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, 1999
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 32 Wilson Boulevard,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (256) 747-9800
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 (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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, 2000, was $39,930,897.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 20, 2000.
17,767,528
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 16, 2000.
1
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CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. (the "Company"), incorporated in 1984, is a Delaware
corporation with its executive offices located at Highway 41 North and 32 Wilson
Boulevard, Addison, Alabama 35540. Effective December 31, 1997, the Company
completed a merger (the "Merger") involving Belmont Homes, Inc. ("Belmont"),
pursuant to which the Company issued 7,555,121 shares of its common stock in
exchange for Belmont's common stock and Belmont became a wholly owned subsidiary
of the Company. The Merger was accounted for as a pooling of interests and,
accordingly, the Company's 1997 consolidated financial statements have been
restated to include the results of operations and cash flows of Belmont. The
information herein is presented on a combined basis. Unless otherwise indicated
by the context, references in this report to the "Company" or to "Cavalier"
include the Company, its subsidiaries, divisions of these subsidiaries and their
respective predecessors, if any.
Cavalier is engaged in the production, sale, financing and insuring of
manufactured homes. The Company has chosen to build its distribution system
around exclusive independent dealers, which the Company believes gives it many
of the same efficiencies and market presence that captive retail centers provide
to other companies. At December 31, 1999, Cavalier had a total of 290 dealer
locations participating in its Exclusive Dealer Program, including sixteen
Company-owned retail locations. In addition, the Company markets its homes
through approximately 800 non-exclusive independent dealer locations in 28
states.
The Company designs and manufactures a wide range of homes with a focus on
serving the low- to medium-priced manufactured housing market in the South
Central and South Atlantic regions of the United States. The Company's homes are
sold under 87 brand names, normally include appliances, may be furnished and are
comprised of one or more floor sections. At December 31, 1999, the Company
operated 19 home manufacturing facilities, one plant that manufactures laminated
wall board, and three material and supply distribution locations. Cavalier also
participates in joint ventures with other manufactured housing companies for
lumber distribution and the manufacture of roof trusses and cabinet doors.
Through its financial services segment, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through its exclusive
dealer network and sells various commissioned insurance products to exclusive
dealers and their retail customers. During 1998, the business focus of Cavalier
Acceptance Corporation ("CAC"), the Company's finance subsidiary, changed from
building, holding and servicing a portfolio of loans to purchasing loans from
its dealers that are subsequently resold to another financial institution,
without recourse (provided that the transferred loan was properly originated by
the dealer and purchased by CAC. CAC does not retain the servicing function and
does not earn interest income on those resold loans.
Revenue, operating profit, identifiable assets and other financial data of the
Company's industry segments for the three years ended December 31, 1999 are
contained in Note 12 of Notes to Consolidated Financial Statements in Part II.
2
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Home Manufacturing Operations
At December 31, 1999, the Company, through six wholly owned subsidiaries, owned
or leased nineteen manufacturing facilities (excluding idled facilities) engaged
in the production of manufactured homes. Because of deteriorating market
conditions, Cavalier idled a total of five home manufacturing facilities,
including three subsequent to the end of 1999, that built primarily single
section homes to consolidate production into other plants. See "Item 2.
Properties". Immediately following the end of 1999, the Company reorganized
certain of its operating subsidiaries, and merged them into and combined them
with a new operating subsidiary, Cavalier Enterprises, Inc. ("CEI"), a Delaware
corporation, (formerly Belmont Homes, Inc. ("Belmont"), Spirit Homes, Inc. and
Delta Homes, Inc., both subsidiaries of Belmont). Cavalier Industries, Inc.
("CII"), a Delaware corporation, was reorganized to include the former Bellcrest
Homes, Inc. and Adrian Homes, a division of Bellcrest Homes, Inc. The former
operating subsidiaries will continue their operations as divisions or
subsidiaries of CEI and CII, and are known as Belmont Homes, a division of
Cavalier Enterprises, Inc., Delta Homes, Inc., a subsidiary of Cavalier
Enterprises, Inc., Spirit Homes, a division of Cavalier Enterprises, Inc.,
Bellcrest Homes, a division of Cavalier Industries, Inc., and Adrian Homes, a
division of Cavalier Industries, Inc. The management of each of the Company's
home manufacturing units 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 home manufacturing operations, and typically
participate in an incentive compensation system based upon their respective
operation's profitability.
The Company has experienced significant growth in manufacturing capacity during
the past seven years, expanding from four manufactured housing production
facilities in 1992 to nineteen facilities (excluding idled facilities) at the
end of 1999. Because of deteriorating market conditions, Cavalier has idled a
total of five home manufacturing facilities, including three subsequent to the
end of 1999, that built primarily single section homes to consolidate production
into other plants. The Company's operating facilities normally function on a
single-shift, five-day week basis with the approximate annual capacity to
produce 40,000 floors.
The following table sets forth certain sales information for 1999, 1998, and
1997:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Number of homes sold:
Single-section homes 10,546 47% 12,430 51% 13,576 58%
Multi-section homes 11,831 53% 11,957 49% 10,026 42%
--------- ------- ---------- ------- ---------- -------
Total homes 22,377 100% 24,387 100% 23,602 100%
========= ======= ========== ======= ========== =======
Number of floors sold 34,294 36,517 33,646
========= ========== ==========
</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 workstations where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line
workstations. The completed home is usually sold furnished and is ready for
connection to customer-supplied utilities.
The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, aluminum siding, galvanized roofing materials, 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 generally available from other sources. However,
during 1999, the Company experienced tightened supply from its traditional
vendors of certain types of raw materials, including sheetrock, lumber and
insulation, required for the production of its manufactured homes. The Company
obtained these and similar products from other vendors, which resulted in higher
than normal costs, some of which the Company was unable to recover through price
increases.
3
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The Company's component manufacturing and distribution subsidiaries provide
laminated wallboards, cabinet doors and certain other supply products for some
of its home manufacturing facilities and other manufacturers. Additionally,
certain of the Company's home manufacturing facilities currently purchase roof
trusses and laminated wallboards 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, combining
of multi-section homes, 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 84 feet and contain between
656 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 36 to 82 feet and
contain between 792 and 3,016 square feet.
The Company currently produces over 800 different models of manufactured homes
with a variety of decors that are marketed under 87 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, water heater and central heating. Depending on the customer's
preferences, most homes are sold fully furnished. Customers may also choose many
available options including fireplaces, ceiling fans, dishwashers, garbage
disposals, microwave ovens, stereos, bay windows, composition shingle roofs,
vinyl siding and sliding glass patio doors.
Modular homes are homes designed to meet building codes administered by states
and local authorities, as opposed to the national HUD guidelines. Five of the
Company's manufacturing facilities currently manufactures 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.
4
<PAGE>
Independent Dealer Network, Sales and Marketing
As of December 31, 1999, the Company had, under its Exclusive Dealer Program,
290 participating dealer locations selling only the Company's homes, which
included sixteen Company-owned retail locations. In addition, the Company
markets its homes through approximately 800 independent non-exclusive dealer
locations in 28 states.
Since 1991, the Company has been developing its 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
independent exclusive dealers and percentage of total Company sales represented
by them is summarized in the following table:
For the Year Ended December 31, 1999 1998 1997
- ------------------------------- ------- ------- ------
Number of independent exclusive dealer locations 274 232 132
Percentage of manufactured home sales 55% 40% 30%
Through its finance subsidiary, CAC, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through the Company's
exclusive dealer network and provides its exclusive dealers with other services
and support.
Approximately 88% of the Company's sales in 1999 were to dealers operating sales
centers in the Company's core states as follows: Texas - 17%, Alabama - 12%,
Georgia - 9%, North Carolina - 9%, South Carolina - 8%, Arkansas - 8%, Louisiana
- - 7%, Mississippi - 7%, Tennessee - 4%, Oklahoma - 4% and Missouri - 3%.
The Company has written agreements with most of its independent dealers. These
agreements generally may be terminated at any time by either party, with or
without cause, after a short notice period. 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 1999, the Company's
largest dealer accounted for approximately 1.9% of sales.
The Company believes that its independent dealer network enables 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. *
The industry has recently been experiencing a trend of increasing competition
for independent dealers, and many manufacturers, which had previously not owned
their own retail sales centers, have begun purchasing independent dealers and/or
establishing their own retail outlets. While the Company will continue to focus
on exclusive independent dealers, the Company has diversified its channels of
distribution with a few Company-owned retail locations. Cavalier purchased seven
retail locations in 1999, and opened four other sites during the year, ending
the year with a total of sixteen Company-owned stores. The Company may open or
acquire other locations in the future at a conservative pace and may close some
of its existing locations. *
Each of the Company's manufacturing units 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
- --------
* See Safe Harbor Statement on page 31.
5
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day-to-day servicing of the needs of the Company's independent dealers,
including its exclusive dealers. The Company markets its homes through product
promotions, participation in regional manufactured housing shows, advertisements
in local media and trade publications. As of December 31, 1999, the Company
maintained a sales force of 111 full-time salesmen and 11 full-time general
sales managers.
Retail Financing Activities
A significant factor affecting sales of manufactured homes is the availability
and terms of financing. CAC purchases qualifying retail installment sales
contracts for manufactured homes sold through the Company's exclusive dealer
network.
CAC seeks to provide competitive financing terms to customers of the Company's
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 360 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, 1999, all of CAC's outstanding
loans were secured. Loans purchased by CAC normally provide a fixed rate of
interest with equal monthly payments and are non-recourse to the dealer. The
interest rates applicable to CAC's loan portfolio as of such date generally
ranged from 9% to 14%, and the approximate weighted average annual percentage
interest rate was 11.16%. Currently, CAC operates in most of the states in which
the Company has independent exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC strives to
provide prompt credit approvals and funding of loans. CAC has established a
standardized credit scoring system to facilitate prompt decision-making on loan
applications. The most important criteria in the scoring system are the income,
employment stability and creditworthiness 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 has the home delivered to a
dealer's sales center where CAC attempts to resell the home or contracts with an
independent party to resell 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 $2.2, $1.0 and $1.3 million in
1999, 1998, and 1997, respectively. Additionally, as a result of defaults, early
payoffs and repossessions the reserve was charged $1.3, $1.6 and $1.0 million in
1999, 1998, and1997, respectively. The reserve for credit losses at December 31,
1999 was $1.7 million as compared to $0.8 million at December 31, 1998, and $1.3
million at December 31, 1997.
In 1999, 1998 and 1997, CAC repossessed 62, 77 and 92 homes, respectively. The
Company's inventory of repossessed homes was 28 homes at December 31, 1999, as
compared to 30 homes at December 31, 1998, and 50 homes at December 31, 1997.
The Company's net losses resulting from repossessions on CAC purchased loans as
a percentage of the average principal amount of such loans outstanding for
fiscal 1999, 1998 and 1997 was 7.83%, 5.01% and 2.27%, respectively.
At December 31, 1999 and December 31, 1998, delinquencies expressed as a
percentage of the total number of installment sale contracts which CAC owned
were as follows:
6
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<TABLE>
<CAPTION>
Delinquency Percentage
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Number
December 31, of Contracts 30 Days 60 Days 90 Days Total
--------------- -------------- --------------- -------------- --------
1999 290 1.03% 0.00% 0.00% 1.03%
1998 986 1.62% 0.41% 0.10% 2.13%
</TABLE>
At December 31, 1999 and December 31, 1998, delinquencies expressed as a
percentage of the total outstanding principal balance of installment sale
contracts which CAC owned were as follows:
<TABLE>
<CAPTION>
Delinquency Percentage
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Value
December 31, of Contracts 30 Days 60 Days 90 Days Total
---------------- ------------- --------------- -------------- --------
1999 $9,450,000 0.90% 0.00% 0.00% 0.90%
1998 $26,117,000 1.89% 0.58% 0.19% 2.66%
</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>
<CAPTION>
December 31,
-------------------------------------------------
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Total loans receivable $ 9,450,000 $ 26,117,000 $ 49,146,000
Allowance for credit losses $ 1,656,000 $ 760,000 $ 1,272,000
Number of loans outstanding 290 986 1,712
Number of delinquencies 3 21 43
Net loss ratio on average
outstanding principal balance 7.83% 5.01% 2.27%
Weighted average annual
percentage rate 11.2% 10.9% 10.9%
</TABLE>
During 1998, the business focus of CAC changed from building, holding and
servicing a portfolio of loans to purchasing loans from its dealers that are
subsequently resold to another financial institution without CAC retaining the
servicing function. Although the level of CAC's future activities cannot
presently be determined, the Company expects to utilize internally generated
working capital and amounts generated from sales of loans under the retail
finance agreement discussed in the following paragraph to fund the purchase of
retail installment sale contracts on homes sold by the Company's exclusive
dealers and may use borrowings under the Company's 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 develop a portfolio of such installment sale contracts. *
The Company believes that its relationships with its exclusive dealers will
assist the development of this business strategy. *
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CAC entered into an agreement with another lender providing for
the periodic resale of a portion of CAC's loans that meet established criteria
and without recourse (provided that the transferred loan was properly originated
by the dealer and purchased by CAC). In March 1998 and in June 1999, CAC sold,
under the retail finance agreement, a substantial portion of its existing
portfolio of loans on those dates. The effect of these transactions on net
income was to reduce the amount of financial services revenue from interest
income on these portions of the portfolio, offset by reduced interest expense on
debt retired in March 1998 and earnings on the remaining proceeds. The Company
may sell a substantial portion of its remaining installment loan portfolio in
fiscal year 2000, in addition to the periodic sale of installment contracts
- --------
* See Safe Harbor Statement on page 31. *
7
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purchased by CAC in the future. * The Company believes the periodic sale of
installment contracts under the retail finance agreement will reduce
requirements for both working capital and borrowings, increase the Company's
liquidity, reduce the Company's exposure to interest rate fluctuations and
enhance the ability of CAC to increase its volume of loan purchases. * There can
be no assurance, however, that additional sales will be made under this
agreement, or that CAC and the Company will be able to realize the expected
benefits from such agreement. *
Retail Insurance Activities
Through its wholly owned insurance agencies, the Company sells commissioned
insurance products to retail purchasers of the Company's homes, including
physical damage and extended home warranties. The Company also sells commercial
lines of insurance products, including general liability and property insurance,
to the Company's exclusive dealers and others. Additionally, personal line
products are sold to others.
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
1.9% of sales in 1999, (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, 1999, the Company's contingent liability under these
repurchase and other similar recourse agreements was an amount estimated to be
approximately $273 million. The Company has provided an allowance for possible
repurchase losses of $3.5 million as of December 3l, 1999, based on prior
experience and current market conditions.
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, are important elements in the market acceptance of manufactured homes.
The Company maintains a 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 regularly checks the
Company's manufactured homes for compliance during construction.
The Company provides the initial retail home buyer with a 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 plant
personnel, dealers or local independent contractors. Additionally, direct
warranties often are provided by the manufacturers of specific components and
appliances.
- --------
See Safe Harbor Statement on page 31.
8
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The Company employs a full-time service manager at each of its home
manufacturing units and 197 full-time service personnel to provide
administrative and on-site service and to 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 on reducing response time to customer
service requests. At December 31, 1999, the Company had established a reserve
for future warranty claims of $13 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,
repair service, product features and quality, reputation for service 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's business strategy currently includes the continued operation of
financial services provided through CAC. The Company believes that operations of
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, there can be no assurance that CAC will be able to expand its
operations or that it will have a positive impact on the Company's ability to
compete.
Regulation
The Company's businesses are 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 Company cannot presently
determine what, if any, legislation may be adopted by Congress or state or local
governing bodies, 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, wind loads
and energy conservation. The Company's operations were not materially affected
by the regulations; however, HUD and other state and local governing bodies have
these and other regulatory matters under continuous review, and the Company
cannot predict what effect (if any) additional regulations promulgated by HUD or
other state or local regulatory bodies would have on the Company or the
manufactured industry as a whole.
- --------
* See Safe Harbor Statement on page 31. *
9
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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. Regulations of the Federal Trade Commission also require
disclosure of a manufactured home's insulation specifications. Manufactured,
modular and site-built homes may be built with compressed board, wood 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. *
The transportation of manufactured homes on highways is subject to regulation by
various federal, state and local authorities. Such regulation may prescribe size
and road use limitations and impose lower than normal speed limits and various
other requirements.
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
stricter 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. The Equal Credit Opportunity Act and Regulation B promulgated
thereunder prohibit 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
- ---------
See Safe Harbor Statement on page 31. *
10
<PAGE>
also become subject to the reporting and 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 invalidity of the
particular contract for the affected consumer, civil liability to the affected
customers, criminal liability and other adverse results. The sale of insurance
products by the Company is subject to various state insurance laws and
regulations which govern allowable charges and other insurance practices.
Employees
As of December 31, 1999, the Company had 4,890 employees, of whom 4,029 were
engaged in home manufacturing and supply distribution, 122 in sales, 228 in
warranty and service, 373 in general administration, 4 in delivery, 48 in retail
finance and insurance services and 86 in retail locations. At year-end, only one
home manufacturing operation's employees (106 employees) were covered by a
collective bargaining agreement. Management considers its relations with its
employees to be good.
Risk Factors
If you are interested in making an investment in Cavalier, you should carefully
consider the following risk factors concerning Cavalier and its business, in
addition to the other information contained in this Report on Form 10-K:
Cyclical and Seasonal Nature of the Manufactured Housing Industry
The manufactured housing industry is highly cyclical and seasonal and has
experienced wide fluctuations in aggregate sales in the past, resulting in the
failure of many manufacturing concerns. Many of the same national and regional
economic and demographic factors that affect the broader housing industry also
affect the market for manufactured homes. Historically, most sectors of the home
building industry, including the manufactured housing industry, have been
affected by the following, among other things:
o changes in general economic conditions;
o inflation;
o levels of consumer confidence;
o employment and income levels;
o housing supply and demand;
o availability of alternative forms of housing;
o availability of financing; and
o the level and stability of interest rates.
The Manufactured Housing Institute ("MHI") reported that from 1983 to 1991,
aggregate domestic shipments of manufactured homes declined 42%. According to
industry statistics, after a ten-year low in floor shipments in 1991, the
industry recovered significantly. Between 1992 and 1998, floor shipments
increased each year, as set forth in the table below, although the growth rate
gradually slowed.
Percentage Increase in Floor Shipments Through 1998
o 1992............................21%
o 1993............................22%
o 1994............................23%
o 1995............................12%
o 1996............................10%
o 1997.............................1%
o 1998.............................8%
11
<PAGE>
Over the past several years, the manufactured housing industry has also
experienced increases in both the number of retail dealers and manufacturing
capacity, which we believe is currently resulting in slower retail turnover,
higher dealer inventories and increased price competition. * These conditions
significantly affected the industry in 1999. According to MHI, floor shipments
declined 4.3% in 1999 from 1998, and the decline accelerated in the second half
of the year and has continued through January 2000 (the latest information
available). In addition, a number of retail dealers have failed and
repossessions of manufactured homes have increased. Some manufactured housing
wholesale and retail lenders have also stopped doing business in the industry,
and some of the remaining lenders have raised their interest rates and tightened
their credit standards. We think more dealers may fail, repossessions may
continue to increase and more lenders may exit the market in the future. *
Sales in the manufactured housing industry are also seasonal in nature, with
sales of homes traditionally being stronger in April through October and weaker
during the first and last part of the calendar year. While seasonality did not
significantly impact Cavalier's business from 1992 through 1996, when industry
shipments were steadily increasing, the recent tightening of competitive
conditions seems to signal a return to the industry's traditional seasonal
patterns.
We cannot predict how long the tightening of competitive and industry conditions
will last, or what the extent of their impact will be on the future results of
operations and financial condition of Cavalier. Furthermore, because of the
cyclical and seasonal nature of the manufactured housing industry and the recent
increase in competitive conditions, Cavalier cannot assure its investors that
the manufactured housing industry is not in a down cycle, which could have a
material adverse effect on Cavalier's results of operations or financial
condition.
Limitations on Ability to Pursue Business Strategy Cavalier's current business
strategies are to:
o develop our exclusive and independent dealer network;
o develop the production and distribution of component parts for
manufactured housing;
o pursue implementation of an enterprise-wide management information
system;
o pursue the financing, insurance and other activities of CAC and the
financial services segment; and
o operate a limited number of Cavalier-owned retail locations.
Downturns in shipments in the manufactured housing industry and a decline in the
demand for Cavalier's homes could have a material adverse effect on us. Our
ability to execute our business strategy depends on a number of factors,
including the following:
o general economic and industry conditions;
o competition from other companies in the same business as us;
o our ability to attract, retain or sell to additional independent
dealers, especially, exclusive dealers;
o the availability of semi-skilled workers in the
areas in which our manufacturing facilities are located;
o the ability of CAC and the Company's insurance and component parts
operations to be competitive;
o the availability of capital and financing;
o the ability of our independent dealers and retail locations to compete
under current industry conditions; and
o the availability and terms of wholesale and retail financing from
lenders in the manufactured housing industry.
- --------
See Safe Harbor Statement on page 31. *
12
<PAGE>
There are other factors in addition to those listed above, many of which are
beyond our control. Cavalier cannot assure investors that our business strategy
will be successful. If our strategy is unsuccessful, this may have a material
adverse effect upon Cavalier's results of operations or financial condition. *
Limitations on Availability of Consumer and Dealer Financing
Third-party lenders generally provide consumer financing for manufactured home
purchases. Our sales depend in large part on the availability and cost of
financing for manufactured home purchasers and dealers as well as our own retail
locations. The availability and cost of such financing is further dependent on
the number of financial institutions participating in the industry, the
financial institutions' lending practices, the strength of the credit markets
generally, governmental policies and other conditions, all of which are beyond
our control. In addition, most states classify manufactured homes for both legal
and tax purposes as personal property rather than real estate. As a result,
financing for the purchase of manufactured homes is characterized by shorter
loan maturities and higher interest rates, and in certain periods such financing
is more difficult to obtain than conventional home mortgages. Unfavorable
changes in these factors and the current adverse trend in the availability and
terms of financing in the industry may have a material adverse effect on
Cavalier's results of operations or financial condition.
Dependence on Independent Dealers
Cavalier depends on independent dealers for substantially all retail sales of
our manufactured homes. Typically only one dealer within a given market area
distributes a particular product line of ours. Our relationships with our
dealers are cancelable on short notice by either party. The manufactured housing
industry has recently experienced a trend of increasing competition for quality
independent dealers. In addition, a number of dealers in the industry are
experiencing difficulty in the current market conditions. While we believe that
our relations with our independent dealers are generally good, we cannot assure
our investors that we will be able to maintain these relations, that these
dealers will continue to sell our homes, that these dealers will be successful,
or that we will be able to attract and retain quality independent dealers. *
Intense Competition
The production and sale of manufactured homes is a highly competitive industry,
characterized by low barriers to entry and severe price competition. Competition
is based primarily on the following factors:
o price;
o repair service;
o product features and quality;
o reputation for service and quality;
o depth of field inventory;
o delivery capabilities;
o warranty repair service;
o dealer promotions;
o merchandising; and
o terms of dealer and retail consumer financing.
In addition, Cavalier competes with other manufacturers, some of which maintain
their own retail sales centers, for independent dealers. Manufactured homes also
compete with other forms of low-cost housing, including site-built,
prefabricated and modular homes, apartments, townhouses and condominiums. We
face direct competition from numerous manufacturers, many of which possess
greater financial, manufacturing, distribution and marketing resources. As a
result of these competitive conditions, Cavalier may not be able to sustain past
levels of sales or profitability.
- --------
See Safe Harbor Statement on page 31. *
13
<PAGE>
Contingent Repurchase and Guaranty Obligations
Manufactured housing companies customarily enter into repurchase and other
recourse agreements with lending institutions which have provided wholesale
floor plan financing to dealers. Substantially all of Cavalier's sales are made
to dealers located primarily in the South Central and South Atlantic regions of
the United States pursuant to repurchase agreements with lending institutions.
These agreements generally provide that Cavalier will repurchase our products
from the lending institutions for the balance due them in the event such product
is repossessed upon a dealer's default. The risk of loss under repurchase
agreements is lessened by the fact that (1) sales of our manufactured homes are
spread over a relatively large number of independent dealers; (2) the price that
Cavalier is obligated to pay under such repurchase agreements generally declines
over the period of the agreement and also declines during such period based on
predetermined amounts; and (3) in many cases, Cavalier has been able to resell
homes repurchased from lenders in the ordinary course of business without
incurring significant losses. While we have established a reserve for possible
repurchase losses, we cannot assure investors that we will not incur material
losses in excess of these reserves in the future. *
Uncertainties Regarding Retail Financing Activities
Cavalier purchases retail installment finance loans that have been originated by
our independent exclusive dealers. We maintain a reserve for estimated credit
losses on installment sale contracts owned by CAC to provide for future losses
based on our historical loss experience, current economic conditions and
portfolio performance. It is difficult to predict with any certainty the
appropriate reserves to establish, and we cannot assure investors that CAC will
not experience losses that exceed Cavalier's loss reserves and have a material
adverse effect on Cavalier's results of operations and financial condition. *
Volatility or a significant change in interest rates might also materially
affect CAC's and Cavalier's business, results of operations or financial
condition.
Our strategy currently includes the continued operation of the financial
services segment of our business. Accordingly, we may incur additional debt, or
other forms of financing, in order to continue to fund such growth. We may also
engage in other transactions, such as selling or securitizing portions of our
installment loan portfolio, that are designed to facilitate the ability of CAC
to purchase and/or originate an increased volume of loans and to reduce our
exposure to interest rate fluctuations and installment loan losses. * Cavalier
has entered into such a transaction pursuant to the Retail Finance Agreement
discussed above under "Retail Finance Activities". Additionally, CAC has
periodically sold installment loan contracts throughout 1999 to another
financial institution under this agreement. The Company may sell a substantial
portion of its existing loan portfolio in 2000, in addition to the periodic sale
of loans purchased by CAC in the future, under the Retail Finance Agreement.
Cavalier believes the periodic sale of installment contracts under the Retail
Finance Agreement will reduce requirements for both working capital and
borrowings, increase Cavalier's liquidity, reduce Cavalier's exposure to
interest rate fluctuations and enhance the ability of CAC to increase its volume
of loan purchases. * However, we cannot assure investors that this agreement
will remain in effect, that additional sales will be made under this agreement
or that CAC or Cavalier will be able to realize the expected benefits from such
agreement. We also cannot offer any assurance that possible additional
financing, or the aforementioned transactions involving our installment loan
portfolio, will be available on terms acceptable to Cavalier. If not, we may
be forced to curtail our financial services business and to alter our other
strategies.
Uncertainties in Integrating Business Operations and Achieving Benefits of the
Belmont Merger
- --------
See Safe Harbor Statement on page 31. *
See Safe Harbor Statement on page 31. *
14
<PAGE>
On December 31, 1997, a wholly owned subsidiary of Cavalier
merged with and into Belmont, which is also a producer of manufactured housing.
For a more detailed description of Belmont and this transaction, you should
review Cavalier's Current Reports on Form 8-K dated August 20, 1997, December
11, 1997 and January 15, 1998 (as amended by Form 8-K/A dated March 16, 1998 and
Form 8-K/A dated March 17, 1998), and Cavalier's Registration Statement on Form
S-4 filed with the Commission on December 2, 1997 (Reg. No. 333-41319). The
acquisition of Belmont required the consolidation of functions and the
integration of departments, systems and procedures, which present significant
management challenges and are to some degree still ongoing. Although our primary
purpose in taking such actions was to realize direct cost savings and other
operating efficiencies, synergies and benefits, Cavalier cannot assure
stockholders of the extent to which or whether such cost savings, efficiencies,
synergies or benefits will be achieved.
Potential Unavailability and Increases in Prices of Raw Materials
The availability and pricing of certain raw materials, particularly lumber,
sheetrock, particle board and insulation may significantly affect Cavalier's
operating costs. Sudden increases in demand for these construction materials
caused by natural disasters or other market forces can greatly increase the
costs of materials or limit the availability of such materials. Increases in
costs cannot always be reflected immediately in prices, especially in
competitive times, and, consequently, may adversely impact Cavalier's
profitability. Further, a reduction in the availability of raw materials also
may affect our ability to meet or maintain production requirements.
Operations May Be Limited by the Availability of Manufactured Housing Sites
Any limitation on the growth of the number of sites for placement of
manufactured homes or on the operation of manufactured housing communities could
adversely affect the manufactured housing business. Manufactured housing
communities and individual home placements are subject to local zoning
ordinances and other local regulations relating to utility service and
construction of roadways. In the past, property owners often have resisted the
adoption of zoning ordinances permitting the location of manufactured homes in
residential areas, which Cavalier believes has adversely affected the growth of
the industry. We cannot insure investors that manufactured homes will receive
widespread acceptance or that localities will adopt zoning ordinances permitting
the location of manufactured home areas. The inability of the manufactured home
industry to gain such acceptance and zoning ordinances could have a material
adverse effect on our financial condition or results of operations.
Reliance on Executive Officers
Cavalier's success depends highly upon the personal efforts and abilities of its
current executive officers. Specifically, Cavalier relies on the efforts of its
Chairman of the Board, Barry B. Donnell, its President and Chief Executive
Officer, David A. Roberson, and its Vice President, Chief Financial Officer and
Secretary-Treasurer, Michael R. Murphy. The loss of the services of one or more
of these individuals could have a material adverse effect upon our business. We
do not have employment or non-competition agreements with any of our executive
officers. Our continued growth, including the expansion of CAC's business, will
depend upon our ability to attract and retain additional experienced management
personnel.
Potential Adverse Effects of Regulation
Cavalier is subject to a variety of federal, state and local laws and
regulations affecting the production, sale, financing and insuring of
manufactured housing. We suggest you read the section above under the heading
"Regulation" for a description of many of these laws and regulations. Cavalier's
failure to comply with such laws and regulations could expose us to a wide
variety of sanctions, including closing one or more manufacturing facilities.
Governmental bodies have regulatory matters affecting our operations under
continuous review and we cannot predict what effect (if any) additional laws and
regulations promulgated by HUD would have on us or the manufactured housing
industry as a whole. Failure to comply with laws or regulations applicable to or
affecting Cavalier, or the passage in the future of new and more stringent laws
affecting Cavalier, may adversely affect us.
15
<PAGE>
Compliance with Environmental Laws
Federal, state and local laws and regulations relating to the generation,
storage, handling, emission, transportation and discharge of materials into the
environment govern Cavalier's operations. In addition, third parties and
governmental agencies in some cases have the power under such laws and
regulations to require remediation of environmental conditions and, in the case
of governmental agencies and entities, to impose fines and penalties. The
requirements of such laws and enforcement policies have generally become
stricter in recent years. Accordingly, we cannot assure investors that we will
not be required to incur response costs, remediation expenses, fines, penalties
or other similar damages, expenses or liabilities, or to incur operational
shut-downs, business interruptions or similar losses, associated with compliance
with environmental laws and enforcement policies that either individually or in
the aggregate would have a material adverse effect on our results of operations
or financial condition.
Warranty Claims
Cavalier is subject to warranty claims in the ordinary course of its business.
Although we maintain reserves for such claims, which to date have been adequate,
there can be no assurance that warranty expense levels will remain at current
levels or that such reserves will continue to be adequate. A large number of
warranty claims exceeding our current warranty expense levels could have a
material adverse effect on Cavalier's results of operations.
Litigation
We suggest that you read Item 3., Legal Proceedings, below, for description of
certain risk factors associated with litigation.
Volatility of Stock Price
The Company's common stock is traded on the NYSE. The market price of the
Company's common stock may be subject to significant fluctuations in response to
variations in the Company's operating results and other factors affecting the
Company specifically, the manufactured housing industry generally, and the stock
market generally.
16
<PAGE>
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,
1999:
<TABLE>
<S> <C> <C> <C>
Location Use (Number of Facilities) Approximate Owned/
Manufacturing & Distribution Square Footage Leased (a)
Adrian Homes
Adrian, Georgia Manufacturing facility (1) 90,000 Owned
Astro Homes
Shippenville, Pennsylvania Manufacturing facility (1) 120,000 Owned
Bellcrest Homes, Inc.
Millen, Georgia Manufacturing facilities (2) 164,000 Owned
Belmont Homes, Inc.
Belmont Mississippi Manufacturing facilities (3) 498,000 Owned
Clarksdale, Mississippi Manufacturing facility (1) 91,000 Owned
BRC Components, Inc.
Phil Campbell, Alabama Distribution facility (1) 50,000 Leased
Salisbury, North Carolina Distribution facility (1) 60,000 Leased
Hillsboro, Texas Distribution facility (1) 42,500 Owned
Brigadier Homes of North Carolina
Nashville, North Carolina Manufacturing facility (1) 170,000 Owned
Buccaneer Homes
Hamiliton, Alabama Manufacturing facility (1) 195,000 Owned
Winfield, Alabama Manufacturing facilities (2) 205,000 Leased
Cavalier Homes of Alabama
Addison, Alabama Manufacturing facilities (4) 545,000 Owned (b)
Homestead Homes
Cordele, Georgia Manufacturing facility (1) 110,000 Owned
Mansion Homes
Robbins, North Carolina Manufacturing facility (1) 99,000 Leased
Quality Housing Supply, LLC
Hamiliton, Alabama Manufacturing facility (1) 50,000 Leased
Winfield, Alabama Distribution facility (1) 48,000 Leased
Riverchase Homes
Haleyville, Alabama Manufacturing facility (1) 78,000 Owned
Spirit Homes, Inc.
Conway, Arkansas Manufacturing facilities (2) 220,000 Owned
Bigelow, Arkansas Manufacturing facility (1) 80,000 Owned
Town & Country Homes
Fort Worth, Texas Manufacturing facility (1) 101,000 Owned
Mineral Wells, Texas Manufacturing facility (1) 81,000 Leased
Graham, Texas Manufacturing facility (1) 103,000 Leased
Financial Services
Hamilton, Alabama Administrative Office 7,000 Owned
Haleyville, Alabama Administrative Office 1,000 Leased
Greensboro, North Carolina Administrative Office 2,000 Leased
General Corporate & Other
Addison, Alabama Administrative Office 8,000 Owned
Wichita Falls, Texas Administrative Office 1,000 Leased
Decatur, Alabama Administrative Office 5,000 Leased
Haleyville, Alabama Administrative Office 4,000 Leased
</TABLE>
(a) Certain of the facilities listed as owned are financed under industrial
development bond issues, including the Adrian, Buccaneer, Cavalier Homes of
Alabama (2), and Riverchase facilities. Not included in this table is the
Georgia facility for which construction is not complete.
(b) During 1999, the Company purchased two of these manufacturing facilities
that were previously leased.
In general, the manufacturing facilities are in good condition and are operated
at capacities which range from approximately 28% to 93%, excluding six idled
facilities in Addison and Winfield, Alabama, Bigelow, Arkansas, Belmont and
Clarksdale, Mississippi, and Mineral Wells, Texas, and the facility in Adrian,
Georgia, which began production in March 1999.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in various legal proceedings that
are incidental to and arise in the course of its business. Certain of the cases
filed against the Company and its subsidiaries and companies engaged in
businesses similar to it allege, among other things, breach of contract and
warranty, product liability, personal injury and fraudulent, deceptive or
collusive practices in connection with their businesses. These kinds of suits
are typical of suits that have been filed in recent years, and they sometimes
seek certification as class actions, the imposition of large amounts of
compensatory and punitive damages and trials by jury. The outcome of many of the
cases in which the Company is involved or may in the future become involved
cannot be predicted with any degree of reliability, and the potential exists for
unanticipated material adverse judgments against the Company and its respective
subsidiaries.
In addition, Belmont has been sued by three former shareholders (the
"Plaintiffs") of Belmont Homes, Inc., an Alabama corporation which originally
owned the initial Belmont manufacturing facility ("BHIA"), in the Circuit Court
of Madison County, Alabama (Case Number CV 97-2297). The defendants are BHIA,
Belmont (as a successor in interest of BHIA), BHI, Inc., as a successor to
Belmont Homes, Inc., a Mississippi corporation ("BHI"), the Estate of Jerold
Kennedy (the former President and Chief Executive Officer of Belmont), J. M.
Page, and certain other unnamed and unidentified individual officers, employees,
agents and directors of BHIA, Belmont and BHI, alleging breach of fiduciary
duties, misrepresentation, deceit, suppression and civil conspiracy. The
Plaintiffs state that they owned a majority of the stock in BHIA and sold such
stock in February of 1989. In addition to certain other allegations, the
Plaintiffs claim that Mr. Kennedy, along with others who allegedly conspired
with him, misrepresented and omitted certain facts to them regarding his
attempts to hire a production manager, that Belmont later hired the production
manager, and that the Plaintiffs would not have sold their stock in BHIA in the
absence of these alleged misrepresentations and omissions. Additionally, the
Plaintiffs claim that the defendants intentionally depreciated the market value
of the stock of BHIA. In their complaint, the Plaintiffs request an unspecified
amount of compensatory and punitive damages and/or equitable relief, including a
constructive trust. The Company is aware that these same plaintiffs have also
filed a separate claim against the Estate of Mr. Kennedy in the probate court of
Franklin County, Alabama (Case Number 97-051), alleging essentially the same
facts and seeking substantial compensatory damages and punitive damages and a
constructive trust over the stock in the various Belmont entities owned by Mr.
Kennedy`s estate. The Circuit Court of Madison County, Alabama, has transferred
the Madison County action to the Circuit Court of Franklin County, Alabama. The
Circuit Court of Franklin County has granted summary judgment in favor of the
defendants on all counts asserted in the plaintiff's complaint. The plaintiffs
have appealed this decision, and the appeal is currently pending before the
Alabama Court of Civil Appeals. The outcome of this litigation and its effect on
the Company cannot presently be determined, and the possibility exists for an
adverse resolution of the litigation which could have a material adverse effect
on the results of operations and financial condition of the Company in the
quarter and year in which any such adverse resolution occurs. *
In September 1998, the Company and certain of its subsidiaries, along with a
number of other manufactured housing producers, the Manufacturing Housing
Institute, and the Manufactured Housing Association for Regulatory Reform, were
named as defendants in a lawsuit purporting to be brought on behalf of all
Kentucky residents who own manufactured homes produced by the defendants. The
complaint was filed in the Commonwealth of Kentucky Pendleton Circuit Court,
Case No. 98-CI-00143, and alleges that the defendants engaged in wrongful
conduct and fraudulent misrepresentation and concealment, and that manufactured
housing units are unsafe and/or dangerous for residential use because their
design allegedly makes them more susceptible to fire. The plaintiffs seek
compensatory and punitive damages, a requirement to retrofit manufacturing
housing units with sprinkler systems, and other equitable and legal relief. The
Commonwealth of Kentucky Pendleton Circuit Court granted defendants' motion to
dismiss during the second quarter of 1999. The plaintiffs have appealed the
dismissal, and the appeal is currently pending before the Kentucky Court of
- --------
See Safe Harbor Statement on page 31. *
18
<PAGE>
Appeals. The outcome of this litigation and its effect on the Company cannot
presently be determined, however, and the possibility exists for an adverse
resolution of the litigation, which could have a material adverse effect on the
results of operations and financial condition of the Company. *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the last
quarter of the fiscal year.
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. All adjusted prices of the Company's common stock have been rounded to
the nearest one-eighth of one dollar.
<TABLE>
<CAPTION>
Closing Sales Price
-----------------------------------
High Low Dividends
----------------- ---------------- -------------
<S> <C> <C> <C>
Year ended December 31, 1999
Fourth Quarter $ 5 1/8 $ 3 11/16 $ 0.040
Third Quarter $ 6 7/8 $ 3 11/16 0.040
Second Quarter $10 $ 6 13/16 0.040
First Quarter $11 3/8 $ 8 3/4 0.040
Year ended December 31, 1998
Fourth Quarter $11 3/8 $ 7 7/8 $ 0.040
Third Quarter $13 $ 9 1/16 0.030
Second Quarter $12 11/16 $10 7/8 0.030
First Quarter $11 13/16 $ 9 5/8 0.030
</TABLE>
As of March 17, 2000, the Company had approximately 400 shareholders of record
and 5,200 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.
Cavalier has paid regular quarterly dividends since 1989. The amount of the
quarterly dividend was last increased to $0.04 per share in October 1998. The
payment of dividends on the Company's common stock will be 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 consolidated
net income for the two most recent fiscal years. Given current industry
conditions, the Company cannot give assurances that it will pay dividends in the
future in the same manner as it has in the past.
