FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1997
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: 0-21204
SOUTHERN ENERGY HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-1083246
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 41 North, P.O. Box 390, Addison, Alabama 35540
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 747-8589
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A
- ---------------------------------- -----------------------------------------
- ---------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001
------------------------------
Title of class
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. [ ]
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
Nasdaq Stock Market as of March 25, 1997, was $150,661,068.80. The number of
shares of common stock outstanding at that date was 15,437,801 shares, $.0001
par value.
Documents Incorporated By Reference
- -----------------------------------
Part Item
---- ----
1. Southern Energy Homes, Inc. Definitive
Proxy Statement with respect to its
June 4, 1997 Annual Meeting of
Stockholders III 10,11,12,13
PART I
SOUTHERN ENERGY HOMES, INC.
ITEM 1. BUSINESS
GENERAL
Southern Energy Homes, Inc. (the "Company") is engaged in: the
production and retail sale of manufactured homes and the retail financing of
manufactured homes. The Company produces manufactured homes sold primarily in
the southeastern and southcentral United States. The Company operates eleven
home manufacturing facilities (eight in Alabama, one in Texas, one in North
Carolina and one in Pennsylvania) to produce homes sold in 30 states. The
Company's homes are currently marketed under six brand names by 465 independent
dealers at 859 independent dealer locations and eight company-owned retail
centers.
The Company manufactures high quality homes, designed as primary
residences ready for immediate occupancy. The homes, most of which are
customized at the Company's factories to the home buyer's specifications, are
constructed by the Company in one or more sections which are transported by its
own or independent trucking companies to dealer locations.
The Company historically focused on the middle to higher priced range
of the manufactured housing market, but in 1993 expanded its product line to
include lower priced homes. The Company's homes range in size from 653 to 2,417
square feet and sell at retail prices ranging from $14,900 to $108,000,
excluding land.
The Company believes that its willingness to customize floor plans and
design features to match home buyer preferences is the principal factor which
differentiates it from most of its competitors.
Through its finance subsidiary and, more recently, through a finance
joint venture, the Company also provides home buyers with a source of financing
for homes sold by the Company.
MANUFACTURED HOMES
The Company produces a variety of single- and multi-section homes under
six brand names. The Company's homes are manufactured in sections, which
individually are transported to their destination. The finished homes may
consist of one or more sections. Multi-section products are joined at their
destination by the dealer or its contractor. The Company initially concentrated
on the medium to higher priced segments of the manufactured housing market. Over
the past several years, the Company has broadened its product line with lower
priced homes that sell at retail for less than $25,000. The six divisions of the
Company at which its homes were manufactured in 1996 and certain characteristics
of the homes are as follows:
<TABLE>
<CAPTION>
Retail
Division Type Square Feet Price Range
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Southern Energy Multi-section 1,312-2,417 $33,800-$108,000
Southern Life/style Single- and multi-section 858-2,296 23,200- 63,000
Southern Homes Single- and multi-section 653-1,968 14,880- 35,400
Southern Energy Homes
of Texas Single- and multi-section 1,088-2,128 26,600- 54,600
Southern Energy Homes
of North Carolina Single- and multi-section 765-2,075 21,500- 61,200
Southern Energy Homes
of Pennsylvania Single- and multi-section 924-2,016 29,900- 55,000
</TABLE>
For the fiscal year ended January 3, 1997, the net revenues contributed
by each of the Company's six home manufacturing divisions were as follows:
Southern Energy - $57 million; Southern Life/Style - $71 million; Southern Homes
- - $90 million; Southern Energy Homes of Texas - $35 million; Southern Energy
Homes of North Carolina - $26 million; and Southern Energy Homes of Pennsylvania
- - $10 million.
The Company currently operates four component supply divisions. Classic
Panel Designs supplies laminated and other interior wall panels. Wind-Mar Supply
provides windows, doors and countertops. Trimmasters produces wood moulding and
trim finishing. Unique Dinettes produces kitchen and dining furniture. These
divisions sell products both to our manufactured housing divisions and to
third-party customers. For the fiscal year period ended January 3, 1997, .5% of
the Company's net revenues were attributable to sales of these ancillary
products to third-parties.
The Company's product development and engineering personnel design
homes in consultation with divisional management, sales representatives and
dealers. They also evaluate new materials and construction techniques in a
continuous program of product development and enhancement. With the use of
computer aided design technology, the Company has developed engineering systems
which permit customization of homes to meet the individual needs of prospective
buyers. These systems allow the Company to make modifications such as increasing
the length of a living room, moving a partition, changing the size and location
of a window or installing custom cabinets without significant impact upon
manufacturing productivity.
Each home contains two to four bedrooms, a living room, dining room,
kitchen and one to three bathrooms, and features a heating system, a stove and
oven, refrigerator, carpeting and draperies. The Company has traditionally
focused on designing manufactured homes with features that make them comparable
to site-built homes, including stone fireplaces and vaulted ceilings, thus
broadening the base of potential customers. In addition to offering the consumer
optional features such as dishwashers, oak cabinets and furniture packages as
well as a wide range of colors, moldings and finishes, the Company generally
permits extensive customization of floor plan designs to meet specific customer
preferences.
RETAIL FINANCING
Home buyers normally secure financing from third-party lenders such as
banks or independent finance companies. While the Company believes that consumer
financing has generally become more available in the manufactured housing
industry in recent years, the availability and cost of financing is important to
the Company's sales. In order to provide home buyers with an additional source
of financing, the Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco
Finance") has been originating and servicing consumer loans for homes
manufactured by the Company. At January 3, 1997, the Company had $27.6 million
of installment contract receivables outstanding as compared with $655,000 at
December 29, 1995. In February 1997, the Company formed a joint venture with
21st Century Mortgage Corporation ("21st Century"). The joint venture, Wenco 21,
will continue to offer, through 21st Century, consumer financing for homes
manufactured by the Company as well as for other homes sold through its retail
centers and independent dealers. With marketing support and assistance from the
Company and Wenco 21, 21st Century will originate and service consumer loans and
will assign to Wenco 21 the net collections from those loans after deducting
service fees and costs, credit loss reserves, and principal and interest
payments due to third party investors or lenders. Wenco 21 will be obligated to
indemnify 21st Century against losses incurred in connection with the loans,
other than losses incurred as a result of negligence by 21st Century. In light
of the shift in consumer finance activities to Wenco 21, Wenco Finance has
suspended its loan origination activities and has engaged 21st Century to
service its existing loan portfolio. The Company expects that 21st Century and
Wenco 21, which is currently in a start-up phase of operation, will market the
new consumer loan program through the Company's retail centers and independent
dealer network. There can be no assurance that 21st Century and Wenco 21 will be
able to provide significant levels of financing for home buyers, or that such
financing activities will not adversely impact the Company's profitability.
HOME MANUFACTURING OPERATIONS
The Company's homes are currently manufactured by six operating
divisions using assembly line techniques at eleven facilities, four of which are
located in Addison, Alabama, two of which are located in Double Springs,
Alabama, two of which are located in Lynn, Alabama, one of which is located in
Fort Worth, Texas, one of which is located in Albemarle, North Carolina and one
of which is located in Hegins, Pennsylvania.
The Company's facilities operate on a one shift per day, five days per
week basis. The Company believes that these facilities have the capacity to
produce a total of approximately 485 floor sections per week with minimal labor
additions. The Company plans to continue to operate, like most of its
competitors, on a single shift per day basis. During the fiscal year ended
January 3, 1997, the Company produced an average of 315 floor sections per week.
This represented an 18% increase in floor section production from an average of
268 floor sections per week in the fiscal year ended December 29, 1995. In the
fiscal year ended December 30, 1994, the Company produced an average of 222
floor sections per week. The following table sets forth the total floor sections
and homes sold as well as the number of home manufacturing facilities operated
by the Company for the periods indicated:
Year Ended
-----------------------------------------------------
December 30, December 29, January 3,
1994 1995 1997
---- ---- ----
Homes 7,571 9,079 10,940
Floor sections 11,553 13,942 16,697
Home manufacturing
facilities(1) 8 10 10
(1) Production commenced at the Company's eleventh home manufacturing facility
in February 1997.
Each division operates as a separate strategic unit that is directed by
a general manager and has its own sales force. The general manager, production
managers and supervisory personnel of each division have an incentive
compensation system which is
directly tied to the operating profit of the division. In addition, production
personnel of each division have a productivity incentive compensation system.
The Company believes that these compensation systems help to focus efforts on
curtailing waste and inefficiencies in the production process and represent a
divergence from standard industry practices, which are typically designed to
reward personnel on production volume criteria.
The extent of customization of the home performed by the Company varies
to a significant degree with the price of the home. In the higher price range of
the market, the home buyer is often less sensitive to the price increase that is
associated with significant design modifications that might be desired. However,
the Company's experience in producing a customized home on a cost-effective
basis has allowed the Company to offer customized homes in all price ranges.
The principal materials used in the production of the Company's homes
include steel, aluminum, wood products, gypsum wallboard, fiberglass,
insulation, carpet, vinyl floor covering, fasteners and hardware items,
appliances, electrical items, windows and doors. These materials and components
are readily available and are purchased by the Company from numerous sources. No
supplier accounted for more than 4.2% of the Company's purchases during each of
the past two fiscal years. The Company believes that the size of its purchases
allows it to obtain favorable volume discounts. The Company's expenses can be
significantly affected by the availability and pricing of raw materials. Sudden
increases in demand for construction materials can greatly increase the costs of
materials. While such increases in costs can not always be reflected immediately
in the Company's prices, the Company in the past has been able to pass along a
significant portion of cost increases in its current prices.
Because the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to dealers within a 600 miles
radius of a manufacturing facility. The Company arranges, at the dealer's
expense, for the transportation of finished homes to dealer locations using its
own trucking subsidiary, MH Transport, Inc., and independent trucking companies.
The Company is using MH Transport to transport a majority of its homes.
Customary sales terms are cash-on-delivery or guaranteed payment from a floor
plan financing source. Dealers or other independent installers are responsible
for placing the home on site, making utility hook-ups and providing and
installing certain trim items.
Substantially all production is initiated against specific orders, and
the Company does not maintain any significant inventory of unsold completed
homes. The Company's backlog of orders for manufactured homes as of March 1,
1997 was $3.0 million as compared with $8.0 million at March 1, 1996. Dealer
orders are subject to cancellation prior to commencement of production for a
variety of reasons, and the Company does not consider its order backlog to be
firm orders.
SALES NETWORK
At January 3, 1997, the Company sold manufactured homes through
approximately 465 independent dealers at approximately 859 independent dealer
locations and through eight company-owned retail centers in 30 states
principally in the southeastern and southcentral United States. The Company
believes that the quality of its independent dealer network has been important
to the Company's performance.
Each of the Company's six home manufacturing divisions maintains a
separate sales force. At January 3, 1997, a total of 91 salespersons maintained
personal contact with the Company's independent dealers. The Company markets its
homes through product promotions tailored to specific dealer needs. In addition,
the Company advertises in local media and participates in regional manufactured
housing shows.
The Company believes the close working relationship between its
division management and the independent dealers they service has been an
important factor in the Company's growth. In order to promote dealer loyalty and
to enable dealers to penetrate retail markets, only one independent dealer
within a given local market may distribute homes manufactured by a division of
the Company. The Company does not have formal marketing agreements with its
independent dealers and substantially all of the Company's independent dealers
also sell homes of other manufacturers. The Company believes its relations with
its independent dealers are good and the Company has experienced relatively low
turnover in its established independent dealers in the past three years. In
fiscal 1996, the Company's largest dealer accounted for 5.4% of net revenues and
the ten largest dealers accounted for 25.7% of net revenues. In the fiscal year
ended December 29, 1995, the Company's largest dealer accounted for 5.0% of net
revenues, and the Company's ten largest dealers accounted for 24.0% of net
revenues. In the fiscal year ended December 30, 1994, the Company's largest
dealer accounted for 6.0% of net revenues and the Company's ten largest dealers
accounted for 27.6% of net revenues.
The Company recently acquired BR Holding Corp. and a group of retail
companies doing business as Blue Ribbon Homes ("BR Holding"). BR Holding sells
homes on a retail basis, primarily in the southeastern United States. At January
3, 1997, the Company had eight retail sales centers; seven in Alabama and one in
Mississippi. Each of the eight sales centers maintains a separate sales force.
Buyers of manufactured homes typically shop at a number of locations
prior to purchasing a home. The Company believes that it provides most of its
dealers with a marketing advantage because of the dealer's ability to represent
that the Company's homes can be customized to meet the individual preferences of
the customer.
The manufactured housing market is highly cyclical and seasonal and is
affected by the same economic factors which impact the broader housing market.
Historically, most sectors of the homebuilding industry have been affected by,
among other things, changes in general economic conditions, levels of consumer
confidence, employment and income, housing demand, availability of financing and
interest rate levels.
WARRANTY, QUALITY CONTROL AND SERVICE
The Company adheres to strict quality standards and continuously
refines its production procedures. In addition, in accordance with the
construction codes promulgated by the Department of Housing and Urban
Development ("HUD"), an independent HUD-approved, third-party inspector inspects
each of the Company's manufactured homes for compliance during construction at
the Company's manufacturing facilities. See "-Regulation."
The Company provides the initial home buyer with a HUD-mandated,
one-year limited warranty against manufacturing defects in the home's
construction. In addition, there are often direct warranties that are provided
by the manufacturer of components and appliances.
The Company has experienced quality assurance personnel at each of its
manufacturing facilities to provide on-site service to dealers and home buyers.
In order to respond more quickly to customer service requests and to maintain a
high level of customer satisfaction as the Company continues to grow, the
Company has increased its customer service staff. Enhanced quality assurance
systems are expected to contribute to the value and appeal of the Company's
homes and, over the long term, to reduce consumer warranty claims.
INDEPENDENT DEALER FINANCING
Substantially all of the Company's independent dealers finance their
purchases through "floor plan" arrangements under which 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. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing 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 independent dealer, to repurchase the homes at the Company's
original invoice price plus certain administrative and shipping expenses. At
January 3, 1997, the Company's contingent repurchase liability under floor plan
financing arrangements through independent dealers was approximately $91
million. While homes that have been repurchased by the Company under floor plan
financing arrangements are usually sold to other dealers and losses to date
under these arrangements have been insignificant, no assurance can be given that
the Company will be able to sell to other dealers homes which it may by
obligated to repurchase in the future under such floor plan financing
arrangements or that the Company will not suffer losses with respect to, and as
a consequence of, those arrangements. No dealer accounted for more than 6.0% of
the Company's net revenues in each of the past three fiscal years. See "-Sales
Network." The Company does not view any single independent dealer as being a
material customer. While the Company does not have access to financial
information regarding its independent dealers, it is not aware that any
independent dealer is experiencing financial difficulties. The Company also
finances substantially all of its retail inventory through floor plan
arrangements. Such borrowings totaled approximately $12.0 million at January 3,
1997.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon factors including
total price to the dealer, customization to homeowners' preferences, product
features, quality, warranty repair service and the terms of dealer and retail
customer financing. The Company does not view any of its competitors as being
dominant in the industry. A number of these firms are larger than the Company
and possess greater manufacturing and financial resources. In addition, there
are numerous firms producing manufactured homes in the southeastern and
southcentral United States, many of which are in direct competition with the
Company in the states where its homes are sold. Certain of the Company's
competitors provide retail customers with financing from captive finance
subsidiaries. While the Company believes consumer financing has generally become
more available in the manufactured housing industry in recent years, and
although the Company has recently formed its Wenco 21 joint venture to provide
consumer financing to customers through 21st Century, a contraction in consumer
credit could provide an advantage to those competitors with established internal
financing capabilities.
The capital requirements for entry as a producer in the manufactured
housing industry are relatively small. However, the Company believes that the
qualifications for obtaining inventory financing, which are based upon the
financial strength of the manufacturer and each of its dealers, have in recent
years become more difficult to meet.
Manufactured homes compete with new site-built homes, as well as
apartments, townhouses, condominiums and existing site-built and manufactured
homes.
The Company believes that its willingness to customize floor plans and
design features to match customer preferences is the principal factor which
differentiates it from most of its competitors in the manufactured housing
industry.
REGULATION
The Company's manufactured homes are subject to a number of federal,
state and local laws. Construction of manufactured housing is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974. In
1976, HUD issued regulations under this Act establishing comprehensive national
construction standards. The HUD regulations cover all aspects of manufactured
home construction, including structural integrity, fire safety, wind loads,
thermal protection, plumbing and electrical. Such regulations preempt
conflicting state and local regulations. The Company's manufacturing facilities
and the plans and specifications of its manufactured homes have been approved by
a HUD-designated inspection agency. An independent, HUD-approved third-party
inspector checks each of the Company's manufactured homes for compliance during
at least one phase of construction. In 1994, HUD amended manufactured home
construction safety standards to improve the wind force resistance of
manufactured homes sold for occupancy in coastal areas prone to hurricances.
Failure to comply with the HUD regulations could expose the Company to a wide
variety of sanctions, including closing the Company's plants. The Company
believes its manufactured homes meet or surpass all present HUD requirements.
Manufactured, modular and site-built homes are all built with
particleboard, 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 meet HUD
standards for formaldehyde emissions and that otherwise comply with HUD
regulations in this regard. In addition, certain components of manufactured
homes are subject to regulation by the 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 manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency and other
governmental agencies are evaluating the effects of formaldehyde. In February
1983, the Federal Trade Commission adopted regulations requiring disclosure of
manufactured home's insulation specifications.
The Company's manufactured homes are also 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, and must be
complied with by the dealer or other person installing the home.
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.
Wenco Finance, the Company's finance subsidiary, is subject to a
number of state and local licensing requirements which are applicable to
businesses engaged in the origination and servicing of consumer loans. In
addition, both Wenco Finance and Wenco 21, the Company's new finance joint
venture with 21st Century, are also subject to a variety of federal and state
laws and regulations regulating consumer finance, including the Truth in Lending
Act, which regulates lending procedures and mandates certain loan disclosures
with respect to financing offered to consumers. Failure by Wenco Finance or
Wenco 21 to comply with any of these laws and regulations could have a material
adverse effect on the Company's business and results of operation.
MH Transport, the Company's trucking subsidiary, is subject to federal
and state laws and regulations which apply to motor vehicle carriers operating
in interstate and intrastate commerce. Failure by MH Transport to comply with
any of these laws and regulations could have a material adverse effect on the
Company's business and results of operations.
The Company believes that it is in compliance with the foregoing
existing government regulations.
RECENT ACQUISITIONS
On November 21, 1996, the Company acquired BR Holding Corp., a company
which operates a group of companies engaged in the retail sale of manufactured
homes, and is doing business as Blue Ribbon Homes ("BR Holding"). BR Holding
also operates an insurance agency which provides homeowner insurance for
manufactured homes. The Company paid $1,075,000 in cash and issued 332,814
shares of the Company's common stock (approximate market value on November 21,
1996 of $4,532,000). The acquisition was accounted for under the purchase method
of accounting; thus the Company's financial statements as of January 3, 1997 and
for the year then ended reflect the operations of BR Holding from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired by $5,480,000, which amount is being amortized over 30 years as
goodwill. In addition, the Company entered into four year non-compete agreements
with the former stockholders of BR Holding for an aggregate amount of $50,000,
which amount is included in the cash purchase price noted above. The stock
purchase agreement requires the Company to make additional payments to the
seller contingent on future earnings performance of BR Holding. Any additional
payments will be made
20% in cash and 80% in shares of the Company's common stock and will be
accounted for as goodwill and amortized over the remaining recovery period of
the goodwill.
In July, 1996, the Company acquired Unique Dinettes, Inc. ("Unique"), a
manufacturer of ceramic tables and countertops. The total purchase price of
$434,000 was paid in cash, and exceeded the fair value of the acquired assets by
$44,000. The Unique acquisition was accounted for under the purchase method of
accounting.
In January 1996, the Company acquired Trimmasters, Inc.
("Trimmasters"), a manufacturer of trim moulding. The total purchase price of
$356,000 was paid in cash, and exceeded the fair value of the acquired assets by
$297,000. The Trimmasters acquisition was accounted for under the purchase
method of accounting.
EMPLOYEES
As of January 3, 1997, the Company employed 2,516 full-time employees
involved in the following functional areas: manufacturing, 2,049; sales, 91;
field service, 133; administration and clerical, 140; drivers, 78; and
management, 25. The Company's manufacturing operations require primarily
semi-skilled labor and personnel levels fluctuate with seasonal changes in
production volume.
None of the Company's employees are represented by a collective
bargaining agreement. The Company believes that it has a good relationship with
its employees, and it has never experienced any work stoppage.
EXECUTIVE OFFICERS
Information concerning the Executive Officers of the Company is as
follows. Executive Officers are elected annually by and serve at the pleasure of
the Board of Directors.
Wendell L. Batchelor (age 54) is the founder of the Company and has
been the Company's President, Chief Executive Officer and a Director since the
Company's incorporation in 1982. From 1971 to 1982, Mr. Batchelor was General
Manager of Shiloh Homes, a division of Winston Industries. Mr. Batchelor was
Sales Manager of Marietta Homes, a division of Winston Industries, from 1968 to
1971. From 1966 to 1968, Mr. Batchelor was a Sales Representative for Madrid
Homes. Mr. Batchelor has served in the past as Chairman of the Alabama
Manufacturer's Housing Institute.
Johnny R. Long (age 50) has been a Vice President of the Company
primarily responsible for purchasing and a Director since the Company's
incorporation in 1982. From 1976 to 1982, Mr. Long served as Purchasing Agent
for Shiloh Homes, a division of Winston Industries. Mr. Long was Purchasing
Agent for Bendix Homes from 1974 to 1976, for Commodore Homes from 1972 to 1974,
and for Chevelle Homes from 1966 to 1972.
Keith W. Brown (age 40) has served as the Company's Chief Financial
Officer since the Company's incorporation in 1982 and as a Director since 1989.
Mr. Brown served as the Company's Secretary from 1982 to January 1993 and
resumed that office in September 1993. He was elected Treasurer in January 1993.
From 1980 to 1982, Mr. Brown served as Controller for Shiloh Homes, a division
of Winston Industries.
Keith O. Holdbrooks (age 36) was elected as the Company's Chief
Operating Officer in August 1996 by the Company's board of directors. From 1991
to 1996, Mr. Holdbrooks served as General Manager for Southern Homes, a division
of the Company, and from 1989 to 1991 served as Sales Manager for Southern
Homes, and from 1985 to 1989 served as salesman for Southern Lifestyle, a
division of the Company.
ITEM 2. PROPERTIES
The Company's manufactured home segment currently operates eleven home
manufacturing facilities (eight in Alabama, and one in each of Texas, North
Carolina and Pennsylvania) and four component supply facilities (all in
Alabama). The facilities used by the Company's manufactured home segment are as
follows:
<TABLE>
<CAPTION>
Building Leased or
Unit Location Square Feet Owned
- ---- -------- ----------- -----
<S> <C> <C> <C>
Manufacturing
Southern Energy
Plant #1 Addison, AL 72,000 Owned
Plant #2 Addison, AL 55,000 Owned
Southern Life/style
Plant #1 Addison, AL 62,500 Owned
Plant #2 Addison, AL 54,000 Leased
Southern Homes
Plant #1 Double Springs, AL 60,000 Owned
Plant #2 Double Springs, AL 52,000 Owned
Plant #3 Lynn, AL 90,700 Owned
Plant #4 Lynn, AL 96,000 Owned
Southern Energy Homes
of Texas Fort Worth, TX 98,300 Owned
Southern Energy Homes
of North Carolina Albemarle, NC 77,000 Owned
Southern Energy Homes
of Pennsylvania Hegins, PA 85,000 Leased
Component Supply
Classic Panel Hartselle, AL 24,000 Owned
Wind-Mar Supply Addison, AL 22,000 Owned
Trimmasters Haleyville, AL 50,000 Leased
Unique Dinettes Haleyville, AL 50,000 Leased
</TABLE>
The Company currently operates eight retail sales centers, seven of
which are in Alabama and one in Mississippi. Each of the lots are currently
leased and such lease terms range from one to five years.
