SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
____________________
[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number 0-22562
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
<S> <C>
Indiana . . . . . . . . . . . . . . . . . . . . . . 35-1880120
- --------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation). . . (I.R.S. Employer Identification No.)
9202 North Meridian Street
Indianapolis, Indiana . . . . . . . . . . . . . . . 46260
- --------------------------------------------------- ------------------------------------
(Address of principal executive offices). . . . . . (Zip code)
(317) 843-9514
- ---------------------------------------------------
Registrant's telephone number, including area code)
- ---------------------------------------------------
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON SHARES, WITHOUT PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all documents
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 the 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 on March 24, 1998 was approximately $322,660,641. As of March
24, 1998, there were 11,126,229 Common Shares of the registrant issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
Document Incorporated Part of Form 10-K
- --------------------------------------------------------------------------------
Proxy Statement for 1997 Part III
Annual Meeting of Shareholders
PART I
ITEM 1. BUSINESS
GENERAL
Crossmann Communities, Inc. ("Crossmann" or the "Company") has provided
homes to families in central Indiana since 1973. Today the Company
operates in ten markets: Indianapolis, Lafayette, Ft. Wayne and Columbus,
Indiana; Columbus, Cincinnati, and Dayton, Ohio; Louisville and Lexington
Kentucky; and Memphis, Tennessee. Crossmann's homes are targeted to entry-level
and first move-up home buyers. The average size of one of Crossmann's new
homes is 1,400 square feet, and the average selling price in 1997 was
approximately $114,000.
Crossmann achieved record sales in 1997, delivering 2,774 new homes,
compared to 2,068 in 1996. Crossmann also expanded its operations to its newest
markets, Lexington, and Memphis, through acquisitions in these cities, and
enhanced operations in Indianapolis by forming a joint venture with another
homebuilding company there. Crossmann strengthened its balance sheet through a
secondary offering of shares in September 1997, adding nearly $30 million in
equity.
Crossmann has consistently achieved sales and net income growth over recent
years, having achieved a 5-year average compound annual growth in revenue of
over 39%. The Company's success has been and will continue to be dependent upon
the following key operating strategies:
1. Focused Market Approach. The Company focuses on affordably priced
entry-level and first move-up single family homes, in markets the Company
believes have significant and stable long-term demand. Management believes that
entry-level housing generally allows high volume homebuilders, such as the
Company, to build a standardized product. This permits efficiencies in
construction and materials purchasing that can result in high margins. The
company will continue to focus on providing product lines that address the needs
of this market segment.
2. Emphasis on Customer Service. The Company is committed to providing a
high level of customer service as an integral component of its competitive
strategy. The Company serves its customer through the attention it devotes to
the financial concerns of its customers and by producing a high quality product.
3. Market Concentration. The Company currently conducts its business in
nine Midwestern markets. The Company believes that these cities enjoy
relatively low unemployment, diversified industry, and satisfactory
infrastructure. The Company believes that these characteristics, among others,
make these cities attractive to employers, which, in turn, create demand for
housing of the type offered by the Company. The Company intends to explore
opportunities to expand its homebuilding operations to metropolitan areas that
it believes offer stable economic characteristics similar to those of its
existing markets. The Company believes that its most effective expansion
opportunities will be in similar markets where it can effectively utilize the
strengths of its operating strategy.
In September 1997, the Company expanded beyond the Midwest through its
acquisition of the Memphis division of Heartland Homes, Inc. in Memphis,
Tennessee. Management believes this market has many of the attractive
characteristics of the other cities in which it operates.
4. Land Development. Management believes that the development of land
achieves several strategic objectives by (i) helping the Company to improve its
profit margins by reducing the cost of the land on which its homes are built;
(ii) ensuring the Company of an adequate supply and location of lots to meet
market demand; (iii) allowing the Company to control the developments in which
it builds its homes; and (iv) allowing the Company to construct homes
efficiently and more cost-effectively by permitting the construction of several
similar homes within the same neighborhood at the same time.
5. Stringent Cost Controls. The large number of homes built by the Company
allows it to purchase both products and services at favorable prices.
Additionally, the Company has relatively few home designs, enabling it to
significantly reduce delays and expenses associated with educating
subcontractors as to new design requirements. The Company controls its
construction costs through favorable pricing negotiated with subcontractors due
to the efficient design of its homes. The Company believes that its success in
dealing with subcontractors can be attributed to the large amount of work each
subcontractor performs for the Company and from the long-term relationships the
Company has with most of its subcontractors.
MARKETS
Indianapolis, Indiana. Indianapolis is the capital of Indiana; as a
result, federal, state and local government offer a source of significant and
stable employment in the city. According to the Census Bureau, the Indianapolis
metropolitan statistical area ("MSA") had an estimated population of 1,476,865
as of July 1, 1995, an increase of 7.0% over 1990. Indianapolis is a major
center for manufacturing, distribution, insurance, and financial and health
services. Major private sector employers include the Allison Engine Company, the
Allison Transmission division of General Motors, DowElanco, Boehringer Mannheim
Corporation, Thomson Consumer Electronics and Eli Lilly & Company. As of
December 31, 1997, metropolitan Indianapolis had an unemployment rate of 2.8% as
compared to the national average of 4.9%. The city is located at the
intersection of four major interstates, and one-quarter of the nation's
population is within a day's drive. A $1 billion aircraft maintenance hub for
United Airlines has recently begun operations, and a $62 million express mail
sorting facility for the U.S. Postal Service has recently been completed.