- --------
See Safe Harbor Statement on page 31. *
19
<PAGE>
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, 1999, have been derived from the consolidated financial statements
of the Company. The Company's audited financial statements as of December 31,
1999 and 1998, and for each of the years in the three-year period ended December
31, 1999, 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.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Revenue:
Home manufacturing net sales $ 555,756 $ 598,116 $ 553,730 $ 572,997 $ 420,519
Financial services 6,107 6,088 5,346 3,333 1,764
Retail 20,914 7,167 - - -
Supply 5,023 2,699 2,112 841 271
---------- ----------- ----------- ----------- -----------
Total revenue 587,800 614,070 561,188 577,171 422,554
Cost of sales 477,527 496,708 464,222 482,204 354,811
Selling, general and administrative 102,754 87,611 72,526 54,120 39,035
Impairment Special charge for idled
facilities 4,002 - - - -
Non-recurring merger and related - 7,359 -
costs - - - - -
---------- ----------- ----------- ----------- -----------
Operating profit 3,517 29,751 17,081 40,847 28,708
Life insurance proceeds - - 1,500 1,750 -
Other income (expense) - net 36 1,531 (242) 1,589 90
---------- ----------- ----------- ----------- -----------
Income before taxes $ 3,553 $ 31,282 18,339 $ 44,186 $ 28,798
========== =========== =========== =========== ===========
Net income $ 2,150 $ 18,655 $ 10,247 $ 27,479 $ 17,630
========== =========== =========== =========== ===========
Basic net income per share1 $ .12 $ .94 $ .52 $ 1.42 $ 1.06
========== =========== =========== =========== ===========
Diluted net income per share1 $ .12 $ .93 $ .51 $ 1.39 $ 1.03
========== =========== =========== =========== ===========
Cash dividend per share1 $ .16 $ .13 $ .07 $ .06 $ .04
========== =========== =========== =========== ===========
Weighted average number of shares
outstanding1 18,126 19,905 19,835 19,363 16,630
========== =========== =========== =========== ===========
Weighted average number of shares
outstanding, assuming dilution1 18,204 20,144 20,028 19,799 17,057
========== =========== =========== =========== ===========
Other Data
Capital expenditures $ 24,546 $ 14,655 $ 10,186 $ 16,106 $ 13,482
========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $ 32,652 $ 41,707 $ 28,484 $ 24,746 $ 22,157
Total assets $ 229,574 $ 235,952 $ 211,554 $ 196,387 $ 132,694
Long-term debt $ 10,218 $ 3,650 $ 15,808 $ 6,227 $ 11,233
Stockholders' equity $ 129,391 $ 144,911 $ 133,551 $ 122,652 $ 75,119
1 All per share data has been adjusted for all stock splits.
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Industry and Company Outlook
Cavalier Homes, Inc. and its subsidiaries are engaged in the production, sale,
financing, and insuring of manufactured housing. The manufactured housing
industry is cyclical and seasonal and is influenced by many of the same economic
and demographic factors that affect the housing market as a whole. During most
of the 1990s, the manufactured housing industry experienced significant growth,
which the Company attributes in part to a reduction in alternative housing,
increased availability of retail financing, increased consumer confidence and
continuing strength in the national economy during much of that time. As a
result, the number of retail dealerships, manufacturing capacity and wholesale
shipments expanded significantly, which consequently created slower retail
turnover, higher retail inventory levels and increased price competition.
Inventory oversupply at the retail level had a significant impact on wholesale
shipments during 1999. The Manufactured Housing Institute ("MHI") reported that
floor shipments declined 4.3% for 1999 as compared to 1998. The rate of decline
in floor shipments accelerated throughout the year, as MHI reported 12.2% fewer
shipments in the last six months of 1999 versus the same period in 1998 and
18.2% lower floor shipments in December 1999 compared to December 1998. The
industry has also been impacted by the loss of some lenders from the
manufactured housing retail and wholesale financing markets and tightening of
credit standards by those remaining. In response to deteriorating market
conditions, manufacturers have closed or idled some of their manufacturing
facilities and retail dealers have closed some locations.
Industry conditions significantly impacted Cavalier's financial results during
1999. The Company is uncertain at this time as to the extent and duration of
these developments and as to what effect these factors will have on the
Company's future sales and earnings. * The Company currently believes these
conditions will continue to adversely affect the Company's financial performance
at least through the first half of 2000. * The Company is experiencing a
significant decline in sales in the first quarter of 2000 as compared to the
first quarter of 1999 and expects to incur a substantial loss for the quarter. *
The Company also believes that, due to these industry conditions, the
possibility exists for some additional retail dealer failures and additional
loss of wholesale and retail lenders, which could adversely affect the Company.
* Because of deteriorating market conditions, Cavalier has idled a total of five
home manufacturing facilities, including three subsequent to the end of 1999,
that built primarily single section homes to consolidate production into other
plants. In 1999, the Company recorded a pre-tax impairment charge of $4.0
million ($2.5 million after tax, or $.14 per diluted share) to write-down the
value of assets of the idled plants. The Company expects to continue to monitor
the need for further plant consolidations, idlings and/or closings and to
evaluate other potential cost savings options identified through a company-wide
analysis designed to mitigate the impact of current market conditions. * The
Company can give no assurance as to which one or more of these options, if any,
it may ultimately adopt.
- --------
See Safe Harbor Statement on page 31. *
21
<PAGE>
Results of Operations
The following table (dollars in thousands) summarizes certain financial and
operating data including, as applicable, the percentage of total revenue:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------------
INCOME STATEMENT DATA 1999 1998 1997
---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 555,756 $ 598,116 $ 553,730
Financial services 6,107 6,088 5,346
Retail 20,914 7,167 -
Other 5,023 2,699 2,112
----------- --------- ----------
Total revenue $ 587,800 100.0% $ 614,070 100.0% $ 561,188 100.0%
Cost of sales 477,527 81.2% 496,708 80.9% 464,222 82.7%
----------- -------- --------- ----------- ---------- ---------
Gross profit $ 110,273 18.8% $ 117,362 19.1% $ 96,966 17.3%
=========== ======== ========= =========== ========== =========
Selling, general and administrative $ 102,754 17.5% $ 87,611 14.3% $ 72,526 12.9%
Impairment charge for idled facilities $ 4,002 0.7% $ - 0.0% $ - 0.0%
Non-recurring merger and related costs $ - 0.0% $ - 0.0% $ 7,359 1.3%
Operating profit $ 3,517 0.6% $ 29,751 4.8% $ 17,081 3.0%
Other income (expense), net $ 36 0.0% $ 1,531 0.2% $ 1,258 0.2%
Net income $ 2,150 0.4% $ 18,655 3.0% $ 10,247 1.8%
OPERATING DATA
Home manufacturing sales:
Floor shipments 34,294 36,517 33,646
Home shipments
Single section 10,546 47.1% 12,430 51.0% 13,576 57.5%
Multi section 11,831 52.9% 11,957 49.0% 10,026 42.5%
----------- -------- --------- ----------- ---------- ---------
Total shipments 22,377 100.0% 24,387 100.0% 23,602 100.0%
Shipments to company owned stores (645) (2.9%) (164) (0.7%) - 0.0%
----------- -------- --------- ----------- ---------- ---------
Shipments to independent dealers 21,732 97.1% 24,223 99.3% 23,602 100.0%
=========== ======== ========= =========== ========== =========
Retail sales:
Single section 375 58.3% 70 37.2% - 0.0%
Multi section 268 41.7% 118 62.8% - 0.0%
----------- -------- --------- ----------- ---------- ---------
Total sales 643 100.0% 188 100.0% - 0.0%
=========== ======== ========= =========== ========== =========
Cavalier produced homes sold 490 76.2% 121 64.4% - 0.0%
=========== ======== ========= =========== ========== =========
Used homes sold 115 17.9% 26 13.8% - 0.0%
=========== ======== ========= =========== ========== =========
Installment loan purchases $ 47,063 $ 27,438 $ 18,013
Capital expenditures $ 24,546 $ 14,655 $ 10,186
Home manufacturing facilities-operating 19 23 22
Independent exclusive dealer locations 274 232 132
Company-owned retail locations 16 5 -
</TABLE>
1999 compared to 1998
Revenue
Total revenue for 1999 was $587,800 compared to $614,070 for 1998.
Home manufacturing net sales for 1999 compared to 1998 decreased 7%, or $42
million, to $556 million, net of intercompany eliminations of $17 million. Home
shipments decreased 8.2%, with floor shipments decreasing by 6.1%. During 1999,
53% of the Company's homes sold were multi-section homes compared to 49% for the
previous year. The expansion of the Company's multi-section product base is in
response to increasing consumer demand for multi-section homes as compared to
single section homes. Actual shipments of homes for 1999 were 22,377 versus
24,387 in 1998. The Company attributes the decrease in sales and shipments to
the increasingly competitive conditions in the industry described above.
Approximately 88% of Cavalier's shipments were to its core market of 11 states,
where the Company's floor shipments for 1999 declined 6.5% as compared to 1998.
For 1999, MHI reported an 8.7% decline in floor shipments in these 11 states.
Additionally, the Company's inventory at all retail locations increased, based
22
<PAGE>
on twelve month trailing sales, from 151 days a year ago to 165 days at year
end. The average price of homes sold rose to $25,600 in 1999 from $24,700 in
1998. The increase in the average selling price was primarily due to price
increases instituted by the Company associated with rising prices in raw
materials and an increase in the shipment of multi-section homes. The Company's
exclusive dealer program expanded by 53 locations since December 31,1998,
bringing the total to 290 at December 31, 1999, including 16 company-owned
stores. Sales to exclusive dealers represented 55% of total sales in 1999 versus
40% in 1998.
Revenue in 1999 from the financial services segment approximated 1998 revenue.
During 1999, Cavalier Acceptance Corporation ("CAC") purchased installment loan
contracts of $47 million and sold $61 million of installment contracts. In 1998,
CAC purchased contracts of $27 million and sold installment contracts totaling
$46 million. During 1998, the focus of CAC's business changed from building,
holding and servicing a portfolio of loans to purchasing loans from its dealers,
which are then resold to another financial institution, without recourse
(provided that the transferred loan was properly originated by the dealer and
purchased by CAC). CAC does not retain the servicing function and does not earn
the interest income on these resold loans.
Revenue from the retail segment was $21 million for 1999, of which 76% of the
units sold were Cavalier product. In 1998, retail revenue was $7 million, of
which 64% of the units sold were Cavalier product. At December 31, 1999, the
Company operated 16 retail locations as compared to 5 at December 31, 1998.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses, which sell primarily to the Company's home
manufacturing segment. Revenue from external customers increased 86%, or $2
million, for 1999 compared to 1998. This increase is due primarily to the
addition of a supply company.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $110 million, or 18.8% of total revenue, in 1999 versus $117 million,
or 19.1% of total revenue, in 1998. During 1999, the Company experienced
tightened supply from its traditional vendors of certain types of raw materials,
including sheetrock, insulation and lumber, required for production of its
homes. The Company obtained these products from other vendors and purchased
substitute products, which resulted in higher than normal costs. Due to the
competitive industry conditions, some of these costs were not recoverable
through price increases.
Selling, General and Administrative
Selling, general and administrative expenses during 1999 were $103 million or
17.5% of total revenue, versus $88 million or 14.3% in 1998, an increase of $15
million. Of this increase, $1.9 million is related to expanded sales and
marketing efforts, including PowerHouse promotions, and recruiting, set-up and
maintenance of the exclusive dealer network. Additionally, selling, general and
administrative expenses increased $2.0 million due to higher costs for employee
benefits, $0.8 million for increased warranty service activities and $3.1
million for the start-up costs associated with implementing an enterprise-wide
management information system. Other factors contributing to the increase in
selling, general and administrative expenses are (1) costs of $3.4 million
associated with operating new retail locations and the continued development of
a retail infrastructure, (2) costs associated with the expansion of the supply
distribution business of $1.6 million, (3) $2.8 million of costs associated with
repurchased inventory, (4) $0.9 million increase in loan loss reserve, and (5)
$0.3 million in costs of opening an additional home manufacturing facility.
These costs were partially offset by a reduction in incentive compensation of
$4.1 million.
Impairment charge for idled facilities
Because of deteriorating market conditions, Cavalier has idled a total of five
home manufacturing facilities, including three subsequent to the end of 1999,
that built primarily single section homes to consolidate production into other
plants. In 1999, the Company recorded a pre-tax impairment charge of $4.0
million ($2.5 million after tax, or $.14 per diluted share) to write-down the
value of assets of the idled plants.
23
<PAGE>
Operating Profit
Operating profit is derived by deducting cost of sales and selling, general and
administrative expenses from total revenue. Operating profit declined $26
million to $4 million in 1999 from $30 million in 1998.
Home manufacturing operating profit declined $18 million, before intercompany
eliminations, due primarily to lower sales, increased raw material prices,
increased selling, general and administrative expenses and the impairment charge
for idled facilities. Financial services operating profit decreased $2 million
due principally to increased selling, general and administrative expenses,
consisting primarily of prepayment and repossession costs and payroll costs due
to the addition of area sales personnel. The retail segment's operating loss
increased $1.5 million due to the operation of start-up retail locations, the
continued development of a retail infrastructure and the competitive conditions
currently prevailing in the industry. Other operating profit declined $1.8
million, before intercompany eliminations, due mainly to the costs associated
with the start-up of a new supply company.
Other Income (Expense)
Interest expense increased to $2 million in 1999 from $1 million in 1998 due to
the increase in notes payable under retail floor plan agreements and amounts
outstanding under Industrial Development Revenue Bond Issues.
Other, net, is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. The decrease of $0.7 million in 1999 to $1.7 million from
$2.4 million in 1998 was primarily due to decreased interest income earned due
to lower average cash balances during 1999 as compared to 1998.
Net Income
Net income declined $17 million to $2 million in 1999 from $19 million in 1998
which the Company attributes to lower sales, increased raw materials prices and
selling, general and administrative expenses, the impairment charge and the
other industry factors discussed above. Diluted net income per share was $0.12
in 1999, compared to $0.93 per share in 1998.
1998 compared to 1997
Revenue
Home manufacturing net sales for 1998 as compared to 1997 increased by 8%, or
$44 million, net of intercompany elimination of $5 million, with home shipments
increasing by 3.3%. During 1998, 49% of the Company's homes sold were
multi-section homes compared to 42% for the previous year. As the sale of
multi-section homes continued to increase, the number of floors sold in 1998
increased 8.5% from 1997. The expansion of the Company's multi-section product
base is in response to increasing consumer demand for multi-section homes. At
year end, the exclusive dealer distribution system had grown to 237 exclusive
dealer locations, including five Company-owned retail locations. Sales to
exclusive dealers represented 40% of total 1998 sales compared to 30% in 1997.
The Company attributes the strong growth in its Exclusive Dealer Program to
dealer acceptance of the program's benefits and the introduction of the program
to the Belmont group of dealers. Actual shipments of homes during 1998 were
24,387 versus 23,602 in 1997. The average price of homes sold rose to $24,700 in
1998 from $23,500 in 1997. The increase in the average selling price was
primarily due to price increases instituted by the Company associated with
rising prices in raw materials and an increase in the shipment of multi-section
homes.
24
<PAGE>
Revenue from the financial services segment increased $0.7 million in 1998 as
compared to 1997 primarily due to a gain on the sale of a significant portion of
CAC's loan portfolio in 1998 and the subsequent periodic resale of loans. In
1998, the effect of the portfolio sale on financial services revenue was a
reduction in interest income earned of $1.4 million, offset by the gain on sale
of loans of $2 million. During 1998, the business focus of CAC changed from
building, holding and servicing a portfolio of loans to purchasing loans from
its dealers that are subsequently resold to another financial institution,
without recourse (provided that the transferred loan was properly originated by
the dealer and purchased by CAC). CAC does not retain the servicing function and
does not earn interest income on these resold loans. During 1998, CAC purchased
contracts totaling $27 million as compared to $18 million in 1997.
Revenue from the retail segment was $7 million for 1998, of which 64% of the
units sold were Cavalier product. The Company did not own any retail sales
centers in 1997. At December 31, 1998, the Company operated 5 retail locations.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses, which sell primarily to the Company's home
manufacturing segment. Revenue from external customers increased 28%, or $0.6
million, for 1998 compared to 1997. This increase is due primarily to the
addition of a supply company.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $117 million, or 19.1% of total revenue, in 1998 versus $97 million,
or 17.3% of total revenue, in 1997. The Company believes an increase in total
revenue and cost savings due to increased purchasing and other efficiencies
after the Belmont merger are responsible for a significant portion of this
increase.
Selling, General and Administrative
Selling, general and administrative expenses during 1998 were $88 million, or
14.3% of total revenue, compared to $73 million, or 12.9% of total revenue, in
1997, an increase of $15 million as compared to 1997. Of this increase, $4.5
million is related to broadened sales and marketing efforts, including
recruiting, set-up and maintenance of the exclusive dealer network, and the
continued development of a retail infrastructure. Additionally, selling, general
and administrative expenses increased $1.4 million due to higher costs for
employee benefits, primarily health insurance, $1 million for increased warranty
service activities and $0.7 million for the start-up costs associated with
implementing an enterprise-wide management information system. Other factors
contributing to the increase in selling, general and administrative expenses are
the costs associated with retail acquisitions, opening an additional home
manufacturing facility and the expansion of the supply distribution business.
Operating Profit
Operating profit is derived by deducting cost of sales and selling, general and
administrative expenses from total revenue. Operating profit improved $13
million to $30 million in 1998 from $17 million in 1997. Home manufacturing
operating profit improved $2.5 million due to an increase in sales and cost
savings associated with increased purchasing and other efficiencies after the
Belmont merger. Financial services operating profit improved $0.2 million due to
a gain on the sale of a significant portion of CAC's loan portfolio, offset by
reduced interest income on the portion of the portfolio sold. Additionally,
operating profit improved due to the absence of a $7.4 million non-recurring
merger charge in 1997.
Other Income (Expense)
Interest expense decreased in 1998 from 1997 due to the March 1998 retirement of
the financial services debt which was paid with the proceeds from the sale of a
portion of CAC's loan portfolio, as well as the payoff in September 1997 of debt
that had been used to support the 1996 Bellcrest acquisition, offset by floor
plan interest in 1998 incurred in connection with the Company-owned retail sales
locations.
25
<PAGE>
Other, net, is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. The increase of $1.1 million in 1998 as compared to 1997 was
primarily due to increased interest income on earnings from the cash proceeds
from the sale of a portion of CAC's loan portfolio.
Net Income
Net income improved $8.5 million to $18.7 million in 1998 from $10.2 million in
1997 due primarily to an increase in total revenue, the cost savings associated
with increased purchasing and other efficiencies after the Belmont merger and
the absence of the non-recurring merger charge of $6.5 million net of taxes.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Balances as of December 31,
----------------------------------
(Dollars in thousands) 1999 1998 1997
----------- -------- ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 39,635 $ 64,243 $ 37,276
Certificates of deposit, maturing within one year $ - $ - $ 4,000
Working capital $ 32,652 $ 41,707 $ 28,484
Current ratio 1.4 to 1 1.5 to 1 1.5 to 1
Long-term debt $ 10,218 $ 3,650 $ 15,808
Ratio of long-term debt to equity 1 to 13 1 to 40 1 to 8
Installment loan portfolio $ 9,450 $ 26,117 $ 49,146
</TABLE>
Operating activities during 1999 used net cash of $6.5 million. Inventory at
December 31, 1999, increased $11.3 million from 1998 due primarily to the
expansion of the retail segment from five company-owned stores at the end of
1998 to 16 at the end of 1999.
Net cash totaling $4.4 million was paid during the first half of 1999 in
connection with acquisitions of seven retail locations, an insurance agency, a
premium finance company and a supply company.
The Company's 1999 capital expenditures were $24.5 million, as compared to $14.7
million in 1998. Capital expenditures during 1999 included normal property,
plant and equipment additions and replacements and the continued expansion and
modernization of certain of the Company's manufacturing facilities.
Additionally, during January 1999, the Company purchased, for a total of $3.4
million, two Alabama manufacturing facilities that were previously leased, and
renovated a Georgia manufacturing facility at a cost of $1.7 million that was
placed in operation at the end of the first quarter. Approximately $3.5 million
of the cost of implementing a new enterprise-wide management information system
has been capitalized in 1999. Due to current market conditions, construction of
an additional manufacturing facility in Georgia, for which the Company
capitalized $2.4 million in early 1999, has been temporarily slowed. In addition
to the periodic resale of loans, the Company's finance subsidiary, CAC, sold $16
million of its existing installment contracts portfolio to another financial
institution.
The 1999 increase in long-term debt of $6.6 million is primarily due to the
assumption of an industrial development revenue bond in the amount of $0.8
million related to the Alabama facilities acquired and proceeds from two other
industrial development bonds of $7.0 million for the Georgia facilities. Notes
payable increased $11.4 million due to the increase in retail floor plan
financing as a result of the acquisition or opening of additional retail
locations.
The Company purchased 1,779,000 shares of treasury stock during 1999 for $15.7
million. The Company has authorization to acquire up to 1.4 million additional
shares under the program.
As of December 31, 1998, the Company had working capital of $42 million compared
to $28 million at the end of 1997, an increase of $14 million. The 1998 increase
in working capital and the decreases in long-term debt and the debt to equity
ratio were due to the sale of a portion of CAC's installment loan portfolio, of
which a portion of the proceeds were used to retire approximately $14 million in
debt and approximately $13 million was invested in short-term assets. Operating
26
<PAGE>
activities provided cash of $37 million in 1998. The Company's capital
expenditures were approximately $15 million in 1998. Capital expenditures during
1998 included normal property, plant and equipment additions and replacements,
the continued expansion and modernization of certain of the Company's
manufacturing facilities, as well as the purchase of a Texas manufacturing
facility that was previously leased, land adjacent to a North Carolina and a
Georgia manufacturing facility, and an additional manufacturing facility in
Georgia placed in operation in the first quarter of 1999. The Company initiated
a stock repurchase program during the latter part of 1998 of which 852,600
shares were purchased during 1998 for approximately $8 million.
The Company entered into a credit agreement with its primary lender in February
1994 and later amended it in March 1996 and June 1998. The credit facility
presently consists of a $35 million revolving, warehouse and term-loan
agreement. 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 $10 million. Interest is payable under the
revolving line of credit at the bank's prime rate, or, if elected by the
Company, the 90-day LIBOR Rate plus 2.5%. 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
$25 million. Interest on the 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 1.95%, with a floating
rate for the remaining two years (subject to certain limits) equal to the bank's
prime rate plus 0.75%. The warehouse component of the credit facility provides
for borrowings of up to $25 million with interest payable at the bank's prime
rate, or, if elected by the Company, the 90-day LIBOR Rate plus 2.5%. However,
in no event may the aggregate outstanding borrowings under the warehouse and
term-loan agreement exceed $25 million. Under the credit facility, no amounts
were outstanding at December 31, 1999 and December 31, 1998.
The credit facility contains certain restrictive covenants which limit, among
other things, the Company's ability to (i) make dividend payments and purchases
of treasury stock in an aggregate amount which exceeds 50% of consolidated net
income for the two most recent years, (ii) mortgage or pledge assets which
exceed, in the aggregate, $1 million, (iii) incur additional indebtedness,
including lease obligations, which exceed in the aggregate $10 million and (iv)
make capital expenditures in excess of $14 million. In addition, the credit
facility contains certain financial covenants requiring the Company to maintain
on a consolidated basis certain defined levels of net working capital (at least
$3.5 million), tangible net worth (which must increase at least $2 million per
year, subject to a carryover for increases in excess of $2 million in the prior
year), debt to equity ratio (not to exceed 2 to 1) and cash flow to debt service
ratio (not less than 1.5 to 1). The credit facility also requires CAC to comply
with certain specified restrictions and financial covenants. The Company has
obtained appropriate waiver letters to the extent it was in violation of certain
covenants at December 31, 1999.
On February 29, 2000, the Company received a commitment from its primary bank to
extend its Credit Facility through April 2002. The renewal increases the amount
available under the revolving line of credit to $35 million (an increase from
$10 million), provided that the aggregate amounts outstanding under the
revolving note and term loans do not exceed $35 million, eliminates the
warehouse feature of the Credit Facility and provides for the ability to convert
the amount advanced under the revolving line to a term loan. Interest is payable
under the terms of the renewal at the bank's prime rate less 0.5%, or, if
elected by the Company, the 90-day LIBOR Rate plus 2.0%. The principal
modifications to the financial covenants under the commitment letter are as
follows: (i) the net working capital requirement increased from at least $3.5
million to at least $15 million, (ii) a minimum current ratio requirement of
1.17 to 1was added, (iii) the sum of consolidated tangible net worth plus
treasury stock purchases must be at least $90 million and (iv) the ratio of
consolidated cash flow to debt service of not less than 1.5 to 1was amended to
not less than 1.75 to 1. Other terms and restrictive covenants are substantially
similar to the expiring agreement.
27
<PAGE>
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CAC entered into an agreement with another lender providing for
the periodic resale of a portion of CAC's loans that meet established criteria
and without recourse (provided that the transferred loan was properly originated
by the dealer and purchased by CAC). In March 1998 and in June 1999, CAC sold,
under the retail finance agreement, a substantial portion of its existing
portfolio of loans on those dates. The effect of these transactions on net
income was to reduce the amount of financial services revenue from interest
income on these portions of the portfolio, offset by reduced interest expense on
debt retired in March 1998 and earnings on the remaining proceeds. The Company
may sell a substantial portion of its remaining installment loan portfolio in
fiscal year 2000, in addition to the periodic sale of installment contracts
purchased by CAC in the future. * The Company believes the periodic sale of
installment contracts under the retail finance agreement will reduce
requirements for both working capital and borrowings, increase the Company's
liquidity, reduce the Company's exposure to interest rate fluctuations and
enhance the ability of CAC to increase its volume of loan purchases. * There can
be no assurance, however, that additional sales will be made under this
agreement, or that CAC and the Company will be able to realize the expected
benefits from such agreement. *
The Company currently believes existing cash and funds available under the
credit facility, together with cash provided by operations, will be adequate to
fund the Company's operations and plans for the next twelve months. In order to
provide additional funds for continued pursuit of the Company's business plans
and for operations, the Company may incur, from time to time, additional short
and long-term bank indebtedness or other forms of financing 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. * The Company
may engage in other transactions, such as selling or securitizing all or
portions of its installment loan portfolio, that are designed to facilitate the
ability of the Company to originate an increased volume of loans and to reduce
the Company's exposure to interest rate fluctuations and has entered into such a
transaction pursuant to the retail finance agreement, as further described
above. * There can be no assurance that such possible additional financing, or
the aforementioned potential transactions involving the Company's installment
loan portfolio, will be available on terms acceptable to the Company. It is
possible that a future lack of financing or a prolonged downturn in industry
conditions could cause the Company to curtail or otherwise alter its current
business plans and operating strategies. *
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, however, can affect the ability of the Company to
increase its selling prices. As discussed above, in 1999, the Company
experienced tightened supply of certain types of raw materials, which resulted
in some higher costs that were not recoverable through price increases. For a
further discussion of this matter, see "1999 Compared to 1998 - Gross Profit."
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
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133,as amended, is required to be adopted for years
beginning after June 15, 2000. The Company is currently evaluating SFAS 133 and
has not yet determined its impact on the Company's consolidated financial
statements.
Year 2000 Compliance
By October 1999, the Company implemented what it considered to be critical
modifications to its computer systems and software products, identified through
its assessment of Year 2000 issues. Cost incurred to complete the assessment and
- --------
See Safe Harbor Statement on page 31.
28
<PAGE>
implementation of Year 2000 issues was $0.9 million, which was within the
reported estimated range of $0.8 million and $1.2 million as an expense, in
addition to approximately $0.2 million of capital expenditures. No critical
problems associated with the Year 2000 issue have been encountered and minor
issues have been corrected as discovered without significant disruption to the
Company's processes and without implementation of the Company's contingency
plan.
The Company's Year 2000 program included testing each computer system and
microprocessor in use, identifying significant third parties' Year 2000
compliance, converting Company systems to Year 2000 compliant versions of
software products and equipment and developing a contingency plan.
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial instruments. The Company is not currently subject to foreign currency
or commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company is exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
These investments totaled $3.1 million at December 31, 1999. Due to the
long-term nature of the benefit liabilities that these assets fund, the Company
currently considers its exposure to market risk to be low. The Company does not
believe that a decline in market value of these investments would result in a
material near term funding of the trust or exposure to the benefit liabilities
funded.
The Company purchases retail installment contracts from its exclusive dealers,
at fixed interest rates, in the ordinary course of business, and periodically
resells certain of these loans to a financial institution under the terms of the
retail finance agreement discussed above. The periodic resale of installment
contracts reduces the Company's exposure to interest rate fluctuations, as the
majority of contracts are held for a short period of time. Additionally, the
Company has installment loans receivable in its portfolio of $9.5 million, which
may be sold during 2000. The Company's portfolio consists of fixed rate
contracts with interest rates generally ranging from 9.0% to 14.0% and an
average original term of 269 months at December 31, 1999. The Company estimated
the fair value of its installment contracts receivable using discounted cash
flows and interest rates offered by CAC on similar contracts at December 31,
1999.
The Company has notes payable under retail floor plan agreements and an
Industrial Development Revenue Bond issue that are exposed to changes in
interest rates. Since these borrowings are floating rate debt, an increase in
short-term interest rates would adversely affect interest expense. The Company
may retire this debt if interest rates were to increase significantly.
Additionally, the Company has five Industrial Development Revenue Bond issues at
fixed interest rates. The estimated fair value of outstanding borrowings
approximated carrying value at December 31, 1999. The Company estimated the fair
value of its debt instruments using rates at which the Company believes it could
have obtained similar borrowings at that time. The Company also has the ability
to incur debt under its credit facility which provides for interest at the
bank's prime rate for the revolving and warehouse line of credit and at fixed
rates for a certain period of time for the term notes. The table below provides
information about the Company's financial instruments that are sensitive to
changes in interest rates at December 31, 1999.
29
<PAGE>
<TABLE>
<CAPTION>
Assumed Annual Principal Cash Flows
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total Fair value
Installment loan portfolio $ 143 $ 160 $ 178 $ 199 $ 223 $ 8,547 $ 9,450 $ 8,402
(weighted average interest rate - 11.16%)
Expected Principal Maturity Dates
-----------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair value
Notes payable and long-term debt $ 16,681 a $ 1,167 $ 1,215 $ 1,254 $ 1,461 $ 5,121 $ 26,899 $ 26,899
(weighted average interest rate - 7.08%)
a Amount payable in 2000 includes $1,119 of current portion of long-term debt and $15,562 of notes payable under retail
floor plan agreements.
</TABLE>
30
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Our disclosure and analysis in this Annual Report on Form 10-K contain some
forward-looking statements. Forward looking statements give our current
expectations or forecasts of future events, including statements regarding
trends in the industry and the business, financing and other strategies of
Cavalier. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They generally are designated with an
asterisk (*) and use words such as "estimates," "projects," "intends,"
"believes," "anticipates," "expects," "plans," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. From time to time, we may also provide oral or written
forward-looking statements in other materials we release to the public. These
forward-looking statements include statements involving known and unknown
assumptions, risks, uncertainties and other factors which may cause our actual
results, performance or achievements to differ from any future results,
performance, or achievements expressed or implied by such forward-looking
statements or words. In particular, such assumptions, risks, uncertainties and
factors include those associated with the following:
o the cyclical and seasonal nature of the manufactured housing industry
and the economy generally;
o limitations in Cavalier's ability to pursue its business strategy;
o changes in demographic trends, consumer preferences and Cavalier's
business strategy;
o changes and volatility in interest rates and the availability of
capital and consumer and dealer financing;
o the ability to attract and retain quality independent dealers,
executive officers and other personnel;
o competition;
o contingent repurchase and guaranty obligations;
o uncertainties regarding Cavalier's retail financing activities;
o integrating the business operations and achieving the benefits
of the Belmont merger and other acquisitions;
o the potential unavailability and price increases for raw materials;
o the potential unavailability of manufactured housing sites;
o regulatory constraints;
o the potential for additional warranty claims;
o litigation; and
o potential volatility in our stock price.
Any or all of our forward-looking statements in this report, in the 1999 Annual
Report to Stockholders and in any other public statements we make may turn out
to be wrong. These statements may be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many factors listed above
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the Securities and Exchange Commission or in any of
our press releases. Also note that, under the heading Risk Factors, we have
provided a discussion of factors that we think could cause our actual results to
differ materially from expected and historical results. Other factors besides
those listed could also adversely affect Cavalier. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table below sets forth certain unaudited quarterly financial data for the
two years ended December 31, 1999 and 1998. 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>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenue:
Home manufacturing $ 113,104 $ 126,083 $ 158,086 $ 158,483 $ 555,756
Financial services 1,156 1,470 2,026 1,455 6,107
Retail 5,684 6,748 6,004 2,478 20,914
Other 1,246 1,534 1,243 1,000 5,023
---------- ----------- ----------- ----------- -----------
Total revenue 121,190 135,835 167,359 163,416 587,800
Gross profit 21,686 24,748 31,235 32,604 110,273
Net income (3,550) (1,621) 2,820 4,501 2,150
Basic net income per share a (0.20) (0.09) .16 .24 .12
Diluted net income per share a (0.20) (0.09) .16 .24 .12
1998
Revenue:
Home manufacturing $ 158,457 $ 152,542 $ 164,274 $ 122,843 $ 598,116
Financial services 1,526 1,121 1,015 2,426 6,088
Retail b 2,552 2,761 1,854 - 7,167
Other b 845 1,074 470 310 2,699
---------- ----------- ----------- ----------- -----------
Total revenue 163,380 157,498 167,613 125,579 614,070
Gross profit 32,444 30,634 31,460 22,824 117,362
Net income 5,324 5,220 5,069 3,042 18,655
Basic net income per share a .27 .26 .25 .15 .94
Diluted net income per share a .27 .26 .25 .15 .93
a The sum of quarterly amounts may not equal the annual amounts due to rounding.
b Certain amounts from the prior periods have been reclassified to conform to the 1999 presentation.
</TABLE>
32
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 4
Consolidated Balance Sheets 5
Consolidated Statements of Income 7
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 40
Schedule -
II - Valuation and Qualifying Accounts 55
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
33
<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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial schedule listed in the index of Item 8. The 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 the financial statement schedule based on our audits.
The 1997 consolidated financial statements give retroactive effect to the merger
of the Company and Belmont Homes, Inc., which has been accounted for as a
pooling of interests as described in Note 2 to the consolidated financial
statements.
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 at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 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.
/s/ Deloitte & Touche LLP
- --------------------------
Birmingham, Alabama
February 29, 2000
34
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,635 $ 64,243
Accounts receivable, less allowance for losses of
$3,464 (1999) and $1,201 (1998) 6,692 7,678
Notes and installment contracts receivable - current 939 1,577
Inventories 50,120 38,803
Deferred income taxes 15,166 9,413
Other current assets 3,109 4,077
---------- ----------
Total current assets 115,661 125,791
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,999 5,414
Buildings and improvements 52,182 41,991
Machinery and equipment 49,118 38,707
---------- ----------
107,299 86,112
Less accumulated depreciation and amortization 32,804 24,690
---------- ----------
Total property, plant and equipment, net 74,495 61,422
---------- ----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,656 (1999) and
$760 (1998) 7,651 24,512
---------- ----------
GOODWILL, less accumulated amortization
of $5,432 (1999) and $4,154 (1998) 22,684 19,945
---------- ----------
OTHER ASSETS 9,083 4,282
---------- ----------
TOTAL $ 229,574 $ 235,952
========== ==========
35
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,119 $ 405
Notes payable under retail floor plan agreements 15,562 4,163
Accounts payable 12,303 17,776
Amounts payable under dealer incentive programs 25,442 25,559
Accrued compensation and related withholdings 5,312 7,154
Estimated warranties 13,000 12,400
Other accrued expenses 10,271 16,627
---------- ----------
Total current liabilities 83,009 84,084
---------- ----------
DEFERRED INCOME TAXES 1,459 390
---------- ----------
LONG-TERM DEBT 10,218 3,650
---------- ----------
OTHER LONG-TERM LIABILITIES 5,497 2,917
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
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; 50,000,000 shares authorized,
18,271,433 (1999) and 20,282,782 (1998) shares issued 1,827 2,028
Additional paid-in capital 55,181 60,760
Retained earnings 75,593 90,400
Treasury stock, at cost; 480,100 (1999) and 852,600 (1998) shares (3,210) (8,277)
----------- ----------
Total stockholders' equity 129,391 144,911
----------- ----------
TOTAL $ 229,574 $ 235,952
=========== ===========
See notes to consolidated financial statements.
</TABLE>
36
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
REVENUE $ 587,800 $ 614,070 $ 561,188
----------- ----------- -----------
COST OF SALES 477,527 496,708 464,222
SELLING, GENERAL AND ADMINISTRATIVE 102,754 87,611 72,526
IMPAIRMENT CHARGE FOR IDLED FACILITIES 4,002
MERGER AND RELATED COSTS - - 7,359
----------- ----------- -----------
584,283 584,319 544,107
----------- ----------- -----------
OPERATING PROFIT 3,517 29,751 17,081
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,643) (820) (1,511)
Life insurance proceeds 1,500
Other, net 1,679 2,351 1,269
----------- ----------- -----------
36 1,531 1,258
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,553 31,282 18,339
INCOME TAXES 1,403 12,627 8,092
----------- ----------- -----------
NET INCOME $ 2,150 $ 18,655 $ 10,247
=========== =========== ===========
BASIC NET INCOME PER SHARE $ 0.12 $ 0.94 $ 0.52
=========== =========== ===========
DILUTED NET INCOME PER SHARE $ 0.12 $ 0.93 $ 0.51
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 18,125,763 19,904,746 19,834,942
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 18,204,030 20,143,795 20,028,181
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
37
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
BALANCE, JANUARY 1, 1997 $ 1,974 $ 55,126 $ 65,552 - $ 122,652
Stock options exercised 7 7
Sale of common stock under Employee Stock
Purchase Plan 5 425 430
Sale of common stock under Dividend
Reinvestment Plan 17 1,653 1,670
Accrued compensation 172 172
Cash dividends paid ($.07 per share) (1,470) (1,470)
Retirement of common stock (2) (155) (157)
Net income - - 10,247 10,247
-------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 1,994 57,228 74,329 133,551
Stock options exercised 4 153 157
Income tax benefit attributable to exercise of
stock options 90 90
Sale of common stock under Employee Stock
Purchase Plan 5 504 509
Sale of common stock under Dividend
Reinvestment Plan 25 2,579 2,604
Accrued compensation 206 206
Cash dividends paid ($.13 per share) (2,584) (2,584)
Purchase of treasury stock (852,600 shares) (8,277) (8,277)
Net income - - 18,655 - 18,655
-------- ---------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 2,028 60,760 90,400 (8,277) 144,911
Stock options exercised 4 280 284
Income tax benefit attributable to exercise of
stock options 28 28
Sale of common stock under Employee Stock
Purchase Plan 10 481 491
Sale of common stock under Dividend
Reinvestment Plan 14 14
Accrued compensation 114 114
Cash dividends paid ($.16 per share) (2,926) (2,926)
Purchase of treasury stock (1,779,000 shares) (15,675) (15,675)
Retirement of treasury stock (2,151,500 shares) (215) (6,496) (14,031) 20,742 -
Net income - - 2,150 - 2,150
-------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1999 $ 1,827 $ 55,181 $ 75,593 $ (3,210) $ 129,391
======== ========= ========= ========= ==========
See notes to consolidated financial statements.
</TABLE>
38
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
OPERATING ACTIVITIES:
Net income $ 2,150 $ 18,655 $ 10,247
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 10,250 8,365 7,492
Provision (recovery) for credit losses and repurchase commitments 3,159 (486) 669
Gain on sale of installment contracts (2,257) (2,048)
Loss on sale of property, plant and equipment 85 49 340
Impairment charge for idled facilities 4,002
Other, net 2 267 211
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (1,277) 787 2,574
Inventories (5,376) (6,248) (488)
Accounts payable (6,929) 6,313 (3,310)
Other assets and liabilities (10,329) 11,704 5,513
---------- ---------- -----------
Net cash provided by (used in) operating activities (6,520) 37,358 23,248
---------- ---------- -----------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (4,439) (2,358) (871)
Proceeds from sale of property, plant and equipment 437 282 122
Capital expenditures (24,546) (14,655) (10,186)
Purchases of certificates of deposit (6,044) (8,000)
Maturities of certificates of deposit 10,044 12,243
Proceeds from sale or maturity of marketable securities 1,097
Net change in notes and installment contracts (44,943) (23,119) (13,547)
Proceeds from sale of installment contracts 62,815 47,852
Other investing activities (1,686) (1,085) 133
---------- --------- -----------
Net cash provided by (used in) investing activities (12,362) 10,917 (19,009)
---------- --------- ----------
FINANCING ACTIVITIES:
Net borrowings on notes payable 4,824 1,307
Proceeds from long-term borrowings 7,807 25,263
Payments on long-term debt (545) (15,024) (22,457)
Net proceeds from sales of common stock 505 3,113 2,100
Proceeds from exercise of stock options 284 157 7
Cash dividends paid (2,926) (2,584) (1,470)
Purchase of treasury stock (15,675) (8,277)
Other financing activities - - (157)
---------- --------- ----------
Net cash provided by (used in) financing activities (5,726) (21,308) 3,286
---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (24,608) 26,967 7,525
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 64,243 37,276 29,751
---------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 39,635 $ 64,243 $ 37,276
========== ========= ==========
See notes to consolidated financial statements.
</TABLE>
39
<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 and
majority-owned subsidiaries (collectively, the "Company"). The Company's
minority 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 transactions have
been eliminated in consolidation. See Note 12 for information related to
the Company's business segments.
Nature of Operations - The Company designs and produces manufactured homes
which are sold to a network of dealers located primarily in the South
Central and South Atlantic 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 exclusive dealer locations and
company-owned retail locations. The Company's retail segment operates
retail sales locations which offer the Company's homes, financing and
insurance products to retail customers.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and notes. 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 6.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
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. The Company paid $337, $388 and $270 in 1999, 1998
and 1997, respectively, for construction of plant facilities, and paid
$3.4 million in 1999 to exercise purchase options on two previously leased
facilities, to companies among whose owners are certain officers,
directors or stockholders of the Company.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over the
expected periods to be benefited, 15 to 25 years, using the straight-line
method.
40
<PAGE>
Impairment of Long-Lived Assets - The Company evaluates the recoverability
of long-lived assets primarily using forecasted undiscounted cash flows,
supplemented if necessary by an independent appraisal of fair value.
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 11. For Company-owned retail locations, revenue is recorded upon
transfer of title to the retail home buyer. Interest income on installment
contracts receivable is recognized using the interest method.
