<CURRENT-ASSETS> 49290000
<PP&E> 33794000
<DEPRECIATION> 9034000
<TOTAL-ASSETS> 115574000
<CURRENT-LIABILITIES> 40816000
<BONDS> 0
0
0
<COMMON> 1217000
<OTHER-SE> 67588000
<TOTAL-LIABILITY-AND-EQUITY> 115574000
<SALES> 345415000
<TOTAL-REVENUES> 348748000
<CGS> 284024000
<TOTAL-COSTS> 284024000
<OTHER-EXPENSES> 42869000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 560000
<INCOME-PRETAX> 24549000
<INCOME-TAX> 9183000
<INCOME-CONTINUING> 15366000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15366000
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