Crossmann delivered more single-family detached homes in the Indianapolis
metropolitan market than any other homebuilder in 1997. The Company currently
offers homes in 42 communities. In October 1997, Crossmann entered into a 50%
joint venture with another Indianapolis homebuilder, Trinity Homes, Inc. This
venture, Trinity Homes, LLC, ("Trinity") offers single-family homes in 26
communities.
Southern Indiana. In December 1995, the Company opened a new office in
Columbus, Indiana to serve communities south of Indianapolis that have
experienced job growth in recent years. From this office the Company manages
construction in 11 communities in Columbus, Bloomington, Franklin, Greensburg,
Seymour, and Shelbyville, Indiana.
Lafayette, Indiana. Lafayette is located approximately 66 miles northwest
of Indianapolis. According to the Census Bureau, the Lafayette MSA had a
population of 167,879 as of July 1, 1995, an increase of 3.9% over 1990. West
Lafayette is the home of Purdue University, which is the city's largest
employer. Other major employers in the Lafayette metropolitan area include
Subaru-Isuzu America, Inc., Wabash National Corporation, Alcoa, Great Lakes
Chemical and A.E. Staley. As of December 31, 1997, metropolitan Lafayette had
an unemployment rate of 2.5% as compared to the national average of 4.9%.
Crossmann delivered more single-family detached homes in the Lafayette
metropolitan market than any other homebuilder in 1997. The Company currently
is offering homes in 5 communities in the Lafayette metropolitan area.
Ft. Wayne, Indiana. Ft. Wayne is the second largest city in Indiana.
According to Census Bureau, the Ft. Wayne MSA had an estimated population of
471,508 as of July 1, 1995, an increase of 3.3% over 1990. As of December 31,
1997, metropolitan Ft. Wayne had an unemployment rate of 2.6% compared to a
national average of 4.9%. Major employers include Lincoln National Corporation,
General Motors Truck and Bus, General Electric, ITT Aerospace, and Dana
Corporation. Crossmann offers homes in 12 communities within the Ft. Wayne
MSA.
Columbus, Ohio. Columbus is the capital of the state of Ohio and, as a
result, federal, state and local government offer a source of significant and
stable employment in the city. According to the Census Bureau, the Columbus MSA
had a population of 1,437,512 as of July 1, 1995, an increase of 6.8% over 1990.
The unemployment rate for the Columbus MSA for 1997 was 2.6%, which was below
the national average of 4.9%. Columbus is the home of Ohio State University,
which has one of the largest single college campus populations in the world and
an annual budget that exceeds $1 billion. Major private employers in Columbus
include The Limited, Inc., Nationwide Insurance, Lucent Technologies, Honda of
America, and Banc One Corporation. The Company currently offers new homes in 24
communities in the Columbus metropolitan area.
Cincinnati, Ohio. According to the Census Bureau, the Cincinnati
Consolidated MSA had an estimated population of 1,907,438 as of July 1, 1995, an
increase of 4.9% over 1990. It is a major cultural and recreation center.
Cincinnati had an unemployment rate of 3.3% in 1997 compared to a national
average of 4.9%. Major employers include U.S. and local government agencies,
Procter & Gamble Co., the University of Cincinnati, the Kroger Co., and G.E.
Aircraft Engines. The Cincinnati International Airport is a major hub for Delta
Airlines. Crossmann offers homes in 10 communities within the Cincinnati MSA.
Dayton, Ohio. According to the Census Bureau, the Dayton MSA had an
estimated population of 956,412 as of July 1,1995, an increase of 0.5% over
1990. Dayton had an unemployment rate of 3.7% at December 31, 1997 compared to
a national average of 4.9%. Major employers include Wright-Patterson Air Force
Base, General Motors, Airborne Express, Elder-Beerman Stores, and Navi-Star
International Trans. Corp. Today the Company operates in 8 communities in
Dayton.
Louisville, Kentucky. The Louisville MSA had a population of 980,860 in
1990, and an unemployment rate as of December 31, 1997 of 3.1% compared to a
national average of 4.9%. Major employers include UPS, General Electric, Ford
Motor Co., Columbia Health Care, Inc. and Humana. Crossmann currently offers
homes in 19 Louisville communities.
Lexington, Kentucky. In June of 1997, Crossmann acquired a Lexington
homebuilder, Cutter Homes Ltd., the third largest homebuilder in Lexington,
Kentucky, ranked by the number of new homes closed in 1996. According to the
Census Bureau, the Lexington MSA had an estimated population of 435,736 as of
July 1, 1995, an increase of 7.3% over 1990. Lexington had an unemployment rate
of 2.2% as compared to the national unemployment rate of 4.9%. Major employers
in the Lexington metropolitan area include University of Kentucky, Toyota Motor
Corporation and Lexmark International, Inc. Crossmann offers homes in 3
Lexington communities.
Memphis, Tennessee. On September 30, 1997, Crossmann acquired the Memphis
division of Heartland Homes, LLC, a homebuilding company based in Oklahoma City,
Oklahoma. According to the Census Bureau, the Memphis MSA had an estimated
population of 1,068,891 as of July 1, 1995, an increase of 6.1% over 1990. The
Memphis metropolitan area had an unemployment rate of 3.7% at December 31, 1997
as compare to the national unemployment rate of 4.9%. Major employers in the
Memphis metropolitan area include Federal Express Corporation, Kellog Company
and National Commerce Bancorporation. Crossmann currently offers homes in 7
communities in Memphis.
PRODUCT LINES
The Company sells homes under the names "New American Homes," "Deluxe
Homes" and "Trimark Homes." Within these product categories, the Company offers
a variety of floor plans and exterior styles with two, three, and four bedrooms,
two or more bathrooms and a two-car attached garage. Contracts for the sale of
homes are at fixed retail prices. Standard features of each product line
include built-in appliances and custom wood cabinets in the kitchen,
wall-to-wall carpeting, a high-efficiency furnace, maintenance-free vinyl
siding, landscaped yard, poured concrete walks, porches and driveways.