The corporate headquarters is located at the Southern Energy facility
and occupies approximately 3,000 square feet of office space. The Company plans
to construct a new facility for its corporate headquarters by the end of 1997.
Each of the Company's manufacturing facilities, other than the
Company's facility in Pennsylvania and its new facility in Lynn, Alabama, is
operating near full capacity. During the fiscal year ended January 3, 1997, the
Company's Pennsylvania facility was operating at approximately 25% of its daily
capacity. The newly constructed facility in Lynn, Alabama has been operating at
approximately 20% of its daily capacity since its start-up in February 1997. MH
Transport owns and occupies an approximate 1,800 square foot office building in
Double Springs, Alabama.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations"
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit filed on March 27, 1996 in
Fulton County Superior Court, Georgia by EurAm International, Inc., a sales
agent for the Company. On April 29, 1996 the Company removed the case to the
United States District Court for the Northern District of Georgia in Atlanta. In
this lawsuit, the plaintiff alleges that the Company has breached an agreement
relating to the sale of the Company's modular homes in Germany, including
alleged misrepresentations and faulty performance, resulting in damages alleged
to amount to $25 million. The Company believes the claim is without merit and
intends to vigourously defend the claim, but the litigation is currently in
discovery and there can be no assurances as to its likely outcome.
In addition, the Company has been informed by Gesellschoft fur Bauen
Und Wohnen Hannover MbH ("GBH"), a German housing authority, that it has
replaced the Company with a local company to complete a contract that GBH had
entered into with the Company for the purchase and erection of modular housing
in Hannover, Germany. In connection with the contract, the Company posted a
$660,000 letter of credit in favor of GBH. GBH has made a claim against the
Company for damages of approximately $800,000 arising from the shift in
suppliers and has attempted to draw upon the letter of credit posted by the
Company. The Company has obtained a temporary restraining order preventing GBH
from drawing upon the letter of credit and the Company is actively negotiating
with GBH to resolve the dispute. In light of the fact that the negotiations with
GBH are ongoing, there can be no assurances as to the likely resolution of the
GBH claim.
The Company is a party to various other legal proceedings incidental to
its business. The majority of these legal proceedings relate to employment
matters or product warranty liability claims for which management believes
adequate reserves are maintained. In the opinion of management, after
consultation with legal counsel, the ultimate liability, if any, with respect to
these proceedings will not materially affect the financial position or results
of operations of the Company; however, the ultimate resolution of these matters,
which could occur within one year, could result in losses in excess of the
amounts reserved.
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Stockholders of the
Company during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
RECENT SALES OF UNREGISTERED SECURITIES
On November 21, 1996, the registrant issued 332,814 shares of common
stock, $.0001 par value (the "Shares"), to the stockholders of BR Holding Corp.
("BR Holding") in connection with the registrant's acquisition of BR Holding.
The Shares were issued as consideration for the merger of BR Holding with a
wholly-owned subsidiary of the registrant. As a result of the merger, the
registrant acquired all the issued and outstanding capital stock of BR Holding.
The aggregate merger consideration given by the registrant was $5.6 million, of
which $1.1 million was paid in cash and $4.5 million was paid with the Shares.
The Shares were issued in a transaction exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The
Shares were issued to a limited number of individuals who were sophisticated (or
whose representative was sophisticated) about business and financial matters.
The registrant made available to the purchasers information about the business
and finances of the registrant, including reports filed by the registrant
pursuant to the Securities Exchange Act of 1934. The registrant also permitted
the purchasers to ask questions of and receive answers from its officers and
directors concerning the registrant's business and finances. The purchasers made
certain representations to the registrant as to, among other things, investment
intent and experience and sophistication as to business and financial matters.
RECORD HOLDERS
As of March 1, 1997, there were 74 record holders. This number does not
include those stockholders holding stock in "nominee" or "street" name.
STOCK PRICE PERFORMANCE
The Company's Common Stock has been publicly traded on the Nasdaq Stock
Market since March 12, 1993. The original price per share was $6.93.
1996 1995
Price Range Price Range
High Low High Low
First Quarter 11.75 9.00 7.07 5.60
Second Quarter 15.25 9.67 7.47 5.87
Third Quarter 16.25 10.00 11.33 8.17
Fourth Quarter 18.13 11.38 12.50 8.67
DIVIDENDS
It is the Company's current policy to retain future earnings to finance
the continuing development of its business. The company has not paid any
dividends since the initial public offering of its stock.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Selected Financial Data
Southern Energy Homes, Inc. and subsidiaries
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Nine Months Ended
January 3, December 29, December 30, December 31, December 30,
1997 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Data
- --------------
Net revenues $306,844 $241,268 $188,750 $143,618 $83,400
Gross profit 43,647 31,125 24,763 19,518 12,213
Selling, general
and administrative 17,634 13,272 10,633 7,795 4,744
Provision for credit
losses 1,177 - - -
-
Amortization 517 422 322 531 1,307
Non-recurring
charges(1) - - - 1,907 -
Operating income 24,319 17,431 13,808 9,285 6,162
Interest expense 131 146 237 654 1,512
Interest income 593 811 392 184 -
Provision for income
taxes 9,535 6,854 5,139 3,454 1,735
Net income 15,246 11,242 8,824 5,244 2,915
Net income per share $1.01 $0.79 $0.62 $0.40 $0.27
Weighted average
shares outstanding 15,122,578 14,300,466 14,161,135 13,094,010 10,749,999
January 3, December 29, December 30, December 31, December 31,
Balance Sheet Data 1997 1995 1994 1993 1992
- ------------------
Total assets $112,658 $75,899 $54,347 $43,340 $26,735
Long-term debt - 6 596 1,502 12,575
Stockholders' equity $ 77,377 $57,242 $38,559 $29,722 $ 613
</TABLE>
(1) Upon completion of the Company's initial public offering, the Company
terminated all non-compete agreements and wrote off $1.9 million in
non-recurring charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended January 3, 1997 as Compared with Year Ended December 29, 1995
Total net revenues (gross sales less volume discounts, returns, and
allowances) and finance revenue for the year ended January 3, 1997 were $306.8
million, which represented an increase of 27.2% over the prior fiscal year.
During the fourth quarter of 1996 the Company entered into the retail sector of
the industry through the acquisition of BR Holding Corp. and a group of retail
companies doing business as Blue Ribbon Homes.
Net revenues of the manufactured home segment, which includes the
Company's retail operations, were $304.8 million for the year ended January 3,
1997 as compared with $241.2 million for the prior year period. Retail home
sales accounted for $4.0 million of the manufactured home segment revenues for
the year ended January 3, 1997. The average wholesale price per home in 1996 was
$28,000, as compared with $27,000 in 1995, an increase of 3.7%. Total homes sold
in the year ended January 3, 1997 was 10,940, up 20.5% over the number of homes
sold in the prior year period. The increase in homes sold was attributable
primarily to increased capacity from a manufactured housing facility in Alabama
which was added in the fourth quarter of 1995 and increased production from the
Texas plant.
Revenues from the Company's retail financing segment were $2.0 million
for the year ended January 3, 1997, as compared with $30,000 for the prior year
period. This increase was attributable to the increased lending activity by the
Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco"). Wenco has been
originating and servicing consumer loans primarily for homes manufactured by the
Company. In February 1997, the Company formed a joint venture with 21st Century
Mortgage Corporation ("21st Century"). The joint venture, Wenco 21, will
continue to offer, through 21st Century, consumer financing for homes
manufactured by the Company as well as for other homes sold through its retail
centers and independent dealers. In light of the shift in consumer finance
activities to Wenco 21, Wenco has suspended its loan origination activities and
has engaged 21st Century to service its existing loan portfolio.
Gross profit consists of net revenues less the cost of sales, which
includes labor, materials, and overhead. Gross profit for the year ended January
3, 1997 was $43.6 million, or 14.2% of net revenues, as compared with $31.1
million, or 12.9% of net revenues, in the prior year period. This increase in
the gross profit percentage was attributable primarily to lower material prices
which were partially offset by increased warranty costs. The increase in
warranty expense was attributable primarily to an increase in the Company's
customer service staff and the expansion of the Company's service fleet.
Selling expenses include primarily sales commissions, advertising
expenses, salaries for support personnel, and freight costs. Selling expenses
were $7.0 million, or 2.3% of net revenues, during the year ended January 3,
1997, as compared with $5.7 million, or 2.4% of net revenues, during the prior
year period. The decrease in selling expense as a percentage of net revenues was
attributable primarily to savings in shipping costs realized from an increase in
shipments through MH Transport, the Company's trucking subsidiary, which reduced
the Company's reliance upon independent trucking companies.
General and administrative expenses include administrative salaries,
executive and management bonuses, insurance costs, and professional fees.
General and administrative expenses were $10.6 million, or 3.5% of net revenues,
for the year ended January 3, 1997, as compared with $7.6 million, or 3.1% of
net revenues, for the same period of 1995. The increase in general and
administrative expenses as a percentage of net revenues was attributable
primarily to salary increases and the addition of new employees who were hired
in order to resolve staffing shortages which have occurred as the Company
continues to expand.
The Company provides for estimated credit losses based on industry
experience, historical loss experience, current repossession trends and costs,
and management's assessment of the current credit quality of the loan portfolio.
The provision for credit
losses for the year ended January 3, 1997 was $1.2 million as compared with $0
for the year ended December 29, 1995. The increase in the provision for loan
losses was due to the increase in installment contracts receivable from $655,000
in 1995 to $27.6 million in 1996.
Interest income for the year ended January 3, 1997 was $593,000 as
compared with $811,000 for the year ended December 29, 1995. The decrease in
interest income reflects lower average investment balances during the year ended
January 3, 1997.
Income taxes are provided for based on the tax effect of revenue and
expense transactions included in the determination of pre-tax book income.
Income tax expense for the year ended January 3, 1997 was $9.5 million, or an
effective tax rate of 38.5%, compared with $6.9 million, or an effective tax
rate 37.9%, for the year ended December 29, 1995. The increase in effective tax
rate is attributable in part to the Company's movement into a higher federal
income tax bracket and also reflects a proportional shift in the Company's
income from Alabama to other states which have higher income tax rates than
Alabama.
Year Ended December 29, 1995 as Compared with Year Ended December 30, 1994
Net revenues for the year ended December 29, 1995 were $241.3 million,
which represented an increase of 27.8% over the same period of 1994. The average
price per home in 1995 was $27,000 as compared with $25,000 in 1994, an increase
of 8.0%. The total number of homes sold in the year ended December 29, 1995 was
9,079, up 20.0% over the number of homes sold in the prior year period. The
increase in the number of homes sold was attributable primarily to increased
capacity from a manufactured housing facility in North Carolina acquired during
the third quarter of 1994 and increased production from the Texas and Alabama
plants added during 1993 that were still in a start-up phase of operation during
the first six months of 1994.
Gross profit for the year ended December 29, 1995 was $31.1 million, or
12.9% of net revenues, as compared with $24.8 million, or 13.1% of net revenues,
in the prior year period. This decrease in the gross profit percentage was
attributable primarily to increased warranty and labor costs which were
partially offset by lower material prices. The increase in warranty expense as a
percentage of net revenues was attributable primarily to an increase in the
Company's customer service staff, the development of a regional customer service
center in Addison, Alabama, and the expansion of the Company's service fleet.
Selling expenses were $5.7 million, or 2.4% of net revenues,during the
year ended December 29, 1995, as compared with $4.8 million, or 2.6% of net
revenues, during the prior year period. The decrease in selling expenses as a
percentage of net revenues was attributable primarily to savings in shipping
costs realized from shipments through MH Transport, the Company's trucking
subsidiary, which reduced the Company's reliance upon independent trucking
companies.
General and administrative expenses were $7.6 million, or 3.1% of net
revenues, for the year ended December 29, 1995, as compared with $5.8 million,
or 3.1% of net revenues, for the same period of 1994. The increase in general
and administrative expenses was attributable primarily to additional employees
who were hired in order to resolve staffing shortages which had occurred as the
Company continued to expand.
Interest income for the year ended December 29, 1995 was $811,000 as
compared with $392,000 for the year ended December 30, 1994. The increase in
interest income reflected higher investment yield and higher average investment
balances.
Income tax expense for the year ended December 29, 1995 was $6.9
million, or an effective tax rate of 37.9%, compared with $5.1 million, or an
effective tax rate of 36.8%, for the year ended December 30, 1994. The increase
in effective tax rate was attributable in part to the Company's movement into a
higher federal income tax bracket and also reflected a proportional shift in the
Company's income from Alabama to other states which have higher income tax rates
than Alabama.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization, the Company has financed its operations
primarily with cash generated from a combination of operations, stock offerings,
and borrowings.
Cash Flows
During the year ended January 3, 1997, the Company's cash used by
operations was approximately $9.2 million. Cash used by operations includes
originations of installment contracts of $27.5 million, increased inventory and
prepayments of $7.3 million, and decreased accounts payable of $1.2 million.
These amounts were partially offset by net income of $15.2 million, decreased
accounts receivable of $3.9 million, and increased accrued liabilities of $4.5
million. In addition to cash provided by operating activities, other significant
cash flows included capital expenditures of $5.5 million, borrowings of $3.1
million, maturities of investments of $2.1 million, and purchase of subsidiaries
for $1.2 million.
During the year ended December 29, 1995, the Company's cash provided by
operations was approximately $8.4 million. Cash provided by operations includes
net income of $11.2 million and increased accounts payable and accrued
liabilities of approximately $2.7 million. These amounts were partially offset
by an increase in accounts receivable of approximately $5.3 million and an
increase in inventories of approximately $1.3 million. Each of these increases
was primarily related to sales growth. In addition to cash provided by operating
activities, other significant cash flows included net proceeds from the issuance
of common stock of $7.2 million, capital expenditures of $5.2 million,
maturities of investments of $4.9 million, and repayments of long-term debt of
$1.5 million.
Subsequent to January 3, 1997, the Company formed a joint venture,
Wenco 21, with 21st Century, which through 21st Century will originate and
service retail installment contracts. The Company has made an initial capital
contribution of $500,000 to Wenco 21, representing a 50 percent ownership
interest of the joint venture. Under its joint venture agreement with 21st
Century, the Company may be called upon to make additional capital contributions
or loans in order to meet Wenco 21's capital requirements. The Company believes
that cash on hand,cash generated by its operations, and funds available under
its existing line of credit will be adequate to fund any such commitments.
At January 3, 1997, the Company's net working capital was $17.7
million, including $5.3 million in cash and cash equivalents, as compared with
$34.4 million at December 29, 1995, including $16.8 million in cash and cash
equivalents and $2.1 million in investments. The decrease in net working capital
was a result of a decrease in cash and cash equivalents of $11.5 million and
increased notes payable and accrued liabilities of $16.6 million, which was
partially offset by increased inventories of $15.8 million. The increase in
inventory and notes payable was primarily attributable to the homes held at the
recently acquired retail locations and the related floor-plan financing. The
Company also has a $10.0 million unsecured line of credit which is renewable
annually and bears interest at the London Interbank Offered Rate ("LIBOR") plus
1.5%. The Company's ability to draw upon this line of credit is dependent upon
meeting certain financial ratios and covenants. The Company has no outstanding
borrowings under this line.
Substantially all of the Company's dealers finance their purchases
through "floor-plan" arrangements under which 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. In connection with a floor-plan
agreement, the financial institution which provides the dealer financing
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 homes at the Company's original invoice
price plus certain administrative and shipping expenses less any principal
payments made by the dealer. At January 3, 1997, the Company's contingent
repurchase liability under floorplan financing arrangements was approximately
$91.2 million. While homes that have been repurchased by the Company under
floor-plan financing arrangements are usually sold to other dealers and losses
experienced to date under these arrangements have been insignificant, no
assurance can be given that the Company will be able to sell to other dealers
homes which it may be obligated to repurchase in the future under such floorplan
financing arrangements or that the Company will not suffer losses with respect
to, and as a consequence of, those arrangements.
During 1997, the Company plans to build a new corporate office facility
in Addison, Alabama at a cost of approximately $1.5 million and plans to acquire
or open more retail sales centers. The Company believes that cash on hand, cash
generated by operations, and funds available under its existing line of credit
will be adequate to fund its expansion plans.
Expansion
The Company has continued to demonstrate its ability to increase sales,
expand production capacity, and vertically integrate its operations through the
acquisition of additional manufacturing facilities and businesses.
In August 1995, the Company purchased a 90,700-square-foot
manufacturing facility in Lynn, Alabama for $150,000 and expended approximately
$800,000 for capital improvements to prepare the facility for full production.
Production commenced at this facility in October 1995.
In November 1995, the Company acquired substantially all of the assets
and assumed certain of the liabilities of a manufactured housing company located
in Hegins, Pennsylvania for approximately $942,000.
In January 1996, the Company acquired substantially all of the assets
and assumed all of the liabilities of a moulding company located in Haleyville,
Alabama for approximately $175,000.
In April 1996, the Company purchased an additional 96,000square-foot
manufacturing facility in Lynn, Alabama for approximately $425,000 and expended
approximately $2.0 million for capital improvements to prepare the facility for
full production. Production commenced at this facility in February 1997.
In July 1996, the Company acquired substantially all of the assets and
assumed all of the liabilities of a table and countertop company located in
Haleyville, Alabama for approximately $145,000.
In October 1996, the Company formed a joint venture with Belmont Homes
and Cavalier Homes to produce and supply cabinet doors to each of the
participant's manufacturing operations. The joint venture was capitalized by the
Company with $770,000.
In November 1996, the Company acquired a group of retail sales centers
in Alabama and Mississippi. The purchase price consisted of approximately $1.1
million in cash and $4.5 million of common stock issued. The Company is
obligated to make additional payments to the seller if the acquired business
meets certain earnings targets.
Inflation
The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant impact on its sales or
profitability. The Company has in the past been able to pass on most of the
increases in its costs by increasing selling prices, although there can be no
assurance that the Company will be able to do so in the future.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 3, December 29,
1997 1995
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,299,000 $16,750,000
Investments - 2,076,000
Accounts receivable, less allowance for doubtful accounts of $362,000 and
$163,000, respectively 17,558,000 21,070,000
Installment contracts receivable 421,000 18,000
Inventories 27,019,000 11,226,000
Deferred tax benefits 1,829,000 1,269,000
Prepayments and other 890,000 623,000
---------------- ---------------
53,016,000 53,032,000
---------------- ---------------
Property, plant, and equipment:
Property, plant, and equipment, at cost 23,527,000 17,521,000
Less - accumulated depreciation (5,169,000) (3,690,000)
================ ===============
18,358,000 13,831,000
================ ===============
Intangibles and other non-current assets:
Installment contracts receivable, less allowance for credit losses of
$1,142,000 at January 3, 1997 26,064,000 637,000
Goodwill 13,093,000 7,509,000
Non-compete agreements 667,000 328,000
Organization and pre-operating costs 649,000 523,000
Other assets 811,000 39,000
---------------- ---------------
41,284,000 9,036,000
---------------- ---------------
$112,658,000 $75,899,000
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $12,025,000 $-
Current maturities of long-term debt - 86,000
Accounts payable 4,303,000 4,947,000
Volume incentive payable 8,541,000 5,761,000
Accrued payroll-related expenses 2,743,000 2,447,000
Accrued workers' compensation 2,426,000 1,262,000
Accrued warranty 1,944,000 2,088,000
Accrued legal and accounting 1,259,000 729,000
Accrued other 2,040,000 1,331,000
---------------- ---------------
35,281,000 18,651,000
---------------- ---------------
Long-term debt - 6,000
---------------- ---------------
Commitments and Contingencies
---------------- ---------------
Stockholder's equity:
Preferred stock, $.0001 par value, 1,000,000 shares authorized, none
outstanding - -
Common stock, $.0001 par value, 20,000,000 shares authorized, 15,437,801
shares outstanding at January 3, 1997; 15,053,388 shares outstanding at
December 29, 1995 2,000 1,000
Capital in excess of par 35,999,000 31,111,000
Retained earnings 41,376,000 26,130,000
---------------- ---------------
77,377,000 57,242,000
---------------- ---------------
$112,658,000 $75,899,000
================ ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
January 3, December 29, December 30,
1997 1995 1994
(53 Weeks) (52 Weeks) (52 Weeks)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net revenues $306,844,000 $241,268,000 $188,750,000
Cost of sales 263,197,000 210,143,000 163,987,000
----------------- ----------------- -----------------
Gross profit 43,647,000 31,125,000 24,763,000
----------------- ----------------- -----------------
Operating expenses:
Selling 7,015,000 5,712,000 4,846,000
General and administrative 10,619,000 7,560,000 5,787,000
Provision for credit losses 1,177,000
- -
Amortization of intangibles 517,000 422,000 322,000
----------------- ----------------- -----------------
19,328,000 13,694,000 10,955,000
Operating income 24,319,000 17,431,000 13,808,000
----------------- ----------------- -----------------
Interest expense 131,000 146,000 237,000
Interest income 593,000 811,000 392,000
----------------- ----------------- -----------------
Income before provision for income taxes 24,781,000 18,096,000 13,963,000
Provision for income taxes 9,535,000 6,854,000 5,139,000
Net income $15,246,000 $11,242,000 $8,824,000
================= ================= =================
Net income per share $1.01 $ 0.79 $
0.62
================= ================= =================
Weighted average number of common and common equivalent shares 15,122,578 14,300,466 14,161,135
================= ================= =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Capital in Retained
Shares Amount Excess of Par Earnings Total
----------------- -------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 14,159,436 $1,000 $23,657,000 $6,064,000 $29,722,000
Exercise of stock option 1,875 - 13,000 - 13,000
Net income - - - 8,824,000 8,824,000
----------------- -------------- --------------- --------------- --------------------
Balance, December 30, 1994 14,161,311 1,000 23,670,000 14,888,000 38,559,000
Net proceeds from issuance of
common stock 862,500 - 7,236,000 - 7,236,000
Exercise of stock options 29,577 - 205,000 - 205,000
Net income - - - 11,242,000 11,242,000
----------------- -------------- --------------- --------------- --------------------
Balance, December 29, 1995 15,053,388 1,000 31,111,000 26,130,000 57,242,000
Exercise of stock options 51,599 - 357,000 - 357,000
Issuance of common stock in
connection with acquisition 332,814 1,000 4,531,000 - 4,532,000
Net income - - - 15,246,000 15,246,000
----------------- -------------- --------------- --------------- --------------------
Balance, January 3, 1997 15,437,801 $2,000 $35,999,000 $41,376,000 $77,377,000
----------------- -------------- --------------- --------------- --------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
January 3, December 29, December 30,
1997 1995 1994
(53 Weeks) (52 Weeks) (52 Weeks)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating activities:
Net income $15,246,000 $11,242,000 $8,824,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property,plant, and equipment 1,168,000 1,273,000 959,000
Provision (credit) for deferred income taxes (560,000) (158,000) 3,000
Gain on sale of property, plant, and equipment 37,000 13,000 2,000
Amortization of intangibles 517,000 422,000 322,000
Provision for doubtful accounts 210,000 22,000 31,000
Accretion of discount on debt - 78,000 103,000
Provision for credit losses 1,177,000 - -
Change in assets and liabilities, net of effect from
purchase of subsidiaries:
Accounts receivable 3,936,000 (5,277,000) (2,083,000)
Inventories (7,039,000) (1,260,000) (1,215,000)
Prepayments and other (255,000) (723,000) (127,000)
Accounts payable (1,174,000) 328,000 (529,000)
Accrued liabilities 4,525,000 2,418,000 1,834,000
Origination of installment contracts (27,497,000) - -
Principal collected on originated installment contracts 490,000 - -
----------------- ----------------- -----------------
Net cash provided by (used in) operating activities (9,219,000) 8,378,000 8,124,000
----------------- ----------------- -----------------
Investing activities:
Purchase of subsidiaries,net of cash acquired (1,217,000) (942,000) (5,745,000)
Capital expenditures (5,501,000) (5,161,000) (3,066,000)
Maturities of investments 2,076,000 4,924,000 -
Purchase of investments - - (7,000,000)
Investment in joint venture (770,000) - -
Increase in organization and pre-operating costs (305,000) (482,000) -
Proceeds from sale of property, plant, and equipment 68,000 42,000 8,000
----------------- ----------------- -----------------
Net cash used in investing activities (5,649,000) (1,619,000) (15,803,000)
----------------- ----------------- -----------------
Financing activities:
Net borrowings on notes payable 3,060,000 - -
Repayments of long-term debt - (1,454,000) (1,151,000)
Net proceeds from issuance of common stock - 7,236,000 -
Proceeds from exercise of stock options 357,000 205,000 13,000
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities 3,417,000 5,987,000 (1,138,000)
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (11,451,000) 12,746,000 (8,817,000)
Cash and cash equivalents at beginning of period 16,750,000 4,004,000 12,821,000
----------------- ----------------- -----------------
Cash and cash equivalents at end of period $5,299,000 $16,750,000 $4,004,000
----------------- ----------------- -----------------
Supplemental cash flow information:
Cash paid for interest $131,000 $ 78,000 $141,000
================= ================= =================
Cash paid for income taxes $9,369,000 $7,568,000 $5,400,000
================= ================= =================
</TABLE>
Supplemental disclosures of non-cash investing activities:
During fiscal 1996 the Company purchased BR Holding Corp. for $5.6 million, of
which $4.5 million was paid through the issuance of 332,814 shares of the
Company's common stock. See Note 3. The accompanying notes to consolidated
financial statements are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
1. The Company and Basis of Presentation:
Southern Energy Homes, Inc. (the "Company") is primarily involved in
two industry segments: the production and retail sale of manufactured homes and
the retail financing of manufactured homes. The Company produces manufactured
homes, primarily on a custom basis, for wholesale to dealers located primarily
in the southeastern and south central regions of the United States. The Company
recently acquired its retail home sales operation through a merger with BR
Holding Corp. ("BR Holding"; see Note 3). BR Holding sells homes on a retail
basis, primarily in the southeastern United States. Wenco Finance, Inc., the
Company's wholly owned finance subsidiary ("Wenco"), has been originating and
servicing consumer loans primarily for homes manufactured by the Company. In
February 1997, the Company formed a joint venture with 21st Century Mortgage
Corporation ("21st Century"). The joint venture, Wenco 21, will continue to
offer, through 21st Century, consumer financing for homes manufactured by the
Company as well as for other homes sold through its retail centers and
independent dealers. In light of the shift in consumer finance activities to
Wenco 21, Wenco has suspended its loan origination activities and has engaged
21st Century to service its existing loan portfolio.
