<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
--------------------- ---------------------
Commission file number 0-20832
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MILES HOMES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1625724
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Realty Drive, Cheshire, Connecticut 55446-0106
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 271-0011
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(Registrant's telephone number, including area code)
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
----- -----
Shares of Common Stock outstanding as of May 10, 1996: 10,810,193
<PAGE>
MILES HOMES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 3
1996 and December 31, 1995.
Consolidated Statements of Operations for the 4
three months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the 5
three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements 6-10
ITEM 2. Management's Discussion and Analysis of Financial 11-13
Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
2
<PAGE>
MILES HOMES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,203 $ 2,838
Notes receivable, net 27,411 35,074
Receivable from related parties 506 466
Inventory 8,094 6,958
Prepaid expenses and other assets 11,726 7,024
Deposits 9,407 8,644
Real estate owned 3,987 2,943
Property, plant and equipment, net 8,590 6,416
Property held for sale, net 1,091 5,144
Assets of discontinued operations 4,858 7,663
Intangible assets, net 2,378 2,492
-------- --------
Total assets $ 82,251 $ 85,662
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 5,628 $ 6,414
Accrued construction costs and unearned
revenue on sold notes receivable 17,221 14,113
Accrued expenses 8,135 9,867
Customer deposits 867 857
12% Senior notes 44,250 44,215
Notes payable 3,687 3,634
Capital lease obligations 1,074 1,244
-------- --------
Total liabilities 80,862 80,344
-------- --------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common Stock; par value $.10, 25,000,000 shares
authorized, 10,810,193 shares outstanding 1,081 1,081
Paid in capital 47,384 47,384
Accumulated deficit (47,076) (43,147)
-------- --------
Total stockholders' equity 1,389 5,318
-------- --------
Total liabilities and stockholders' equity $ 82,251 $ 85,662
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
MILES HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDING MARCH 31, 1996 AND 1995
($ IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net housing revenue $ 9,587 $ 7,799
Financial services revenue 841 2,004
---------- ----------
Total revenue 10,428 9,803
Costs and expenses:
Cost of sales 6,900 5,494
Selling 2,577 1,951
General & administrative 3,708 3,443
Provision for credit losses 359 330
Interest expense 1,593 2,468
Other (income) expense (468) 5
---------- ----------
Income (loss) from continuing operations
before income taxes (4,241) (3,888)
Income tax benefit (provision) 0 1,555 (1)
---------- ----------
Income (loss) from continuing operations (4,241) (2,333)
Discontinued operations-Patwil Homes, Inc.
Income (loss) from operations 312 (944)
---------- ----------
Net income (loss) $ (3,929) $ (3,277)(1)
---------- ----------
---------- ----------
Earnings per common share:
Income (loss) from continuing operations $ (0.39) $ (0.21)
Income (loss) from discontinued operations 0.03 (0.09)
---------- ----------
Net income (loss) $ (0.36) $ (0.30)(1)
---------- ----------
---------- ----------
Weighted average number of
common shares outstanding 10,810,193 10,810,193
---------- ----------
---------- ----------
</TABLE>
(1)This benefit was reversed in its entirety in the second quarter of 1995. Had
the Company not recorded this benefit, the net loss would have been $4,832 or
$0.45 per share.
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
MILES HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING MARCH 31, 1996 AND 1995
($ IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,929) $ (3,277)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 375 525
Provision for credit losses 359 330
Provision for sales promotions and incentives 698 875
Loss (gain) on sale of property,
equipment and land (156) 14
Discontinued operations (312) 944
Decrease (increase) in other operating
assets (Note 9) (3,684) (1,515)
Increase (decrease) in other operating
liabilities (Note 9) 3,749 (33)
---------- ----------
Total adjustments 1,029 1,140
---------- ----------
Net cash provided (used) by operating
activities of:
Continuing operations (2,900) (2,137)
Discontinued operations (722) (388)
---------- ----------
Net cash provided (used) by operating activities (3,622) (2,525)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Amortization of mortgage loan servicing rights 2,083 0
Proceeds from sales of property,
equipment and land 5,333 177
Purchase of property, equipment and land (2,295) (553)
---------- ----------
Net cash provided (used) by investing activities 5,121 (376)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable-revolver -- (31,077)
Borrowings on notes payable-revolver -- 33,400
Borrowings on notes payable-other 36 --
Principal payments on capital leases (170) (165)
Deferred debt issue cost -- (26)
---------- ----------
Net cash provided by financing activities (134) 2,132
---------- ----------
Net change in cash and cash equivalents 1,365 (769)
Cash and cash equivalents-beginning of period 2,838 1,301
---------- ----------
Cash and cash equivalents-end of period $ 4,203 $ 532
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Interest paid $ 133 $ 3,187
Income taxes paid (refunded), net $ (33) $ 6
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
MILES HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management, contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1996, the results of operations for the three months ended March 31, 1996 and
1995 and cash flows for the three months ended March 31, 1996 and 1995. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year. These
results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's 1995 Annual Report on Form 10-K.
The Company is a holding company whose only significant assets are its
investment in its wholly-owned operating subsidiaries Miles Homes Services, Inc.
("Miles Homes") and its wholly-owned subsidiary, Plymouth Capital Company, Inc.
("Plymouth Capital"), and Patwil Homes, Inc. ("Patwil Homes"). The combined
assets, liabilities, earnings and equity of Miles Homes, Patwil Homes and
Plymouth Capital are substantially equivalent to the assets, liabilities,
earnings and equity of the Company on a consolidated basis. Accordingly,
separate financial statements and other disclosures concerning Miles Homes,
Patwil Homes and Plymouth Capital are not deemed to be material to investors.
In November 1995, the Company announced the close down of the Patwil Homes
business (see "Discontinued Operations").
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying
consolidated financial statements be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Company's Annual
Report on Form 10-K.
Certain reclassifications have been made to the results of operations and
statements of cash flows for the three months ended March 31, 1995 to conform to
the presentation for the three months ended March 31, 1996.
NOTE 2--NOTES RECEIVABLE:
Notes receivable at March 31, 1996 and December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Contractual value of notes receivable $ 44,530 $ 51,010
Less: unearned income (12,442) (9,535)
-------- --------
Total 32,088 41,475
Less:
Allowance for sales promotion and incentives (3,871) (4,777)
Allowance for credit losses (643) (1,371)
Deferred loan processing fees, net (163) (253)
-------- --------
Notes receivable, net $ 27,411 $ 35,074
-------- --------
-------- --------
</TABLE>
6
<PAGE>
NOTE 3--INVENTORY:
Inventory at March 31, 1996 and December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Raw materials $4,794 $4,282
Speculation and model homes 3,300 2,676
------ ------
Inventory $8,094 $6,958
------ ------
------ ------
</TABLE>
NOTE 4--DEPOSITS:
Deposits at March 31, 1996 and December 31, 1995 consist of approximately
$8.7 million and $7.9 million, respectively, of net holdback funding pursuant to
the terms of the Construction Loan Purchasing and Servicing Agreement dated
April 14, 1995. Additionally, at March 31, 1996 and December 31, 1995,
approximately $731,000 and $720,000, respectively, relate to lease and other
deposits.
NOTE 5--INCOME TAXES:
Significant components of deferred income taxes at March 31, 1996 and
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Credit and refinancing allowances $ 3,611 $ 4,015
Goodwill 1,957 1,972
Net operating loss carryforward 9,225 6,748
Other, net 1,437 1,923
-------- --------
Total gross deferred tax assets 16,230 14,658
Less valuation allowance (16,230) (14,658)
-------- --------
Deferred income taxes $ -0- $ -0-
-------- --------
-------- --------
</TABLE>
At March 31, 1996, and December 31, 1995 the Company had net operating loss
carryforwards for federal income tax purposes of $23.1 million and $16.9
million, respectively, which expire in 2010.