Purchasers are given the opportunity to select, at additional costs, such
amenities as patios or decks, wood windows, skylights, upgraded carpeting and
flooring, a fireplace or a basement.
Each of the Company's product lines is targeted at entry-level and first
move-up buyers and, although there are similarities among the homes in the
different product lines, New American Homes tend to be smaller and include fewer
standard amenities than Deluxe Homes or Trimark Homes, and Trimark Homes tend to
offer greater living space and include more standard amenities than New American
Homes or Deluxe Homes. In 1997, the average price of the homes sold in these
categories was approximately $93,800 for the New American Homes line, $116,800
for the Deluxe Homes line and $128,400 for the Trimark Homes line.
The Company intends to remain focused on delivering housing desired by
entry-level and first move-up buyers. It will explore modification of its
existing product lines or creation of new product lines when local marketing
efforts indicate changes will appeal to this segment.
CONSTRUCTION
The Company acts as the general contractor for the construction of its
residential communities. The Company's construction supervisors monitor the
construction of each home, participate in design and building decisions,
coordinate the activities of subcontractors and suppliers, maintain quality and
cost controls and monitor compliance with zoning and building codes.
The construction of detached single-family homes by the Company is
generally tied to home buyer sales contracts to minimize the costs and risks of
completed but unsold inventory. When a buyer has received pre-approval from a
mortgage company for his or her financing, the Company develops a budget for the
construction of the house, which takes into account the model of the home, the
options selected and the lot on which the house is to be constructed. A
contract is entered into with the buyer on the basis of this budget.
Construction time for each home is tied to a construction schedule
established for each of the Company's home types. The Company's construction
schedules range in duration from 60 to 120 days. Variances from the schedule are
infrequent but may occur due to weather conditions or the availability of labor,
materials and supplies.
Once a contract has been signed, a "house work order" is generated and sent
out to the Company's field supervisor and to each subcontractor who will work on
the home. The house work order describes each task that must be completed to
build the house and the materials required to complete the task. Subcontractors
prepare vouchers on the basis of a price list provided by the Company which
specifies the current rate that the Company will pay for the nature of the task
completed and the materials used. Price lists are updated periodically based on
changes in the costs of raw materials and other factors. Vouchers prepared by
the subcontractor must be reviewed and approved by the field supervisor before
they are paid by the Company.
The use of subcontractors enables the Company to minimize its investment in
direct employee labor, capital, equipment and building supply inventory. This
practice also increases the Company's flexibility in responding to changes in
the demand for housing. The Company has had long business relationships with
many of its subcontractors. These relationships, coupled with the volume of
homes built by the Company, enable the Company to negotiate favorable agreements
with its subcontractors.
The Company's office staff is responsible for sales processing,
estimating, architectural design, centralized purchasing, contract management,
home site planning, obtaining governmental approvals, closing, accounting and
warranty service, among other responsibilities. The Company's management
information system is designed to monitor the progress of each home built by the
Company, from acceptance of a sales contract to delivery of the complete home to
the buyer. Corporate headquarters also monitors the vouchers submitted by the
Company's sub-contractors. Variances in the submitted vouchers from the
established price lists are reviewed and, where not reasonable under the
circumstances, are charged back to the vendor.
Despite seasonal changes in the weather, the Company has maintained a
construction schedule throughout the entire year. To permit winter
construction, the Company pours additional slab foundations during the fall.
The cost of these additional foundations is not significant. However,
additional construction charges are incurred due to such factors as temporary
heating costs, additives to concrete, extra utility charges and the placement of
temporary stone driveways, sidewalks and landscaping.
Except as necessary to maintain customer satisfaction with the aesthetics
of its product lines, the Company does not materially change its home designs
and floor plans from year to year. The Company believes that consistency in the
design of its homes helps reduce costs and minimize delays by avoiding expenses
associated with educating subcontractors on the requirements of a new design.
Where practical, the Company uses mass production techniques, construction on
contiguous lots, and prepackaged standardized components to streamline the
on-site construction phase.
The Company maintains small inventories of some construction materials in
addition to the construction materials for work in process of homes under
construction. The Company has not experienced any significant delays in
construction due to shortages of materials or labor.
LAND ACQUISITION AND DEVELOPMENT
The Company typically acquires unimproved land through contingent purchase
agreements. Closing of the land is contingent upon, among other things, the
Company's ability to obtain necessary zoning and other governmental approvals
for the proposed development, confirmation of the availability of utilities and
completion of an environmental review.
Once the land has been purchased, the Company undertakes development
activities that include site planning and engineering, as well as constructing
roads, sewer, water and drainage facilities and other amenities. The activities
are carefully managed, with phases geared to the Company's projected sales.
Generally, management of the Company attempts to maintain an inventory of
"finished" lots sufficient for approximately half the homes which the Company
anticipates it will construct during the next 18 months. In addition, the
Company maintains an inventory of raw land in anticipation of its needs for a
period of 18 to 36 months in the future. The following chart summarizes the
Company's available lot inventory as of December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Finished Lots Under Raw Land Under
Lots Development (Est. Lots) Total Option
Indianapolis . . 700 736 2,293 3,729 2,943
Lafayette. . . . 46 0 80 126 628
Ft. Wayne. . . . 255 0 0 255 265
Columbus . . . . 349 36 619 1,004 584
Cincinnati . . . 207 50 529 786 238
Southern Indiana 175 214 382 771 469
Dayton . . . . . 183 172 530 885 50
Louisville . . . 201 65 510 776 245
Lexington. . . . 38 0 0 38 401
Memphis. . . . . 22 0 0 22 121
-------- ----------- ----------- ----- ------
2,176 1,273 4,943 8,392 5,944
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</TABLE>
In addition to purchasing unimproved land outright, the Company from time
to time has used partnerships and joint ventures to acquire and develop land.
