<PAGE> 1
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 2, 1998
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 to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
N/A
</TABLE>
Securities to be 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 17, 1998, was $185,908,369.75. The number of
shares of common stock outstanding at that date was 15,573,476 shares, $.0001
par value.
Documents Incorporated By Reference
<TABLE>
<CAPTION>
Part Item
---- ----
<S> <C> <C>
1. Southern Energy Homes, Inc. Definitive Proxy Statement with respect to its
May 20, 1998 Annual Meeting of Stockholders III 10,11,12,13
</TABLE>
<PAGE> 2
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 nine home
manufacturing facilities (seven in Alabama, one in Texas, and one in North
Carolina) to produce homes sold in 23 states. The Company's homes are currently
marketed under five brand names by 435 independent dealers at 814 independent
dealer locations and 21 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 1997 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>
*The company closed this facility in October 1997.
For the fiscal year ended January 2, 1998, the net revenues contributed
by each of the Company's six home manufacturing divisions were as follows:
Southern Energy - $52 million; Southern Life/Style - $60 million; Southern Homes
- - $88 million; Southern Energy Homes of Texas - $31 million; Southern Energy
Homes of North Carolina - $18 million; and Southern Energy Homes of Pennsylvania
- - $3 million (closed in 1997).
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 2, 1998, .5% of
the Company's net revenues were attributable to sales of these ancillary
products to third-parties.
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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 five 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") originated and serviced during the period January 1996 through
February 1997 consumer loans 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, continues 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
originates and services consumer loans and assigns 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 is 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 suspended its loan origination activities and engaged
21st Century to service its existing loan portfolio. At January 2, 1998, Wenco
Finance had $9.8 million of installment contract receivables outstanding as
compared with $26.5 million at January 3, 1997. 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 five operating
divisions using assembly line techniques at nine facilities, four of which are
located in Addison, Alabama, two of which are located in Double Springs,
Alabama, one of which is located in Lynn, Alabama, one of which is located in
Fort Worth, Texas, and one of which is located in Albemarle, North Carolina.
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 430 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 2, 1998, the Company produced an average of 275 floor sections per week.
This represented a 13% decrease in floor section production from an average of
315 floor sections per week in the fiscal year ended January 3, 1997. In the
fiscal year ended December 29, 1995, the Company produced an average of 268
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:
<TABLE>
<CAPTION>
Year Ended
December 29, January 3, January 2,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Homes 9,079 10,940 9,165
Floor sections 13,942 16,697 14,288
Home manufacturing
facilities(1) 10 10 9
</TABLE>
(1) Production commenced at the Company's eleventh home manufacturing facility
in February 1997, the Company closed one of its Lynn, Alabama facilities in
April 1997 and closed its Pennsylvania facility in September 1997.
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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 2.6% 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,
1998 was $3.2 million as compared with $3.0 million at March 1, 1997. 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 2, 1998, the Company sold manufactured homes through
approximately 435 independent dealers at approximately 814 independent dealer
locations and through 20 company-owned retail centers in 23 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 five home manufacturing divisions maintains a
separate sales force. At January 2, 1998, a total of 52 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 1997, the Company's largest dealer accounted for 2.5% of net revenues and
the ten largest dealers accounted for 18.0% of net revenues. In the fiscal year
ended January 3, 1997, the Company's largest dealer accounted for 5.4% of net
revenues, and the Company's 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.
The Company began its retail operations in November 1996 by acquiring a
group of retail companies doing business in Alabama and Mississippi. In December
1997, the Company expanded its retail operations by acquiring another retail
company with seven locations in South Carolina. At January 2, 1998, the Company
had 20 retail sales centers; 11 in Alabama, seven in South
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Carolina, and two in Mississippi. Subsequent to January 2, 1998, the Company
opened an additional sales center in Georgia. Each of the 21 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 2, 1998, the Company's contingent repurchase liability under floor plan
financing arrangements through independent dealers was approximately $92
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 5.4% 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 $15.9 million at January 2,
1998.
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.
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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 hurricanes.
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 December 3, 1997, the Company acquired substantially all of the
assets and liabilities of A & G, Inc., a manufactured home retailer in South
Carolina. The Company paid $1.4 million in cash and issued 94,115 shares of the
Company's common stock (approximate market value on December 3, 1997 was
$869,000).
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
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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 May 1997, an additional payment totaling
approximately $197,000, 49,000 in cash and 14,256 shares of the Company's common
stock (approximate market value of $148,000) was made for earnings targets
achieved through December 31, 1996. At January 2, 1998, there was no payment
obligation.
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 2, 1998, the Company employed 2,371 full-time employees
involved in the following functional areas: manufacturing, 1,832; sales, 135;
field service, 163; administration and clerical, 132; drivers, 64; and
management, 45. 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 55) 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 51) 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 41) 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 37) 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. From 1985 to 1989 served as salesman for Southern Lifestyle, a division
of the Company.
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ITEM 2. PROPERTIES
The Company's manufactured home segment currently operates nine home
manufacturing facilities (seven in Alabama, and one in each of Texas and North
Carolina) 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>
*Closed during 1997
The Company currently operates 21 retail sales centers, 11 of which are
in Alabama, seven of which are in South Carolina, two in Mississippi and one in
Georgia. Each of the lots are currently leased and such lease terms range from
one to five years.
The corporate headquarters is located in Addison, Alabama and occupies
approximately 15,400 square feet of office space.
Each of the Company's manufacturing facilities, other than the
Company's facility in Pennsylvania and the Southern Homes #3 facility are
company owned. 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 vigorously defend the claim 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. In March 1997, the Company obtained a temporary restraining order
preventing GBH from drawing upon the letter of credit. In
8
<PAGE> 9
February 1998, the Alabama Supreme Court issued an opinion allowing GBH to draw
on the letter of credit. GBH promptly drew on the Company's letter of credit in
the amount of $580,000. In the opinion of management, after consultation with
legal counsel, there is no other material exposure with regard to GBH.
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 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Recent Sales of Unregistered Securities
On December 3, 1997, the registrant issued 94,115 shares of common
stock, $.0001 par value (the "Shares"), to A&G, Inc. in connection with the
registrant's acquisition of A & G, Inc. The aggregate merger consideration given
by the registrant was $2.3 million, of which $1.4 million was paid in cash and
$869,000 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 an entity whose sole stockholder was sophisticated (or
whose representative was sophisticated) about business and financial matters.
The registrant made available to the purchaser 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 purchaser to ask questions of and receive answers from its officers and
directors concerning the registrant's business and finances. The purchaser 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 17, 1997, there were 110 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.
<TABLE>
<CAPTION>
1997 1996
Price Range Price Range
High Low High Low
<S> <C> <C> <C> <C> <C>
First Quarter 13.38 9.75 11.75 9.00
Second Quarter 10.88 7.38 15.25 9.67
Third Quarter 10.75 8.75 16.25 10.00
Fourth Quarter 10.75 8.00 18.13 11.38
</TABLE>
Dividends
It is the Company's current policy to retain any future earnings to
finance the continuing development of its business and not to pay dividends. The
company has not paid any dividends since the initial public offering of its
stock.
9
<PAGE> 10
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
-------------------------------------------------------------------------------
January 2, January 3, December 29, December 30, December 31
Operating Data 1998 1997 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net revenues $ 298,533 $ 306,844 $ 241,268 $ 188,750 $ 143,618
Gross profit 44,053 43,647 31,125 24,763 19,518
Selling, general
and administrative 21,458 17,634 13,272 10,633 7,795
Provision for credit
losses 187 1,177 -- -- --
Amortization 853 517 422 322 531
Non-recurring
charges(1) (2) 2,146 -- -- -- 1,907
Operating income 19,409 24,319 17,431 13,808 9,285
Interest expense 1,412 131 146 237 654
Interest income 470 593 811 392 184
Provision for income
taxes 7,092 9,535 6,854 5,139 3,454
Net income 11,375 15,246 11,242 8,824 5,244
Net income per share:
Basic $ 0.76 $ 1.01 $ 0.79 $ 0.62 $ 0.40
Diluted $ 0.75 $ 1.00 $ 0.78 $ 0.62 $ 0.40
Weighted average shares outstanding (3):
Basic 15,002,006 15,122,578 14,300,466 14,161,135 13,094,010
Diluted 15,129,530 15,260,484 14,349,197 14,328,361 13,163,705
</TABLE>
<TABLE>
<CAPTION>
January 2, January 3, December 29, December 30, December 31,
Balance Sheet Data 1998 1997 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total assets $123,253 $112,658 $ 75,899 $ 54,347 $ 43,340
Long-term debt 4,720 -- 6 596 1,502
Stockholders' equity $ 79,767 $ 77,377 $ 57,242 $ 38,559 $ 29,722
</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.
(1) During the second quarter of 1997, the company recorded a $2.1 million
pre-tax non-recurring charge in connection with its decision to close its
manufactured housing facility located in Pennsylvania.
(1) The Company adopted the provisions of Statement of Financial Accounting of
Standards No. 128, Earnings Per Share, therefore all periods presented have
been restated to conform to the new statement.
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended January 2, 1998 as Compared with Year Ended January 3, 1997
Net Revenues
Total net revenues (gross revenues less volume discounts, returns, and
allowances) and finance revenue for the year ended January 2, 1998 were $298.5
million, which represented a decrease of 2.7% over the prior fiscal year.
Net revenues of the manufactured home segment, which includes the Company's
retail operations, were $296.4 million for the year ended January 2, 1998 as
compared with $304.9 million for the prior year period. Retail home sales
accounted for $47.5 million of the manufactured home segment revenues for the
year ended January 2, 1998 as compared with $4.0 million for the prior year
period. 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. Sales to dealers
accounted for approximately $248.9 million of the manufactured home segment
revenues for the fiscal year ended January 2, 1998, as compared with $300.8
million for the same period a year ago, a decrease of $52.0 million, or 17.3%.
The decline in sales to dealers was attributable to a decline in the number of
homes shipped, which was partially offset by an increase in the average
wholesale price per home shipped. Total homes shipped in the year ended January
2, 1998 was 9,165, down 16.2% from the number of homes shipped in the prior year
period. The decrease in homes sold was attributable to an overall industry
decline in the Company's core market areas and increased competition within
these market areas. The average wholesale price per home in 1997 was $27,500, as
compared with $26,500 in 1996, an increase of 3.8%.
Revenues from the Company's retail financing segment were $2.2 million for the
year ended January 2, 1998, as compared with $2.0 million 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 Finance"). Wenco
Finance originated and serviced 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 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 Finance
suspended its loan origination activities and engaged 21st Century to service
its existing loan portfolio.
Gross Profit
Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended January 2, 1998
was $44.1 million, or 14.8% of net revenues, as compared with $43.6 million, or
14.2% of net revenues, in the prior year period. This increase in the gross
profit percentage was attributable primarily to increased sales from the
Company's retail segment, which have a higher gross margin than sales to
independent dealers, partially offset by decreased efficiencies associated with
lower production levels, which resulted from a decreased in backlog of orders.
Selling Expenses
Selling expenses include primarily sales commissions, advertising expenses,
salaries for support personnel, and freight costs. Selling expenses were $10.6
million, or 3.6% of net revenues, during the year ended January 2, 1998, as
compared with $7.0 million, or 2.3% of net revenues, during the prior year
period. The increase in selling expense as a percentage of net revenues was
attributable primarily to increased selling expenses associated with the
Company's retail operation, which was partially offset by 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
General and administrative expenses include administrative salaries, executive
and management bonuses, insurance costs, and professional fees. General and
administrative expenses were $10.8 million, or 3.6% of net revenues, for the
year ended January 2, 1998, as compared with $10.6 million, or 3.5% of net
revenues, for the same period of 1996. 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 staff retail operations and to resolve staffing shortages. This
increase was partially offset by a gain of approximately $775,000 resulting from
the sale of $16.7 million of the Company's installment contracts receivable
portfolio.
11
<PAGE> 12
Provision for Credit Losses
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 2, 1998 was $187,000 as
compared with $1.2 million for the year ended January 3, 1997. The decrease in
the current year provision reflects the suspension of loan originations by
Wenco, which occurred in February 1997.
Non-Recurring Charge
During the second quarter of 1997, the Company recorded a $2.1 million (pre-tax)
non-recurring charge in connection with its decision to close its manufactured
housing facility located in Pennsylvania. The decision was based primarily on
changes in local market conditions and operating results of the facility. During
the years ended January 2,1998 and January 3,1997, this facility generated 1.0%
and 3.3%, respectively, of the total revenues of the Company. The impact of the
results of operations of this facility on the operating income of the Company
was immaterial during the years ended January 2,1998 and January 3,1997. The
asset impairment losses consisted of the write-off of goodwill, ($505,000), the
write-off of non-compete agreements ($134,000), and the write-off of certain
other operating assets ($632,000), and plant closing costs consisting primarily
of lease obligations ($400,000), warranty reserves ($260,000) and severance pay
($141,000).
Interest Expense
Interest expense for the year ended January 2, 1998 was $1.4 million as compared
with $131,000 for the year ended January 3, 1997. The increase in interest
expense in the current year was a result of increased notes payable associated
with the floor plan financing of the Company's retail inventory and the
borrowings of $6.3 million of long-term debt.
.