Income tax benefit for the three months ended March 31, 1996 and 1995
comprises the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1996 1995
------- -------
<S> <C> <C>
Statutory U.S. tax rate $ 1,336 $ 1,322
State taxes, net of federal income tax benefit 236 233
Valuation allowance (1,572) -0-
------- -------
Income tax benefit $ -0- $ 1,555
------- -------
------- -------
</TABLE>
The income tax benefit recorded at March 31, 1995, which was based on then
current estimates, was reversed in its entirety in the second quarter of 1995.
7
<PAGE>
NOTE 6--SUMMARIZED FINANCIAL INFORMATION:
Summarized financial information of Miles Homes as of March 31, 1996 and
December 31, 1995 and for the three months ended March 31, 1996 and 1995 is as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Total assets $84,022 $87,524
Total liabilities 74,891 74,586
</TABLE>
Total assets include intercompany receivables of $25.7 million and $27.7
million, respectively, at March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
March 31,
----------------------
1996 1995
------ ------
<S> <C> <C>
Net revenues 9,724 9,803
Net income (loss) (3,897) (2,176)
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES:
There has been no significant change in the status of lawsuits or
commitments described in Note 13 to the Consolidated Financial Statements
contained in the Company's 1995 Annual Report on Form 10-K.
NOTE 8--DISCONTINUED OPERATIONS:
On November 27, 1995, the Company formally announced its intent to phase
out and close down the operations of its Patwil Homes subsidiary. Contracts for
the construction of Patwil Homes' customers' homes will be completed during the
phase-out period, and all selling and marketing activities have ceased at
December 31, 1995.
The results of Patwil Homes have been classified as discontinued operations
for all periods presented in the Consolidated Statements of Operations. The
assets of Patwil Homes have been classified as Assets of Discontinued Operations
in the Consolidated Balance Sheet as of March 31, 1996 and December 31, 1995.
Additionally, discontinued operations have been segregated in the Consolidated
Statement of Cash Flows for all periods presented.
As a result of the Company's decision to discontinue the operations of
Patwil Homes, the Company recorded, as of December 31, 1995, an estimated loss
on disposal of approximately $8.2 million, which includes a provision of
approximately $1.7 million for losses during the phase-out period, the write-off
of approximately $5.7 million of goodwill and deferred costs, approximately
$600,000 relating to the write-down of fixed assets (to net realizable value)
and approximately $200,000 of accrued severance wages and benefits for 41
employees.
8
<PAGE>
Summarized below are the Assets of Discontinued Operations (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Notes receivable $ 422 $ 147
Inventory 706 798
Prepaid expenses and other assets 189 152
Deposits -0- 59
Costs of uncompleted contracts in excess
of related billings 1,260 3,434
Assets held for sale, net 2,281 3,073
------ ------
Assets of discontinued operations $4,858 $7,663
------ ------
------ ------
</TABLE>
Condensed income (loss) from operations of Patwil Homes for the three
months ended March 31, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Net revenues $ 3,010 $ 12,344
Cost of sales (2,698) (10,805)
Selling, general and administrative expenses -0- (3,112)
Income tax benefit -0- 629
------- --------
$ 312 $ (944)
------- --------
------- --------
</TABLE>
NOTE 9--CONSOLIDATED STATEMENTS OF CASH FLOWS:
Changes in other operating assets and liabilities in the Consolidated
Statements of Cash Flows are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Decrease (increase) in:
Notes receivable, net $ 6,605 $ 4,233
Receivable from related parties (39) (162)
Inventory (1,136) (1,714)
Prepaid expenses and other assets (8,057) (2,115)
Real estate owned (1,057) (307)
Deferred income taxes -0- (1,450)
-------- --------
Total decrease (increase) in other
operating assets $ (3,684) $ 1,515
-------- --------
-------- --------
Increase (decrease) in:
Accounts payable and accrued expenses $ (6) $ (310)
Accrued construction costs and unearned
revenue on sold notes receivable 3,108 -0-
Payable to related parties 636 (61)
Customer deposits 11 638
-------- --------
Total increase (decrease) in other
operating liabilities $ 3,749 $ (33)
-------- --------
-------- --------
</TABLE>
9
<PAGE>
NOTE 10--SIGNIFICANT TRANSACTION:
On January 12, 1996 through its newly formed subsidiary, DeGeorge Aviation,
Inc., and pursuant to a Used Aircraft Purchase Agreement, the Company acquired a
one-half interest in a jet aircraft for a total purchase price of $1.5 million.
The aircraft will be used to facilitate the travel of Company executives to
distant meetings with investment banking clients of Endquest Strategies, Inc.,
and to facilitate travel of groups of individuals between the Company's offices
in Plymouth, Minnesota and Cheshire, Connecticut during the process of moving
operations from Minnesota to Connecticut. Charter revenues from the aircraft
are anticipated to significantly offset operating costs.
NOTE 11--SUBSEQUENT EVENTS:
On April 11, 1996, Herbert L. Getzler, Vice Chairman of the Board of
Directors and Chief Financial Officer of the Company, borrowed approximately
$608,000 from the Company. This amount was used (i) to repay approximately
$154,000 borrowed from the Company by Mr. Getzler on December 30, 1994 to pay
taxes on restricted common stock of the Company purchased by him on December 23,
1994 at a discount plus interest of approximately $20,000 on that amount, (ii)
to repay a loan by the Company to Mr. Getzler of $160,000 made on January 3,
1995 to meet margin calls on his common stock plus interest on that amount of
approximately $20,000, and (iii) to repay a loan from Mr. Peter R. DeGeorge,
Chairman and Chief Executive Officer of the Company, to Mr. Getzler of $200,000
made on December 3, 1992 plus interest on that amount at 7% per annum totaling
approximately $52,000.
Also, on April 11, 1996, James G. Einloth, Executive Vice President of
Patwil Homes, Inc., borrowed approximately $309,000 from the Company. This
amount was used (i) to repay approximately $106,000 borrowed from the Company by
Mr. Einloth on December 30, 1994 to pay taxes on restricted common stock of the
Company purchased by him on December 23, 1994 at a discount plus interest of
approximately $14,000 on that amount, and (ii) to repay a loan from Mr. DeGeorge
to Mr. Einloth of $150,000.00 made on December 3, 1992 plus interest on that
amount at 7% per annum totaling approximately $39,000.
These loans will be secured by 303,752 shares of common stock of the
Company, in the case of Mr. Getzler, and 154,727 shares of common stock of the
Company, in the case of Mr. Einloth. The notes are demand notes and bear
interest at the rate of 10% per annum. Interest accrues and is payable on the
date the outstanding principal balance is paid. These notes are non-recourse to
the individuals involved, except for the stock to be pledged as security. There
is no prepayment penalty on these notes.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Total revenue from continuing operations for the quarter ended March
31, 1996 increased by 6.4% to $10.4 million from $9.8 million for the
same period in 1995. Net housing revenue from continuing operations
for the quarter ended March 31, 1996 increased $1.8 million or 22.9%
compared to the same period last year. The increase was primarily
attributable to shipments to customers for houses in later stages of
construction, an increase in turnkey and other non-traditional housing
revenue ($1.1 million in 1996 versus $300,000 in 1995), a 6.3%
increase in homes shipped in the first quarter of 1996 (102 units
compared to 96 for the same period a year earlier) and a reduction in
discounts ($697,000 during the quarter, or 6.8% of gross housing
revenue, as compared to discounts of $865,000, or 10.0%, in 1995).
This increase was partially offset by a 2.9% decrease in the average
selling price of a home to $60,400 in the first quarter of 1996
compared to $62,200 during the same period the prior year.
Financial services revenue decreased $1.2 million primarily due to the
sale of construction loans pursuant to an April 14, 1995 Construction
Loan Purchase and Servicing Agreement entered into with a mortgage
financing company. The Company collects fees for servicing loans sold
to the mortgage financing company, which are offset by an amortization
of the mortgage servicing right.
COST OF SALES
Cost of sales from continuing operations, which includes cost of
materials, warehousing, material handling, shipping and construction
monitoring, increased to $6.9 million, or 72.0% of net housing revenue
for the first quarter of 1996 compared to $5.5 million, or 70.4%, of
net housing revenue for the same period in 1995. This increase is the
result of higher cost of sales for turnkey homes in Florida (which
recorded no housing revenue and cost of sales in the first quarter of
1995 and $700,000 of net housing revenue and $600,000 of cost of sales
in the first quarter of 1996) and a slight increase in the cost of
sales for shipments to customers for houses under construction, which
resulted from a change in marketing plans that reduced both gross
selling prices and sales discounts offered to customers.