Joint ventures sell finished lots to builders, including, but not limited to,
the Company. The Company will continue to consider such partnership and joint
venture arrangements in the future when management perceives a favorable
opportunity. At December 31, 1997, the Company was a participant in 8 such
joint ventures.
The development of land is extremely capital intensive, and as a result,
the Company's ability to develop land is limited. In 1997, the Company
developed approximately 57% of the lots on which its homes were built, compared
to approximately 56% in 1996. The Company expects this percentage to stay
approximately the same in 1998.
MARKETING AND SALES
The Company sells its homes through a sales force of commissioned
independent contractors ("New Home Counselors") who work from sales offices
located at the Company's headquarters and in model homes located in each
residential community. New Home Counselors of the Company advise prospective
buyers throughout the home buying process by providing information on the
Company's product lines of homes, pricing, options and upgrades, financing
options, warranties and construction.
The Company's New Home Counselors advise buyers, many of whom are
first-time home buyers, on available financing options. The Company builds most
of its homes under the guidelines and specifications of the Federal Housing
Administration ("FHA") and the Veterans Administration ("VA"), thereby offering
eligible buyers the benefit of FHA/VA mortgages. The Company believes that such
counseling and the availability of FHA/VA financing is important to its overall
success in that many entry-level and first move-up buyers have limited financial
resources.
New Home Counselors contract with the Company, and the Company attempts to
maintain long term relationships with them. New Home Counselors attend weekly
sales meetings at which they are kept apprised of changes in available financing
options and other information relevant to prospective buyers and semi-annual
seminars offered by the Company on a variety of marketing topics.
The Company does most of its advertising in the classified advertisement
section of local newspapers. The Company also attracts buyers as a result of
referrals, directional signs and direct mailings. From time to time the Company
may participate in television and radio advertising promotions.
The Company offers a Guaranteed Sale Program to certain buyers having
existing homes which they intend to sell before purchasing a home constructed by
the Company. Under the Guaranteed Sale Program the Company will assist the
buyer in selling his or her existing home and, if that home is unsold at
closing, the Company will purchase the buyer's home at a predetermined price.
Management of the Company believes that the Guaranteed Sale Program has been an
effective marketing tool for the Company as many prospective buyers are hesitant
to purchase a new home until they are certain that they will be able to sell
their existing residence. Sales to new home buyers who executed contracts under
the Guaranteed Sale Program contributed approximately $15.7 million to 1997
sales.
FINANCING
The Company assists its customers in financing their new home in several
ways. First, the Company's New Home Counselors are available to consult with
the customers on available financing options to determine how much house the
individual can afford. Second, the Company builds most of its homes under the
guidelines and specifications of the Federal Housing Administration and the
Veterans Administration, thereby providing eligible prospective buyers the added
benefit of the availability of FHA/VA mortgages. This is significant because
FHA and VA financing generally enable buyers to purchase homes with lower down
payments than the down payments required by conventional mortgage lenders and
allows applicants to direct a larger percentage of their incomes toward housing
expenses. The FHA/VA insured mortgages also provide more liberal rules with
respect to the amount of points and closing costs that the seller may pay. In
1997, approximately 66% of the homes delivered by the Company were financed with
FHA/VA mortgages.
As is typical in the homebuilding industry, the Company's sales contracts
generally provide that the Company will pay on behalf of the buyer the mortgage
loan closing costs, origination fees and discount points incurred by the buyer,
within limits established in the sales contract and not in excess of the maximum
amounts allowable by the government mortgage programs utilized by the Company.
MORTGAGE BROKERAGE SUBSIDIARY
The Company has established a mortgage brokerage subsidiary, Crossmann
Mortgage Corp. Crossmann Mortgage Corp. was certified by FHA, a program of the
federal Department of Housing and Urban Development in July 1994. Once
certified, the subsidiary began processing FHA, VA, and conventional loans and
selling the servicing rights. The revenue of this subsidiary is comprised of
origination fees and servicing release fees, and its expenses primarily include
administrative personnel salaries and other general office expenses. Crossmann
Mortgage Corp. does not warehouse or fund loans and, as a result, does not
incur a credit risk or market risk associated with loans it originates.
CUSTOMER SERVICE AND QUALITY CONTROL
It is the view of the Company's management that the Company is primarily a
service company rather than a manufacturing concern. This philosophy is
reflected in the way the Company treats its customers before and after the sale.
Before the sale, the Company's New Home Counselors work with the customer
to select from available options in order to customize their new home to their
particular taste. Once an application has been approved and construction on a
new home commences, the Company encourages the buyer to visit the site during
the construction process. Before a buyer takes occupancy of a new house a
pre-inspection tour is conducted with the buyer to ensure that the buyer is
satisfied with the condition of the home and to attempt to correct any problems
before the buyer takes possession. When the buyer visits the Company's
administrative office to make color selections and complete the house work
order, the Company provides the new homeowner with a detailed checklist which
describes the items covered by the Company's warranty. Approximately 30 days
after closing, representatives of the Company place a courtesy call to the new
homeowner to enable him or her to ask any questions that have arisen since they
took possession. Customers are encouraged to request an additional walk-through
of the home approximately 90 days after closing. Finally, the Company also
offers its customers a final inspection on the first anniversary of the closing
to check the home for items to be submitted for warranty action and to discuss
any items which the customer believes warrant the Company's attention.