Interest Income
Interest income for the year ended January 2, 1998 was $470,000 as compared with
$593,000 for the year ended January 3, 1997. The decrease in interest income
reflects lower average cash and cash equivalent balances during the year ended
January 2, 1998.
Provision for Income Taxes
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 2, 1998 was $7.1 million, or an effective tax
rate of 38.4%, compared with $9.5 million, or an effective tax rate 38.5%, for
the year ended January 3, 1997. The decline in income tax expense is a result of
lower income in 1997.
Year Ended January 3, 1997 as Compared with Year Ended December 29, 1995
Net Revenues
Total net revenues 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
$26,500, as compared with $25,600 in 1995, an increase of 3.5%. 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 Wenco
Finance. Wenco Finance had 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, continues 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 Finance suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio. Gross Profit
12
<PAGE> 13
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
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 expenses 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
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 occurred as the Company continued
to expand.
Provision for Credit Losses
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
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.
Provision for Income Taxes
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.
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 2, 1998, the Company's cash provided by operations
was approximately $11.1 million. Cash provided by operations included net income
of $11.4 million, which was partially offset by increased accounts receivable
and prepayments and other of $5.1 million, decreased accounts payable and
accrued liabilities of $2.4 million, and loan originations of $1.3 million. In
addition to cash provided by operating activities, other significant cash flows
included capital expenditures of $6.1 million, purchase of subsidiary for $1.4
million, increased organization and pre-operating costs of $499,000, repurchase
of common stock of $10.2 million, investments in joint ventures of $2.7 million,
increased net borrowings of $5.2 million and the sale of installment contracts
of $16.7 million.
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.
13
<PAGE> 14
At January 2, 1998, the Company's net working capital was $32.9 million,
including $17.7 million in cash and cash equivalents, as compared with $17.7
million at January 3, 1997, including $5.3 million in cash and cash equivalents.
The increase in net working capital was a result of an increase in cash and cash
equivalents of $12.4 million resulting from the sale of a portion of the
Company's installment contracts receivable, and an increase in accounts
receivable of approximately $4.8 million, increased inventories of $1.5 million,
partially offset by increased notes payable of approximately $3.9 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 $15 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 2, 1998, the Company's contingent repurchase liability
under floor plan financing arrangements was approximately $92 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 floor plan financing
arrangements or that the Company will not suffer losses with respect to, and as
a consequence of, those arrangements.
Expansion
In November 1996, the Company acquired a group of retail sales centers in
Alabama and Mississippi. The initial 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. 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
May 1997, an additional payment totaling approximately $197,000, $49,000 in cash
and 14,256 shares of the Company's common stock (approximate market value of
$148,000) was made for earnings targets achieved through December 31, 1996. At
January 2, 1998, there was no payment obligation.
In December 1997, the Company acquired substantially all of the assets and
assumed all of the liabilities of a manufactured housing retailer in South
Carolina. The purchase price consisted of approximately $1.4 million in cash and
94,115 shares of the Company's common stock (approximate market value on
December 3, 1997 of $869,000).
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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Forward-looking statements in this report, including without limitation,
statements relating to the adequacy of the Company's resources, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including without limitation: the cyclical and
seasonal nature of housing markets; the availability of financing for
prospective purchasers of the Company's homes; the amount of capital that the
Company may commit to its Wenco 21 joint venture to make available consumer
loans; the performance of the loans held by the Company's finance subsidiary;
the availability and pricing of raw materials; the concentration of the
Company's business in certain regional markets; the Company's ability to execute
and manage its expansion plans; the availability of labor to implement those
plans; the highly competitive nature of the manufactured housing industry;
federal, state and local regulation of the Company's business; the company's
contingent repurchase liabilities with respect to dealer financing; the
Company's reliance on independent dealers; and other risks indicated from time
to time in the Company's filings with the Securities and Exchange Commission.
14
<PAGE> 15
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 17,676,000 $ 5,299,000
Accounts receivable, less allowance for doubtful
accounts of $180,000 and $362,000, respectively 22,399,000 17,558,000
Installment contracts receivable 165,000 421,000
Inventories 28,479,000 27,019,000
Deferred tax benefits 1,816,000 1,829,000
Prepayments and other 1,134,000 890,000
------------- -------------
71,669,000 53,016,000
------------- -------------
Property, plant, and equipment:
Property, plant, and equipment, at cost 28,982,000 23,527,000
Less - accumulated depreciation (7,130,000) (5,169,000)
------------- -------------
21,852,000 18,358,000
------------- -------------
Intangibles and other non-current assets:
Installment contracts receivable, less allowance
for credit losses of $696,000 and $1,142,000,
respectively 9,673,000 26,064,000
Goodwill 14,258,000 13,093,000
Non-compete agreements 421,000 667,000
Organization and pre-operating costs 825,000 649,000
Other assets 4,555,000 811,000
------------- -------------
29,732,000 41,284,000
------------- -------------
$ 123,253,000 $ 112,658,000
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 15,932,000 $ 12,025,000
Current maturities of long-term debt 1,106,000 --
Accounts payable 3,449,000 4,303,000
Volume incentive payable 7,828,000 8,541,000
Accrued payroll-related expenses 2,693,000 2,743,000
Accrued workers' compensation 1,995,000 2,426,000
Accrued warranty 1,939,000 1,944,000
Accrued other 3,824,000 3,299,000
------------- -------------
38,766,000 35,281,000
------------- -------------
Long-term debt 4,720,000 --
------------- -------------
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.0001 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.0001 par value, 40,000,000 shares
authorized, 15,572,326 shares issued at January
2, 1998; 20,000,000 shares authorized 15,437,801
shares issued at January 3, 1997 2,000 2,000
Treasury stock, at cost, 1,122,100 shares at
January 2, 1998 and no shares at January 3, 1997 (10,201,000) --
Capital in excess of par 37,215,000 35,999,000
Retained earnings 52,751,000 41,376,000
------------- -------------
79,767,000 77,377,000
------------- -------------
$ 123,253,000 $ 112,658,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
15
<PAGE> 16
Consolidated Statements of Operations
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
Year Ended
January 2, January 3, December 29,
1998 1997 1995
(52 Weeks) (53 Weeks) (52 Weeks)
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues $298,533,000 $306,844,000 $241,268,000
Cost of sales 254,480,000 263,197,000 210,143,000
------------ ------------ ------------
Gross profit 44,053,000 43,647,000 31,125,000
------------ ------------ ------------
Operating expenses:
Selling 10,635,000 7,015,000 5,712,000
General and administrative 10,823,000 10,619,000 7,560,000
Provision for credit losses 187,000 1,177,000 --
Amortization of intangibles 853,000 517,000 422,000
Non-recurring charge 2,146,000 -- --
------------ ------------ ------------
24,644,000 19,328,000 13,694,000
------------ ------------ ------------
Operating income 19,409,000 24,319,000 17,431,000
------------ ------------ ------------
Interest expense 1,412,000 131,000 146,000
Interest income 470,000 593,000 811,000
------------ ------------ ------------
Income before provision for
income taxes 18,467,000 24,781,000 18,096,000
Provision for income taxes 7,092,000 9,535,000 6,854,000
Net income $ 11,375,000 $ 15,246,000 $ 11,242,000
Net income per share:
Basic $ 0.76 $ 1.01 $ 0.79
============ ============ ============
Diluted $ 0.75 $ 1.00 $ 0.78
============ ============ ============
Weighted average number of common shares:
Basic 15,002,006 15,122,578 14,300,466
============ ============ ============
Diluted 15,129,530 15,260,484 14,349,197
============ ============ ============
</TABLE>
16
<PAGE> 17
Consolidated Statements of Stockholders' Equity
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
Capital
Common Stock Treasury Stock in Excess Retained
Shares Amount Shares Amount of Par Earnings Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1994 14,161,311 $ 1,000 -- $ 0 $ 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
Exercise of stock options 26,154 -- -- -- 181,000 -- 181,000
Issuance of common stock
in connection with
acquisitions 108,371 -- -- -- 1,035,000 -- 1,035,000
Treasury stock repurchases -- -- (1,122,100) (10,201,000) -- -- (10,201,000)
Net income -- -- -- -- -- 11,375,000 11,375,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, January 2, 1998 15,572,326 $ 2,000 (1,122,100) $(10,201,000) $ 37,215,000 $ 52,751,000 $ 79,767,000
============ ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
17
<PAGE> 18
CONSOLIDATED Statements of Cash Flows
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
January 2, January 3, December 29
1998 1997 1995
(52 Weeks) (53 Weeks) (52 Weeks)
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 11,375,000 $ 15,246,000 $ 11,242,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity income of joint ventures (282,000) -- --
Gain on sale of installment contracts (775,000) -- --
Non-recurring charge 2,146,000 -- --
Depreciation of property, plant, and equipment 2,244,000 1,168,000 1,273,000
Provision (credit) for deferred income taxes 13,000 (560,000) (158,000)
Gain on sale of property, plant, and equipment (25,000) 37,000 13,000
Amortization of intangibles 853,000 517,000 422,000
Provision (credit) for doubtful accounts receivable (77,000) 210,000 22,000
Accretion of discount on debt -- -- 78,000
Provision for credit losses on installment contracts 187,000 1,177,000 --
Origination of installment contracts (1,272,000) (27,497,000) --
Principal collected on originated
installment contracts 996,000 490,000 --
Change in assets and liabilities, net of effect
from purchase of subsidiaries:
Accounts receivable (4,850,000) 3,936,000 (5,277,000)
Inventories 3,194,000 (7,039,000) (1,260,000)
Prepayments and other (250,000) (255,000) (723,000)
Accounts payable (854,000) (1,174,000) 328,000
Accrued liabilities (1,572,000) 4,525,000 2,418,000
------------ ------------ ------------
Net cash provided by (used in) operating activitie 11,051,000 (9,219,000) 8,378,000
------------ ------------ ------------
Investing activities:
Purchase of subsidiaries, net of cash acquired (1,410,000) (1,217,000) (942,000)
Capital expenditures (6,089,000) (5,501,000) (5,161,000)
Maturities of investments -- 2,076,000 4,924,000
Investments in joint ventures (2,712,000) (770,000) --
Increase in organization and pre-operating costs (499,000) (305,000) (482,000)
Proceeds from sale of property, plant, and equipment 162,000 68,000 42,000
------------ ------------ ------------
Net cash used in investing activities (10,548,000) (5,649,000) (1,619,000)
------------ ------------ ------------
Financing activities:
Purchase of treasury stock (10,201,000) -- --
Net borrowings on notes payable (668,000) 3,060,000 --
Repayments of long-term debt (500,000) -- (1,454,000)
Borrowings on long-term debt 6,326,000 -- --
Net proceeds from issuance of common stock -- -- 7,236,000
Proceeds from exercise of stock options 181,000 357,000 205,000
Proceeds from sale of installment contracts 16,736,000 -- --
------------ ------------ ------------
Net cash provided by financing activities 11,874,000 3,417,000 5,987,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 12,377,000 (11,451,000) 2,746,000
Cash and cash equivalents at beginning of period 5,299,000 16,750,000 4,004,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 17,676,000 $ 5,299,000 $ 16,750,000
============ ============ ============
Supplemental cash flow information:
Cash paid for interest $ 1,290,000 $ 131,000 $ 78,000
Cash paid for income taxes $ 7,434,000 $ 9,369,000 $ 7,568,000
</TABLE>
Supplemental disclosures of non-cash investing activities:
During fiscal 1997, the Company purchased A & G, Inc. for $6.5 million,
of which $0.9 million was paid through the issuance of 94,115 shares of the
Company's common stock. See Note 3.
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. During 1997 an additional payment was made in the
amount of $197,000, of which $148,000 was paid through the issuance of 14,256
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.
18
<PAGE> 19
Notes To Consolidated Financial Statements
Southern Energy Homes, Inc. and subsidiaries
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. In fiscal
1996 the Company acquired a retail home sales operation through a merger with BR
Holding Corp. ("BR Holding") and in fiscal 1997 the Company expanded its retail
operations through the acquisition of A & G, Inc. ("A & G") (see Note 3). Retail
sales are primarily in the southeastern United States. Wenco Finance, Inc., the
Company's wholly owned finance subsidiary ("Wenco Finance"), until February 1997
had 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") (see Note 3).
The joint venture, Wenco 21, will continue to offer consumer financing for homes
manufactured by the Company as well as other homes sold through its retail
centers and independent dealers. 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 is on a 52/53-week year with the fiscal year ending on the
Friday closest to the last day of December. The 1997 and 1995 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.
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
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, where it
does not have the ability to control, on the equity basis of accounting.
Therefore, the Company's share of income/loss is recorded as equity income from
the venture in the accompanying consolidated statements of operations (see Note
3).