SELLING EXPENSES
Selling expenses from continuing operations of $2.6 million for the
first quarter of 1996 increased $600,000 or 32.1% compared to the same
period in 1995. This increase is primarily attributable to incentives
paid to sales personnel in connection with increased order activity as
well as additional marketing and advertising expenses that resulted
from obtaining new orders.
At March 31, 1996 and 1995, Miles Homes had 144 and 153 sales
representatives, respectively.
11
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses from continuing operations were
$3.7 million for the first quarter of 1996 as compared to $3.4 million
for the same period in 1995, an increase of 7.7%. This increase is
primarily due to non-recurring personnel and travel expenses incurred
in connection with the movement of operations from Plymouth, Minnesota
to Cheshire, Connecticut and legal expenses associated with the
Company's compliance with requests for information from the United
States Securities and Exchange Commission pursuant to their on-going
investigation.
INTEREST EXPENSE
Interest expense for the first quarter of 1996 decreased by $900,000
compared to the same period in 1995. On April 14, 1995, the Company
entered into a Construction Loan Purchase and Servicing Agreement with
a mortgage finance company. A portion of the initial proceeds from
sales of construction loans pursuant to this agreement were used to
repay the outstanding balance of the secured revolving credit facility
with BT Commercial Corporation.
Interest expense from continuing operations includes $1.4 million
relating to the 12% Senior Notes of Miles Homes Services, Inc. of
which $44.3 million of principal was outstanding as of March 31, 1996.
INCOME TAX
At March 31, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of $23.1 million. At December 31,
1995 the Company recorded a valuation reserve of $14.7 million.
During the first quarter of 1996 the Company did not record a tax
benefit which, if recorded, would have reduced the loss by $1.6
million. This benefit was instead added to the valuation reserve
against deferred income taxes ($16.2 million at March 31, 1996).
NET LOSS
Loss from continuing operations before income taxes for the first
quarter ended March 31, 1996 was $4.2 million or $0.39 per share
compared to a loss from continuing operations before income taxes of
$3.9 million or $0.36 per share for the same period in 1995. During
the first quarter of 1995, a tax benefit of $1.6 million was recorded
which reduced the loss from continuing operations to $2.3 million or
$0.21 per share. The Company reversed this tax benefit in the second
quarter of 1995. The total net loss for the first quarter of 1996
(which includes $300,000 income for the discontinued operations of
Patwil Homes) was $3.9 million or $0.36 per share compared to a loss
of $4.8 million (excluding the $1.6 million income tax benefit
reversed in the second quarter and including a $900,000 loss, net of
taxes, for the discontinued operations of Patwil Homes) or $0.45 per
share for the same period in 1995.
QUARTERLY RESULTS
First quarter 1996 total revenues and gross margin increased $600,000
and $400,000, respectively, though the loss from continuing operations
before income taxes increased $400,000 compared to the same period
last year. The increase in total revenues reflects an increase of
$1.8 million in net housing revenue and a decrease in financial
services revenue of $1.2 million. The decrease in financial services
revenue is primarily attributable to a
12
<PAGE>
$1.0 million reduction in interest earnings from the sale of
construction loans to a mortgage finance company, which reduction is
partially offset by a $500,000 decrease in interest expense and an
increase of $200,000 in interest income earned on reserves maintained
for sold accounts.
Gross orders received during the first quarter of 1996 were 1,144 or
an increase of 15.2% over the 993 orders received in the comparable
period in 1995. Incentives paid to sales personnel to generate higher
order activity are the primary component of the $600,000 increase in
selling expenses, which contributed to the increased first quarter
loss but will result in future revenues and margin.
On February 7, 1996, as part of the Company's relocation plan from
Plymouth, Minnesota to Cheshire, Connecticut, Miles Homes sold its
corporate facility located in Plymouth and other miscellaneous assets.
During the first quarter, the Company recorded gains of $200,000 on
sales of fixed assets, principally on the sale of the Plymouth
facility, where operational and administrative functions are
performed.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, cash and cash equivalents were $4.2 million as
compared to $2.8 million at December 31, 1995. During the first
quarter of 1996, the Company sold approximately $27.4 million (net of
$1.1 million of repurchased accounts) face value of construction loans
pursuant to a Construction Loan Purchase and Servicing Agreement (the
"Agreement") with a mortgage finance company. Net proceeds to the
Company after discounts and deposits retained pursuant to the
Agreement were approximately $24.0 million. At March 31, 1996, the
Company was servicing, on behalf of the mortgage finance company,
approximately $79.9 million face value of construction loans.
As a result of write-offs occasioned by the discontinuance of
operations of Patwil Homes and losses incurred by the Company for the
fiscal year ended December 31, 1995, the Company is in violation of
the minimum tangible net worth covenant in the Agreement. Although a
waiver of this violation has not been obtained, management has had
discussions with the mortgage financing company concerning this issue
and believes that the Agreement can be revised to accommodate the
Company's present financial condition and anticipated operating
results. If the mortgage financing company should stop purchasing
construction loans under the Agreement, which it may have a right to
do as a result of the covenant violation, a serious and immediate
working capital shortage would result.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.36 Promissory note, in the principal amount of $607,503.33
dated as of April 11, 1996 from Herbert L. Getzler to Miles
Homes, Inc. is attached hereto as Exhibit 10.36.
10.37 Promissory note, in the principal amount of $309,453.98
dated as of April 11, 1996 from James G. Einloth to Miles
Homes, Inc. is attached hereto as Exhibit 10.37.
(b) Reports on Form 8-K:
There have been no reports on Form 8-K since the filing of
the Company's 1995 Annual Report on Form 10-K.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILES HOMES, INC.
(Registrant)
Dated: May 10, 1996
BY: /S/ Herbert L. Getzler
----------------------------------------
Herbert L. Getzler
Chief Financial Officer
BY: /S/ James E. Fenske
----------------------------------------
James E. Fenske
Chief Accounting Officer
15
<PAGE>
EXHIBIT INDEX
EXHIBIT # DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE
- - --------- ---------------------- ---------------
10.36 Promissory note, in the principal 17
amount of $607,503.33 dated as of
April 11, 1996 from Herbert L.
Getzler to Miles Homes, Inc.
10.37 Promissory note, in the principal 29
amount of $309,453.98 dated as of
April 11, 1996 from James G. Einloth
to Miles Homes, Inc.
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DEMAND NOTE
U.S. $607,503.33 New York, New York
Date: April 11, 1996
FOR VALUE RECEIVED, Herbert L. Getzler ("Borrower"), promises to pay to the
order of Miles Homes, Inc., a Delaware corporation ("Payee"), at its office
located at 20 Realty Drive, Cheshire, Connecticut 06410 or at such other address
as to which Payee shall give written notice to Borrower, on demand, in lawful
money of the United States of America and in immediately available funds, the
sum of U.S. Six Hundred and Seven Thousand, Five Hundred and Three Dollars and
thirty-three cents ($607,503.33) or such greater or lesser amount as Payee shall
have loaned to Borrower pursuant hereto, as PRIMA FACIE evidenced by written
endorsement with respect thereto by any officer of Payee on the schedule annexed
hereto.
Borrower further promises to pay interest at such address in like money,
from the date hereof on the outstanding principal amount owing hereunder from
time to time, at a fixed rate per annum equal to 10%. Such interest shall be
computed and compounded quarterly on the basis of a 360 day year and for the
actual number of days elapsed. Interest accrued hereunder shall accrue and be
payable, in arrears, on the date the outstanding principal balance of this note
is due whether by maturity, acceleration or otherwise. In no event shall
interest hereunder exceed the maximum rate permitted under the laws of the State
of New York.