The Company is on a 52/53-week year with the fiscal year ending on the
Friday closest to the last day of December. The 1995 and 1994 fiscal years
included 52 weeks and the 1996 fiscal year included 53 weeks. All references to
years relate to fiscal years rather than calendar years.
The Company's business is seasonal and cyclical with the potential for
significant fluctuations in quarterly earnings being affected by factors
impacting the broader housing market, including the availability and cost of
customer financing and changes in the cost of construction materials.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in the consolidated financial statements. The
Company accounts for its investments of 50% or less in joint ventures on the
equity basis of accounting. Therefore, the Company's share of income/loss is
recorded as an adjustment to the original investment.
In December 1996, the Company purchased a 33% interest in a
manufacturing joint venture with other manufactured home builders for $770,000.
The joint venture will manufacture cabinet doors for sale to participants in the
joint venture as well as thirdparty customers. As no significant activity
occurred from inception of the joint venture through year end, the investment is
carried at the cost of the original contribution by the Company.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and
cash equivalents to include cash on hand and highly liquid debt instruments and
investments purchased with an original maturity of three months or less.
Investments
The Company classified its investments, which primarily represent U.S.
Treasury Notes, as available for sale. Investments classified as available for
sale are carried at fair value with unrealized gains and losses, net of deferred
income taxes, being reported as a separate component of stockholders' equity.
Inventories
Inventories are valued at first-in, first-out ("FIFO") cost, which is
not in excess of market. An analysis of inventories follows:
January 3, December 29,
1997 1995
-------------------------------
Raw materials $11,607,000 $ 9,658,000
Work in progress 1,108,000 1,007,000
Finished goods 14,304,000 561,000
-------------------------------
$27,019,000 $11,226,000
===============================
The increase in finished goods inventory was primarily attributable to
the acquisition in November 1996 of the Company's six retail sales centers and
the inventories held at those locations.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation is
computed on the straight-line, accelerated cost recovery system or modified
accelerated cost recovery system methods over the estimated service lives of
depreciable assets (10-31 years for buildings and improvements, 3-10 years for
machinery and equipment, 5-7 years for office equipment, and 710 years for
leasehold improvements, which is the lesser of the lease term or the asset's
useful life). Cost of property, plant, and equipment is as follows:
January 3, December 29,
1997 1995
-------------------------------
Land $ 493,000 $ 357,000
Buildings and improvements 10,465,000 9,150,000
Machinery and equipment 7,963,000 6,483,000
Office equipment 836,000 567,000
Leasehold improvements 1,140,000 735,000
Construction in progress 2,630,000 229,000
-------------------------------
$23,527,000 $17,521,000
===============================
Maintenance and repairs are charged to expense as incurred;
expenditures for renewals and betterments are capitalized. When assets are
retired or otherwise disposed of, the property, plant, and equipment accounts
are relieved of cost and accumulated depreciation and any resulting gain or loss
is credited or charged to income.
Allowance for Credit Losses
The allowance for credit losses is established to provide for possible
losses related to installment contracts receivable. The allowance for credit
losses is determined based on the Company's historical loss experience after
adjusting for current economic conditions. Management, after assessing the loss
experience and economic conditions, adjusts reserves through periodic
provisions.
Actual credit losses are charged to the allowance when incurred.
An analysis of the allowance for losses on installment contracts
receivable is as follows:
January 3,
1997
-------------
Balance, beginning of year $ 0
Provision for credit losses 1,177,000
Charge-offs (35,000)
------------
Balance, end of year $1,142,000
============
Intangible Assets
The intangible assets recorded by the Company in connection with
various acquisitions are amortized on a straight-line basis. As of January 3,
1997 and December 29, 1995, accumulated amortization of intangibles amounted to
$2,158,000 and $1,641,000, respectively. The applicable intangible amortization
periods are as follows:
Goodwill 30 years
Non-compete agreements 4 to 10 years
Organization and pre-operating costs 5 years
Long-Lived Assets
The Company continually evaluates whether events and circumstances have
occurred that indicate that the remaining balance of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used in the operations of the Company may be impaired and not be recoverable. In
performing this evaluation, the Company uses an estimate of the related cash
flows expected to result from the use of the asset and its eventual disposition.
When this evaluation indicates the asset has been impaired, the Company will
measure such impairment based on the asset's fair value and the amount of such
impairment is charged to earnings.
Volume Incentive Payable
The Company provides rebates to dealers based upon a predetermined
formula applied to the volume of homes sold to the dealer during the year. Such
rebates (reflected as a reduction of gross sales) are recorded at the time sales
to independent dealers are recognized.
Product Warranties
The Company warrants its products against certain manufacturing defects
for a period of up to five years commencing at the time of retail sale. The
estimated cost of such warranties is accrued at the time of sale to the
independent dealer based on historical warranty costs incurred. Periodic
adjustments to the accrual will be made as events occur which indicate changes
are necessary.
Insurance Arrangements
The Company is partially self-insured for workers' compensation and
health insurance claims. The Company purchases insurance coverage for all
workers' compensation claims in excess of $300,000 per occurrence (with an
annual aggregate stop-loss limit of $2,000,000 for all claims), and for all
health-care claims in excess of $55,000 per occurrence (with an annual aggregate
stoploss limit of $2,900,000 for all claims). Amounts are accrued currently for
the estimated costs of claims incurred, including related expenses. Management
considers accrued liabilities for unsettled claims to be adequate; however,
there is no assurance that the amounts accrued will not vary from the ultimate
amounts incurred upon final disposition of all outstanding claims. As a result,
periodic adjustments to the reserves will be made as events occur which indicate
changes are necessary.
Income Taxes
The Company utilizes the asset and liability method of accounting for
deferred income taxes and recognizes deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Fair Value of Financial Instruments
Because of the short-term nature of the Company's financial instruments
and the low interest rate volatility associated with the installment contracts
receivable, the fair value of the Company's financial instruments at January 3,
1997 and December 29, 1995 approximated book value at those dates.
Revenue Recognition - Manufactured Housing
The Company manufactures its homes pursuant to dealer orders, and sales
to independent dealers and related transit costs are recognized upon completion
of the home. Almost all of the Company's sales to its independent dealers are
under floor-plan financing arrangements. Under these floor-plan financing
arrangements, the Company bills the dealers upon completion of manufacture and
at the same time transfers title. Consistent with these arrangements, the
Company typically does not allow independent dealers to cancel a purchase after
manufacture by the Company has commenced. The Company carries insurance which
covers possible damage to a home while on the Company's premises prior to
shipment and during shipment when transported by the Company's trucking
subsidiary. Independent trucking companies transporting the Company's homes
carry insurance to cover damage during shipment. With respect to its retail
operations, the Company records a retail home sale when the customer signs an
installment contract for the purchase of a manufactured home and the Company
receives the appropriate down payment.
Revenue Recognition - Retail Financing
Interest income from installment contract receivables is recognized
using the interest method. Accrual of interest income on installment contract
receivables is suspended when a loan is contractually delinquent for ninety days
or more. Interest accruals resume when the loan becomes contractually current,
and past-due interest income is recognized at that time. Most of the installment
contract receivables are with borrowers in the southern portion of the United
States and are collateralized by manufactured homes.
Net Income per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents (whose
effects are dilutive) outstanding during the respective periods.
3. Business Combinations:
On November 21, 1996, the Company acquired the stock of BR Holding, a
holding company which operated a group of retail companies participating in the
retail sale of manufactured homes and was doing business as Blue Ribbon Homes.
BR Holding also operated an insurance agency which provides homeowner insurance
for manufactured homes. The Company paid $1,075,000 in cash and issued 332,814
shares of the Company's common stock (approximate market value on November 21,
1996 of $4,532,000). The acquisition was accounted for under the purchase method
of accounting; thus the financial statements as of January 3, 1997 and for the
year then ended reflect the operations of BR Holding from the date of
acquisition. The total purchase price exceeded the fair value of net assets
(assets of $9.9 million, less liabilities of $9.8 million) acquired by
$5,480,000, which amount is being amortized over 30 years as goodwill. In
addition, the Company entered into four-year non-compete agreements with the
former stockholders of BR Holding for an aggregate amount of $50,000, which
amount is included in the cash purchase price noted above. The stock purchase
agreement requires the Company to make additional payments to the seller
contingent on future earnings performance of BR Holding. Any additional payments
will be made 20% in cash and 80% in shares of the Company's common stock and
will be accounted for as goodwill and
amortized over the remaining recovery period of the goodwill. The results of
operations with respect to BR Holding were not significant and, accordingly, no
pro forma results have been provided.
In July 1996, the Company also acquired Unique Dinettes, Inc.
("Unique"), a manufacturer of ceramic tables and countertops. The total purchase
price of $434,000 was paid in all cash, and exceeded the fair value of the
acquired assets by $44,000. The Unique acquisition was accounted for under the
purchase method of accounting. The results of operations with respect to Unique
were not significant and pro forma results have not been provided.
In January 1996, the Company also acquired Trimmasters, Inc.
("Trimmasters"), a manufacturer of trim moulding. The total purchase price of
$356,000 was paid in all cash, and exceeded the fair value of the acquired
assets by $297,000. The Trimmasters acquisition was accounted for under the
purchase method of accounting. The results of operations with respect to
Trimmasters were not significant and pro forma results have not been provided.
On November 20, 1995, the Company acquired substantially all of the
assets and assumed certain of the liabilities of Imperial Homes Corporation,
Inc. ("Imperial-PA"). This transaction was accounted for under the purchase
method of accounting. The aggregate purchase price of approximately $2.5 million
was composed of approximately $950,000 in cash and the assumption of $1.5
million in liabilities. The financial statements as of December 29, 1995 and for
the year then ended reflected the operations of Imperial-PA from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired by $459,000, which amount is being amortized over 30 years as goodwill.
In addition, the Company entered into tenyear noncompete agreements with the
former stockholders of Imperial-PA for an aggregate amount of $150,000, which
amount was included in the cash purchase price noted above.
4. Income Taxes:
The provision (benefit) for income taxes for the respective periods was
as follows:
January 3, December 29, December 30,
1997 1995 1994
Federal:
Current $9,294,000 $6,516,000 $4,646,000
Deferred (521,000) (142,000) 3,000
-------------------------------------------
8,773,000 6,374,000 4,649,000
-------------------------------------------
State:
Current 801,000 496,000 490,000
Deferred (39,000) (16,000) -
-------------------------------------------
762,000 480,000 490,000
-------------------------------------------
Total provision $9,535,000 $6,854,000 $5,139,000
===========================================
The provision for income taxes differed from the amounts computed by
applying the federal statutory rate of 35% in 1996 and 1995 and 34% in 1994 due
to the following:
January 3, December 29, December 30,
1997 1995 1994
Tax provision at the federal
statutory rate $8,671,000 $6,334,000 $4,747,000
State income taxes, net of
federal benefit 496,000 367,000 323,000
Goodwill amortization 58,000 57,000 55,000
Other 310,000 96,000 14,000
-----------------------------------------
$9,535,000 $6,854,000 $5,139,000
=========================================
Temporary differences which created deferred tax assets at January 3,
1997 and December 29, 1995 were as follows:
January 3, December 29,
1997 1995
---------------------------------
Warranty accrual $ 721,000 $ 695,000
Workers' compensation accrual 867,000 447,000
Legal and accounting accrual 457,000 258,000
Other (216,000) (131,000)
---------------------------------
$1,829,000 $1,269,000
=================================
5. Notes Payable:
The Company routinely finances its inventory of homes held by its
retail centers through floor-plan notes payable with a financial institution.
The notes normally require periodic payments of principal and interest, and full
payment when the home is sold to a customer. The maximum and average amounts of
borrowings outstanding under the notes payable during the year ended January 3,
1997 were $12,025,000 and $10,137,000, respectively. The weighted average
interest rate on these borrowings during 1996 was 9.13%
The Company has a $10 million unsecured bank line of credit which is
renewable annually and bears interest at the London Interbank Offered Rate
("LIBOR") plus 1.5% (5.44% at January 3, 1997). The Company's ability to draw
upon this line of credit is dependent upon meeting certain financial ratios and
covenants. The Company had no outstanding borrowings on this line at January 3,
1997 and December 29, 1995.
6. Commitments and Contingencies:
Repurchase Agreements
It is customary practice for companies in the manufactured housing
industry to enter into repurchase agreements with financial institutions which
provide financing to dealers. Generally, the agreements provide for the
manufacturer to repurchase manufactured homes from the financing institution in
the event of repossession upon a dealer's default. The Company's contingent
liability under such agreements was approximately $91 million as of January 3,
1997 and $62 million as of December 29, 1995. Losses experienced under these
agreements have not been significant and, in the opinion of management, any
future losses under these agreements will not have a material effect on the
financial condition of the Company.
Interest Reimbursement
The Company has agreements with certain dealers to reimburse them for
their interest costs incurred in connection with floorplan financing. Interest
expense related to these agreements is classified as a selling expense in the
accompanying consolidated statements of operations. For the years ended January
3, 1997, December 29, 1995, and December 30, 1994, interest expense related to
these agreements amounted to $735,000, $634,000, and $566,000, respectively.
Employee Benefit Plans
The Company maintains a stock option plan which authorizes a total of
407,814 shares of Company common stock for issuance to key employees and
advisors. The Company granted options to acquire 93,909, 138,654, and 97,026
shares of common stock in 1996, 1995, and 1994, respectively, at an exercise
price ranging from $6.67 to $6.93. The exercise price of each option
approximated the fair market value of the Company's common stock at the date of
grant.
The Company also maintains a stock option plan which authorizes a total
of 75,000 shares of Company common stock for issuance to the Company's outside
directors. In 1996, the Company granted options to acquire 15,000 shares of
common stock to certain outside directors at an exercise price of $11.625. The
exercise price of the options approximated the fair market value of the
Company's common stock at the date of grant.
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation expense for the
Company's stock option plans for awards in 1996 and in 1995 been determined
under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," based on the fair market value at the grant date,
the Company's net income and income per share would have been reduced to the pro
forma amounts indicated below:
1996 1995
-------------------------------
Net income - as reported $15,246,000 $11,242,000
Net income - pro forma $14,993,000 $11,166,000
Net income per share - as reported $ 1.01 $ 0.79
Net income per share - pro forma $ 0.99 $ 0.78
The following table summarizes the changes in the number of shares
under option pursuant to the plans described above:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
January 3, average December 29, average December 30, average
1997 exercise price 1995 exercise price 1994 exercise price
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 285,032 $6.91 190,391 $6.93 95,240 $6.93
Granted 108,909 7.58 138,654 6.89 97,026 6.93
Exercised (51,599) 6.93 (29,577) 6.93 (1,875) 6.93
Forfeited (2,579) 6.93 (14,436) 6.93 - -
-------------------------------------------------------------------------------------------------------
Outstanding at
end of year 339,763 7.45 285,032 6.91 190,391 6.93
Exercisable at
end of year 194,931 7.28 106,952 6.93 47,620 6.93
-------------------------------------------------------------------------------------------------------
Weighted average
estimated fair
value of options
granted $6.21 $2.82 N/A
-------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0.0%; expected
volatility of 0.42%; risk-free interest rate of 6.09%; expected life of 5 years;
and vesting of 100% over a two-year period. The weighted average contractual
life of the options outstanding at January 3, 1997 is 9 years.
The Company maintains employment agreements with certain employees
which renew automatically for additional one-year periods unless terminated by
either of the parties. The agreements provide for minimum base salaries and
incentive compensation (as defined therein). In addition, the agreements provide
for payment of up to six months' salary and/or bonus under certain circumstances
(for example, termination without cause or upon death).
The Company offers a 401(k) retirement plan to employees having
completed one year of service, whereby eligible employees may contribute up to
20% of their annual compensation subject to limitations by the Internal Revenue
Service. The Company may match up to 100% of the employee contributions as
limited by the Internal Revenue Service. For the years ended January 3, 1997,
December 29, 1995, and December 30, 1994, the Company expensed $66,000, $63,000,
and $60,000, respectively, related to the plan.
Operating Leases
The Company leases certain manufacturing facilities under operating
leases. Rent expense under all leases was $404,000 for the year ended January 3,
1997, $150,000 for the year ended December 29, 1995, and $283,000 for the year
ended December 30, 1994. Future minimum lease payments at January 3, 1997 are
$693,000, $693,000, $677,000, $678,000, and $503,000 for each of the next five
years.
Litigation
The Company is a defendant in a lawsuit filed on March 27, 1996 in
Fulton County Superior Court, Georgia by EurAm International, Inc., a sales
agent for the Company. On April 29, 1996 the Company removed the case to the
United States District Court for the Northern District of Georgia in Atlanta. In
this lawsuit, the plaintiff alleges that the Company has breached an agreement
relating to the sale of the Company's modular homes in Germany, including
alleged misrepresentations and faulty performance, resulting in damages alleged
to amount to $25 million. The Company believes the claim is without merit and
intends to vigorously defend the claim, but the litigation is currently in
discovery and there can be no assurances as to its likely outcome.
In addition, the Company has been informed by Gesellschoft fur Bauen
Und Wohnen Hannover MbH ("GBH"), a German housing authority, that it has
replaced the Company with a local company to complete a contract that GBH had
entered into with the Company for the purchase and erection of modular housing
in Hannover, Germany. In connection with the contract, the Company posted a
$660,000 letter of credit in favor of GBH. In March 1997, GBH made a claim
against the Company for damages of approximately $800,000 arising from the shift
in suppliers and has attempted to draw upon the letter of credit posted by the
Company. The Company has obtained a temporary restraining order preventing GBH
from drawing upon the letter of credit and the Company is
actively negotiating with GBH to resolve the dispute. In light of the fact that
the negotiations with GBH are ongoing, there can be no assurances as to the
likely resolution of the GBH claim.
The Company is a party to various other legal proceedings incidental to
its business. The majority of these legal proceedings relate to employment
matters or product warranty liability claims for which management believes
adequate reserves are maintained. In the opinion of management, after
consultation with legal counsel, the ultimate liability, if any, with respect to
these proceedings will not materially affect the financial position or results
of operations of the Company; however, the ultimate resolution of these matters,
which could occur within one year, could result in losses in excess of the
amounts reserved.
7. Related Party Transactions:
The Company had sales to a development company affiliated with certain
stockholders who were also executive officers of the Company during the years
ended January 3, 1997, December 29, 1995, and December 30, 1994, which amounted
to $691,000, $1.4 million, and $1.5 million, respectively. Transactions with the
development company have been at prices and on terms no less favorable to the
Company than transactions with independent third parties.
8. Stock Split:
On June 4, 1996, the Board of Directors of the Company voted to approve
a 3-for-2 stock split of the Company's common stock, payable in the form of a
50% stock dividend on July 3, 1996 to stockholders of record on June 19, 1996.
The stock split resulted in one additional share of common stock being issued
for each two shares of common stock issued and outstanding on the record date.
The par value of the common stock remained unchanged at $.0001 per share. Cash
was paid in lieu of issuing fractional shares. All share and per share amounts
have been retroactively restated to reflect this split.
9. Summary of Unaudited Quarterly Financial Data:
Unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
- ---------------------------------------------------------------------------------------------------------
March 29, June 28, September 29, January 3, January 3,
1996 1996 1996 1997 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $71,111,000 $83,921,000 $77,414,000 $74,398,000 $306,844,000
Gross profit 9,348,000 12,603,000 10,924,000 10,772,000 43,647,000
Provision for
income taxes 2,067,000 2,761,000 2,509,000 2,198,000 9,535,000
Net income 3,297,000 4,418,000 4,017,000 3,514,000 15,246,000
Net income
per share $ 0.22 $ 0.29 $ 0.27 $0.23 $ 1.01
Weighted average
number of common
and common
equivalent shares 15,053,413 15,071,239 15,101,706 15,253,940 15,122,578
Quarter Ended Year Ended
- ---------------------------------------------------------------------------------------------------------
March 31, June 30, September 29, December 29, December 29,
1995 1995 1995 1995 1995
- ---------------------------------------------------------------------------------------------------------
Net revenues $55,569,000 $61,215,000 $58,460,000 $66,024,000 $241,268,000
Gross profit 6,665,000 8,502,000 7,910,000 8,048,000 31,125,000
Provision for
income taxes 1,260,000 1,934,000 1,755,000 1,905,000 6,854,000
Net income 2,233,000 3,249,000 3,064,000 2,696,000 11,242,000
Net income
per share $ 0.16 $ 0.23 $ 0.22 $ 0.18 $ 0.79
Weighted average
number of common
and common
equivalent shares 14,161,336 14,161,336 14,161,336 14,717,860 14,300,466
</TABLE>
10. Subsequent Events:
Wenco has been originating and servicing consumer loans primarily for
homes manufactured by the Company. In February 1997, the Company formed a joint
venture, Wenco 21, with 21st Century. The Company has made an initial capital
contribution of $500,000 to Wenco 21, representing a 50% ownership interest of
the joint venture. Wenco 21 will continue to offer, through 21st Century,
consumer financing for homes manufactured by the Company as well as for other
homes sold through its retail centers and independent dealers. In light of the
shift in consumer finance activities to Wenco 21, Wenco has suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio.