Each home sold by the Company is covered by a comprehensive warranty from
an independent HUD approved warranty company. The warranty extends coverage for
ten years for structural matters, four years for the roof of the home and two
years for other specified items. By maintaining this warranty program, the
Company is required to undergo one inspection, rather than three, to qualify for
FHA/VA financing, thereby reducing the cost and time delay associated with such
inspections.
COMPETITION AND MARKET FACTORS
The development and sale of residential properties is highly competitive.
The Company competes in the sale of homes with the resale market for existing
homes and with other homebuilders.
The Company competes for residential sales on the basis of a number of
interrelated factors, including location, reputation, amenities, design, quality
and price. Management believes that entry-level housing generally allows high
volume homebuilders, such as the Company, to build a more standardized product,
thus permitting efficiencies in construction and materials which can result in
higher margins. Some of the Company's competitors have greater financial,
marketing and sales resources than the Company.
The Company also competes for residential sales with individual resales of
existing homes and condominiums and with available rental housing. The resale
market for existing homes has several attractions for home buyers including the
following: (i) buyers of existing homes can generally take occupancy of their
homes more quickly; (ii) sellers in the resale market generally have a lower
basis in their homes and therefore may have price expectations different from
those of sellers of new homes; and (iii) resale homes are generally located in
established neighborhoods. The Company attempts to meet this competition from
the home resale market by offering benefits which this market cannot provide,
notably the latest design features, the flexibility to select interior and
exterior finishes, new home warranties and more desirable locations from which
to choose a homesite.
The Company believes that a competitive challenge facing it in all of its
present markets is locating and acquiring undeveloped land suitable for the
types of communities which it can profitably develop. Although the Company has
been successful in the past in locating and developing such tracts within its
present markets, there can be no assurance that this success will continue. If
the Company expands the geographic scope of its business to new markets, there
can be no assurance that the Company will be successful in acquiring suitable
land for development in such markets.
The housing industry is cyclical and affected by consumer confidence levels
and prevailing economic conditions in general and by job availability and
interest rate levels in particular. A variety of other factors affect the
housing industry and demand for new homes, including changes in costs associated
with home ownership such as increases in property taxes and energy costs,
changes in consumer preferences, demographic trends and availability of and
changes in mortgage financing programs.
TRADEMARKS
"Trimark" is a federally registered service mark for real estate
development services that is owned by the Company. The Company has not yet
registered its "Deluxe" trademark. "Crossmann Communities" is a federally
registered service mark for construction planning, laying out residential
communities and residential construction services that is owned by the Company.
EMPLOYEES
At December 31, 1997, the Company had 407 full-time employees and 10
part-time employees. The Company is not a party to any collective bargaining
agreements. The Company considers its relationship with its employees to be
good.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The executive officers and directors of the Company and their ages as of December
31, 1997 are as follows:
<S> <C> <C>
NAME. . . . . . . . AGE POSITION WITH COMPANY
- ------------------- --- --------------------------------------------------------------
John B. Scheumann . 49 Chairman of the Board of Directors and Chief Executive Officer
Richard H. Crosser. 59 President and Chief Operating Officer; Director
Jennifer A. Holihen 39 Chief Financial Officer; Treasurer; Secretary; Director
John M. Moody . . . 59 Vice President and General Manager, Indianapolis Division
Charles F. Holle. . 57 Vice President and General Manager, Lafayette Division
Steven M. Dunn. . . 44 Vice President and General Manager, Columbus Division
Lynn R. Cooper. . . 58 Vice President and General Manager, Southern Indiana Division
Todd Roberts. . . . 32 Vice President and General Manager, Ft, Wayne Division
Ronald W. Rooze . . 58 Vice President and General Manager, Cincinnati/Dayton Division
</TABLE>
Mr. Scheumann has been the Company's Chairman of the Board of Directors and
Chief Executive Officer since 1992 and has served as a senior executive officer
since joining the Company in 1977. Before joining the Company, Mr. Scheumann
was employed by National Homes Construction Corp. for three years in a variety
of capacities, last serving as Division Controller for Multi-Family
Construction.
Mr. Crosser has been the Company's President and Chief Operating Officer
since 1992 and serves on its Board of Directors and has served as a senior
executive officer since joining the Company in 1974. Prior to 1974, Mr. Crosser
was employed by National Homes Construction Corp. for 15 years in a variety of
capacities, last serving as a regional manager of the company.
Ms. Holihen has been the Chief Financial Officer, Secretary, and Treasurer
since September 1993 and serves on its Board of Directors. Ms. Holihen served
as controller for the Company from 1983 until 1993. Ms. Holihen is a Certified
Public Accountant and received her MBA in accounting and management information
systems from Indiana University in 1987.
Mr. Moody joined the Company in 1992 and assumed responsibility for the
entire Indianapolis Division in March 1994. From March 1990 to February 1992,
Mr. Moody was the President and Chief Executive Officer of Southern Cross Lumber
& Millwork Company. From October 1985 through March 1990, Mr. Moody was Vice
President of Pease Co. From 1978 through 1985, Mr. Moody was a Vice President
of National Homes Construction Corp.
Mr. Holle has been the General Manager of the Company's Lafayette Division
since April 1995, prior to which he served as Sales Manager since 1983. Before
joining the Company, Mr. Holle was a sales manager for General Homes of
Lafayette, Indiana.
Mr. Dunn has been the General Manager of the Company's Columbus, Ohio
Division and the President of Crossmann Communities of Ohio, Inc. since October
1993. Mr. Dunn was the sole shareholder and president of Deluxe Homes of
Columbus, Inc. from 1987 until the acquisition by the Company in 1993.