This Note is the "Note" referred to in that certain Pledge Agreement dated
as of April 11, 1996 between the Borrower and Payee, as the same may be amended,
modified or supplemented from time to time (the "Pledge Agreement") and is
subject to the terms and conditions set forth therein, which terms and
conditions are incorporated herein by reference. All terms used herein which
are defined in the Pledge Agreement shall have the meanings given therein,
except as otherwise defined herein.
EXCEPT FOR THE STOCK PLEDGED AS SECURITY UNDER THE PLEDGE AGREEMENT, THIS
NOTE SHALL BE NON-RECOURSE TO THE BORROWER.
The payment of this Note is entitled to the benefit of, and to the extent
applicable is secured by, the Pledge Agreement, as such agreement may be
amended, modified or supplemented from time to time.
If any payment of this Note becomes due and payable on a Saturday, Sunday
or a legal bank holiday under the laws of the State of New York, the maturity
thereof shall be extended to the next succeeding business day and interest
thereon shall be
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payable at the rate set forth above during such extension.
This Note may he voluntarily prepaid without penalty.
Presentment for payment, notice of dishonor, protest, notice of default and
notice of protest are hereby waived.
Borrower agrees to pay all costs, including without limitation all
reasonable attorney's fees and expenses, incurred by Payee in collecting or
enforcing payment of this Note in accordance with its terms.
This Note may be modified or cancelled only by the written agreement of
Borrower and Payee. Failure of Payee hereof to assert any right hereunder shall
not be deemed to be a waiver thereof.
This Note and the rights and obligations of Borrower and Payee hereunder
shall be governed by and construed in accordance with the laws of the State of
New York. Borrower hereby waives any right to trial by jury in any legal
proceeding related in any way to this Note and agrees that any such proceeding
may, if Payee so elects, be brought and enforced in the Supreme Court of the
State of New York or the United States District Court for the Southern District
of New York. Borrower hereby waives any objection to jurisdiction or venue in
any such proceeding commenced in any of such courts. Borrower further agrees
that any process required to be served upon him for purposes of any such
proceeding may be served on him, with the same effect as personal service on him
within the State of New York, by registered mail addressed to him at his address
for purposes of notices as provided in the Pledge Agreement.
BORROWER
/s/ Herbert L. Getzler
--------------------------------------
Herbert L. Getzler
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is entered into this 11th day of
April, 1996 BY and between Herbert L. Getzler ("Pledgor") and Miles Homes, Inc.
("Miles") as security for a note dated April 11, 1996 in the principal amount of
$607,503.33 due from Pledgor to Miles (the "Note"). Terms capitalized and used
herein which are not otherwise defined herein shall have the meanings given them
in the Note.
WITNESSETH:
WHEREAS, Pledgor is the owner of 303,752 shares of common stock, par value
$.10 per share, of Miles (the "Stock"); and
WHEREAS, Miles has agreed to make loans, advances and other financial
accommodations (collectively, the "Loans") to Pledgor evidenced by the Note and
secured by the Stock; and
WHEREAS, Miles, as a condition to the making of the Loans, in order to
secure the timely and full payment, observance and performance of all of
Pledgor's obligations and liabilities under the Note (the "Obligations") has
required the Pledgor to execute and deliver this Pledge Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the Note or
otherwise) heretofore, now or hereafter made to Pledgor by Miles, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants to Miles, as
security for the payment of the Obligations, security interests in (a) the Stock
and (b) all proceeds thereof, including, without limitation, all dividends and
other distributions to which Pledgor may become entitled (the Stock together
with the "Powers" (as defined below), the property and interests in property
described in Paragraphs 8 and 9 below, and all proceeds of any of the foregoing,
being hereinafter collectively referred to as the "Pledged Collateral").
Pledgor agrees to execute and deliver to Miles (i) stock powers in the form of
Exhibit A attached hereto and made a part hereof, appropriately endorsed in
blank, with respect to the Stock and (ii) such other documents of transfer as
Miles may from time to time request to enable Miles to transfer the Stock into
its name or the name of its nominee (all of the foregoing are hereinafter
referred to as the "Powers").
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2. PERFECTION OF SECURITY INTEREST. Pledgor agrees (i) immediately to
deliver to Miles or Miles' nominee all certificates evidencing any of the
Pledged Collateral which may at any time come into the possession of Pledgor,
(ii) to instruct each "financial intermediary" (as defined in the Uniform,
Commercial Code of the State of New York) with whom Pledgor maintains an account
reflecting Pledgor's ownership of any of the Pledged Collateral to note Miles'
security interest in such Pledged Collateral on the books and records of such
financial intermediary, (iii) to execute and deliver a notice of Miles' security
interest in the Pledged Collateral (which notice shall be satisfactory in form
and substance to Miles and may reasonable request acknowledgment from the
addressee) to each third party which either has possession of the Pledged
Collateral or any certificates evidencing any of the Pledged Collateral or
otherwise (whether at the direction of Pledgor or otherwise), (iv) to execute
and deliver to Miles such financing statements as Miles may reasonably request
with respect to the Pledged Collateral, and (v) to take such other steps as
Miles may from time to time reasonably request to perfect Miles' security
interest in the Pledged Collateral under applicable law. The Pledgor further
agrees, at the request of Miles, to use his best efforts to cause Miles to
issue, in substitution for existing certificates evidencing any of the Pledged
Collateral, one or more new certificates ("Substitute Certificate(s)") intended
to evidence (in as few certificates as possible) all of the Pledged Collateral
evidenced by the certificates which are exchanged for the Substitute
Certificate(s), and Pledgor shall immediately thereafter deliver such Substitute
Certificates to Miles, together with attached Powers. Pledgor hereby appoints
Miles, upon or at any time after the occurrence and during the continuance of
(i) a default under the terms of the Note, (ii) a breach of this Agreement or
(iii) the failure of any representation or warranty hereunder to be true and
correct (each of (i), (ii) and (iii), an "Event of Default"), as his attorney-
in-fact, with authority at any time or times to take any of the foregoing
actions on behalf of Pledgor. The Pledgor agrees that this Agreement or a
photocopy of this Agreement shall be sufficient as a financing statement.
3. VOTING RIGHTS. During the term of this Agreement, and so long as no
Event of Default has occurred and is continuing, Pledgor shall have the right to
vote the Stock and exercise any voting rights pertaining to the Pledged
Collateral (which may, subject to any registration of Miles' security interest
pursuant to Paragraph 2 above, be registered on the books and records of Miles
in Pledgor's name except as otherwise provided in Paragraph 7 below), and to
give consents, ratifications and waivers with respect thereto, on all corporate
questions for all purposes not inconsistent with the terms of the Note or any
of the other agreements and documents executed in connection with the
transactions contemplated thereby. Miles shall, at the request
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of Pledgor, provide Pledgor with appropriate proxies and any other documents
necessary or appropriate to permit Pledgor to exercise the rights set forth in
the preceding sentence. Upon or at any time after the occurrence and during the
continuance of an Event of Default, Miles shall be entitled, at Miles' option
and following written notice from Miles to Pledgor, to exercise all voting
powers pertaining to the Pledged Collateral.
4. DIVIDENDS AND OTHER DISTRIBUTIONS. Upon or at any time after the
occurrence and during the continuance of an Event of Default, Pledgor shall
cause Miles to remit all dividends and other distributions payable with respect
to the Pledged Collateral directly to Miles for application to the Obligations.
Pledgor shall promptly remit to Miles any such dividend or other distribution
paid to Pledgor, and until so paid to Miles, Pledgor shall hold such dividend or
other distribution in trust for Miles.
5. REPRESENTATIONS. Pledgor warrants and represents as follows:
(a) Pledgor is the sole owner of the Stock and such Stock has been
duly authorized and is fully paid and non-assessable;
(b) Pledgor has full power and authority to enter into this
Agreement;
(c) There are no restrictions upon the transfer of all or any part of
the Pledged Collateral except as provided by (i) federal and state
securities laws (including, without limitation, Rule 144 under the
Securities Act of 1933, as amended), (ii) the Note and (iii) this
Agreement.