Subsequent to January 3, 1997, the Company contracted to build a new
corporate office facility adjacent to its Southern Energy plant in Addison,
Alabama at a cost of approximately $1.5 million.
11. Business Segment Information:
The Company's operations by industry segment are presented in the table
below.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Manufactured housing $304,865,000 $241,238,000 $188,750,000
Retail financing 1,979,000 30,000 -
--------------------------------------------------------
$306,844,000 $241,268,000 $188,750,000
--------------------------------------------------------
Operating income:
Manufactured housing $24,909,000 $17,468,000 $13,808,000
Retail financing (590,000) (37,000) -
--------------------------------------------------------
$24,319,000 $17,431,000 $13,808,000
--------------------------------------------------------
Identifiable assets:
Manufactured housing $78,155,000 $54,526,000 $41,709,000
Retail financing 27,635,000 746,000 81,000
--------------------------------------------------------
$105,790,000 $55,272,000 $41,790,000
--------------------------------------------------------
</TABLE>
Report of Independent Public Accountants
Southern Energy Homes, Inc. and subsidiaries
To Southern Energy Homes, Inc.:
We have audited the accompanying consolidated balance sheets of
Southern Energy Homes, Inc. (a Delaware Corporation) and Subsidiaries as of
January 3, 1997 and December 29, 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years ended
January 3, 1997, December 29, 1995, and December 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southern Energy Homes, Inc. and Subsidiaries as of January 3, 1997 and December
29, 1995 and the results of their operations and their cash flows for each of
the years ended January 3, 1997, December 29, 1995, and December 30, 1994, in
conformity with generally accepted accounting principles.
Birmingham, Alabama
February 20, 1997 (except with respect to the matter discussed
in Note 6, as to which the date is March 27,
1997)
Statement of Management's Responsibility
Southern Energy Homes, Inc. and subsidiaries
The financial statements and related information herein were prepared
by the Company and were based on generally accepted accounting principles,
appropriate in the circumstances to reflect in all material respects the
consolidated financial position of the Company as of January 3, 1997 and
December 29, 1995, and the consolidated results of operations and cash flows for
the years ended January 3, 1997, December 29, 1995, and December 30, 1994. The
financial information presented elsewhere in this report has been prepared in a
manner consistent with the financial statement disclosures.
Management is responsible for the reliability and integrity of these
statements. In meeting this responsibility, management maintains an accounting
system and related internal controls to provide reasonable assurance that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. The Company's systems and controls are
also designed to provide reasonable assurance that assets are safeguarded and
that transactions are executed in accordance with management's authorizations
and recorded properly.
The Board of Directors has appointed an Audit Committee that meets
periodically with management and the independent public accountants.
Arthur Andersen LLP has audited the consolidated financial statements
in accordance with generally accepted auditing standards and their report
appears herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the Company's directors and concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934 required by
this Item is incorporated by reference to the text appearing under Part I, Item
1 -- Business under the caption "Executive Officers" and by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held June 4, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Balance Sheets as of January 3, 1997 and December 29, 1995
Consolidated Statements of Operations for each of the fiscal years
ended January 3, 1997, December 29, 1995 and December 30, 1994.
Consolidated Statements of Stockholders' Equity for each of the fiscal
years ended January 3, 1997, December 29, 1995 and December 30, 1994.
Consolidated Statements of Cash Flows for each of the fiscal years
ended January 3, 1997, December 29, 1995 and December 30, 1994.
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Statement of Management's Responsibility
(2) Financial Statement Schedules
No financial statement schedules are included since the information is
not applicable, not required, or is included in the financial
statements or notes thereto.
(3) Listing of Exhibits
The following exhibits are hereby incorporated by reference:
2.1 Asset Purchase Agreement, dated as of July 31, 1994, by and
among the Registrant, Imperial Manufactured Homes of N.C.,
Inc. ("Imperial") and the stockholders of Imperial. (Filed as
Exhibit 2.1 to the Current Report on Form 8-K dated August
14, 1994, File No. 0-21204.)
2.2 Real Estate Purchase Agreement, dated as of July 31, 1994,
between Imperial N.C. Associates and Lawyer's Title of North
Carolina, Inc. and Assignment of such Agreement to Southern
Energy Homes of North Carolina, Inc. (Filed as Exhibit 2.2 to
the Current Report on Form 8-K dated August 14, 1994, File
No. 0-21204.)
3.1 Certificate of Incorporation of the Company. (Filed as
Exhibit 3.1 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
3.2 By-Laws of the Company. (Filed as Exhibit 3.2 to the
Registration Statement on Form S-1, Registration No.
33-57420.)
4.1 Specimen of Stock Certificate. (Filed as Exhibit 4.1 to the
Registration Statement on Form S-1, Registration No.
33-57420.)
4.7 Southern Development Council, Inc. Promissory Note. (Filed as
Exhibit 4.10 to the Registration Statement on form S-1,
Registration No. 33-57420.)
4.8 Stockholders' Agreement, dated as of June 8, 1989. (Filed as
Exhibit 4.12 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
4.9 Form of First Amendment to Stockholders' Agreement, dated as
of January 13, 1993. (Filed as Exhibit 4.13 to the
Registration Statement on Form S-1, Registration No.
33-57420.)
*10.1 Employment Agreement with Wendell L. Batchelor, dated as of
June 8, 1989. (Filed as Exhibit 10.1 to the Registration
Statement on Form S-1, Registration No. 33-57420.)
*10.2 Employment Agreement with Keith Brown, dated June 8, 1989.
(Filed as Exhibit 10.2 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
*10.3 Employment Agreement with Johnny R. Long, dated June 8, 1989.
(Filed as Exhibit 10.3 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
*10.4 Southern Energy Homes, Inc. 1993 Stock Option Plan. (Filed as
Exhibit 10.4 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.5 Form of Southern Energy Homes, Inc. 401(k) Retirement Plan.
(Filed as Exhibit 10.5 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
*10.6 Management Agreement, effective as of June 8, 1989, by and
between Lee Capital Holdings and Southern Energy Homes, Inc.
(Filed as Exhibit 10.14 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
10.7 Southern Development Council, Inc. Loan Commitment Agreement.
(Filed as Exhibit 10.15 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
10.8 Lease Agreement by and between Hillard Brannon and Southern
Energy Homes, Inc., dated July 30, 1992. (Filed as Exhibit
10.16 to the Registration Statement on Form S-1, Registration
No. 33-57420.)
10.9 Lease Agreement by and between Hillard Brannon and Southern
Energy Homes, Inc., dated November 16, 1989. (Filed as
Exhibit 10.17 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
10.10 Lease Agreement by and between Robert Lowell Burdick, Nina
Burdick Vono, Carolyn Burdick Hunsaker, Jean Burdick Hall,
Mildred Burdick Marmont and Lane Burdick Adams, as Landlord,
and Southern Energy Homes, Inc. dated as of November 20,
1985, as amended. (Filed as Exhibit 10.23 to the Registration
Statement on Form S-1, Registration No. 33-57420.)
10.11 Agreement and Plan of Merger of Southern Energy Homes, Inc.,
a Delaware corporation, and Southern Energy Homes, Inc., an
Alabama corporation, dated as of January 15, 1993. (Filed as
Exhibit 10.25 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
10.12 Certificate of Merger Merging Southern Energy Homes, Inc., an
Alabama corporation, with and into Southern Energy Homes,
Inc., a Delaware corporation, dated as of January 19, 1993.
(Filed as Exhibit 10.26 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
10.13 Assignment of Lease and Rights dated June 29, 1993 between
B.B.H.L.P. Partnership and Southern energy Homes, Inc. (Filed
as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarter ended July 2, 1993, File No. 0-21204.)
10.14 Lease Agreement dated as of June 1, 1984 between The
Industrial Development Board of the Town of Addison, Alabama
and B.B.H.L.P. Partnership. (Filed as Exhibit 10.2 to the
Quarterly Report on form 10-Q for the quarter ended July 2,
1993, File No. 0-21204.)
10.15 Assignment of Lease and Rights dated June 19, 1993 between
B.B.H.L.P. and Southern Energy Homes, Inc. (Filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q for the quarter
ended July 2, 1993, File No. 2-21204.)
10.16 Lease Agreement dated as of December 1, 1986 between The
Industrial Development Board of the Town of Addison, Alabama
and B.B.H.L.P. Partnership. (Filed as Exhibit 10.4 to the
Quarterly Report on Form 10-Q for the quarter ended July 2,
1993, File No. 0-21204.)
10.17 Letter Agreement dated May 18, 1993 and Master Note dated May
19, 1993 between the Company and AmSouth Bank, N.A. (Filed as
Exhibit 10.27 to the Registration Statement on Form S-1,
Registration No. 33-68954.)
10.18 Deed of Real Estate dated August 5, 1993 relating to the
Company's Plant No. 2 in Addison, Alabama. (Filed as Exhibit
10.27 to the Registration Statement on Form S-1, Registration
No. 33-68954.)
10.19 Deed of Real Estate dated July 30, 1993 relating to the
Company's manufacturing facility in Fort Worth, Texas. (Filed
as Exhibit 10.27 to the Registration Statement on Form S-1,
Registration No. 33-68954.)
*10.20 Southern Energy Homes, Inc. 1996 Option Plan for Non-employee
Directors. (Filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 29, 1995.)
10.21 Agreement and Plan of Reorganization of Southern Energy
Homes, Inc., a Delaware Corporation, and SE Management, Inc.,
an Alabama Corporation, dated November 21, 1996.
*10.22 Amended and Restated Employment Agreement with Wendell L.
Batchelor, dated as of June 14, 1996.
*10.23 Amended and Restated Employment Agreement with Keith W.
Brown, dated as of June 14, 1996.
21 List of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
-------------
* Management contract or compensatory plan or arrangement.
(b) The Company did not file a current report on form 8-K during the 4th Quarter
of fiscal 1996.
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.
SOUTHERN ENERGY HOMES, INC.
Registrant
By:/S/ Wendell L. Batchelor
----------------------------------
Wendell L. Batchelor
Chaiman, President
and Chief Executive Officer
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ Wendell L. Batchelor Chairman, President, March 27, 1997
- ------------------------------------
Wendell L. Batchelor Chief Executive Officer
and Director
/S/ Johnny R. Long Executive Vice President March 27, 1997
- ------------------------------------
Johnny R. Long and Director
/S/ Keith W. Brown Executive Vice President, March 27, 1997
- ------------------------------------ Chief Financial Officer,
Keith W. Brown Treasurer, Secretary
and Director
/S/ Keith O. Holdbrooks Executive Vice President March 27, 1997
- ------------------------------------ and Chief Operating Officer
Keith O. Holdbrooks
/S/ Paul J. Evanson Director March 27, 1997
- ------------------------------------
Paul J. Evanson
/S/ Joseph J. Incandela Director March 27, 1997
- ------------------------------------
Joseph J. Incandela
/S/ Jonathan O. Lee Director March 27, 1997
- ------------------------------------
Jonathan O. Lee
</TABLE>
Exhibit 10.21
===================================================================
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
Southern Energy Homes, Inc., and
Retail Acquisition Corp.,
and
BR Holding Corp.,
BR Chilton Co., Inc.,
BR Mississippi, Inc.,
BR Marshall Co., Inc.,
BR Tuscaloosa Co., Inc.,
SC Tuscaloosa Co., Inc.,
TH Center, Inc.,
SE Management, Inc.,
BR Agency, Inc. and
those Shareholders of BR Holding Corp. named herein
DATED: As of November 21, 1996
===================================================================
AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
ARTICLE 1. DESCRIPTION OF TRANSACTIONS
1.1 Agreement to Consummate Transactions
1.2 Time and Place of Closing
1.3 Consummation of Transactions
1.4 Merger Consideration
1.5 Effect of Transactions
1.6 Knowledge
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS
2.1 Organization and Qualification of Seller
2.2 Subsidiaries
2.3 Capitalization of Seller
2.4 Authorization of Transaction
2.5 Compliance of Transaction With Laws
2.6 Financial Statements
2.7 Title to Properties; Liens; Condition of Properties
2.8 Payment of Taxes
2.9 Absence of Undisclosed Liabilities
2.10 Collectibility of Accounts Receivable
2.11 Inventories 2.12 Absence of Certain Change
2.13 Ordinary Course 2.14 Other Stockholder Businesses
2.15 Trade Names, Trademarks and Copyrights
2.16 Trade Secrets and Customer Lists
2.17 Contracts and Commitments
2.18 Employees and Employee Benefits
2.19 Reserved
2.20 Permits; Burdensome Agreements
2.21 Borrowings and Guarantees
2.22 Banking Relations and Powers of Attorney
2.23 Insurance
2.24 Warranty or Other Claims
2.25 Compliance with Laws
2.26 Litigation
2.27 Minute Books
2.28 Finder's Fee
2.29 Transactions with Interested Persons
2.30 Absence of Sensitive Payments
2.31 Disclosure of Material Information
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization of Buyer
3.2 Capitalization of Buyer
3.3 Authorization of Transaction
3.4 Buyer's Common Stock
ARTICLE 4. COVENANTS OF SELLER AND STOCKHOLDERS
4.1 Conduct of Business
4.2 Authorization from Others
4.3 Breach of Representations and Warranties
4.4 Consummation of Agreement
4.5 Buyer's Due Diligence
4.6 Financial Statements of Seller and Subsidiaries
4.7 Expansion of Subsidiaries' Business.
ARTICLE 5. COVENANTS OF BUYER
5.1 Authorization from Others
5.2 Consummation of Agreement
5.3 Dealer Volume Incentive Program
5.4 Conduct of Business of Subsidiaries
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYE
6.1 Shareholder Authorization
6.2 Dissenting Stockholders
6.3 Representations; Warranties; Covenants
6.4 Resignations of Officers and Directors
6.5 Opinion of Seller's Counsel
6.6 Securities Law Compliance
6.7 Employment/Non-Competition Contracts
6.8 RESERVED
6.9 Approval of Buyer's Board of Directors
6.10 Approval of Buyer's Advisors
6.11 Absence of Certain Litigation
6.12 Buyer's Due Diligence
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLER AND STOCKHOLDERS
7.1 Shareholder Authorization
7.2 Representations; Warranties; Covenants
7.3 Opinion of Buyer's Counsel
7.4 Real Estate Development Agreement
7.5 Securities Law Compliance
ARTICLE 8. TERMINATION OF AGREEMENT
8.1 Termination
8.2 Effect of Termination
8.3 Right to Proceed
ARTICLE 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING
9.1 Survival of Warranties
ARTICLE 10. INDEMNIFICATION
10.1 Indemnification by Stockholders
10.2 Indemnification by Buyer
10.3 Notice; Defense of Claims
10.4 Payment of Claims; Arbitration
ARTICLE 11. COMPLIANCE WITH SECURITIES LAWS
11.1 Delivery of Information
11.2 Acknowledgment of Receipt of Information
11.3 RESERVED
11.4 Compliance with Securities Laws
11.5 Report
11.6 Statements, True and Correct
11.7 Covenants of Buyer
ARTICLE 12. REGISTRATION
12.1 Required Registration
12.2 Participation of Selling Stockholders
12.3 Conditions of Buyer's Obligations to Register Shares
12.4 Expenses
12.5 Financial Information
12.6 Exclusive Obligation to Register
12.7 State Securities Laws
12.8 Indemnification
ARTICLE 13. MISCELLANEOUS
13.1 Fees and Expenses
13.2 Notices
13.3 Entire Agreement
13.4 Assignability
13.5 Publicity and Disclosures
13.6 Confidentiality
13.7 Governing Law; Severability
13.8 Counterparts
13.9 Effect of Table of Contents and Headings
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT entered into as of the 21st day of November, 1996, by and
between Southern Energy Homes, Inc., a Delaware corporation, with its principal
place of business located at Highway 41 North, P. O. Box 390, Addison, Alabama
35540 ("Buyer"), SEH Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Buyer ("Acquisition Corp."), BR Holding Corp., a Delaware
corporation, with its principal place of business located in Northport, Alabama
(the "Seller"), each of the following wholly-owned subsidiaries of Seller: BR
Chilton Co., Inc., BR Mississippi, Inc., BR Marshall Co., Inc., BR Tuscaloosa
Co., Inc., SC Tuscaloosa Co., Inc., TH Center, Inc., SE Management, Inc., and BR
Agency, Inc. (collectively, the "Subsidiaries"), and W. Thomas Deas, James M.
Moore, III, W. David Deas, J. M. Deas, Jr., James Miller Deas, Thomas Deas, Jr.
and Gregory C. Vogel (collectively, the "Stockholders").
WHEREAS, the parties hereto wish to adopt a plan and agreement of
reorganization in order to effectuate the merger of Acquisition Corp. with and
into Seller (the "Merger") in accordance with the laws of the States of Delaware
and Alabama and in accordance with a Certificate of Merger (the "Certificate of
Merger") substantially in the form attached hereto as Exhibit A, so that upon
consummation of the Merger, Seller will be a wholly-owned subsidiary of Buyer,
and Acquisition Corp. will cease to exist; and
WHEREAS, it is the intent of the parties that the transaction qualify
as a tax-free reorganization within the meaning of Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended, and corresponding provisions of state
law.
NOW, THEREFORE, in order to consummate said plan of reorganization and
in consideration of the mutual agreements herein, the parties hereto agree as
follows:
ARTICLE 1. DESCRIPTION OF TRANSACTIONS.
1.1 Agreement to Consummate Transactions. Subject to the terms and conditions of
this Agreement and of the Merger Agreement, Buyer, Seller and the Stockholders
agree to consummate or cause to be consummated the transactions contemplated by
Sections 1.2 through 1.5 of this Agreement and agree that the consummation of
each of those transactions is conditional upon the consummation of each of the
other transactions.
1.2 Time and Place of Closing. The closing of the transactions provided for in
this Agreement (herein called the "Closing") shall be held at the offices of
Hubbard, Smith, McIlwain, Brakefield & Shattuck, P.C., 808 Lurleen Wallace
Blvd., North, Tuscaloosa, Alabama, on November 21, 1996 or at such other place,
date or time as may be fixed by mutual agreement of the parties.
1.3 Consummation of Transactions. If at the Closing no condition exists which
would permit any of the parties to terminate this Agreement or if a condition
then exists and the party entitled to terminate because of that condition waives
its right to do so in writing in accordance with the notice provisions of this
Agreement, then the transactions shall be consummated on such date, and then and
thereupon Acquisition Corp. and Seller will execute and immediately file the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the provisions of the business corporation law of the States of
Delaware. Upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, the merger of Acquisition Corp. into Seller will
become effective (the time of such filing being hereinafter referred to as the
"Effective Time of Merger").
1.4 Merger Consideration. Subject to the terms and conditions hereof, the Buyer
shall pay to the Seller the following consideration in connection with the
Merger (all as more particularly described below): (i) Five Million Five Hundred
Seventy Six Thousand Six Hundred Forty Dollars ($5,576,640) primarily in the
form of Buyer Common Stock (the "Fixed Amount"); (ii) an additional amount equal
to the amount, if any, of Seller EBIT (as defined below in paragraph (d) of this
Section 1.4) for the period beginning as of September 20, 1996 and ending as of
December 31, 1996 as reviewed or audited by Buyer's independent public
accountants (the "Stub Period Earnings Amount"); and (iii) additional contingent
amounts, payable subject to and contingent upon Seller and the Subsidiaries
achieving certain Seller EBIT targets for the twelve (12) month periods ending
December 31, 1997 and December 31, 1998, determined in accordance with the
Contingent Payment Schedule attached hereto as Exhibit C and incorporated herein
by this reference (the "Contingent Amounts");
The Stockholders hereby authorize and appoint W. Thomas Deas and
Gregory C. Vogel as joint escrow agent (the "Escrow Agent") to receive and
accept delivery of the cash and the Fixed Payment Shares included in the Fixed
Amount and do hereby direct the Buyer to deliver such cash and Fixed Payment
Shares to the Escrow Agent at the Closing. In the event that W. Thomas Deas or
Gregory C. Vogel dies, resigns is otherwise unable to serve in the capacity of
Escrow Agent, a successor shall be appointed by a majority of the Stockholders
and notice of such appointment shall be given to the Buyer. As of the Effective
Time of Merger, by virtue of the Merger and without any further action:
(a) Fixed Amount. Each share of Seller common stock, $.01 par value,
issued and outstanding immediately prior to the Effective Time of Merger (herein
"BR Common Stock") shall entitle the holder thereof to receive in payment
therefor at the Closing:
(1) that amount of cash via federal funds wire transfer as is
determined by dividing the sum of (a) One Million Seventy -Five Thousand Three
Hundred Twenty-eight Dollars ($1,075,328) by (b) the number of shares of BR
Common Stock outstanding at the Effective Time of Merger; and
(2) that number of duly authorized, validly issued, fully paid
and non-assessable shares of the Voting Common Stock of Southern Energy Homes,
Inc., a Delaware Corporation ("Buyer Common Stock") as is determined by dividing
the sum of (a) Four Million Five Hundred One Thousand Three Hundred Twelve
Dollars ($4,501,312) by (b) the fair market value of Buyer Common Stock (the
"Fixed Payment Shares"), as determined by taking the average of the closing
prices for Buyer Common Stock as reported by the Nasdaq National Market for the
ten (10) trading days immediately preceding the third trading day before the
date of the Closing, and then dividing the result by the number of shares of BR
Common Stock outstanding at the Effective Time of Merger; provided, however,
that such number of shares of Buyer Common Stock shall be rounded to the nearest
whole number.
(b) Stub Period Earnings Amount. In addition to the consideration set
forth above, each share of BR Common Stock shall entitle the holder thereof to
receive on March 31, 1997 as additional payment therefor:
(1) that amount of cash via federal funds wire transfer as is
determined by dividing (a) twenty (20%) percent of the Stub Period Earnings
Amount by (b) the number of shares of BR Common Stock outstanding at the
Effective Time of Merger; and
(2) that number of duly authorized, validly issued, fully paid
and non-assessable shares of Buyer Common Stock as is determined by dividing
eighty (80%) percent of the Stub Period Earnings Amount by the fair market value
of Buyer Common Stock (the "Stub Period Payment Shares"), as determined by
taking the average of the closing prices for said Common Stock as reported by
the Nasdaq National Market for the twenty (20) trading days immediately
preceding the third trading day before March 31, 1997, the date on which payment
of the Stub Period Earnings Amount is due and payable.