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.Inventories Inventories are valued at first-in, first-out ("FIFO") cost,
which is not in excess of market. An analysis of inventories follows:
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 9,498,000 $11,607,000
Work in progress 1,089,000 1,108,000
Finished goods 17,892,000 14,304,000
----------- -----------
$28,479,000 $27,019,000
</TABLE>
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 method over the estimated service lives of
depreciable assets (5-39 years for buildings and improvements, 3-10 years for
machinery and equipment, 5-10 years for office equipment, and 7-10 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:
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
----------- -----------
<S> <C> <C>
Land $ 495,000 $ 493,000
Buildings and improvements 15,938,000 10,465,000
Machinery and equipment 9,503,000 7,963,000
Office equipment 1,323,000 836,000
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
Leasehold improvements 1,649,000 1,140,000
Construction in progress 74,000 2,630,000
----------- -----------
$28,982,000 $23,527,000
=========== ===========
</TABLE>
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 losses
inherent in the installment contracts receivable portfolio. 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 the allowance account 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:
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 1,142,000 $ --
Provision for credit losses 187,000 1,177,000
Charge-offs (633,000) (35,000)
----------- -----------
Balance, end of year $ 696,000 $ 1,142,000
=========== ===========
</TABLE>
Intangible Assets
The intangible assets recorded by the Company in connection with
various acquisitions are amortized on a straight-line basis. As of January 2,
1998 and January 3, 1997, accumulated amortization of intangibles amounted to
$3,011,000 and $2,158,000, respectively (see Note 8). 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 (see Note 8).
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 $4,000,000 for all claims), and for all
health-care claims in excess of $55,000 per occurrence (with an annual aggregate
stop-loss limit of approximately $4,400,000 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.
Fair Value of Financial Instruments
Because of the short-term nature of the Company's financial
instruments, the low interest rate volatility associated with the installment
contracts receivable, and the recent closing of a
20
<PAGE> 21
long-term debt facility, the fair value of the Company's financial instruments
at January 2, 1998 and January 3, 1997 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 90 days or
more. Interest accrual resumes 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
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share, which establishes standards for computing and presenting earnings per
share ("EPS"). It replaces the presentation of primary EPS with a presentation
of basic EPS, requires dual presentation of basic and diluted EPS on the face of
the income statement, and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
The Company adopted this statement in fiscal 1997 and, in accordance
with SFAS No. 128, has restated all prior period EPS data presented. The EPS
results are as follows:
<TABLE>
<CAPTION>
Shares
Available
Net to Common Earnings
Income Shareholders per Share
----------- ------------ ---------
<S> <C> <C> <C>
January 2, 1998
Basic $11,375,000 15,002,006 $0.76
Dilutive effect of options issued -- 127,524 (0.01)
----------- ----------- -----
Diluted $11,375,000 15,129,530 $0.75
----------- ----------- -----
January 3, 1997
Basic $15,246,000 15,122,578 $1.01
Dilutive effect of options issued -- 137,906 (0.01)
----------- ----------- -----
Diluted $15,246,000 15,260,484 $1.00
----------- ----------- -----
December 29, 1995
Basic $11,242,000 14,300,466 $0.79
Dilutive effect of options issued -- 48,731 (0.01)
----------- ----------- -----
Diluted $11,242,000 14,349,197 $0.78
----------- ----------- -----
</TABLE>
3. Business Combinations and Investments in Joint Ventures
Joint Ventures:
On December 3, 1997, the Company acquired substantially all of the
assets and the business of A & G, a manufactured housing retail company
headquartered in Charleston, South Carolina. The Company paid $1.4 million in
cash and issued 94,115 shares of the Company's common stock (approximate market
value on December 3, 1997 of $869,000). The acquisition was accounted for under
the purchase method of accounting; thus the financial statements for the year
ended January 2, 1998 reflect the operations of A & G from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired (assets of $4.9 million less liabilities of $4.6 million) by
approximately $2.0 million, which amount is being amortized over 30 years as
goodwill. The results of operations with respect to A & G were not significant
and, accordingly, no pro forma results have been provided.
21
<PAGE> 22
On July 3, 1997, the Company made an initial capital contribution of
$2.0 million to purchase a one-third interest in a manufacturing joint venture
which produces rafters used in the production of the Company's homes. The
Company's share of income from the joint venture amounted to $97,000 in 1997.
In February 1997, the Company made an initial capital contribution of
$500,000 to Wenco 21, representing a 50% ownership interest in the joint
venture. The company's share of income from Wenco 21 in 1997 amounted to
$58,000.
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 manufactures cabinet doors for sale to participants in the
joint venture as well as third party customers. The Company's share of income
from this joint venture in 1997 amounted to $127,000.
On November 21, 1996, the Company acquired BR Holding, a holding
company which operated a group of retail companies participating in the retail
sale of manufactured homes. BR Holding also operated an insurance agency, which
provided 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
reflect the operations of BR Holding from the date of acquisition. The total
purchase price exceeded the fair value of net assets acquired (assets of $9.9
million less liabilities of $9.8 million) 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 fiscal 1997 an
additional payment was made in the amount of $197,000 ($49,000 in cash and
$148,000 in stock) related to this contingency. At January 2, 1998, there was no
payment obligation. The results of operations with respect to BR Holding were
not significant and, accordingly, no pro forma results have 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 total purchase price exceeded the fair value of net
assets acquired by approximately $522,000, which amount was being amortized over
30 years as goodwill. In addition, the Company entered into 10-year non-compete
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.
During the second quarter of 1997, the Company decided to close this facility
(see Note 8).
4. Sale of Installment contracts:
In August 1997, the Company sold at par installment contracts totaling
$16.7 million, along with the related servicing. The Company retained an
interest in certain of the cash flows ascribed to such loans (the "interest only
strip"). The fair value of the interest only strip was calculated using the
expected future cash flows discounted at the current market rate and considering
prepayment and default rates on the loans. The Company also retained credit
risks on the installment contracts sold and has recorded a reserve for such
estimated credit losses over the life of the loan in accordance with SFAS No.
125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities.
5. Income Taxes:
The provision (benefit) for income taxes for the respective periods was
as follows:
<TABLE>
<CAPTION>
January 2, January 3, December 29,
1998 1997 1995
---------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current $6,594,000 $ 9,294,000 $ 6,516,000
Deferred 11,000 (521,000) (142,000)
---------- ----------- -----------
6,605,000 8,773,000 6,374,000
---------- ----------- -----------
State:
Current 485,000 801,000 496,000
Deferred 2,000 (39,000) (16,000)
---------- ----------- -----------
487,000 762,000 480,000
---------- ----------- -----------
Total provision $7,092,000 $ 9,535,000 $ 6,854,000
========== =========== ===========
</TABLE>
The provision for income taxes differed from the amounts computed by
applying the federal statutory rate of 35% due to the following:
<TABLE>
<CAPTION>
January 2, January 3, December 29,
1998 1997 1995
---------- ---------- ------------
<S> <C> <C> <C>
Tax provision at the federal statutory rate $6,463,000 $8,671,000 $6,334,000
State income taxes, net of federal benefit 316,000 496,000 367,000
Goodwill amortization 127,000 58,000 57,000
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
January 2, January 3, December 29,
1998 1997 1995
---------- ---------- ------------
<S> <C> <C> <C>
Other 186,000 310,000 96,000
---------- ---------- ----------
$7,092,000 $9,535,000 $6,854,000
========== ========== ==========
</TABLE>
Temporary differences which created deferred tax assets at January 2, 1998
and January 3, 1997 are as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Warranty accrual $ 720,000 $ 721,000
Workers' compensation accrual 871,000 867,000
Accrued expenses 423,000 457,000
Inventory 358,000 54,000
Other 313,000 252,000
---------- ----------
2,685,000 2,351,000
---------- ----------
Deferred income tax liabilities:
Depreciation 168,000 338,000
Goodwill amortization 170,000 115,000
Organization and pre-operating costs 175,000 69,000
Other 356,000 --
---------- ----------
869,000 522,000
---------- ----------
Net deferred income tax asset $1,816,000 $1,829,000
========== ==========
</TABLE>
6. Notes Payable and Long-Term Debt:
The Company routinely finances its inventory of homes held by its
retail centers through floor-plan notes payable with various financial
institutions. The notes normally require periodic payments of principal and
interest, and full payment when the home is sold to a customer. The weighted
average interest rate on these borrowings during 1997 and 1996 was 7.0% and
9.13%, respectively.
The Company has a $15 million unsecured bank line of credit which is
renewable annually and bears interest at the London Interbank Offered Rate
("LIBOR") plus 1.5% (7.22% at January 2, 1998). 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 2,
1998 and January 3, 1997.
The Company's long-term debt at January 2, 1998 and January 3, 1997 is
as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1998 1997
---------- ----------
<S> <C> <C>
Working capital loan payable, interest at 7.22%,
due in monthly installments of $83,333 through
June 11, 2002, secured by real estate $4,500,000 $ --
Construction term loan payable, interest at 7.46%,
secured by real estate, due February 17, 1998 1,326,000 --
Total long-term debt 5,826,000 --
---------- ----------
Less amounts due within one year 1,106,000 --
---------- ----------
$4,720,000 $ --
========== ==========
</TABLE>
The Company has received a commitment letter to refinance the $1.3
million construction term loan over 10 years with monthly principal and interest
payments of $15,474. As a result, a portion of the loan has been classified as
long term.
The Company's term loans contain various restrictive covenants,
generally common to such loan agreements, with which the Company was in
compliance at January 2, 1998.
The Company's long-term debt contractually matures in each of the next
five fiscal years as follows: $1,106,000 in 1998, $1,099,000 in 1999, $1,106,000
in 2000, $1,114,000 in 2001, $622,000 in 2002, and $779,000 thereafter.
7. 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 $92 million as of January 2,
1998 and $91 as of January 3, 1997. Losses
23
<PAGE> 24
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 statements of the Company.
Interest Reimbursement
The Company has agreements with certain dealers to reimburse them for
their interest costs incurred in connection with floor-plan 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
2, 1998, January 3, 1997, and December 29, 1995, interest expense related to
these agreements amounted to $841,000, $735,000, and $634,000, respectively.
Employee Benefit Plans
The Company maintains a stock option plan which authorizes a total of
907,814 shares of Company common stock for issuance to key employees and
advisors. The Company granted options to acquire 192,200, 93,909, and 138,654
shares of common stock in 1997, 1996, and 1995, respectively, at exercise prices
ranging from $6.67 to $10.125. The exercise price of each option approximated
the fair market value of the Company's common stock at the date of grant. At
January 2, 1998, options to purchase 373,748 shares were exercisable. Total
options outstanding were 490,464 at January 2, 1998 with a weighted average
remaining contractual life of 8.6 years.
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 1997 and 1996, the Company granted options to acquire
11,250 and 15,000 shares of common stock to certain outside directors at
exercise prices ranging from $11.00 to $11.625. The exercise prices of the
options approximated the fair market value of the Company's common stock at the
date of grant. At January 2, 1998, options to purchase 26,250 shares were
exercisable. Total options outstanding were 26,250 at January 2, 1998 with a
weighted average remaining contractual life of 9.1 years.
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 1997 and in 1996 been determined
under SFAS No. 123, Accounting for Stock-Based Compensation, based on the fair
market value of the options at the grant date, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net income - as reported $ 11,375,000 $ 15,246,000 $ 11,242,000
Net income -pro forma $ 10,783,000 $ 14,993,000 $ 11,166,000
As reported - net income per share:
Basic $ 0.76 $ 1.01 $ 0.79
Diluted $ 0.75 $ 1.00 $ 0.78
Pro forma- net income per share:
Basic $ 0.72 $ 0.99 $ 0.78
Diluted $ 0.71 $ 0.98 $ 0.78
</TABLE>
The following table summarizes the changes in the number of shares
under option pursuant to the plans described above:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
January 2, Exercise January 3, Exercise December 29, Exercise
1998 Price 1997 Price 1995 Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 339,763 $ 7.45 285,032 $ 6.91 190,391 $ 6.93
Granted 203,450 8.14 108,909 7.58 138,654 6.89
Exercised (26,154) 6.93 (51,599) 6.93 (29,577) 6.93
Forfeited (345) 6.93 (2,579) 6.93 (14,436) 6.93
-------- -------- -------- -------- -------- --------
Outstanding at end of year 516,714 7.75 339,763 7.45 285,032 6.91
======== ======== ======== ======== ======== ========
Exercisable at end of year 399,998 $ 7.33 194,931 $ 7.28 106,952 $ 6.93
Weighted average fair value of
options granted $ 4.24 $ 6.21 $ 2.82
</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 1997: dividend yield of 0.0%; expected volatility
of 0.39%; risk-free interest rate of 6.28%; and expected life of five years.
Vesting of the 1997 grants is 131,250 options vesting immediately and the
remainder vesting equally over three years. The 1996 and 1995 assumptions are:
dividend yield of 0.0%; expected volatility of 0.42%; risk-free interest rate of
6.09%; expected life of five years; and vesting of 100% over a two-year period.
The weighted average contractual life of the options outstanding at January 2,
1998 is nine 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
24
<PAGE> 25
defined therein). In addition, the agreements provide for payment of up to six
months' salary and/or bonus upon 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 2, 1998,
January 3, 1997, and December 29, 1995, the Company expensed $78,000, $66,000,
and $63,000, respectively, related to the plan.
Operating Leases
The Company leases certain manufacturing facilities and retail sales
centers under operating leases. Rent expense under all leases was $1.1 million
for the year ended January 2, 1998, $404,000 for the year ended January 3, 1997,
and $150,000 for the year ended December 29, 1995. Future minimum lease payments
at January 2, 1998 are $1.5 million, $1.5 million, $1.4 million, $1.1 million,
and $277,000 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 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 attempted to draw upon the letter of credit posted by the
Company. In March 1997, the Company obtained a temporary restraining order
preventing GBH from drawing upon the letter of credit. In February 1998, the
Alabama Supreme Court issued an opinion allowing GBH to draw on the letter of
credit. GBH promptly drew on the Company's letter of credit in the amount of
$580,000. In the opinion of management, after consultation with legal counsel,
there is no other material exposure with regard to GBH.