Product Warranties - The Company provides the retail home buyer 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.
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"), a wholly-owned
subsidiary, primarily based upon management's assessment of historical
experience and current economic conditions.
Insurance - The Company's workmen's compensation (prior to February 1,
1999), product liability and general liability insurance coverages (with
the exception of two subsidiaries, whose insurance is provided under fully
insured policies) 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 and recorded when
sufficiently reliable data is available. During 1999, the Company's
workmen's compensation coverage was converted to a fully insured policy.
Net Income Per Share - The Company reports two separate net income per
share numbers, basic and diluted. Both are computed by dividing net income
by the weighted average shares outstanding (basic) or weighted average
shares outstanding assuming dilution (diluted) as detailed below (in
thousands of shares):
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Weighted average shares outstanding 18,126 19,905 19,835
Dilutive effect of stock options and warrants 78 239 193
-------- -------- --------
Weighted average shares outstanding,
assuming dilution 18,204 20,144 20,028
======== ======== ========
</TABLE>
Options and warrants that could potentially dilute basic net income per
share in the future were not included in the computation of diluted net
income per share because to do so would have been antidilutive.
Antidilutive options and warrants (in thousands of shares) were 2,602,
642, and 1,399 for 1999, 1998, and 1997, respectively.
Recent Accounting Pronouncement - In June 1998, Statement of Financial
Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments
and Hedging Activities was issued. As amended, SFAS 133 is required to be
adopted for years beginning after June 15, 2000. The Company is currently
evaluating SFAS 133 and has not yet determined its impact on the Company's
consolidated financial statements.
41
<PAGE>
Reclassifications - Certain amounts from the prior periods have been
reclassified to conform to the 1999 presentation.
2. BUSINESS COMBINATION AND ACQUISITIONS
The Company acquired various retail lots during 1999 and 1998. These
acquisitions were accounted for as purchases with the excess purchase
price over net assets acquired recorded as goodwill. Collectively, these
acquisitions were not material to the consolidated financial statements.
On December 31, 1997, Belmont Homes, Inc. ("Belmont") was merged with and
into a subsidiary of Cavalier Homes, Inc. ("Cavalier"), and 7,555,121
shares of Cavalier's common stock were issued in exchange for all of the
outstanding common stock of Belmont. The merger was accounted for as a
pooling of interests, and, accordingly, the accompanying 1997 financial
statements were restated to include the results of operations and cash
flows of Belmont.
Revenues and net income for the separate companies and the combined
amounts presented in the 1997 consolidated financial statements are as
follows (excluding non-recurring merger and related costs):
1997
Revenues:
Cavalier $ 336,343
Belmont 224,845
---------
Combined $ 561,188
=========
Net income:
Cavalier $ 10,428
Belmont 5,688
---------
Combined $ 16,116
=========
Certain amounts from Belmont's prior financial statements were
reclassified to conform to Cavalier's presentation.
In connection with the merger, Cavalier recorded charges of $7.4 million
in the quarter ended December 31, 1997. These charges are non-recurring
and include $2.5 million from the earn-out provision contained in the
Stock Purchase Agreement between Belmont and the shareholders of
Bellcrest, $0.9 million for severance costs associated with the
consolidation of certain administrative functions, $3.1 million for
printing, investment banking, legal, accounting and other fees, and $0.9
million for other costs associated with combining and realigning the
operations of the two companies.
3. IMPAIRMENT CHARGE FOR IDLED FACILITIES
During 1999, because of deteriorating market conditions, the Company
recorded a noncash impairment charge of $4.0 million in connection with
the idling of five home manufacturing plants to consolidate manufacturing
into other plants. The write-down to estimated fair value was based
primarily on independent appraisals of fair value.
42
4. INSTALLMENT CONTRACTS RECEIVABLE
CAC finances retail sales through the purchase of installment contracts
from a portion of the Company's exclusive dealers, at fixed interest
rates, in the ordinary course of business, and periodically resells
certain of the loans to a financial institution under the terms of a
retail finance agreement. 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% to 14% and from 8.0% to 13.0% at December 31,
1999 and 1998, respectively. The average original term of the portfolio
was approximately 269 and 216 months at December 31, 1999 and 1998,
respectively. During 1998, CAC entered into an agreement to sell, without
recourse (provided that the transferred loan was properly originated by
the dealer and purchased by CAC), contracts in its portfolio that meet
specified credit criteria. Under this agreement, CAC sold $60,558 and
$45,804 contracts receivable and realized a gain of $2,257 and $2,048 for
the years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, estimated principal payments under installment
contracts receivable are as follows:
Year Ending
December 31,
2000 $ 143
2001 160
2002 178
2003 199
2004 223
Thereafter 8,547
-------
Total $ 9,450
=======
Activity in the allowance for losses on installment contracts was as
follows:
1999 1998 1997
Balance, beginning of year $ 760 $ 1,272 $ 941
Provision for losses 2,192 1,042 1,329
Charge-offs, net (1,296) (1,554) (998)
-------- -------- --------
Balance, end of year $ 1,656 $ 760 $ 1,272
======== ======== ========
At December 31, 1999 and 1998, the estimated fair value of installment
contracts receivable was $8,402 and $26,211, respectively. These fair
values were estimated using discounted cash flows and interest rates
offered by CAC on similar contracts at that time.
5. INVENTORIES
Inventories consisted of the following:
43
<PAGE>
1999 1998
Raw materials $ 27,363 $ 26,224
Work-in-process 3,513 3,697
Finished goods 19,244 8,882
--------- ---------
Total $ 50,120 $ 38,803
========= =========
During 1999, 1998, and 1997, the Company purchased raw materials of
approximately $20,166, $12,413 and $10,592, respectively, from joint
ventures in which the Company owns a minority interest and from a company
in which a stockholder and director of the Company is also a stockholder.
6. CREDIT ARRANGEMENTS
The Company has a $35,000 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 accounts receivable and
inventories, respectively, up to a maximum of $10,000. Interest is payable
under the revolving line of credit at the bank's prime rate (8.50% and
7.75% at December 31, 1999 and 1998, respectively) or, if elected by the
Company, the 90-day LIBOR rate plus 2.5% (8.50% and 7.57% at December 31,
1999 and 1998, respectively). No amounts were outstanding under the
revolving line of credit at December 31, 1999 and 1998.
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible installment
sale contracts, up to a maximum of $25,000. 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 1.95%, and floats for the remaining two years 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 $25,000 with interest payable at the bank's prime rate
or, if elected by the Company, the 90-day LIBOR rate plus 2.5%. However,
in no event may the aggregate outstanding borrowings under the warehouse
and term-loan agreement exceed $25,000. No amounts were outstanding under
the warehouse and term-loan portion of the Credit Facility at December 31,
1999 and 1998.
The Credit Facility contains certain restrictive and financial covenants,
which, among other things, limit the aggregate of dividend payments and
purchases of treasury stock to 50% of consolidated net income for the two
most recent years, restrict the Company's ability to pledge assets, incur
additional indebtedness and make capital expenditures, and require the
Company to maintain certain defined financial ratios. At December 31,
1999, the Company was in violation of certain covenants; however,
appropriate waiver letters have been obtained from the lender. 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.
On February 29, 2000, the Company received a commitment from its primary
bank to extend its Credit Facility through April 2002. The renewal
increases the amount available under the revolving line of credit to
$35,000 (an increase from $10,000), provided that aggregate amounts
outstanding under the revolving note and term loans do not exceed $35,000,
eliminates the warehouse feature of the Credit Facility, provides for more
favorable interest rates, and modifies certain financial covenants to be
more restrictive.
The Company has $15,562 and $4,163 of notes payable under retail floor
plan agreements at December 31, 1999 and 1998, respectively. The notes are
collateralized by certain inventories and bear interest at the prime rate.
44
<PAGE>
The Company has amounts outstanding under six Industrial Development
Revenue Bond issues ("Bonds") of $11,337 and $4,052 at December 31, 1999
and 1998, respectively. Four of the bond issues bear interest at variable
rates ranging from 4.0% to 5.4% and mature at various dates through April
2009. One of the bond issues is payable in equal monthly installments and
bears interest at 75% of the prime rate and matures in 2005. One of the
bond issues is payable in equal quarterly principal payments with interest
payable at 6.75% and matures in 2004. The bonds are collateralized by
certain plant facilities. At December 31, 1999, restricted bond proceeds
of $1,725 were not disbursed and are reflected as a non-current asset in
the consolidated balance sheets.
45
<PAGE>
At December 31, 1999, principal repayment requirements on long-term debt
are as follows:
Year Ending
December 31,
2000 $ 1,119
2001 1,167
2002 1,215
2003 1,254
2004 1,461
Thereafter 5,121
---------
Total 11,337
Less current portion 1,119
---------
Long-term debt $ 10,218
=========
The estimated fair value of outstanding borrowings approximated carrying
value at December 31, 1999 and 1998. 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, 1999, 1998 and
1997 was $1,480, $776 and $1,445, respectively.
7. STOCKHOLDERS' EQUITY
The Company has adopted a Stockholder Rights Plan with the terms and
conditions of the plan 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.
One Right is also associated with each share of the Company's outstanding
common stock issued after November 6, 1996, until the Rights become
exercisable, are redeemed or expire. The Rights, when exercisable, entitle
the holder to purchase a unit of 0.80 one-hundredth share of Series A
Junior Participating Preferred Stock, par value $.01, at a purchase price
of $80 per unit. 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.
Pursuant to a common stock repurchase program approved by the Company's
Board of Directors, a total of 2.6 million shares has been purchased at a
cost of approximately $24 million. At December 31, 1999, the Company may
acquire up to 1.4 million additional shares under the program.
8. INCENTIVE PLANS
Dealership Stock Option Plan -
o Effective December 31, 1999, the Company cancelled its
Dealership Stock Option Plan (the "Dealer Plan") to
eligible independent dealerships. The Dealer Plan allowed
46
<PAGE>
for 562,500 options to be issued at a price equal to the
fair market value on the date of grant, and these options
were earned based on the amount of contracts funded through
CAC during the year. Options granted under the Plan are
immediately exercisable and expire three years from the
grant date. Since these options have been granted to
persons other than employees, the Company adopted the
recognition and measurement provisions of SFAS 123,
Accounting for Stock-Based Compensation.
Employee and Director Plans:
o The Company has a Key Employee Stock Incentive Plan (the
"1996 Plan") which provides for the granting of both
incentive 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. The 1996
Plan also provides for an additional number of common
shares to be reserved for issuance each January 1, through
January 1, 2001, equal to 1.5% of the number of the common
shares outstanding on that date. Options granted under the
1996 Plan are generally exercisable six months after the
grant date and expire ten years from the date of grant.
o The Company also has a Non-employee Director Plan under
which 625,000 shares of the Company's common stock were
reserved for grant to non-employee directors at fair market
value on the date of such grant. Options are granted upon
the director's initial election and automatically on an
annual basis thereafter. Options granted under the plan
are generally exercisable six months after the grant date
and expire ten years from the date of grant.
o The Company has an Employee Stock Purchase Plan under which
625,000 shares of the Company's common stock may be issued
to eligible employees at a price equal to the lesser of 85%
of the market price of the stock as of the first or last
day 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.
o The Company has a Deferred Compensation and Flexible Option
Plan (the "Deferred Plan") which provides for deferral of a
portion of certain key employees' earnings plus a Company
match. Upon the occurrence of a distributable event, the
employee will receive the greater of cash at a fixed annual
return or shares of the Company's common stock credited to
his account valued at fair market value. The Company funds
benefits under the Deferred Plan through cash contributions
and through the issuance of a stock option to a trust at an
exercise price equal to fair market value on the date of
the grant. Under the Deferred Plan, there are 500,000
shares of Company common stock available for issuance. At
December 31, 1999, the Company had recorded plan
investments of $3,133 and a deferred compensation liability
of $3,557.
Compensation expense recorded in connection with these plans for the years
ended December 31, 1999 and 1998 was not material.
On January 17, 1997, substantially all employee stock options then
exerciseable at a price of $12.00 or higher were repriced to an exercise
price of $10.625. In addition, on January 17, 1997, an option issued under
the 1993 Non-employee Director's Plan to purchase 25,000 shares at $15.40
per share was canceled and reissued for 17,250 shares at $10.625 per
share.
During 1998, the Company revised the Dividend Reinvestment Plan to
increase the shares available under the Plan to 500,000 and to eliminate
the optional cash payment feature of the Plan. Participants in the Plan
may purchase additional shares of the Company's common stock by
reinvesting the cash dividends on all, or part, of their shares. The
purchase price of the stock will be the higher of 95% of the average daily
47
<PAGE>
high and low sale prices of the Company's common stock on the four trading
days including and preceding the Investment Date (as defined) or 95% of
the average high and low sales prices on the Investment Date.
The Company applied Accounting Principles Board Opinion 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:
1999 1998 1997
Net income:
As reported $ 2,150 $ 18,655 $10,247
Pro forma $ 1,029 $ 16,506 $ 8,661
Basic net income per share:
As reported $ 0.12 $ 0.94 $ 0.52
Pro forma $ 0.06 $ 0.83 $ 0.44
Diluted net income per share:
As reported $ 0.12 $ 0.93 $ 0.51
Pro forma $ 0.06 $ 0.82 $ 0.43
The fair value of options granted were estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions:
1999 1998 1997
Dividend yield 1.90% 1.56 % 1.13 %
Expected volatility 40.10% 40.49 % 43.94 %
Risk free interest rate 5.27% 5.52 % 6.12 %
Expected lives 9.0 years 5.0 years 3.0 years
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
$28 (1999), $90 (1998), and $-0- (1997), represent a noncash financing
transaction for purposes of the consolidated statements of cash flows.
48
Information regarding all of the Company's stock option plans is
summarized below:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
<S> <C> <C> <C>
Outstanding at December 31, 1996 1,461,609 $ 11.76
Granted at fair value 858,425 10.61 $ 3.52
Exercised (1,000) 4.27
Cancelled (564,420) 13.75
----------
Outstanding at December 31, 1997 1,754,614 $ 10.56
Granted at fair value 890,393 10.26 $ 3.50
Exercised (35,267) 4.45
Cancelled (49,746) 11.39
----------
Outstanding at December 31, 1998 2,559,994 $ 10.52
Granted at fair value 448,266 8.96 $ 3.48
Exercised (38,500) 7.37
Cancelled (174,357) 12.34
----------
Outstanding at December 31, 1999 2,795,403 $ 10.20
========== =======
Options exercisable at December 31, 1999 2,762,803 $ 10.17
========== =======
Options exercisable at December 31, 1998 2,438,434 $ 10.42
========== =======
Options exercisable at December 31, 1997 1,536,986 $ 10.37
========== =======
</TABLE>
Stock options available for future grants at December 31, 1999 were
704,565 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$0.55 - $5.50 273,477 7.71 $ 4.17 273,477 $ 4.17
$6.00 - $9.66 367,586 17.67 8.73 367,586 8.73
$9.75 - $10.88 1,644,815 9.14 10.38 1,644,815 10.38
$11.00 - $16.60 509,525 8.58 13.93 476,925 13.98
---------- ----------
$0.55 - $16.60 2,795,403 10.02 $ 10.20 2,762,803 $ 10.17
========== ====== ======== ========== ========
</TABLE>
49
<PAGE>
9. INCOME TAXES
Provision for income taxes consist of:
1999 1998 1997
Current:
Federal $ 5,337 $ 12,469 $ 9,574
State 750 2,238 921
-------- --------- --------
6,087 14,707 10,495
-------- --------- --------
Deferred:
Federal (4,140) (1,337) (2,368)
State (544) (743) (35)
-------- --------- ---------
(4,684) (2,080) (2,403)
-------- --------- ---------
Total $ 1,403 $ 12,627 $ 8,092
======== ========= =========
Total income tax expense for 1999, 1998, and 1997 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:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Income tax at expected federal income tax rate $ 1,143 $ 10,948 $ 6,419
State income taxes, net of federal tax effect 125 1,100 651
Non-taxable life insurance proceeds - (525)
Non-deductible operating expenses 262 295 387
State jobs tax credits (38) (126) (40)
Non-deductible merger related expenses - 1,085
Other (89) 410 115
-------- --------- --------
$ 1,403 $ 12,627 $ 8,092
======== ========= ========
</TABLE>
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, 1999 and 1998 were as follows:
<TABLE>
<S> <C> <C>
1999 1998
Assets (Liabilities)
Current differences:
Warranty expense $ 4,460 $ 4,051
Inventory capitalization 732 561
Allowance for losses on receivables 2,483 718
Accrued expenses 4,974 4,059
Asset valuation 1,850
Other 667 24
--------- --------
$ 15,166 $ 9,413
========= ========
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C>
1999 1998
Assets (Liabilities)
Noncurrent differences:
Depreciation and basis differential of acquired assets $ (2,384) $ (2,061)
Goodwill (289) (569)
Merger related expenses 684 1,007
Other 530 1,233
--------- ---------
$ (1,459) $ (390)
========= =========
</TABLE>
Cash paid for income taxes for the years ended December 31, 1999, 1998 and
1997 was $11,835, $12,250 and $10,632, respectively.
10. EMPLOYEE BENEFIT PLANS
The Company has self-funded group medical plans which are administered by
third party administrators. The Plans have reinsurance coverage limiting
liability for any individual employee loss to a maximum of $100, with an
aggregate limit of losses in any one year based on the number of covered
employees. Incurred claims identified under the Company's incident
reporting system and incurred but not reported claims are funded or
accrued based on estimates that incorporate the Company's past experience,
as well as other considerations such as the nature of each claim or
incident, relevant trend factors and advice from consulting actuaries. The
Company has established self insurance trust funds for payment of claims
and makes deposits to the trust funds in amounts determined by consulting
actuaries. The cost of these plans to the Company was $8,022, $5,517 and
$4,693 for years ended December 31, 1999, 1998 and 1997, respectively.
The Company sponsors employee 401(k) retirement plans covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of compensation as defined in the Plans. The
amount of the Company's matching contribution is discretionary as
determined by the Board of Directors. Company contributions amounted to
$1,071, $623 and $545 for the years ended December 31, 1999, 1998 and
1997, respectively.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Two of the Company's manufacturing facilities are leased under separate
operating lease agreements (the "Related Leases") with partnerships or
companies among whose owners are certain officers, directors or
stockholders of the Company. The Related Leases require monthly payments
ranging from $6 to $13 and provide for lease terms ending from July 2000
to April 2004 as well as renewal option periods. The Related Leases also
contain purchase options whereby the Company can purchase the respective
manufacturing facility for $850 and $1,125 at any time during the lease
terms.
Additionally, the Company is obligated under various operating lease
agreements with varying monthly payments and expiration dates through June
2017. Total rent expense under operating leases was $1,191, $1,353 and
$1,418 for the years ended December 31, 1999, 1998 and 1997, respectively,
including rents paid to related parties of $354 (1999), $865 (1998) and
$817 (1997).
51
<PAGE>
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31,
1999 are as follows:
Year Ending
December 31,
2000 $ 891
2001 661
2002 585
2003 404
2004 183
Thereafter 154
--------
Total $ 2,878
========
Contingent Liabilities and Other:
a. The Company is contingently liable under terms of repurchase
agreements with financial institutions providing inventory financing
for retailers of its products. These arrangements, which are
customary in the industry, provide for the repurchase of products
sold to retailers in the event of default on payments by the
retailer. The risk of loss under these agreements is spread over
numerous retailers. The price the Company is obligated to pay
generally declines over the period of the agreement and is further
reduced by the resale value of repurchased homes. The estimated
potential obligations under such agreements approximated $273,000
at December 31, 1999. The Company has an allowance for losses of
$3,464 (1999) and $1,201 (1998) based on prior experience and market
conditions.
b. Under the insurance plans described in Note 1, the Company was
contingently liable at December 31, 1999 for future retrospective
premium adjustments up to a maximum of approximately $14,456 in the
event that additional losses are reported related to prior years.
c. The Company is engaged in various legal proceedings that are
incidental to and arise in the course of its business. Certain of
the cases filed against the Company and other companies engaged in
businesses similar to the Company allege, among other things, breach
of contract and warranty, product liability, personal injury and
fraudulent, deceptive or collusive practices in connection with
their businesses. These kinds of suits are typical of suits that
have been filed in recent years, and they sometimes seek
certification as class actions, the imposition of large amounts of
compensatory and punitive damages and trials by jury. In the
opinion of management, the ultimate liability, if any, with respect
to the proceedings in which the Company is currently involved is not
presently expected to have a material adverse effect on the Company.
However, the potential exists for unanticipated material adverse
judgments against the Company.
d. The Company and certain of its equity partners have guaranteed
certain debt for companies in which the Company owns various equity
interests. The guarantees are limited to various percentages of the
outstanding debt up to a maximum guaranty of $3,985. At December 31,
1999, $9,121 was outstanding under the various guarantees, of which
the Company had guaranteed $3,076.
52
<PAGE>
12. SEGMENT INFORMATION
The Company's reportable segments are organized around products and
services. Through its Home manufacturing segment, the Company's 11
divisions, which are aggregated for reporting purposes, design and
manufacture homes which are sold in the United States to a network of
dealers which includes Company owned retail locations. Through its
Financial services segment, the Company offers retail installment sale
financing and related insurance products for manufactured homes sold
through the Company's exclusive dealer network and Company-owned retail
locations. The Company's retail segment is comprised of company owned
retail lots that derive their revenues from home sales to individuals.
Included in the "other" category are component manufacturers who sell
their products to the manufacturing segment of the Company as well as
other manufacturers. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies
except that intercompany profits, transactions and balances have not been
eliminated. The Company's determination of segment operating profit does
not reflect other income (expenses) or income taxes.
53
<PAGE>
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Gross revenue:
Home manufacturing $ 573,129 $ 603,369 $ 553,730
Financial services 6,107 6,088 5,346
Retail 20,914 7,167
Other 40,315 36,699 22,688
---------- ---------- ---------
Gross revenue 640,465 653,323 581,764
========== ========== =========
Intersegment revenue:
Home manufacturing 17,373 5,253
Financial services
Retail
Other 35,292 34,000 20,576
---------- ---------- ----------
Intersegment revenue 52,665 39,253 20,576
========== ========== ==========
Revenue from external customers:
Home manufacturing 555,756 598,116 553,730
Financial services 6,107 6,088 5,346
Retail 20,914 7,167
Other 5,023 2,699 2,112
---------- ---------- ----------
Total revenue $ 587,800 $ 614,070 $ 561,188
========== ========== ==========
Operating profit (loss):
Home manufacturing $ 7,866 $ 26,193 $ 23,742
Financial services (219) 2,215 2,015
Retail (1,935) (427)
Other 466 2,314 598
Elimination (744) (826) (77)
---------- ---------- ----------
Segment operating profit 5,434 29,469 26,278
General corporate (1,917) 282 (9,197)
---------- ---------- ----------
Operating profit $ 3,517 $ 29,751 $ 17,081
========== ========== ==========
Depreciation and amortization:
Home manufacturing $ 8,215 $ 7,305 $ 6,686
Financial services 359 209 208
Retail 544 146
Other 463 385 337
---------- ---------- ----------
Segment depreciation and amortization 9,581 8,045 7,231
General corporate 669 320 261
---------- ---------- ----------
Total depreciation and amortization $ 10,250 $ 8,365 $ 7,492
========== ========== ==========
Capital expenditures:
Home manufacturing $ 17,486 $ 13,173 $ 8,370
Financial services 167 181 265
Retail 986 601
Other 1,208 384 89
---------- ---------- ----------
Segment capital expenditures 19,847 14,339 8,724
General corporate 4,699 316 1,462
---------- ---------- ----------
Total capital expenditures $ 24,546 $ 14,655 $ 10,186
========== ========== ==========
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Identifiable assets:
Home manufacturing $ 155,947 $ 156,219 $ 142,998
Financial services 17,254 28,424 52,020
Retail 23,614 7,665
Other 13,988 11,683 7,509
Elimination (32,752) (9,548) (17,142)
---------- ---------- ----------
Segment assets 178,051 194,443 185,385
General corporate 51,523 41,509 26,169
---------- ---------- ----------
Total assets $ 229,574 $ 235,952 $ 211,554
========== ========== ==========
</TABLE>
The Financial services segment's operating profit includes net interest
income of $1,968, $2,987, and $3,283 and gains from the sale of
installment contracts of $2,257, $2,048 and $-0- for the years ended
December 31, 1999, 1998, and 1997, respectively.
Identifiable assets for the General corporate category include $1,604,
$1,447, and $1,264 of investment in equity method investees at December
31, 1999, 1998 and 1997, respectively. General corporate operating income
includes equity in the net income of investees accounted for by the equity
method of $397, $250, and $296 for the years ended December 31, 1999, 1998
and 1997, respectively.
55
<PAGE>
CAVALIER HOMES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Dollars in Thousands)
Increases Additions
Balance at Attributable Charged to Charged Balance at
Beginning of to Costs and to Other End of
Period Acquisitions Expenses Accounts Deductions Period
------------ ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for losses on Accounts
Receivable:
Year Ended December 31, 1999 $ 1,201 3,215 (952)$ 3,464
============ ============ ============= ============= ============ =============
Year Ended December 31, 1998 $ 1,175 407 (381)$ 1,201
============ ============ ============= ============= ============ =============
Year Ended December 31, 1997 $ 837 527 (189)$ 1,175
============ ============ ============= ============= ============ =============
Allowance for credit losses:
Year Ended December 31, 1999 $ 760 2,192 (1,296)$ 1,656
============ ============ ============= ============= ============ =============
Year Ended December 31, 1998 $ 1,272 1,042 (1,554)$ 760
============ ============ ============= ============= ============ =============
Year Ended December 31, 1997 $ 941 1,329 (998)$ 1,272
============ ============ ============= ============= ============ =============
Accumulated amortization of goodwill:
Year Ended December 31, 1999 $ 4,154 1,278 $ 5,432
============ ============ ============= ============= ============ =============
Year Ended December 31, 1998 $ 3,102 1,052 $ 4,154
============ ============ ============= ============= ============ =============
Year Ended December 31, 1997 $ 1,947 1,068 87 $ 3,102
============ ============ ============= ============= ============ =============
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 1999 $ 353 100 $ 453
============ ============ ============= ============= ============ =============
Year Ended December 31, 1998 $ 277 76 $ 353
============ ============ ============= ============= ============ =============
Year Ended December 31, 1997 $ 221 56 $ 277
============ ============ ============= ============= ============ =============
Warranty reserve:
Year Ended December 31, 1999 $ 12,400 33,653 (33,053)$ 13,000
============ ============ ============= ============= ============ =============
Year Ended December 31, 1998 $ 11,700 27,771 (27,071)$ 12,400
============ ============ ============= ============= ============ =============
Year Ended December 31, 1997 $ 10,566 24,357 (23,223)$ 11,700
============ ============ ============= ============= ============ =============
</TABLE>
56
<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
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 16, 2000,
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 16, 2000, 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 16,
2000, 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 16, 2000,
which are incorporated herein by reference.
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:
<TABLE>
<S> <C>
Financial Statement Description Form 10-K Page No.
------------------------------- ------------------
Independent Auditors' Report 34
Consolidated Balance Sheets as of December 31, 1999 and 1998 35
Consolidated Statements of Income for the years ended December 31, 1999, 37
1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended 38
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 39
1999, 1998 and 1997
Notes to Consolidated Financial Statements 40
</TABLE>
57
<PAGE>
2. The financial statement schedules required to be filed with
this report and the pages on which they may be found are as follows:
<TABLE>
<S> <C> <C>
No. Schedule Description Form 10-K Page
--- --------------------------------- ---------------
II Valuation and Qualifying Accounts 55
</TABLE>
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 Composite 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, 1998.
* (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.
* (c) The Amended and Restated By-laws of the Company,
filed as Exhibit 3(d) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 27, 1997, and the amendments thereto filed as Exhibit 3(e) to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 26,
1997 and as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1998.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
* (a) Articles four, six, seven, eight and nine of the
Company's Amended and Restated Certificate of Incorporation, as amended,
included in Exhibit 3(a) above.
* (b) Article II, Sections 2.1 through 2.18; Article
III, Sections 3.1 and 3.2; Article IV, Sections 4.1 and 4.3; Article VI,
Sections 6.1 through 6.5; Article VIII, Sections 8.1 and 8.2; and Article IX of
the Company's Amended and Restated 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.
(10) Material contracts
* (a) 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.
58
<PAGE>
(b) Lease Agreement dated April 1, 1999, between
Development Authority of Johnson County, Georgia and Bellcrest Homes, Inc.
regarding the lease of the manufacturing facility located in Adrian, Georgia.
* (c) Lease Agreement with Option to Purchase between John
H. Beard and Alexander P. Beard, Trustees under the Will of Bryce Parker Beard,
and BRC Components, Inc. dated March 4, 1999, filed as Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* (d) 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).
* (e) Lease Agreement dated March 1, 1997, between the
City of Winfield and Buccaneer Homes, a division of Cavalier Manufacturing,
Inc., filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
* (f) Lease Agreement between the Industrial Development
Board of the Town of Addison and Jerry F. Wilson, Robert Lowell Burdick and John
W Lowe, dated as of June 1, 1984, filed as Exhibit 10(j) to the Company's
Registration Statement on Form S-1, Registration No. 33-3525, dated February 21,
1986.
(g) Assignment and Assumption Agreement by and among the
Estate of Jerry F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier
Manufacturing, Inc. and Cavalier Real Estate Co., Inc., dated January 13, 1999,
regarding the lease of the manufacturing facility located in Addison, Alabama.
(h) Lease Agreement between the Industrial Development
Board of the Town of Addison and the Winston County Industrial Development
Association, dated as of February 1, 1994, regarding the lease of the
manufacturing facility located in Addison, Alabama.
* (i) Lease Agreement between The Industrial Development
Board of the Town of Addison and Cavalier Homes of Alabama, a division of
Cavalier Manufacturing, Inc., dated November 1, 1997, filed as Exhibit 10(yy) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
<PAGE>
(j) Lease Agreement dated April 1, 1999, between Crisp
County-Cordele Industrial Development Authority and Cavalier Industries, Inc.
regarding the lease of the manufacturing facility located in Cordele, Georgia.
* (k) 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, filed as Exhibit
10(b) to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
* (l) Assignment and Assumption Agreement between Star
Industries, Inc. and Cavalier Industries, Inc. regarding the lease of the
manufacturing facility located in Robbins, North Carolina, filed as Exhibit
10(c) to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
* (m) Lease Agreement with Option to Purchase between
Marion County Industrial Development Corporation, 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).
* (n) Commercial Sub-Lease and Agreement between Perfect
Panels, Inc. and Quality Housing Supply, Inc., dated July 1, 1996, filed as
Exhibit 10(zz) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
* (o) 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, filed as Exhibit 10(bb) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
* (p) 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.
(q) Lease Agreement dated June 1, 1997, between Graham
Industrial Association, Inc. and Cavalier Manufacturing, Inc. regarding the
lease of the manufacturing facility located in Graham, Texas.
(r) Lease Agreement dated November 1, 1997, between
Greenstar, L.L.C. and The Colonial Group, regarding the lease of an
administrative facility in Greensboro, North Carolina.
(s) Addendum to Lease Agreement dated January 18, 1999,
between Greenstar, L.L.C. and The Colonial Group, regarding the lease of an
administrative facility in Greensboro, North Carolina.
(t) Assignment and Assumption Agreement dated April 29,
1999, between The Colonial Group and Cavalier Homes, Inc. regarding the lease of
the administrative facility in Greensboro, North Carolina.
* (u) Revolving, Warehouse and Term Loan Agreement among
the Company and First Commercial Bank dated February 17, 1994, filed as Exhibit
10(u) to the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
* (v) 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.
* (w) Second Amendment to the Revolving Warehouse and Term
Loan Agreement among Cavalier Homes, Inc. and First Commercial Bank, dated June
1, 1998, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 26, 1998.
<PAGE>
* (x) Assumption Agreement dated as of January 2, 1997,
by and among the Company, First Commercial Bank and certain subsidiaries of the
Company, filed as Exhibit 10(q) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
* (y) Assumption Agreement among Cavalier Homes, Inc. and
First Commercial Bank, dated June 1, 1998, filed as Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1998.
(z) Commitment Letter and Addendum among Cavalier Homes,
Inc., Cavalier Acceptance Corporation and First Commercial Bank, dated February
29, 2000.
* (aa) Guaranty Agreement between First Commercial Bank and
Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by
Lamraft, LP filed as Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 26, 1997. 10-K for the year ended December
31, 1998.
60
<PAGE>
* (bb) Amendment to the Limited Credit Guaranty
Agreement between First Commercial Bank and Cavalier Homes, Inc., executed as of
March 24, 1999, relating to guaranty of payments by Lamraft, LP filed as Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended April
2, 1999.
* (cc) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc., dated as of September 1, 1999, relating to guaranty of
payments by Lamraft, LP, filed as Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 1, 1999.
* (dd) Guaranty Agreement between First Commercial Bank and
Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by
Hillsboro Manufacturing, LP filed as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 26, 1997.
* (ee) Amendment to the Limited Credit Guaranty Agreement
between First Commercial Bank and Cavalier Homes, Inc. executed as of March 24,
1999, relating to guaranty of payments by Hillsboro Manufacturing, LP filed as
Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter
ended April 2, 1999.
* (ff) Guaranty Agreement between First Commercial Bank and
Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by
Woodperfect of Texas, LP filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 26, 1997.
* (gg) Amendment to the Limited Credit Guaranty Agreement
between First Commercial Bank and Cavalier Homes, Inc. executed March 24, 1999,
relating to guaranty of payments by Woodperfect of Texas, LP filed as Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended April
2, 1999.
(hh) Release of Guarantor and Amendment to Guaranty
Agreements among First Commercial Bank, Patriot Homes, Inc., Cavalier Homes,
Inc., Southern Energy Homes, Inc. and Lee Roy Jordan, dated as of December 31,
1999.
* (ii) Guaranty Agreement between SouthTrust Bank and
Cavalier Homes, Inc. dated as of July 27, 1998, relating to guaranty of payments
by Woodperfect, Ltd., filed as Exhibit 10(b) to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 1, 1999.
<PAGE>
* (jj) Agreement dated March 10, 1998, by and between
Cavalier Acceptance Corporation and Green Tree Financial Servicing Corporation,
filed as Exhibit 10(xx) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
* (kk) Amended and Restated Finance Agreement among Cavalier
Manufacturing, Inc., Cavalier Acceptance Corporation and certain related
entities and Green Tree Financial Corp. and certain related entities, filed as
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 27, 1998.
* (ll) Manufactured Home Loan Purchase Agreement dated as
of June 30, 1999, by and between Cavalier Acceptance Corporation and Green Tree
Financial Corporation and certain of its affiliates, filed as Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* ** (mm) 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.
61
<PAGE>
* ** (nn) Cavalier Homes, Inc. 1993 Amended and Restated
Nonqualified Stock Option Plan, filed as Exhibit 10(z) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
* ** (oo) 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.
* ** (pp) Amendment to Cavalier Homes, Inc. Executive Incentive
Compensation Plan, filed as Exhibit 10(ii) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 28, 1997.
* ** (qq) 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.
* ** (rr) 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.
* ** (ss) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, filed as Exhibit 10(i) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 28, 1997.
* ** (tt) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, effective December 30, 1997, filed as Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* ** (uu) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, effective January 23, 1998, filed as Exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* ** (vv) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, effective October 20, 1998, filed as Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* ** (ww) Cavalier Homes, Inc. Amended and Restated 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.
* ** (xx) Amendment to Cavalier Homes, Inc. Amended and
Restated Nonemployee Directors Plan filed as Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
* ** (yy) Amendment to Cavalier Homes, Inc. Amended and
Restated Nonemployee Directors Plan, filed as Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
* (zz) Cavalier Homes, Inc. Amended and Restated Dividend
Reinvestment Plan, filed as Appendix A to the Prospectus appearing in the
Company's Post-Effective Amendment No. 1 to Form S-3, Registration No.
333-48111, filed on September 29, 1998.
62
<PAGE>
* (aaa) Cavalier Homes, Inc. Amended and Restated Dealership
Stock Option Plan filed as Appendix A to the Company's Registration Statement on
Form S-3, Amendment No. 2, Registration No. 33-62487, dated June 18, 1998.
* ** (bbb) Cavalier Homes, Inc. Deferred Compensation Plan,
effective April 1, 1998, filed as Exhibit 10(d) to the Quarterly Report on Form
10-Q for the quarter ended June 26, 1998.
* ** (ccc) Cavalier Homes, Inc. Flexible Option Plan filed as
Exhibit 4(e) to the Company's Registration Statement on Form S-8, Registration
No. 333-57743, dated June 28, 1998.
* ** (ddd) Belmont Homes, Inc. 1994 Incentive Stock Plan, filed
as an Exhibit to the Belmont Homes, Inc. Registration Statement on Form S-1,
Registration No. 33-87868.
* ** (eee) Belmont Homes, Inc. 1994 Non-Qualified Stock Option
Plan for Non-Employee Directors, filed as an Exhibit to the Belmont Homes, Inc.
Registration Statement on Form S-1, Registration No. 33-87868.
* (fff) Form of Indemnification Agreement between Belmont
Homes, Inc. and the Directors and Executive Officers of Belmont Homes, Inc.,
filed as Exhibit 10.2 to Belmont Homes, Inc. Current Report on Form 8-K filed on
September 8, 1997.
* (ggg) Form of Indemnification Agreement by and between
Cavalier Homes, Inc. and each member of its Board of Directors, filed as Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998.
* (hhh) Split dollar Agreement dated May 15, 1998, by and
between the Company and Jerry F. Wilson, Jr. as Trustee of the David Allen
Roberson Family Trust, filed as Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 26, 1998.
* ** (iii) Retention and Severance Agreement, dated August 26,
1998, by and between Cavalier Homes, Inc. and Barry B. Donnell, filed as Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998.
* ** (jjj) Retention and Severance Agreement, dated August 26,
1998, by and between Cavalier Homes, Inc. and David A. Roberson, originally
filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1998 and filed as 10(ggg) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 in order to correct a
typographical error.
* ** (kkk) Retention and Severance Agreement, dated August 26,
1998, by and between Cavalier Homes, Inc. and Michael R. Murphy, filed as
Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 25, 1998.
* (lll) Stock Purchase Agreement dated October 25, 1996,
among Belmont Homes, Inc., Bellcrest Holding Co., Inc., G. Hiller Spann, Joe H.
Bell, James M. Birdwell and Delroy Dailey, Jr., filed as an exhibit to Belmont
Homes, Inc. Current Report on Form 8-K filed November 13, 1996, File No.
0-26142.
* (mmm) First Amendment to Stock Purchase Agreement between
Belmont Homes, Inc. And the former shareholders of Bellcrest Homes, Inc. filed
as Exhibit 10.1 to Belmont Homes, Inc. Current Report on Form 8-K filed on
September 8, 1997.
* (nnn) The Agreement and Plan of Merger dated August 14,
1997, by and among the Company, Crimson Acquisition Corp. and Belmont Homes,
Inc., filed as Exhibit 2 to the Company's Current Report on Form 8-K dated
August 19, 1997.
63
<PAGE>
* (ooo) Amendment No. 1 to the Agreement and Plan of Merger
referenced in Exhibit 10(nn) above filed as Exhibit 10(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule
- -----------------------------------------
* Incorporated by reference herein.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
64
<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 30, 2000
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.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ DAVID A. ROBERSON Director and Principal Executive March 30, 2000
- ------------------------------------
Officer
/s/ MICHAEL R. MURPHY Director and Principal Financial and March 30, 2000
- ---------------------------
Accounting Officer
/s/ BARRY DONNELL Chairman of the Board and Director March 30, 2000
- ---------------------------
/s/ THOMAS A. BROUGHTON, III Director March 30, 2000
- ------------------------------------
/s/ JOHN W LOWE Director March 30, 2000
--------------------------
/s/ LEE ROY JORDAN Director March 30, 2000
- ------------------------------------
/s/ GERALD W. MOORE Director March 30, 2000
- ------------------------------------
/s/ A. DOUGLAS JUMPER, SR. Director March 30, 2000
- ---------------------------
/s/ MIKE KENNEDY Director March 30, 2000
- ---------------------------
</TABLE>
<PAGE>
INDEX
Exhibit
Number
(10) Material Contracts
(b) Lease Agreement dated April 1, 1999, between Development
Authority of Johnson County, Georgia and Bellcrest Homes, Inc.
regarding the lease of the manufacturing facility located in
Adrian, Georgia.
(g) Assignment and Assumption Agreement by and among the Estate of
Jerry F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier
Manufacturing, Inc. and Cavalier Real Estate Co., Inc., dated
January 13, 1999, regarding the lease of the manufacturing facility
located in Addison, Alabama.
(h) Lease Agreement between the Industrial Development Board of the
Town of Addison and the Winston County Industrial Development
Association, dated as of February 1, 1994, regarding the lease of
the manufacturing facility located in Addison, Alabama.
(j) Lease Agreement dated April 1, 1999, between Crisp County-Cordele
Industrial Development Authority and Cavalier Industries, Inc.
regarding the lease of the manufacturing facility located in
Cordele, Georgia.
(q) Lease Agreement dated June 1, 1997, between Graham Industrial
Association, Inc. and Cavalier Manufacturing, Inc. regarding the
lease of the manufacturing facility located in Graham, Texas.
(v) Lease Agreement dated November 1, 1997, between Greenstar, L.L.C.
and The Colonial Group, regarding the lease of an administrative
facility in Greensboro, North Carolina.
(s) Addendum to Lease Agreement dated January 18, 1999, between
Greenstar, L.L.C. and The Colonial Group, regarding the lease of an
administrative facility in Greensboro, North Carolina.