Mr. Cooper is the General Manager of the Company's Southern Indiana
Division and has served in various capacities since joining the Company in
Indianapolis in 1989. Prior to joining the Company, Mr. Cooper was General
Manager for Equity Builders.
Mr. Rooze has been the General Manager of the Company's Cincinnati, Ohio
Division since May 1994. In 1996, he assumed added responsibilities for
establishing the Dayton Division. Prior to joining the Company, Mr. Rooze was
President and owner of Westron, Inc., a custom homebuilding and remodeling
business in Washington D.C.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
The housing industry and the Company are subject to various local, state
and federal statutes, ordinances, rules and regulations concerning zoning,
resource protection, building design, construction and similar matters,
including local regulations which impose restrictive zoning and density
requirements in order to limit the number of residences that can eventually be
built within the boundaries of a particular location. Furthermore, in
developing a project the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density and the installation of utility services such as electricity,
water and waste disposal.
The length of time necessary to obtain permits and approvals increases the
carrying cost of unimproved property acquired for the purpose of development and
construction. In addition, the continued effectiveness of permits already
granted is subject to factors such as changes in policies, rules and regulations
and their interpretation and application. Such regulation affects construction
activities and may result in delays, cause the Company to incur substantial
costs and prohibit or severely restrict development in certain environmentally
sensitive regions or areas. To date, the governmental approval processes
discussed above have not had a material adverse effect on the Company's
development activities. In addition, because the Company purchases land
contingent upon necessary zoning, restrictive zoning issues also have not had a
material adverse effect on the Company's development activities. However, there
is no assurance that these and other restrictions will not adversely affect the
Company in the future.
The Company generally will condition its obligation to purchase land on,
among other things, an environmental review of the land. However, there can be
no assurance that the Company will not incur material liabilities relating to
the removal of toxic wastes or other environmental matters affecting land owned
by the Company or land which the Company no longer owns. To date, the Company
has not incurred any liability relating to the removal of toxic wastes or other
environmental matters and to its knowledge has not acquired any land with
environmental problems.
A significant number of the Company's customers obtain mortgage financing
under programs sponsored by FHA and VA. Any reductions in the scope of funding
of FHA/VA mortgage programs could have a material adverse effect on the Company
and its operations.
ITEM 2. PROPERTIES
The Company leases approximately 25,000 square feet of office space for
its headquarters and Indianapolis building division at 9202 North Meridian
Street in Indianapolis, Indiana from Pinnacle Properties LLC, an entity owned by
the Company's Chairman of the Board and Chief Executive Officer, John B.
Scheumann, and its President and Chief Operating Officer, Richard H. Crosser.
The monthly rent on the leases are $21,995. The leases expire March 1999
through May 2001.
The Company also leases approximately 5,000 square feet of warehouse space
at 9202 North Meridian Street from Pinnacle Properties LLC. The monthly rent is
$2,708. Management believes that the terms of these leases are no less
favorable to the Company than terms available from unrelated third party
lessors.
<TABLE>
<CAPTION>
The Company's other divisions occupy rented space in their respective communities as
follows:
<S> <C> <C> <C> <C> <C> <C>
Located in Square Feet Monthly Rent Expires Extensions
Southern Indiana. Columbus, IN 2,256 $ 1,880 December 1998 yes
Lafayette . . . . Lafayette, IN 5,268 3,167 August 2000 yes
Ft. Wayne . . . . Ft. Wayne, IN 2,500 2,000 February 1998 yes
Columbus. . . . . Westerville,OH OH 6,642 4,735 December 2000 yes
Cincinnati/Dayton Mason, OH 3,686 4,147 June 2002 yes
Louisville. . . . Louisville, KY 2,764 2,591 December 2000 yes
Lexington . . . . Lexington, KY 2,512 2,300 January 2000 yes
Memphis . . . . . Memphis, TN 1,600 1,467 September 1999 yes
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in routine litigation incidental
to its business. The Company does not believe that any liabilities resulting
from litigation to which it is a party will materially affect the Company's
financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
The Company's common shares trade on The Nasdaq Stock Market under the
symbol: "CROS." All the information that follows has been adjusted for a
three-for-two stock split effective August 18, 1997.
Crossmann completed a secondary offering of shares on September 17, 1997,
increasing the number of shares outstanding at that date from 9,269,678 to
11,083,428. Shares outstanding at December 31, 1997 were 11,107,853. These
shares, and shares sold by Crossmann's principal shareholders, John B. Scheumann
and Richard H. Crosser increased public "float" from approximately 4.2 million
shares to 7.2 million shares. On June 13, 1997, Crossmann issued 62,276
unregistered common shares to Donald L. Cutter as partial consideration for the
acquisition of Cutter Homes, Ltd. Such issuance was exempt from registration
pursuant to Section 3b and 42 of the Securities Act of 1933 as amended, and
Regulation D promulgated thereunder.
During the year ended December 31, 1997, the high closing sales price per
share as reported by The Nasdaq Stock Market was $28.50. The low closing sales
price per share was $10.50.
<TABLE>
<CAPTION>
High and low share prices for the last two fiscal years were:
<S> <C> <C> <C> <C> <C> <C>
1996 1997
Quarter ended High Low High Low
- ------------- ------ ------ ------ -------
March 31. . . $14.00 $11.67 $13.83 $ 10.50
June 30 . . . 14.50 11.67 14.50 12.67
September 30. 13.17 10.83 23.38 13.50
December 31 . 12.92 10.50 28.50 19.815
</TABLE>
The closing sale price of the Company's Common Shares as reported on The
Nasdaq Stock Market on March 24, 1998 was $29.00. As of March 24, 1998, there
were 53 holders of record of the Company's Common Shares. The Company's
transfer agent estimates that there were 11,126,229 shares outstanding, and
there are approximately 1,861 beneficial owners of the Company's Common Shares.