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.
8. Non-Recurring Charge:
During the second quarter of 1997, the Company recorded a $2.1 million
pre-tax ($1.3 million after-tax) non-recurring charge in connection with its
decision to close its manufactured housing facility located in Pennsylvania. The
decision was based primarily on changes in local market conditions and operating
results of the facility. During the fiscal years ended January 2, 1998 and
January 3, 1997, this facility generated 1.0% and 3.3%, respectively, of the
total revenues of the Company. The impact of this facility on the operating
income of the Company was immaterial during the fiscal years ended January 2,
1998 and January 3, 1997. The asset impairment losses consist of the write-off
of goodwill ($505,000), the write-off of non-compete agreements ($134,000), and
the write-off of certain other operating assets ($632,000), and plant closing
costs consisting primarily of lease obligations ($400,000), warranty reserves
($260,000), and severance pay ($141,000).
9. 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 2, 1998, January 3, 1997, and December 29, 1995, which amounted to
$250,000, $691,000, and $1.4 million, respectively. Transactions with the
development company have been at prices and on terms no less favorable to the
Company than with third parties.
10. Stockholders' equity:
In fiscal 1997, the Company's Board of Directors voted to increase the
number of authorized shares of common stock to be issued from 20 million shares
to 40 million shares. 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.
25
<PAGE> 26
11. Pending Accounting Pronouncements:
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The Company will adopt the standard in
1998.
In June 1997, the FASB also issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments and report a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. This statement
also requires that a public business enterprise report descriptive information
about the way that the operating segments were determined, the products and
services provided by the operating segments, differences between the
measurements used in reporting segment information and those used in the
enterprise's general purpose financial statements, and changes in the
measurement of segment amounts from period to period. The Company will adopt the
standard in 1998.
12. Summary of Unaudited Quarterly Financial Data:
Unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
----------------------------------------------------------- ------------
April 4, July 4, October 3, January 2, January 2,
1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $80,116,000 $76,879,000 $76,327,000 $65,211,000 $298,533,000
Gross profit 12,498,000 11,126,000 11,564,000 8,865,000 44,053,000
Provision for income taxes 2,315,000 1,202,000 2,234,000 1,341,000 7,092,000
Net income 3,783,000 1,837,000 3,606,000 2,149,000 11,375,000
Net income per share:
Basic $ 0.25 $ 0.12 $ 0.25 $ 0.15 $ 0.76
Diluted $ 0.24 $ 0.12 $ 0.24 $ 0.15 $ 0.75
Weighted average number of common shares:
Basic 15,437,801 15,352,116 14,693,233 14,529,958 15,002,006
Diluted 15,567,433 15,438,783 14,822,184 14,611,507 15,129,530
</TABLE>
<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:
Basic $ 0.22 $ 0.29 $ 0.27 $ 0.23 $ 1.01
Diluted $ 0.22 $ 0.29 $ 0.26 $ 0.23 $ 1.00
Weighted average number of common shares:
Basic 15,053,413 15,071,239 15,101,706 15,253,940 15,122,578
Diluted 15,215,299 15,260,681 15,263,554 15,411,957 15,260,484
</TABLE>
13. Business Segment Information:
The Company's operations by industry segment are presented in the table
below:
<TABLE>
<CAPTION>
Year Ended
January 2, January 3, December 29,
1998 1997 1995
------------ ------------- -------------
<S> <C> <C> <C>
Net revenues:
Manufactured housing $296,360,000 $ 304,865,000 $ 241,238,000
Retail financing 2,173,000 1,979,000 30,000
------------ ------------- -------------
$298,533,000 $ 306,844,000 $ 241,268,000
============ ============= =============
Operating income:
Manufactured housing $ 18,219,000 $ 24,909,000 $ 17,468,000
Retail financing 1,190,000 (590,000) (37,000)
------------ ------------- -------------
$ 19,409,000 $ 24,319,000 $ 17,431,000
============ ============= =============
Identifiable assets:
Manufactured housing $110,746,000 $ 85,023,000 $ 75,153,000
Retail financing 12,507,000 27,635,000 746,000
------------ ------------- -------------
$123,253,000 $ 112,658,000 $ 75,899,000
============ ============= =============
</TABLE>
26
<PAGE> 27
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 2, 1998 and January 3, 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years ended
January 2, 1998, January 3, 1997 and December 29, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southern Energy Homes, Inc. and Subsidiaries as of January 2, 1998 and January
3, 1997 and the results of their operations and their cash flows for each of the
years ended January 2, 1998, January 3, 1997 and December 29, 1995, in
conformity with generally accepted accounting principles.
Birmingham, Alabama
February 14, 1998
ARTHUR ANDERSEN LLP
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 2, 1998 and January
3, 1997, and the consolidated results of operations and cash flows for the years
ended January 2, 1998, January 3, 1997, and December 29, 1995. 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
those 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.
27
<PAGE> 28
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 executive officers
required by this Item is incorporated by reference to the text appearing under
Part I, Item 1 -- Business under the caption "Executive Officers". Information
regarding compliance with Section 16(a) of the securities Exchange Act of 1934
is incorporated 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 2, 1998 and January 3, 1997.
Consolidated Statements of Operations for each of the fiscal years
ended January 2, 1998, January 3, 1997 and December 29, 1995.
Consolidated Statements of Stockholders' Equity for each of the fiscal
years ended January 2, 1998, January 3, 1997 and December 29, 1995.
Consolidated Statements of Cash Flows for each of the fiscal years
ended January 2, 1998, January 3, 1997 and December 29, 1995.
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
28
<PAGE> 29
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
29
<PAGE> 30
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 th the Company's Annual
Report of 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 22, 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.
10.24 Asset Purchase Agreement, dated as of December 3, 1997, by and
among the Registrant, A&G, Inc. and the sole stockholder of
A&G, Inc.
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 1997.
30
<PAGE> 31
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
Chairman, President
and Chief Executive Officer
Date: March 25, 1998
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.
SIGNATURE TITLE DATE
/S/ Wendell L. Batchelor Chairman, President, March 25, 1998
- ----------------------- Chief Executive Officer
Wendell L. Batchelor and Director
/S/ Johnny R. Long Executive Vice President March 25, 1998
- ----------------------- and Director
Johnny R. Long
/S/ Keith W. Brown Executive Vice President, March 25, 1998
- ----------------------- Chief Financial Officer,
Keith W. Brown Treasurer, Secretary
and Director
/S/ Keith O. Holdbrooks Executive Vice President March 25, 1998
- ----------------------- and Chief Operating Officer
Keith O. Holdbrooks
/S/ Paul J. Evanson Director March 25, 1998
- -----------------------
Paul J. Evanson
/S/ Joseph J. Incandela Director March 25, 1998
- -----------------------
Joseph J. Incandela
/S/ Jonathan O. Lee Director March 25, 1998
- -----------------------
Jonathan O. Lee
31
<PAGE> 1
EXHIBIT 10.24
ASSET PURCHASE AGREEMENT
ACQUISITION OF ASSETS OF
A & G, INC.
BY
SOUTHERN ENERGY HOMES, INC.
DATED: AS OF DECEMBER 3, 1997
<PAGE> 2
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets 6
1.2 Assumed and Retained Liabilities 8
1.3 Purchase Price and Payments at Closing 10
1.4 Lease of Retained Real Estate 11
1.5 Purchase and Sale of Buildings 11
1.6 Time and Place of Closing 12
1.7 Payment and Assumption of Liabilities 12
1.8 Transfer of Purchased Assets and the Buildings; Delivery
of the Real Estate Lease Agreement 12
1.9 Delivery of Records and Contracts 12
1.10 Additional Adjustments 13
1.11 Further Assurances 13
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND PRINCIPAL STOCKHOLDERS
2.1 Organization and Qualification of the Seller 14
2.2 Stock Ownership of the Seller 14
2.3 Authorization of Transaction 14
2.4 Present Compliance with Obligations and Laws 14
2.5 No Conflict of Transaction With Obligations and Laws 14
2.6 Financial Statements 15
2.7 Absence of Certain Changes 15
2.8 Payment of Taxes 15
2.9 Title to Properties; Liens; Condition of Properties 15
<PAGE> 3
2.10 Inventories 16
2.11 Intellectual Property Rights 16
2.12 Contracts and Commitments 16
2.13 Employee Benefits and ERISA 17
2.14 Environmental Matters 18
2.15 Permits 19
2.16 Warranty or Other Claims 19
2.17 Litigation 19
2.18 Finder's Fee 19
2.19 Transactions with Interested Persons 20
2.20 Disclosure of Material Information 20
2.21 Representations and Warranties 20
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization of the Buyer 20
3.2 Authorization of Transaction 20
3.3 No Conflict of Transaction With Obligations and Laws 20
3.4 Litigation 21
3.5 Finder's Fee 21
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER
4.1 Representations; Warranties; Covenants 21
4.2 Opinion of the Seller's Counsel. 21
4.3 Non-Competition Agreements 21
4.4 No Adverse Change 21
4.5 Approval of Documentation 22
4.6 Absence of Certain Litigation 22
<PAGE> 4
4.7 Due Diligence 22
ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDER
5.1 Representations; Warranties; Covenants 22
5.2 Opinion of the Buyer's Counsel 22
5.3 Approval of Documentation 23
5.4 Absence of Certain Litigation 23
ARTICLE 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING
6.1 Survival of Warranties 23
6.2 Collection of Assets 23
6.3 Payment of Debts 23
ARTICLE 7. INDEMNIFICATION
7.1 Definitions 24
7.2 Indemnification by the Seller and Principal Stockholders 24
7.3 Indemnification by the Buyer 26
7.4 Defense of Third Party Actions 26
7.5 Miscellaneous 27
7.6 Payment of Indemnification 27
ARTICLE 8. REGISTRATION.
8.1 Required Registration 27
8.2 Conditions of Buyer's Obligations to Register Shares 28
8.3 Expenses 29
8.4 Financial Information 29
8.5 Exclusive Obligation to Register 29
8.6 State Securities Laws 29
8.7 Indemnification 29
<PAGE> 5
ARTICLE 9. MISCELLANEOUS
9.1 Fees and Expenses 31
9.2 Notices 31
9.3 Publicity and Disclosures 32
9.4 Entire Agreement 32
9.5 Assignability 32
9.6 Amendment 32
9.7 Governing Law 33
9.8 Counterparts 33
9.9 Effect of Table of Contents and Headings 33
SIGNATURES 34
LIST OF SCHEDULES AND EXHIBITS
<PAGE> 6
ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of the 3rd day of December, 1997, among SOUTHERN
ENERGY HOMES, INC., a Delaware corporation with its principal place of business
in Addison, Alabama ("the Buyer"), A & G, INC., a South Carolina corporation,
with its principal place of business in Charleston, South Carolina (the
"Seller") and ALLEN WAYNE CROFT who is the sole stockholder of the Seller (the
"Stockholder").
RECITALS:
WHEREAS, the Seller is engaged in the retail marketing and sales of new
and used manufactured homes at several retail lot locations (the "Business");
and
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Buyer wishes to acquire the Business as a going concern and
substantially all of the properties and assets of the Seller and is prepared to
assume certain liabilities and obligations of the Seller, and the Seller wishes
to convey the Business as a going concern and such assets to the Buyer, subject
to such liabilities.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF ASSETS.
1.1 Purchase and Sale of Assets
(a) Purchased Assets. Subject to the provisions of this
Agreement and except as expressly excluded in paragraph (b), the Seller agrees
to sell and the Buyer agrees to purchase, at the Closing (as defined in Section
1.6 hereof), all of the properties, assets and business of the Seller of every
kind and description, tangible and intangible, wherever located, as the same may
exist on the date of the Closing (collectively, the "Purchased Assets")
including without limitation the following:
(i) all of the Seller s inventories of new and used
manufactured homes;
(ii) all of the Seller s steps, tools, decorator
kits, equipment, furniture, computer hardware and software and other personal
property;
(iii) all leasehold improvements and all leasehold
interests created by, and all rights of the Seller under those leases listed on
Schedule 1.1(a) hereto (the "Leases");
(iv) all customer purchase orders, purchase contracts
and purchase commitments which are outstanding as of the date of the Closing
relating to the purchase of manufactured homes;
(v) all of the Seller s rights under manufacturer
and/or supplier product warranties, guarantees and similar rights and assurances
which have been provided with respect to manufactured home inventories and other
personal property included among the Purchased Assets;
(vi) all rights with respect to prepaid amounts
received by the Seller prior to the Closing under dealer volume incentive or
rebate programs, to the extent that such prepaid amounts relate to manufactured
homes included in inventory and purchased by the Buyer at Closing ("Prepaid
Volume Incentive Amounts");
<PAGE> 7
(vii) all rights with respect to amounts payable
following the Closing under the Greentree Financial Retail Volume Bonus Program
(the "Greentree Bonus Program"), to the extent that such amounts relate to
manufactured homes sold by the Buyer following the Closing (the "Buyer s
Pro-Rata Share of the Greentree Bonus Amount"):
(viii) all authorizations, consents, approvals,
licenses, orders, permits, exemptions, concessions, grants, franchises, filings
or registrations issued to the Seller by any governmental authority or agency in
connection with the operation of the Business, to the extent the same are
legally transferable;
(ix) all books, records, manuals and other materials
(excluding the Seller s corporate and stock records) related to or used in
connection with the Business or the Purchased Assets, including mailing lists,
customer lists, sales contracts and/or orders, marketing materials, market
research data and business files; and
(x) all of the Seller s goodwill, trade secrets,
proprietary information, designs, styles, trademarks, trademark applications,
and retail location trade names.