(x) Assignment and Assumption Agreement dated April 29, 1999, between
The Colonial Group and Cavalier Homes, Inc. regarding the lease of
the administrative facility in Greensboro, North Carolina.
(z) Commitment Letter and Addendum among Cavalier Homes, Inc., Cavalier
Acceptance Corporation and First Commercial Bank, dated February
29, 2000.
(hh)Release of Guarantor and Amendment to Guaranty Agreements among
First Commercial Bank, Patriot Homes, Inc., Cavalier Homes, Inc.,
Southern Energy Homes, Inc. and Lee Roy Jordan, dated as of
December 31, 1999.
(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 11
Statement re Computation of Per Share Earnings
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands except per share amounts)
For the Year Ended December 31,
--------------------------------------------------------------
<S> <C> <C> <
1999 1998 1997
------------------ ------------------ ------------------
C>
BASIC & PRIMARY
Net Income $ 2,150 $ 18,655 $ 10,247
================== ================== ==================
</TABLE>
<TABLE>
<S> <C> <C> <C>
SHARES:
Weighted average common shares
outstanding (basic) 18,125,763 19,904,746 19,834,942
Dilutive effect of stock options
and warrants 78,267 239,049 193,239
-------------- -------------- ---------------
Weighted average common shares
outstanding, assuming dilution (diluted) 18,204,030 20,143,795 20,028,181
============== ============== ===============
Basic net income per share $ 0.12 $ 0.94 $ 0.52
============== ============== ===============
Diluted net income per share $ 0.12 $ 0.93 $ 0.51
============== ============== ===============
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
BRC Components, Inc., an Alabama corporation
Cavalier/AAA, a Delaware limited liability company
Cavalier Acceptance Corporation, an Alabama corporation
Cavalier Asset Management, Inc., a Delaware corporation
Cavalier Associated Retailers, Inc., a Delaware corporation
Cavalier Enterprises, Inc., a Delaware corporation
Cavalier Enterprises Asset Co., Inc., a Delaware corporation
Cavalier Industries, Inc., a Delaware corporation
Cavalier Industries Asset Co., Inc., a Delaware corporation
Cavalier Manufacturing, Inc., a Delaware corporation
Cavalier Manufacturing Asset Co., Inc., a Delaware corporation
Cavalier Properties, Inc., a Delaware corporation
Cavalier Real Estate Co., Inc., a Delaware corporation
Colonial Premium Finance Company, a North Carolina corporation
Delta Homes, Inc., a Mississippi corporation
Direct Connection, LLC, a Delaware limited liability company
Impact Media Group, Inc., an Alabama corporation
Kensinger Homes, Inc., a Florida corporation
Mobilhome Insurance Service, Inc., a North Carolina corporation
Quality Certified Insurance Services, Inc., an Alabama corporation
Quality Housing Supply, LLC, a Delaware limited liability company
Ridge Pointe Manufacturing, LLC, an Alabama limited liability company
The Colonial Group, Inc., a North Carolina corporation
The Home Place, Inc., an Alabama corporation
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, 33-86236, 333-06371, 333-04953, 333-19833,
333-45255 and 333-57743 of Cavalier Homes, Inc. on form S-8, and to the
incorporation by reference in Registration Statements Nos. 33-62487 (as
amended), 33-63060 (as amended), 33-86348 (as amended), 333-18213 (as amended),
333-00607 (as amended), 333-48111(as amended) and 333-64925 (as amended) of
Cavalier Homes, Inc. on Form S-3 of our report dated February 29, 2000,
appearing in this Annual Report on Form 10-K of Cavalier Homes, Inc. for the
year ended December 31, 1999.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
March 29, 2000
LEASE AGREEMENT
Dated April 1, 1999
By and between
DEVELOPMENT AUTHORITY
OF JOHNSON COUNTY, GEORGIA
and
BELLCREST HOMES, INC.
The interest of Development Authority of Johnson County, Georgia 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 April 1, 1999.
<PAGE>
STATE OF GEORGIA
JOHNSON COUNTY
LEASE AGREEMENT
LEASE AGREEMENT dated as of April 1, 1999, between DEVELOPMENT
AUTHORITY OF JOHNSON COUNTY, GEORGIA, a public corporation and a public body
corporate and politic under the laws of the State of Georgia (the "Issuer"), and
BELLCREST HOMES, INC., a Georgia corporation (the "User").
Recitals
Pursuant to and for the purposes expressed in Paragraph III of Section
VI of Article IX of the Constitution of the State of Georgia and Chapter 62 of
Title 36 of the Official Code of Georgia Annotated, the Issuer and the User have
executed and delivered this Lease Agreement simultaneously with the issuance and
sale by the Issuer of its $2,500,000 Revenue Bonds (Bellcrest Homes, Inc.
Project), dated April 15, 1999, under and pursuant to that certain Trust
Indenture dated as of April 1, 1999 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
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:
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 and Continuing
Disclosure Agreement dated April 1, 1999, 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 April 1, 1999 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 Deed to Secure Debt,
Assignment of Leases and Security Agreement dated as of April 1, 1999 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 Paragraph III of Section VI of Article IX of
the Constitution of the State of Georgia and Chapter 62 of Title 36 of the
Official Code of Georgia Annotated.
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 April 1,
1999 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 the Internal Revenue Code of 1986, as
amended; and the transition rules of related legislation.
Issuer shall mean Development Authority of Johnson County, Georgia, a
public corporation and a public body corporate and politic under the laws of the
State of Georgia, 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 have the meaning assigned to the phrase "Cost of
project" in the Enabling Law.
Project Site shall mean the real property described in Demising Clause
I of Article 3.
Rental Payments shall mean collectively the Basic Rental Payments and
the Additional Rental Payments.
State shall mean the State of Georgia.
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.
<PAGE>
User shall mean Bellcrest Homes, Inc., a Georgia corporation, and its
successors and assigns, and thereafter "User" shall mean such persons.
ARTICLE 2
Representations
SECTION 2.01 Representations by the Issuer
The Issuer makes the following representations
(a) The Issuer is duly incorporated under the provisions of the
Enabling Law and has the 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 the laws of the State.
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
(1) the Project constitutes a "project" under the
Enabling Law, including particularly ss.36-62-2(6)(N) of the Enabling
Law,
(2) the Project and the use thereof will further the
public purpose of the Enabling Law,
(3) the Project will develop and promote trade, commerce,
industry and employment opportunities for the public good and the
general welfare of the State of Georgia and will increase employment in
the territorial area of the Issuer.
(c) The Bonds will be issued and delivered contemporaneously with
the delivery of this Lease Agreement.
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 Georgia, is duly qualified to do business in the
State of Georgia, is not in violation of any provisions of its documents of
organization or the laws of the State of Georgia, 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 User has the corporate power and authority to own its
properties, carry on the business in which it is presently engaged, and
consummate the transactions contemplated by the Financing Documents to which it
is a party.
(c) By proper corporate action the User has duly authorized the
execution, delivery and performance of the Financing Documents to which it is a
party and the consummation of the transactions contemplated therein.
(d) The User has obtained all consents, approvals, authorizations and
orders of, and made all filings with, each Governmental Authority that are
required to be obtained or made by it as a condition to the execution and
delivery of the Financing Documents to which it is a party.
(e) The execution and delivery by the User of the Financing Documents
to which it is a party and the consummation by it of the transactions
contemplated therein will not conflict with, be in violation of, or result in a
default under, its documents of organization, or any agreement, contract,
instrument, order, writ, decree or judgment to which the User is a party or is
subject.
(f) The Financing Documents to which the User is a party constitute
legal, valid and binding obligations of the User and are enforceable against the
User in accordance with the terms of such instruments, except as enforcement
thereof may be limited by (i) the exercise of judicial discretion and (ii)
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights, to the extent constitutionally applicable.
(g) There is no action, suit, proceeding, inquiry or investigation
pending before any Governmental Authority, or threatened against or affecting
the User or its properties, that (a) involves (i) the consummation of the
transactions contemplated by, or the validity or enforceability of, the
Financing Documents, (ii) its organization, (iii) the election or qualification
of its directors or officers, (iv) its powers, or (b) could have a materially
adverse effect upon the financial condition or operations of the User.
(h) The User is not an "investment company" or a company "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended.
(i) 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.
(j) The User intends to operate the Project for manufacturing,
production, assembling, processing, storing and distribution of such products as
the User shall determine and in such a manner that it will constitute a
"project" within the meaning of the Enabling Law.
(k) 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 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 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) 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.
(d) 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.
(e) 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 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 April 1,
2009. 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 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
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
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
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
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 materially affect, impair or contravene any policies of insurance that may
be carried on the Project.
(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 applicableto 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 Georgia 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 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 11
OPTIONS " \l 2
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.
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
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 User covenants and agrees that (i) the limitation set forth in
Section 144(a)(4)(A) of the Code will not be exceeded during the applicable
six-year period with respect to "facilities" described in Section 144(a)(4)(B)
of the Code, and (ii) during such six-year period it will not make, or permit to
be made, "capital expenditures" (as described in Section 144(a)(4) of the Code
and applicable regulations thereunder) in an aggregate amount that would exceed
the limitation set forth in said Section.
(d) 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
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 or of the State or of any
county, municipal corporation or political subdivision of the State, 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 or of the State, or of any county, municipal corporation
or political subdivision of the State, 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 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 April 1, 1999.
DEVELOPMENT AUTHORITY OF JOHNSON COUNTY, GEORGIA
By: /s/ Mary Jo Stephens
-------------------------------------
Chairman
S E A L
Attest: /S/ Kenneth L. Vickers
------------------------
Its Secretary
BELLCREST HOMES, INC.
By _____________________________________
Its ____________________________________
<PAGE>
STATE OF GEORGIA )
JOHNSON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Mary Jo Stephens, whose name as Chairman of
Development Authority of Johnson County, Georgia, 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, she, 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 22nd day of April, 1999.
/s/ Phamenlia Rathbun
------------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 12/2002
---------
<PAGE>
STATE OF Georgia )
Jenkins COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that G. Hiller Spann, whose name as President of
Bellcrest Homes, Inc., a Georgia 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 24th day of April, 1999
1999.
/s/ Julie Reynolds
----------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: April 2, 2003
-------------
<PAGE>
EXHIBIT A
Property Description
All that tract or parcel of land lying, situate and being in and
adjacent to the City of Adrian in the 1746th G.M. District of Johnson County,
Georgia containing 19.45 acres and fronting on the Eastern side of U.S. Highway
80 as shown on Plat of Survey made by Donald W. Marsh, Surveyor, dated October
9, 1998, which is recorded in the Office of Clerk, Johnson County Superior Court
in Plat Book 16, page 9, to which reference is made as a part of this
description. Said 19.45 acres is bounded on the North by lands of Adrian Home
Builders, Inc.; East by lands of Adrian Home Builders, Inc. and lands of Adrian
Housing Corporation; South by lands of Adrian Housing Corporation; and West by
the Right-of-Way of U.S. Highway 80. Said property is more particularly
described as follows: Beginning at a point on the East Right-of-Way of U.S.
Highway 80 a distance of 0.5 miles + Northeast from its intersection with GA
State Hwy. 15 to the true point of beginning; thence S 77-00-03 E a distance of
759.83' to a point; thence N 19-02-33 E a distance of 449.73' to a point; thence
N 32-38-51 E a distance of 349.70' to a point; thence N 19-06-09 E a distance of
407.72' to a point; thence N 58-42-08 W a distance of 552.42' to a point; thence
S 31-39-12 W a distance of 917.12' along the Right-of-Way of U.S. Hwy. 80;
thence along the Right-of-Way of U.S. Hwy 80 a curve distance of 509.16'
(radius=101295.25') to the true point of beginning.
Said property is a portion of a 28.41 acre tract described in a
Warranty Deed from Adrian Housing Corporation to Adrian Home Builders, Inc.,
dated January 4, 1988, which is recorded in the Office of Clerk, Johnson County
Superior Court in Deed Book 114, page 207.
<PAGE>
EXHIBIT B
TO
LEASE AGREEMENT
DATED AS OF APRIL 1, 1999
BETWEEN
DEVELOPMENT AUTHORITY
OF JOHNSON COUNTY, GEORGIA
AND
BELLCREST HOMES, INC.
EQUIPMENT LIST
Description of Personal Property and Fixtures
All building materials, equipment, fixtures, tools, apparatus and
fittings of every kind or character now owned or hereafter acquired by Bellcrest
Homes, Inc. for the purpose of, or used or useful in connection with, the
Project, wherever the same may be located, including, without limitation, all
lumber and lumber products, bricks, stones, building blocks, sand, cement,
roofing materials, paint, doors, windows, hardware, nails, wires, wiring,
engines, boilers, furnaces, tanks, motors, generators, switchboards, telephones,
telecopy, and other communication equipment and facilities, computers, printers,
copy machines, fire detection, suppression and extinguishment facilities,
elevators, escalators, plumbing, plumbing fixtures, air-conditioning and heating
equipment and appliances, electrical and gas equipment and appliances, stoves,
refrigerators, dishwashers, hot water heaters, garbage disposers, trash
compactors, other appliances, carpets, rugs, window treatments, lighting,
fixtures, pipes, piping, decorative fixtures, and all other building materials,
equipment and fixtures of every kind and character used or useful in connection
with the Project, including the personal property (if any) described on the
attached pages.
<PAGE>
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 Code 30
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
ASSIGNMENT AND ASSUMPTION AGREEMENT
Dated January 13, 1999
By
and
Among
JOHN W. LOWE,
ESTATE OF JERRY F. WILSON, DECEASED,
and
ROBERT LOWELL BURDICK
as tenants in common
and
CAVALIER MANUFACTURING, INC.
(Cavalier Homes of Alabama Division)
a Delaware corporation
and
CAVALIER REAL ESTATE CO., INC.
a Delaware corporation
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT is made and entered into this
13, day of January, 1999 by and among JOHN W. LOWE, ESTATE OF JERRY F. WILSON,
Deceased, AND ROBERT LOWELL BURDICK, as tenants in common, as assignors
(collectively the "Assignors"), CAVALIER MANUFACTURING, INC. (Cavalier Homes of
Alabama Division), a Delaware corporation, formerly known as Cavalier Homes of
Alabama, Inc. ("Cavalier Manufacturing") and CAVALIER REAL ESTATE CO., INC., a
Delaware corporation, as assignee (the "Assignee").
Recitals
Pursuant to the Constitution and laws of the State of Alabama, The
Industrial Development Board of the Town of Addison has heretofore issued
revenue bonds to finance the acquisition and construction of an industrial
project (the "Project") on and including the real property described on Exhibit
A hereto and has heretofore leased the Project to the Assignors pursuant to
Lease Agreement dated as of June 1, 1984, recorded in Volume 275 at Page 376 in
the Office of the Judge of Probate of Winston County, Alabama (the "Lease
Agreement").
The Assignors have heretofore exercised the option to renew the term of
the Lease Agreement pursuant to Section 9.2 of the Lease Agreement.
The Assignors have heretofore subleased the Project to Cavalier
Manufacturing pursuant to Commercial Sub-Lease dated July 30, 1996, as amended
by Addendum to Commercial Sub-Lease dated March 31, 1997 (the "Sublease").
The Assignors and Cavalier Manufacturing desire to terminate the
Sublease for the purpose of transferring the interests of the Assignors in and
to the Project and the Lease Agreement to the Assignee.
The Assignors desire to assign and transfer, and the Assignee desires
to acquire and assume, as provided herein, all right, title and interest of the
Assignors in and to the Project and the Lease Agreement and the obligations of
the Assignors with respect thereto.
Agreement
NOW THEREFORE, in consideration of the premises and of the payment of
ten dollars ($10.00) and other good and valuable consideration by the Assignee
to the Assignors, the receipt and sufficiency of which is hereby acknowledged,
and in consideration of the mutual promises, covenants and undertakings
contained herein, the Assignors and Cavalier Manufacturing and the Assignee
hereby agree as follows:
Section 1. Cavalier Manufacturing hereby (a) exercises the option set
forth in paragraph 4(f) of the Sublease for the purchase price set forth in
paragraph 4(a) of the Sublease, (b) waives and releases all rights and
privileges of Cavalier Manufacturing set forth in paragraphs 4(c) and 4(d) of
the Sublease, and (c) directs the assignment and conveyance by the Assignors of
all right title and interest of the Assignors in and to the Project and the
Lease Agreement to the Assignee.
Section 2. The Assignors, for themselves and their respective
successors and assigns, hereby assign, sell, transfer, set over and convey to
the Assignee all of the rights, title and interests of the Assignors in and to
(1) the real property and personal property described on
Exhibit A hereto, and
(2) the Project (as defined in the Lease Agreement), and
(3) the Lease Agreement, the leasehold interest created
thereby, and all rights, privileges and options (including without
limitation each of the options set forth in Article IX of the Lease
Agreement), of the lessee set forth therein, and
(4) all rights as a named insured under any policy of title
insurance with respect to the Project.
Section 3. The Assignee, for itself and its successors and assigns,
hereby accepts the aforesaid transfer, sale, conveyance and assignment of said
rights, title, interests, privileges and options to it in accordance with
Section 1 hereof and in consideration therefor hereby assumes and agrees to duly
and punctually observe and perform all obligations, covenants, liabilities and
restrictions as lessee under the Lease Agreement from and after the date hereof.
Section 4. Each of the Assignors does hereby represent, warrant,
covenant and agree that the execution and delivery of this Agreement and
compliance with the provisions thereof will not conflict with, or constitute on
the part of the Assignors a breach of or default under, any indenture, mortgage,
deed of trust, agreement, contract or other document or instrument to which such
Assignor is a party or by which such Assignor is bound or any existing law,
rule, regulation, judgment, order or decree to which such Assignor is subject.
Section 5. The Assignee agrees that from and after the date hereof the
Assignors shall have no liability or obligation to or for the benefit of the
Assignee for performance of the Lease Agreement or any provision thereof and the
Assignee shall defend, indemnify and save harmless the Assignors from and
against any and all claims, causes of action, judgments, damages, fines,
penalties, and other losses, costs and expenses, including without limitation
reasonable attorneys' fees and costs of investigation and litigation, asserted
against or suffered by the Assignors and their respective successors and
assigns, that are related to or arise out of, or result from, or are based upon,
the observance or performance of any provision of the Lease Agreement, including
without limitation the presence of any pollutants, contaminants, toxic or
hazardous wastes, or other substances regulated by law or which might create a
hazard to health and safety, which at any time from and after the date hereof
are deposited or released on, under or included in the Project and any clean up
or other remedial action with respect to any thereof, and the violation of any
law, rule, regulation, order, ruling, notice or decree of any governmental
authority relating to pollution or the protection of human health or the
environment (specifically including any liabilities under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sections 9601 et seq.) or claims based upon state or common law theories
such as trespass or nuisance. The provisions of this Section 5 shall remain in
full force and effect until commencement of an action with respect to any such
event or non-event or occurrence or non-occurrence shall be prohibited by law.
Section 6. Cavalier Manufacturing agrees that from and after the date
hereof the Assignors shall have no liability or obligation to or for the benefit
of Cavalier Manufacturing for performance of the Sublease or any provision
thereof and Cavalier Manufacturing shall defend, indemnify and save harmless the
Assignors from and against any and all claims, causes of action, judgments,
damages, fines, penalties, and other losses, costs and expenses, including
without limitation reasonable attorneys' fees and costs of investigation and
litigation, asserted against or suffered by the Assignors and their respective
successors and assigns, that are related to or arise out of, or result from, or
are based upon, the observance or performance of any provision of the Sublease,
including without limitation the presence of any pollutants, contaminants, toxic
or hazardous wastes, or other substances regulated by law or which might create
a hazard to health and safety, which at any time from and after the date hereof
are deposited or released on, under or included in the Project and any cleanup
or other remedial action with respect to any thereof, and the violation of any
law, rule, regulation, order, ruling, notice or decree of any governmental
authority relating to pollution or the protection of human health or the
environment (specifically including any liabilities under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sections 9601 et seq.) or claims based upon state or common law theories
such as trespass or nuisance. The provisions of this Section 6 shall remain in
full force and effect until commencement of an action with respect to any such
event or non-event or occurrence or non-occurrence shall be prohibited by law.
Section 7. The Assignee agrees that the Assignors make no warranty,
either express or implied, or offer any assurances, that the Project will be
adequate for the purposes or needs of the Assignee with respect thereto.
Section 8. The Assignee has been provided with and has reviewed the
Lease Agreement and consents and agrees to the terms thereof.
Section 9. The Assignors and Cavalier Manufacturing hereby cancel,
terminate and discharge the Sublease save and excepting any agreement or
obligation of Cavalier Manufacturing to indemnify the Assignors, which
agreements and obligations shall survive such termination and remain in full
force and effect until commencement of an action based thereupon shall be
prohibited by law, and Cavalier Manufacturing does hereby waive and release any
and all claims against the Assignors for payment or performance of any
obligation or agreement thereunder.
Section 10. Cavalier Manufacturing and the Assignee each hereby
represents and warrants that (a) the execution and delivery of this Agreement
and compliance with the provisions hereof will not conflict with, or constitute
on the part of such person a breach of or default under (i) its articles of
incorporation or (ii) any indenture, mortgage, deed of trust, commitment,
agreement or other instrument to which such person is a party or by which it is
bound, or (iii) any existing law, rule, regulation, judgment, order or decree to
which such person is subject, and (b) the operations of the Assignee (i) are
consistent with and in furtherance of the purposes of the Enabling Law (as
defined in the Lease Agreement) and (ii) will preserve the character of the
Project as a "project" under the Enabling Law (as defined in the Lease
Agreement).
<PAGE>
Section 11. The Assignors and Cavalier Manufacturing and the Assignee
hereby covenant and agree each for the benefit of the other that (a) this
Agreement has been delivered in, and shall be governed by and construed in
accordance with the laws of, the State of Alabama; (b) all covenants, promises
and agreements in this Agreement contained by or on behalf of the Assignors, or
by or on behalf of Cavalier Manufacturing and the Assignee, shall bind and inure
to the benefit of their respective successors, assigns, heirs, administrators
and executors, as the case may be, whether or not so expressed; (c) this
Agreement may be executed in several counterparts, each of which shall be an
original and all of which shall constitute one and the same instrument; and (d)
if any provision in this Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or in any way impaired thereby.
IN WITNESS WHEREOF, the Assignors have executed this Assignment and
Assumption Agreement under seal and Cavalier Manufacturing and the Assignee have
each caused this Assignment and Assumption Agreement to be executed in its name,
under seal, and the same attested, by officers thereof duly authorized
thereunto, and the Assignors and Cavalier Manufacturing and the Assignee have
caused this Assignment and Assumption Agreement to be dated as of the date and
year first above written.
/S/ JOHN W LOWE (L.S.)
---------------------------------------------
John W. Lowe
/S/ ROBERT LOWELL BURDICK (L.S.)
---------------------------------------------
Robert Lowell Burdick
Estate of Jerry F. Wilson, Deceased
By /S/ JUDITH H. WILSON (L.S.)
-------------------------------------------
Judith H. Wilson, Co-Executor
By /S/ DAVID A. ROBERSON (L.S.)
-------------------------------------------
David A. Roberson, Co-Executor
CAVALIER REAL ESTATE CO., INC.
By /S/ MICHAEL R. MURPHY
------------------------------------------
Its President
------------------------------------------
SEAL
Attest: /S/ MICHAEL R. MURPHY
-------------------------------
Its: Secretary
-----------------------
CAVALIER MANUFACTURING, INC.
(Cavalier Homes of Alabama Division)
By /S/ JAMES C. CALDWELL
-----------------------------
Its President
-----------------------------
SEAL
Attest: /S/ MICHAEL R. MURPHY
--------------------------------
Its: Secretary
--------------------------
<PAGE>
CONSENT AND RELEASE
The Industrial Development Board of the Town of Addison does hereby
represent, covenant and agree that (1) The Industrial Development Board of the
Town of Addision has received a copy of the foregoing Assignment and Assumption
Agreement, does hereby consent to the assignment of the leasehold interests of
the Assignors (as defined in the said Assignment and Assumption Agreement) in
and to the property and Lease Agreement referenced in said Assignment and
Assumption Agreement to the Assignee (as defined in said Assignment and
Assumption Agreement) and will deal with the Assignee, as lessee under the Lease
Agreement, for all purposes of the Lease Agreement, (2) The Industrial
Development Board of the Town of Addison does hereby release and discharge each
of the Assignors from the observance and performance of all obligations of the
lessee arising on and after the date hereof under the Lease Agreement and any
other document executed in connection with the Lease Agreement, and (3) the
Assignors have heretofore properly exercised the option to renew the term of the
Lease Agreement pursuant to Section 9.2 thereof for a renewal term expiring on
midnight of May 31, 2024 and the Lease Agreement is in full force and effect and
the Board has not declared any default thereunder.
IN WITNESS WHEREOF, The Industrial Development Board of the Town of
Addison has caused this instrument to be executed in its name, under seal, and
the same attested, by officers thereof duly authorized thereunto as of the date
of the acknowledgement hereof.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE TOWN OF ADDISON
By: /S/ KENNETH SUDDERT
-----------------------------
Its: Chairman
-----------------------------
S E A L
Attest: /S/ GARY HYATT
----------------------------
Its: Secretary
----------------------
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that John W Lowe, an individual, is signed to the
foregoing Assignment and Assumption Agreement and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Assignment and Assumption Agreement, he executed the same voluntarily.
Given under my hand and seal this the 11th day of January, 1999.
/S/ FRANCES WAKEFIELD
--------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: January 15, 2001
-------------------
<PAGE>
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Robert Lowell Burdick, an individual, is signed to
the foregoing Assignment and Assumption Agreement and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Assignment and Assumption Agreement, he executed the same voluntarily.
Given under my hand and seal this the 12th day of January, 1999.
/S/ FRANCES WAKEFIELD
-------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: January 15, 2001
------------------------
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Judith H. Wilson, whose name as Co-Executor of the
Estate of Jerry F. Wilson, Deceased, is signed to the foregoing Assignment and
Assumption Agreement and who is known to me, acknowledged before me on this day
that, being informed of the contents of said Assignment and Assumption
Agreement, (s)he executed the same voluntarily acting in such capacity as
Co-Executor of the Estate of Jerry F. Wilson, Deceased.
Given under my hand and seal this the 11th day of January, 1999.
/S/ FRANCES WAKEFIELD
--------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: January 15, 2001
------------------------
<PAGE>
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that David A. Roberson, whose name as Co-Executor of the
Estate of Jerry F. Wilson, Deceased, is signed to the foregoing Assignment and
Assumption Agreement and who is known to me, acknowledged before me on this day
that, being informed of the contents of said Assignment and Assumption
Agreement, (s)he executed the same voluntarily acting in such capacity as
Co-Executor of the Estate of Jerry F. Wilson, Deceased.
Given under my hand and seal this the 13th day of January, 1999.
/S/ SHIRLEY ANN BARNETT
---------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 2-4-2001
------------------
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Michael R. Murphy, whose name as President of
Cavalier Real Estate Co., Inc., a Delaware corporation, is signed to the
foregoing Assignment and Assumption Agreement and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Assignment and Assumption Agreement, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation
acting as office of such limited corporation as aforesaid.
Given under my hand and seal this the 13th day of January, 1999.
/S/ SHIRLEY ANN BARNETT
---------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 2-4-2001
------------
<PAGE>
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that James C. Caldwell, whose name as President of
Cavalier Manufacturing, Inc. (Cavalier Homes of Alabama Division), a Delaware
corporation, is signed to the foregoing Assignment and Assumption Agreement and
who is known to me, acknowledged before me on this day that, being informed of
the contents of said Assignment and Assumption Agreement, he, as such officer
and with full authority, executed the same voluntarily for and as the act of
said corporation acting as office of such limited corporation as aforesaid.
Given under my hand and seal this the 13th day of January, 1999.
/S/ LOU ANN MARCUM
-----------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 7-13-99
---------------
<PAGE>
Exhibit A
to
Assignment and Assumption Agreement
By and Among
John W. Lowe,
Estate of Jerry F. Wilson, Deceased,
and
Robert Lowell Burdick
and
Cavalier Manufacturing, Inc.
(Cavalier Homes of Alabama Division)
and
Cavalier Real Estate Co., Inc.
- --------------------------------------------------------------------------------
The descriptions of the real and personal property referenced herein
appear on the following pages.
LEASE AGREEMENT
THIS LEASE AGREEMENT dated as of February 1, 1994 is entered into by
THE INDUSTRIAL DEVELOPMENT BOARD OF THE TOWN OF ADDISON, a public corporation
organized under the laws of the State of Alabama (the "Issuer"), and Winston
County Industrial Development Association, an Alabama general partnership (the
"Partnership") composed of the following individuals as general partners
(collectively the "Partners"): Robert Lowell Burdick, James C. Caldwell, Stephen
O. Hayes, Jonathan B. Lowe, Michael Patrick Lowe, William Revis McDaniel, John
Barry Mixon, David A. Roberson, Rickie D. Romine, Jerry F. Wilson, Jr., and
Jonathon D. Wilson.
Recitals
The Issuer has duly authorized the issuance of its revenue bonds
described below (the "Bonds") under and pursuant to a Mortgage and Indenture
dated as of February 1, 1994 (the "Indenture") between the Issuer and First
Commercial Bank, a banking corporation with its principal office in the City of
Birmingham, Alabama (the "Bank"), for the benefit of the registered owners of
the Bonds.
The Bonds to be issued under the Indenture shall be issued in principal
amounts of not less than $100,000 each and in an aggregate principal amount of
$1,275,000 and shall be designated Industrial Development Revenue Bonds (Winston
County Industrial Development Association Project) and dated the date of their
initial issuance. The proceeds of the Bonds 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"), including the payment and retirement
of obligations heretofore issued by the Issuer for such purpose.
Pursuant to this Lease Agreement the Issuer has agreed to lease the
Project to the Partnership and the Partnership 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 Bonds.
The Bonds shall be limited obligations of the Issuer payable solely out
of the rentals payable by the Partnership 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 Bonds, the Issuer shall assign and pledge to the Bondholders 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 Bank for the benefit of the
Bondholders. As additional security for the payment of the Bonds the Partnership
and the Partners have guaranteed the payment of the Bonds pursuant to a Bond
Guaranty Agreement dated as of February 1, 1994 (the "Guaranty") to the
Bondholders. Recourse against each of the Partners in his capacity as a general
partner of the Partnership and a party to the Guaranty is limited to the extent
set forth in this Lease Agreement and the Guaranty.
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 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 and vice versa.
(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 Issuer Representative shall have the meaning assigned
thereto in the Indenture.
Authorized Partnership Representative shall have the meaning
assigned thereto in the Indenture.
Bank shall mean First Commercial Bank, Birmingham, Alabama and its
successors and assigns with respect to the Indenture.
Basic Rent shall mean that portion of the rent payable under Section
5.02(a) hereof.
Bond shall mean collectively any Bond executed and delivered
pursuant to the Indenture.
Bondholder shall mean the registered owner of any Bond.
Bond Payment Date shall mean a date on which any installment of the
principal of (and premium, if any) or interest on the Bonds 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 Bonds.
Bond Register shall mean the register or registers for the
registration and transfer of Bonds 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.
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 Partnership and acceptable to the Bondholders.
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 Partnership and
acceptable to the Bondholders.
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 Partnership
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
February 1, 1994 between the Issuer and the Bank, 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) is not related to any of the Partners
and does not have any direct financial interest or any material indirect
financial interest in common with any of the Partners or in the Partnership, the
Issuer or in any other obligor upon the Bonds or in any related party of the
Partnership, the Issuer or of such other obligor, and (3) is not connected with
any of the Partnership, 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.
Lease Agreement shall mean this instrument as originally executed or
as it may at any time be supplemented, modified or amended by one or more
supplemental leases or other instruments supplemental hereto.
Lease Payments shall mean and include all payments of whatever
nature or purpose to be made by the Partnership hereunder and all financial
obligations of the Partnership 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 Town of Addison, 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
Bondholders) incurred in the collection of such gross proceeds.
Outstanding when used with respect to Bonds shall mean, as of the
date of determination, all Bonds theretofore executed and delivered under the
Indenture, except (1) Bonds theretofore canceled by the Issuer, or (2) Bonds in
exchange for or in lieu of which other bonds have been issued under the
Indenture.
Partner shall mean any of the Partners and his assigns, heirs,
executors and administrators.
Partners shall mean collectively Robert Lowell Burdick, James C.
Caldwell, Stephen O. Hayes, Jonathan B. Lowe, Michael Patrick Lowe, William
Revis McDaniel, John Barry Mixon, David A. Roberson, Rickie D. Romine, Jerry F.
Wilson, Jr. and Jonathon D. Wilson and the respective assigns, heirs, executors
and administrators thereof.
Partnership shall mean Winston County Industrial Development
Association, an Alabama general partnership, and its successors and assigns.
Paying Agent shall mean any person authorized by the Issuer to pay
the principal of (and premium, if any) or interest on any Bonds 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
Partnership, (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 Bondholders, adequate reserves
have been established by the Partnership, and (4) such minor defects,
irregularities and encumbrances as do not, in the opinion of Bondholders, 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.
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,
<PAGE>
(3) acquisition, transportation and installation costs
for personal property and fixtures,
(4) fees for architectural, engineering and supervisory
services,
(5) expenses incurred in the enforcementof 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 Partnership
in connection with the financing of the Project, including legal,
consulting and accounting fees,
(8) the principal amount of the Issuer's Industrial
Development Revnue Bond (Winston County Industrial Development
Association Project) dated and issued February 26, 1993 (the "1993
Bond") with respect to the Project and interest thereon during the
construction of the Project, and
(9) reimbursement to the Partnership for any of the foregoing
costs, fees and expenses set forth in (1) through (8) above, paid by
it with its own funds, except the principal amount of the 1993 Bond.
Project Site shall mean the real estate described in Demising
Clause I.
Qualified Investments shall have the meaning assigned in the
Indenture.
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.
<PAGE>
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, this
Lease Agreement being executed on the dates of the respective acknowledgments
hereto attached.
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.
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 Partnership or the Partners shall bind their respective successors, assigns,
heirs, executors, and administrators, 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 Partnership 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 Bonds 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 September 10, 1992 and all other prior agreements,
both written and oral, between the Issuer, the Partnership and the Partners
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 September 10, 1992 and any other agreement between the
Issuer, the Partnership and the Partners providing for applicable State tax
exemptions to apply to the Partnership and the Project. Neither the Issuer, the
Partnership nor the Partners 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 Town Hall, Addison, Alabama
35540;
(2) if to the Partnership, c/o Mr. John Lowe, 1210 21st
Street, P. O. Box 576, Haleyville, Alabama 35565;
(3) if to the Bank, at First Commercial Bank, 2000
Southbridge Parkway, Birmingham, Alabama; and
(4) if to the Bondholders, at their respective addresses
set forth in the Bond Register.
A duplicate copy of each notice, certificate or other communication given
hereunder by either the Issuer or the Partnership to the other shall also be
given to and the Bank. The Issuer, the Partnership, the Bank and the Bondholders
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 Partnership.
(b) If, after full payment of the Bonds, there is any surplus remaining
in the Special Funds, the Issuer will promptly pay such surplus to the
Partnership.
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 in 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 Bonds, the
acquisition, construction, and equipping of the Project and the leasing of the
same to the Partnership will be in furtherance of the purposes of the Issuer's
incorporation and the Enabling Law.
(3) The Bonds will be issued and delivered contemporaneously with the
delivery of this Lease Agreement.
SECTION 2.02 Representations by the Partnership
The Partnership is duly organized as a general partnership under the
laws of the State of Alabama and the Partners are all of the general partners of
the Partnership; is not in violation of any provisions of its partnership
agreement or the laws of the State of Alabama; has power and authority to enter
into this Lease Agreement; and by proper action of the Partners has duly
authorized the execution and delivery of this Lease Agreement.
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
Partnership to be paid, kept and performed, does hereby assign, demise and lease
to the Partnership, and the Partnership does hereby accept, lease, take and hire
from the Issuer, the following property:
I.
The following described real property located in Winston County,
Alabama, within twenty-five miles of the Municipality and not within the
corporate limits or police jurisdiction of any other 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:
<PAGE>
PARCEL NO. 1
Begin at the Northeast corner of Section 32, T-9-S, R-6-W; thence West along the
North boundary line of said Section 32 a distance of 89.34 feet to the West
right-of-way line of Winston County Highway No. 41; thence S 18 31' E along said
West right-of-way line a distance of 1042 feet; thence S 71 29' W a distance of
10 feet to the point of beginning of the land herein described; thence Southerly
parallel to said West right-of-way line a distance of 596 feet to the North
right-of-way line of a paved street; thence S 85 36' W along the North
right-of-way line of said street a distance of 579.1 feet; thence N 16 03' W a
distance of 486.8 feet; thence N 74 49' E a distance of 567.7 feet to the point
of beginning, containing 7.15 acres, more or less, lying and being situated in
the NE1/4 of Section 32 and the NW1/4 of Section 33, all in T-9-S, R-6-W;
Winston County, Alabama.
PARCEL NO. 2
Begin at the Northeast corner of Section 32, T-9-S, R-6-W; thence West along the
North boundary line of said Section 32 a distance of 89.34 feet to the West
right-of-way line of Winston County Highway No. 41; thence S 18 31' E along said
West right-of-way line a distance of 1042 feet; thence S 71 29' W a distance of
10 feet; thence Southerly parallel to said West right-of-way line a distance of
646 feet to the South right-of-way line of a paved street being the point of
beginning of the land herein described; thence Southerly along the West
right-of-way line of said Highway No. 41 a distance of 325.7 feet; thence N 70
08' W a distance of 600.7 feet; thence N 16 03' W a distance of 80 feet to the
South right-of-way line of said paved street; thence N 85 36' E along said South
right-of-way line a distance of 572.4 feet to the point of beginning, containing
2.6 acres, more or less, lying and being situated in the NE1/4 of Section 32 and
the NW1/4 of Section 33, all in T-9-S, R-6-W; Winston County, Alabama.
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 Bonds or with funds advanced or
paid by the Partnership 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 4
The Project
SECTION 4.01 Acquisition of Project; Project Costs.
(a) The Issuer has acquired, constructed and installed the Project at
the direction of the Partnership and from the principal proceeds derived from
the sale of the Bonds the Issuer will pay all Project Costs. All the proceeds of
the 1993 Bond were expended for the acquisition, construction and installation
of the Project and in addition the Partnership expended more than $25,000 of its
own funds therefor. The Project was not completed until after June 1, 1993.
(b) The Issuer and the Partnership 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. One of the agents appointed by the Partnership shall be
designated its Project Supervisor. Either the Issuer or the Partnership may from
time to time, by written notice also filed with the Bank, 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 Partnership, with reference to
all the foregoing matters.
<PAGE>
SECTION 4.02 No Warranty of Suitability by Issuer
THE PARTNERSHIP 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 PARTNERSHIP'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 Title Insurance
(a) The Partnership has obtained a title insurance policy in an amount
equal to $1,275,000 insuring the first mortgage in the Project. Any proceeds of
such title insurance shall be applied to the prepayment of the Bonds on the
earliest Business Day for which the required notice may be given, as provided in
the Bonds.
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 25, 2033.
(b) Upon payment in full of the Bonds and all fees and expenses of the
Bondholders and any Paying Agent, the Partnership 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 Bonds, the
Indenture and the Bondholders shall be ineffective and the Bondholders 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
Partnership shall be on all of the terms and conditions hereof, except that the
Partnership shall not be required to carry any insurance for the benefit of the
Bondholders.
SECTION 5.02 Rental and Payment Provisions; Net Lease
(a) Basic Rent. Not later than each Bond Payment Date, the Partnership
shall pay to the Bank as Paying Agent for payment to the respective Bondholders
in immediately available funds for the account of the Issuer an amount equal to
the principal of and interest on the Bonds maturing and coming due on such Bond
Payment Date (herein called "Basic Rent").
(b) Additional Rent. The Partnership shall pay as additional rent to
the Bank the reasonable fees, charges and expenses of the Bank for necessary
services rendered by it and expenses incurred by it under the Indenture, as and
when the same become due.
(c) Prepayment of Bonds. The Partnership acknowledges and agrees that
prepayment of the Bonds is required in certain events, including without
limitation damage to or condemnation of the Project as more particularly set
forth in this Lease Agreement, and the Partnership 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 Partnership recognizes, acknowledges and agrees that
it is the intention hereof that this Lease Agreement be a net lease and that
until the Bonds are 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 Bonds 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 Bondholders
In the event that the Partnership fails to perform or observe any of
its covenants in this Lease Agreement, the Issuer or the Bondholders (or the
Bank on behalf of the Bondholders), after first notifying the Partnership 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 Partnership. All
amounts so advanced therefor by the Issuer or the Bondholders, together with
interest thereon from the date of advancement at the Bank's prime rate per annum
or the maximum rate of interest allowed by law, whichever is less, shall become
an additional obligation payable by the Partnership to the Issuer or to the
Bondholders upon demand and secured hereby.
<PAGE>
SECTION 5.04 Indemnity of Issuer, Bank and Bondholders
(a) The Partnership agrees to pay, and to indemnify and hold the
Issuer, the Bank and the Bondholders harmless against, any and all liabilities,
losses, damages, claims or actions (including all reasonable attorneys' fees and
expenses of the Issuer, the Bank or the Bondholders, as the case may be), of any
nature whatsoever incurred by the Issuer, the Bank or the Bondholders, 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 Partnership 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 Bonds or a subsequent sale of
the Bonds 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 Partnership furnished to the Issuer in
connection therewith. The covenants of indemnity by the Partnership contained in
this Section shall survive the termination of this Lease Agreement.