(d) Pledgor has the right, subject to the terms and provisions of the
Note and this Agreement (i) to vote the Pledged Collateral and (ii) to
pledge and grant a security interest in all or any part of the Pledged
Collateral free of any liens, claims or encumbrances;
(e) Pledgor has the right (subject, however, to federal and state
securities laws, the Note and this Agreement) to otherwise transfer all or
any part of the Pledged Collateral free of any lien; and
(f) The Powers are duly executed and give Miles the authority they
purport to confer.
6. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. Pledgor represents to
Miles that Pledgor has made its own
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arrangements for keeping informed of changes or potential changes affecting the
Pledged Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and Pledgor agrees that Miles shall not have any
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto. Miles may, upon or at any time after the occurrence of an Event
of Default, without notice and at its option, transfer or register the Pledged
Collateral or any part thereof into its or its nominee's name with or without
any indication that such Pledged Collateral is subject to the security interest
hereunder.
7. REGISTRATION. If registration under or compliance in any way with the
Securities Act of 1933, as amended (the "Securities Act") or any similar federal
or state law is required with respect to the securities included in the Pledged
Collateral prior to the sale thereof by Miles, Pledgor will use its best efforts
to cause such registration to be effectively made, at no expense to Miles, and
to continue such registration effective for such time as may be reasonably
necessary in the opinion of Miles and will reimburse Miles for any expense
reasonably incurred by Miles, including, without limitation, reasonable
attorneys' and accountants' fees and expenses in connection therewith. Should
Miles determine that, prior to a public offering of any securities contained in
the Pledged Collateral by Miles, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law, and that such registration and/or qualification is not practical, then
Pledgor agrees that it will be commercially reasonable if a private sale, upon
at least five (5) days notice to Pledgor, is arranged so as to avoid a public
offering, even though the sales price established and/or obtained may be
substantially less than prices which might be quoted for such security on any
market or exchange, if such securities had been registered and were available on
a market or exchange.
8. STOCK ADJUSTMENTS. If, during the term of this Agreement, any stock
dividend, reclassification, readjustment or other change is declared or made in
the capital structure of Miles (including, without limitation, the issuance of
additional shares of capital stock of Miles), then Miles shall have a security
interest in all new, substituted and additional shares or other securities
issued by Miles or acquired by Pledgor by reason of any such change, and such
shares or other securities shall become part of the Pledged Collateral; provided
however, that nothing contained in this Paragraph 8 shall be deemed to permit
any stock dividend, issuance of additional stock, reclassification, readjustment
or other change in the capital structure of Miles which is prohibited by the
Note or any of the agreements and documents executed in connection with the
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transactions contemplated thereby.
9. WARRANTS, OPTIONS AND OTHER RIGHTS. If, during the term of this
Agreement, subscription warrants or any other rights or options shall be issued
by Miles in connection with the Pledged Collateral or otherwise issued to or
acquired by Pledgor, then Miles shall have a security interest in such warrants,
rights and options, and such warrants, rights and options shall become part of
the Pledged Collateral; provided, however, that nothing contained in this
Paragraph 9 shall be deemed to permit the issuance of any warrants or other
rights or options by Miles which is prohibited by the Note or any agreement or
document executed in connection with the transactions contemplated thereby.
10. CONSENT. Pledgor hereby consents that from time to time, before or
after the occurrence of an Event of Default, with or without notice to or assent
from Pledgor, any other security at any time held by or available to Miles for
any of the Obligations may be exchanged, surrendered or released, and any of the
Obligations may be changed, altered, renewed, extended, continued, surrendered,
compromised, waived or released, in whole or in part, as Miles may deem
appropriate, and Pledgor shall remain bound under this Agreement notwithstanding
any such exchange, surrender, release, alteration, renewal, extension,
continuance, compromise, waiver or inaction, extension of further credit or
other dealing.
11. EVENT OF DEFAULT REMEDIES. Miles may, upon or at any time after the
occurrence and during the continuance of an Event of Default, at its option,
transfer or register the Pledged Collateral or any part thereof into its or its
nominee's name with or without any indication that such Pledged Collateral is
subject to the security interest hereunder. Except as otherwise limited herein,
Miles shall have, in addition to the foregoing and any other rights given under
this Agreement or by law, all of the rights and remedies with respect to the
Pledged Collateral of a secured party under the Uniform Commercial Code as in
effect in the State of New York. In addition, following the occurrence and
during the continuance of an Event of Default, Miles shall have such powers of
sale and other powers as may be conferred by applicable law. With respect to
the Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of Miles or which Miles shall
otherwise have the ability to transfer under applicable law, Miles may, in its
sole discretion, without notice except as specified below, following the
occurrence and during the continuance of an Event of Default, sell or cause the
same to be sold at any broker's board or at public or private sale, in one or
more sales or lots; at such price as Miles may deem best, for cash or on credit
or for future delivery, without assumption of any credit risk, and the purchaser
of any or all of the Pledged collateral so sold
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shall thereafter own the same, absolutely free from any claim, encumbrance or
right of any kind whatsoever. Unless any of the Pledged Collateral threatens to
decline speedily in value or is or becomes of a type sold on a recognized
market, Miles will give Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, any requirements of reasonable notice shall be met if
five (5) days notice of such sale or disposition is provided to Pledgor. Any
other requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived. Miles may, in its own name or in the name of a
designee or nominee, buy all or any part of the Pledged Collateral at any public
sale and, if permitted by applicable law, buy all or any part of the Pledged
Collateral at any private sale.
Pledgor will pay to Miles all reasonable expenses (including, without
limitation, court costs and reasonable attorneys' and paralegals' fees and
expenses of, or incident to, (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale or collection of or other realization
upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of
the rights of Miles hereunder, or (iv) the failure by Pledgor to perform or
observe any provision hereof. In view of the fact that federal and state
securities laws may impose certain restrictions on the method by which a sale of
the Pledged collateral may be effected after the occurrence of an Event of
Default, Pledgor agrees that after the occurrence and during the continuance of
an Event of Default, Miles may, from time to time, attempt to sell all or any
part of the Pledged Collateral by means of a private placement restricting the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution.
In so doing, Miles may solicit offers to buy the Pledged Collateral, or any part
of it, for cash, from a limited number of investors deemed by Miles, in its
reasonable judgment, to be financially responsible parties who might be
interested in purchasing the Pledged Collateral, and if Miles solicits such
offers from not less than four (4) such investors, then the acceptance by Miles
of the highest offer obtained therefrom shall be deemed to be a commercially-
reasonable method of disposing of such Pledged Collateral.
12. TERM. This Agreement shall remain in full force and effect until all
of the Obligations shall have been paid in full at which time Miles, at the
request and expense of Pledgor, will
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execute and deliver to Pledgor a proper instrument or instruments acknowledging
the satisfaction and termination of this Agreement, and will duly assign,
transfer and deliver to Pledgor (without recourse and without any representation
or warranty) such of the Pledged Collateral as may be in the possession of Miles
and has not theretofore been sold or otherwise applied or released pursuant to
this Agreement, together with any monies at the time held by Miles hereunder.
13. AGENT'S EXERCISE OF RIGHTS AND REMEDIES UPON THE OCCURRENCE AND DURING
THE CONTINUANCE OF AN EVENT OF DEFAULT. Notwithstanding anything set forth
herein to the contrary, it is hereby expressly agreed that, upon the occurrence
and during the continuance of an Event of Default, Miles may exercise any of the
rights and remedies provided in this Agreement, the Note or any other agreement,
document or instrument executed in connection with the transactions contemplated
by the Note, subject, however, to the notice requirements provided for in this
Agreement and the Note.
14 DEFINITIONS. The singular shall include the plural and VICE VERSA and
any gender shall include any other gender as the context may require.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Pledgor, Miles and their respective successors and
assigns. Pledgor's successors and assigns shall include, without limitation, a
conservator, executor, receiver, trustee or debtor-in-possession of or for
Pledgor.
16. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be held to be prohibited or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
17. FURTHER ASSURANCES. Pledgor agrees that it will cooperate with Miles
and will execute and deliver, or cause to be executed and delivered, all such
other stock powers, proxies, instruments and documents, and will take all such
other action, including, without limitation, the filing of financing statements,
as Miles may reasonably request from time to time in order to carry out the
provisions and purposes hereof.
18. MILES' DUTY. Miles shall not be liable for any acts, omissions, errors
of judgment or mistakes of fact or of law including, without limitation, acts,
omissions, errors or
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mistakes with respect to the Pledged Collateral, except for those arising out of
or in connection with Miles' (i) gross negligence or willful misconduct or (ii)
failure to use reasonable care with respect to the safe custody of any
certificate evidencing any of the Pledged Collateral which is in the physical
possession of Miles. Without limiting the generality of the foregoing, Miles
shall be under no obligation to take any steps necessary to preserve rights in
the Pledged Collateral against any other parties but may do so at its option,
and all expenses incurred in connection therewith shall be for the sole account
of Pledgor, and shall be added to the Obligations secured hereby.
19. NOTICES. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by courier service or United States mail and shall
be deemed to have been given when delivered in person or by courier service,
upon receipt of a telecopy or telex or three (3) business days after being
deposited in the United States mail (registered or certified mail, with postage
prepaid and properly addressed). For the purposes hereof, the addresses of the
parties hereto (until notice of change thereof is delivered as provided in this
Paragraph 19) shall be as set forth below each party's name on the signature
pages hereof, or, as to each party, at such other address as may be designated
by such party in written notice to all of the other parties.
20. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
21. SECTION HEADINGS. The section headings herein are for convenience of
reference only and shall not affect in any way the interpretation of any of the
provisions hereof.
IN WITNESS WHEREOF, Pledgor and Miles have executed this Agreement as of
the date first above written.
Pledgor
/s/ Herbert L. Getzler
--------------------------------------
Herbert L. Getzler
Notice Address:
Herbert L. Getzler
2702 Captain's Way
Jupiter, Florida 33477
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MILES HOMES, INC., a Delaware
corporation
By: /s/ Jonathan K. Dodge
--------------------------------------
Jonathan K. Dodge
Vice President
Notice Address:
Miles Homes, Inc.
20 Realty Drive
Cheshire, Connecticut 06410
Attn: General Counsel
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FOR VALUE RECEIVED, Herbert L. Getzler hereby sells, assigns and transfers unto
Miles Homes, Inc., a Delaware corporation ( ) shares of the capital
stock of Miles Homes, Inc., standing in its name on the books of said Miles
Homes, Inc. represented by Certificate No. ______________ herewith and do
hereby irrevocably constitute and appoint _____________________________________,
attorney, to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated: ____________________, 199_
/s/ Herbert L. Getzler
--------------------------------------
Herbert L. Getzler
--------------------------------------
Signature guaranteed
IN PRESENCE OF
- - --------------------------------------
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DEMAND NOTE
U.S. $309,453.98 New York, New York
Date: April 11, 1996
FOR VALUE RECEIVED, James G. Einloth ("Borrower"), promises to pay to the
order of Miles Homes, Inc., a Delaware corporation ("Payee"), at its office
located at 20 Realty Drive, Cheshire, Connecticut 06410 or at such other address
as to which Payee shall give written notice to Borrower, on demand, in lawful
money of the United States of America and in immediately available funds, the
sum of U.S. Three Hundred and Nine Thousand, Four Hundred and Fifty-Three
Dollars and ninety-eight cents ($309,453.98) or such greater or lesser amount as
Payee shall have loaned to Borrower pursuant hereto, as PRIMA FACIE evidenced by
written endorsement with respect thereto by any officer of Payee on the schedule
annexed hereto.
Borrower further promises to pay interest at such address in like money,
from the date hereof on the outstanding principal amount owing hereunder from
time to time, at a fixed rate per annum equal to 10%. Such interest shall be
computed and compounded quarterly on the basis of a 360 day year and for the
actual number of days elapsed. Interest accrued hereunder shall accrue and be
payable, in arrears, on the date the outstanding principal balance of this note
is due whether by maturity, acceleration or otherwise. In no event shall
interest hereunder exceed the maximum rate permitted under the laws of the
State of New York.
This Note is the "Note" referred to in that certain Pledge Agreement dated
as of April 11, 1996 between the Borrower and Payee, as the same may be amended,
modified or supplemented from time to time (the "Pledge Agreement") and is
subject to the terms and conditions set forth therein, which terms and
conditions are incorporated herein by reference. All terms used herein which
are defined in the Pledge Agreement shall have the meanings given therein,
except as otherwise defined herein.
EXCEPT FOR THE STOCK PLEDGED AS SECURITY UNDER THE PLEDGE AGREEMENT, THIS
NOTE SHALL BE NON-RECOURSE TO THE BORROWER.
The payment of this Note is entitled to the benefit of, and to the extent
applicable is secured by, the Pledge Agreement, as such agreement may be
amended, modified or supplemented from time to time.
If any payment of this Note becomes due and payable on a Saturday, Sunday
or a legal bank holiday under the laws of the State of New York, the maturity
thereof shall be extended to the next succeeding business day and interest
thereon shall be
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payable at the rate set forth above during such extension.
This Note may be voluntarily prepaid without penalty.
Presentment for payment, notice of dishonor, protest, notice of default and
notice of protest are hereby waived.
Borrower agrees to pay all costs, including without limitation all
reasonable attorney's fees and expenses, incurred by Payee in collecting or
enforcing payment of this Note in accordance with its terms.
This Note may be modified or cancelled only by the written agreement of
Borrower and Payee. Failure of Payee hereof to assert any right hereunder shall
not be deemed to be a waiver thereof.
This Note and the rights and obligations of Borrower and Payee hereunder
shall be governed by and construed in accordance with the laws of the State of
New York. Borrower hereby waives any right to trial by jury in any legal
proceeding related in any way to this Note and agrees that any such proceeding
may, if Payee so elects, be brought and enforced in the Supreme Court of the
State of New York or the United States District Court for the Southern District
of New York. Borrower hereby waives any objection to jurisdiction or venue in
any such proceeding commenced in any of such courts. Borrower further agrees
that any process required to be served upon him for purposes of any such
proceeding may be served on him, with the same effect as personal service on him
within the State of New York, by registered mail addressed to him at his address
for purposes of notices provided in the Pledge Agreement.
BORROWER
/s/ James G. Einloth
--------------------------------------
James G. Einloth
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is entered into this 11th day of
April, 1996 by and between James G. Einloth ("Pledgor") and Miles Homes, Inc.
("Miles") as security for a note dated April 11, 1996 in the principal amount of
$309,453.98 due from Pledgor to Miles (the "Note"). Terms capitalized and used
herein which are not otherwise defined herein shall have the meanings given them
in the Note.
WITNESSETH;
WHEREAS, Pledgor is the owner of 154,727 shares of common stock, par value
$.10 per share, of Miles (the "Stock"); and
WHEREAS, Miles has agreed to make loans, advances and other financial
accommodations (collectively, the "Loans") to Pledgor evidenced by the Note and
secured by the Stock; and
WHEREAS, Miles, as a condition to the making of the Loans, in order to
secure the timely and full payment, observance and performance of all of
Pledgor's obligations and liabilities under the Note (the "Obligations") has
required the Pledgor to execute and deliver this Pledge Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the Note or
otherwise) heretofore, now or hereafter made to Pledgor by Miles, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants to Miles, as
security for the payment of the Obligations, security interests in (a) the
Stock and (b) all proceeds thereof, including, without limitation, all
dividends and other distributions to which Pledgor may become entitled (the
Stock together with the "Powers" (as defined below), the property and
interests in property described in Paragraphs 8 and 9 below, and all proceeds
of any of the foregoing, being hereinafter collectively referred to as the
"Pledged Collateral"). Pledgor agrees to execute and deliver to Miles (i)
stock powers in the form of Exhibit A attached hereto and made a part hereof,
appropriately endorsed in blank, with respect to the Stock and (ii) such other
documents of transfer as Miles may from time to time request to enable Miles
to transfer the Stock into its name or the name of its nominee (all of the
foregoing are hereinafter referred to as the "Powers").