(b) Retained Assets. The following assets shall be excluded from the
Purchased Assets and retained by the Seller (the "Retained Assets"):
I. all cash and cash equivalents held by the
Seller as of the date of the Closing, other than Prepaid Volume
Incentive Amounts;
II. all installment contracts receivable and
other accounts receivable of the Seller in existence and outstanding as
of the date of the Closing;
III. the real estate listed and described on
Schedule 1.1(b) hereto (the "Retained Real Estate");
IV. all rights with respect to amounts
payable following the Closing under dealer volume incentive or rebate
programs, to the extent that such amounts relate to manufactured homes
sold by the Seller prior to the Closing ("Post-Closing Volume Incentive
Amounts");
V. all rights with respect to amounts
payable following the Closing under the Greentree Bonus Program, to the
extent that such amounts relate to manufactured homes sold by the
Seller prior to the Closing (the "Seller s Pro Rata Share of the
Greentree Bonus Amount");
VI. all rights arising with respect to
refunds due from federal, state and/or local taxing authorities related
to taxes paid by the Seller or the Stockholder;
VII. the Seller's corporate and stock
records and such other records as have to do exclusively with the
Seller's organization or stock capitalization; and
VIII. certain items of personal property.
1.2 Assumed and Retained Liabilities.
<PAGE> 8
(a) Assumed Liabilities. Upon the sale and purchase of the
Purchased Assets, the Buyer shall assume, pay, perform or discharge when due
those liabilities and obligations (and only those liabilities and obligations)
of the Seller which are listed and described as follows:
IX. those liabilities of the Seller shown on
Schedule 1.2(a) hereto and those liabilities of the Seller arising
under contracts and commitments shown on Schedule 2.12 attached hereto,
in each case to the extent that such liabilities are outstanding at the
time of the Closing; and
X. those obligations of the Seller which
arise from and after the date of the Closing under the Leases. The
liabilities to be assumed by the Buyer under this Agreement are
hereinafter sometimes referred to as the "Assumed Liabilities".
(b) Retained Liabilities. Except to the extent expressly
assumed pursuant to Section 1.2(a) above, the Buyer does not assume and shall
not be liable for any debt, obligation, responsibility or liability of the
Seller, or any Affiliate (as defined below), or any claim against any of the
foregoing, whether known or unknown, contingent or absolute, or otherwise.
Without limiting the foregoing sentence, the Buyer shall have no responsibility
or liability with respect to the following, whether or not disclosed in the Base
Balance Sheet or a schedule hereto:
XI. liabilities and obligations related to
or arising from any transactions with any officer, director or
stockholder of the Seller or any person or organization controlled by,
controlling, or under common control with any of them (an "Affiliate");
XII. liabilities and obligations for taxes
of the Seller or the Stockholder of any kind, including taxes related
to or arising from the transfers contemplated hereby (except transfer
taxes specifically allocated to the Buyer under applicable state law),
and liabilities and obligations with respect to the administration or
termination of any employee benefit plan;
XIII. liabilities and obligations for damage
or injury to person or property based upon events occurring prior to
the date of Closing;
XIV. liabilities and obligations to
employees of the Seller, whether for accident, disability, or workers
compensation insurance or benefits, benefits under employee benefit
plans, back pay, or obligations related to or resulting from severance
of employment by the Seller;
XV. liabilities of the Seller with respect
to any options, warrants, agreements or convertible securities or other
rights to acquire any shares of its capital stock of any class;
XVI. liabilities and obligations of the
Seller which have arisen prior to the date of the Closing under the
Leases;
XVII. liabilities and obligations related to
group health insurance claims with respect to medical expenses incurred
prior to the Closing;
XVIII. liabilities and obligations with
respect to warranty claims or product liability claims for injuries,
losses or damages which arise out of or relate to manufactured homes
sold by the Seller prior to the Closing;
<PAGE> 9
XIX. liabilities and obligations resulting
from or arising out of any governmental or third party claims for
damages or clean-up costs pursuant to any environmental law existing
and in effect on the date hereof with respect to events occurring or
conditions existing prior to the Closing Date; or
XX. liabilities and obligations for wholesale floor plan interest with
respect to manufactured home contracts in transit.
(c) Rights of Third Parties. The assumption of Assumed
Liabilities by the Buyer hereunder shall be treated as independent of the
Buyer's existing business and shall not enlarge any rights of third parties
under contracts or arrangements with the Buyer or the Seller or any of their
respective subsidiaries. Nothing herein shall prevent the Buyer from contesting
in good faith any of the Assumed Liabilities.
1.3 Purchase Price and Payments at Closing.
(a) Payments at Closing. In consideration of the sale by the
Seller to the Buyer of the Purchased Assets, the Buyer shall assume the Assumed
Liabilities and pay to the Seller at Closing the aggregate amount of Two Million
One Hundred Seventy Two Thousand Dollars ($2,172,000) (the "Aggregate Closing
Amount") as follows:
XXI. One Million Three Hundred Three
Thousand Two Hundred Dollars ($1,303,200) (the "Net Asset Cash Amount")
shall be paid by certified check or by wire transfer of immediately
available federal funds; and
XXII. Eight Hundred Sixty-Eight Thousand
Eight Hundred Dollars ($868,800) (the "Net Asset Stock Amount") shall
be paid in the form of duly authorized, validly issued, fully paid and
nonassessable shares of the Common Stock of the Buyer, the number of
such shares to be issued to the Seller to be determined by dividing (x)
the Net Asset Stock Amount by (y) the average closing price per share
of the Buyer s Common Stock, as reported by the Nasdaq National Market,
for the five (5) trading days immediately preceding the third business
day prior to the Closing (the "Closing Price Per Share").
The Net Asset Cash Amount shall be subject to adjustment at the Closing
in accordance with Section 1.3(b) below.
(b) Determination of Net Inventory Value; Adjustment of the
Net Asset Cash Amount.
XXIII. At the Closing, the Seller shall
prepare an inventory statement (the "Inventory Statement") of the
Seller s net inventory value as of the Closing (the "Net Inventory
Value") which shall be equal to the difference between (x) the net book
value of the Seller s new and used manufactured home inventories as of
the Closing, determined on a basis consistent with the valuation of
inventories in preparation of the Base Balance Sheet (as defined in
Section 2.6 hereof), and (y) the outstanding balance due under the
floor plan financing liabilities and obligations to be assumed by the
Buyer as provided under Section 1.2(a) hereof. The Seller shall deliver
the Inventory Statement to the Buyer at the Closing, together with such
inventory statements and other related work papers as the Buyer may
reasonably request, and shall also deliver to the Buyer pay-off letters
from each of those lenders providing floor plan financing to the
Seller, which letters shall confirm the outstanding balances due under
those floor plan financing arrangements.
<PAGE> 10
XXIV. In the event that the Net Inventory
Value is less than One Hundred Seventy-Two Thousand Dollars ($172,000)
(the "Inventory Base Amount"), then (x) the Net Asset Cash Amount shall
be adjusted and reduced on a dollar-for-dollar basis by an amount equal
to the difference between the Inventory Base Amount and the Net
Inventory Value.
XXV. In the event that the Net Inventory
Value is greater than the Inventory Base Amount, then the Net Asset
Cash Amount shall be adjusted and increased by an amount equal to the
difference between the Net Inventory Value of the Inventory Base
Amount.
XXVI. In the event that the Net Inventory
Value equals the Inventory Base Amount, then there shall be no further
adjustment of the Net Asset Cash Amount.
1.4 Lease of Retained Real Estate. Subject to the provisions of this
Agreement, the Seller agrees to lease to the Buyer, and the Buyer agrees to
lease from the Seller, at the Closing, the Retained Real Estate under and in
accordance with the terms of a Real Estate Lease Agreement in the form attached
hereto as Exhibit A (the "Real Estate Lease Agreement").
1.5 Purchase and Sale of Buildings. Purchase and Sale of Buildings.
Subject to the provisions of this Agreement, the Stockholder agrees to sell and
the Buyer agrees to purchase, at the Closing, those manufactured home buildings
(the "Buildings") which are listed and described on Schedule 1.5 hereof and
which are used by the Seller as retail sales offices in connection with the
operation of the Business. The purchase price for the Buildings shall be One
Hundred Ten Thousand Dollars ($110,000) (the "Buildings Purchase Price"), which
shall be paid by the Buyer to the Stockholder at the Closing by certified check
or by wire transfer of immediately available federal funds.
1.6 Time and Place of Closing. The closing of the purchase and sale
provided for in this Agreement (herein called the "Closing") shall be held at
the offices of the Seller s counsel, Buist, Moore, Smythe & McGee, P.A., 5
Exchange Street, Charleston, South Carolina at 10:00 a.m. on December 3, 1997 or
at such other place, date or time as may be fixed by mutual agreement of the
parties, such Closing to be effective as of 12:01 a.m. E.S.T. on December 3,
1997.
1.7 Payment and Assumption of Liabilities. At the Closing, the Buyer
shall pay the Aggregate Closing Amount to the Seller as provided in Section 1.3
hereof and the Buildings Purchase Price to the Stockholder as provided in
Section 1.5 hereof. At the Closing, the Buyer shall also deliver to the Seller
an Instrument of Assumption to assume the Assumed Liabilities substantially in
the form attached hereto as Exhibit B.
1.8 Transfer of Purchased Assets and the Buildings; Delivery of the
Real Estate Lease Agreement.
(a) At the Closing, the Seller shall deliver to the Buyer good
and sufficient instruments of transfer transferring to the Buyer title to all
the Purchased Assets including a bill of sale in the form attached hereto as
Exhibit C, assignments of the Leases, together with any and all lessor consents,
and such other instruments of transfer as may be required. Such instruments of
transfer (i) shall be in the form and will contain the warranties, covenants and
other provisions (not inconsistent with the provisions hereof) which are usual
and customary for transferring the type of property involved under the laws of
the jurisdictions applicable to such transfers, (ii) shall be in form and
substance satisfactory to counsel for the Buyer, and (iii) shall effectively
vest in the Buyer good and marketable title to all the Purchased Assets, free
and clear of all liens, restrictions and encumbrances.
<PAGE> 11
(b) At the Closing, the Stockholder shall deliver to the Buyer
good and sufficient instruments of transfer transferring to the Buyer title to
all of the Buildings. Such instruments of transfer (i) shall be in the form and
will contain the warranties, covenants and other provisions (not inconsistent
with the provisions hereof) which are usual and customary for transferring the
Buildings under the laws of the jurisdictions applicable to such transfers, (ii)
shall be in the form and substance satisfactory to counsel for the Buyer, and
(iii) shall effectively vest in the Buyer good and marketable title to all of
the Buildings, free and clear of all liens, restrictions and encumbrances.
(c) At the Closing, the Buyer and the Seller shall also
execute and deliver the Real Estate Lease Agreement.
1.9 Delivery of Records and Contracts. At the Closing, the Seller shall
also deliver to the Buyer all of the Seller s equipment and other operating
leases, contracts, commitments and rights, with such assignments thereof and
consents to assignments as are necessary to assure the Buyer of the full benefit
of the same. The Seller shall also deliver to the Buyer at the Closing all of
the Seller's business records, books and other data relating to its assets,
business and operations (except corporate records and other property of the
Seller excluded or relating to assets excluded under Section 1.1(b)) and the
Seller shall take all requisite steps to put the Buyer in actual possession and
operating control of the assets and the Business. After the Closing the Buyer
shall afford to the Seller and its accountants and attorneys reasonable access
to the books and records of the Seller delivered to the Buyer under this Section
1.9 and shall permit the Seller to make extracts and copies therefrom for the
purpose of preparing such tax returns of the Seller as may be required after the
Closing and for other proper purposes approved by the Buyer.