(b) The Partnership hereby agrees that (1) the Issuer shall not incur
any liability to the Partnership, 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 Partnership.
(c) The Partnership further agrees to indemnify each 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 Partnership Unconditional;
Limited Recourse Against Partners
(a) The obligations of the Partnership 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 Partnership might
otherwise have against the Issuer, the Bank or the Bondholders. The Partnership
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
Bonds; 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
Partnership 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 Partnership 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 any of the Bonds remain Outstanding.
(b) (1) Anything herein to the contrary notwithstanding, the obligation
and liability of each respective Partner, in his capacity as a general partner
of the Partnership, for payment of the Lease Payments is hereby expressly
limited to and shall not exceed that portion of the Lease Payments determined by
multiplying the same by the Percentage of Liability for such Partner set forth
opposite the name of such Partner below:
<PAGE>
Name of Partner Percentage of Liability
Robert Lowelll Burdick 12.5%
James C. Caldwell 12.5%
Stephen O. Hayes 12.5%
William R. McDaniel 12.5%
John Barry Mixon 12.5%
David A. Roberson 12.5%
Rickie D. Romime 12.5%
Jerry F. Wilson, Jr. 12.5%
Jonathon D. Wilson 12.5%
Jonathon B. Lowe 6.25%
Michael Patrick Lowe 6.25%
(2) The Issuer, the Bank and the Bondholders recognize,
acknowledge and agree that, as a condition of and a consideration for the
execution and delivery of this Lease Agreement, the Issuer, the Bank and the
Bondholders shall have no recourse against any Partner for payment of any
portion of the Lease Payments in excess of the Percentage of Liability of such
Partner for such Lease Payments as set forth above.
(3) In the event any other provision of this Lease Agreement
is inconsistent or in conflict with the provisions of this Section 5.05(b), the
provisions of this Section 5.05(b) shall govern and control in all respects.
ARTICLE 6
Maintenance, Alterations, Replacements, Insurance; and
Environmental Compliance
SECTION 6.01 Maintenance and Repairs
(a) The Partnership 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 Partnership will not permit any mechanics' or other liens to
stand against the Project or the Project Site for labor or material furnished
it. The Partnership 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 Partnership may, at its own expense, make structural changes,
additions, improvements, alterations or replacements to the Improvements that
they may deem desirable, provided that the Partnership demonstrate to the
satisfaction of the Bondholders 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 Partnership 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
Partnership or the Issuer shall become a part of the Project and shall be
covered by this Lease Agreement and the Indenture.
<PAGE>
(d) The Partnership 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 Partnership on real property adjacent to
the Project Site. The Partnership 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 Partnership, 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 Partnership 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 Partnership
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 Partnership 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 Partnership shall
demonstrate to the satisfaction of the Bondholders that the operation of the
Project will not be adversely affected thereby.
(e) The Issuer will also, upon request of the Partnership, 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 Partnership 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 Partnership 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 Partnership 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
Bondholders therefor, provided that the Partnership 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 Partnership 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 Partnership 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 Partnership 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 Partnership
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 Partnership 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 Bonds remains Outstanding and unpaid.
(b) The Partnership 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 Partnership, will cooperate fully with the
Partnership in any such contest.
<PAGE>
SECTION 6.04 Insurance Required
(a) The Partnership 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 Bond- holders that the
insured amount will be sufficient to pay the Bonds 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 Bonds 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 Partnership 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 Partnership
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 Bank on behalf of the Bondholders and the Partnership (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 Bank on behalf of the Bondholders and the Partnership; provided that all
losses (including those in excess of $25,000) may be adjusted by the
Partnership, subject, in the case of any single loss in excess of $25,000, to
the approval of the Bank on behalf of the Bondholders. The Partnership 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
Partnership may not, without the consent of the Bank on behalf of the
Bondholders, 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 Bank on behalf of the
Bondholders 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 Bank on behalf of the Bondholders.
<PAGE>
(d) All policies evidencing the insurance required to be carried by
this Section shall be deposited with the Bank on behalf of the Bondholders;
provided, however, that in lieu thereof the Partnership may deposit with the
Bank on behalf of the Bondholders 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 Partnership will furnish
to the Bank on behalf of the Bondholders evidence reasonably satisfactory to the
Bank on behalf of the Bondholders 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
Partnership shall have the right to change insurers from time to time as it
deems necessary or desirable.
SECTION 6.05 Installation By Partnership of Own Machinery
and Equipment
The Partnership 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 Partnership 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 Partnership 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 Partnership 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 contemplated
businesses 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 Bondholders 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 Bondholders in writing if the Partnership 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 Partnership or
the Project Site; and (7) deliver to the Bondholders, at the Bondholders
request, copies of any and all documents in the Partnership's possession or to
which the Partnership 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 Bondholders at any time reasonably believes that the
Partnership 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
Bondholders may require the Partnership to furnish to the Bondholders an
environmental audit or site assessment reasonably satisfactory to the
Bondholders with respect to the matters of concern to the Bondholders. Such
audit or assessment shall be performed at the expense of the Partnership by a
qualified consultant approved by the Bondholders.
<PAGE>
(c) The Partnership 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 Partnership threatened; (2) the Partnership
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 Partnership shall defend, indemnify and save harmless the
Issuer, the Bank and the Bondholders 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 Bondholders 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 Issuer, the Bank and the Bondholders.
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 Partnership 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 Partnership 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 Partnership
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 Partnership 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 Bank for the
benefit of the Bondholders and the Issuer. All Net Proceeds of insurance
resulting from claims for such losses shall be paid to the Bank for the benefit
of the Bondholders, whereupon (1) the Partnership, or the Issuer at the
direction of the Partnership, 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 Partnership and as will not
impair the operating unity of the Project or its character as a "project" under
the Enabling Law, and (2) the Bank for the benefit of the Bondholders 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 Bonds 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 Bank for the benefit of the Bondholders, or, if
the Bonds are fully paid, shall be paid to the Partnership.
(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 Partnership 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 Bank for the benefit of the Bondholders
<PAGE>
for the account of the Issuer the moneys necessary to complete said work. The
Partnership shall not by reason of the payment of such excess costs (whether by
direct payment thereof or payment to the Bank for the benefit of the Bondholders
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 Partnership is entitled to
exercise an option to purchase the Project and duly do so in accordance with
Section 11.03 hereof, then neither the Partnership 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 Bonds shall
be paid to the Bank for the benefit of the Bondholders and the excess thereafter
remaining (if any) shall be paid to the Partnership.
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 Partnership 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 Bondholders and the amount awarded to the Partnership for
the taking of all or any part of the leasehold estate of the Partnership in the
Project, shall be paid to the Bank for the benefit of the Bondholders and
applied in one or more of the following ways as shall be directed in writing by
the Partnership:
(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 Partnership (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 Partnership will nonetheless complete the work thereof
and will pay to the Bank for the benefit of the Bondholders 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 Partnership
shall not by reason of the payment of such costs (whether by direct payment
thereof or payment to the Bondholders 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 Bonds 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 Bank for the benefit of the Bondholders, or, if
the Bonds are fully paid, shall be paid to the Partnership.
(d) The Issuer shall cooperate fully with the Partnership 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 Partnership 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 Partnership.
(e) Anything in this Section to the contrary notwithstanding, if as a
result of such taking, the Partnership 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 Bonds shall be paid to the Bank for the benefit of the
Bondholders, and the excess thereafter remaining (if any) shall be paid to the
Partnership.
<PAGE>
(f) The Partnership 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 Bonds
SECTION 8.01 Provisions Relating to Assignment and
Subleasing
The Partnership 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 Bondholders and any assignee or sublessee shall in any
way relieve the Partnership from primary liability for any of its obligations
hereunder. In the event of any such assignment or subleasing the Partnership
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 Partnership 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 Partnership shall furnish to the Issuer and the Bank for the
benefit of the Bondholders 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 Bank for the benefit of the Bondholders as
additional security for the obligations of the Partnership 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 Bank for the benefit of the Bondholders as security for payment of the
principal of and the interest on the Bonds and the Partnership hereby consents
to such assignment and pledge. The Issuer has in the Indenture obligated itself
to follow the instructions of the Bondholders in the election or pursuit of any
remedies herein vested in it. The Bondholders 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 Bondholders, and
the Bondholders are deemed to be a third party beneficiary of the covenants,
agreements and representations of the Partnership herein contained.
(b) Prior to the payment in full of the Bonds, the Issuer and the
Partnership shall have no power to modify, alter, amend or terminate this Lease
Agreement without the prior written consent of the Bondholders. The Issuer will
not amend the Indenture or any indenture supplemental thereto without the prior
written consent of the Partnership. Neither the Issuer nor the Partnership will
unreasonably withhold any consent herein or in the Indenture required of either
of them.
(c) The Partnership 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 Partnership other
than its specific obligations and liabilities undertaken in this Lease
Agreement.
<PAGE>
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 Bonds
(a) Upon the occurrence of any event which gives rise to any mandatory
redemption of Bonds, the Issuer will redeem any or all of the same in accordance
with the respective provisions thereof and the Indenture.
(b) If the Bonds are subject to optional redemption, the Issuer will,
but only upon the written request of the Partnership, redeem the same in
accordance with the respective provisions thereof and the Indenture.
(c) On any redemption or prepayment date with respect to the Bonds, the
Partnership shall pay to the Bank for the benefit of the Bondholders for the
account of the Issuer the applicable redemption price with respect to the Bonds.
ARTICLE 9
Covenants of the Partnership and the Partners
SECTION 9.01 Covenants of the Partnership
The Partnership hereby covenants and agrees that, so long as the Bonds
are Outstanding:
(a) The Partnership 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
Partnership will comply with all valid laws, regulations, ordinances, and
requirements applicable to the Project.
(b) The Partnership will permit the Issuer, the Bondholders, 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
Partnership will permit a public accountant or firm of public accountants
designated by any Bondholder to have access to, inspect, examine and make copies
of the books and records, accounts and data of the Partnership.
(c) The Partnership 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 Partnership
shall furnish to the Issuer and to the Bondholders with reasonable promptness
such financial statements and data as may be reasonably requested thereby,
including without limitation annual financial statements of the Partnership and
annual operating statements with respect to the Project.
(d) The Partnership will maintain and preserve its existence as a
general partnership under the laws of the State of Alabama 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 Partnership 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
Bondholders.
(f) The Partnership 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 Partnership 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 Partnership will duly pay and discharge all taxes, assessments
and other governmental charges and liens lawfully imposed on the Partnership,
upon the properties and interests of the Partnership, and the Project.
(h) The Partnership 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 Bondholders in
the Project and shall submit evidence of such filing, recording, refiling and
rerecording to the Bondholders.
<PAGE>
(i) The Partnership 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 Partnership 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 Partnership; and (4) there are no liens
on the real or personal property of the Partnership pursuant to
Section 4068 of ERISA.
SECTION 9.02 Covenants of the Partners
Each of the Partners, by his execution and delivery of the Guaranty in
his capacity as a general partner of the Partnership, does hereby covenant and
agree individually as follows:
(a) Such Partner will maintain proper books of record and account in
accordance with generally accepted accounting principles, of all his business
and affairs and shall furnish to the Bondholders with reasonable promptness such
financial information relative to such Partner as the Bondholders shall
reasonably request; and
(b) Such Partner will not transfer or convey any substantial portion of
his property, assets or licenses without receipt of consideration therefor
consisting of the fair market value thereof.
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, or any other amount
due and payable under Section 5.02(a) hereof, that has become due and payable by
the terms of this Lease Agreement and such failure continues for a period of
three Business Days after such payment becomes due.
(2) Failure by the Partnership 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 Partnership by the
Issuer, the Bank or the Bondholders, provided that if such default is of a kind
which cannot reasonably be cured within such fifteen- day period, the
Partnership shall have a reasonable period of time within which to cure such
default, provided that it begin 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 Partnership; or the filing by
the Partnership or any of the Partners of a voluntary petition in bankruptcy; or
failure by the Partnership or any of the Partners promptly to lift any
execution, garnishment or attachment of such consequence as will impair the
ability of the same to perform its or his obligations hereunder; the Partnership
or any of the Partners 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 Partnership or any of the Partners as a
bankrupt; or any assignment by the Partnership or any of the Partners for the
benefit of its or his creditors; or the entry by the Partnership or any of the
Partners into an agreement of composition with its or his creditors; or if a
petition or answer is filed by the Partnership or any of the Partners proposing
the adjudication of the same as a bankrupt or its or his 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.
<PAGE>
(4) Any warranty, representation or other statement by or on behalf of
the Partnership and contained in this Lease Agreement or in the Guaranty or in
any other document or certificate furnished by the Partnership in connection
with the issuance of the Bonds 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 Partnership by
the Bondholders, the Bank 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 Bondholders (or the Bank on their behalf) may take any of the
following remedial steps:
(1) Declare all installments of Basic Rent, and any other payments to
be paid under Section 5.02(a) hereof, 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 Partnership, relet the Project
or any part thereof for the account of the Partnership, 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 Bondholders (or the Bank on their behalf) may deem
advisable, and such reletting of the Project shall not be construed as an
election to terminate this Lease Agreement nor relieve the Partnership of its
obligations to pay Basic Rent and additional rent or to perform any of their
other obligations under this Lease Agreement, all of which shall survive such
reentry and reletting, and the Partnership 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 expenses of the Bondholders (or the Bank on their behalf) 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 Partnership from
possession of the Project and, if the Bondholders (or the Bank on their behalf)
elect so to do, lease the same for the account of the Issuer, holding the
Partnership 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. To the extent
permitted by law, the Partnership expressly waives any notice of sale or
disposition of the Project and any rights or remedies of the Bondholders 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 Bondholders or Issuer existing after default. To the extent that
such notice is required and cannot be waived, the Partnership agrees that if
such notice is given to the Partnership 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.
(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 Partnership under this Lease
Agreement or by law.
<PAGE>
SECTION 10.03 No Remedy Exclusive
No remedy herein conferred upon or reserved to the Issuer or the
Bondholders 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 Partnership should default under any of the provisions
of this Lease Agreement and the Issuer or the Bank or the Bondholders (in their
own names 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
Partnership herein contained, the Partnership will on demand therefor pay to the
Issuer, the Bank or the Bondholders (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.
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 Partnership shall have, if not in default hereunder, the option to
cancel or terminate this Lease Agreement at any time after full payment of the
Bonds 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 Bonds
Anything in this Lease Agreement to the contrary notwithstanding, the
Partnership shall, if not in default hereunder, have the option to purchase the
Project at any time prior to the full payment of all Bonds 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 Partnership,
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 Partnership, the
Partnership 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
<PAGE>
(b) Title to the Project or the Project Site or any part thereof or the
leasehold estate of the Partnership 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
Partnership 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 Partnership 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
Partnership, 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 Partnership therein, which taxes were not being imposed on the
date of this Lease Agreement.
To exercise such option, the Partnership shall, within sixty days
following the event authorizing the exercise of such option, give written notice
to the Issuer and to the Bank for the benefit of the Bondholders and shall
specify therein the date of closing such purchase. The purchase price payable by
the Partnership 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 all Bonds 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
Partnership to the Bank for the benefit of the Bondholders.
Upon the exercise of the option granted herein and the prepayment of
the Bonds as provided in this Section, any Net Proceeds of insurance or
condemnation award then on hand or thereafter received shall be paid to the
Partnership.
SECTION 11.04 Option to Purchase Project After Payment of the Bonds
If no Event of Default exists hereunder, the Partnership shall have the
option to purchase the Project at any time following full payment of the Bonds
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 Partnership 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 Partnership, if not in default hereunder, shall also have the
option to purchase 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 rate cost thereof to
the Issuer, provided that they furnish the Issuer and the Bank for the benefit
of the Bondholders with the following:
(i) 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
Partnership 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.
<PAGE>
(ii) 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 nd improvements above referred
to will not impair the usefulness of the Improvements or the means of
ingress thereto and egress therefrom.
(iii) 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 Bonds on the earliest Business Day
for which the required notice may be given, as provided in the Bonds.
(b) Upon receipt by it of the notice and certificate required in this
Section to be furnished by the Partnership and the payment by the Partnership to
the Bank for the benefit of the Bondholders of the purchase price, the Issuer
will promptly deliver to the Partnership the documents referred to in Section
11.06 hereof and will secure from the Bank a release from the lien of the
Indenture of the portion of the Project Site with respect to which the
Partnership 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 Partnership 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 Partnership 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 Partnership documents conveying to the Partnership 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) these liens
and encumbrances created by the Partnership or to the creation or suffering of
which the Partnership consented; and (3) those liens and encumbrances resulting
from the failure of the Partnership 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 Bonds are being sold on the basis
that the interest payable on the Bonds is excludable from gross income of the
Bondholders for federal income taxation under Section 103 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Issuer and Partnership do
each hereby covenant and agree with the Bondholders that neither the Partnership
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 Bonds, that would cause the interest on the Bonds 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 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; (ii) ninety-five percent (95%) or more of the net proceeds of the Bonds
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 Bonds
will be used for the acquisition, construction and equipping of the Project
<PAGE>
or for issuance expenses with respect to the Bonds, or shall be rebated to the
United States of America as provided in the Indenture, and no part of the
proceeds of the Bonds are to be used by the Partnership, 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 Bonds 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 120 percent 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; (v)
neither the Bonds 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
Bonds 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 Bonds shall be used to acquire (directly or
indirectly) any land (or any interest therein); (viii) none of the net proceeds
of the Bonds 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 Bonds; (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 Bonds shall be used to finance the issuance costs of the Bonds; (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 Bonds shall not be used for the payment of any Project Cost paid or
incurred prior to the date of the Inducement Agreement (September 12, 1992) and
the Bonds are being issued within not more than one year after completion of the
Project.
SECTION 12.02 Partnership's Obligation If Interest on the Bonds 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 Bonds 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 Partnership 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
Bondholders shall notify the Partnership in writing that all outstanding Bonds
shall be prepaid on the next practicable interest payment date, irrespective of
whether the Partnership has violated any covenant or representation in this
Lease Agreement. Within thirty days after the receipt of such notice the
Partnership 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 Bank for the benefit of the Bondholders, or
(ii) pay to the Bank for the benefit of the Bondholders the sum
specified in subsection (b) of this Section, in which event the
Partnership 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 Partnership shall not be required to
carry any insurance for the benefit of the Bondholders.
Any other options of the Partnership 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 Partnership for the Project in the event
interest on the Bonds is determined to be includable in gross income for federal
income taxation as provided in subsection (a), or the amount payable to the Bank
for the benefit of the Bondholders in lieu of purchasing the Project, shall be
equal to the sum of the following:
<PAGE>
(i) the principal amount of all outstanding Bonds plus accrued
interest thereon to the date of their prepayment;
(ii) the Bank's fees and expenses under the Indenture accrued and to
accrue until the prepayment of all Bonds; and
(iii) a premium for each Bond the interest on which has been
determined to be taxable (whether or not such Bond has matured) equal
to 3% of the principal amount of such Bond determined to be taxable.
(c) Upon payment by the Partnership of the amount specified in
subsection (b) of this Section, the Issuer shall call the outstanding Bonds for
prepayment on the next practicable interest payment date. The Issuer shall cause
the Bank to pay to the registered owner of each Bond being prepaid, in addition
to the 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 Bond, and the Issuer shall
cause the Bank to pay to the last registered owner of each taxable Bond all or a
portion of the principal amount of which has already matured, the premium
(calculated under clause (iii) of subsection (b) of this Section) allocable to
such taxable principal amount of such Bond.
SECTION 12.03 Federal Rebate Payments.
The provisions of Article 9 of the Indenture with respect to federal
rebate payments are incorporated herein by reference, and the Partnership shall
comply with said provisions and shall perform and discharge all obligations,
duties and responsibilities imposed upon the Partnership 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.
IN WITNESS WHEREOF, the Issuer has caused this Lease Agreement to be
executed in its name and its seal to be hereunto affixed and the same to be
attested, all by its duly authorized officers, and the Partnership has caused
this Lease Agreement to be executed by all of its general partners, and the
parties hereto have caused this Lease Agreement to be dated as of February 1,
1994.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE TOWN OF ADDISON
By /S/ KENNETH SUDDERT
-----------------------------
Its Chairman
S E A L
Attest: /S/ GARY HYATT
-------------------------
Its Secretary
WINSTON COUNTY INDUSTRIAL DEVELOPMENT ASSOCIATION
(an Alabama general partnership)
By /S/ DAVID A. ROBERSON
-----------------------------
David A. Roberson, A General Partner
on behalf of said Partnership
<PAGE>
STATE OF ALABAMA )
)
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Kenneth Sudduth, whose name as Chairman of the Board
of Directors of The Industrial Development Board of the Town of Addison, 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 28th day of February, 1994.
/S/ LOU ANN MARCUM
----------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 7/16/95
------------
STATE OF ALABAMA )
)
JEFFERSON)COUNTY )
I, undersigned, a Notary Public in and for said County in said State,
hereby certify that David A. Roberson whose name as a general partner of Winston
County Industrial Development Association, an Alabama general partnership, 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 general partner and with full authority, executed the
same voluntarily for and as the act of said general partnership.
Given under my hand and seal this the 1st day of March, 1994.
/S/ CHARLES HAYES
------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: 3/14/97
----------
LEASE AGREEMENT
- ------------------------------------------------------------------
Dated as of February 1, 1994
Between
The Industrial Development Board
of the Town of Addison
and
Winston County Industrial Development Association
(an Alabama general partnership)
- ------------------------------------------------------------------
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
February 1, 1994
from
The Industrial Development Board
of the Town of Addison
to
Winston County Industrial Development Association
--------------------------------------------------------
Heating and air conditioning equipment and facilities,
electrical equipment and facilities, fire suppression and extinguishment
equipment and facilities, plumbing fixtures, and building materials and
supplies, installed in or about or incorporated in the Project.
<PAGE>
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............................. 7
SECTION 1.03 Separability Clause................................. 7
SECTION 1.04 Effect of Headings and Table of
Contents................................................... 7
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......................... 8
SECTION 1.09 Issuer's Liabilities Limited........................ 8
SECTION 1.10 Prior Agreements Canceled........................... 8
SECTION 1.11 Notices............................................. 8
SECTION 1.12 The Special Funds................................... 9
ARTICLE 2
Representations and Warranties
SECTION 2.01 Representations by the Issuer....................... 9
SECTION 2.02 Representations by the Partnership.................. 9
ARTICLE 3
Demising Clauses............................ 10
ARTICLE 4
The Project
SECTION 4.01 Acquisition of Project; Payment of Excess
Project Costs............................ 11
SECTION 4.02 No Warranty of Suitability by Issuer................ 13
SECTION 4.03 Issuer to Pursue Remedies Against
Vendors, andtractors and Subcontractors and
Their Sureties............................................. 13
SECTION 4.04 Completion of the Project........................... 14
SECTION 4.05 Title Insurance..................................... 14
<PAGE>
ARTICLE 5
Duration of Lease Term
and Rental Provisions
SECTION 5.01 Duration of Term.................................... 15
SECTION 5.02 Rental and Payment Provisions; Net
Lease...................................................... 15
SECTION 5.03 Advances by Issuer or Bondholders................... 16
SECTION 5.04 Indemnity of Issuer and Bondholders................. 16
SECTION 5.05 Obligations of Partnership Unconditional;
Limited Recourse Against Partners................... 17
ARTICLE 6
Maintenance, Alterations, Replacements, Insurance; and
Environmental Compliance
SECTION 6.01 Maintenance and Repairs............................. 19
SECTION 6.02 Removal of, Substitution and Replacement
for Equipment............................ 20
SECTION 6.03 Taxes, Other Governmental Charges and
Utility Charges............................................ 21
SECTION 6.04 Insurance Required.................................. 21
SECTION 6.05 Installation By Partnership of Own
Machinery and Equipment.................................... 23
SECTION 6.06 Environmental Compliance............................ 23
ARTICLE 7
Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.01 Damage and Destruction.............................. 25
SECTION 7.02 Condemnation............. .......................... 26
ARTICLE 8
Certain Provisions Relating to Assignment,
Subleasing, Mortgaging and Redemption of the Bonds
SECTION 8.01 Provisions Relating to Assignment and
Subleasing............................... 28
SECTION 8.02 Assignment of Lease Agreement and Rents
by the Issuer..................... ...... 28
SECTION 8.03 Restrictions on Mortgage or Sale of
Project by Issuer;Consolidation or Merger
of, or Transfer ofIssuers by, ............................. 29
SECTION 8.04 Redemption of Bonds................................. 29
<PAGE>
ARTICLE 9
Covenants of the Partnership and the Partners
SECTION 9.01 Covenants of the Partnership........................ 29
SECTION 9.02 Covenants of the Partners........................... 31
ARTICLE 10
Events of Default and Remedies
SECTION 10.01 Events of Default Defined........................... 31
SECTION 10.02 Remedies on Default................................. 33
SECTION 10.03 No Remedy Exclusive ................................ 34
SECTION 10.04 Agreement to Pay Attorneys' Fees and
Expenses .................................................. 34
SECTION 10.05 No Additional Waiver Implied by One
Waiver .................................................... 34
SECTION 10.06 Remedies Subject to Applicable Law.................. 34
ARTICLE 11
Options
SECTION 11.01 Options to Terminate................................ 35
SECTION 11.02 Option to Renew..................................... 35
SECTION 11.03 Option to Purchase Project Prior to
Payment of the Bonds....................................... 35
SECTION 11.04 Option to Purchase Project After Payment
of the Bonds........................................ 36
SECTION 11.05 Option to Purchase Unimproved Project Site ........ 36
SECTION 11.06 Conveyance on Exercise of Option to
Purchase ................................................. 38
Testimonium...................................................................34
Signatures....................................................................34
Acknowledgments...............................................................35
EXHIBIT A - Description of Equipment
LEASE AGREEMENT
Dated April 1, 1999
By and between
CRISP COUNTY-CORDELE INDUSTRIAL
DEVELOPMENT AUTHORITY
and
CAVALIER INDUSTRIES, INC.
The interest of Crisp County-Cordele Industrial Development Authority
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 April 1, 1999.
<PAGE>
STATE OF GEORGIA
CRISP COUNTY
LEASE AGREEMENT
LEASE AGREEMENT dated as of April 1, 1999, between CRISP COUNTY-CORDELE
INDUSTRIAL DEVELOPMENT AUTHORITY, a public corporation and a public body
corporate and politic under the laws of the State of Georgia (the "Issuer"), and
CAVALIER INDUSTRIES, INC., a Delaware corporation (the "User").
Recitals
Pursuant to and for the purposes expressed in that constitutional
amendment to the Constitution of the State of Georgia proposed by Resolution
No. 244 (House Resolution No. 674-1450) (Ga. L. 1968, p. 1757), enacted
at the 1968 session of the General Assembly, duly ratified at the 1968 general
election (Ga. L. 1969, p. 4416), as amended by that constitutional amendment to
the Constitution of the State of Georgia proposed by Resolution No. 142 (House
Resolution No. 597) (Ga. L. 1982, p. 2570), enacted at the 1982 session of the
General Assembly, duly ratified at the 1982 general election (Ga. L. 1983, p.
5197), as specifically continued in force and effect as part of the Constitution
of the State of Georgia by Act No. 27 (House Bill No. 13) (Ga. L. 1987, p.
3548), enacted at the 1987 session of the General Assembly, the Issuer and the
User have executed and delivered this Lease Agreement simultaneously with the
issuance and sale by the Issuer of its $4,500,000 Revenue Bonds (Cavalier
Industries, Inc. Project), dated April 15, 1999, under and pursuant to that
certain Trust Indenture dated as of April 1, 1999 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
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:
<PAGE>
(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:
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 and Continuing
Disclosure Agreement dated April 1, 1999, 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 April 1, 1999 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.
<PAGE>
Credit Obligor Mortgage shall mean that certain Deed to Secure Debt,
Assignment of Leases and Security Agreement dated as of April 1, 1999 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 that constitutional amendment to the
Constitution of the State of Georgia proposed by Resolution No. 244 (House
Resolution No. 674-1450) (Ga. L. 1968, p. 1757), enacted at the 1968 session of
the General Assembly, duly ratified at the 1968 general election (Ga. L. 1969,
p. 4416), as amended by that constitutional amendment to the Constitution of the
State of Georgia proposed by Resolution No. 142 (House Resolution No. 597)
(Ga. L. 1982, p. 2570), enacted at the 1982 session of the General Assembly,
duly ratified at the 1982 general election (Ga. L. 1983, p. 5197), as
specifically continued in force and effect as part of the Constitution of the
State of Georgia by Act No. 27 (House Bill No. 13) (Ga. L. 1987, p. 3548),
enacted at the 1987 session of the General Assembly.
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.
<PAGE>
Indenture shall mean that certain Trust Indenture dated as of April 1,
1999 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 the Internal Revenue Code of 1986, as
amended; and the transition rules of related legislation.
Issuer shall mean Crisp County-Cordele Industrial Development
Authority, a public corporation and a public body corporate and politic under
the laws of the State of Georgia, 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.
<PAGE>
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 have the meaning assigned to the phrase "Cost of
project" in the Enabling Law.
Project Site shall mean the real property described in Demising Clause
I of Article 3.
Rental Payments shall mean collectively the Basic Rental Payments and
the Additional Rental Payments.
State shall mean the State of Georgia.
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 Cavalier Industries, Inc., a Delaware corporation,
and its successors and assigns, and thereafter "User" shall mean such persons.
ARTICLE 2
Representations
SECTION 2.01 Representations by the Issuer
The Issuer makes the following representations
(a) The Issuer is duly incorporated under the provisions of the
Enabling Law and has the 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 the laws of the State.
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
(1) the Project constitutes a "project" under the Enabling Law,
<PAGE>
(2) the Project and the use thereof will further the public
purpose of the Enabling Law,
(3) the Project will develop and promote trade, commerce,
industry and employment opportunities for the public good and the
general welfare of the State of Georgia and will increase employment in
the territorial area of the Issuer.
(c) The Bonds will be issued and delivered contemporaneously with
the delivery of this Lease Agreement.
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 Georgia, is not in violation of any provisions of its documents of
organization or the laws of the State of Delaware or the State of Georgia, 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 User has the corporate power and authority to own its
properties, carry on the business in which it is presently engaged, and
consummate the transactions contemplated by the Financing Documents to which it
is a party.
(c) By proper corporate action the User has duly authorized the
execution, delivery and performance of the Financing Documents to which it is a
party and the consummation of the transactions contemplated therein.
(d) The User has obtained all consents, approvals, authorizations and
orders of, and made all filings with, each Governmental Authority that are
required to be obtained or made by it as a condition to the execution and
delivery of the Financing Documents to which it is a party.
(e) The execution and delivery by the User of the Financing Documents
to which it is a party and the consummation by it of the transactions
contemplated therein will not conflict with, be in violation of, or result in a
default under, its documents of organization, or any agreement, contract,
instrument, order, writ, decree or judgment to which the User is a party or is
subject.
(f) The Financing Documents to which the User is a party constitute
legal, valid and binding obligations of the User and are enforceable against the
User in accordance with the terms of such instruments, except as enforcement
thereof may be limited by (i) the exercise of judicial discretion and (ii)
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights, to the extent constitutionally applicable.
<PAGE>
(g) There is no action, suit, proceeding, inquiry or investigation
pending before any Governmental Authority, or threatened against or affecting
the User or its properties, that (a) involves (i) the consummation of the
transactions contemplated by, or the validity or enforceability of, the
Financing Documents, (ii) its organization, (iii) the election or qualification
of its directors or officers, (iv) its powers, or (b) could have a materially
adverse effect upon the financial condition or operations of the User.
(h) The User is not an "investment company" or a company "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended.
(i) 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.
(j) The User intends to operate the Project for manufacturing,
production, assembling, processing, storing and distribution of such products as
the User shall determine and in such a manner that it will constitute a
"project" within the meaning of the Enabling Law.
(k) 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 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.
<PAGE>
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.
THE RIGHTS OF THE USER HEREUNDER ARE A USUFRUCT NOT SUBJECT TO LEVY AND
SALE.
ARTICLE 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.
<PAGE>
(c) 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.
(d) 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.
(e) 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
<PAGE>
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 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 April 1,
2009. 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.
<PAGE>
SECTION 5.02 Basic 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.
<PAGE>
(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.
<PAGE>
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.
SECTION 5.08 Payments in Lieu of Taxes
So long as (a) this Lease Agreement remains in force and effect, and
(b) User's interest in the Project shall not have been determined by judicial
order to be subject to ad valorem taxation and (c) User has not taken title to
the Project, the User shall pay to the City of Cordele and to the Tax
Commissioner of Crisp County, beginning December 20, 1999 and continuing
annually or before such date until Issuer holds no interest in the Project, a
figure determined as follows: take the total fair market value of the real and
personal property (NOT to include the raw land purchased with the moneys of the
User and the four governmental agencies as described in Section 9.02 hereof)
placed in service on January 1 of each year in which this Lease Agreement is in
effect and multiply that by forty percent (40%). Then multiply the then
resulting product by the applicable millage rate for that particular year asset
by the respective taxing authorities. Then multiply the then resulting product
by the factors in the table below for the applicable year and the then resulting
product thereof shall be paid by User as set out above.
1999...............................................0%
2000...............................................0%
2001...............................................0%
2002...............................................0%
2003...............................................0%
2004..............................................20%
2005..............................................40%
2006..............................................60%
2007..............................................80%
2008.............................................100%
<PAGE>
If User's interest shall be judicially determined to be subject to ad
valorem taxation as to any year, User shall receive credit against any taxes
assessed for the amount of any payment made under this Section 5.08 for that
year, and shall owe no further payments under this provision unless User's
interest for a future period within the above period is again determined not be
subject to ad valorem taxation.
ARTICLE 6
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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 and which are not under receivership or
administrative enforcement action by the State of Georgia's Insurance
Commissioner. 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.
<PAGE>
ARTICLE 7
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.
<PAGE>
(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;
<PAGE>
(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
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, and with the
consent of the Issuer to any assignment of this Lease Agreement to any person
who is not an Affiliate of the User, 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:
<PAGE>
(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.
<PAGE>
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
Covenants of the User
SECTION 9.01 General Covenants
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 materially affect, impair or contravene any policies of insurance that
may be carried on the Project.
(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.
<PAGE>
(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 shall not bring Hazardous Substances onto the Project Site
except those that are used in the ordinary course of the business of the User on
the Project Site and which are required to be handled, used, and disposed of in
accordance with applicable federal and State laws and regulations.
(h) The User agrees that all improvements constructed by it on the
Project Site shall be aesthetically pleasing taking into consideration its use
and purpose, and that the property shall be landscaped with attractive
vegetation.
(i) 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.
SECTION 9.02 Special Covenant to Construct Project
The Issuer has received funds from four (4) government agencies to
assist it in purchasing the Project Site: the State of Georgia acting through
its Department of Community Affairs (hereinafter referred to as "D. C. A."),
$250,000.00; the City of Cordele, $66,667.00; Crisp County, acting through
its Board of Commissioners, $66,667.00; and Crisp County Power Commission,
$66,667.00. These funds are not by this Lease Agreement transferred to or
for the benefit of the User as a gratuity.
<PAGE>
In consideration of the foregoing,
(a) The User hereby agrees:
(i) To begin construction of manufacturing facilites
of estimated capital costs of $2,250,000 on the Project Site
(the "Plant") within 24 months of the issuance of the Bonds
but not later than May 1, 2001 and in the event the User fails
to commence such construction within such period of time,
complete such construction thereafter in a reasonable time,
and only in such event, shall the User refund to the above
entities the amounts contributed thereby as set forth
hereinabove, without interest or penalties,
(ii) To provide a minimum payroll of $5,000,000
at the Plant over the Lease Term.
(iii) To use its best efforts to provide a minimum of
225 jobs or provide a minimum payroll of $10,000,000 at the
Plant over the Lease Term.
(b) The Issuer agrees that the agreements of the User in
this subparagraph 9.02(a)(iii) above are not enforceable against the
User and if the User fails to create 225 jobs or provide a minimum
payroll of $10,000,000 at the Plant over the Lease Term, the User will
not be required to make any payments to any person and will not suffer
or incur any obligation, liability, or forfeiture of any nature
whatsoever as a consequence thereof.
If User makes such payment of $450,000.00 to the Issuer, the Issuer
will pay any sums owing to D. C. A. on such termination and hold the User
harmless therefrom.
The User represents, in good faith, that it has the intention to make
the investment and use its best efforts to generate the employment in amounts at
or higher than as described in this Section 9.02. The User agrees to provide any
and all documentation required by the Georgia Department of Community Affairs to
document the propriety of the grant.
ARTICLE 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
<PAGE>
(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;
<PAGE>
(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.
<PAGE>
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 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
<PAGE>
(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
$100.00. 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.
<PAGE>
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 a limited warranty deed and limited warranty bills of sale
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.
<PAGE>
ARTICLE 12
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 User covenants and agrees that (i) the limitation set forth in
Section 144(a)(4)(A) of the Code will not be exceeded during the applicable
six-year period with respect to "facilities" described in Section 144(a)(4)(B)
of the Code, and (ii) during such six-year period it will not make, or permit to
be made, "capital expenditures" (as described in Section 144(a)(4) of the Code
and applicable regulations thereunder) in an aggregate amount that would exceed
the limitation set forth in said Section.
(d) 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.
<PAGE>
(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
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 or of the State or of any
county, municipal corporation or political subdivision of the State, 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 or of the State, or of any county, municipal corporation
or political subdivision of the State, 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.
<PAGE>
(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 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.
<PAGE>
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 April 1, 1999.
CRISP COUNTY-CORDELE INDUSTRIAL DEVELOPMENT AUTHORITY
By /s/ Zack Wade
------------------------
Chairman
S E A L
Attest: _________________________________
Its Secretary
CAVALIER INDUSTRIES, INC.
By _______________________________________
Its ______________________________________
<PAGE>
STATE OF GEORGIA )
CRISP COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Zack Wade, whose name as Chairman of Crisp
County-Cordele Industrial Development Authority, 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, she,
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 4th day of April, 1999.
------------------------------------
Notary Public
NOTARIAL SEAL
My commission expires: July 15, 2000
-------------
<PAGE>
STATE OF ALABAMA )
WINSTON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Michael R. Murphy, whose name as Secretary of
Cavalier Industries, 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 20th day of April, 1999.
1999.
/s/ Shirley Ann Barnett
___________________________________
Notary Public
NOTARIAL SEAL
My commission expires: 2/4/2001
---------
<PAGE>
EXHIBIT A
TO
LEASE AGREEMENT
DATED AS OF APRIL 1, 1999
BETWEEN
CRISP COUNTY-CORDELE INDUSTRIAL
DEVELOPMENT AUTHORITY
AND
CAVALIER INDUSTRIES, INC.
Property Description
All that tract or parcel of land lying and being in Land Lot 24, Eleventh Land
District of Crisp County, Georgia, containing 56.199 acres, and being bounded as
follows: On the north by the right-of-way for 13th Avenue, on the east by the
right-of-way for Midway Road, on the south by the right-of-way for CSX Railroad,
and on the west by the right-of-way for Interstate Highway 75. Said tract is
more particularly shown and delineated on Plat of Survey prepared by James B.
Faircloth, Georgia R.L.S. No. 2120, dated November 24, 1998, recorded on Plat
Slide 30-C, Public Records, Crisp County, Georgia, which Plat is expressly
incorporated herein by reference.
<PAGE>
EXHIBIT B
TO
LEASE AGREEMENT
DATED AS OF APRIL 1, 1999
BETWEEN
CRISP COUNTY-CORDELE INDUSTRIAL
DEVELOPMENT AUTHORITY
AND
CAVALIER INDUSTRIES, INC.
EQUIPMENT LIST
Description of Personal Property and Fixtures
All building materials, equipment, fixtures, tools, apparatus and
fittings of every kind or character now owned or hereafter acquired by Cavalier
Industries, Inc. for the purpose of, or used or useful in connection with, the
Project, wherever the same may be located, including, without limitation, all
lumber and lumber products, bricks, stones, building blocks, sand, cement,
roofing materials, paint, doors, windows, hardware, nails, wires, wiring,
engines, boilers, furnaces, tanks, motors, generators, switchboards, telephones,
telecopy, and other communication equipment and facilities, computers, printers,
copy machines, fire detection, suppression and extinguishment facilities,
elevators, escalators, plumbing, plumbing fixtures, air-conditioning and heating
equipment and appliances, electrical and gas equipment and appliances, stoves,
refrigerators, dishwashers, hot water heaters, garbage disposers, trash
compactors, other appliances, carpets, rugs, window treatments, lighting,
fixtures, pipes, piping, decorative fixtures, and all other building materials,
equipment and fixtures of every kind and character used or useful in connection
with the Project, including the personal property (if any) described on the
attached pages.
<PAGE>
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 Code............................. 30
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
INDUSTRIAL LEASE BETWEEN
GRAHAM INDUSTRIAL ASSOCIATION, INC. AND
CAVALIER MANUFACTURING, INC.
(With Option to Purchase)
This lease is made and executed by and between GRAHAM INDUSTRIAL
ASSOCIATION, INC., a Texas Corporation exempt from tax under IRC ss.501 (c)(4),
referred to in this lease as "Lessor" and CAVALIER MANUFACTURING, INC. (Town &
Country Homes Division), referred to in this lease as "Lessee."