(c) Contingent Amount. In addition to the consideration set forth
above, each share of BR Common Stock shall entitle the holder thereof to receive
on March 31, 1998, with respect to the Contingent Amount, if any, for the twelve
(12) month period ending December 31, 1997, and on March 31, 1999, with respect
to the Contingent Amount, if any, for the twelve month period ending December
31, 1998, as additional payment therefor:
(1) that amount of cash via federal funds wire transfer as is
determined by dividing (a) twenty (20%) percent of the Contingent Amount for
1997 or 1998, as the case may be, by (b) the number of shares of BR Common Stock
outstanding at the Effective Time of Merger; and
(2) that number of duly authorized, validly issued, fully paid
and non-assessable shares of Buyer Common Stock as is determined by dividing
eighty (80%) percent of the Contingent Amount for 1997 or 1998, as the case may
be, by the fair market value of Buyer Common Stock (the "Contingent Payment
Shares"), as determined by taking the average of the closing prices for said
Buyer Common Stock as reported by the Nasdaq National Market for the twenty (20)
days immediately preceding the third trading day before the date on which the
Contingent Amount is due and payable hereunder (the "Contingent Payment Trading
Period").
(d) For purposes of this Section 1.4 and Exhibit B, "Seller EBIT" means
Consolidated Earnings (defined in subparagraph (e) of this Section 1.4) before
interest (other than (i) floor plan interest incurred with respect to inventory
and (ii) interest incurred with respect to money borrowed or capital
expenditures made in connection with the expansion of the Seller's or the
Subsidiaries' operations, which interest in neither case shall be greater than
the cost of funds to Buyer), taxes, management fees and any administrative fees
paid to Buyer.
(e) For purposes of this Agreement, the "Fixed Payment Shares," the
"Stub Period Payment Shares" and the "Contingent Payment Shares" are sometimes
collectively hereinafter referred to as the "Purchase Shares." For purposes of
this Agreement, "Consolidated Earnings" means the consolidated earnings of the
Seller and the Subsidiaries.
(f) Each share of Acquisition Corp. common stock, $.01 par value,
issued and outstanding immediately prior to the Effective Time of Merger, shall
be converted into an issued and outstanding share of BR Common Stock.
(g) In the event that Buyer, prior to the Closing, declares any
dividend payable in shares of Buyer Common Stock to shareholders of record as of
a date prior to the Closing, or splits or combines the outstanding shares of the
Buyer Common Stock, then an appropriate proportional adjustment shall be made in
the number of Purchase Shares specified above.
1.5 Effect of Transactions. As a result of the foregoing transactions, after the
Merger Buyer will own all of the issued and outstanding stock of Seller and the
persons who were holders of BR Common Stock immediately
prior to the Merger will have received Buyer Common Stock and the cash
consideration, as set forth in Section 1.4 above.
1.6 Knowledge. "Knowledge" where used in this Agreement shall refer to the
knowledge, information and belief of the entity referred to and their respective
officers and directors.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS.
Each of the Seller, the Subsidiaries and the Stockholders hereby represents and
warrants to Buyer as follows:
2.1 Organization and Qualification of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it. The copies of Seller's
Certificate of Incorporation or equivalent document as amended to date (the
"Charter"), certified by the Secretary of State of the State of Delaware, and of
Seller's by-laws as amended to date, certified by its Secretary (or the
equivalent), and heretofore delivered to Buyer's counsel, are complete and
correct. Seller is duly qualified to do business as a foreign corporation in
those jurisdictions in which such qualification is required, and Seller is not
required to be licensed or qualified to conduct its business or own its property
in any other jurisdiction.
2.2 Subsidiaries. The issued and outstanding capital stock of the Subsidiaries
is as follows, and all of such capital stock is owned of record and beneficially
by the Seller:
Name of State of Issued and Amount Owned by
Corporation Incorporation Outstanding Stock Seller
BR Chilton Co., Inc. Alabama 1,000 100%
BR Mississippi, Inc. Alabama 1,000 100%
BR Marshall Co., Inc. Alabama 1,000 100%
BR Tuscaloosa Co., Inc. Alabama 1,000 100%
BR Agency, Inc. Alabama 1,000 100%
SC Tuscaloosa Co., Inc. Alabama 1,000 100%
TH Center, Inc. Alabama 1,000 100%
SE Management, Inc. Alabama 1,000 100%
Neither Seller nor any Subsidiary owns any securities issued by any other
business organization or governmental authority, except U.S. Government
securities. The Subsidiaries are corporations duly organized, validly existing
and in good standing under the laws of the State of Alabama with full power and
authority to own or lease their respective properties and to conduct their
respective businesses in the manner and in the places where such properties are
owned or leased or such businesses are conducted. The copies of the
Certificate of Incorporation (or equivalent document), as amended to date (the
"Charter"), and by-laws of each Subsidiary, as amended to date, certified by the
Secretary of State of the state of Alabama or its Secretary (or the equivalent)
and heretofore delivered to Buyer's counsel, are complete and correct. Each of
the Subsidiaries is duly qualified to do business as a foreign corporation in
every jurisdiction in which such qualification is required. Neither Seller nor
any of the Subsidiaries is a partner or participant in any joint venture or
partnership of any kind. Seller has good and marketable title to all of the
issued and outstanding shares of capital stock of each of the Subsidiaries, free
of all claims, liens, encumbrances or restrictions of any kind, and there are no
outstanding options, warrants or agreements of any kind for the issuance or sale
of, or outstanding shares of securities convertible into, any additional shares
of stock of any of the Subsidiaries.
2.3 Capitalization of Seller. The authorized capital stock of Seller consists of
3,000 shares of Common Stock, .01 par value, of which 1,000 shares are validly
issued and outstanding, fully paid and non-assessable. The Stockholders
collectively are the record and beneficial owners of all of the issued and
outstanding capital stock of Seller, free and clear of all claims, liens,
encumbrances or restrictions of any kind. Except as set forth on Schedule 2.3
hereto, there are no (a) outstanding warrants, options or other rights to
purchase or acquire, or preemptive rights with respect to the issuance or sale
of, the capital stock of Seller or any Subsidiary, (b) other securities of
Seller or any Subsidiary directly or indirectly convertible into or exchangeable
for shares of capital stock of Seller or any Subsidiary, or (c) restrictions on
the transfer of the Seller's capital stock.
2.4 Authorization of Transaction. Subject to the affirmative vote of Seller's
stockholders referred to in Section 6.1, all necessary action, corporate or
otherwise, has been taken by Seller to authorize the execution, delivery and
performance of this Agreement and the Merger Agreement and the transactions
contemplated hereby and thereby, and this Agreement and the Merger Agreement are
the valid and binding obligations of Seller enforceable in accordance with their
terms, subject to laws of general application affecting creditors' rights
generally. All necessary action, corporate or otherwise has been taken by each
Subsidiary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and this Agreement is the
valid and binding obligation of each Subsidiary enforceable in accordance with
its terms, subject to laws of general application affecting creditors' rights
generally.
2.5 Compliance of Transaction With Laws. To the best Knowledge of the Seller,
each Subsidiary, and the Stockholders, neither Seller nor any Subsidiary is in
violation of its Charter or by-laws as of the date hereof; and, the execution,
delivery and performance of this Agreement and the Merger Agreement and the
transactions contemplated hereby and thereby (a) do not require any approval or
consent of, or filing with, any governmental agency or authority in the United
States of America or otherwise which has not been obtained and which is not in
full force and effect as of the date hereof, (b) will not conflict with or
constitute a breach or violation of the respective Charters or by-laws of Seller
or any Subsidiary and (c) will not result in a violation of any law or
regulation to which they are subject.
2.6 Financial Statements. Attached as Schedule 2.6 hereto are the following
unaudited financial statements of each Subsidiary from inception, all of which
statements are complete and correct and fairly present the financial position of
each Subsidiary as of October 31, 1996 and the results of their operations on
the applicable basis for the periods covered thereby and have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and prior periods.
The most recent balance sheets of the Subsidiaries included in the
above financial statements are sometimes collectively referred to hereinafter as
the "Base Balance Sheets".
2.7 Title to Properties; Liens; Condition of Properties.
(a) Set forth on Schedule 2.7 hereto is a listing of all the real
property owned by Seller or any Subsidiary at the date hereof, all the leases
whereunder Seller or any Subsidiary leases real or personal property at the date
hereof and a complete description of the machinery and equipment used or owned
by Seller or any Subsidiary. Except as specifically disclosed in Schedule 2.7,
Seller and its Subsidiaries have good and marketable title in fee simple to all
of their real and personal property, including property described in said
Schedule, and all of their leases are valid and subsisting and fully assignable
by Seller or its Subsidiaries (as the case may be) and no default exists under
any thereof. None of such real property or other property or assets is subject
to any mortgage, pledge, lien, conditional sale agreement, security title,
encumbrance or other charge except as specifically disclosed in said Schedule.
(b) Except as otherwise specified in Schedule 2.7 hereto:
(i) the buildings, machinery and equipment of Seller and each
Subsidiary are adequate to conduct the business of the Subsidiaries as presently
conducted, are in reasonably good repair, have been well maintained,
substantially conform in all material respects with all applicable ordinances,
regulations and zoning or other laws and do not, to the best Knowledge of the
Seller, each Subsidiary and the Stockholders , encroach on property of others,
and such machinery and equipment is in good working order; and
(ii) as of the date hereof, neither Seller, any Subsidiary,
nor any Stockholder knows of any pending or overtly threatened change of any
such ordinance, regulation or zoning or other law and there is no pending or
threatened condemnation of any such property.
2.8 Payment of Taxes. Seller and each Subsidiary have filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by them and have paid all taxes owing by them except taxes which
have not yet accrued or otherwise become due for which adequate provision has
been made in the pertinent financial statements referred to in Section 2.6
above. All transfer, excise and other taxes payable to any jurisdiction by
reason of the consummation of the transactions contemplated by this Agreement
shall be paid or provided for by the Stockholders after the Closing out of the
consideration payable by Buyer hereunder. The provisions for taxes reflected in
the above-mentioned financial statements are adequate to cover any and all tax
liabilities of Seller and each Subsidiary in respect of their respective
businesses, properties and operations during the periods covered by said
financial statements and all prior periods. Neither the Internal Revenue Service
nor any other taxing authority is now asserting or, to the best knowledge of
Seller, each Subsidiary and each Stockholder, threatening to assert, against
Seller and any Subsidiary any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith.
2.9 Absence of Undisclosed Liabilities. As of the respective dates of the Base
Balance Sheets, neither Seller nor any Subsidiary had any material liabilities
of any nature, whether accrued, absolute, contingent or otherwise (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due), except (a) liabilities stated or adequately reserved against on the
respective Base Balance Sheets, (b) liabilities not in excess of $5,000
individually or $50,000 in the aggregate arising in the ordinary course of
business since the date of the respective Base Balance Sheets and (c)
liabilities disclosed in Schedule 2.9 hereto. There is no fact which materially
adversely affects or, to the best Knowledge of the Seller, any Subsidiary or any
Stockholder, may in the future (so far as can now be reasonably foreseen)
materially adversely affect, the business, properties, operations or condition
of Seller or any
Subsidiary on a consolidated basis which has not been specifically disclosed
herein or in a Schedule furnished herewith.
2.10 Collectibility of Accounts Receivable. All of the accounts receivable of
Seller and its Subsidiaries shown or reflected on their respective Base Balance
Sheets or existing at the time of the Closing, less a reserve for bad debts in
the amount shown on their respective Base Balance Sheets, are or will be at the
Closing valid and enforceable claims, fully collectible and subject to no set
off or counterclaim. Neither Seller nor any Subsidiary has any accounts or loans
receivable from any person, firm or corporation which is affiliated with any of
them or from any director, officer or employee of any of them.
2.11 Inventories. All finished goods contained in the inventories of Seller and
each Subsidiary reflected on their respective Base Balance Sheets or existing at
the Closing are or will be at the Closing of a quality and quantity saleable in
the ordinary course of the business of Seller and each Subsidiary at prevailing
market prices without discounts. All inventory items shown on the respective
Base Balance Sheets or existing at the Closing are or will be priced at lower of
cost (FIFO basis) or market and reflect write-downs to realizable values in the
case of items which have become obsolete or unsaleable (except at prices less
than cost) through regular distribution channels in the ordinary course of the
business of Seller and its Subsidiaries. Subject to write-downs complying with
the preceding sentence, the values of the inventories stated in the respective
Base Balance Sheets reflect the normal inventory valuation policies of Seller
and its Subsidiaries and were determined in accordance with generally accepted
accounting principles, practices and methods consistently applied. Purchase
commitments for inventory are not in excess of normal requirements and none are
at prices materially in excess of current market prices. Sales commitments for
inventory are all at prices in excess of prices used in valuing inventory after
allowing for selling expenses and a normal profit margin. Since the date of the
respective Base Balance Sheets, no inventory items have been sold or disposed of
except through sales in the ordinary course of business at prices no less than
prevailing market prices, and in no event less than cost.
2.12 Absence of Certain Changes. Except as disclosed in Schedule 2.12 hereto,
since the date of the respective Base Balance Sheets there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of Seller or any Subsidiary which change in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has been materially adverse with respect to Seller or any
Subsidiary ;
(b) any contingent liability incurred by Seller or any Subsidiary as
guarantor or otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the properties
of Seller or any Subsidiary which remains in existence on the date hereof or at
the time of Closing;
(d) any obligation or liability incurred by Seller or any Subsidiary
other than obligations and liabilities incurred in the ordinary course of
business;
(e) any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Seller or any Subsidiary other than in the ordinary
course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Seller and its Subsidiaries on a consolidated basis;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of Seller
or any Subsidiary other than a wholly-owned Subsidiary, or any direct or
indirect redemption, purchase or other acquisition by Seller of its own capital
stock or by any such Subsidiary of its own capital stock;
(h) any labor trouble or claim of unfair labor practices involving
Seller or any Subsidiary; any change in the compensation payable or to become
payable by Seller or any Subsidiary to any of their officers, employees or
agents other than normal merit increases in accordance with their usual
practices, or any bonus payment or arrangement made to or with any of such
officers, employees or agents;
(i) any change with respect to the management or supervisory personnel
of Seller or any Subsidiary;
(j) any payment or discharge of a material lien or liability of Seller
or any Subsidiary except those (i) on any Base Balance Sheet, or (ii) incurred
in the ordinary course of business thereafter; or
(k) any obligation or liability incurred by Seller or any Subsidiary to
any of their officers, directors or shareholders or any loans or advances made
by Seller or any Subsidiary to any of their officers, directors or shareholders,
except transactions between Seller and a Subsidiary and normal compensation and
expense allowances payable to officers.
2.13 Ordinary Course. Between the date of the respective Base Balance Sheets and
the date of this Agreement, Seller and its Subsidiaries have conducted their
respective businesses only in the ordinary course. From the date hereof until
the Closing, Seller and its Subsidiaries have continued to conduct their
respective businesses only in the ordinary course.
2.14 Other Stockholder Businesses. (a) Other than as disclosed in Schedule
2.14(a) to this Agreement, none of the Stockholders has, directly or indirectly,
owned, operated, managed, been employed by or consulted with, directly or
indirectly, any retail seller of manufactured homes, other than the Seller and
the Subsidiaries. Each corporation, partnership or other business entity listed
on Schedule 2.14(a) is referred to individually as an "Unaffiliated Stockholder
Company" and collectively as the "Unaffiliated Stockholder Companies". Each
Unaffiliated Stockholder Company listed on Schedule 2.14(a) as being now or
previously having been in the business of retail sales of new manufactured
housing or insurance products in the manufactured housing industry is hereafter
referred to as an "Unaffiliated Stockholder Retailer."
(b) Attached as Schedule 2.14(b) hereto are the following unaudited
financial statements of each Unaffiliated Stockholder Retailer, all of which
statements are complete and correct and fairly present the financial position of
each Unaffiliated Stockholder Retailer, on the date of such statements and the
results of its operations on the applicable basis for the periods covered
thereby and have been prepared in accordance with the generally accepted
accounting principles consistently applied throughout the periods involved and
prior periods:
The most recent balance sheets of the Unaffiliated Stockholder
Retailers included in the above financial statements are sometimes collectively
referred to hereinafter as the "Unaffiliated Stockholder Retailers Base Balance
Sheets".
(c) Each Unaffiliated Stockholder Company has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it and has paid all taxes owing by it except taxes which have not
yet accrued or otherwise become due for which adequate provision has been made
in the pertinent financial statements referred to in this Section 2.14.
As of the respective dates of the Unaffiliated Stockholder Retailers
Base Balance Sheets, no Unaffiliated Stockholder Retailer had any material
liability of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (a) liabilities stated or adequately reserved against on the
respective Unaffiliated Stockholder Retailers Base Balance Sheets, (b)
liabilities not in excess of $5,000 individually or $50,000 in the aggregate
arising in the ordinary course of business since the date of the respective
Unaffiliated StockholderRetailers Base Balance Sheets and (c) liabilities
disclosed in Schedule 2.14(c);
(d) Except as disclosed in Schedule 2.14(d) hereto, since the date of
the respective Unaffiliated Stockholder Retailer Base Balance Sheet there has
not been: any change in the liabilities of an Unaffiliated Stockholder Retailer
which has been materially adverse with respect to such Unaffiliated Retailer
Company; any contingent liability incurred by any Unaffiliated Retailer Company
as guarantor or otherwise with respect to the obligations of others; any
encumbrance or lien placed on any properties of an Unaffiliated Retailer
Company; or any obligation or liability incurred by an Unaffiliated Retailer
Company other than obligations and liabilities incurred in the ordinary course
of business;
(e) Except for matters described in Schedule 2.14(e) hereto, there is
no litigation pending or, to the Knowledge of Seller, any Subsidiary or
Stockholder, threatened against any Unaffiliated Stockholder Company, and there
are no outstanding court orders, court decrees or court stipulations to which
any Unaffiliated Stockholder Company is a party which would likely result in any
materially adverse change in the financial condition of any Unaffiliated
Stockholder Company. Neither Seller, any Subsidiary, nor any Stockholder has
reason to believe that any such action, suit, proceeding or investigation may be
brought against any Unaffiliated Stockholder Company.
(f) None of this Agreement, any exhibit thereto or certificate issued
pursuant hereto contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements herein or therein not
misleading, relating to the business or affairs of any Unaffiliated Stockholder
Company. None of Seller, any Subsidiary or any Stockholder has made an untrue
statement of a material fact or omitted to state a material fact to Buyer or its
agents, necessary to make the statements made not misleading, relating to the
business or affairs of any Unaffiliated Stockholder Company.
2.15 Trade Names, Trademarks and Copyrights.
(a) All trade names, registered trademarks, service marks, trademark
applications, service mark applications and copyrights owned by or licensed to
Seller or any Subsidiary are listed on Schedule 2.15 hereto and have been duly
registered in, filed in or issued by the United States Register of Copyrights or
the corresponding offices of other countries identified on said Schedule, and
have been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in the United States and the
State of Alabama. Except as set forth in said Schedule, use of said trade names,
trademarks, service
marks or copyrights does not require the consent of any other person and the
same are freely transferable (except as otherwise provided by law) and are owned
exclusively by Seller or a Subsidiary free and clear of any attachments, liens,
encumbrances or, to the best Knowledge of Seller and each Subsidiary, free of
any adverse claims.
(b) Except as set forth in Schedule 2.15, to the best Knowledge of
Seller, each Subsidiary and each Stockholder:
(i) no other person has an interest in or right or license to
use, or the right to license others to use, any of said trade names, registered
trademarks, service marks or copyrights;
(ii) there are no claims or demands of any other person
pertaining thereto and no proceedings have been instituted, or are pending or
threatened, which challenge the rights of Seller or any Subsidiary in respect
thereof;
(iii) none of the trade names, trademarks, service marks or
copyrights listed in said Schedule is being infringed by others, or is subject
to any outstanding order, decree, judgment or stipulation; and
(iv) no proceeding charging Seller or any Subsidiary with
infringement of any adversely held trade name, trademark, service mark or
copyright has been filed or is threatened to be filed.
(c) To the best Knowledge of Seller, each Subsidiary and the
Stockholders, there are no trademarks, service marks, trademark applications,
service mark applications or copyrights, other than those referred to in
paragraph (a) required for the conduct of the business of Seller or any
Subsidiary in the manner now conducted. To the best knowledge of Seller, each
Subsidiary and each Stockholder, neither Seller nor any Subsidiary has infringed
or is infringing upon any trade name, trademark, service mark or copyright of
any other person. No director, officer or employee of Seller or any Subsidiary
owns, directly or indirectly, in whole or in part, any trademark, trade name,
service mark, copyright, registration or application therefor or interest
therein which Seller or any Subsidiary has used, is presently using, or the use
of which is necessary for their respective businesses as now conducted.
2.16 Trade Secrets and Customer Lists. Seller and each Subsidiary has the right
to use, free and clear of any claims or rights of others, except claims or
rights described in Schedule 2.16 hereto, all trade secrets, customer lists, and
other information required for or used in the sale or marketing of all products
formerly or presently sold by Seller or any Subsidiary. Neither Seller nor any
Subsidiary is using or in any way making use of any confidential information or
trade secrets of any third party, including without limitation a former employer
of any present or past employee of Seller or any Subsidiary.
2.17 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 2.17 hereto, neither Seller nor any Subsidiary is a party
to or subject to:
(i) any contract or agreement for the purchase of any material
or equipment, except purchase orders in the ordinary course for less than $2,500
each, such orders not exceeding in the aggregate $10,000;
(ii) any other contracts or agreements creating any
obligations of Seller or any Subsidiary after the date of the respective Base
Balance Sheets of $5,000 or more with respect to any such contract or agreement,
other than sales and purchase commitments in the ordinary course of business;
(iii) any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier;
(iv) any contract or agreement which by its terms or by law
does not terminate or is not terminable without penalty by Seller or such
Subsidiary or any successor or assign of them within one year after the date
hereof;
(v) any contract or agreement for the sale or lease of its
products not made in the ordinary course of business;
(vi) any contract with any sales agent or distributor of
products of Seller or any Subsidiary;
(vii) any contract containing covenants limiting the freedom
of Seller or any Subsidiary to compete in any line of business or with any
person or entity;
(viii) any contract or agreement for the purchase of any fixed
asset for a price in excess of $5,000, whether or not such purchase is in the
ordinary course of business;
(ix) any license agreement (as licensor or licensee); or
(x) any contract or agreement with any officer, director or
stockholder of Seller or any Subsidiary or with any persons or organizations
controlled by or affiliated with any of them.
(b) Neither Seller nor any Subsidiary is in material default under any
such contracts, commitments, plans, agreements or licenses described in said
Schedule or has Knowledge of any termination, cancellation, limitation or
modification or change in any business relationship with any material supplier
or customer. For purposes hereof, a supplier or customer is material if it
accounts for more than two (2%) percent of the orders or sales, as the case may
be, of Seller and its Subsidiaries on a consolidated basis.
2.18 Employees and Employee Benefits.
(a) Except as shown on Schedule 2.18 hereto, there are no currently
effective consulting or employment agreements or other material agreements with
individual consultants or employees to which Seller or any Subsidiary is a
party. Complete and accurate copies of all such written agreements have been
delivered to Buyer. Also shown on such Schedule are the name and current rate of
compensation (including bonuses) of each officer, employee or agent of Seller or
any Subsidiary whose annual rate of compensation, including bonuses and other
remunerative payments of any kind, is in excess of $40,000.
(b) Except as specifically disclosed on Schedule 2.18 hereto, neither
Seller nor any Subsidiary is a party to any pension, retirement, profit sharing,
savings, bonus, incentive, deferred compensation, group health insurance or
group life insurance plan or obligation, or to any collective bargaining
agreement or other contract, written or oral, with any trade or labor union,
employees' association or similar organization. With respect to each plan
described on the Schedule, Seller has furnished to Buyer complete and accurate
copies of the plan, the
Internal Revenue Service determination letter, if any, all plan applications and
amendments, the most recent plan actuarial reports and all reports of or
regarding such plan required by the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and any regulations issued thereunder.