1.10 Additional Adjustments . At the Closing, the Seller and the Buyer
shall identify and agree upon the aggregate of any Prepaid Volume Incentive
Amounts to be credited to the Buyer as part of the Purchased Assets and the
Seller shall either (i) pay such aggregate amount to the Buyer by certified
check or by wire transfer of immediately available federal funds or (ii)
authorize the Buyer to take a credit for such amount against the Net Asset Cash
Amount otherwise payable to the Seller at the Closing under Sections 1.3 and 1.7
hereof. At the Closing, the Seller and the Buyer shall also identify and agree
upon the aggregate of any Post-Closing Volume Incentive Amounts to be credited
to the Seller. If such amounts cannot be accurately determined as of the date of
the Closing, the Seller and the Buyer shall, in the alternative, agree upon the
methodology by which such amounts shall be determined. Thereafter, as
Post-Closing Incentive Amounts are received by the Buyer from manufacturers who
offer deal volume incentive or rebate programs, the Buyer shall promptly remit
such Post-Closing Incentive Amounts to the Seller. At the Closing, the Seller
and the Buyer shall also agree upon the methodology by which the Buyer s Pro
Rata Share of the Greentree Bonus Amount and the Seller s Pro Rata Share of the
Greentree Bonus Amount shall be determined and thereafter, as amounts are
received following the Closing by either the Seller or the Buyer under the
Greentree Bonus Program, such amounts shall be allocated between the Seller and
the Buyer in proportion to Buyer s Pro Rata Share of the Greentree Bonus Amount
and the Seller s Pro Rata Share of the Greentree Bonus Amount. Further, at the
Closing, the Buyer shall reimburse the Seller for expenses incurred by the
Seller with respect to those manufactured home sale transactions which are
pending as of the Closing, the rights with respect to which are included among
the Purchased Assets. The Seller and the Buyer acknowledge and agree that, since
the amount of such expenses may be difficult to calculate precisely, such
expenses shall be reimbursed at an estimated and assumed rate of Two Thousand
Dollars ($2,000) per transaction. Finally, at the Closing, the Buyer shall
reimburse the Seller for any amounts paid by the Seller under the Leases with
respect to any period following the Closing, the amount of such reimbursement to
be calculated on a per diem basis and paid by certified check or by wire
transfer of immediately available federal funds.
1.11 Further Assurances. The Seller from time to time after the Closing
at the request of the Buyer and without further consideration shall execute and
deliver further instruments of transfer and assignment (in
<PAGE> 12
addition to those delivered under Section 1.8) and take such other action as the
Buyer may reasonably require to effectively transfer and assign to, and vest in,
the Buyer each of the Purchased Assets
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND PRINCIPAL STOCKHOLDERS.
The Seller and the Stockholder hereby jointly and severally represent
and warrant to the Buyer as follows:
2.1 Organization and Qualification of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of South Carolina, 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 the Seller s Certificate of Incorporation or equivalent document as
amended to date ("Charter"), certified by the South Carolina Secretary of State,
and of the Seller's by-laws as amended to date, certified by the Seller's
Secretary (or the equivalent), and previously delivered to the Buyer's counsel,
are complete and correct. To the Seller's knowledge, the Seller is not required
to be licensed or qualified to conduct its business or own its property in any
other jurisdiction, except for licenses in other jurisdictions disclosed in
Schedule 2.15.
2.2 Stock Ownership of the Seller. All of the issued and outstanding
shares of the capital stock of the Seller are held by the Stockholder. There are
no (a) outstanding warrants, options or other rights granted by the Seller or
the Stockholder to purchase or acquire, or pre-emptive rights with respect to
the issuance or sale of, the capital stock of the Seller, or (b) other
securities of the Seller directly or indirectly convertible into or exchangeable
for shares of capital stock of the Seller.
2.3 Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by the Seller and the Stockholder to authorize the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, and the Agreement is the valid and binding obligation of
the Seller and the Stockholder, enforceable in accordance with its terms.
2.4 Present Compliance with Obligations and Laws. The Seller is not:
(a) in violation of its Charter or by-laws; (b) in material default of or
material breach of (with or without the passage of time or the giving of notice)
any material contract or lease to which it is a party or by which it or any of
the Purchased Assets are bound and has not received notice from any party to any
such contract or lease of such a material default or breach; or (c) to the
Seller's knowledge in violation of any law, regulation, administrative order or
judicial order applicable to it or its business or the Purchased Assets.
2.5 No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this
Agreement, nor the performance of the transactions contemplated hereby, will:
(i) constitute a breach or violation of the Charter or by-laws of the Seller;
(ii) to the Seller's knowledge, conflict with or constitute (with or without the
passage of time or the giving of notice) a material breach of, or material
default under, any debt instrument to which the Seller or the Stockholder is a
party, or give any person the right to accelerate any material indebtedness or
terminate any material right; (iii) to the Seller's knowledge, constitute (with
or without the passage of time or giving of notice) a default under or breach of
any other material agreement, instrument or obligation to which the Seller or
the Stockholder is a party or by which the Seller, the Stockholder or any of the
Purchased Assets are bound; or (iv) to the Seller's knowledge, result in a
violation of any law, regulation, administrative order or judicial order
applicable to the Seller or its business or the Purchased Assets.
<PAGE> 13
(b) To the Seller's knowledge, the execution, delivery and
performance of this Agreement and the transactions contemplated hereby by the
Seller and the Stockholder do not require the consent, waiver, approval,
authorization, exemption of or giving of notice to any governmental authority.
2.6 Financial Statements. Attached as Schedule 2.6 hereto are the
following financial statements of the Seller, all of which statements are
complete and correct in all material respects and fairly present the financial
position of the Seller on the date of such statements and the results of its
operations on the applicable basis for the periods covered thereby: Financial
statements for the years ended December 31, 1995 and December 31, 1996 and
financial statements for the nine month period ended September 30, 1997. The
balance sheet dated September 30, 1997 included in the above financial
statements is sometimes referred to hereinafter as the "Base Balance Sheet".
2.7 Absence of Certain Changes. Since the date of the Base Balance
Sheet there has not been any material change in the financial condition,
properties, assets, liabilities or operations of the Seller which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Seller. To the Seller's knowledge, there is no fact which materially adversely
affects, or may in the future (so far as can now be reasonably foreseen)
materially adversely affect, the business, properties, operations or condition
of the Seller which has not been specifically disclosed herein or in a schedule
furnished herewith.
2.8 Payment of Taxes. To the Seller's knowledge, each of the Seller and
the Stockholder has filed all federal, state, local, and foreign government
income excise or franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and all other tax returns required to be
filed by the Seller or the Stockholder, and each of the Seller and the
Stockholder has paid all taxes owing by the Seller or the Stockholder, except
taxes which have not yet accrued or otherwise become due. All transfer, excise
and other taxes payable to any jurisdiction by reason of the sale and transfer
of the Purchased Assets pursuant to this Agreement shall be paid or provided for
by the Seller or the Stockholder after the Closing.
2.9 Title to Properties; Liens; Condition of Properties.
(a) Set forth on Schedule 2.9 hereto is a listing of (i) all
leases under which the Seller leases real property at the date hereof, (ii) a
description of substantially all of the machinery, equipment and other personal
property used or owned by the Seller as of the date hereof, and (iii) all leases
under which the Seller leases any personal property at the date hereof.
(b) Except as specifically disclosed in Schedule 2.9 hereto,
to the Seller's knowledge, the Seller has good and marketable title in fee
simple to the Retained Real Estate. Except as specifically disclosed in Schedule
2.9 hereto, the Seller has good title to all of its personal property, free and
clear of all liens, restrictions and encumbrances, and all of its leases are
valid and subsisting and fully assignable by the Seller and no material default
exists under any thereof. Except as specifically disclosed in Schedule 2.9
hereto, the Stockholder has good title to the Buildings, free and clear of all
liens, restrictions and encumbrances.
(c) Except as otherwise specified in Schedule 2.9 hereto, to
the Seller's knowledge, the Buildings and all machinery and equipment of the
Seller are in good repair and working order for their intended use and, to the
Seller's knowledge, substantially conform with all applicable ordinances,
regulations and zoning or other laws, and do not encroach on property of others.
2.10 Inventories. Except as shown on Schedule 2.10, all manufactured
homes contained in the inventories of the Seller reflected on the Base Balance
Sheet are, and those existing at the Closing will be, to the Seller's knowledge,
of a quality and quantity saleable in the ordinary course of the business of the
Seller at
<PAGE> 14
prevailing market prices without discounts. All inventory items shown on the
Base Balance Sheet are, and those are existing at the Closing will be, priced at
lower of cost or market, and, to the Seller's knowledge, reflect write-downs to
realizable values in the case of items which have become obsolete or unsaleable
in the ordinary course of the business of the Seller. Subject to write-downs
complying with the preceding sentence, the values of the inventories stated in
the Base Balance Sheet reflect the normal inventory valuation policies of the
Seller and were determined in accordance with generally accepted accounting
principles, practices and methods, consistently applied. Purchase commitments
for manufactured homes are not, to the Seller's knowledge, in excess of normal
requirements, and none are at prices materially in excess of current market
prices. Sales commitments for both new and used manufactured homes 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 Base Balance Sheet,
no new or used manufactured homes held in the Seller s inventory as of such date
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.
2.11 Intellectual Property Rights. Set forth on Schedule 2.11 hereto is
a true and complete list of all trademarks, service marks, trademark and service
mark applications, trade names, and copyrights (all of the foregoing
collectively referred to as "Intellectual Property") presently owned or held by
the Seller, and any material license of or right to any Intellectual Property.
2.12 Contracts and Commitments.
Except for contracts, commitments, plans, agreements and
licenses described in Schedule 2.12 hereto, the Seller is not a party to or
subject to:
(i) any contract or agreement for the purchase of new
or used manufactured homes;
(ii) any floor-plan financing or other similar loan
agreements or arrangements under which the Seller finances the purchase of new
or used manufactured homes;
(iii) any consumer loan or other similar loan or
credit agreements under which the Seller provides financing for the purchase by
retail customers or others for the purchase of new or used manufactured homes;
(iv) any dealer or sale representative agreements
with persons or entities engaged in the manufacture or distribution of
manufactured homes;
(v) any dealer volume incentive or rebate programs or
agreements under which the Buyer may be entitled to any Prepaid Volume Incentive
Amounts or under which the Seller may be entitled to receive any Post-Closing
Volume Incentive Amounts or any finance company volume incentive or rebate
programs or agreements other than the Greentree Bonus Program;
(vi) any contract or agreement for the purchase of
any materials, equipment or asset, other than purchase orders in the ordinary
course of business for less than $5,000 each, such orders not exceeding $20,000
in the aggregate;
(vii) any other contracts or agreements creating any
obligations of the Seller after the date of the Base Balance Sheet of $10,000 or
more with respect to any such contract or agreement, other than sales and
purchase commitments in the ordinary course of business;
<PAGE> 15
(viii) any contract or agreement creating obligations
of the Seller in excess of $10,000 which by its terms is not terminable without
penalty by the Seller (or its successor or assign) upon thirty (30) days notice;
(ix) any contract containing covenants limiting the
freedom of the Seller to compete in any line of business or with any person or
entity; or
(x) any license or franchise agreement (as licensor
or licensee or franchisor or franchisee).
2.13 Employee Benefits and ERISA.
There are no currently effective pension, deferred
compensation, stock purchase, option, bonus, profit sharing, or other employee
benefit plans (within the meaning of Section 3 of the Employment Retirement
Income Act of 1974, as amended ("ERISA"), severance pay or other material
benefits practices (each such plan, arrangement or practice being hereafter
referred to as "Benefit Plan") relating to the employees of the Seller. There
are no multi-employer plans (as defined within the meaning of Section 3 (37) and
4001(a)(3) of ERISA) relating to the employees of the Seller, nor has there been
any multi-employer plan relating to such employees within the last five years.
2.14 Environmental Matters.
To the Seller's knowledge:
(a) Any and all waste oil, hazardous waste, hazardous
substances, toxic substances or hazardous materials used or generated by the
Seller have always been and are being generated, used, stored or treated on or
at any of the properties or facilities owned or leased by the Seller (for the
purposes of this Section, a "Site") according to federal, state and local laws,
regulations and ordinances. Copies of any and all filings made or documents
prepared under applicable state and local laws, regulations and ordinances and
under Title III of the Superfund Amendments and Reauthorization Act of 1986,
including without limitation material safety data sheets and chemical lists,
have been provided to the Buyer.
(b) No petroleum, oil, hazardous waste, hazardous substances,
toxic substances or hazardous materials used or generated by the Seller have
ever been, are being, are intended to be or are threatened with being spilled,
released, discharged, disposed, placed, leaked, or otherwise caused to become
located in the air, soil or water in, under or upon a Site.
(c) No petroleum, oil, hazardous substances or hazardous waste
have ever been shipped by or for the Seller to other sites or facilities for
treatment, storage or disposal, and the Seller has not received any notice that
any sites or facilities to which any such wastes have been shipped or sent to
are subject to or threatened to become subject to any governmental response
action or clean up order. The Seller has provided the Buyer with copies of all
manifests documenting disposal of hazardous substances relating to operations of
the Seller.
(d) All hazardous materials and toxic substances have been
shipped by the Seller in accordance with all applicable federal, state and local
laws, regulations and ordinances, including The Hazardous Materials
Transportation Act, the regulations of the Department of Transportation, and any
corresponding state or local statute and regulations adopted pursuant to said
act.
<PAGE> 16
(e) All underground tanks and other underground storage
facilities located at any Site are listed in Schedule 2.14 hereto and copies of
all notifications made to federal, state or local authorities pursuant to the
Resource Conservation and Recovery Act relating to underground storage tanks
have been provided to the Buyer. As of the date hereof, none of such underground
tanks and other underground storage facilities are in violation of any federal,
state or local environmental law, regulation or ordinance.
(f) The Seller has all necessary and applicable air permits
and licenses, and has properly registered (for air pollution control purposes)
all air emitting devices used by and activities conducted by it, as required by
applicable federal, state or local law, regulation or ordinance. Copies of all
such permits have been provided to the Buyer.