31
<PAGE>
2. PERFECTION OF SECURITY INTEREST. Pledgor agrees (i) immediately to
deliver to Miles or Miles' nominee all certificates evidencing any of the
Pledged Collateral which may at any time come into the possession of Pledgor,
(ii) to instruct each "financial intermediary" (as defined in the Uniform
Commercial Code of the State of New York) with whom Pledgor maintains an
account reflecting Pledgor's ownership of any of the Pledged Collateral to
note Miles' security interest in such Pledged Collateral on the books and
records of such financial intermediary, (iii) to execute and deliver a notice
of Miles' security interest in the Pledged Collateral (which notice shall be
satisfactory in form and substance to Miles and may reasonable request
acknowledgment from the addressee) to each third party which either has
possession of the Pledged Collateral or any certificates evidencing any of
the Pledged Collateral or otherwise (whether at the direction of Pledgor or
otherwise), (iv) to execute and deliver to Miles such financing statements as
Miles may reasonably request with respect to the Pledged Collateral, and (v)
to take such other steps as Miles may from time to time reasonably request to
perfect Miles' security interest in the Pledged Collateral under applicable
law. The Pledgor further agrees, at the request of Miles, to use his best
efforts to cause Miles to issue, in substitution for existing certificates
evidencing any of the Pledged Collateral, one or more new certificates
("Substitute Certificate(s)") intended to evidence (in as few certificates as
possible) all of the Pledged Collateral evidenced by the certificates which
are exchanged for the Substitute Certificate(s), and Pledgor shall
immediately thereafter deliver such Substitute Certificates to Miles,
together with attached Powers. Pledgor hereby appoints Miles, upon or at any
time after the occurrence and during the continuance of (i) a default under
the terms of the Note, (ii) a breach of this Agreement or (iii) the failure
of any representation or warranty hereunder to be true and correct (each of
(i), (ii) and (iii), an "Event of Default"), as his attorney-in-fact, with
authority at any time or times to take any of the foregoing actions on behalf
of Pledgor. The Pledgor agrees that this Agreement or a photocopy of this
Agreement shall be sufficient as a financing statement.
3. VOTING RIGHTS. During the term of this Agreement, and so long as no
Event of Default has occurred and is continuing, Pledgor shall have the right
to vote the Stock and exercise any voting rights pertaining to the Pledged
Collateral (which may, subject to any registration of Miles' security interest
pursuant to Paragraph 2 above, be registered on the books and records of Miles
in Pledgor's name except as otherwise provided in Paragraph 7 below), and to
give consents, ratifications and waivers with respect thereto, on all corporate
questions for all purposes not inconsistent with the terms of the Note or any of
the other agreements and documents executed in connection with the transactions
contemplated thereby. Miles shall, at the request
32
<PAGE>
of Pledgor, provide Pledgor with appropriate proxies and any other documents
necessary or appropriate to permit Pledgor to exercise the rights set forth in
the preceding sentence. Upon or at any time after the occurrence and during the
continuance of an Event of Default, Miles shall be entitled, at Miles' option
and following written notice from Miles to Pledgor, to exercise all voting
powers pertaining to the Pledged Collateral.
4. DIVIDENDS AND OTHER DISTRIBUTIONS. Upon or at any time after the
occurrence and during the continuance of an Event of Default, Pledgor shall
cause Miles to remit all dividends and other distributions payable with respect
to the Pledged Collateral directly to Miles for application to the Obligations.
Pledgor shall promptly remit to Miles any such dividend or other distribution
paid to Pledgor, and until so paid to Miles, Pledgor shall hold such dividend or
other distribution in trust for Miles.
5. REPRESENTATIONS. Pledgor warrants and represents as follows:
(a) Pledgor is the sole owner of the Stock and such Stock has been
duly authorized and is fully paid and non-assessable;
(b) Pledgor has full power and authority to enter into this
Agreement;
(c) There are no restrictions upon the transfer of all or any part of
the Pledged Collateral except as provided by (i) federal and state
securities laws (including, without limitation, Rule 144 under the
Securities Act of 1933, as amended), (ii) the Note and (iii) this
Agreement.
(d) Pledgor has the right, subject to the terms and provisions of the
Note and this Agreement (i) to vote the Pledged Collateral and (ii) to
pledge and grant a security interest in all or any part of the Pledged
Collateral free of any liens, claims or encumbrances;
(e) Pledgor has the right (subject, however, to federal and state
securities laws, the Note and this Agreement) to otherwise transfer all or
any part of the Pledged Collateral free of any lien; and
(f) The Powers are duly executed and give Miles the authority they
purport to confer.
6. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. Pledgor represents
to Miles that Pledgor has made its own
33
<PAGE>
arrangements for keeping informed of changes or potential changes affecting the
Pledged Collateral (including, but not limited to, rights to convert, rights to
subscribe payment of dividends, reorganization or other exchanges, tender offers
and voting rights), and Pledgor agrees that Miles shall not have any
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto. Miles may, upon or at any time after the occurrence of an
Event of Default, without notice and at its option, transfer or register the
Pledged Collateral or any part thereof into its or its nominee's name with or
without any indication that such Pledged Collateral is subject to the security
interest hereunder.
7. REGISTRATION. If registration under or compliance in any way with the
Securities Act of 1933, as amended (the "Securities Act") or any similar federal
or state law is required with respect to the securities included in the Pledged
Collateral prior to the sale thereof by Miles, Pledgor will use its best efforts
to cause such registration to be effectively made, at no expense to Miles, and
to continue such registration effective for such time as may be reasonably
necessary in the opinion of Miles and will reimburse Miles for any expense
reasonably incurred by Miles, including, without limitation, reasonable
attorneys' and accountants' fees and expenses in connection therewith. Should
Miles determine that, prior to a public offering of any securities contained in
the Pledged Collateral by Miles, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law, and that such registration and/or qualification is not practical, then
Pledgor agrees that it will be commercially reasonable if a private sale, upon
at least five (5) days notice to Pledgor, is arranged so as to avoid a public
offering, even though the sales price established and/or obtained may be
substantially less than prices which might be quoted for such security on any
market or exchange, if such securities had been registered and were available on
a market or exchange.
8. STOCK ADJUSTMENTS. If, during the term of this Agreement, any stock
dividend, reclassification, readjustment or other change is declared or made in
the capital structure of Miles (including, without limitation, the issuance of
additional shares of capital stock of Miles), then Miles shall have a security
interest in all new, substituted and additional shares or other securities
issued by Miles or acquired by Pledgor by reason of any such change, and such
shares or other securities shall become part of the Pledged Collateral; provided
however, that nothing contained in this Paragraph 8 shall be deemed to permit
any stock dividend, issuance of additional stock, reclassification, readjustment
or other change in the capital structure of Miles which is prohibited by the
Note or any of the agreements and documents executed in connection with the
34
<PAGE>
transactions contemplated thereby.
9. WARRANT, OPTIONS AND OTHER RIGHTS. If, during the term of this
Agreement, subscription warrants or any other rights or options shall be issued
by Miles in connection with the Pledged Collateral or otherwise issued to or
acquired by Pledgor, then Miles shall have a security interest in such warrants,
rights and options, and such warrants, rights and options shall become part of
the Pledged Collateral; provided, however, that nothing contained in this
Paragraph 9 shall be deemed to permit the issuance of any warrants or other
rights or options by Miles which is prohibited by the Note or any agreement or
document executed in connection with the transactions contemplated thereby.
10. CONSENT. Pledgor hereby consents that from time to time, before or
after the occurrence of an Event of Default, with or without notice to or assent
from Pledgor, any other security at any time held by or available to Miles for
any of the Obligations may be exchanged, surrendered or released, and any of the
Obligations may be changed, altered, renewed, extended, continued, surrendered,
compromised, waived or released, in whole or in part, as Miles may deem
appropriate, and Pledgor shall remain bound under this Agreement notwithstanding
any such exchange, surrender, release, alteration, renewal, extension,
continuance, compromise, waiver or inaction, extension of further credit or
other dealing.