(c) With respect to each plan which is subject to ERISA:
(i) the value of such plan's assets equals or exceeds the
total value of all vested and unvested employee benefits under such plan;
(ii) there is no "accumulated funding deficiency," and no
"reportable event" or "prohibited transaction" has occurred (as such terms are
defined in ERISA);
(iii) Seller and each Subsidiary, has incurred no liability to
the Pension Benefit Guaranty Corporation with respect to such plans;
(iv) such plan meets all applicable requirements of ERISA and
Section 401(a) of the Internal Revenue Code; and
(v) Seller and each Subsidiary, has properly and timely made
all required governmental filings with respect to such plan.
(d) There are no strikes or labor disputes pending or to the best
Knowledge of Seller and each Subsidiary, threatened by, or to the best Knowledge
of Seller and each Subsidiary, any attempts at union organization of, any of the
employees of Seller or any Subsidiary.
2.19 Reserved.
2.20 Permits; Burdensome Agreements. Seller and each Subsidiary hold all
licenses, permits and franchises which are required to permit them to conduct
their businesses and all such licenses, permits and franchises are listed in
Schedule 2.20 hereto and are and will be after the Closing valid and in full
force and effect and Buyer shall have full benefit of the same. To the best
Knowledge of Seller and each Subsidiary, neither Seller nor any Subsidiary is
subject to or bound by any agreement, judgment, decree or order which may
materially and adversely affect business or prospects, its condition, financial
or otherwise, or any of its assets or property.
2.21 Borrowings and Guarantees. Except as shown on Schedule 2.21 hereto, there
are no agreements and undertakings pursuant to which Seller or any Subsidiary,
(a) is borrowing or is entitled to borrow any money (b) is lending or has
committed itself to lend any money, or (c) is a guarantor or surety with respect
to the obligations of any person. Complete and accurate copies of all such
written agreements have been delivered to Buyer.
2.22 Banking Relations and Powers of Attorney. All of the arrangements which
Seller or any Subsidiary has with any banking institution, whether or not in
Seller's or a Subsidiary's name, are accurately described in Schedule 2.22
hereto indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereof.
Neither Seller nor any Subsidiary has any outstanding power of attorney.
2.23 Insurance. The physical properties and assets of Seller and each Subsidiary
are insured to the extent disclosed in Schedule 2.23 hereto and all other
material insurance policies and arrangements of Seller and each
Subsidiary are disclosed in said Schedule. Said insurance is adequate and
customary for the business engaged in by Seller and each Subsidiary.
2.24 Warranty or Other Claims. Except as disclosed on Schedule 2.24 hereto,
neither Seller, any Subsidiary nor any Stockholder knows or has reason to know
of any existing or threatened claims, or any facts upon which a claim could be
based, against Seller or any Subsidiary for services or merchandise which are
defective or fail to meet any service or product warranties. No claim has been
asserted against Seller or any Subsidiary for renegotiation or price
redetermination of any business transaction, and neither Seller, any Subsidiary
nor any Stockholder has knowledge of any facts upon which any such claim could
be based.
2.25 Compliance with Laws. To the best Knowledge of the Seller, each Subsidiary
and the Stockholders, Seller and each Subsidiary are and have in the past been
in material compliance with all laws and regulations which apply to the conduct
of their respective businesses, including, without limitation, all laws and
regulations relating to employment, occupational safety, consumer protection,
and environmental matters.
2.26 Litigation. Except for matters described in Schedule 2.26 hereto, there is
no litigation pending or, to the Knowledge of Seller, any Subsidiary or any
Stockholder, threatened against Seller or any Subsidiary , and there are no
outstanding court orders, court decrees, or court stipulations to which Seller
or any Subsidiary is a party which question this Agreement or affect the
transactions contemplated hereby, or which would likely result in any materially
adverse change in the business, properties, operations, prospects, assets or in
the condition, financial or otherwise, of Seller or any Subsidiary. Neither
Seller any Subsidiary, nor any Stockholder has reason to believe that any such
action, suit, proceeding or investigation may be brought against Seller or any
Subsidiary.
2.27 Minute Books. The minute books of Seller and each Subsidiary delivered to
the Buyer accurately record all actions taken by their respective shareholders,
boards of directors and committees thereof in their respective capacities.
2.28 Finder's Fee. Neither Seller nor any Subsidiary has incurred or become
liable for any broker's commission or finder's fee relating to or in connection
with the transactions contemplated by this Agreement.
2.29 Transactions with Interested Persons. No officer, supervisory employee,
director or stockholder of Seller or any Subsidiary, or their respective spouses
or children, owns directly or indirectly on an individual or joint basis, any
material interest in, or serves as an officer or director of, any customer,
competitor or supplier of Seller or any Subsidiary, or any organization which
has a material contract or arrangement with Seller or any Subsidiary.
2.30 Absence of Sensitive Payments. To the best Knowledge of the Seller, each
Subsidiary and the Stockholders, neither Seller nor any Subsidiary, nor any of
their respective directors, officers, agents, stockholders or employees, whether
or not on behalf of Seller or any Subsidiary:
(a) has made or has agreed to make any contributions, payments or gifts
of funds or property to any governmental official, employee or agent where
either the payment or the purpose of such contribution, payment or gift was or
is illegal under the laws of the United States, any state thereof, or any other
jurisdiction (foreign or domestic);
(b) has established or maintained any unrecorded fund or asset for any
purpose, or has made any false or artificial entries on any of its books or
records for any reason; or
(c) has made or has agreed to make any contribution or expenditure, or
has reimbursed any political gift or contribution or expenditure made by any
other person to candidates for public office, whether federal, state or local
(foreign or domestic) where such contributions were or would be a violation of
applicable law.
2.31 Disclosure of Material Information. Neither this Agreement nor any exhibit
thereto or certificate issued pursuant hereto contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements herein or therein not misleading, relating to the business or affairs
of Seller or any Subsidiary. Neither Seller, any Subsidiary, nor any Stockholder
has made an untrue statement of a material fact or omitted to state a material
fact to Buyer or its agents, necessary to make the statements made not
misleading, relating to the business or affairs of the Seller or any Subsidiary.
There is no fact which could materially adversely affect the business, condition
(financial or otherwise) or prospects of Seller or any Subsidiary which has not
been set forth herein.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller, the Subsidiaries and each of the
Stockholders as follows:
3.1 Organization of Buyer. Each of Buyer and Acquisition Corp. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and Buyer is qualified to do business in the State of Alabama
with full corporate power to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by it.
3.2 Capitalization of Buyer. The authorized capital stock of Buyer consists of
20,000,000 shares of Voting Common Stock, $.0001 par value, of which 15,104,987
shares were issued and outstanding as of November 20, 1996, and 1,000,000 shares
of Non-Voting Preferred Stock, $.0001 par value, of which no shares are issued
and outstanding. The authorized capital stock of Acquisition Corp. consists of
3,000 shares of Common Stock, $.01 par value, of which 100 are issued and
outstanding on this date, and no shares of Preferred Stock. All of the presently
issued and outstanding capital stock of Buyer and Acquisition Corp. have been
duly authorized and validly issued and are fully paid and non-assessable.
3.3 Authorization of Transaction. All necessary action, corporate or otherwise,
has been taken by Buyer and Acquisition Corp. to authorize the execution,
delivery and performance of this Agreement, and the same is the valid and
binding obligation of Buyer enforceable in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3.4 Buyer's Common Stock. The Purchase Shares to be delivered pursuant to this
Agreement and the Certificate of Merger will be, when delivered in accordance
herewith and therewith, duly authorized, validly issued, fully paid and
non-assessable.
ARTICLE 4. COVENANTS OF SELLER AND STOCKHOLDERS.
Each of the Seller, the Subsidiaries and the Stockholders hereby covenants and
agrees with Buyer as follows:
4.1 Conduct of Business. Between the date of this Agreement and the Closing,
Seller and each Subsidiary shall do the following, unless Buyer shall otherwise
consent in writing:
(a) conduct its business only in the ordinary course and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset
or property other than in the ordinary course of business, from purchasing any
capital asset costing more than $10,000 and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except those that are usual
and normal in the ordinary course of business;
(d) refrain from making any change or incurring any obligation to make
a change in its Charter or by-laws or authorized or issued capital stock, except
as contemplated by this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or
making any other distribution in respect of their capital stock, or making any
direct or indirect redemption, purchase or other acquisition of capital stock,
of Seller or any Subsidiary other than a wholly-owned Subsidiary;
(f) refrain from entering into any employment contract (other than as
may be contemplated by this Agreement) or making any change in the compensation
payable or to become payable to any of its officers, employees or agents;
(g) refrain from prepaying any loans from its stockholders, officers or
directors (if any) or making any change in its borrowing arrangements;
(h) use its good faith efforts to prevent any change with respect to
its banking arrangements;
(i) use its good faith efforts to keep intact its business
organization, to keep available its present officers, agents and employees and
to preserve the goodwill of all suppliers, customers and others having business
relations with it;
(j) have in effect and maintain at all times all insurance of the kind,
in the amount and with the insurers set forth in the Schedule of Insurance
heretofore delivered to Buyer or equivalent insurance with any substitute
insurers approved by Buyer; and
4.2 Authorization from Others. Prior to the Closing, Seller will have exercised
good faith efforts to obtain and will cause its Subsidiaries to have obtained
all authorizations, consents and permits of others required to permit the
consummation by Seller and its Subsidiaries of the transactions contemplated by
this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon the occurrence of,
or promptly upon Seller's becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach, or would have
caused or constituted a breach had such event occurred or been known to Seller
or any Subsidiary prior to the date hereof, of any of the representations and
warranties of Seller contained in or referred to in this Agreement, Seller shall
give detailed written notice thereof to Buyer and shall use its good faith
efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Seller, each Subsidiary and each Stockholder
shall use its or their best efforts to perform and fulfill all conditions and
obligations on its or their part to be performed and fulfilled under this
Agreement and the Merger Agreement, to the end that the transactions
contemplated by this Agreement and the Merger Agreement shall be fully carried
out. To this end Seller and each Subsidiary will obtain all necessary approvals
of its stockholders and Board of Directors to the transactions contemplated
hereby.
4.5 Buyer's Due Diligence. It is understood that Buyer's due diligence
investigation of the Seller and the Subsidiaries may include, but not be limited
to, review of financial statements, contracts and leases, assets, liabilities,
products, inventory, methods of accounting, and financial and other business
records of the Seller and the Subsidiaries, investigation of customers and
suppliers, and inspection and an examination of the retail facilities owned or
leased by the Subsidiaries, including an environmental assessment of the
properties. The Seller, each Subsidiary and each Stockholder shall make all
relevant information concerning the Seller and each Subsidiary , including,
without limitation, the foregoing, reasonably available to the Buyer and its
agents, and will provide Buyer and its agents reasonable access to the
Subsidiaries' premises and officers. Buyer shall coordinate closely such
activities with the Stockholders and their counsel and disclose such activities
to the Stockholders and their counsel, and shall conduct all such inquires with
appropriate discretion and sensitivity to the Subsidiaries' relationships with
their employees, customers, and suppliers.
4.6 Financial Statements of Seller and Subsidiaries. It is necessary for Buyer's
independent public accountants to prepare and audit the financial statements of
the Seller and the Subsidiaries with respect to the last three fiscal years and
any interim period. The Seller and the Subsidiaries shall cooperate with the
Buyer's independent public accountants in connection with the preparation and
audit of such financial statements, including, without limitation, providing
such financial and other information and making such certifications to such
independent public accounts as such accountants deem reasonably necessary in
connection with the preparation and audit of such financial statements.
4.7 Expansion of Subsidiaries' Business. Buyer and Seller acknowledge that it is
the intention of the parties to expand the business of the Subsidiaries into
Northern and Central Alabama, as well as Mississippi. In order to implement such
expansion, Seller shall submit a detailed business plan to Buyer with respect to
such expansion for consideration and approval by Buyer's Board of Directors.
Buyer reserves the right to make the final decision with respect to such
expansion; provided, however, that Buyer shall not unreasonably withhold its
approval of any such expansion plan.
ARTICLE 5. COVENANTS OF BUYER.
Buyer hereby covenants and agrees with Seller and each of the Stockholders as
follows:
5.1 Authorization from Others. Prior to the Closing Buyer will have obtained all
authorizations, consents and permits of others required to permit the
consummation by Buyer and Acquisition Corp. of the transactions contemplated by
this Agreement.
5.2 Consummation of Agreement. The Buyer shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement and the Merger Agreement shall be fully carried out. To this end,
Buyer will obtain any approvals of its stockholders or Board of Directors which
may be required in order to consummate the transactions contemplated hereby. The
Buyer shall use all reasonable efforts to give the Seller and the Stockholders
notice prior to the Closing of any material facts of which the Buyer has actual
Knowledge which represent or constitute a material breach or default by the
Seller, any Subsidiary or any Stockholder or any Unaffiliated Stockholder
Company under this Agreement, whether or not such breach or default would give
rise to a claim for indemnification under Article 10 hereof. The Buyer's failure
to give any such notice shall not, however, in any way limit, constitute a
defense to, or otherwise adversely affect, the right of the Buyer or any Buyer
Indemnified Party (as defined in Section 10.1) to such indemnification with
respect to any matter or claim in accordance with the terms of Article 10
hereof.
5.3 Dealer Volume Incentive Program. For a period beginning as of the date of
the Closing and ending December 31, 1998, Buyer shall provide to the
Subsidiaries Dealer Volume Incentive Program terms in accordance with Exhibit C
hereto.
5.4 Conduct of Business of Subsidiaries. Following the Closing, Buyer shall
endeavor to cause the Subsidiaries to maintain a reasonably varied mix of
products, unless Buyer determines, in the good faith exercise of its discretion,
that market conditions are such that altering the product mix of the
Subsidiaries would be more advantageous commercially.
Immediately following the Closing, the Buyer shall use all reasonable
commercial efforts to obtain the release of the personal guaranties of the
Stockholders for those debts of the Subsidiaries listed on Schedule 5.4 hereof.
The Buyer shall also indemnify and hold the Stockholders harmless from and
against any damages, liabilities, losses and expenses (including reasonable
counsel fees) of any kind or nature whatsoever which may be sustained or
suffered by a Stockholder with respect to those debts in the amounts not to
exceed the amounts specified in Schedule 5.4 hereof.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article 6 will have been accomplished.
6.1 Shareholder Authorization. This Agreement, the Certificate of Merger and the
transactions contemplated hereby shall have been duly approved by the
affirmative vote of the requisite percentage of the outstanding shares of
Seller's voting stock under the laws of Seller's jurisdiction of incorporation.
6.2 Dissenting Stockholders. Holders of not more than 10% of the shares of the
Common Stock of Seller shall have taken steps to preserve the rights of
dissenting stockholders afforded by the laws of the state of incorporation of
Seller, and Seller shall have delivered to Buyer a true and correct list of the
names, addresses and numbers of shares held by each holder of dissenting shares
of Seller and the steps taken by each such holder as required by the laws of
Seller's jurisdiction of incorporation governing appraisal rights.
6.3 Representations; Warranties; Covenants. Each of the representations and
warranties of Seller, the Subsidiaries and the Stockholders contained in Article
2 shall be true and correct as though made on and as of the Closing; Seller,
each Subsidiary and the Stockholders shall, on or before the Closing, have
performed all of their respective obligations hereunder which by the terms
hereof are to be performed on or before the Closing; and Seller, each Subsidiary
and the Stockholders shall have delivered to Buyer a certificate dated as of the
Closing to the foregoing effect and further confirming that the conditions set
forth in Section 6.1 with respect to shareholder authorization and in Section
6.2 with respect to dissenting shares of Seller have been fulfilled.
6.4 Resignations of Officers and Directors. Buyer shall have received the
written resignations of such of the officers and directors of Seller and the
Subsidiaries as Buyer shall have designated in a writing delivered to Seller
prior to the Closing, which resignations will be effective no later than the
Closing.
6.5 Opinion of Seller's Counsel.
(a) At the Closing, Buyer shall have received from Messrs. Hubbard,
Smith, McIlwain, Brakefield & Shattuck, P.C. counsel for Seller, an opinion
dated as of the Closing, in form and substance satisfactory to Buyer and its
counsel.
6.6 Securities Law Compliance. The obligations and conditions required to be
satisfied prior to Closing under Article 11 of this Agreement shall have been
satisfied and Buyer's counsel, Brown, Rudnick, Freed & Gesmer, shall have
determined that the issuance of the Purchase Shares in connection with the
transaction will not violate the Securities Act of 1933, or state securities
laws, as more fully detailed in Article 11.
6.7 Employment/Non-Competition Contracts. Each of W. Thomas Deas, James M.
Moore, III and Gregory C. Vogel shall have executed and delivered to Buyer
employment contracts substantially in the form of Exhibit D hereto. Each of the
Stockholders shall have executed and delivered to Buyer non-competition
agreements substantially in the form of Exhibit E hereto.
6.8 RESERVED.
6.9 Approval of Buyer's Board of Directors. There shall have been no
determination by the Board of Directors of Buyer, acting in good faith, that the
consummation of the transactions contemplated by this Agreement and the Merger
Agreement have become inadvisable or impracticable by reason of the institution
or overt threat by any person or any federal, state or other governmental
authority of material litigation, proceedings or other action against Buyer,
Seller Subsidiary , or by reason of any material adverse change in the assets,
business, financial condition or prospects of the Seller or the Subsidiaries.
6.10 Approval of Buyer's Advisors. All actions, proceedings, instruments and
documents required to carry out this Agreement and the Certificate of Merger and
all related legal matters contemplated by this Agreement and the Certificate of
Merger shall have been approved by counsel for Buyer, provided that the approval
of such counsel shall not be unreasonably withheld. In addition, Buyer shall
have received in form and substance
reasonably satisfactory to it, and shall forward two complete copies of all
reports and opinions to the Stockholders and their counsel upon receipt, reports
and opinions on such financial and legal matters in connection with the
transaction as it deems pertinent, including, without limitation, a satisfactory
report from Arthur Andersen LLP, independent public accountants, regarding the
financial statements of the Seller and the Subsidiaries and the Companies.
6.11 Absence of Certain Litigation. There shall not be any (a) injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement, the Merger or any material
transaction contemplated hereby shall not be consummated as herein provided, (b)
suit, action or other proceeding by the United States (or any agency thereof) or
by any state (or any agency thereof) pending before any court or governmental
agency, or threatened to be filed or initiated, wherein such complainant seeks
the restraint or prohibition of the Merger or the consummation of any material
transaction contemplated by this Agreement or asserts the illegality thereof, or
(c) suit, action or other proceeding by a private party pending before any court
or governmental agency, or threatened to be filed or initiated, which, in the
reasonable opinion of counsel for Buyer, is likely to result in the restraint or
prohibition of the consummation of any material transaction contemplated hereby
or is likely to result in the entry of a judgment and the payment (or
indemnification) of material damages from or other material relief against any
of the parties or against any directors or officers of Buyer, in connection with
the consummation of any material transaction contemplated hereby.
6.12 Buyer's Due Diligence. The results of Buyer's due diligence investigation
with respect to the Seller and the Subsidiaries shall be satisfactory to Buyer
in its sole discretion. Execution of this Agreement by Buyer will acknowledge
Buyer's receipt of all information requested of Seller and the Subsidiaries in
conducting Buyer's due diligence investigation.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLER AND STOCKHOLDERS.
The obligations of Seller, the Subsidiaries and the Stockholders to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Shareholder Authorization. This Agreement, the Certificate of Merger and the
transactions contemplated hereby shall have been duly approved by the
affirmative vote of the requisite percentage of the outstanding shares of
Acquisition Corp.'s Common Stock.
7.2 Representations; Warranties; Covenants. Each of the representations and
warranties of Buyer contained in Article 3 shall be true and correct as though
made on and as of the Closing; Buyer shall, on or before the Closing, have
performed all of its obligations hereunder which by the terms hereof are to be
performed on or before the Closing; and Buyer shall have delivered to Seller a
certificate of the President or any Vice President of Buyer dated as of the
Closing to such effect.
7.3 Opinion of Buyer's Counsel. At the Closing, Seller shall have received from
Brown, Rudnick, Freed & Gesmer, counsel for Buyer, an opinion dated as of the
Closing, in form and substance reasonably satisfactory to Seller and its
counsel.
7.4 Real Estate Development Agreement. Buyer shall have executed and delivered
to an entity to be formed by W. David Deas, James Miller Deas and W. Thomas
Deas, Jr., a Real Estate Development Agreement in the form of Exhibit G hereto.
7.5 Securities Law Compliance. The obligations and conditions required to be
satisfied prior to Closing under Article 11 of this Agreement shall have been
satisfied and Buyer's counsel, Brown, Rudnick, Freed & Gesmer, shall have
determined that the issuance of the Purchase Shares in connection with the
transaction will not violate the Securities Act of 1933, or state securities
laws, as more fully detailed in Article 11.
ARTICLE 8. TERMINATION OF AGREEMENT.
8.1 Termination. At any time prior to the Closing, this Agreement may be
terminated (a) by mutual consent of the parties with the approval of their
respective Board of Directors, notwithstanding prior approval of this Agreement
by the stockholders of any party, (b) by either party if there has been a
material misrepresentation, breach of warranty or breach of covenant by the
other party in its representations, warranties and covenants set forth herein,
(c) by Buyer if the conditions stated in Article 6 have not been satisfied at or
prior to the Closing or (d) by Seller if the conditions stated in Article 7 have
not been satisfied at or prior to the Closing.
8.2 Effect of Termination. If this Agreement shall be terminated as above
provided, all obligations of the parties hereunder shall terminate without
liability of either party to the other. In the event that this Agreement is so
terminated, each party will return all papers, documents, financial statements
and other data furnished to it by or with respect to each other party to such
other party (including any copies thereof made by the first party).
8.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article 6 hereof have not
been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving its rights hereunder, and if any of the
conditions specified in Article 7 hereof have not been satisfied, Seller shall
have the right to proceed with the transactions contemplated hereby without
waiving its rights hereunder.
ARTICLE 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
9.1 Survival of Warranties. All representations, warranties, agreements,
covenants and obligations herein or in any schedule, certificate or financial
statement delivered by either party to the other party incident to the
transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other party and, subject to the limitations of Article 10
below, shall survive the Closing regardless of any investigation and shall not
merge in the performance of any obligation by either party hereto.
ARTICLE 10. INDEMNIFICATION.
10.1 Indemnification by Stockholders. Each of the Stockholders jointly and
severally (together, the "Seller Indemnifying Party") agrees, subject to the
provision set forth in subparagraphs 10.1 (a), (b), and (c) and (d) below, to
defend, indemnify and hold Buyer, its officers, directors, employees, agents,
subsidiaries and affiliates (together, the "Buyer Indemnified Party") harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by a Buyer Indemnified Party based upon a breach of any
representation, warranty or covenant made by any Seller Indemnifying Party in
this Agreement or in any exhibit, certificate or financial statement delivered
hereunder, or by reason of any claim, action or proceeding asserted or
instituted arising out of or related to any
matter or thing covered by such representations, warranties or covenants,
including without limitation amounts which a Buyer Indemnified Party has paid or
which are payable with respect to tax liabilities of Seller or any of the
Subsidiaries or any of the Companies for periods prior to the Closing and other
liabilities of Seller or any of the Subsidiaries not disclosed to a Buyer
Indemnified Party or existing in breach of the Seller Indemnifying Party's
warranties or covenants hereunder; provided, however, that:
(a) indemnification shall be payable by a Seller Indemnifying Party
only if and to the extent that the aggregate amount of all claims for
indemnification by the Buyer Indemnified Party hereunder shall exceed $50,000;
provided, however, that the foregoing deductible shall not be applied to (i)
claims arising out of or relating to a breach of the representations and
warranties contained in Section 2.8 of this Agreement (relating to tax matters)
and (ii) claims arising out of or relating to a breach of the representations
and warranties contained in Section 2.2 of this Agreement (relating to ownership
of the Stock of the Subsidiaries).