The transfer agent for the Company's common shares is American Stock
Transfer & Trust. Its address is 40 Wall Street, New York, NY 10005.
The Company has not paid dividends since its initial public offering in
October 1993. It anticipates that future earnings will be retained to finance
the continuing development of its business and does not anticipate paying cash
dividends on its Common Shares in the foreseeable future. The payment of future
dividends will be at the discretion of the Company's Board of Directors and
subject to consent of its primary lenders. Payment of future dividends will
depend upon, among other things, future earnings, the success of the Company's
expansion activities, capital requirements, the general financial condition of
the Company and general business conditions. The Company is party to credit
agreements with noteholders and commercial banks that restrict its ability to
pay cash dividends with respect to the Common Shares. (See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
ITEM 6. SELECTED FINANCIAL DATA
The following is selected audited consolidated financial data of the
Company for the five years ended December 31, 1997. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of
Crossmann Communities, Inc. and notes thereto contained elsewhere in this Form
10-K.
Concurrent with the initial public offering of shares, the Company acquired
the Deluxe Entities, an unrelated company operating in Columbus, Ohio called
Deluxe Homes of Columbus, Inc. and the newly formed Crossmann Mortgage Corp.
The unaudited pro forma information presented for 1993 shows the results of
operations as though the initial public offering, termination of the S
corporation elections, acquisitions of the Deluxe Entities, Deluxe Homes of
Columbus, Inc., and Crossmann Mortgage Corp. occurred at the beginning of the
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share and operating data)
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1993(1) 1994 1995 1996 1997
STATEMENT OF OPERATIONS DATA:
Sales . . . . . . . . . . . . . . $83,750 $112,140 $177,590 $229,485 $316,435
Gross profit. . . . . . . . . . . 18,575 24,494 35,704 48,051 65,550
Income from operations. . . . . . 10,540 12,566 18,621 24,854 32,170
Income before income taxes. . . . 10,649 12,791 18,630 24,668 33,399
Income taxes. . . . . . . . . . . 700 5,040 7,519 9,603 13,393
Net income. . . . . . . . . . . . 9,949 7,750 11,111 15,065 20,005
Net income per common share (4):
Basic .85 1.22 1.65 2.05
Diluted .85 1.21 1.63 2.02
Pro forma sales (2) . . . . . . . 91,597
Pro forma net income (2). . . . . 6,445
Pro forma net income
per common share (2) (4):
Basic . . . . . . . . . . . . . .71
Diluted . . . . . . . . . . . . .71
Weighted average common shares
outstanding (2):
Basic . . . . . . . . . . . . . 9,105 9,105 9,112 9,150 9,759
Diluted . . . . . . . . . . . . 9,105 9,105 9,183 9,261 9,927
OPERATING DATA:
Number of closings (3). . . . . . 852 1,073 1,675 2,068 2,774
Average home sales price . . . . . $97,400 $104,250 $106,024 $110,970 $114,072
Homes in backlog (3). . . . . . . 366 345 757 1,006 1,080
BALANCE SHEET DATA
Cash . . . . . . . . . . . . . . . $ 3,651 $ $ 5,233 $ 100 $ 5,526
Inventories and properties
held for development or sale . . 34,976 54,667 69,683 113,202 153,524
Total assets. . . . . . . . . . . 44,621 62,026 83,954 128,336 185,276
Notes payable . . . . . . . . . . 11,583 20,554 25,472 48,326 51,122
Total shareholders' equity. . . . 25,267 33,011 44,212 59,649 110,803
<FN>
(1) The data for the year ended December 31, 1993 includes the separate capital
structure of the Company's predecessor entities and is presented on a combined basis
as companies under common control and, therefore, do not provide a meaningful basis
for presentation of earnings per share data. The Company's predecessor entities were
S corporations and therefore made no provision for income taxes.
(2) 1993 financial data includes pro forma adjustments for the initial public
offering, acquisitions of the Deluxe Entities and Deluxe Homes of Columbus, Inc.,
the acquisition of land, and a provision for income taxes calculated using an
assumed rate of 40%. The 1994, 1995, 1996 and 1997 data reflect actual results.
(3) A home is included in "closings" when title is transferred to the buyer.
Sales and cost of sales for a house are recognized at the date of closing. A home is
included in "backlog" after a sales contract is executed and prior to the transfer of
title to the purchaser. Because the closings of pending sales contracts are subject
to contingencies, no assurances can be given that homes in backlog will result in
closings.
(4) Per share amounts for 1993 through 1996 have been adjusted to reflect the
three-for-two stock split effective August 18, 1997.
</TABLE>
year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Certain statements contained in this section and elsewhere in this Form
10-K are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements may be deemed to
include statements regarding the intent, belief or current expectations of the
Company and its management with respect to (i) the Company's strategic plans,
(ii) the Company's future profitability, (iii) the Company's policy regarding
capital expenditures, financing or other matters, (iv) the Company's sales and
marketing plans, (v) industry trends affecting the Company's financial condition
and (vi) the Company's growth strategy. Such statements involve known and
unknown risks, uncertainties and other factors that may cause actual results to
differ materially from those anticipated in the forward-looking statements.
Such risks, uncertainties and other factors include, but are not limited to the
factors described below. In light of the uncertainties inherent in any
forward-looking statement, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company or the Company's
management that the Company's plans and objectives will be achieved.