11. EVENT OF DEFAULT REMEDIES. Miles may, upon or at any time after the
occurrence and during the continuance of an Event of Default, at its option,
transfer or register the Pledged Collateral or any part thereof into its or its
nominee's name with or without any indication that such Pledged collateral is
subject to the security interest hereunder. Except as otherwise limited herein,
Miles shall have, in addition to the foregoing and any other rights given under
this Agreement or by law, all of the rights and remedies with respect to the
Pledged Collateral of a secured party under the Uniform Commercial Code as in
effect in the State of New York. In addition, following the occurrence and
during the continuance of an Event of Default, Miles shall have such powers of
sale and other powers as may be conferred by applicable law. With respect to
the Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of Miles or which Miles shall
otherwise have the ability to transfer under applicable law, Miles may, in its
sole discretion, without notice except as specified below, following the
occurrence and during the continuance of an Event of Default, sell or cause the
same to be sold at any broker's board or at public or private sale, in one or
more sales or lots, at such price as Miles may deem best, for cash or on credit
or for future delivery, without assumption of any credit risk, and the purchaser
of any or all of the Pledged Collateral so sold
35
<PAGE>
shall thereafter own the same, absolutely free from any claim, encumbrance or
right of any kind whatsoever. Unless any of the Pledged Collateral threatens to
decline speedily in value or is or becomes of a type sold on a recognized
market, Miles will give Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the pledged collateral
conducted in conformity with reasonable commercial practices of banks,
commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, any requirements of reasonable notice shall be met if
five (5) days notice of such sale or disposition is provided to pledgor. Any
other requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived. Miles may, in its own name or in the name of a
designee or nominee, buy all or any part of the Pledged Collateral at any public
sale and, if permitted by applicable law, buy all or any part of the Pledged
Collateral at any private sale.
Pledgor will pay to Miles all reasonable expenses (including, without
limitation, court costs and reasonable attorneys' and paralegals' fees and
expenses of, or incident to, (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale or collection of or other realization
upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of
the rights of Miles hereunder, or (iv) the failure by Pledgor to perform or
observe any provision hereof. In view of the fact that federal and state
securities laws may impose certain restrictions on the method by which a sale of
the Pledged Collateral may be effected after the occurrence of an Event of
Default, Pledgor agrees that after the occurrence and during the continuance of
an Event of Default, Miles may, from time to time, attempt to sell all or any
part of the Pledged Collateral by means of a private placement restricting the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution.
In so doing, Miles may solicit offers to buy the Pledged Collateral, or any part
of it, for cash, from a limited number of investors deemed by Miles, in its
reasonable judgment, to be financially responsible parties who might be
interested in purchasing the Pledged Collateral, and if Miles solicits such
offers from not less than four (4) such investors, then the acceptance by Miles
of the highest offer obtained therefrom shall be deemed to be a commercially-
reasonable method of disposing of such Pledged Collateral.
12. TERM. This Agreement shall remain in full force and effect until all
of the Obligations shall have been paid in full at which time Miles, at the
request and expense of Pledgor, will
36
<PAGE>
execute and deliver to Pledgor a proper instrument or instruments acknowledging
the satisfaction and termination of this Agreement, and will duly assign,
transfer and deliver to Pledgor (without recourse and without any representation
or warranty) such of the Pledged Collateral as may be in the possession of Miles
and has not theretofore been sold or otherwise applied or released pursuant to
this Agreement, together with any monies at the time held by Miles hereunder.
13. AGENT'S EXERCISE OF RIGHTS AND REMEDIES UPON THE OCCURRENCE AND DURING
THE CONTINUANCE OF AN EVENT OF DEFAULT. Notwithstanding anything set forth
herein to the contrary, it is hereby expressly agreed that, upon the occurrence
and during the continuance of an Event of Default, Miles may exercise any of the
rights and remedies provided in this Agreement, the Note or any other agreement,
document or instrument executed in connection with the transactions contemplated
by the Note, subject, however, to the notice requirements provided for in this
Agreement and the Note.
14. DEFINITIONS. The singular shall include the plural and VICE VERSA and
any gender shall include any other gender as the context may require.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Pledgor, Miles and their respective successors and
assigns. Pledgor's successors and assigns shall include, without limitation, a
conservator, executor, receiver, trustee or debtor-in-possession of or for
Pledgor.
16. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be held to be prohibited or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
17. FURTHER ASSURANCES. Pledgor agrees that it will cooperate with Miles
and will execute and deliver, or cause to be executed and delivered, all such
other stock powers, proxies, instruments and documents, and will take all such
other action, including, without limitation, the filing of financing statements,
as Miles may reasonably request from time to time in order to carry out the
provisions and purposes hereof.
18. MILES' DUTY. Miles shall not be liable for any acts, omissions,
errors of judgment or mistakes of fact or of law including, without limitation,
acts, omissions, errors or
37
<PAGE>
mistakes with respect to the Pledged Collateral, except for those arising out of
or in connection with Miles' (i) gross negligence or willful misconduct or (ii)
failure to use reasonable care with respect to the safe custody of any
certificate evidencing any of the Pledged Collateral which is in the physical
possession of Miles. Without limiting the generality of the foregoing, Miles
shall be under no obligation to take any steps necessary to preserve rights in
the Pledged Collateral against any other parties but may do so at its option,
and all expenses incurred in connection therewith shall be for the sole account
of Pledgor, and shall be added to the obligations secured hereby.
19. NOTICES. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by courier service or United States mail and shall
be deemed to have been given when delivered in person or by courier service,
upon receipt of a telecopy or telex or three (3) business days after being
deposited in the United States mail (registered or certified mail, with postage
prepaid and properly addressed). For the purposes hereof, the addresses of the
parties hereto (until notice of change thereof is delivered as provided in this
Paragraph 19) shall be as set forth below each party's name on the signature
pages hereof, or, as to each party, at such other address as may be designated
by such party in written notice to all of the other parties.
20. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
21. SECTION HEADINGS. The section headings herein are for convenience of
reference only and shall not affect in any way the interpretation of any of the
provisions hereof.
IN WITNESS WHEREOF, Pledgor and Miles have executed this Agreement as of
the date first above Written.
Pledgor
/s/ James G. Einloth
--------------------------------------
James G. Einloth
Notice Address:
James G. Einloth
690 Beech Street
Washington, Pennsylvania 15301
38
<PAGE>
MILES HOMES, INC., a Delaware
CORPORATION
BY: /s/ Jonathan K. Dodge
--------------------------------------
Jonathan K. Dodge
Vice President
Notice Address:
Miles Homes, Inc.
20 Realty Drive
Cheshire, Connecticut 06410
Attn: General Counsel
39
<PAGE>
FOR VALUE RECEIVED, James G. Einloth hereby sells, assigns and transfers unto
Miles Homes, Inc., a Delaware corporation ( ) shares of the capital
stock of Miles Homes, Inc., standing in its name on the books of said Miles
Homes, Inc. represented by Certificate No. ____________ herewith and do
hereby irrevocably constitute and appoint ____________________________________,
attorney, to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated: ____________________, 199_
/s/ James G. Einloth
--------------------------------------
James G. Einloth
--------------------------------------
Signature guaranteed
IN PRESENCE OF
- - --------------------------------------
40
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,203
<SECURITIES> 0
<RECEIVABLES> 27,917
<ALLOWANCES> 0
<INVENTORY> 8,094
<CURRENT-ASSETS> 0
<PP&E> 13,668
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,251
<CURRENT-LIABILITIES> 0
<BONDS> 44,250
0
0
<COMMON> 1,081
<OTHER-SE> 308
<TOTAL-LIABILITY-AND-EQUITY> 82,251
<SALES> 10,428
<TOTAL-REVENUES> 10,428
<CGS> 0
<TOTAL-COSTS> 6,900
<OTHER-EXPENSES> 6,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,593
<INCOME-PRETAX> (4,241)
<INCOME-TAX> 0
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<DISCONTINUED> 312
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<NET-INCOME> (3,929)
<EPS-PRIMARY> (0.36)
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</TABLE>