(g) For purposes of this section, "hazardous waste",
"hazardous substances", "hazardous material", "oil", "petroleum", "toxic
substances", "manifest", "material safety data sheets", and "response action"
shall have the meaning set forth in the Resource Conservation and Recovery Act,
The Comprehensive Environmental Response, Compensation and Liability Act, The
Hazardous Materials Transportation Act, The Federal Water Pollution Control Act,
The Toxic Substances Control Act, and corresponding state and local statutes,
and ordinances and any amendments, or successor legislation to such Acts, or as
currently defined in any federal, state or local regulations adopted pursuant to
such Acts.
2.15 Permits. To the Seller's knowledge, the Seller holds all licenses,
permits and franchises which are required to permit it to conduct its businesses
as presently conducted, and all such licenses, permits and franchises are listed
on Schedule 2.15 hereto and are now, and will be after the Closing, valid and in
full force and effect, and the Buyer, to the extent permitted by applicable law,
shall have full benefit of the same.
2.16 Warranty or Other Claims. Schedule 2.18 constitutes a summary of
all pending claims against the Seller, of which the Seller has received notice,
which allege with respect to new or used manufactured homes sold by the Seller
defective workmanship or manufacture, breach of express or implied warranties,
product liability, or any combination thereof. All such claims have been
submitted in the ordinary course and are not materially different in type,
nature, or amount from those previously received by the Seller. The Seller has
reserved amounts against such claims consistent with its past practice and
historically such reserves have been adequate. There is no reason to believe
that such claims experience will not continue to be consistent with such past
experience.
2.17 Litigation. Except for matters described in Schedule 2.19 hereto,
there is no suit, action, proceeding or governmental investigation pending (or,
to the Seller's knowledge, threatened) against the Seller or the Stockholder,
and there are no outstanding court orders, court decrees, or court stipulations
to which the Seller or the Stockholder is a party or by which any of its or his
assets are bound, any of which (a) question this Agreement or affect the
transactions contemplated hereby, or (b) materially restrict the present
business properties, operations, prospects, assets or condition, financial or
otherwise, of the Seller, or (c) will result in any materially adverse change in
the business, properties, operations, prospects, assets or the condition,
financial or otherwise, of the Seller or the Stockholder. Neither the Seller nor
the Stockholder has any reason to believe that any such action, suit, proceeding
or investigation may be brought against the Seller or the Stockholder.
2.18 Finder's Fee. Neither the Seller nor the Stockholder 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.
<PAGE> 17
2.19 Transactions with Interested Persons. Except to the extent
described in Schedule 2.19 hereto, none of any officer, supervisory employee, or
director of the Seller, the Stockholder or their respective spouses or children,
(i) 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 the Seller, or any organization which has a material contract or
arrangement with the Seller, or (ii) has any contract or agreement with the
Seller.
2.20 Disclosure of Material Information. To the Seller's knowledge,
neither this Agreement nor any exhibit or schedule hereto 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 the Seller.
2.21 Representations and Warranties. To the extent that any portion of
the representations and warranties made herein were made to the knowledge of the
Seller, such representation or warranty also contains a representation that the
Seller has made diligent and careful inquiry with respect thereto. When
representations and warranties are based on and qualified by and limited to the
knowledge of the Seller, such knowledge shall be limited to the actual knowledge
of any of the officers and directors of the Seller as well as the actual
knowledge of the Stockholder.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
The Buyer hereby represents and warrants to the Seller and the
Stockholder as follows:
3.1 Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware 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 Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by the Buyer to authorize the execution, delivery and
performance of this Agreement, and the same is the valid and binding obligation
of the Buyer enforceable in accordance with its terms, subject to laws of
general application affecting creditor's rights generally.
3.3 No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this
Agreement, nor the performance of the transactions contemplated hereby, will:
(i) constitute a breach or violation of the Buyer's Charter or by-laws; (ii)
conflict with or constitute (with or without the passage of time or the giving
of notice) a breach of, or default under any material agreement, instrument or
obligation to which the Buyer is a party or by which it or its assets are bound
which would materially affect the performance by the Buyer of its obligations
under this Agreement; or (iii) result in a violation of any law, regulation,
administrative order or judicial order applicable to the Buyer.
(b) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby by the Buyer do not require the
consent, waiver, approval, authorization, exemption of or giving of notice to
any governmental authority, except for such disclosure of the transactions
contemplated hereby which may be required by federal and state securities laws.
<PAGE> 18
3.4 Litigation. There is no litigation pending or, to the knowledge of
the Buyer, threatened against the Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
3.5 Finder's Fee. The Buyer has not 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.
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of the 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 4 will have been accomplished.
4.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Seller and the Stockholder contained in Article 2 shall be
true and correct as though made on and as of the Closing Date.
4.2 Opinion of the Seller's Counsel.
At the Closing, the Buyer shall have received from Buist,
Moore, Smythe & McGee, P.A., counsel for the Seller, an opinion dated as of the
Closing, substantially in the form set forth as Exhibit D hereto.
4.3 Non-Competition Agreements . The Stockholder shall have executed
and delivered to the Buyer a non-competition agreement including substantially
the terms and conditions set forth in Exhibit E attached hereto.
4.4 No Adverse Change. During the period from the date of the Base
Balance Sheet to the Closing, there shall not have been any change in the
condition, financial or otherwise, the results of operation, or, to the
knowledge of the Seller, the future prospects of the Business other than changes
in the ordinary course of business, none of which has been materially adverse;
and the Seller shall not have sustained any loss or damage to its properties,
whether or not insured, which materially adversely affects its ability to
conduct the Business; and all liabilities of the Seller relating to its business
at the Closing which were not reflected on the Base Balance Sheet are
liabilities incurred in the ordinary course of the business subsequent thereto,
none of which was incurred in violation or contravention of any provisions of
this Agreement.
4.5 Approval of Documentation. All actions, proceedings, instruments
and documents required to carry out this Agreement and all related legal matters
contemplated by this Agreement shall have been approved by counsel for the
Buyer, provided that the approval of such counsel shall not be unreasonably
withheld.
4.6 Absence of Certain Litigation. There shall not be any (i)
injunction, restraining order or order of any nature issued by any court of
competent jurisdiction which directs that this Agreement or any material
transaction contemplated hereby shall not be consummated as herein provided,
(ii) suit, action or other proceeding by any federal, state, local or foreign
government (or any agency thereof) or pending before any court or governmental
agency, or threatened to be filed or initiated, wherein such complainant seeks
the restraint or prohibition of the consummation of any material transaction
contemplated by this Agreement or asserts the illegality thereof, or (iii) 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 the Buyer is likely to result in the restraint
or prohibition of the consummation of any material transaction contemplated
hereby or the obtaining of an amount in payment (or indemnification) of material
damages from
<PAGE> 19
or other material relief against any of the parties or against any directors or
officers of the Buyer, in connection with the consummation of any material
transaction contemplated hereby.
4.7 Due Diligence. The Buyer, acting through its own management and
personnel, counsel, accountants, engineers or other representatives designated
by it, shall have been afforded full and complete opportunity to examine,
investigate and review all aspects of the Seller's business, including, but not
limited to, the Seller's financial statements, contracts and leases, assets,
liabilities, inventory, accounts receivable, methods of accounting, financial
and other business records, customers and suppliers and the Seller's machinery
and equipment.
ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDER
The obligations of the Seller and the Stockholder 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 5 will have
been accomplished.
5.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Buyer contained in Article 3 shall be true and correct as
though made on and as of the Closing; and the 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.
5.2 Opinion of the Buyer's Counsel At the Closing, the Seller shall
have received from Brown, Rudnick, Freed & Gesmer, counsel for the Buyer, an
opinion dated as of the Closing, substantially in the form of Exhibit F.
5.3 Approval of Documentation. All actions, proceedings, instruments
and documents required to carry out this Agreement and all related legal matters
contemplated by this Agreement shall have been approved by counsel for the
Seller, provided that the approval of such counsel shall not be unreasonably
withheld.
5.4 Absence of Certain Litigation. There shall not be any (i)
injunction, restraining order or order of any nature issued by any court of
competent jurisdiction which directs that this Agreement or any material
transaction contemplated hereby shall not be consummated as herein provided,
(ii) suit, action or other proceeding by any federal, state, local or foreign
government (or any agency thereof) or pending before any court or governmental
agency, or threatened to be filed or initiated, wherein such complainant seeks
the restraint or prohibition of the consummation of any material transaction
contemplated by this Agreement or asserts the illegality thereof, or (iii) 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 the Seller is likely to result in the
restraint or prohibition of the consummation of any material transaction
contemplated hereby or the obtaining of an amount in payment (or
indemnification) of material damages from or other material relief against any
of the parties or against any directors or officers of the Seller, in connection
with the consummation of any material transaction contemplated hereby.
ARTICLE 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
6.1 Survival of Warranties. All representations, warranties,
agreements, covenants and obligations herein or in any schedule, certificate or
financial statement delivered by any party to the other parties incident to the
transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other parties and shall survive the Closing in accordance
with Article 8 hereof, regardless of any investigation and shall not merge in
the performance of any obligation by any party hereto, provided that the
covenants and agreements contained herein to be performed or complied with prior
to the Closing shall expire at the Closing.
<PAGE> 20
6.2 Collection of Assets. Subsequent to the Closing, the Buyer shall
promptly transfer or deliver to the Seller from time to time, any cash or other
property that the Buyer may receive with respect to installment contracts
receivable or other accounts receivables of any character or any other items
retained by the Seller pursuant to the provisions hereof. Subsequent to the
Closing, the Seller shall promptly transfer or deliver to the Buyer from time to
time, any cash or other property that the Seller may receive with respect to the
Purchased Assets or the operation of the Business from and after the Closing.
6.3 Payment of Debts. The Seller shall as promptly as possible after
the Closing pay any debts and obligations not to be assumed by the Buyer
hereunder, which debts would materially affect the transactions contemplated
hereby.
<PAGE> 21
ARTICLE 7. INDEMNIFICATION
7.1 Definitions. For purposes of this Article 7:
"Losses" means all losses, damages (including, without
limitation, punitive and consequential damages), liabilities, payments and
obligations, and all expenses related thereto. Losses shall include any legal
fees and costs incurred by any of the Indemnified Persons subsequent to the
Closing in defense of or in connection with any alleged or asserted liability,
payment or obligation, whether or not any liability or payment, obligation or
judgment is ultimately imposed against the Indemnified Persons and whether or
not the Indemnified Persons are made or become parties to any such action.
The "Buyer's Indemnified Persons" means the Buyer and any
person or entity that directly or indirectly controls, or is controlled by, or
is under common control with, the Buyer, and each of their respective directors,
officers, employees, stockholders and agents.
"Indemnified Person" means any person entitled to be
indemnified under this Article 7.
"Indemnifying Person" means any person obligated to indemnify
another person under this Article 7.
The "Seller's Indemnified Persons" means the Seller, any
entity under common control with the Seller, their respective directors,
officers, employees, stockholders and agents and the Stockholder.
"Third Party Action" means any written assertion of a claim,
or the commencement of any action, suit, or proceeding, by a third party as to
which any person believes it may be an Indemnified Person hereunder.
7.2 Indemnification by the Seller and Principal Stockholders.
(a) Subject to the limitations in paragraph (b) below, the
Seller and the Stockholder, jointly and severally, agrees to defend, indemnify
and hold harmless the Buyer's Indemnified Persons from and against all Losses
directly or indirectly incurred by or sought to be imposed upon any of them:
(i) resulting from or arising out of any breach of
any of the representations or warranties (other than those in Sections 2.1, 2.2,
2.8, 2.9(b) and 2.14) made by the Seller or the Stockholder in or pursuant to
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the Closing;
(ii) resulting from or arising out of any breach of
any of the representations or warranties made by the Seller or the Stockholder
pursuant to Sections 2.1, 2.2, 2.8 or 2.9(b);
(iii) resulting from or arising out of any breach of
any covenant or agreement made by the Seller or the Stockholder in or pursuant
to this Agreement;
(iv) in respect of any liability or obligation of the
Seller or the Stockholder not included in the Assumed Liabilities (other than
liabilities or obligations described in Section 1.2(b)(ix) and those liabilities
resulting from or arising out of any breaches of the representations or
warranties made by the Seller and the Stockholder pursuant to Section 2.14);
XXVII.resulting from or arising out
of any liability,
<PAGE> 22
payment or obligation arising out of any
litigation or similar matter required to be
described on Schedule 2.17; or
XXVIII.in respect of any liability
or obligation of the Seller or the
Stockholder described in Section 1.2(b)(ix)
or resulting from or arising out of any
breach of any of the representations or
warranties made by the Seller or the
Stockholder pursuant to Section 2.14.
(b) The right to indemnification under paragraph (a) is
subject to the following limitations:
(i) Neither the Seller nor the Stockholder shall have
liability under paragraph (a) unless one or more of the Buyer's Indemnified
Persons gives written notice to the Seller asserting a claim for Losses,
including reasonably detailed facts and circumstances pertaining thereto, before
the expiration of the period set forth below:
(A) for claims under clause (i) of paragraph
(a) above, a period of two (2) years from the Closing Date;
(B) for all other claims, for so long as any
claim may be made in respect of such matters under any applicable statute of
limitations, and for which Buyer would have any claim for Loss.
(ii) Indemnification for claims under clauses (i) and
(iii) of paragraph (a) above shall be payable by the Seller and the Stockholder
hereunder only if and to the extent that the aggregate amount of all of Losses
hereunder by the Buyer's Indemnified Persons with respect to such claims shall
exceed $50,000. The maximum aggregate liability of the Seller and the
Stockholder for claims under paragraph (a) above (other than under clauses
(a)(vi) shall be $2,000,000 and there shall be no maximum liability for claims
under paragraph (a)(vi).