(b) no indemnification shall be payable with respect to claims asserted
by a Buyer Indemnified Party more than two years after the Closing, provided,
however, that (i) with respect to claims arising out of or relating to a breach
of the representations and warranties contained in Section 2.8 of this Agreement
(relating to tax matters), indemnification shall be payable to the Buyer
Indemnified Party, provided notice is given by the Buyer Indemnified Party to
the Seller Indemnifying Party within the statute of limitations period
applicable to the tax matter at issue, and (ii) with respect to claims arising
out of a relating to a breach of the representations and warranties contained in
Section 2.2 of this Agreement (relating to ownership of the capital stock of the
Subsidiaries), there shall be no time limitation within which notice must be
given to the Seller Indemnifying Party other than any statutes of limitation
generally applicable to contracts which would be generally applicable under the
laws of the State of Delware; and,
(c) Buyer Indemnified Party does hereby waive any right to seek
punitive damages against any Seller Indemnifying Party (and any officer,
director, employee, agent or affiliate of such Seller Indemnified Party), except
with respect to claims involving fraud or criminal conduct on the part of a
Seller Indemnifying Party.
10.2 Indemnification by Buyer. Buyer (the "Buyer Indemnifying Party") agrees to
defend, indemnify and hold the Stockholders (the "Seller Indemnified Party")
harmless from and against any damages, liabilities, losses and expenses
(including reasonable counsel fees) of any kind or nature whatsoever which may
be sustained or suffered by any of them based upon a breach of any
representation, warranty or covenant made by the Buyer Indemnifying Party in
this Agreement or in any exhibit, certificate or financial statement delivered
hereunder, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing covered by such representations,
warranties or covenants, provided, however, that:
(a) indemnification shall be payable by the Buyer Indemnifying Party
only if and to the extent that the aggregate amount of all claims for
indemnification by the Seller Indemnified Party hereunder shall exceed $50,000;
(b) no indemnification shall be payable to the Seller Indemnified Party
more than two years after the Closing; provided however, that with respect to
claims arising out of or relating to Buyer's obligation to obtain release of the
personal guaranties of the Stockholders in accordance with Section 5.4 of this
Agreement, indemnification shall be payable to the Seller Indemnified Party,
provided notice is given by Seller Indemnified Party to the Buyer
Indemnified Party within the statute of limitations for contracts which would be
generally applicable under the laws of the State of Delaware; and,
(c) the Seller Indemnified Party does hereby waive any right to seek
punitive damages against any Buyer Indemnifying Party, except with respect to
claims involving fraud or criminal conduct on the part of Buyer Indemnifying
Party.
10.3 Notice; Defense of Claims. An Indemnified Party shall give prompt written
notice to the Indemnifying Party of each claim for indemnification hereunder
after receipt of notice or Knowledge thereof, specifying the amount and nature
of the claim, and of any matter which is likely to give rise to an
indemnification claim. Each Indemnifying Party shall have the right to
participate at its own expense in the defense of any such matter or its
settlement. If, in the opinion of Buyer, its financial condition or business or
the financial condition or business of Seller acquired by Buyer would not be
impaired thereby, Buyer may authorize a Seller Indemnifying Party to take over
the defense of such matter so long as such defense is expeditious. Except as
provided herein, failure to give notice of a matter which may give rise to an
indemnification claim shall not affect the rights of an Indemnified Party to
collect such claim from an Indemnifying Party.
10.4 Payment of Claims; Arbitration. Indemnification claims shall be paid or
otherwise satisfied by the Indemnifying Party within 30 days after notice
thereof is given by the Indemnified Party, unless within said 30-day period the
Indemnifying Party indicates in a writing delivered to the Indemnified Party
that it disputes the nature or amount of the claim, in which event the dispute,
upon the election of any party hereto after said 30-day period, shall be
referred to the American Arbitration Association to be settled by arbitration in
Birmingham, Alabama in accordance with the then current commercial arbitration
rules of said Association, and judgment upon the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. Unless
otherwise determined by the arbitrator, the fees and expenses of the arbitrator
shall be borne 50% by the Buyer and 50% by the Seller Indemnifying Party.
ARTICLE 11. COMPLIANCE WITH SECURITIES LAWS.
11.1 Delivery of Information.
(a) At or prior to the Closing, Buyer shall have delivered to each of
the Stockholders a set of documents (the "Buyer Disclosure Documents")
consisting of an explanatory letter and a copy of each of the following
documents:
(i) Buyer's Annual Report on Form 10-K for the fiscal
year ended December 29, 1995 (without exhibits);
(ii) Buyer's Annual Report to Stockholders for the fiscal
year ended December 29, 1995;
(iii) Buyer's definitive Proxy Statement dated April 21,
1996
(iv) Buyer's Quarterly Reports on Form 10-Q for the
quarters ended March 29, and June 28 and September
27, 1996; and
(v) any report or document delivered to the stockholders
pursuant to subparagraph (c) below.
(b) Buyer represents and warrants that Buyer Disclosure Documents,
taken as a whole, do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) Buyer shall deliver to each of the Stockholders, prior to the
Closing, a copy of each report or other document filed by Buyer pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
between the date hereof and the date of Closing.
(d) At or prior to the Closing, Seller shall have delivered to each of
the Stockholders such information concerning the Seller, if any, as is required
in the opinion of counsel for Buyer in order for the offer and sale of the
Purchase Shares to qualify for exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act") pursuant to Regulation D thereunder or
such other exemption as counsel for Buyer may determine to be applicable
("Seller Disclosure Documents").
11.2 Acknowledgment of Receipt of Information. At or prior to the Closing, each
Stockholder shall have delivered to Buyer an investment letter, substantially in
the form of Exhibit G, stating:
(a) that he has received and carefully reviewed the Buyer Disclosure
Documents and any Seller Disclosure Documents;
(b) that he has had the opportunity to ask questions of, and receive
answers from, Buyer and Seller and their officers and others acting on their
behalf concerning the matters covered by the Buyer Disclosure Documents and any
Seller Disclosure Documents and the business, operations and financial condition
of Buyer and Seller;
(c) that he has obtained all information which he or his representative
deem necessary or appropriate to enable him to evaluate fully the transactions
contemplated by this Agreement;
(d) that he has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of an investment
in Buyer's Common Stock pursuant to this Agreement; and
(e) that he is taking the Purchase Shares for investment, that such
Purchase Shares are restricted securities, and that he will not dispose of such
Purchase Shares except as provided therein.
11.3 RESERVED
11.4 Compliance with Securities Laws. Counsel for Buyer shall have determined
that the issuance of the Purchase Shares to the Stockholders in connection with
the transaction:
(a) will be exempt from registration under the Securities Act of 1933
(the "1933 Act") by reason of being a transaction not involving a public
offering; and
(b) will be exempt from registration or qualification (other than
simple notice) under the securities or "blue-sky" laws of every jurisdiction in
the United States in which any Stockholder has an address on the records of
Seller on the record date used to determine the Seller's stockholders entitled
to vote on the transaction.
11.5 Reports. Since January 1, 1993, or the date of organization, if later,
Buyer has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (i)
the SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and
proxy statements and any applicable state securities or banking authorities.
11.6 Statements, True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by Seller to Buyer pursuant to this
Agreement or any other document, agreement or instrument referred to herein
contains or will contain any untrue statement of material fact or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any documents that
Buyer is required to file with any regulatory authority in connection with the
transactions provided for herein will comply as to form and all material
respects with the provisions of applicable Law.
11.7 Covenants of Buyer. From the date of this Agreement, until the earlier of
the effective time, or the termination of this Agreement, Buyer covenants and
agrees and that it will not do or agree or commit to do, any of following
without prior written consent of the Chief Executive Officer, President or Chief
Financial Officer of Seller, which consent shall not be unreasonably withheld:
(a) Fail to file timely any report required to be filed by it with
Regulatory Authorities including the SEC; or
(b) Take any action that would cause the Buyer Common Stock to cease to
be traded on the NASDAQ.
ARTICLE 12. REGISTRATION.
12.1 Required Registration.
(a) Fixed Payment and Stub Period Payment Shares. If at any one time
during the period beginning one hundred eighty (180) days following the Closing
and ending on the second anniversary of the Closing, Buyer receives a written
request from one or more of the Stockholders who received Fixed Payment Shares
and Stub Period Payment Shares, in connection with this transaction, to file a
registration statement under the 1933 Act for a public offering of not less than
50% of the aggregate Fixed Payment Shares and Stub Period Payment Shares, Buyer
will promptly use its reasonable efforts to cause a registration statement to be
filed with the Securities and Exchange Commission with respect to the number of
such shares specified in the request, and will use its reasonable efforts to
cause such registration statement to become effective under the 1933 Act. Buyer
shall prepare and file with the Securities and Exchange Commission, as soon as
reasonably practicable, any necessary amendments to the Registration Statement
or supplements to the prospectus included therein. Buyer shall not be required
to cause more than one registration statement to be filed with respect to any
Fixed Payment Shares and Stub Period Payment Shares pursuant to this Section
12.1.
(b) 1997 Contingent Payment Shares. If at any one time during the
period beginning one hundred eighty (180) days following the issuance of the
Contingent Payment Shares, with respect to the twelve (12) month period ending
December 31, 1997 (the "1997 Contingent Payment Shares"), and ending on the
second anniversary of such issuance, Buyer receives a written request from one
or more of the Stockholders who received 1997 Contingent Payment Shares, in
connection with this transaction, to file a registration statement under the
1933 Act for a public offering of not less than fifty (50%) percent of the 1997
Contingent Payment Shares, Buyer will use its reasonable efforts to cause a
registration statement to be filed with the Securities and Exchange Commission
with respect to the number of such shares specified in the request and will use
its reasonable efforts to cause such registration statement to become effective
under the 1933 Act. Buyer shall prepare and file with the Securities and
Exchange Commission, as soon as reasonably practicable, any necessary amendments
to the Registration Statement or supplements to the prospectus included therein.
Buyer shall not be required to cause more than one registration statement to be
filed with respect to the 1997 Contingent Payment Shares pursuant to this
Section 12.1.
(c) 1998 Contingent Payment Shares. If at any one time during the
period beginning one hundred eighty (180) days following the issuance of the
Contingent Payment Shares, with respect to the twelve (12) month period ending
December 31, 1998 (the "1998 Contingent Payment Shares"), and ending on the
second anniversary of such issuance, Buyer receives a written request from one
or more of the Stockholders who received 1998 Contingent Payment Shares, in
connection with this transaction, to file a registration statement under the
1933 Act for a public offering of not less than fifty (50%) percent of the 1998
Contingent Payment Shares, Buyer will use its reasonable efforts to cause a
registration statement to be filed with the Securities and Exchange Commission
with respect to the number of such shares specified in the request and will use
its reasonable efforts to cause such registration statement to become effective
under the 1933 Act. Buyer shall prepare and file with the Securities and
Exchange Commission, as soon as reasonably practicable, any necessary amendments
to the Registration Statement or supplements to the prospectus included therein.
Buyer shall not be required to cause more than one registration statement to be
filed with respect to the 1998 Contingent Payment Shares pursuant to this
Section 12.1.
12.2 Participation of Selling Stockholders. A stockholder requesting
registration under Section 12.1 hereof shall mail a notice thereof to the other
stockholders of Buyer holding any Purchase Shares eligible for inclusion
in such registration statement and shall afford them equal opportunity to
participate in such public offering; and the stockholder or stockholders making
the original request under Section 12.1 shall represent and warrant to Buyer
that it has complied with this requirement. (As used herein, the term "Selling
Stockholders" shall mean the stockholders making the original request under
Section 12.1 and any other stockholders who elect to participate in the public
offering.) Buyer shall promptly furnish to each Selling Stockholder such number
of copies of the Registration Statement (including any amendments thereto), any
preliminary prospectus and the final prospectus (including any supplements
thereto) as any Selling Stockholder may reasonably request.
12.3 Conditions of Buyer's Obligations to Register Shares. Buyer's obligation
under Section 12.1 to cause a registration statement or amendment to be filed
shall be subject to the following conditions:
(a) The Selling Stockholders shall have provided such consents,
representations and information and executed such documents as may reasonably be
required in connection with such registration;
(b) The Selling Stockholders shall have agreed in writing not to sell
any of Buyer's Common Stock (or any rights with respect thereto) during any
Contingent Payment Trading Period;
(c) Buyer will be entitled to include any other shares of its Common
Stock to be offered either by it or by any of its stockholders in any
registration statement filed pursuant to Section 12.1;
(d) In no event will any of the Selling Stockholders be entitled to
request registration under Section 12.1 within a period of ninety (90) days
following the effective date of any other registration statement filed by Buyer
(other than a registration statement covering the offer and sale of Common Stock
to its employees and subsidiaries) regardless of whether or not any of the
Selling Stockholders participated in such registration statement;
(e) Notwithstanding any other provision of this Agreement, to the
extent the provisions of subparagraph (d) of this Section 12.3 have the effect
of reducing the time period during which Selling Stockholders would otherwise be
entitled to request registration of their Shares under Section 12.1, the period
during which the Selling Stockholders may request registration, and during which
Buyer shall have a duty hereunder to register said Shares, shall be extended by
the number of days equal to the aforementioined reduction.
(f) All sales of Buyer's Common Stock by any of the Selling
Stockholders in any registered offering, other than a firm commitment
underwritten offering, shall be made through a coordinating broker acceptable to
Buyer which acceptance by Buyer shall not be unreasonably withheld;
(g) All sales of Buyer's Common Stock by any of the Selling
Stockholders in any registered firm commitment underwritten offering shall be
made through an underwriter acceptable to Buyer which acceptance by Buyer shall
not be unreasonably withheld; and
(h) On and after the one hundredth eightieth day following the
effective date of any registration statement filed pursuant to Section 12.1,
Buyer may, without further notice to any Selling Stockholder, take action to
deregister any shares of its Common Stock registered by such registration
statement and not yet sold.
(i) Buyer shall at the time it is filing a registration statement
pursuant to a request made hereunder be eligible to file a registration
statement on either Form S-3 or Form S-1 (or any successor form to any such
forms). Buyer shall not take or omit to take any action for the purpose of
rendering itself ineligible to file a registration statement on Form S-1 or Form
S-3.
12.4 Expenses. The expenses of registration of the Purchase Shares of the
Selling Stockholders pursuant to Section 12.1 will be paid by Buyer. For
purposes of this Section 12.4, the term "expenses" shall include federal, state
and other registration and qualification fees, legal fees and expenses for
Buyer's counsel, auditing and accounting expenses incurred by Buyer in
connection with the registration and printing and other related expenses, but
shall exclude any legal fees for counsel to the Selling Stockholders and any
underwriting discounts and selling commissions relating to the Purchase Shares
sold by the Selling Stockholders.
12.5 Financial Information. Notwithstanding the foregoing, in connection with
any registration provided for in this Agreement, Buyer will not be obligated to
furnish any information, financial or otherwise, other than the information
required and in the form and format which is customarily required at the time of
the execution of this Agreement to accomplish any registration of the type
provided for in this Agreement, unless otherwise required by the Securities and
Exchange Commission; it being understood, that as of the date hereof, it is not
customary in connection with registrations of the type provided for in this
Agreement for the registrant to furnish audited financial information for
interim quarterly periods. In the event that additional financial statements or
other information is so otherwise required and is not readily available, then
the reasonable salary and related reasonable overhead expenses of employees of
Buyer for time expended by such employees in the preparation of such financial
or other information will be reimbursed to Buyer by the Selling Stockholders,
pro rata.
12.6 Exclusive Obligation to Register. Except as provided in this Article 12,
Buyer will have no obligation to any of the Stockholders to register under the
1933 Act any Common Stock received by any of such stockholders pursuant to this
Agreement.
12.7 State Securities Laws. In connection with the registered offering of any
Buyer common Stock pursuant to this Agreement, Buyer will take such action as
may be necessary to qualify or register the shares to be sold under the
securities or "blue-sky" laws of such jurisdictions as may be reasonably
requested by the Selling Stockholders; provided, however, that Buyer will not be
obligated to qualify as a foreign corporation to do business under the laws of
any such jurisdiction in which it is not then qualified or to file any general
consent to service of process.
12.8 Indemnification.
In connection with any registration statement filed pursuant to this
Article 12:
(a) To the extent permitted by law, Buyer will indemnify and hold
harmless each Selling Stockholder against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained or incorporated by reference in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, and will reimburse each Selling
Stockholder for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 12.8(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without Buyer's consent (which consent shall not be unreasonably withheld) nor
shall Buyer be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any Selling Stockholder.
(b) To the extent permitted by law, each Selling Stockholder will
indemnify and hold harmless Buyer, each of its directors, each of its officers
who have signed such registration statement, each person, if any, who controls
Buyer within the meaning of the 1933 Act, any underwriter (within the meaning of
the 1933 Act) (in the case of an underwritten public offering) and each other
Selling Stockholder against any losses, claims, damages or liabilities to which
Buyer or any such director, officer, controlling person, or Selling Stockholder
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained or expressly incorporated by reference in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendment or supplement thereto, or arise out of or based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished by such
Selling Stockholder expressly for use in connection with such registration; and
such Selling Stockholder will reimburse any legal or other expenses reasonably
incurred by Buyer or any such director, officer, controlling person, underwriter
or Selling Stockholder in connection with investigating or defending any such
loss, claim, damage, liability or action. It is agreed that the indemnity
agreement contained in this subsection 12.8(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the indemnifying Selling
Stockholder (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by a party who may be indemnified under this
Section 12.8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 12.8, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying
party desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties.
The failure to promptly notify any indemnifying party of the commencement of any
such action, if prejudicial to his ability to defend such action, shall relieve
such indemnifying party of any liability to the party eligible for
indemnification under this Section 12.8, but the omission so to notify the
indemnifying party will not relieve him of any liability which he may have to
any indemnified party other than under this Section 12.8.
ARTICLE 13. MISCELLANEOUS.
13.1 Fees and Expenses. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of Seller, any Subsidiary or the
Stockholders relating in any way to the transactions contemplated hereby shall
be charged to or paid by Buyer or included in any account of Seller or any
Subsidiary as of the Closing.
13.2 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram) addressed as provided below and if either (a) actually delivered at
said address, or (b) in the case of a letter, three business days shall have
elapsed after the same shall have been deposited in the United States mail,
postage prepaid and registered or certified, return receipt requested:
If to Seller or the Stockholders, to:
Mr. W. Thomas Deas
P.O. Box 567
Northport, AL 35476
with a copy to:
W. Marcus Brakefield, Esquire
Hubbard, Smith, McIlwain, Brakefield & Shattuck, P.C.
808 Lurleen Wallace Blvd., North
P.O. Box 2427
Tuscaloosa, AL 35403-2427
If to Buyer or Acquisition Corp., to:
Southern Energy Homes, Inc.
Highway 41 North
P.O. Box 390
Addison, AL 35540
Attn: Keith Brown, Chief Financial Officer
with a copy to:
Paul J. Hartnett, Jr., Esquire
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
13.3 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to or referred
to in this Agreement, all of which are hereby incorporated herein by reference)
constitutes the entire agreement between the parties, and all promises,
representations, understandings, warranties and agreements with reference to the
subject matter hereof and inducements to the making of this Agreement relied
upon by any party hereto, have been expressed herein or in the documents
incorporated herein by reference.
13.4 Assignability. This Agreement shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties named herein and their
respective personal representatives successors and assigns. Buyer may make an
assignment of this Agreement upon written notice to Seller, although no such
assignment shall relieve Buyer of any liabilities or obligations under this
Agreement. Neither Seller, any Subsidiary nor any Stockholder may assign this
Agreement without the prior written consent of Buyer.
13.5 Publicity and Disclosures. No press releases or any public disclosure,
either written or oral, of the transactions contemplated by this Agreement shall
be made without the prior knowledge and written consent of Buyer and
Stockholders.
13.6 Confidentiality. Each party agrees that it will keep confidential and not
disclose or divulge any confidential, proprietary or secret information which
they may obtain from the other party in connection with the transactions
contemplated herein, or pursuant to inspection rights granted hereunder, unless
such information is or hereafter becomes public information.
13.7 Governing Law; Severability. This Agreement shall be deemed a contract made
under the laws of the State of Delaware and, together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such state (other than the choice of law provisions thereof). The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision hereof.
13.8 Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
13.9 Effect of Table of Contents and Headings. Any table of contents, title of
an article or section heading herein contained is for convenience of reference
only and shall not affect the meaning of construction of any of the provisions
hereof.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed in multiple counterparts as of the date set forth above by their duly
authorized representatives.
BUYER:
Southern Energy, Homes, Inc.
BY: ____________________________
Keith W. Brown, CFO
SEH Acquisition Corp.
BY: ______________________________
Keith W. Brown, President
STOCKHOLDERS:
-------------------------------
W. Thomas Deas
-------------------------------
James M. Moore, III
-------------------------------
W. David Deas
-------------------------------
J.M. Deas, Jr.
-------------------------------
James Miller Deas
-------------------------------
Thomas Deas, Jr.
-------------------------------
Gregory C. Vogel
SELLER:
BR Holding Corp.
BY: ____________________________
W. Thomas Deas, President
SUBSIDIARIES:
BR Chilton Co., Inc.
BY: ____________________________
W. Thomas Deas, Vice President
BR Mississippi, Inc.
BY: ____________________________
W. Thomas Deas, Vice President
BR Marshall Co., Inc.
BY: ____________________________
W. Thomas Deas, Vice President
BR Tuscaloosa Co., Inc.
BY: ____________________________
W. Thomas Deas, Vice President
SC Tuscaloosa Co., Inc.
BY: ____________________________
W. Thomas Deas, Vice President
TH Center, Inc.
BY: ____________________________
W. Thomas Deas, Vice President
SE Management, Inc.
BY: ____________________________
W. Thomas Deas, Vice President
BR Agency, Inc.