Section I
Description of Premises
In consideration of the mutual covenants and agreements set forth in
this lease, and other good and valuable consideration, Lessor demises and leases
to Lessee, and Lessee leases from Lessor, the premises situated at 216 North
Ohio Street, and 232 North Colorado, Graham, Young County, Texas, more
particularly described as follows:
TRACT ONE:
All of that 14.80 acre tract described in that Warranty Deed
from Otis Engineering Corporation to The Graham Industrial
Association, Inc., filed of record in Volume 769, at Page
864, of the Deed Records of Young County, Texas, SAVE AND
EXCEPT Tract two described below, leaving approximately 6.46
acres for Tract One, more or less.
TRACT TWO:
A tract of land containing 8.33 acres and being the East 8.33
acres of the 9.89 acre tract described in a deed from Graham
Homes to Otis Engineering Co., recorded in Volume 546, Page
232 of the Deed Records of Young County, Texas, and the 0.13
acre tract described in a deed from Richard Scheriger to Otis
Engineering Co. recorded in Volume 559, Page 702, of the Deed
records of Young County, Texas, and being more particularly
described as follows:
BEGINNING at the intersection of the north line of U.S.
Highway No. 380, and the west line of Ohio Street being the
southeast corner of said 9.89 acre tract; THENCE along the
north line of U.S. Highway No. 380, West for a distance of
143.30 feet to the beginning of a curve to the right; THENCE
along said curve to the right having a radius of 5675.00 feet
and an arc length of 327.94 feet, being subtended by a chord
of North 88 degrees 20 minutes 40 seconds West for a distance
of 327.94 feet; THENCE North for a distance of 648.24 feet to
a point in the southeast R.O.W. line of the abandoned
railroad; THENCE with said line North 45 degrees 56 minutes 00
seconds East for a distance of 310.96 feet to the most
northerly corner of said 0.13 acre tract; THENCE South 33
degrees 17 minutes 00 seconds East for a distance of 109.00
feet to the most easterly corner of said 0.13 acre tract;
THENCE with the north and east lines of said 9.89 acre tract
South 78 degrees 25 minutes 00 seconds East for a distance of
177.74 feet, South 15 degrees 12 minutes 00 seconds East for a
distance of 52.20 feet, and South a distance of 696.80 feet to
the point of beginning.
TRACT THREE
2.24 acres out of the Paul Pier Survey A-219, in Young County,
Texas, described as follows:
Beginning at corner in North line of Avenue F being 1,574.1
feet south and 670.2 feet west of the most easterly Northeast
corner of said Paul Pier Survey; THENCE north 295,4 feet to
South line of Powell Drive; THENCE east 330 feet to
intersection of West line of Colorado Avenue; THENCE south
295.4 feet to North line of Avenue F; THENCE west 330 feet to
place of beginning.
Section II
Term
(a) Primary Term. The primary term of this lease shall be for a period
of twenty (20) years, commencing on the 1st day of June, 1997, and ending on the
31st day of May, 2017, unless sooner terminated as provided in this lease.
(b) Early Termination. This lease may be terminated at any time
after the expiration of four years from date hereof, provided Lessee gives
12-months written notice to lessor.
Section III
Rent
(a) Fixed Rent. Subject to the other provisions hereof, Lessee
agrees to pay to Lessor, as rent for the use and occupancy of the premises, the
sum of $6,000.00 per month on or before the first day of each month, commencing
June 1,1997, and continuing up to and including May 1, 2017. All rent due under
the terms of this agreement is payable on or before the first day of each month.
Lessee agrees to pay the fixed rent to Lessor at P. 0. Box 1465, Graham, Young
County, Texas, or at such other location or locations as Lessor shall from time
to time designate by written notice to Lessee.
(b) Taxes and Assessments as Additional Rent
i. In addition to the fixed rent specified in 111(a), Lessee shall pay
the full amount of all real property taxes, special assessments, and
governmental charges of every character imposed on the leased premises
during the term of this lease, including any special assessments
imposed on, or against, the premises for the construction or
improvement of public works. This additional rent shall be payable
directly to the entity imposing the tax, assessment or charge at least
thirty (30) days prior to the date on which the payment is due. Lessee
shall provide Lessor with a receipt or other evidence of payment for
each such tax, assessment, or charge paid as soon as a receipt or
other evidence is available to Lessee.
ii. Lessee may, at its own expense, contest any tax or assessment for
which Lessee is responsible under lll(a)(i). Except as provided in
lll(b)(iii), Lessee need not pay the tax, assessment or charge during
the pendency of the contest. Except as provided in lll(b)(iii), Lessee
may prevent Lessor from paying any tax, assessment or charge that
Lessee is contesting pursuant to this subsection, pending resolution
of the contest, by depositing with Lessor the full amount of the tax
or assessment, plus the amount of any penalty that might be imposed
for failure to make timely payment and one (1) year of interest at the
rate imposed by the entity levying the tax for assessment. Upon final
resolution of the tax or assessment, Lessor shall pay to the entity
entitled to receive them such funds plus any penalty or interest, due
under the final resolution, and keep the balance of the deposit, if
any. If the deposit is insufficient to pay these amounts, Lessee must
immediately pay the balance due to the entity imposing the tax,
assessment or charge.
iii The provisions of lll(b)(ii) notwithstanding, Lessor may pay, or
require Lessee to pay, any tax, assessment or charge for which Lessee
is responsible under lll(b)(i), pending resolution of Lessee's contest
of the tax, assessment or charge, if payment is demanded by a holder
of a mortgage on the leased premises or if failure to pay will subject
all or part of the leased premises to forfeiture or loss.
Section IV
Use of Premises
The premises are leased to be used for the manufacturing and assembly
of Lessee's associated products and equipment and related activities and for no
other purpose without the written consent of Lessor, which consent shall not be
unreasonably withheld.
Section V
Property Insurance
Lessee must, at its own expense during the lease term, keep all
buildings and improvements on the premises insured against loss or damage by
fire or theft and extended coverage if obtainable to include direct loss by
windstorm, hail, explosion, riot or riot attending a strike, civil commotion,
aircraft, vehicles, and smoke, in the total amounts of not less than 80% of the
replacement cost of the building and improvements as determined by the insurance
company. The insurance is to be carried by one or more insurance companies
licensed to do business in Texas and approved by Lessor. The insurance policy or
policies must name both Lessee and Lessor as insureds. The policies must provide
that any proceeds for loss or damage to buildings or to improvements are payable
solely to Lessor, who will or may use the sum for repair and restoration
purposes as provided herein.
Lessee must furnish Lessor with certificates of all insurance required
by this article. If Lessee does not provide the certificates within 30 days
after obtaining possession, or if Lessor allows any insurance required under
this article to lapse, Lessor may, at its option, take out and pay the premiums
on the necessary insurance to comply with Lessee's obligations under this
article. Lessor is entitled to reimbursement from Lessee for all amounts spent
to procure and maintain the insurance, with interest at the rate of 10% annually
from the date Lessee receives Lessor's notice of payment until reimbursement.
Section VI
Limitations on Use
(a) Prohibition against Waste. Nuisance, or Unlawful Use. Lessee
shall not commit, or allow to be committed, any waste on the premises, create or
allow any nuisance to exist on the premises, or use or allow the premises to be
used for any unlawful purpose.
(b) Sale of Alcoholic Beverages Prohibited. Lessee shall not display,
stock, offer to sell or sell, or permit the display, stocking, offering for
sale, or sale of any alcoholic beverages, including beer and wine, in, on or
from the leased premises.
(c) Livestock on Leases Premises Prohibited. Lessee shall not allow
any livestock, pets or other live animal of any kind in or on the leased
premises. Lessee shall enforce this prohibition insofar as reasonably
practicable, and Lessee's failure to do so shall be deemed a total breach of
this lease.
Section VII
Effect of Delay in Delivering Possession
This lease shall not be rendered void or voidable by Lessor's
inability to deliver possession to Lessee at the beginning of the lease term,
nor shall such inability to deliver render Lessor liable to Lessee for loss or
damage suffered thereby. If Lessor cannot deliver the premises at such time, the
rent for the period between the beginning of the term and the time when Lessor
can deliver possession will be deducted from the total rent of the lease. No
extension of the lease shall result from a delay in delivering possession.
Section VIII
Payment of Utilities and Garbage Removal
(a) Utility Charges. Lessee shall pay all utility charges for water,
electricity, heat, gas, and telephone services used in and about the leased
premises during the term of the lease, all such charges to be paid by Lessee
directly to the utility company or municipality furnishing the same, before the
same shall become delinquent.
(b) Garbage Removal. Lessee shall pay for the removal of all garbage
and rubbish from the leased premises during the term of the lease.
Section IX
Repairs and Maintenance
(a) Lessor's and Lessee's Duty to Repair. Lessee, at Lessee's expense,
shall maintain and keep the premises, including without limitation, windows,
doors, skylights, adjacent sidewalks, storefront, and interior walls, in good
repair. Lessee shall also maintain in good condition the building root and
exterior wails. All maintenance and repairs required of Lessee by this section
must be performed promptly when required and in a manner which will not cause
depreciation in the value of the premises.
(b) Lessee's Failure to Repair or Maintain. In the event Lessee fails
to perform its obligation to repair or maintain, as set forth in IX(a) above,
after notice from Lessor of the need for such repair or maintenance and the
passage of a reasonable amount of time for performance after such notice, Lessor
may enter the premises and make such repairs or perform such maintenance or
cause such repairs to be made or maintenance to be performed, at Lessor's own
expense. Upon Lessor's notice to Lessee of the performance and cost of any
maintenance or repairs pursuant to this section, Lessee must immediately
reimburse Lessor for any reasonable cost incurred by Lessor pursuant to this
section, together with interest on any such sum at the highest legal rate from
the date of the notice until the date paid by Lessee to Lessor.
(c) Damage Arising from Lessee's Activities. In the event the
activities of the Lessee cause any damage to the premises requiring replacement
of any portion thereof or repairs thereto or if damage is sustained to the
premises by virtue of the failure of the Lessee to take reasonable care to
preserve and maintain said premises then Lessee shall take all steps and pay for
all expense necessary in order to repair or replace any portion of the premises
so damaged. Any insurance proceeds shall be made available to the Lessee for the
repairs or replacement. In the event Lessee fails to act after notice by making
repairs or replacement, then Lessor may proceed as provided in paragraph (b)
above.
Section X
Delivery, Acceptance. and Surrender of Premises
Lessee agrees to accept the premises on possession as being in a good
state of repair and in sanitary condition. Lessee agrees to surrender the
premises to the Lessor at the end of the lease term, if the lease is not
renewed, in the same condition as when Lessee took possession, allowing for
reasonable use and wear, and damage by acts of God, including fire and storms.
Lessee agrees to remove all business signs or symbols placed on the premises by
Lessee before redelivery of the premises to the Lessor, and to restore the
portion of the premises on which they were placed in the same condition as
before their placement.
Section XI
Representations as to Use and Zoning
Lessor makes no warranty or representation of any kind concerning the
condition of the leased premises or their fitness for the use intended by
Lessee, or of their zoning, and hereby disclaims any personal knowledge with
respect to these matters, it being expressly understood by the parties to this
lease that Lessee has personally inspected the leased premises, knows their
condition, finds them fit for Lessee's intended use, accepts them as is, and has
ascertained that they can, under existing ordinances, be used for the purposes
set forth in and limited by, this lease.
Section XII
Lessor's Right To Inspect, Repair and Maintain Premises
Lessor reserves the right to enter the premises at reasonable times to
inspect them, to perform all necessary and required maintenance and repair, and
Lessee agrees to permit Lessor to do so. Lessor may, in connection with such
maintenance or repairs, erect scaffolding, fences, and similar structures, post
relevant notices, and place movable equipment without any obligation to reduce
Lessee's rent for the premises during such period, and without incurring
liability to Lessee for disturbance of quiet enjoyment of the premises, or loss
of occupation of the premises.
Section XIII
Trade Fixtures and Signs
(a) Posting of Signs, Awnings, or Marquees by Lessee. Lessee may
construct or place, or to permit construction or placement of signs on the
premises. However, no such signs, awnings, marquees, or other structures shall
be attached to the building without Lessor's consent.
(b) Trade Fixtures. Lessee has the right at all times to erect or
install shelves, bins, machinery, equipment, or other trade fixtures, in, on, or
about the leased premises, provided that Lessee complies with all applicable
governmental laws, ordinances, and regulations regarding such fixtures. Lessee
has the right to remove all trade fixtures at the termination of this lease,
provided Lessee is not in default under the lease and that the fixtures can be
removed without structural damage to the building. Lessee must repair any damage
to the leased premises caused by removal of trade fixtures, and all such repairs
must be completed prior to the termination of the lease. Any trade fixtures that
have not been removed by Lessee at the termination of this lease shall be deemed
abandoned by the Lessee and shall automatically become the property of Lessor.
In the event any trade fixture installed by Lessee is abandoned at the
termination of the lease, Lessee must pay Lessor any reasonable expense actually
incurred by Lessor to remove the fixture from the premises, provided the fixture
is removed within thirty (30) days after Lessee has surrendered possession of
the premises or prior to the entrance of any subsequent tenant unto the premises
or use of the trade fixtures by Lessor.
Section XIV
Mechanic's Liens
Lessee will not permit any mechanic's lien or liens to be placed upon
the leased premises or improvements on the premises. If a mechanic's lien is
filed on the leased premises or on improvements on the leased premises, Lessee
will promptly pay the lien. If default in payment of the lien continues for
thirty (30) days after written notice from Lessor to Lessee, Lessor may, at
Lessor's option, pay the lien or any portion of it without inquiry as to its
validity. Any amounts paid by the Lessor to remove a mechanic's lien caused to
be filed against the premises or improvements on the premises by Lessee,
including expenses and interest, shall be due from Lessee to Lessor and shall be
repaid to Lessor immediately on rendition of notice, together with interest at
ten (10%) percent per annum until repaid.
SECTION XV
Liability Insurance
Lessee agrees to procure and maintain in force during the term of this
lease and any extension of the lease, at Lessee's expense, public liability
insurance in companies and through brokers approved by Lessor, adequate to
protect against liability for damage claims through public use of or arising out
of accidents occurring in or around the leased premises, in a minimum amount of
$1,000,000 for each person injured, $2,000,000 for any one accident, and
$400,000 for property damage. Such insurance policies shall provide coverage for
Lessor's contingent liability on such claims or losses. The policies or
certificates verifying coverage and copies of the policies shall be delivered to
Lessor for keeping. Lessee agrees to obtain a written obligation from the
insurers to notify Lessor in writing at least thirty (30) days prior to
cancellation or refusal to renew any such policies. Lessee agrees that, if such
insurance policies are not kept in force during the entire term of this lease
and any extension of this lease, Lessor may procure the necessary insurance, pay
the premium and that such premium shall be repaid to Lessor as an additional
rent installment for the month following the date on which such premiums are
paid and that such premium, plus interest at the rate of 10% per annum, shall be
repaid to Lessor as an additional rent installment for the month following.
Section XVI
Indemnification
Lessee agrees to indemnify and hold Lessor harmless against any and
all claims, demands, damages, costs, and expenses, including reasonable
attorney's fees for the defense of such claims and demands, arising from the
conduct or management of Lessee's business on the leased premises, or Lessee's
use of the leased premises or from any breach on the part of Lessee of any
conditions of this lease, or from any act or negligence of Lessee, Lessee's
agents, contractors, employees, subtenants, concessionaires, or licensees in or
about the leased premises. In case of any action or proceeding brought against
Lessor by reason of any such claim, Lessee, upon notice from Lessor, agrees to
defend the action or proceeding by counsel acceptable to Lessor. Specifically,
without limiting the foregoing, Lessee shall indemnify and hold Lessor harmless
from any and all liability for damages that may result from the bursting,
stoppage, or leakage of any water pipe, steam pipe or gas pipe, sewer, basin,
toilet or drain and from any and all liability for any damage caused by water
pipes, gas pipes or steam heat pipes, sewers, basins, toilets and/or drains.
Section XVII
Assignment or Sublease
Lessee agrees not to assign or sublease the premises leased, any part
of the premises, or any right or privilege connected with it, or to allow any
other person, except Lessee's agents and employees, to occupy the premises or
any part of the premises, without first obtaining Lessor's written consent. Ore
consent by Lessor shall not be a consent to a subsequent assignment, sublease,
or occupation by other persons. Lessee's unauthorized assignment, sublease, or
license to occupy shall be void, and shall terminate the lease at Lessor's
option. Lessee's interest in this lease is not assignable by operation of law,
nor is any assignment of Lessee's interest therein, without Lessor's written
consent which will not be unreasonably withheld.
Lessee may assign this lease to any subsidiary or corporate entity or
limited liability company in which Lessee has at least a 25% ownership interest,
but such assignment shall not release Lessee from any obligations hereunder and
any Assignee must agree to also assume any obligations hereunder.
Section XVIII
Effect of Lessee's Receivership or Assignment for Benefit of Creditors
Appointment of a receiver to take possession of Lessee's assets
(except a receiver appointed at Lessor's request as herein in the lease) or
Lessee's general assignment for benefit of creditors is a breach of this lease.
Section XIX
Damage or Destruction of Premises
(a) Total. If the premises should be totally destroyed by fire,
tornado or other casualty, or if they should be so damaged that rebuilding or
repairs cannot reasonably be completed within one hundred twenty (120) working
days from the date of the occurrence of the damage, Lessor may, but shall not be
required to repair the premises. If Lessor elects not to rebuild or repair the
premises, Lessor shall so notify Lessee in writing and, subject to subparagraph
(c) below, this Lease shall terminate effective as of the date of said damage.
(b) Partial. If the premises should be damaged by fire, tornado or
other casualty but not to such an extent that rebuilding or repairs cannot
reasonably be completed within one hundred twenty (120) working days from the
date of the occurrence of the damage, this Lease shall not terminate, but Lessor
shall, if the casualty has occurred prior to the final one hundred twenty (120)
days of the Lease term proceed forthwith to rebuild or repair the premises to
substantially the condition existing prior to such damage. If the casualty
occurs during the final one hundred twenty (120) days of the Lease term, Lessor
shall not be required to rebuild or repair such damage, but if Lessor does not
so elect, Lessor shall so notify Lessee in writing, and this Lease shall
terminate, effective as of the date of said damage. If the premises are to be
rebuilt or repaired and are untenantable in whole or in part following such
damage, the rents payable hereunder during the period in which it is
untenantable shall be adjusted equitably.
(c) Lessee's Right to Rebuild or Purchase. In the event Lessor elects
not to rebuild or repair the premises pursuant to subparagraph (a) or (b) above,
Lessee shall have the right to elect to rebuild or repair the premises itself,
or to exercise Lessee's option to purchase the premises pursuant to Section XXVI
of this Lease, by giving Lessor written notice of such election within 30 days
after Lessee's receipt of Lessor's written notice advising Lessee that Lessor
has elected not to rebuild the premises. If Lessee elects to rebuild or repair
the premises, or to exercise its option to purchase the premises, the insurance
proceeds, if any, resulting from such damage or destruction shall be paid to
Lessee.
(d) Limitation to Insurance Proceeds. Under no circumstances shall
Lessor be obligated to incur for rebuilding or repairs any sum which exceeds the
proceeds from insurance actually received or available to Lessor. If Lessee
requests replacement, repairs or rebuilding of the premises and such cost
exceeds the available insurance proceeds, then Lessee shall be responsible for
such amount or expense exceeding insurance proceeds that are available.
Section XX
Effect of Eminent Domain Proceedings
(a) Condemnation. If during the term of this lease or any extension or
renewal of it, all of the leased premises, or such portion thereof as would make
the leased premises unsuitable for the purpose for which they have been leased,
should be taken for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or should be sold to
the condemning authority under threat of condemnation, this lease shall
terminate, and the rent shall be abated during the unexpired portion of this
lease, effective as of the date of the taking of the premises by the condemning
authority.
(b) Condemnation Award. Lessor and Lessee shall each be entitled to
receive and retain such separate awards, and portions of lump sum awards, as may
be allocated to their respective interests in any condemnation proceedings. The
termination of this lease shall not affect the rights of the respective parties
to such awards.
Section XXI
Lessor's Remedies on Lessee's Breach
If Lessee breaches this lease, Lessor shall have the following
remedies in addition to its other rights and remedies in such event:
(a) Reentry. Lessor may reenter the premises immediately, and remove
all of Lessee's personnel and property from the premises. Lessor may store the
property in a public warehouse or at another place of Lessor's choosing at
Lessee's expense or to Lessee's account.
(b) Termination. After reentry, Lessor may terminate the lease on
giving fifteen (15) days' written notice of such termination to Lessee. Reentry
only, without notice of termination, will not terminate the lease.
(c) Reletting Premises. After reentering, Lessor may relet the
premises or any part of the premises, for any term, without terminating the
lease at such rent and on such terms as Lessor may choose. Lessor may make
alterations and repairs to the premises.
1. Liability of Lessee on Reletting. Lessee is liable to Lessor
in addition to its other liability for breach of the lease
for all expenses of the reletting, and of the alterations and
repairs made, which Lessor may incur. In addition, Lessee is
liable to Lessor for the difference between the rent received
by Lessor under the reletting and the rent installments that
are due for the same period under this lease.
2. Application of Rent on Reletting. Lessor at its option may
apply the rent received from reletting the premises as
follows:
i. To reduce Lessee's indebtedness to Lessor under the
lease, not including indebtedness for rent;
ii. To expenses of the reletting and alterations and
repairs made;
iii. To rent due under this lease;
iv. To payment of future rent under this lease as it
becomes due.
If the new Lessee does not pay a rent installment promptly to Lessor,
and the rent installment has been credited in advance of payment to Lessee's
indebtedness other than rent, or if rentals from the new Lessee have been
otherwise applied by Lessor as provided for in this lease, and during any rent
installment period are less than the rent payable for the corresponding
installment period under this lease, Lessee agrees to pay Lessor the deficiency
separately for each rent installment deficiency period, and before the end of
that period.
Lessor may at any time after such reletting terminate the lease for
the breach because of which it reentered and relet.
Lessor may recover from Lessee on terminating the lease for Lessee's
breach all damages proximately resulting from the breach, including the cost of
recovering the premises, and the worth of the balance of this lease over the
reasonable rental value of the premises for the remainder of the lease term,
which sum shall be immediately due Lessor from Lessee.
(d) Appointment of Receiver. After reentry, Lessor may procure the
appointment of a receiver to take possession of and collect rents and profits
from Lessee's business. If necessary, to collect such rents and profits the
receiver may carry on Lessee's business and take possession of Lessee's personal
property used in the business, including inventory, trade fixtures, and
furnishings, and use them in the business without compensating Lessee for them.
Proceedings for appointment of a receiver by Lessor, or the appointment of a
receiver and the conducting by such receiver of Lessee's business, shall not
terminate this lease unless Lessor has given Lessee written notice of such
termination as provided in this lease.
(e) LESSOR'S LIEN. IN ADDITION TO ALL OTHER REMEDIES PROVIDED TO
LESSOR HEREUNDER, IT IS HEREBY EXPRESSLY AGREED THAT, IN THE EVENT OF DEFAULT BY
LESSEE IN THE PAYMENT OF RENT OR ANY OTHER SUM DUE FROM LESSEE TO LESSOR UNDER
THE TERMS OF THIS LEASE, LESSOR SHALL HAVE A LIEN UPON ALL FIXTURES, CHATTELS,
OR OTHER PROPERTY OF ANY DESCRIPTION BELONGING TO LESSEE THAT ARE PLACED IN, OR
BECOME A PART OF, THE LEASED PREMISES AS SECURITY FOR RENT DUE AND TO BECOME DUE
FOR THE REMAINDER OF THE CURRENT LEASE TERM AND ANY OTHER SUM DUE FROM LESSEE TO
LESSOR. THIS LIEN SHALL NOT BE IN LIEU OF, OR IN ANY WAY AFFECT, THE STATUTORY
LESSOR'S LIEN GIVEN BY LAW BUT SHALL BE IN ADDITION TO THAT LIEN, AND LESSEE
GRANTS TO LESSOR A SECURITY INTEREST IN ALL OF LESSEE'S PROPERTY PLACED IN OR ON
THE LEASED PREMISES FOR PURPOSES OF THIS CONTRACTUAL LIEN. THIS SHALL NOT
PREVENT THE SALE BY LESSEE OF ANY MERCHANDISE IN THE ORDINARY COURSE OF BUSINESS
FREE OF SUCH LIEN TO LESSOR. IN THE EVENT LESSOR EXERCISES THE OPTION TO
TERMINATE THE LEASEHOLD, REENTER, AND RELET THE PREMISES AS PROVIDED IN THE
PRECEDING PARAGRAPH, THEN LESSOR, AFTER GIVING REASONABLE NOTICE TO LESSEE OF
THE INTENT TO TAKE POSSESSION AND GIVING AN OPPORTUNITY FOR A HEARING ON THE
MATTER, MAY TAKE POSSESSION OF ALL OF LESSEE'S PROPERTY ON THE PREMISES AND SELL
IT AT PUBLIC OR PRIVATE SALE AFTER GIVING LESSEE REASONABLE NOTICE OF THE TIME
AND PLACE OF ANY PUBLIC SALE OR OF THE TIME AFTER THAT ANY PRIVATE SALE IS TO BE
MADE, FOR CASH OR ON CREDIT, FOR SUCH PRICES AND TERMS AS LESSOR DEEMS BEST,
WITH OR WITHOUT HAVING THE PROPERTY PRESENT AT THE SALE. THE PROCEEDS OF THE
SALE SHALL BE APPLIED FIRST TO THE NECESSARY AND PROPER EXPENSE OF REMOVING,
STORING. AND SELLING SUCH PROPERTY, THEN TO THE PAYMENT OF ANY RENT DUE OR TO
BECOME DUE UNDER THIS LEASE, WITH THE BALANCE, IF ANY, TO BE PAID TO LESSEE.
(f) Cumulative Remedies. All rights and remedies of Lessor under this
Article shall be cumulative, and none shall exclude any other right or remedy
provided by law or by any other provision of this lease. All such rights and
remedies may be exercised and enforced concurrently and whenever, and as often,
as occasion for their exercise arises.
Section XXII
Liability for Attorneys' Fees
If Lessor files an action to enforce any covenant of this lease, or
for breach of any covenant in the lease, Lessee agrees to pay Lessor reasonable
attorneys' fees for the services of Lessor's attorney in the action, such fees
to be fixed by the court.
Section XXIII
Notices
Notices given pursuant to the provisions of this lease, or necessary to
carry out its provisions, shall be in writing, and delivered personally to the
person to whom the notice is to be given, or mailed postage prepaid, addressed
to such person. Lessor's address for this purpose shall be P. 0. Box 1465,
Graham, Young County, Texas 76450, or such other address as he may in writing
designate to Lessee. Notices to Lessee may be addressed to Lessee at the
premises leased.
Section XXIV
Effect of Lessor's Waiver of Covenants
Lessor's waiver of breach of one covenant or condition of this lease
is not a waiver of breach of others, or of subsequent breach of the one waived.
Lessor's acceptance of rent installments after breach is not a waiver of the
breach, except of breach of the covenant to pay the rent installment or
installments accepted.
Section XXV
Binding Effect on Successors and Assigns
This lease and the covenants and conditions of this lease apply to and
are binding on the heirs, successors, executors, administrators, and assigns of
the parties to this lease. In the event of the sale, merger, consolidation,
dissolution, or other transformation of the structure of Lessee, it is hereby
agreed, for the same consideration herein expressed, that the purchaser or
surviving entity shall be responsible for and shall assume all of Lessee's
duties and obligations under this lease.
Section XXVII
Option to Purchase
Lessor hereby grants to Lessee an option to purchase at any time
Tracts One and Two and Tract Three which are the leased premises, together with
all fixtures and other personal property located thereon, at any time during the
primary term or any renewal period of this lease, provided that lease payments
are then current. This option to purchase may be exercised by Lessee upon the
giving of thirty (30) days' written notice to Lessor of Lessee's intent to
exercise this option, identifying the tract or tracts to be purchased. In the
event Lessee should elect to exercise this option, the purchase price upon the
exercise of the option shall be $395,000.00 for Tract Two, $10,000.00 per acre
for Tract One after survey establishing the exact acreage, and $300,000.00 for
Tract Three. The option as to Tracts One and Two can only be exercised together.
Lessee shall not be permitted to exercise any option to only Tract One or Tract
Two without purchasing both. Tract Three may be purchased without purchase of
Tracts One and Two. Tracts One and Two may be purchased without Tract Three.
In the event of the exercise of this option as herein provided as to
any of the tracts, this lease shall be deemed canceled in its entirety and
Lessor agrees to convey the property as to which the option is exercised to
Lessee by special warranty deed free and clear of all encumbrances except taxes
and assessments which under this lease are to be paid by Lessee. Nothing herein
shall be construed to prevent, prior to a consummation of the sale, Lessor's
placing such deeds of trust on the property as Lessor may see fit, provided
however, that such encumbrances shall not exceed the option purchase price at
the time of the inception of such lien. Any encumbrance now or hereafter
existing against the property, created by, for or on account of Lessor shall,
however, so far as they constitute liens, at the consummation of the sale be
discharged out of the purchase price so provided hereunder.
In the event and on Lessee's exercise of the option to purchase the
premises in the manner provided as to any of the tracts, a contract for the sale
and purchase of the property shall exist, the relationship of Lessor and Lessee
shall automatically terminate, and the Lessee shall be deemed in possession of
the premises as a vendee under an executory contract as to the tracts for which
an option is exercised and Lessee agrees to immediately surrender possession as
to any tracts for which the option is not exercised. Whenever Lessee shall
desire to exercise this option, Lessee shall give Lessor 30-days written notice!
Lessor will within a reasonable time after receipt of such notice deliver, or
cause to be delivered, to Lessee an owner's policy of title insurance issued by
a mutually acceptable title insurance company. Defects in title, if any, shown
by such report shall be remedied by Lessor within thirty (30) days of notice to
Lessor of such defects and Lessor shall deliver to Lessee at the time of closing
an owner's policy of title insurance issued by the company in the amount of the
purchase price subject only to encumbrance, exceptions, and reservations herein
mentioned. The purchase shall in any event be completed by conveyance of the
property for which the option is exercised and payment of the purchase price
within forty-five (45) days from delivery of notice of intent to exercise this
option. Cost of any survey that may be required to determine acreage of Tract
One will be shared equally by the parties.
Section XXVII
Hazardous or Toxic Materials
(a) In addition to (but not in lieu of) all other generally applicable
requirements otherwise herein stated, Lessee shall also comply with all local,
state and federal rules and regulations pertaining to hazardous or toxic
materials. Further, Lessee does hereby agree to and does indemnify and hold
Lessor harmless from any and all claims arising out of or connected in any
manner with such hazardous or toxic materials or substances caused by the Lessee
after the date of this lease. For the purpose of this agreement, the term
"hazardous or toxic materials or substances" shall be interpreted to mean:
i. Any substance, product, waste or other material that may give rise
to liability under any laws statutory or common law court theory.
ii. Asbestos
iii.Any substance, product, waste or other material of any nature that
is or becomes listed, regulated, or addressed under one or more of
the following:
The Comprehensive Environmental Response Compensation, and
Liability Act, referred to as "CERCLA" in Sections 9601 et
seq of Title 42 of the United States Code The Hazardous
Materials Transportation Act, in Sections 1801 et seq of
Title 49 of the United States Code. The Resource Conservation
and Recovery Act, referred to as "RCRA" in Section 6901 et
seq of Title 42 of the United States Code The Hazardous
Substances Act, referred to as "H SA" in Sections 1261 et seq
of Title 15 of the United States Code The Injection Well Act,
in Texas Water Code Sections 27.002 et seq The Comprehensive'
Municipal Solid Waste Management, Resource Recovery, and
Conservation Act, in Texas Health and Safety Code, Sections
363.001 at seq The Hazardous Substance Act, in Texas Health
and Safety Code, Sections 501.001 et seq The Water Quality
Control Act, in Texas Water Code, Sections 26.001 et seq.
Any other federal or state law or local ordinance or other
rule concerning hazardous, toxic or dangerous substances,
waste or materials.
Section XXVIII
Additional Provisions
(a) Texas Law to Apply. This agreement shall be construed under,
and in accordance with, the laws of the State of Texas, and all obligations of
the parties created by this lease are performable in Young County, Texas.
(b) Legal Construction. In case any one or more of the provisions
contained in this agreement shall for any reason be held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of the agreement, and this agreement shall be construed as if the invalid,
illegal, or unenforceable provision had never been included in the agreement.
(c) Prior Agreements Superseded. This agreement constitutes the sole
and only agreement of the parties to the agreement and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter of this agreement.
(d) Amendment. No amendment, modification, or alteration or the terms
of this agreement shall be binding unless in writing, dated subsequent to the
date of this agreement, and duly executed by the parties to this agreement.
(e) Force Majeure. Neither Lessor nor Lessee shall be required to
perform any term, condition, or covenant in this lease so long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, strikes, lockouts, material or labor restrictions by any governmental
authority, civil riot, floods, and any other cause not reasonably within the
control of Lessor or Lessee and which by the exercise of due diligence Lessor or
Lessee is unable, wholly or in part, to prevent or overcome.
(f) Time of the Essence. Time is of the essence of this lease.
EFFECTIVE June 1,1997, but EXECUTED by the Lessor and Lessee on the 4 day of
June, 1997, at Graham, Texas.
Lessor:
GRAHAM INDUSTRIAL ASSOCIATION, INC.
BY: /s/ Chuck Rosebrough
----------------------------------
Chuck Rosebrough, Vice President
Lessee:
CAVALIER MANUFACTURING, INC.
(Town & Country Homes Division)
BY: /s/ A. Keith Finley
----------------------------------
A. Keith Finley, Division President
STATE OFTEXAS
COUNTY OF YOUNG
This instrument was acknowledged before me by Chuck
Rosebrough, Vice President of the GRAHAM INDUSTRIAL ASSOCIATION, INC., a Texas
corporation, on Behalf of said corporation on the 4th day of June, 1997
/s/ Candice Todd
--------------------------------
Notary Public, State of Texas
My commission expires: 2-23-99
------------
<PAGE>
COUNTY OF YOUNG
This instrument was acknowledged before me by A. Keith
Finley, Division President of CAVALIER MANUFACTURING, INC. (Town & Country Homes
Division), a Texas corporation, on behalf of said corporation, on the day of
June, 1997.
/s/ Candice Todd
--------------------------------
Notary Public, State of Texas
My commission expires: 2-23-99
------------
STATE OF NORTH CAROLINA
GUILFORD COUNTY
LEASE
THIS LEASE is made as of this 1st day of November, 1997,
between GREENSTAR, L.L.C., a Virginia limited liability company ("Landlord"),
and THE COLONIAL GROUP ("Tenant"):
THAT Landlord hereby leases to Tenant and Tenant hereby takes and
accepts the premises ("Premises"), consisting of 6,567 rentable square feet
(5,970 usable square feet) commonly known as Suite 400 and outlined in red color
on the drawing attached hereto and made a part hereof as Exhibit A, located in
the building ("Building") commonly known as 4411 West Market Street, Greensboro,
North Carolina, in and shown on the plat attached hereto and made a part hereof
as Exhibit B, which Building is located on that certain parcel of real estate
("Site") also described in Exhibit B, for the term of three (3) years ("Term")
unless sooner terminated as provided herein, commencing on November 1, 1997 and
ending at 11:59 P.M. (local time at the Premises) October 31, 2000, with two (2)
one-year renewal options which may be exercised by Tenant by giving written
notice to Landlord sixty (60) days prior to the expiration of the term
immediately preceding the subject renewal period. The Premises are to be
occupied and used by Tenant for general office purposes and for no other
purpose, subject to the terms and provisions herein set forth.
IN CONSIDERATION THEREOF, THE PARTIES COVENANT AND AGREE:
1. Rent. Tenant shall pay as Base Rent for the entire lease
term to Landlord or to such other person or at such other place as Landlord
may direct in writing, the sum of $11.50 per rentable square foot totaling
$75,520.50 annually, payable in equal monthly installments of $6,293.38 in
advance on or before the first day of each calendar month of the Term, except
that Tenant shall pay the first such monthly installment upon the execution
hereof subject to adjustment as hereinafter set forth. The Annual Base Rent is
$75,520.50. All such rent shall be paid without demand and without any set-off
or deduction whatsoever. Unpaid rent shall bear interest at the rate set forth
in Section 30(f) from ten (10) days after the date due until paid. Subject to
the further provisions of Section 28 hereof Tenant agrees to deposit with
Landlord, upon execution of this Lease, a security deposit in the amount of
$6,293.38 for the full and faithful performance by Tenant of each and every
term, provision, covenant, and condition of this Lease.
2. Base Rent Adjustment. The Base Rent shall be adjusted in
accordance with the provisions of this Section 2. "Tenant's Proportion" for
all purposes hereof shall be 13.76%.
(a) Taxes. In the event that the amount of Taxes (as defined
below) attributable to any calendar year during the Term shall be greater than
the Taxes on the Building for the base year of 1997, then Tenant shall pay to
Landlord, as additional rent, an amount equal to Tenant's Proportion of the
amount by which Taxes for such calendar year exceed the Taxes for the base year
of 1997. The amount of Taxes attributable to a calendar year shall be the amount
payable during any such calendar year, even though the assessment for such Taxes
may be for a different year. The amount to be paid as Tenant's Proportion of the
Taxes during the first and last calendar years in which any portion of the Term
falls shall be prorated per diem so that Tenant is liable only for Tenant's
Proportion of so much of such Taxes as that portion of the Term which falls
within such calendar years bears to a full calendar year.
The term "Taxes" hall mean real estate taxes, assessments,
sewer rents, rates and charges, transit taxes, taxes based upon the receipt of
rent, and any other federal, state or local governmental charge, general,
special, ordinary or extraordinary (but not including income or franchise taxes
or many other taxes imposed upon or measured by Landlord's income or profits,
unless the same shall be imposed in lieu of real estate taxes and other ad
valorem taxes), which may now or hereinafter be levied or assessed upon the Site
and/or upon the Building. In case of special Taxes which may be payable in
installments, only the amount of each installment paid during a calendar year
shall be included in Taxes for that calendar year.
After receipt of the final tax bill or bills for each calendar
year during the Term, Landlord will furnish to Tenant a statement showing the
following:
(i) Taxes for said calendar year;
(ii) The amount of retroactive rent adjustment for Taxes to be paid
promptly by Tenant to Landlord upon receipt of such statement
to be credited to Tenant for said calendar year;
(iii) The amount of additional rent to be paid on account of the
rent adjustment for Taxes (based on the last tax bill
received) to be paid during the then current calendar year and
thereafter until receipt of a new statement containing a rent
adjustment for Taxes;
The amount of additional rent to be paid on account of the
rent adjustment for Taxes to be paid during the then current calendar year and
thereafter shall be paid in equal monthly installments on the first day of each
calendar month during said period in the same manner as provided for Base Rent.
(b) Consumer Price Index. In the event that the CPI (as
defined below) for any calendar year during the Term shall be greater than the
CPI for the preceding calendar year then Tenant shall pay Landlord, as
additional rent, for such succeeding calendar year, the Annual Base Rent
(including all additional rent to be paid on account of previous rent
adjustments for CPI) multiplied by the percentage of increase by which the CPI
in such succeeding calendar year(s) exceeds the CPI for the next preceding
calendar year. The amount to be paid as Tenant's Proportion of the CPI increase
during the first and last calendar years in which any portion of the Term falls
shall be prorated per diem so that Tenant is liable only for Tenant's Proportion
of so much of such CPI increase as that portion of the Term which falls within
such calendar years bears to a full calendar year. The CPI adjustment for year
two (2) of the Lease Term shall be based on a base rent of $12.00 per rentable
square foot.
The term "CPI" means the Consumer Price Index - U.S. City
Averages for All Urban Consumers - All Items (1982-84=100), of the United States
Bureau of Labor Statistics. The CPI for any calendar year shall be determined by
averaging the monthly All Items indices for that calendar year.
If the Bureau of Labor Statistics revises the manner in which
such CPI is determined, Landlord may adjust the revised index to produce results
equivalent, as nearly as possible, to those which would have been obtained if
the CPI had not been so revised. If the 1982-84 average shall no longer be used
as an index of 100, such change shall constitute a revision.
If the CPI shall become unavailable to the public because
publication is discontinued, or otherwise, Landlord will substitute therefor, a
comparable index based upon changes in the cost of living or purchasing power of
the consumer dollar published by any other governmental agency or, if no such
index shall be available then a comparable index published by a major bank or
other financial institution.
Promptly after the expiration of each calendar year during the
Term, Landlord will furnish to Tenant a statement showing the following:
(1) The CPI for said expired calendar year;
(ii) The CPI for the calendar year preceding said expired calendar
year;
(iii) The amount of rent adjustment for CPI then due and payable
to Landlord or to be credited to Tenant for said expired
calendar year;
(iv) The amount of additional rent to be paid on account of the
rent adjustment for CPI (based on the CPI for the preceding
calendar year) to be paid during the then current calendar
year and thereafter until receipt of new statement containing
a rent adjustment for CPI.
The additional rent to be paid on account of the rent
adjustment for CPI to be paid during the then current calendar year and
thereafter shall be paid in equal monthly installments on the first day of each
calendar month during said period in the same manner as provided for Base Rent.
Notwithstanding anything contained herein, Tenant shall not be liable for any
rent adjustment for CPI in excess of four percent (4%) during each year of the
Term hereof.