(iii) Nothing herein shall accrue to the benefit of,
or enlarge the rights of, any third party.
7.3 Indemnification by the Buyer.
(a) Subject to the limitations in paragraph (b) below, from
and after the Closing Date, the Buyer shall indemnify and hold harmless the
Seller's Indemnified Persons from any and all Losses directly or indirectly
incurred by or sought to be imposed upon them:
(i) resulting from or arising out of any breach of
any of the representations or warranties made by the Buyer, in or pursuant to
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the Closing;
(ii) resulting from or arising out of any breach of
any covenant or agreement made by the Buyer in or pursuant to this Agreement;
and
(iii) in respect of any liability or obligation
included in the Assumed Liabilities.
(b) The right to indemnification under paragraph (a) above is
subject to the limitation that the Buyer shall have no liability under paragraph
(a) unless a Seller's Indemnified Person gives written notice to the Buyer
asserting a claim for Losses, including reasonably detailed facts and
circumstances pertaining thereto, before the expiration of the period set forth
below:
<PAGE> 23
(i) for claims under clause (a)(i) above, two (2)
years from the Closing Date; and
(ii) for all other claims, for so long as any claim
may be made in respect of such matters under any applicable statute of
limitations.
7.4 Defense of Third Party Actions.
(a) Promptly after receipt of notice of any Third Party
Action, any person who believes he or it may be an Indemnified Person will give
notice to the potential Indemnifying Person of such action. The omission to give
such notice to the Indemnifying Person will not relieve the Indemnifying Person
of any liability hereunder unless it was prejudiced thereby, nor will it relieve
it of any liability which it may have other than under this Article 7.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at its option and at its own expense,
to participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person makes
the election provided in paragraph (c) below.
(c) By written notice within forty-five (45) days after
receipt of a notice of a Third Party Action, an Indemnifying Person may elect to
assume control of the defense, negotiation and settlement thereof, with counsel
reasonably satisfactory to the Indemnified Person; provided, however, that the
Indemnifying Person agrees (i) to promptly indemnify the Indemnified Person for
its reasonable expenses to date, and (ii) to hold the Indemnified Person
harmless from and against any and all Losses caused by or arising out of any
settlement of the Third Party Action approved by the Indemnifying Person or any
judgment in connection with that Third Party Action. The Indemnifying Persons
shall not in the defense of the Third Party Action enter into any settlement
which does not include as a term thereof the giving by the third party claimant
of an unconditional release of the Indemnified Person, or consent to entry of
any judgment except with the consent of the Indemnified Person. The Indemnified
Person agrees to cooperate in the defense.
(d) If the Indemnifying Person does not elect to control the
defense of a Third Party Action under paragraph (c), the Indemnifying Person
shall promptly reimburse the Indemnified Person for expenses incurred by the
Indemnified Person in connection with defense of such Third Party Action, as and
when the same shall be incurred by the Indemnified Person.
(e) Any person who has not assumed control of the defense of
any Third Party Action shall have the duty to cooperate with the party which
assumed such defense.
7.5 Miscellaneous. (a) The Buyer's Indemnified Persons shall be
entitled to indemnification under Section 7.2 and the Seller's Indemnified
Persons shall be entitled to indemnification under Section 7.3, regardless of
whether the matter giving rise to the applicable liability, payment, obligation
or expense may have been previously disclosed to any such person.
(b) If any Loss is recoverable under more than one provision
hereof, the Indemnified Person shall be entitled to assert a claim for such Loss
until the expiration of the longest period of time within which to assert a
claim for Loss under any of the provisions which are applicable.
7.6 Payment of Indemnification. Claims for indemnification under this
Article 7 shall be paid or otherwise satisfied by Indemnifying Persons within
thirty (30) days after notice thereof is given by the Indemnified Person, and
the amount of the claim is ascertained.
<PAGE> 24
ARTICLE 8. REGISTRATION.
8.1 Required Registration. If at any time during the period beginning
on the date of the Closing and ending on the second anniversary of the Closing,
the Buyer receives a written request from the Seller to file a registration
statement under the Securities Act of 1933, as amended (the "1933 Act") for a
public offering of those shares of the Common Stock of the Buyer received in
payment of the Net Asset Stock Amount (the "Registrable Shares"), the 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. The
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 Shares pursuant to this Section 8.1.
8.2 Conditions of Buyer's Obligations to Register Shares. Buyer's
obligation under Section 8.1 to cause a registration statement or amendment to
be filed shall be subject to the following conditions:
(a) The Seller shall have provided such consents,
representations and information and executed such documents as may reasonably be
required in connection with such registration.
(b) The 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 8.1.
(c) In no event will the Seller be entitled to request
registration under Section 8.1 within a period of ninety (90) days following the
effective date of any other registration statement filed by the Buyer (other
than a registration statement covering the offer and sale of Common Stock to its
employees and subsidiaries) regardless of whether or not the Seller participated
in such registration statement.
(d) Notwithstanding any other provision of this Agreement, to
the extent the provisions of subparagraph (c) of this Section 8.2 have the
effect of reducing the time period during which the Seller would otherwise be
entitled to request registration of its Registrable Shares under Section 8.1,
the period during which the Seller may request registration, and during which
the Buyer shall have a duty hereunder to register said Registrable Shares, shall
be extended by the number of days equal to the aforementioned reduction.
(e) All sales of the Buyer's Common Stock by the Seller in any
registered offering, other than a firm commitment underwritten offering, shall
be made through a coordinating broker acceptable to the Buyer which acceptance
by the Buyer shall not be unreasonably withheld.
(f) All sales of the Buyer's Common Stock by the Seller in any
registered firm commitment underwritten offering shall be made through an
underwriter acceptable to the Buyer which acceptance by the Buyer shall not be
unreasonably withheld.
(g) On and after the one hundredth eightieth day following the
effective date of any registration statement filed pursuant to Section 8.1, the
Buyer may, without further notice to the Seller, take action to deregister any
shares of its Common Stock registered by such registration statement and not yet
sold.
<PAGE> 25
(h) The 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). The 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.
8.3 Expenses. The expenses of registration of the Registrable Shares of
the Seller pursuant to Section 8.1 will be shared equally between the Buyer and
the Seller. For purposes of this Section 8.3, the term "expenses" shall include
federal, state and other registration and qualification fees, legal fees and
expenses for the Buyer's counsel, auditing and accounting expenses incurred by
the Buyer in connection with the registration and printing and other related
expenses, but shall exclude any legal fees for counsel to the Seller and any
underwriting discounts and selling commissions relating to the Registrable
Shares sold by the Seller.
8.4 Financial Information. Notwithstanding the foregoing, in connection
with any registration provided for in this Agreement, the 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 the Buyer for time expended by such employees in the
preparation of such financial or other information will be reimbursed to the
Buyer by the Seller.
8.5 Exclusive Obligation to Register. Except as provided in this
Article 8, the Buyer will have no obligation to the Seller to register under the
1933 Act any Common Stock received by the Seller pursuant to this Agreement.
8.6 State Securities Laws. In connection with the registered offering
of any Registrable Shares pursuant to this Agreement, the 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 Seller; provided, however, that the 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.
8.7 Indemnification. In connection with any registration statement
filed pursuant to this Article 8:
(a) To the extent permitted by law, the Buyer will indemnify
and hold harmless the Seller against any losses, claims, damages or liabilities,
joint or several, to which it 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 the Seller for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 8.7(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the Buyer's consent (which consent
shall not be unreasonably withheld) nor shall the 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
<PAGE> 26
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 the Seller.
(b) To the extent permitted by law, the Seller will indemnify
and hold harmless the Buyer, each of its directors, each of its officers who
have signed such registration statement, each person, if any, who controls the
Buyer within the meaning of the 1933 Act, and any underwriter (within the
meaning of the 1933 Act) (in the case of an underwritten public offering)
against any losses, claims, damages or liabilities to which the Buyer or any
such director, officer, controlling person, or underwriter 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 the Seller
expressly for use in connection with such registration; and the Seller will
reimburse any legal or other expenses reasonably incurred by the Buyer or any
such director, officer, controlling person, or underwriter 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 8.7(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
Seller (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by a party who may be indemnified
under this Section 8.7 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 8.7, notify the indemnifying party in
writing of the commencement thereof and the indemnifying part 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 8.7, 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 8.7.
ARTICLE 9. MISCELLANEOUS.
9.1 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 the Seller or the Stockholder
relating in any way to the purchase and sale of the Purchased Assets hereunder
shall be charged to or paid by the Buyer or included in any account of the
Seller as of the Closing.
9.2 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 or facsimile transmission) addressed as provided below and if either
(i) actually delivered electronically or physically at said address, or (ii) 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 the Seller or the Stockholder, to:
<PAGE> 27
A&G, Inc.
c/o Allen Wayne Croft
4648 Ashley View Lane
Charleston, South Carolina 29405
Facsimile Number: (803) 569-0209
with a copy to:
James L. Parris, Esq.
Buist, Moore, Smythe & McGee, P.A.
5 Exchange Street
Charleston, South Carolina 29401
Facsimile Number: (803) 723-7398
If to the Buyer, to:
Southern Energy Homes, Inc.
Highway 41 North
P.O. Box 269
Addison, Alabama 35540
Attention: Wendell L. Batchelor, President
Facsimile Number: (205) 747-1183
with a copy to:
Paul J. Hartnett, Jr., Esq.
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Facsimile Number: (617) 856-8201
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.
9.3 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 both
the Buyer and the Seller, provided, however, that, notwithstanding the
foregoing, the Buyer shall be free to make such public announcements and
disclosure regarding the transactions contemplated hereby, in such form and at
such times, as the Buyer reasonably believes are necessary in order to comply
with applicable federal and state securities laws, without prior consent of the
Seller.
9.4 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. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision hereof.
<PAGE> 28
9.5 Assignability . This Agreement may not be assigned otherwise than
by operation of law (i) by the Buyer without the prior written consent of the
Seller, or (ii) by the Seller without the prior written consent of the Buyer.
However, any or all rights of the Buyer to receive performance (but not the
obligations of the Buyer to the Seller hereunder) and rights to assert claims
against the Seller and the Stockholder in respect of breaches of
representations, warranties or covenants of the Seller or the Stockholder
hereunder and rights to be indemnified hereunder, may be assigned by the Buyer
to any direct or indirect subsidiary, parent or other affiliate of the Buyer,
but any assignee of such rights shall take such rights subject to any defenses,
counterclaims and rights of setoff to which the Seller and the Stockholder might
be entitled under this Agreement. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns.
9.6 Amendment . This Agreement may be amended only by a written
agreement executed by the Buyer, the Seller and the Stockholder.
9.7 Governing Law . This Agreement shall be governed by and construed
in accordance with the laws of the State of South Carolina, other than the
choice of law principles thereof.
9.8 Counterparts . This Agreement may be executed in multiple
counterparts, each of which shall be deemed in original but all of which
together shall constitute one and the same instrument.
9.9 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.
<PAGE> 29
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.
SOUTHERN ENERGY HOMES, INC.
By:_____________________________
Name:
Title:
A & G, INC.
By:_____________________________
Name:
Title:
STOCKHOLDER:
--------------------------------
Allen Wayne Croft
<PAGE> 30
ASSET PURCHASE AGREEMENT
List of Schedules and Exhibits
Schedule 1.1(a) - Leases
Schedule 1.2(a) - Assumed Liabilities
Schedule 1.5 - Buildings
Schedule 2.6 - Financial Statements
Schedule 2.9 - Leases, Equipment and Other Personal Property
Schedule 2.10 - Inventory and Building Title Exceptions
Schedule 2.11 - Intellectual Property Rights
Schedule 2.12 - Contracts and Commitments
Schedule 2.14 - Underground Storage Tanks
Schedule 2.15 - Permits
Schedule 2.16 - Warranty or Other Claims
Schedule 2.17 - Litigation
Schedule 2.19 - Transactions with Interested Persons
Exhibit A: Real Estate Lease Agreement
Exhibit B: Instrument of Assumption
Exhibit C: Bill of Sale
Exhibit D: Legal Opinion of the Seller's Counsel
Exhibit E: Non-Competition Agreement
Exhibit F: Legal Opinion of the Buyer's Counsel
The Company hereby agrees to furnish supplementary, a copy of any of the
forgoing schedules and exhibits, to the Commission upon request.
<PAGE> 1
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. Southern Energy Homes Retail Corp.
7. Southern Energy Homes S.C. Retail Corp.
INDIRECT SUBSIDIARIES:
1. BR Agency, Inc., a wholly owned subsidiary of Southern Energy Homes Retail
Corp.
<PAGE> 1
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 Nos. 333-03781, 333-09869, and
333-32933.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 23, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
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<NAME> SOUTHERN ENERGY HOMES, INC.
<MULTIPLIER> 1,000
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<PERIOD-END> JAN-02-1998
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<RECEIVABLES> 22,399
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0
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<TOTAL-LIABILITY-AND-EQUITY> 123,253
<SALES> 298,533
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<TOTAL-COSTS> 254,480
<OTHER-EXPENSES> 24,457
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