BY: ____________________________
W. Thomas Deas, President
AGREEMENT AND PLAN OF REORGANIZATION
LIST OF SCHEDULES AND EXHIBITS
Reference
at Page
-------
SCHEDULES
Schedule 2.3 - Options, Warrants and Convertible
Securities
Schedule 2.6 - Financial Statements of Subsidiaries
Schedule 2.7 - Property, Leases and Equipment
Schedule 2.9 - Absence of Undisclosed Liabilities
Schedule 2.12 - Changes in Financial Condition
Schedule 2.14(a) - Unaffiliated Stockholder Companies
Schedule 2.14(b) - Financial Statements of Unaffiliated
Stockholder Retailers
Schedule 2.14(c) - Absence of Undisclosed Liabilities
of Unaffiliated Stockholder Retailers
Schedule 2.14(d) - Changes in Financial Condition of
Unaffiliated Stockholder Retailers
Schedule 2.14(e) - Litigation of Unaffiliated
Stockholder Companies
Schedule 2.15 - Trade Names, Trademarks and
Copyrights
Schedule 2.16 - Trade Secrets and Customer Lists
Schedule 2.17 - Contracts and Commitments
Schedule 2.18 - Employee Benefit Plans
Schedule 2.20 - Licenses, Permits or Franchises
Schedule 2.21 - Borrowings
Schedule 2.22 - Banking Arrangements
Schedule 2.23 - Insurance
Schedule 2.24 - Warranty or other Claims
Schedule 2.26 - Litigation
Schedule 5.4 - Guaranteed Debt
EXHIBITS Reference
at Page
-------
Exhibit A: Certificate of Merger
Exhibit B: Contingent Payment Schedule
Exhibit C: Dealer Volume Incentive Program Terms
Exhibit D: Employment Contracts
Exhibit E: Non Competition Agreements
Exhibit F: Real Estate Development Agreement
Exhibit G: Investment Letter
EXHIBIT B
CONTINGENT PAYMENT SCHEDULE
For the 12 month period ended
December 31, 1997
Seller EBIT (1) Multiple Contingent Amount (2)
--------------- ---------- --------------------
Less than $2,500,700 @0 X $ -0-
Between $2,500,701 and $3,037,800 @2 X $ 2 to $1,074,200
Between $3,037,801 and $3,557,800 @2.25 X $1,208,477 to $2,378,475
$3,557,801 or more @2.5 X $2,642,753 to Computed
Multiple
For the 12 month period ended
December 31, 1998
Seller EBIT (1) Contingent Amount
--------------- -----------------
Less than $3,562,500 $ -0-
Between $3,562,501 and $4,145,000 $1,700,000
Between $4,145,001 and $5,016,000 $2,350,000
$5,016,001 or more $3,070,000
(1) Seller EBIT - Consolidated Earnings (defined below) before interest (other
than (i) floor plan interest incurred with respect to inventory and (ii)
interest incurred with respect to capital raised or capital expenditures made in
connection with the expansion of the Seller's or the Subsidiaries' operations,
which in neither case shall be greater than the cost of funds to Buyer), taxes,
management fees and any administrative fees paid to Buyer.
(2) Contingent Amount is EBIT less $2,500,700 times applicable multiple.
(3) "Consolidated Earnings" means the consolidated earnings of the Seller and
the Subsidiaries.
Exhibit 10.22
SOUTHERN ENERGY HOMES, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, amended and restated effective as of the 14th day of June,
1996 by and between Southern Energy Homes, Inc., a Delaware corporation
(hereinafter called the "Company"), and Wendell L. Batchelor (hereinafter called
the "Executive").
WHEREAS, the Executive has served since June 8, 1989 as the President
and Chief Executive Officer of the Company and its predecessor, Southern Energy
Homes, Inc., an Alabama corporation ("SEH-Alabama"), pursuant to that Employment
Agreement dated as of June 8, 1989 by and between the Executive and SEH-Alabama,
as amended by an Amendment to Employment Agreement dated as of January 1, 1993
(as so amended, the "Original Agreement");
WHEREAS, since August 17, 1996 the Executive has also served as the
Chairman of the Board of the Company;
WHEREAS, in light of the Executive's performance and his contributions
to the growth and profitability of the Company, the Company is prepared to
increase the Executive's Base Salary and to amend and restate the Original
Agreement to reflect such increase and the Executive's position as Chairman of
the Board;
WHEREAS, the Executive is prepared to so amend and restate the Original
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
do hereby agree to amend and restate the Original Agreement pursuant to Section
8.1 of the Original Agreement as follows:
1. Employment. The Company hereby agrees to employ the Executive as
Chairman of the Board, President and Chief Executive Officer of the Company and
the Executive hereby agrees to accept such employment, under and subject to the
terms and conditions hereinafter set forth.
2. Duties. The Executive agrees to perform faithfully such duties as
are consistent with his position as the Chairman of the Board, President and
Chief Executive Officer of the Company as may be assigned to him from time to
time by the Board of Directors of the Company, and shall report to the Board of
Directors. The Company shall provide the Executive with such support personnel
and office facilities as the Board of Directors shall deem reasonably necessary
to permit the Executive to perform the duties assigned to him hereunder. The
Executive agrees, during the Term (as hereinafter defined), to devote his full
business time and efforts to the performance of his duties hereunder to the
exclusion of all other business activities. The foregoing shall not prohibit the
Executive from acting as a passive investor in such investments and enterprises
as the Executive may choose, provided, however, that such activity does not
interfere with the performance of his duties hereunder and does not involve the
use of the Company resources or personnel.
3. Compensation. In consideration of the services rendered by the
Executive under this Agreement, the Company shall pay the Executive compensation
as follows:
(a) Base Salary: The Company shall pay the Executive a base
salary (the "Base Salary") of Thirty Six Thousand Six Hundred and Sixty Seven
Dollars ($36,667.00) per month during the term of this Agreement. The
Executive's Base Salary shall be paid in arrears on a weekly, bi-weekly or
monthly basis in accordance with such Company payroll policy and practice as may
obtain from time to time. The Base Salary may be reviewed from time to time by
the Board of Directors to determine whether, in light of the scope of the
Executive's duties and his performance, it may be appropriate to increase the
Base Salary.
(b) Incentive Compensation: In addition to his Base Salary,
the Executive shall be entitled to receive incentive bonus compensation as set
forth on the attached Schedule A.
4. Insurance and Other Benefits. During the Term of this Agreement the
Executive shall be entitled to the following benefits:
(a) health and medical insurance, disability insurance and
life insurance benefits comparable in cost and coverage to the benefits
presently provided by the Company to the Executive as of the date hereof;
(b) automobile expense allowance which is permitted under, and
is in accordance with, policies which may be established with respect thereto by
the Board of Directors from time to time;
(c) travel and entertainment allowances which are permitted
under, and are in accordance with, policies which may be established with
respect thereto by the Board of Directors from time to time;
(d) paid vacation and holidays as permitted under, and in
accordance with, policies which may be established with respect thereto by the
Board of Directors from time to time; and
(e) paid sick leave as permitted under, and in accordance
with, policies which may be established with respect thereto by the Board of
Directors from time to time.
5. Term. The term of employment under this Agreement (the "Term") shall
continue until June 30, 1997, and shall thereafter automatically renew for
additional one (1) year periods unless sooner terminated (i) by either of the
parties hereto by notice not less than ninety (90) days prior to the date of
renewal of (ii) as provided in Section 6.
6. Termination.
6.1 Termination by the Company. This Agreement and the employment of
the Executive by the Company may be terminated by the Company in accordance with
the provisions of this Section 6.1, as follows:
(a) If the Executive has been convicted of, or pleads guilty
or nolo contendere to a felony, or to a misdemeanor involving moral turpitude,
the Company may terminate the Executive's employment immediately upon the
occurrence of such conviction or plea.
(b) If the Executive has, in the good faith determination of
the Board of Directors, (i) engaged in willful misconduct with respect to the
Company, or (ii) grossly neglected his duties to the Company, the Company may
terminate the Executive's employment immediately by notice, which notice shall
specify in reasonable detail the alleged misconduct or neglect.
(c) If the Executive has, in the good faith determination of
the Board of Directors, (i) engaged in misconduct with respect to the Company,
(ii) neglected his duties to the Company, (iii) failed substantially in areas of
his direct responsibility to achieve satisfactory operating results over
repeated quarterly periods, or (iv) failed substantially to exercise reasonably
prudent skills in the performance of his duties hereunder, but in such cases the
alleged misconduct, neglect or failure is not willful or gross, but is worse
than mere mediocre or ordinary performance, the Company may terminate the
Executive's employment immediately by written notice of the same to the
Executive, specifying in reasonable detail the alleged misconduct, neglect or
failure.
(d) The Company may also terminate the Executive's employment
without assignment of cause upon thirty (30) days prior written notice.
In the event of termination under paragraphs (a) or (b) of this Section 6.1, all
salary, incentive bonus compensation and other benefit obligations of the
Company under Sections 3 and 4 of this Agreement shall cease effective with
termination of employment. In the event of termination under paragraph (c) of
this Section 6.1, all salary, incentive bonus compensation and other benefit
obligations of the Company shall cease as of the last day of the month in which
the termination occurs, provided, however that the Executive shall be paid a
severance benefit equal to one (1) months Base Salary, payable on the last day
of the month in which the termination occurs. In the event of termination under
paragraph (d) of this Section 6.1, all salary, incentive bonus compensation and
other benefit obligations of the Company shall cease as of the last day of the
month in which the termination occurs, provided, however that the Executive
shall be paid a severance benefit equal to six (6) months Base Salary payable in
six (6) equal monthly installments on the last day of the each of the six (6)
months following the month in which the termination occurs.
6.2 Death. In the event of the death of the Executive during the term
of this Agreement, his employment by the Company shall be deemed to terminate as
of the date of his death and a death benefit equal to six (6) months Base Salary
shall be payable in six (6) equal monthly installments to the Executive's
estate, commencing with the month following the date of the Executive's death.
All other payments and benefits shall cease as of the last day of the month in
which the Executive's death occurred.
6.3 Permanent Disability. In the event that the Executive suffers
Permanent Disability (as hereinafter defined), the Company may terminate the
Executive's employment by notice to the Executive and in the event of such
termination, the Executive shall be entitled to receive a disability severance
benefit equal to six (6) months Base Salary payable in six (6) equal monthly
installments commencing on the last day of the month in which such termination
occurs. All other payments and benefits, except for disability insurance
benefits provided pursuant to Section 4(a) hereof, shall cease as of the last
day of the calendar month in which such termination occurs. For the purposes
hereof, "Permanent Disability" shall be determined by a qualified physician and
shall mean the inability of the Executive, due to physical or mental illness,
disability or infirmity, to perform his duties hereunder for a period which has
continued, or could reasonably be expected to continue, for a period of four
consecutive months. Permanent Disability shall not be considered grounds for
termination by the Company under Section 6.1(a), (b) or (c) above.
7. Relocation. The Company agrees that it shall not require that the
Executive relocate from his residence in the State of Alabama.
8. Notices. All notices hereunder, to be effective, shall be in writing
and shall be delivered by hand or mailed by certified or registered mail,
postage and fees prepaid, as follows:
(i) If to the Company to:
Southern Energy Homes, Inc.
c/o Lee Capital Holdings
One International Place
Boston, Massachusetts 02110
Attn: Jonathan O. Lee
With a copy to:
Paul J. Hartnett, Jr.
Hutchins & Wheeler
101 Federal Street
Boston, Massachusetts 02110
(ii) If to Executive to:
Wendell L. Batchelor
P.O. Box 390
Addison, Alabama 35540
With a copy to:
John R. Wynn
Lanier, Ford, Shaves and Payne, P.C.
200 West Court Square
Suite 5000
P.O. Box 2087
Huntsville, Alabama 35804-0527
unless and until notice of another or different address shall be given as
provided herein.
8. Miscellaneous.
8.1 Modification. This Agreement, together with the Noncompetion
Agreement, constitutes the entire agreement between the parties hereto with
regard to the subject matter hereof, superseding all prior understandings and
agreements, whether written or oral. This Agreement may not be amended or
revised except by a writing signed by the parties.
8.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, although the obligations of the Executive are personal and may be
performed only by him.
8.3 Captions. Captions herein have been inserted solely for convenience
of reference and in no way define, limit or describe the scope or substance of
any provision of this Agreement.
8.4 Severability. The provisions of this Agreement are severable, and
invalidity of any provision shall not affect the validity of any other
provision. In the event that any court of competent jurisdiction shall determine
that any provision of this Agreement or the application thereof is unenforceable
because of the duration or scope thereof, the parties hereto agree that said
court in making such determinations shall have the power to reduce the duration
and scope of such provision to the extent necessary to make if enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.
8.5 Arbitration. Any and all disputes arising hereunder shall be
subject to binding arbitration in Washington, D.C., in accordance with the
Commercial Rules of the American Arbitration Association, as then amended and in
effect, and any award thereunder shall be binding and conclusive and may be
entered for judgment in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
SOUTHERN ENERGY HOMES, INC.
By: ___________________________
Keith W. Brown, Treasurer
EXECUTIVE:
-------------------------------
Wendell L. Batchelor
SCHEDULE A
This Schedule A is to the Amended and Restated Employment Agreement
between Southern Energy Homes, Inc. (the "Company") and Wendell L. Batchelor
(the "Executive"), dated as of June 14, 1996 (the "Agreement"), and sets forth
the terms of Executive's incentive bonus compensation as provided in Section
3(b) of the Agreement. Terms not otherwise defined in this Schedule A shall have
the respective meanings set forth in the Agreement.
During the Term of this Agreement, the Executive shall be entitled to
incentive bonus compensation equal to 2% of the Net Income (as hereinafter
defined) of the Company for the period in which such incentive bonus
compensation is earned.
Incentive bonus compensation shall be paid monthly in arrears, provided
that incentive bonus compensation earned for any period which does not
constitute a full calendar month shall be pro rated based on the number of days
in such period and the number of days in the applicable month.
For the purpose of this Schedule A, Net Income shall mean net operating
income before interest expense, taxes and amortization for organizational
expenses, goodwill or covenants not to compete and without reduction for any
management fees payable to Lee Capital Holdings. Net Income shall be determined
in accordance with generally accepted accounting principles consistently
applied.
Exhibit 10.23
SOUTHERN ENERGY HOMES, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, amended and restated effective as of the 14th day of June,
1996 by and between Southern Energy Homes, Inc., a Delaware corporation
(hereinafter called the "Company"), and Keith W. Brown (hereinafter called the
"Executive").
WHEREAS, the Executive has served since June 8, 1989 as the Controller
and Chief Financial Officer of the Company and its predecessor, Southern Energy
Homes, Inc., an Alabama corporation ("SEH-Alabama"), pursuant to that Employment
Agreement dated as of June 8, 1989 by and between the Executive and SEH-Alabama,
as amended by an Amendment to Employment Agreement dated as of January 1, 1993
(as so amended, the "Original Agreement");
WHEREAS, in light of the Executive's performance and his contributions
to the growth and profitability of the Company, the Company is prepared to
increase the Executive's Base Salary and to amend and restate the Original
Agreement to reflect such increase and the Executive's position as Controller
and Chief Financial Officer;
WHEREAS, the Executive is prepared to so amend and restate the Original
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
do hereby agree to amend and restate the Original Agreement pursuant to Section
8.1 of the Original Agreement as follows:
1. Employment. The Company hereby agrees to employ the Executive as
Controller and Chief Financial Officer of the Company and the Executive hereby
agrees to accept such employment, under and subject to the terms and conditions
hereinafter set forth.
2. Duties. The Executive agrees to perform faithfully such duties as
are consistent with his position as the Controller and Chief Financial Officer
of the Company as may be assigned to him from time to time by the Board of
Directors of the Company, and shall report to the Board of Directors. The
Company shall provide the Executive with such support personnel and office
facilities as the Board of Directors shall deem reasonably necessary to permit
the Executive to perform the duties assigned to him hereunder. The Executive
agrees, during the Term (as hereinafter defined), to devote his full business
time and efforts to the performance of his duties hereunder to the exclusion of
all other business activities. The foregoing shall not prohibit the Executive
from acting as a passive investor in such investments and enterprises as the
Executive may choose, provided, however, that such activity does not interfere
with the performance of his duties hereunder and does not involve the use of the
Company resources or personnel.
3. Compensation. In consideration of the services rendered by the
Executive under this Agreement, the Company shall pay the Executive compensation
as follows:
(a) Base Salary: The Company shall pay the Executive a base
salary (the "Base Salary") of Eleven Thousand Two Hundred and Fifty Dollars
($11,250.00) per month during the term of this Agreement. The Executive's Base
Salary shall be paid in arrears on a weekly, bi-weekly or monthly basis in
accordance with such Company payroll policy and practice as may obtain from time
to time. The Base Salary may be reviewed from time to time by the Board of
Directors to determine whether, in light of the scope of the Executive's duties
and his performance, it may be appropriate to increase the Base Salary.
(b) Incentive Compensation: In addition to his Base Salary,
the Executive shall be entitled to receive incentive bonus compensation as set
forth on the attached Schedule A.
4. Insurance and Other Benefits. During the Term of this Agreement the
Executive shall be entitled to the following benefits:
(a) health and medical insurance, disability insurance and
life insurance benefits comparable in cost and coverage to the benefits
presently provided by the Company to the Executive as of the date hereof;
(b) automobile expense allowance which is permitted under, and
is in accordance with, policies which may be established with respect thereto by
the Board of Directors from time to time;
(c) travel and entertainment allowances which are permitted
under, and are in accordance with, policies which may be established with
respect thereto by the Board of Directors from time to time;
(d) paid vacation and holidays as permitted under, and in
accordance with, policies which may be established with respect thereto by the
Board of Directors from time to time; and
(e) paid sick leave as permitted under, and in accordance
with, policies which may be established with respect thereto by the Board of
Directors from time to time.
5. Term. The term of employment under this Agreement (the "Term") shall
continue until June 30, 1997, and shall thereafter automatically renew for
additional one (1) year periods unless sooner terminated (i) by either of the
parties hereto by notice not less than ninety (90) days prior to the date of
renewal of (ii) as provided in Section 6.
6. Termination.
6.1 Termination by the Company. This Agreement and the employment of
the Executive by the Company may be terminated by the Company in accordance with
the provisions of this Section 6.1, as follows:
(a) If the Executive has been convicted of, or pleads guilty
or nolo contendere to a felony, or to a misdemeanor involving moral turpitude,
the Company may terminate the Executive's employment immediately upon the
occurrence of such conviction or plea.
(b) If the Executive has, in the good faith determination of
the Board of Directors, (i) engaged in willful misconduct with respect to the
Company, or (ii) grossly neglected his duties to the Company, the Company may
terminate the Executive's employment immediately by notice, which notice shall
specify in reasonable detail the alleged misconduct or neglect.
(c) If the Executive has, in the good faith determination of
the Board of Directors, (i) engaged in misconduct with respect to the Company,
(ii) neglected his duties to the Company, (iii) failed substantially in areas of
his direct responsibility to achieve satisfactory operating results over
repeated quarterly periods, or (iv) failed substantially to exercise reasonably
prudent skills in the performance of his duties hereunder, but in such cases the
alleged misconduct, neglect or failure is not willful or gross, but is worse
than mere mediocre or ordinary performance, the Company may terminate the
Executive's employment immediately by written notice of the same to the
Executive, specifying in reasonable detail the alleged misconduct, neglect or
failure.
(d) The Company may also terminate the Executive's employment
without assignment of cause upon thirty (30) days prior written notice.
In the event of termination under paragraphs (a) or (b) of this Section 6.1, all
salary, incentive bonus compensation and other benefit obligations of the
Company under Sections 3 and 4 of this Agreement shall cease effective with
termination of employment. In the event of termination under paragraph (c) of
this Section 6.1, all salary, incentive bonus compensation and other benefit
obligations of the Company shall cease as of the last day of the month in which
the termination occurs, provided, however that the Executive shall be paid a
severance benefit equal to one (1) months Base Salary, payable on the last day
of the month in which the termination occurs. In the event of termination under
paragraph (d) of this Section 6.1, all salary, incentive bonus compensation and
other benefit obligations of the Company shall cease as of the last day of the
month in which the termination occurs, provided, however that the Executive
shall be paid a severance benefit equal to six (6) months Base Salary payable in
six (6) equal monthly installments on the last day of the each of the six (6)
months following the month in which the termination occurs.
6.2 Death. In the event of the death of the Executive during the term
of this Agreement, his employment by the Company shall be deemed to terminate as
of the date of his death and a death benefit equal to six (6) months Base Salary
shall be payable in six (6) equal monthly installments to the Executive's
estate, commencing with the month following the date of the Executive's death.
All other payments and benefits shall cease as of the last day of the month in
which the Executive's death occurred.
6.3 Permanent Disability. In the event that the Executive suffers
Permanent Disability (as hereinafter defined), the Company may terminate the
Executive's employment by notice to the Executive and in the event of such
termination, the Executive shall be entitled to receive a disability severance
benefit equal to six (6) months Base Salary payable in six (6) equal monthly
installments commencing on the last day of the month in which such termination
occurs. All other payments and benefits, except for disability insurance
benefits provided pursuant to Section 4(a) hereof, shall cease as of the last
day of the calendar month in which such termination occurs. For the purposes
hereof, "Permanent Disability" shall be determined by a qualified physician and
shall mean the inability of the Executive, due to physical or mental illness,
disability or infirmity, to perform his duties hereunder for a period which has
continued, or could reasonably be expected to continue, for a period of four
consecutive months. Permanent Disability shall not be considered grounds for
termination by the Company under Section 6.1(a), (b) or (c) above.
7. Relocation. The Company agrees that it shall not require that the
Executive relocate from his residence in the State of Alabama.
8. Notices. All notices hereunder, to be effective, shall be in writing
and shall be delivered by hand or mailed by certified or registered mail,
postage and fees prepaid, as follows:
(i) If to the Company to:
Southern Energy Homes, Inc.
c/o Lee Capital Holdings
One International Place
Boston, Massachusetts 02110
Attn: Jonathan O. Lee
With a copy to:
Paul J. Hartnett, Jr.
Hutchins & Wheeler
101 Federal Street
Boston, Massachusetts 02110
(ii) If to Executive to:
Wendell L. Batchelor
P.O. Box 390
Addison, Alabama 35540
With a copy to:
John R. Wynn
Lanier, Ford, Shaves and Payne, P.C.
200 West Court Square
Suite 5000
P.O. Box 2087
Huntsville, Alabama 35804-0527
unless and until notice of another or different address shall be given as
provided herein.
8. Miscellaneous.
8.1 Modification. This Agreement, together with the Noncompetion
Agreement, constitutes the entire agreement between the parties hereto with
regard to the subject matter hereof, superseding all prior understandings and
agreements, whether written or oral. This Agreement may not be amended or
revised except by a writing signed by the parties.
8.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, although the obligations of the Executive are personal and may be
performed only by him.
8.3 Captions. Captions herein have been inserted solely for convenience
of reference and in no way define, limit or describe the scope or substance of
any provision of this Agreement.
8.4 Severability. The provisions of this Agreement are severable, and
invalidity of any provision shall not affect the validity of any other
provision. In the event that any court of competent jurisdiction shall determine
that any provision of this Agreement or the application thereof is unenforceable
because of the duration or scope thereof, the parties hereto agree that said
court in making such determinations shall have the power to reduce the duration
and scope of such provision to the extent necessary to make if enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.
8.5 Arbitration. Any and all disputes arising hereunder shall be
subject to binding arbitration in Washington, D.C., in accordance with the
Commercial Rules of the American Arbitration Association, as then amended and in
effect, and any award thereunder shall be binding and conclusive and may be
entered for judgment in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
SOUTHERN ENERGY HOMES, INC.
By: ___________________________
Jonathan O. Lee, Chairman
of the Board
EXECUTIVE:
-------------------------------
Keith W. Brown
Exhibit 21
SUBSIDIARIES OF SOUTHERN ENERGY HOMES, INC.
DIRECT SUBSIDIARIES:
1. Al/Tex Homes, Inc., d/b/a Southern Energy Homes of Texas.
2. Southern Energy Homes of North Carolina, Inc., d/b/a Imperial Homes.
3. WENCO Finance, Inc.
4. MH Transport, Inc.
5. Southern Energy Homes of Pennsylvania, Inc., d/b/a Energy Homes
6. BR Holding Corp.
INDIRECT SUBSIDIARIES:
1. BR Agency, Inc., a wholly owned subsidiary of BR Holding Corp.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report, incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement File No. 33-77222.
/S/ ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 26, 1997
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