(c) Examination of Books, Prorations, Part Payments and
Penalties. Tenant or its representative at Tenant's expense shall have the right
to examine Landlord's books and records with respect to the items in the
foregoing statement of Expenses and Taxes during normal business hours at any
time within ten (10) days following the furnishing by Landlord to Tenant of any
such statement. Unless Tenant shall take written exception to any item within
thirty (30) days after the furnishing of the foregoing statements, such
statement shall be considered as final and accepted by Tenant. Any amount due to
Landlord as shown on any such statement, whether or not written exception is
taken thereto, nonetheless shall be paid by Tenant within thirty (30) days after
Landlord shall have submitted the statement, provided however that in the event
such examination determines to the reasonable satisfaction of Landlord, based on
generally accepted accounting principles that such Expenses, Taxes and/or CPI
were overstated, Landlord shall promptly reimburse Tenant for any over-payment
and Tenant's rent adjustment shall be re-adjusted to reflect the correct amount.
If the Term commences on any day other than the first day of
January, or if the Term ends on any day other than the last day of December, any
payment due to Landlord by reason of any increase in Taxes, Expenses or CPI
shall be prorated, and Tenant shall pay any amount due to Landlord within (30)
days after being billed therefore. This covenant shall survive the expiration or
termination of the Lease.
No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly installments of Base Rent (including rent adjustments) and/or
additional rents and/or any other monies payable hereunder shall be deemed to be
other than on account of the earliest of such due and payable hereunder; nor
shall any notice or statement of conditions accompanying any check or payment
due hereunder be deemed an accord and satisfaction and Landlord may accept any
such payment without prejudice to Landlord's right to recover the balance of all
amounts due and owing hereunder or to pursue any other remedy provided for in
this Lease and/or at law or in equity.
Notwithstanding any of the other rights of landlord hereunder,
in the event any rent, additional rent or other monies payable hereunder remain
unpaid ten (10) days after the date the same was due and payable Landlord, at
its option, may make a service charge in the amount of five percent (5%) of any
such delinquent payments or twenty-five dollars ($25.00) whichever is greater.
Such service charge shall be paid promptly on demand.
3. Services. Landlord covenants and agrees that it will furnish:
(a) heat and/or air conditioning to maintain the Premises
at a reasonably comfortable temperature;
(b) during the times specified in subparagraph (a) above,
electricity for lighting purposes and the operation of ordinary office
appliances and one standard reproduction machine, excluding, however, computers,
additional reproduction machines, and all other equipment requiring heavier than
the normal office use of electricity;
(c) water for domestic purposes only (not process use) in
keeping with the permitted uses of the Premises;
(d) elevator service;
(e) janitor and cleaning services Monday through Friday of
each week, except holidays recognized by the U.S. Government, it being
understood and agreed, however, that Landlord shall not be liable in any way for
any damage or inconvenience caused by the cessation or interruption of such
heating, air conditioning, electricity, elevator, or janitor or cleaning service
occasioned by fire, accident, strikes, break-down, necessary maintenance,
alterations, or repairs, replacements, conduct of other tenants, requirements of
a public authority or causes beyond Landlord's control. Landlord's cleaning
service shall include emptying of normal office trashcans and disposing of their
contents. Tenant shall dispose of all other refuse, boxes, cans, books,
abandoned furniture and all other large, unusual or heavy items at Tenant's sole
cost and expense and shall not permit the accumulation thereof in the Premises
or elsewhere in the Building or Site. It is understood that employees of
Landlord are prohibited as such from receiving any packages other articles
delivered to the Building for Tenant and that should any such employee receive
any such packages or articles he or she in doing so shall be the agent of Tenant
and not of Landlord;
(f) in the event that Tenant desires to utilize any of
Landlord's services specified in this Section 3 beyond the hours of permitted
use, Tenant shall, prior to such use, request permission from Landlord and
obtain, in writing, signed by Landlord and Tenant, an agreement specifying the
charge for such use to be paid by Tenant to Landlord and the time of such
payment. In the event that Tenant makes any such use without such request and
mutual agreement, then, and in such event, Tenant covenants and agrees to pay to
Landlord for such use an amount reasonably determined by Landlord, upon demand;
and
(g) for computers and all other equipment requiring heavier
than the normal office use of electricity, Tenant shall separately meter (or
submeter, if approved by Landlord in writing), at its expense, the electricity
serving such equipment and shall pay, upon demand, all costs to Landlord for
such utility consumption, or, in the alternative, Tenant shall, prior to
utilizing any such equipment, enter into a written agreement with Landlord
specifying the charge for such use to be paid by Tenant to Landlord, the time of
such payment and the method of determining increases from time to time as rates
change or such use by Tenant is changed. In the event that Tenant makes any such
use without such request and mutual agreement, then, and in such event, Tenant
covenants and agrees to pay to Landlord for such in an amount determined by
Landlord's selected engineer, upon demand. Tenant shall be responsible for all
repairs, maintenance, replacements and service to all equipment serving Tenant's
computers and other special equipment including without limitation, HVAC
equipment. Tenant covenants to pay for its electrical consumption referred to in
this subsection (f), in a timely fashion, which covenant shall survive the
expiration or earlier termination of this Lease as hereinafter provided.
4. Condition of Premises. Tenant's taking possession of the
Premises shall be conclusive evidence as against Tenant that the Premises
were in good order and satisfactory condition when Tenant took possession, that
for Landlord shall renovate elevator lobby area with finishes consistent with
the second and third floor lobby areas. Landlord agrees to construct a fire
corridor as shown on the attached plan, and further shall finish all walls
created by said hallway with appropriate finishes. The existing conference room
will be repaired and finished as needed. Tenant accepts all other areas "as is."
Landlord warrants that the roof is in good condition. Landlord agrees to clean
all carpets, and repair electrical outlets and lights in the Premises as needed.
5. Failure to Give Possession. If Landlord shall be unable to
give possession of the Premises on the date of the commencement of the term
hereof by reason of any of the following: (i) labor disputes and/or material
shortages (ii) Force Majeure or Acts of God (iii) the hold over or retention of
possession of any tenant, tenants, or occupants; or (iv) for any other reason,
beyond Landlord's reasonable control, Landlord shall not be subject to any
liability for the failure to give possession on said date. Under such
circumstances the rent reserved and covenanted to be paid herein shall not
commence until the Premises are available for occupancy by Tenant, and no such
failure to give possession on the date of commencement of the term hereof shall
affect the validity of this Lease or the obligation of Tenant hereunder. At the
option of Landlord to be exercised within thirty (30) days of the delayed
delivery of possession to Tenant, the Lease shall be amended so that the term
shall be extended by the period of time possession is delayed. If the Premises
are ready for occupancy prior to the date of the commencement of the term hereof
and Tenant occupies the Premises prior to said date, Tenant shall pay rental for
the period of occupancy prior to the date of the commencement of the term hereof
at a rate proportional to the rent reserved herein. The Premises shall not be
deemed to be unready for Tenant's occupancy or incomplete if only minor or
insubstantial details of construction, decoration or mechanical adjustment
remain to be done in the Premises or any part thereof, or if the delay in the
availability of the Premises for occupancy shall be due to special work,
changes, alterations or additions required or made by Tenant in the layout or
finish of the Premises or any part thereof or shall be caused in whole or in
part by Tenant through the delay of Tenant in submitting plans, supplying
information, approving plans, specifications or estimates, giving authorizations
or otherwise or shall be caused in whole or in part by delay and/or default on
the part of Tenant and/or its subtenant or subtenants. Tenant shall be allowed
to install a telephone system and computer network lines two weeks prior to the
commencement of this Lease. In the event of any dispute as to whether the
Premises are ready for Tenant's occupancy, the decision of Landlord's architect
shall be final and binding on the parties.
6. Use of Premises. Tenant shall occupy and use the Premises
during the term for the purposes above specified and none other. Tenant
will not make or permit to be made any use of the Premises which, directly or
indirectly is forbidden by public law, ordinance or governmental regulation or
which may be dangerous to persons or property, or which may invalidate or
increase the premium cost of any policy of insurance carried on the Building,
the Site or covering their operations. Tenant shall not do, or permit to be
done, any act or thing upon the Premises the Building or the Site which will be
in conflict with fire insurance policies covering the Building or the Site of
which the Premises form a part. Tenant, at its sole expense shall comply with
all rules, regulations, or requirements of the local Inspection and Rating
Bureau, or any other similar body, and shall not do, or permit anything to be
done upon said Premises, or bring or keep anything thereon in violation of
rules, regulations, or requirements of the Fire Department, local Inspection and
Rating Bureau, Fire Insurance Rating Organization or other public or quasi
public authority having jurisdiction and then only in such quantity and manner
of storage as not to increase the rate of property insurance applicable to the
Building.
7. Rules and Regulations. Tenant agrees to abide by the rules
and regulations attached hereto and made a part hereof as Exhibit C.
In addition to all other liabilities for breach of any
covenant of Section 6 or this Section 7, Tenant shall be liable for and pay to
Landlord all damages caused by such breach and shall also pay to Landlord as
additional rent an amount equal to any increase in insurance premium or premiums
caused by such breach. Any violation of Section 6 or this Section 7 may be
restrained by injunction. Landlord shall have the right to make such other
reasonable rules and regulations as Landlord or its agent may from time to time
adopt on such reasonable notice to be given as Landlord may elect. Nothing in
this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce provisions of this Section 7 or any rules and regulations hereafter
adopted, or the terms, covenants or conditions of any other lease as against any
other tenant, and Landlord shall not be liable to Tenant for violations of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
8. Common Areas. Tenant shall have the right together with
other tenants and occupants and invitees to the non-exclusive use of the
sidewalks, driveways, stairways, halls, lobbies, elevators and passages, in the
Building and on the Site ("Common Areas") for reasonable ingress to and egress
from the Premises, and for no other purpose, subject to the other provisions of
this Lease including, without limitation, the Rules and Regulations in Exhibit
C.
The Common Areas and roof are not for the use of the general
public and Landlord shall in all cases retain the right to control and prevent
access thereto by all persons whose presence, in the judgment of Landlord shall
be prejudicial to the safety, character, reputation and interests of the
Building and Site and the tenants.
Landlord reserves the right to use any portion of the Common
Areas from time to time and/or to deny access to the same temporarily in order
to repair, maintain or restore such facilities or to construct improvements
under, over, along, across and upon the same and to relocate such Common Areas,
for the benefit of the Building, the Site, and other tenants.
9. Parking. Subject to the other provisions of this Lease, Tenant
shall have free non-exclusive use of parking facilities, driveways and
islands for Tenant, Tenant's employees, Tenant's business invitees and Tenant's
agents. Such areas for non-exclusive parking spaces shall serve all tenants,
their employees, business invitees and agents; however, Landlord in no respect
guarantees that a specified number of spaces will in fact be available at any
one time for Tenant. Tenant shall, upon written notice from Landlord, within
five (5) days, furnish Landlord, or its authorized agent, the state motor
vehicle license number assigned to each of its motor vehicles to be parked on
the Site and the motor vehicles of all of its employees employed in the
Premises. Tenant shall not at any time park any trucks or any delivery vehicles
in the parking areas or driveways, except as specifically designated by Landlord
from time to time, and shall confine all truck parking, loading and unloading to
times and locations specifically designated by Landlord from time to time.
Tenant shall require all trucks servicing Tenant to be promptly loaded or
unloaded and removed from the Site. Landlord hereby reserves the exclusive right
with respect to the use of parking facilities, roadways, sidewalks, driveways,
islands and walkways for advertising purposes. Tenant covenants and agrees to
enforce the provisions of this Lease against Tenant's employees and business
invitees. Landlord may from time to time circulate free parking stickers for the
purpose of identifying motor vehicles of Tenant and Tenant's employees and/or
circulate free validation tickets for the purpose of identifying Tenant's
business invitees. Landlord shall have the right, but not the obligation: (a) to
police said parking facilities, (b) to provide parking attendants, (c) to cause
unauthorized and/or unstickered motor vehicles to be towed away at the sole risk
and expense of the owner of such motor vehicles, (d) to provide for such
exclusive use as Landlord may determine from time to time, for the exclusive use
of the handicapped, and/or for the exclusive use of visitors, (e) to use any
portion of the parking facilities from time to time and/or to deny access to the
same temporarily in order to repair, maintain or restore such facilities or to
construct improvements under, over, along, across and upon the same for the
benefit of the Site and to grant easements therein to public and quasi public
authorities and (f) to adopt and modify from time to time Rules and Regulations
for parking and vehicular ingress, egress, speed, no parking, no standing, and
for times and places for move-in, move-out and deliveries.
10. Care and Maintenance. Subject to the provisions of Section
13, Tenant shall, at Tenant's own expense, keep the Premises in good
condition and shall pay for the repair of any damages caused by Tenant, its
agents, employees or invitees or the successors or assigns of any of them during
the Lease term. Tenant shall pay Landlord for overtime and for any other expense
incurred in the event repairs, alterations, decorating or other work in the
Premises are not made during ordinary business hours at Tenant's request.
11. Alterations. Tenant shall not do any painting or decorating,
or erect any partitions, make any alterations in or additions to the
Premises or do any nailing, boring or screwing into the ceilings, walls or
floors (hereinafter in this Section 11, the "Alterations") without Landlord's
prior written consent in each and every instance. Unless otherwise agreed by
Landlord and Tenant in writing, the work on all such Alterations shall be
performed either by or under the direction of Landlord, but at the cost of
Tenant. Landlord's decision to refuse such consent shall be conclusive. However,
Tenant shall be allowed to hang pictures and attach shelving to walls without
Landlord's approval. If Landlord consents to such Alterations Tenant shall
furnish to Landlord for approval before commencement of the work or delivery of
any materials onto the Premises or into the Building, the following:
(a) all plans and specifications;
(b) names and addresses of all contractors;
(c) copies of all contracts;
(d) all necessary permits;
(e) an indemnification in form and amount satisfactory to
Landlord and certificates of insurance from all contractors performing labor or
furnishing materials, insuring against any and all claims, costs, damages,
liabilities and expenses which may arise in connection with such Alterations.
Whether Tenant furnishes Landlord the foregoing or not, Tenant
hereby agrees to hold Landlord, its partners if any, and their respective agents
and employees forever harmless from any and all liabilities of every kind and
description which may arise out of or be connected in any way with said
Alterations. Any mechanic's lien filed against the Premises, the Building or the
Site, for work or materials claimed to have been furnished to Tenant shall be
discharged of record by Tenant within ten (10) days thereafter, at Tenant's
expense. Upon completing any Alterations, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended and used. All Alterations shall comply
with all insurance requirements and with all ordinances and regulations of any
pertinent public authority. All Alterations shall be constructed in a good and
workmanlike manner and good grades of materials shall be used.
All Alterations, upon the Premises, made by either party,
including, without limitation, all paneling, decorations, partitions, railings,
mezzanine floors, carpets, galleries, heating, air conditioning, plumbing,
electrical machinery and equipment, and the like, shall, unless Landlord
otherwise elects, which election shall be made by giving a notice in writing not
less than three (3) days prior to the expiration or other termination of this
Lease, become the property of Landlord and shall remain upon and be surrendered
with said Premises as a part thereof at the end of the term hereof. Furniture
and movable trade fixtures, which are installed by Tenant at its expense, except
for those referred to above, shall remain its property and may be removed at any
time, prior to the termination of the Term provided Tenant is not then in
default and further provided Tenant promptly repairs any damage caused by such
removal. Any such trade fixtures which Tenant has the right to remove under the
foregoing provisions, or personal property belonging to Tenant or to any
invitee, assignee or subtenant, if not removed prior to such termination, shall
be deemed abandoned and if Landlord so elects become the property of Landlord
without any payment or offset therefor. If Landlord shall not so elect, Landlord
may remove any fixtures or property from the Premises and store them at Tenant's
sole risk and expense or dispose of them in any manner including the sale,
scrapping or destruction thereof and to the extent permitted by law Tenant
waives all claims against Landlord therefor. Tenant shall repair and restore,
and save Landlord forever harmless from any and all damage to the Premises
caused by such removal, whether by Tenant or by Landlord.
12. Access to Premises. Tenant shall permit Landlord to erect,
use and maintain pipes, ducts, wiring and conduits in and through the Premises.
Landlord or Landlord's agents shall have the right to enter upon the Premises,
to inspect the same, to perform janitorial and cleaning services and to make
such repairs or alterations to the Premises (hereinafter in this Section 12 the
"Cleaning or Alterations") or the Building as Landlord may deem necessary or
desirable, and Landlord shall be allowed to take all material into and upon said
Premises that may be required therefor without the same constituting an eviction
of Tenant in whole or in part and the rent reserved shall in no wise abate
(except as provided in Section 13) while said Cleaning or Alterations, are being
made, by reason of loss or interruption of business of Tenant, or otherwise. If
Tenant shall not be personally present to open and permit an entry into said
Premises, at any time, when for any reason an entry therein shall be necessary
or permissible, to the extent permitted by law Landlord or Landlord's agents may
enter the same by a master key, or may forcibly enter the same, without
rendering Landlord or such agents liable therefor (if during such entry Landlord
or Landlord's agents shall accord reasonable care to Tenant's property) and
without in any manner affecting the obligations and covenants of this Lease.
Nothing herein contained, however, shall be deemed or construed to impose upon
Landlord any obligations, responsibility or liability whatsoever, for the care,
supervision or repair of the Building or any part thereof, other than as herein
provided. Landlord shall also have the right at any time without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement and/or locations of
entrances or passageways, doors and doorways, and corridors, elevators, toilets,
other Common Areas, and parking areas. Landlord shall not be liable to Tenant
for any expense, injury, loss or damage resulting from work done in or upon, or
the use of, any adjacent or nearby building, land, street or alley.
13. Untenantability. If the Premises or the Building are made
untenantable by fire or other casualty, Landlord may elect:
(a) to terminate this Lease as of the date of the fire
or casualty by notice to Tenant within sixty (60) days after that date, or
(b) proceed with all due diligence to repair, restore or
rehabilitate the Building and the Premises at Landlord's expense, in which
latter event this Lease shall not terminate.
In the event the Lease is not terminated pursuant to this
provision, rent shall abate on a per diem basis during the period of
untenantability. In the event of the termination of this Lease pursuant to this
Section 13, rent shall be apportioned on a per diem basis and paid to the date
of the fire or other casualty. In the event that the Premises are partially
damaged by fire or other casualty but are not made wholly untenantable, then
Landlord shall, except during the last year of the term hereof, proceed with all
due diligence to repair and restore the Premises and the rent shall abate in
proportion to the untenantability of the Premises during the period of
restoration. If a portion of the Premises are made untenantable as aforesaid
during the last year of the term hereof, Landlord shall have the right to
terminate this Lease as of the date of the fire or other casualty by giving
written notice thereof to Tenant within thirty (30) days after the date of fire
or other casualty, in which event the rent shall be apportioned on a per diem
basis and paid to the date of such fire or other casualty.
14. Insurance. Tenant shall maintain on the Premises:
(a) Commercial General liability and property damage
insurance during the entire term hereof covering both Tenant and Landlord as
insureds with terms and in companies satisfactory to Landlord with limits of not
less than $500,000 for personal injury and $1,000,000 combined single limit for
both bodily injury and property damage.
(b) Insurance against fire, sprinkler leakage, vandalism,
and the extended coverage perils for the full insurable value of all of Tenant's
property of every kind and character in the Premises, Building and on the Site
including without limitation all additions, improvements and alterations to the
Premises and of all office furniture, trade fixtures, office equipment,
inventory and merchandise in the Premises.
(c) Broad form theft insurance insuring all items of
Tenant's property and all other property located in the Premises.
Tenant shall, prior to the commencement of the term, and
during the term, ___ days prior to the expiration of the policies of insurance,
furnish to Landlord certificates evidencing such coverage, which certificates
shall state that such insurance coverage may not be changed or canceled without
at least 30 days prior written notice to Landlord and Tenant.
Anything herein to the contrary notwithstanding and regardless
of the inadequacy of any insurance coverage herein required, it is understood
and agreed that Landlord except as prohibited by law, shall not be responsible
for loss of, damage to, or destruction of any of Tenant's property under any
circumstances whatsoever, including Landlord's negligence it being understood
that Tenant shall be responsible for providing adequate insurance to cover all
such loss, damage or destruction.
15. Subrogation. The parties hereto agree to use their best
efforts to have any and all fire, extended coverage or any and all material
damage insurance which may be carried pursuant to Section 14 hereof endorsed
with the following subrogation clause: "This insurance shall not be invalidated
should the insured waive prior to a loss any or all right of recovery against
any party for loss occurring to the property described herein". Each party
hereto hereby waives all claims for recovery from the other party for any loss
or damage to any of its property insured under valid and collectible insurance
policies to the extent of any recovery collectible under such insurance.
16. Eminent Domain. If the Building, or a substantial part of
the Premises, shall be taken or condemned for any public or quasi-public use or
purpose, or conveyed under threat of such condemnation, the term of this Lease
shall end upon, and not before, the date of the taking of possession by the
condemning authority, and without apportionment of the award. If any part of the
Building, other than the Premises or any part of the Building not constituting a
substantial part of the Premises, or any part of this Site shall be so taken or
condemned, or if the grade of any street or alley adjacent to the Site is
changed by any public authority and such taking or change of grade makes it
necessary or desirable to substantially remodel or restore the Building,
Landlord shall have the right to cancel this Lease upon not less than ninety
(90) days' notice prior to the date of cancellation designated in the notice or
to relocate Tenant pursuant to Section 27 hereof. No money or other
consideration shall be payable by Landlord to Tenant for the right of
cancellation, and Tenant shall have no right to share in the condemnation award
or in any judgment for damages caused by the change of grade.
17. Assignment-Subletting.
(a) Tenant shall not, without Landlord's prior written
consent which shall not be unreasonably withheld, conditioned or delayed: (i)
assign, hypothecate, mortgage, encumber, or convey this Lease or any interest
under it; (ii) allow any transfer thereof of any lien upon Tenant's interest by
operation of law; (iii) sublet the Premises in whole or in part. A transfer of a
controlling interest in Tenant shall be deemed an assignment of this Lease.
Prior to any sublease or assignment, Tenant shall first notify Landlord in
writing of its election to sublease all or a portion of the Premises or to
assign this Lease or any interest thereunder, such notice to include a copy of
the proposed sublease or assignment. At anytime within fifteen (15) days after
service of said notice, Landlord shall notify Tenant that:
(1) it consents to the sublease or assignment; or
(2) it refuses to consent to the sublease or
assignment, and a failure to respond within said time period shall be deemed a
refusal; or
(3) with respect to a proposed sublease of the
entire Premises or an assignment of this Lease, that it cancels the Lease
effective as of the beginning of the proposed sublease term o r as of the
effective date of such proposed assignment; or
(4) with respect to the proposed sublease of part
of the Premises that, effective as of the beginning of the sublease term, it
amends the Lease to reduce the Premises by the portion of the Premises proposed
to be sublet and further appropriately amends the Lease because of the reduction
of the Premises. Under no circumstances shall Landlord be required to pay for
any alterations to the Premises and Landlord may require a reasonable cash
security deposit to cover the costs of restoration at the expiration of the
sublease.
(b) The use for which the Premises may be sublet shall be
only for lawful office use in keeping with the general character of the
Building.
(c) THIS SECTION INTENTIONALLY OMITTED.
(d) Tenant agrees to pay to Landlord, on demand,
all reasonable costs incurred by Landlord in connection with any request by
Tenant for Landlord's consent to any assignment or subletting.
(e) Any assignment or subletting shall not release Tenant
of its liability under this Lease or permit any subsequent assignment,
subletting or other prohibited act, unless specifically provided in such
consent.
(f) Landlord may refuse to consent to an assignment
or subletting for any of the following reasons (i) lack of credit worthiness of
proposed assignee or subtenant (regardless of Tenant's credit) (ii) a proposed
use other than that permitted hereunder (iii) previous unsatisfactory experience
with proposed assignee or subtenant (iv) proposed division of Premises into less
marketable size (v) defaults of Tenant hereunder or (vi) less than one year
remaining on this lease term or (vii) any other reasonable basis.
18. Waiver of Claims and Indemnity. To the extent not prohibited
by law, Tenant releases Landlord, its partners, and their respective agents and
employees and their successors and assigns from, and waives all claims for,
damage or injury to person or property sustained by Tenant its successors and
assigns resulting from the Site, the Building or Premises or any part of any of
them or any equipment or appurtenance becoming out of repair, or resulting from
any accident in or about the Site, the Building, or the Premises or resulting
directly or indirectly from any act or neglect of any tenant or occupant of the
Site or the Building, or of any other person, including Landlord's agents and
employees. This Section 18 shall include but not be limited to, the flooding of
basements or other subsurface areas, and to damage caused by refrigerators,
sprinkling devices, air-conditioning and/or electrical equipment, water, snow,
frost, steam, excessive heat or cold, falling plaster, broken glass, sewage,
gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures,
and shall apply equally whether any such damage results from the act or neglect
of Landlord or of other tenants, occupants or servants in the Building or of any
other person, and whether such damage be caused or result from any thing or
circumstance above mentioned or referred to, or any other thing or circumstance
whether of a like nature or of a wholly different nature. If any such damage, or
injury whether to the Premises or to the Building or any part thereof, or
whether to Landlord or to other tenants in the Building, results from any act or
neglect of Tenant, its employees, agents, invitees and customers, Tenant shall
be liable therefor and Landlord may, at Landlord's option, repair such damage
and Tenant shall, upon demand by Landlord, reimburse Landlord forthwith for the
total cost of such repairs. Tenant shall not be liable for any damage caused by
its act or neglect if Landlord or a tenant has recovered the full amount of the
damage from insurance and the insurance company has waived its right of
subrogation against Tenant.
Tenant agrees to indemnify and save Landlord, its partners and
their respective agents and employees harmless against any and all claims,
demands, costs and expenses, including reasonable attorney's fees for the
defense thereof, arising from Tenant's occupancy of the Premises or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any act or negligence of Tenant, its agents, servants, employees
or invitees, in or about the Premises. In case of any action or proceeding
brought against Landlord, its partners or their respective agents or employees
by reason of any such claim, upon notice from Landlord, Tenant covenants to
defend such action or proceeding by counsel reasonably satisfactory to Landlord.
Landlord agrees to indemnify and save Tenant, its partners and
their respective agents and employees harmless against any and all claims,
demands, costs and expenses, including reasonable attorney's fees for the
defense thereof, arising from Landlord's letting of the Premises to Tenant or
from any breach or default on the part of Landlord in the performance of any
covenant or agreement on the part of Landlord to be performed pursuant to the
terms of this Lease, or from any act or negligence of Landlord, its agents,
servants, employees or invitees, in or about the Premises. In case of any action
or proceeding brought against Tenant, its partners or their respective agents or
employees by reason of any such claim, upon notice from Tenant, Landlord
covenants to defend such action or proceeding by counsel reasonably satisfactory
to Tenant.
19. Subordination. At anytime prior to or during the Lease
term Landlord may execute and deliver a mortgage or trust deed in the nature of
a mortgage (either hereinafter referred to as the "Mortgage") constituting a
lien against the Building, the Site or any interest therein, and may sell and
lease back the Site. This Lease shall, at the option of any such mortgagee, be
subject and subordinate at all times to the lien of any such Mortgage. Tenant
shall execute and deliver such further instrument or instruments subordinating
this Lease to the lien of any such Mortgage or party secured or proposed
mortgagee or party proposed to be secured. Should any Mortgage affecting the
Building or the Site be foreclosed or if any ground or underlying lease be
terminated the liability of the mortgagee, trustee or purchaser at such
foreclosure sale or the liability of a subsequent owner designated as Landlord
under this Lease shall exist only so long as such trustee, mortgagee, purchaser
or owner is the owner of the Building or Site and such liability shall not
continue or survive after further transfer of ownership.
20. Estoppel Certificate. Tenant agrees at any time and from
time to time upon not less than 10 days prior written request by Landlord to
execute, acknowledge and deliver to Landlord a statement in writing as attached
hereto as Exhibit D (or in any other form which Landlord reasonably requests)
certifying that (a) this Lease is unmodified and in full force and effect (or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications), (b) the dates to which the basic rent
and other charges have been paid in advance, if any, and (c) all of the defaults
of Landlord hereunder, if any, (and if there are no defaults of Landlord a
statement to that effect) it being intended that any such statement delivered
pursuant to this Section 20 may be relied upon by any prospective purchaser of
the fee or mortgagee or assignee of any mortgage upon the fee of the Site and/or
by party interested in the Site or any part thereof. Specifically, Tenant upon
notice as aforesaid from Landlord agrees to execute and deliver to Landlord an
estoppel certificate in the form attached hereto and made a part hereof as
Exhibit D; or at Landlord's election and upon such notice to Tenant any other
similar document setting forth the information described in the preceding
paragraph and/or said Exhibit D and any other information reasonably required by
Landlord to effectuate the purpose of selling, financing, the Site or otherwise
dealing with the same in a commercially reasonable manner.
21. Certain Rights Reserved to Landlord. Landlord reserves and
may exercise the following rights without affecting Tenant's obligations
hereunder:
(a) to change the name or street address of the Building;
(b) to install and maintain a sign or signs on the
interior or exterior of the Building;
(c) to have access for Landlord and the other tenants
of the Building to any mail chutes located on the Premises according to the
rules of the United States Post Office;
(d) to designate all sources furnishing cleaning and/or
janitorial and repair services, sign painting and lettering, ice, towels and
toilet supplies, lamps and bulbs used on the Premises;
(e) to decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy if Tenant vacates the Premises prior to the
expiration of the term; and is in default hereunder;
(f) to retain at all times pass keys to the Premises;
(g) to grant to anyone the exclusive right to conduct
any particular business or undertaking in the Building other than that of
Tenant;
(h) to exhibit the Premises to others during the last six
(6) months of the Term;
(i) to close the Building after regular working hours
and on the legal holidays subject, however, to Tenant's right to admittance,
under such reasonable regulations as Landlord may prescribe from time to time,
which may include by way of example but not of limitation, that persons entering
or leaving the Building identify themselves to a watchman by registration or
otherwise and that said persons establish their right to enter or leave the
Building;
(j) to approve the weight, size and location of safes or
other heavy equipment or articles, which articles may be moved in, about, or out
of the Building or Premises only at such times and in such manner as Landlord
shall direct and in all events however, at Tenant's sole risk and
responsibility;
(k) to take any and all measures, including
inspection, repairs, alterations, decorations, additions and improvements to the
Premises or to the Building, as may be necessary or desirable for the safety,
protection or preservation of the Premises, the Building, the Site or Landlord's
interests, or as may be reasonably necessary or desirable in the operation of
the Building.
Landlord may enter upon the Premises and may exercise any or
all of the foregoing rights hereby reserved without being deemed guilty of an
eviction or disturbance of Tenant's use or possession and without being liable
in any manner to Tenant and without abatement of rent or affecting any of
Tenant's obligations hereunder.
22. Holding Over. In the event Tenant remains in possession of
the Premises after the expiration of the term of this Lease, or any extensions
hereof without the written consent of Landlord, Tenant shall then be obligated
to pay double the rate of the then current Base Rent including all adjustments
and all other sums then payable hereunder, in equal installments on the first
day of each calendar month for so long as Landlord is kept out of possession of
the Premises. No such payment, nor the acceptance thereof shall in any way
constitute a waiver of the rights of Landlord to dispossess Tenant and recover
possession of the Premises and the just and former estate of Landlord and to
bring any action for damages suffered by Landlord on account of Tenant's failure
to vacate the Premises.
At the election of Landlord expressed in a written notice to
Tenant, and not otherwise, such retention of possession shall constitute a
renewal of this Lease for a term of one (1) year. The provisions of this Section
22 do not exclude Landlord's rights of re-entry or any other right reserved
hereunder.
23. Landlord's Remedies. All rights and remedies of Landlord
herein enumerated shall be cumulative, and none shall exclude any other right or
remedy allowed by law or provided elsewhere in this Lease.
(a) If Tenant defaults in the payment of rent, if
Tenant defaults in the prompt and full performance of any other provisions of
this Lease, and Tenant does not cure the default within 10 days after written
demand by Landlord that the default be cured (unless the default involves a
hazardous condition, which shall be cured forthwith) or if the leasehold
interest of Tenant be levied upon under execution or be attached by process of
law, or if any petition shall be filed by or against Tenant to declare Tenant
bankrupt or to delay, deduce or modify Tenant's capital structure (and if filed
against Tenant such petition shall not be dismissed within 30 days) or if Tenant
be declared insolvent according to law, or if Tenant makes an assignment for the
benefit of creditors or admits its inability to pay its debts, or if a receiver
be appointed for any property of Tenant, or if Tenant abandons or surrenders the
Premises, then and in any such event Landlord may, if Landlord so elects but not
otherwise, treat the occurrence of anyone or more of the foregoing events as a
default hereunder and with or without notice of such election, and with or
without any demand whatsoever, either forthwith terminate this Lease and
Tenant's rights to possession of the Premises or, without terminating this
Lease, forthwith terminate Tenant's right to possession of the Premises.
(b) Upon any termination of this Lease, whether by
lapse of time or otherwise, or upon any termination of Tenant's right to
possession without termination of the Lease, Tenant shall surrender possession
and vacate the Premises immediately, and deliver possession thereof to Landlord,
and Tenant to the fullest extent permitted by law thereby grants to Landlord
full and free license to enter into and upon the Premises in such event with or
without process of law and to repossess Landlord of the Premises as of
Landlord's former estate and to expel or remove Tenant and any others who may be
occupying or be within the Premises and to remove any and all property
therefrom, without being deemed in any manner guilty of trespass, eviction or
forcible entry or detainer, and without relinquishing Landlord's rights to rent
or any other right given to Landlord hereunder or by operation of law.
(c) If Landlord elects to terminate Tenant's right
to possession only, without terminating the Lease, Landlord may, at Landlord's
option, enter into the Premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as in Subsection (c) of this
Section 22 provided, without such entry and possession terminating the Lease or
releasing Tenant, in whole or in part, form Tenant's obligation to pay the rent
hereunder for the full term, and in any such case Tenant shall pay forthwith to
Landlord, if Landlord so elects, a sum equal to the entire amount of the rent
specified in Section 1 of this Lease for the residue of the stated term plus any
other sums then due hereunder. Upon and after entry into possession without
termination of the Lease, Landlord may, but need not, relet Premises or any part
thereof for the account of Tenant to any person, firm or corporation other than
Tenant for such rent, for such time and upon such terms as Landlord in
Landlord's sole discretion shall determine, and Landlord shall not be required
to accept any tenant offered by Tenant or to observe any instructions given by
Tenant about such reletting. In any such case, Landlord may make repairs,
alterations and additions in or to the Premises and redecorate the same to the
extent deemed by Landlord necessary or desirable, and Tenant shall, upon demand,
pay the cost thereof, together with Landlord's expenses of the reletting. If the
consideration collected by Landlord upon any such reletting for Tenant's account
is not sufficient to pay monthly the full amount of the rent and additional rent
reserved in this Lease, all other monies to be paid by Tenant, together with the
costs of repairs, alterations, additions, redecorating and Landlord's expenses,
Tenant shall pay to Landlord the amount of each monthly deficiency upon demand.
(d) Any and all property which may be removed from
the Premises by Landlord pursuant to the authority of the Lease or of law, to
which Tenant is or may be entitled, may be handled, removed or stored by
Landlord at risk, cost and expense of Tenant, and except strictly as required by
law Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Tenant agrees that to the fullest extent permitted by law any such
property of Tenant not retaken from storage by Tenant within 10 days after the
end of the term, however terminated, may be disposed of by Landlord in any
manner whatsoever including without limitation, the sale, scrapping and/or
destruction thereof without any further obligation to Tenant and shall pay to
Landlord, promptly in demand the reasonable expenses of such disposal.
(e) Tenant hereby grants to Landlord a first lien upon
the interest of Tenant under this Lease to secure the payment of moneys due
under this lease, which lien may be enforced in equity; and Landlord shall be
entitled as a matter of right to have a receiver appointed to take possession of
the Premises and relet the same under order of court.
(f) Landlord to the fullest extent permitted by law shall
have a lien for the payment of rent, additional rent and all other monies to be
paid by Tenant to Landlord hereunder, upon all of the goods, wares, chattels,
fixtures, furniture and other property of Tenant which may be in or upon the
Premises, the Building or the Site. Tenant hereby specifically to the fullest
extent permitted by law waives any and all exemptions allowed by law, and such
lien may be enforced upon the non-payment of any installment of Base Rent,
additional rent, or other monies due and payable hereunder by the taking and
selling of such property, subject to at least 10 days advance written notice, or
such lien may be enforced in any other lawful manner at the option of Landlord.
(g) Tenant shall pay upon demand all Landlord's costs,
charges and expenses, including the fees of counsel, agents and others retained
by Landlord, incurred in enforcing Tenant's obligations hereunder or incurred by
Landlord in any litigation, negotiation or transaction in which Tenant causes
Landlord, without Landlord's fault, to become involved or concerned.
(h) If Tenant defaults in the performance of any of
its obligations under this lease, including without limitation, its obligations
under Section 10 hereof, then Landlord or any mortgagee or ground lessor under a
Mortgage or ground lease described in Section 19 hereof, may, but need not, cure
such default, and Tenant shall pay to Landlord or such mortgagee or ground
lessor, as the case may be, the cost thereof forthwith upon being billed for
same.
24. Default Under Other Lease. If the term of any lease, other
than this Lease, made by Tenant for any other space in the Building shall be
terminated or terminable after the making of this Lease because of any default
by Tenant under such other lease, such fact shall empower Landlord, at
Landlord's sole option, to terminate this Lease forthwith by notice to Tenant.
25. Surrender of Possession. Upon the expiration or other
termination of the term of this Lease, Tenant shall quit and surrender to
Landlord the Premises, broom clean, in good order and condition, ordinary wear
excepted, and Tenant shall remove all of its property except as otherwise
provided in Section 11.
If Tenant does not remove its property of every kind and
description from the Premises prior to the termination of the Lease, however
ended, and Landlord shall not have requested the removal of same by Tenant
pursuant to Section 11 hereof, Tenant at Landlord's election to be evidenced by
written notice to Tenant within 10 days after the termination of the Term, but
not otherwise shall be conclusively presumed to have conveyed the same to
Landlord under this Lease as a bill of sale without further payment or credit by
Landlord to Tenant and Landlord may remove the same and Tenant shall pay the
cost of such removal to Landlord upon demand.
In the event Landlord does not so elect to compel conveyance
of such property, Landlord may dispose of such property in any manner whatsoever
to the fullest extent permitted by law, including, without limitation, the sale,
scrapping, and/or destruction thereof without further obligation to Tenant and
Tenant shall pay to Landlord, promptly on demand, the reasonable expenses of
such disposal.
Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this Lease.
26. Notices. Notices shall be in writing. The time of mailing
shall be the time of the notice.
(a) Notices shall be effectively served by Landlord
upon Tenant by forwarding through Certified or Registered Mail, postage prepaid,
to Tenant at the Premises or by hand delivery to the Premises.
(b) Notice shall be effectively served by Tenant upon
Landlord when addressed to Landlord and served by forwarding through
Certified or Registered Mail, postage prepaid, to Landlord at:
Greenstar, LLC
c/o DSI Partners
Suite 200
Chain Bridge Road
McLean, VA 22101
and
Maxwell Associates, Inc.
P. O. Box 9905
Greensboro, NC 27429
with a copy to:
Marc L. Isaacson, Esq.
Isaacson & Isaacson
P. O. Box 1888
Greensboro, NC 27402
27. THIS SECTION INTENTIONALLY OMITTED.
28. Security Deposit. If Tenant defaults in respect to any of
the terms, provisions, covenants and conditions of the Lease including, but not
limited to, payment of the Base Rent and/or additional rent and any other monies
payable by Tenant hereunder, Landlord may use, apply, or retain the whole or any
part of the security so deposited for the payment of any such rent or other
payment in default, or for any other sum which Landlord may expend or be
required to expend by reason of Tenant's default including, without limitation,
any damages or deficiency in the reletting of the Premises, whether such damages
or deficiency shall have occurred before or after any re-entry by Landlord. If
any of the security shall be so used, applied or retained by Landlord at any
time or from time to time, Tenant shall promptly, in each such instance, on
written demand therefor by Landlord, pay to Landlord such additional sum as may
be necessary to restore the security to the original amount required to be
deposited. If Tenant shall fully and faithfully comply with all terms,
provisions, covenants, and conditions of this Lease, the security, or any
balance thereof, shall be returned to Tenant promptly after the last of the
following to occur:
(a) the time fixed as the expiration of the term of this
Lease;
(b) the removal of Tenant from the Premises;
(c) the surrender of the Premises by Tenant to Landlord
in accordance with this Lease; and
(d) the time required for the rent adjustments and other
amounts due pursuant to the Lease to have been computed by Landlord and paid by
Tenant.
Except as otherwise required by law, Tenant shall not be
entitled to any interest in the aforesaid security. In the absence of evidence
satisfactory to Landlord of an assignment or the right to receive the security
or the remaining balance thereof, Landlord may return the security to the
original Tenant, regardless of one or more assignments of this Lease.
Tenant hereby agrees not to look to any mortgagee, as
mortgagee, mortgagee in possession or successor in title to the Building and/or
Site for accountability for any security deposit required by Landlord or any
successor Landlord, unless such sums have actually been received by said
mortgagee as security for Tenant's performance under this Lease.
29. Covenant Against Liens. Tenant has no authority or power to
cause or permit any lien or encumbrance of any kind whatsoever, whether created
by act of Tenant, operation of law or otherwise, to attach to or be placed upon
Landlord's title or interest in the Site, Building, or Premises. Any and all
liens and encumbrances created by Tenant shall attach to Tenant's interest only.
Tenant covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Site, Building, or Premises, with
respect to work or services claimed to have been performed for, or materials
claimed to have been furnished to Tenant or the Premises, and in case of any
such lien attaching, Tenant covenants and agrees immediately to cause it to be
released and removed of record.
30. Miscellaneous.
(a) No receipt of money by Landlord from Tenant after
the termination of this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the Premises
shall reinstate, continue or extend the term of this Lease or affect any such
notice, demand or suit.
(b) No waiver of any default by Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or be repeated, and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated.
(c) The words "Landlord" and "Tenant" wherever used in
the Lease shall be construed to mean plural where necessary and the necessary
grammatical changes required to make the provisions hereof apply either to
corporations or individuals, men or women, shall in all cases be assumed as
though in each case fully expressed.
(d) Each provision hereof shall extend to and shall bind
and inure to the benefit of Landlord and Tenant and their respective heirs,
legal representatives, successors and assigns.
(e) Submission of this instrument for examination does
not constitute a reservation of or option for the Premises. The instrument does
not become effective as a lease or otherwise until executed and delivered by
both Landlord and Tenant.
(f) All amounts (unless otherwise provided herein), and
other than the Base Rent owed by Tenant to Landlord hereunder shall be deemed
additional rent and be paid within thirty (30) days from the date Landlord
renders statements of account therefor. All such amounts (including Base Rent)
shall bear interest from ten (10) days after the date due until the date paid at
the per annum rate five (5%) percent above the lowest Prime Rate at the Nations
Bank in effect on the date due, or at the maximum legal rate of interest,
allowed by law, if such maximum legal rate is applicable and lower.
(g) All Exhibits and Schedules attached to this Lease
are hereby made a part of this Lease as though inserted in this Lease.
(h) The headings of sections are for convenience only
and do not limit or construe the contents of the sections.
(i) If Tenant shall occupy the Premises prior to the
beginning of the term of this Lease with Landlord's consent, all the provisions
of this Lease shall be in full force and effect as soon as Tenant occupies the
Premises.
(j) Should any mortgage, leasehold or otherwise, require
a modification or modifications of this Lease, which modification or
modifications will not bring about any increase cost or expense to Tenant or in
any other way substantially change the rights and obligations of Tenant
hereunder, then and in such event, Tenant agrees that this Lease may be so
modified.
(k) Tenant and Landlord each represents to the other that
it has dealt directly with and only with Maxwell Associates, Inc. as brokers in
connection with this Lease, and that no other broker procured this Lease or is
entitled to any commission in connection therewith and in the event either party
has so hired another broker such hiring party shall indemnify, defend and hold
forever harmless the other party from and against any claim by such hired broker
and from and against any and all costs directly or indirectly arising out of any
such hiring.
(l) Landlord's title is and always shall be paramount to
the title of Tenant, and nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber such title.
(m) The laws of the State of North Carolina shall govern
the validity, performance and enforcement of this Lease.
(n) If any term, covenant or condition of this Lease
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
(o) The obligation of Landlord under this Lease shall
not be binding upon Landlord named herein after the sale, conveyance, assignment
or transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Site, as the case may be, and in the event of any such
sale, conveyance, assignment or transfer, Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, grantee, assignee or other transferee that such purchaser,
grantee, assignee or other transferee has assumed and agreed to carry out any
and all covenants and obligations of Landlord hereunder.
(p) This Lease contains the entire agreement of the
parties in regard to the premises. There are no oral agreements existing between
them, and there shall be no oral changes. Neither Landlord nor any agent of
Landlord has made any representations, warranties or promises with respect to
the Premises, or the Building of which the premises is a part, or the Site on
which the Building is located, or the use of any amenities or facilities, except
as herein expressly set forth. Any agreement hereinafter made shall be
ineffective to change, waive, modify, discharge or terminate it in whole or in
part unless such agreement is in writing and signed by the party against whom
enforcement of the change, waiver, modification, discharge or termination is
sought.
(q) Notwithstanding anything contained in this Lease to
the contrary: Landlord's obligations hereunder shall be excused to the extent
that and during such time as Landlord is prevented from discharging such
obligations by Acts of God, strikes, material shortages or any other reason
beyond Landlord's control; Tenant will not avail itself of any remedy provided
at law or in equity until Landlord fails to cure any default on the part of
Landlord within 30 days after its receipt of written notice of such default from
Tenant; and Landlord and Tenant agree that in no event shall Landlord be liable
to Tenant for any special, consequential or incidental damages.
(r) Time is of the essence of this Lease.
31. Exculpation. Neither the partners, if Landlord is a
partnership, or Members, if Landlord is a limited liability company, or if
Landlord is a trustee of a trust, the beneficiaries of such trust, nor the
shareholders (nor any of the partners comprising same) directors or officers of
any of the foregoing (collectively, the "Parties") shall be liable for the
performance of Landlord's obligations under this Lease. Tenant shall look solely
to Landlord to enforce Landlord's obligations hereunder and shall not seek any
damages against the rest of the Parties. The liability of Landlord for
Landlord's obligations under this Lease shall not exceed and shall be limited to
the value of Landlord's interest in the Site and Tenant shall not look to the
property or asset's of any of the Parties in seeking either to enforce
Landlord's obligations under this Lease or to satisfy a judgment for Landlord's
failure to perform as such obligation.
32. Resolution. Tenant shall contemporaneously with the execution
and delivery of this Lease, also deliver to Landlord a copy of a resolution of
the Board of Directors of Tenant, specifically authorizing those of Tenant's
officers whose names are subscribed hereto to enter into this Lease with
Landlord. Such resolution shall make reference to this Lease, the Premises,
lease term and rental reserved, shall be duly certified to by the Secretary of
said Board of Directors and shall be appended hereto as Schedule 1.
33. Exhibits and Schedules. The following Exhibits and Schedules
are attached hereto and expressly made a part hereof:
Exhibit A: Description of Premises
Exhibit B: Description of Site
Exhibit C: Rules and Regulations
Exhibit D: Estoppel Certificate
Schedule 1: Tenant's Resolution
IN WITNESS WHEREOF, the parties hereto have executed this Lease the
date first above written.
LANDLORD:
GREENSTAR, L.L.C.
By: /s/ Rajai Fomot
----------------------------------------
Manager
TENANT:
THE COLONIAL GROUP
By: /s/ Robert W. Burke
-----------------------------------------
Title: President
STATE OF NORTH CAROLINA
COUNTY OF GUILFORD
I, Barbara J Marion, a Notary Public in and for the county and
state aforesaid, certify that Rajai Fumot, personally came before me this day
and acknowledged that he/she is a member/manager of Greenstar, L.L.C., a North
Carolina limited liability company, and that by authority duly given and as the
act of the limited liability company, the foregoing Lease was signed in its name
by ______________________, member/manager of Greenstar, L.L.C.
Witness my hand and official seal this the 1st day of
November, 1995.
/s/ Barbara J Marion
-------------------------------------
Notary Public
My Commission Expires:
6/8/98
- -----------------------
STATE OF NORTH CAROLINA
COUNTY OF GUILFORD
I, Paige S Brewer, a Notary Public for the above State and County, do
hereby certify that Robert W Burke personally appeared before me this day and
acknowledged that he is Secretary of The Colonial Group, a North Carolina
corporation, and that by authority duly given and as the act of the Corporation
the foregoing Lease was signed in its name by its President, sealed with its
corporate seal and attested by herself as its Secretary.
Witness my hand and Notarial seal this the 22nd day of September, 1995.
/s/ Paige S. Brewer
------------------------------------
Notary Public
My commission expires:
11/12/2000
- -----------------------
<PAGE>
EXHIBIT A
Description of Premises
To be attached.
EXHIBIT B
Description of Site
To be attached.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Tenant will be provided with a suite sign, interior directory
signage and monument signage indicative of lease square footage by Landlord.
All monument signage shall be directed by the amount of square footage;
2. Tenant shall not use the name of the Building or the Site for any
purpose other than that of business address of Tenant, and shall never use any
picture or likeness of the Building or the Site in any circulars, notices,
advertisements or correspondence without Landlord's express consent in writing.
3. Tenant shall not obstruct, or house for storage, or for any purpose
other than ingress and egress, the sidewalks, entrances, passages, courts,
corridors, vestibules, halls, elevators and stairways of the Building.
4. No dog or other animal or bird shall be brought or permitted to be
in the Building or on the Site or any part thereof, with the exception of seeing
eye dogs. Bicycles and other vehicles are permitted in the parking areas and
driveways only.
5. Tenant shall not make any noise or odor in the Building or Site
outside the Premises which is objectionable to the other tenants and shall not
create or maintain a nuisance thereon, and shall not disturb, solicit or canvass
any occupant of the Building, and shall not do any act tending to injure the
reputation of the Building or the Site.
6. Tenant shall not install any musical instrument or equipment in the
Building or any antennas, aerial wires or other equipment inside or outside the
Building, without, in each and every instance, prior approval in writing by
Landlord. The use thereof, if permitted, shall be subject to control by Landlord
to the end that others shall not be disturbed or annoyed.
7. Tenant shall not waste water in any manner whatsoever including
without limitation the tying, wedging or otherwise fastening open, of any
faucet.
8. No additional locks or similar devices shall be attached to any
door. No keys for any door other than those provided by Landlord (8 entrance
keys and 8 suite keys) shall be made. If more than two keys for one lock are
desired by Tenant, Landlord may provide the same upon payment by Tenant. Upon
termination of this Lease or of Tenant's possession, Tenant shall surrender all
keys of the Premises and shall make known to Landlord the explanation of all
combination locks on safes, cabinets and vaults.
9. Tenant shall be responsible for the locking of doors in and to
the Premises. Any damage resulting from neglect of this clause shall be paid
by Tenant.
10. If Tenant desires telegraphic, telephonic, burglar alarm or signal
service, Landlord will, upon request and at no additional cost to Landlord,
direct where and how connections and all wiring for such service shall be
introduced and run. Without such directions, no boring, cutting or installation
of wires or cables is permitted.
11. Shades, draperies or other forms of inside window covering must
be of such shape, color and material as are approved by Landlord.
12. Tenant shall not overload any floor or any other structural
component of the Building or the Site. Safes, furniture and all large articles
shall be brought through the Building and into the Premises at such times and in
such manner as Landlord shall direct and at Tenant's sole risk and
responsibility. Tenant shall list all furniture, equipment and similar articles
to be removed from the Building and the list must be approved at the Office of
the Building or by a designated person before any such articles can be removed.
13. Unless Landlord gives advance written consent in each and every
instance, Tenant shall not install or operate any steam or internal combustion
engine, boiler, machinery, refrigerating or heating device or air-conditioning
apparatus in or about the Premises, or carry on any mechanical business therein,
or use the Premises for housing accommodations or lodging or sleeping purposes,
or do any cooking therein or install or permit the installation of any vending
machines, or use any illumination other than electric light, or use or permit to
be brought into the Building any inflammable oils or fluids such as gasoline,
kerosene, naphtha and benzene, or any explosive or other articles hazardous to
persons or property.
<PAGE>
14. Tenant shall not place or allow anything to be against or near the
glass of partitions, doors or windows of the Premises which would be unsightly
from the exterior of the Building, public halls or corridors.
15. Tenant shall not install in the Premises any equipment which uses a
extraordinary amount of electricity without the advance written consent of
Landlord. Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account the
capacity of the electric wiring in the Building and the Premises and the needs
of other tenants in the Building and shall not use more than such safe capacity.
Tenant, however, is allowed to install a dishwasher in the Premises.
16. Tenant may not install carpet padding or carpet by means of a
mastic, glue or cement. Such installation shall be by tackless strip or
double-faced tape only.
EXHIBIT D
TENANT ESTOPPEL CERTIFICATE
Date: __________________________, 199__
To: _______________________________ ("Lender")
-------------------------------
From: _______________________________ ("Tenant")
-------------------------------
Re: _______________________________
_______________________________ (the "Property")
The undersigned lessee (Tenant") under that certain lease dated
_________, __, 199__ and amended ____________, 199__ ("Lease") by and between
________________, as lessor ("Landlord") covering premises commonly known as
___________________________ (the "Leased Premises") certifies the following as
of the date hereof:
1. Tenant is the lessee under the Lease demising the Leased Premises.
The term of the Lease commenced on ___________, 199__ and will expire on
______________, 199__.
2. Tenant certifies to Lender that: (a) the Lease has been properly
executed by Tenant and is presently in full force and effect without amendment
or modification except as noted in the first paragraph; (b) the Leased Premises
consists of __________ rentable square feet; (c) the current monthly rent is
$__________; (d) all construction required by the Lease to be made by Landlord
has been completed and any payments, credits or abatements required to be given
by Landlord to Tenant have been given; (e) no installment of rent under the
Lease other than current monthly rent has been paid more than ___ days in
advance nor are any installments of rent past due by ___ days or more; (f)
Tenant is not in arrears on any rent or other charges payable by Tenant under
the Lease; (g) Tenant has accepted and is occupying the Leased Premises; (h) the
Lease has not been assigned nor the Leased Premises subleased by Tenant; (i)
Landlord is not in default under the Lease and, to the Tenants' knowledge as of
the date hereof; no event has occurred which, with the giving of notice or
passage of time, or both, could result in a default by Landlord; (j) Tenant has
no existing defenses, offsets, liens, claims or credits against the rentals
under the Lease or against the enforcement of the Lease by Landlord; (k) Tenant
has not been granted any options to extend or terminate the term of the Lease
earlier than the date specified in paragraph 1 or any rights of first refusal on
any other space in the Property except as set forth in the Lease; (l) Tenant has
not been granted any options nor rights of first refusal to purchase the Leased
Premises or the Property; (m) Tenant has paid a security deposit of $__________
on which Landlord has no obligation to segregate or pay any interest; (n) Tenant
has not received notice of violation of any federal, state, county or municipal
laws, regulations, ordinances, orders or directives relating to the use or
condition of the Leased Premises or the Property; and (o) no hazardous wastes or
toxic substances, as defined by all applicable federal, state or local statutes,
rules or regulations have been disposed, stored or treated on or about the
Leased Premises by Tenant.
3. This certification is made with the knowledge that the Lender is
about to provide Landlord with financing which shall be secured by a Deed of
Trust, Security Agreement and Assignment of Rents, Leases and Contracts
("Mortgage") upon the Property. Tenant further acknowledges and agrees that
Lender, Landlord and Lender's and Landlord's respective successors and assigns
holding the Mortgage or the Property at any time after the date of this
Certificate shall have the right to rely on the information contained in this
Certificate.
4. Tenant acknowledges that Landlord's interest under the Lease is
being duly assigned to Lender as security for Lender's loan to the Landlord and
that all rent payments under the Lease shall continue to be paid to the Landlord
in accordance with the terms of the Lease until the Tenant is notified otherwise
in writing by Lender or its successors and assigns.
5. Tenant agrees that if Lender shall succeed to the interest of
Landlord under the Lease, Lender, its successors and assigns shall not be:
liable for any prior act or omission of Landlord which is not continuing; or
subject to any offsets or defenses which Tenant might have as to Landlord with
respect to acts prior to such succession; or obligated to credit Tenant with any
rent for any rental period beyond the then current month which Tenant might have
paid Landlord; or bound by any material amendments or modifications of the Lease
such as those affecting rent, term or permitted use made without Lender's prior
written consent, other than exercise of rights, options or elections contained
in the Lease; or liable for refund of all or any part of any security deposit to
Tenant held by Landlord for any purpose unless such security deposit shall have
been actually received by Lender. In such event, Lender's obligations shall be
limited to the amount of the security deposit actually received by Lender, and
Lender shall be entitled to all rights, privileges and benefits of Landlord set
forth in the Lease with respect thereto.
6. Tenant agrees to give Lender a copy of any notice of default served
on the Landlord by certified mail, return receipt requested, with postage
prepaid, at __________________________,
______________________________________________. If Landlord fails to cure such
default within the time provided in the Lease, Lender shall have the right, but
not the obligation, to cure such default on behalf of Landlord within 30
calendar days after the time provided for in the Lease or within a reasonable
period if such default cannot be cured within that time and Lender is proceeding
with due diligence to cure such default. In such event Tenant shall not
terminate the Lease while such remedies are being diligently pursued by Lender.
Further, Tenant shall not, as to Lender, require cure of any such default which
is not susceptible of cure by Lender.
7. The undersigned is authorized to execute this Tenant Estoppel
Certificate on behalf of Tenant.
TENANT:
-----------------------------------
By: ___________________________________
January 18, 1999
Mr. Bob Burke
The Colonial Group
4411 West Market Street
Suite 400
Greensboro NC 27407
Re: CPI Adjustment
Dear Bob:
In accordance with the terms set forth in Section 2. (b) Consumer Price Index of
the Lease Agreement between The Colonial Group, Tenant, and Greenstar
Associates, L.L.C., Landlord, the base rent shall be adjusted by the percentage
of increase by which the CPI exceeds the previous year
The CPI adjustment is based upon the Base Rent of $12.00 per square foot and is
calculated as follows:
$78,804 x 164.0 (11/98 CPI) = $80 023.88
----- ----------
161.5 (11/97CPI)
Therefore, the base rent is hereby adjusted to $80,023. 88 to be paid in equal
monthly installments of $6,668. 66.
As the adjustment noted above became effective December 1, 1998, please remit
the adjusted monthly rental amount ($6,668.66) and the rent shortfall for
December and January ($750.56) with your February rental payment.
Thank you in advance for your cooperation in this matter. Please feel free to
contact me if you have any questions.
Sincerely
NAI Maxwell
/s/ Nancy P Cox
- ----------------------------------
Nancy P Cox
cc tenant file
April 29, 1999
Greenstar, L.L.C.
C/o Nancy R. Cox
Maxwell Associates
127 North Green Street
Greensboro, NC 27429
RE: Transfer of Controlling Interest in The Colonial Group, Inc. to Cavalier
Homes, Inc.
Assignment of Lease of 4411 West Market St., Ste 400, Greensboro, NC 27407
Pursuant to section 17 Assignment Subletting which states in part the "a
transfer of a controlling interest in Tenant shall be deemed an assignment of
this Lease" The Colonial Group, Inc. (tenant) hereby notifies Greenstar, L.L.C.
(landlord) of its intention to sell a controlling interest (100%) of The
Colonial Group, Inc. and two (2) subsidiaries to Cavalier Homes, Inc.
Cavalier Homes, Inc. is a NYSE company headquartered in Addison, AL. A copy of
Cavalier Homes, Inc.'s most recent financial statement is attached.
The Colonial Group, Inc. which will become a wholly-owned subsidiary of Cavalier
Homes, Inc. will continue to use this space for the same purpose and in the same
manner as it has in the past.
The Colonial Group, Inc. hereby requests the written consent of Greenstar,
L.L.C. to this "deemed' assignment of its lease of above referenced premises.
If you are in agreement plesase evidence your written consent to this assignment
by signing below and renewing a signed copy to The Colonial Group, Inc.
Respectfully,
George Austin, CFO
The Colonial Group, Inc.
I, Rajai Fumot as authorized representative of Greenstar, L.L.C. hereby consent
to the assignment of the lease on 4411 West Market St., Ste 400, Greensboro, NC
27407. Such assignment resulting from the transfer of a controlling interest in
The Colonial Group, Inc. to Cavalier Homes, Inc.
/s/ Rajai Fumot
----------------------------------------
February 29, 2000
Cavalier Homes, Inc.
Post Office Box 300
Addison, Alabama 35570
Attention: Mr. Mike Murphy, Chief Financial Officer
Re: Amended and Restated Revolving and Term Loan Agreement
Gentlemen:
Pursuant to a Revolving, Warehouse and Term Loan Agreement
dated as of February 17, 1994, as amended March 14, 1996, and as further amended
June 1, 1998 (as heretofore amended, the "Loan Agreement"), by and among
Cavalier Homes, Inc., certain of its Subsidiaries and Cavalier Acceptance
Corporation (collectively, the "Borrowers") and First Commercial Bank
("Lender"), we have made available to the Borrowers, jointly and severally, a
Revolving Loan of up to $10,000,000.00, and to Cavalier Acceptance Corporation
("Cavalier Acceptance"), a Warehouse and Term Loan Facility of up to
$25,000,000.00 (the "$25,000,000.00 Loan").
This letter shall serve as our commitment and agreement with
you that, subject to the terms and conditions set forth herein, Lender will
agree to renew the Revolving Loan, increase the maximum dollar amount available
to the Borrowers under the Revolving Loan, continue to make available to
Cavalier Acceptance Corporation the Term Loan(s), and make certain other changes
to the Loan Agreement, all as specified herein. Unless otherwise defined in this
letter, capitalized terms herein will have the meanings given to them in the
Loan Agreement.
Our agreement set forth herein shall be subject to the
execution of an Amended and Restated Revolving and Term Loan Agreement, a
Joinder Agreement and such other loan documentation as we and our counsel may
require, and containing such terms and conditions as we may reasonably require
and as may be customary for such agreements, and it is expressly understood and
agreed that none of the amendments and changes specified in this letter will
become effective unless and until all such definitive documents have been
executed and all other conditions to their effectiveness have been satisfied.
Subject to the foregoing and pursuant to the terms and
conditions hereinafter described, this will serve as our commitment to you as
follows:
<PAGE>
1. (a) Increase in Revolving Loan Commitment: The
Revolving Loan Commitment shall be increased from $10,000,000 to $35,000,000.00.
(b) Reduction of Revolving Rate: The definition
of "LIBOR Rate" shall be amended to mean the Base LIBOR Rate plus 200 basis
points (2.00%). The definition of "Revolving Rate" shall be amended to mean the
per annum rate of interest equal to the Prime Rate in effect from time to time,
as adjusted as follows: (i) until maturity of the Revolving Note the Prime Rate
shall be reduced by one-half of one percent (0.50%), and (ii) after maturity of
the Revolving Note, whether by demand, acceleration or otherwise, the Prime Rate
shall be increased by two percent (2.00%).
(c) Interest Options for Revolving Loan:
Article II of the Loan Agreement shall be amended so that the applicable
interest rate for the Revolving Loan will be equal to whichever of the following
rates shall, from time to time, be selected by the Borrower: (i) the Prime Rate
minus one-half of one percent (0.50%), or (ii) Three-month (90 days) LIBOR plus
200 basis points (2.00%).
2. Availability of Advances: Availability of Advances
under the Revolving Loan shall be extended to April 15, 2002.
3. Warehouse Loan: Article III shall be amended to
delete the availability of the Warehouse Loan entirely.
4. Term Loan: Article III shall be amended to provide
that Cavalier Acceptance has the option to draw down on the Revolving Loan up to
and until April 15, 2002 and to convert the amount so advanced into a term loan
subject to all the existing terms and conditions applicable to the Term Loan
under the current Loan Agreement; provided that any amounts repaid on any term
loan will be available for reborrowing under the Revolving Loan; provided
further that in no event shall the aggregate outstanding principal amount of the
Revolving Loan and the Term Loan(s) exceed $35,000,000.00.
5. Fees and Charges: In consideration of the Lender's
issuance of this letter, the Borrowers shall pay to Lender the following
commitment and utilization fees, each of which when paid shall be deemed
fully-earned and non-refundable:
(a) Cavalier Homes, Inc. shall pay to Lender
a commitment fee equal to 30 basis points (0.30%) multiplied by the Revolving
Loan Commitment ($105,000.00).
(b) The Borrowers shall pay to Lender an annual
non-usage fee equal to 25 basis points (0.25%) multiplied by the Unused Line
Amount. The Unused Line Amount will be the amount by which $35,000,000.00
exceeds the average outstanding balance of the Revolving Loan for the preceding
term. The Unused Line Amount shall be payable on April 15, 2001 and April 15,
2002.
<PAGE>
The Borrowers shall further be jointly and severally
responsible for the payment of all legal costs or fees incurred by Lender in
connection with the preparation of the documentation necessary to provide for
the matters described in this letter. The Borrowers acknowledge and agree with
Lender that each of the fees described in the paragraphs above are fair and
reasonable payments to be made by Borrowers to Lender on account of the loan
commitments provided herein, and each of the Borrowers understand that the
obligation to pay such fees shall be absolute and unconditional, regardless of
whether the transactions contemplated hereby are closed.
6. Joinder to Loan Agreement: It is acknowledged
and contemplated that each wholly owned Subsidiary of Cavalier Homes, Inc. shall
be a co-borrower under the Loan Agreement, and Cavalier Homes, Inc. will cause
each of its Subsidiaries that are not presently parties to the Loan Agreement to
execute such documents as may be reasonably required by the Lender in order for
such Subsidiary to become a Participating Subsidiary under the Loan Agreement as
well as for Lender to perfect its first priority security interest in the assets
of each such Subsidiary.
7. Amended and Restated Revolving and Term Loan
Agreement. The availability of the funds to be provided to the Borrowers and to
Cavalier Homes and Cavalier Acceptance shall be governed by and subject to all
terms and conditions presently set forth in the Loan Agreement, as shall be
amended and restated to contain such additional terms and provisions as may be
required by Lender. Lender and Borrowers will enter into certain other
amendments to the Loan documents, including but not limited to, additional UCC-1
financing statements, security agreements, and pledge agreements, as may be
required by Lender. Such Amended and Restated Revolving and Loan Agreement shall
specifically include, but not necessarily be limited to, the following:
(a) Covenant 7.2(U) shall be amended to increase
the maximum aggregate capital expenditures for any fiscal year to
$15,000,000.00.
(b) Covenant 7.2(H)(6) shall be amended to add a
proviso that notwithstanding the limitation on Indebtedness secured by Permitted
Liens and lease obligations, Cavalier may incur up to $25,000,000.00 of
indebtedness to be used for the purchase of inventory for its retail
manufactured housing sales operations and with such indebtedness permissibly
secured by a prior perfected lien on such inventory in favor of such floor plan
lender(s);
<PAGE>
(c) Covenant 7.2(M) shall be amended to add a
subsection (5) as follows: (5) Any eligible equity investment (as determined in
Borrowers' reasonable discretion) in an annual aggregate amount not to exceed
$500,000.)
(d) Covenant 7.2(G) shall be amended to provide
that Cavalier Homes may guaranty up to $75,000.00 in principal amount of lines
of credit used for such dealer to purchase such Inventory.
(e) Covenant 7.3(A)(1) shall be amended to
increase the Net Working Capital from at least $3,500,000.00 to at least
$15,000,000.00 and to add a minimum current ratio requirement of 1.17 to 1.00.
(f) Covenant 7.3(A)(2) shall be amended to
require that the sum of the following must be not less than $100,000,000.00 at
all times: (A) Consolidated Tangible Net Worth, plus (B)(i) in fiscal year 2000,
that treasury stock that has been purchased by Borrowers in year 2000, and (ii)
in fiscal year 2001, that treasury stock that has been purchased by Borrowers in
years 2000 and 2001.
(g) Covenant 7.3(A)(4) shall be amended to
change the ratio of Consolidated Cash Flow (measured on a historical basis) to
Debt Service from not less than 1.50 to 1.00 to 1.75 to 1.00.
(h) Covenant 7.3(A)(5), and all other references
contained in the Loan Agreement to a Borrowing Base, will be deleted in their
entirety.
8. Opinion of Counsel: The Lender will be provided
with such opinion of counsel as it may request which verifies the authorization,
execution, delivery and enforcement of the Loan Documents, and pertaining to
such other matters as the Lender may require.
This letter is not intended to, and does not, contain all of
the terms, provisions and conditions to funding that may be included in the
final loan documents, which shall include, among other provisions, conditions
that will require that all representations and warranties made in the Loan
Agreement shall be true and correct as of the date of the closing and funding,
and providing further that on the date of any Advance or Term Loan Conversion,
no Default or Event of Default under the Loan Agreement shall have occurred and
be continuing.
<PAGE>
Unless accepted by you on or before February 29, 2000, this
offer will expire, and the various transactions described herein must be
consummated on or before March 31, 2000, or this commitment shall expire.
If the terms and conditions described herein are acceptable to
you, please indicate your acceptance by returning a signed copy of this letter
to me, together with the commitment fees of $105,000.00, not later than February
29, 2000.
We appreciate the opportunity to provide this financing for
you.
Very truly yours,
/s/ James D. Williams
-----------------------------
James D. Williams
Vice President
Accepted and agreed to this 29th day of February, 2000.
FOR ALL BORROWERS:
CAVALIER HOMES, INC.
By: /s/ Michael R. Murphy
--------------------------------
Its: Chief Financial Officer
--------------------------------
CAVALIER ACCEPTANCE CORPORATION
By: /s/ June Martin
--------------------------------
Its: Secretary
--------------------------------
March 29, 2000
Mr. Mike Murphy
Chief Financial Officer
Cavalier Homes
P.O. Box 300
Addison, AL 35570
Dear Mike,
Per our discussion, First Commercial Bank will agree to make the following
changes to the new restated and amended loan agreement which is to close this
Friday, March 31, 2000.
1) Covenant 7.3(A)(2) shall be amended to require that the sum of the
following must be not less than $90,000,000.00 at all times: (A)
Consolidated Tangible Net Worth, plus (B)(i) in fiscal year 2000, that
treasury stock that has been purchased by Borrowers in year 2000, and
(ii) in fiscal year 2001, that treasury stock that has been purchased
by Borrowers in years 2000 and 2001.
2) The definition of tangible net worth shall be amended. Section (F)
under the definition of Tangible Net Worth regarding deferred expenses
will be deleted.
Please call me if you have any further questions on this matter.
Sincerely,
/s/ James D. Williams
- ----------------------
James D. Williams
Vice President
Release of Guarantor
and
Amendment to Guaranty Agreements
THIS RELEASE AND AMENDMENT is entered into as of December 31, 1999 by
and among First Commercial Bank (the "Bank") and Patriot Homes, Inc., Cavalier
Homes, Inc. Southern Energy Homes, Inc. (the "Corporate Guarantors") and Lee Roy
Jordan (together with the Corporate Guarantors, the "Guarantors"), and in favor
of Schult Operating Company ("Schult Operating"), Schult Homes Corporation
("Schult Homes", and together with Schult Operating "Schult"), and Oakwood Homes
Corporation ("Oakwood").
Recitals
A. The Guarantors are limited partners in the Texas limited
partnerships known as Lamraft, L.P. ("Lamraft") and WoodPerfect of Texas,
L.P. ("WoodPerfect"). The Corporate Guarantors are limited partners in the
Texas limited partnership known as Hillsboro Manufacturing, L.P. ("Hillsboro").
B. Each Guarantor executed and delivered to the Bank:
(1) a Limited Credit Guaranty Agreement dated July 15, 1997, as amended
by Amendment to Limited Credit Guaranty Agreement dated March 24, 1999, (the
"1997 Lamraft Guaranties") pursuant to which such Guarantor guaranteed, subject
to the Maximum Guaranteed Percentage (as defined therein), Lamraft's obligations
under the Credit Agreement (Letter of Credit) between Lamraft and the Bank dated
July 15, 1997 (the "1997 Lamraft Credit Agreement");
(2) a Limited Credit Guaranty Agreement dated September 1, 1999 (the "
1999 Lamraft Guaranties"), pursuant to which such Guarantor guaranteed, subject
to the Maximum Guaranteed Percentage (as defined therein), Lamraft's obligations
under the Credit Agreement dated September 1, 1999 between Lamraft and the Bank
(the "1999 Lamraft Credit Agreement"); and
(3) a Limited Credit Guaranty Agreement dated July 15, 1997, as amended
by Amendment to Limited Credit Guaranty Agreement dated March 24, 1997, (the
"WoodPerfect Guaranties") pursuant to which such Guarantor guaranteed, subject
to the Maximum Guaranteed Percentage (as defined therein), WoodPerfect's
obligations under the Credit and Security Agreement between WoodPerfect and the
Bank dated July 15, 1997, as amended by the Amendment to Credit and Security
Agreement dated March 24, 1999 (the "WoodPerfect Credit Agreement").
<PAGE>
C. Each Corporate Guarantor executed and delivered to the Bank a
Limited Credit Guaranty Agreement dated July 15, 1997, as amended by Amendment
to Limited Credit Guaranty Agreement dated March 24, 1999, (the "Hillsboro
Guaranties") pursuant to which such Corporate Guarantor guaranteed, subject to
the Maximum Guaranteed Percentage (as defined therein), Hillsboro's obligations
under the Credit and Security Agreement between Hillsboro and the Bank dated
July 15, 1997, as amended by the Amendment to Credit and Security Agreement
dated March 24, 1999 (the "Hillsboro Credit Agreement").
D. Schult Operating is also a limited partner in Lamraft, Hillsboro and
WoodPerfect, and Schult Operating Company and its owner, Schult Homes each
entered into three Limited Credit Guaranty Agreements dated July 15, 1997 (the
"Schult Guaranties") guaranteeing, subject to the Maximum Guaranteed Percentage
(as defined therein), the obligations guaranteed by the 1997 Lamraft Guaranties,
the WoodPerfect Guaranties and the Hillsboro Guaranties.
E Oakwood Homes Corporation purchased all of the stock of Schult
Homes and Schult Operating and executed and delivered to the Bank the
following guaranty agreements (the "Oakwood Guaranties"):
1. Limited Credit Guaranty Agreement dated March 24, 1999 guaranteeing
the obligations of Lamraft under the 1997 Lamraft Credit Agreement;
2. Limited Credit Guaranty Agreement dated March 24, 1999 guaranteeing
the obligations of WoodPerfect under the WoodPerfect Credit
Agreement;
3. Limited Credit Guaranty Agreement dated March 24, 1999 guaranteeing
the obligations of Hillsboro under the Hillsboro Credit Agreement;
and
4. Limited Credit Guaranty Agreement dated September 1, 1999
guaranteeing the obligations of Lamraft under the Credit Agreement
dated September 1, 1999 between Lamraft and the Bank.
F. The Guarantors have agreed to purchase Schult Operating's interest
in Lamraft and WoodPerfect and the Corporate Guarantors have agreed to purchase
Schult Operating's interest in Hillsboro in consideration of (i) the Guarantors'
assuming Oakwood's and Schult's obligations under the Oakwood Guaranties
described in Recital E.1., E.2., and E.4., and under the Schult Guaranties that
relate to Lamraft and WoodPerfect, and (ii) the Corporate Guarantors' assuming
Oakwood's and Schult's obligations under the Oakwood Guaranty described in
Recital E.3 and the Schult Guaranty that relates to Hillsboro.
G. To facilitate the purchase of Schult Operating's limited partnership
interest in Lamraft, WoodPerfect and Hillsboro and the assumption of Oakwood's
and Schult's obligations under the Oakwood Guaranties and the Schult Guaranties,
the Guarantors have requested the Bank to release Oakwood, Schult Operating and
Schult Homes from all of their obligations and liabilities under and pursuant to
the Oakwood Guaranties and the Schult Guaranties, respectively, under the terms
and conditions of this Release and Amendment.
<PAGE>
Agreement
NOW, THEREFORE, in consideration of the Recitals and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows.
1. Release of Oakwood and Schult. The Bank hereby releases and
discharges Oakwood from all of its obligations and liability under and pursuant
to the Oakwood Guaranties. The Bank hereby releases and discharges Schult
Operating and Schult Homes from all of their obligations and liability under and
pursuant to the Schult Guaranties.
2. Guarantors' Consent. Each Guarantor hereby consents to the
release by the Bank of Oakwood from its obligations under the Oakwood Guaranties
and Schult Operating and Schult Homes from their obligations under the Schult
Guaranties.
3. Amendment of Guaranty Agreements.
(a) Each of the 1997 Lamraft Guaranties, the 1999 Lamraft Guaranties
and the WoodPerfect Guaranties is hereby amended to change the definition of
Maximum Guaranteed Percentage therein to read as follows:
"Maximum Guaranteed Percentage" shall mean thirty percent (30%).
(b) Each of the Hillsboro Guaranties is hereby amended to change the
definition of Maximum Guaranteed Percentage therein to read as follows:
"Maximum Guaranteed Percentage" shall mean forty percent (40%).
4. No Events of Default; No Claims; Continuing Effect of Guaranty
Agreements. Each Guarantor hereby represents and warrants that (i) no Events of
Default, and no events that with the passage of time or the giving of notice or
both would constitute an Event of Default, have occurred under any guaranty
agreement referred to herein to which it or he is a party and (ii) that to the
best of its or his knowledge no defaults or Events of Default have occurred
under any credit agreement referred to herein. Each Guarantor represents and
warrants that it has no claims against the Bank and no defenses, counterclaims,
or setoffs to or against its or his obligations under any guaranty agreement
referred to herein to which it or he is a party and agrees that to the extent
that such claims, defenses, counterclaims or setoffs exist, the same are hereby
released and relinquished. Except as expressly amended hereby, each of the 1997
Lamraft Guaranties, the 1999 Lamraft Guaranties, the WoodPerfect Guaranties and
the Hillsboro Guaranties remains in full force and effect in accordance with its
terms.
5. Governing Law. This Release and Amendment shall be construed in
accordance with and governed by the laws of the State of Alabama.
<PAGE>
6. Modification; etc. No modification, amendment or waiver of any
provision of this Release and Amendment and no consent to any departure by the
Bank therefrom, shall be effective unless the same shall be in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given.
7. Counterparts. This Release and Amendment may be executed in
two or more counterparts, each of which shall constitute an original,
but when taken together all such counterparts shall constitute but one
agreement, and any party may execute this Release and Amendment by executing any
one or more of such counterparts.
8. Successors and Assigns, etc. Whenever in this Release and Amendment
any party is referred to, such reference shall be deemed to include the
successors and assigns of such party. All consents, covenants, promises and
agreements made herein shall bind the heirs, personal representatives,
successors and assigns of the promissor and shall inure to the benefit of the
promissee's successors and assigns.
9. Entire Agreement. This Release and Amendment constitutes the
entire agreement and understanding between the Bank and the Guarantors with
respect to the subject matter hereof and supersedes all prior agreements and
understandings between the Bank and the Guarantors relating to the subject
matter thereof.
[Signatures Appear on Signature Pages which follow]
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Release and Amendment to
be executed as of the day and year first written above.
FIRST COMMERCIAL BANK
By: /S/ PAUL M. SCHABACKER
-----------------------------------
Name: Paul M. Schabacker
Title: Vice President
STATE OF ALABAMA )
JEFFERSON COUNTY )
The undersigned , a Notary Public in and for said County in said State,
hereby certify that Paul M. Schabacker , whose name as Vice President of First
Commercial Bank, a 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 said instrument, he/she, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal this the 7th day of March , 1999.
/s/ EDWARD J. ASHTON
-----------------------------
Notary Public
AFFIX SEAL
My commission expires: 9-20-2001
-----------
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Release
and Amendment to be executed as of the day and year first written above.
PATRIOT HOMES, INC.
By: /S/ STEVEN K. LIKE
-----------------------------------
Name: Steven K. Like
Title: Executive Vice President
STATE OF INDIANA )
ELKHART COUNTY )
The undersigned , a Notary Public in and for said County in said State,
hereby certify that Steven K. Like, whose name as Executive Vice President of
Patriot Homes, Inc., a 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 said instrument, he/she, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal this the 21st day of December,
1999.
/S/ LORETTA DEAL
------------------------
Notary Public
AFFIX SEAL
My commission expires: 3/5/01
----------
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Release
and Amendment to be executed as of the day and year first written above.
CAVALIER HOMES, INC.
By: /S/ DAVID ROBERSON
-----------------------------------
Name: David Roberson
Title: President
STATE OF ALABAMA )
WINSTON COUNTY )
The undersigned , a Notary Public in and for said County in said State,
hereby certify that David Roberson, whose name as President of Cavalier Homes,
Inc., a 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
said instrument, he/she, as such officer and with full authority, executed the
same voluntarily for and as the act of said corporation.
Given under my hand and official seal this the 17th day of December,
1999.
/S/ LOUANN MARCUM
------------------------
Notary Public
AFFIX SEAL
My commission expires: 7/13/03
---------------
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Release
and Amendment to be executed as of the day and year first written above.
SOUTHERN ENERGY HOMES, INC.
By: /S/ KEITH BROWN
-----------------------------------
Name: Keith Brown
Title: Executive Vice President
STATE OF ALABAMA )
WINSTON COUNTY )
The undersigned , a Notary Public in and for said County in said State,
hereby certify that Keith Brown, whose name as Executive Vice President of
Southern Energy Homes, Inc., a 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 said instrument, he/she, as such officer and
with full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal this the 29th day of December,
1999.
/S/ CHERYL ENGLE
--------------------------
Notary Public
AFFIX SEAL
My commission expires: December 11, 2001
-----------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Release
and Amendment as of the day and year first written above.
/S/ LEE ROY JORDAN
-------------------------
Lee Roy Jordan
STATE OF ALABAMA )
MOBILE COUNTY )
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that Lee Roy Jordan, 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 said instrument, he executed the same
voluntarily on the day the same bears date.
Given under my hand and official seal this 20th day of December, 1999.
/S/ SHARON C. ADAMS
---------------------------
Notary Public
AFFIX SEAL
My commission expires: 9-14-03
----------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income of
Cavalier Homes, Inc. and subsidiaries appearing in this Annual Report on Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 39,635
<SECURITIES> 0
<RECEIVABLES> 6,692
<ALLOWANCES> 3,464
<INVENTORY> 50,120
<CURRENT-ASSETS> 115,661
<PP&E> 107,299
<DEPRECIATION> 32,804
<TOTAL-ASSETS> 229,574
<CURRENT-LIABILITIES> 83,009
<BONDS> 0
0
0
<COMMON> 1,827
<OTHER-SE> 127,564
<TOTAL-LIABILITY-AND-EQUITY> 229,574
<SALES> 587,800
<TOTAL-REVENUES> 587,800
<CGS> 477,527
<TOTAL-COSTS> 477,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,159
<INTEREST-EXPENSE> 1,643
<INCOME-PRETAX> 3,553
<INCOME-TAX> 1,403
<INCOME-CONTINUING> 2,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,150
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