While Crossmann's management is committed to growing the Company in a
controlled and profitable manner, there are many factors outside the Company's
control. The Company's business and the homebuilding industry in general are
subject to changes in economic conditions, including but not limited to
employment levels, interest rates, the availability of credit, and consumer
confidence. The Company's success over the past several years has been
influenced by a variety of factors including favorable economic conditions in
its principal markets, the availability of capital for expansion, and low
interest rates. To the extent these conditions do not continue, the Company's
operating results may be adversely affected.
The growth in the Company's sales is principally attributable to increased
unit sales, as price increases have been moderate. Future increases in sales
and profitability will be largely dependent upon the ability of management to
expand the Company's operations in its current markets or in any new markets and
continued control of operating costs.
There can be no assurance that these trends will continue, nor can there be
any assurance that the Company will be able to successfully transfer its
business strategy to new market areas, that new markets will offer the
opportunities and stability of the Company's existing markets, that government
sponsored mortgage programs will not be changed or withdrawn, or that interest
rates will not change substantially.
RESULTS OF OPERATIONS
During the five-year period ended December 31, 1997, the Company's sales
increased at an average compound annual rate of 39.4% per year, from $83.8
million in 1993 to $316.4 million in 1997. Income before income taxes increased
at an average compound annual rate of 33.2%, from $10.6 million in 1993 to
$33.4 million in 1997. During the four years since the Company's initial public
offering of shares, net income increased at an average compound annual rate of
38.0%, and shareholders' equity increased from $25.3 million as of December 31,
1993 to $110.8 million as of December 31, 1997.
The following table recaps unit growth in the company's markets.
Management views volume relative to the total size of each market a significant
factor in producing good margins.
<TABLE>
<CAPTION>
UNIT CLOSINGS BY MARKET
-----------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
---- ---- ----- ----- ----- -----
Indianapolis . . 491 686 732 1,043 1,124 1,314
Lafayette. . . . 125 143 183 160 188 166
Columbus 23 133 197 247 315
Cincinnati 13 159 162 189
Ft. Wayne 12 116 94 84
Dayton 83 230
Southern Indiana 169 283
Louisville. 1 102
Lexington 64
Memphis. 27
-----
Total. . . . . . 616 852 1,073 1,675 2,068 2,774
==== ==== ===== ===== ===== =====
</TABLE>
Management believes that a substantial portion of the homes in backlog
at December 31, 1997 will be closed prior to June 30, 1998, but because of
weather conditions, there can be no assurance as to the quarter in which such
closings will occur.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales increased by $87.0 million, or approximately 37.9%, in 1997 over
1996. Sales were higher primarily as a result of increased unit sales; 2,774
units were sold in 1997 compared to 2,068 in 1996. Sales were up in all
divisions except Lafayette and Ft. Wayne where they were down slightly; Dayton
and Louisville closings were up most dramatically: in Dayton, 230 were sold in
1997 compared to 83 units sold in 1996, and in Louisville, 102 in 1997,
compared to 1 in 1996. Acquisitions also contributed to higher volume. The
Company's new Lexington division contributed 64 closings, and its new Memphis
division contributed 27. Management attributes increased volume in its markets
to the comparatively high value of the product compared to others offered in the
marketplace. Average selling price was also higher, $114,072 in 1997, compared
to $110,970. The average selling price is higher because of the higher
contribution of sales from Ohio. In Crossmann's Ohio markets, most new homes
are sold with basements while in Indiana, most new homes are sold on a slab
foundation. The market preference for basements causes a higher selling price
in the Ohio divisions.
Gross profit increased by $17.5 million, or approximately 36.4%, for the
year, representing 20.7% of sales in 1997 as compared to 20.9% in 1996. The
decline resulted from market mix: Crossmann achieves higher margins in cities
where it has operated longer and dominates the local building market. Growth in
new divisions tends to depress margins slightly overall in early stages.
Selling, general and administrative expenses increased as a percentage of
sales from 10.1% in 1996 to 10.5% in 1997. Management believes that the
increase reflects higher general and administrative expenses incurred by the
newer homebuilding divisions. Management believes that higher volume in these
divisions in 1998 will help to offset this overhead in future periods.
Due primarily to the increase in unit sales, income before income taxes for
1997 increased approximately $8.7 million over 1996, or 35.4%. This represents
a decrease from 10.7% of sales in 1996 to 10.6% of sales in 1997. Net income
increased $4.9 million or 32.8%. Net income as a percentage of sales was 6.3%
in 1997 compared to 6.6% in 1996. The Company's effective tax rate was 40.1%
in 1997, compared to 38.9% in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales increased by $51.9 million, or approximately 29.2% in 1996 over
1995. Sales were higher primarily as a result of increased unit sales; 2,068
units were sold in 1996 compared to 1,675 in 1995. Management attributed
increased volume in its markets to aggressive marketing programs and to the
comparatively high value of the product compared to others offered in the
marketplace. Average selling price was also higher, $110,970 in 1996, compared
to $106,024 in 1995. The average selling price was higher because of the higher
contribution of sales from Ohio. In Crossmann's Ohio markets, most new homes
are sold with basements while in Indiana, most new homes are sold on a slab
foundation. The market preference for basements causes a higher selling price
in the Ohio divisions.
Gross profit increased by $12.3 million, or approximately 35%, for the
year, representing 20.9% of sales in 1996 as compared to 20.1% in 1995. The
increase in gross profit as a percentage of sales was attributable in part to
moderating interest rates resulting in lower contributions by the Company to
customers' mortgage loan discount points. The Company is permitted to
contribute up to six percent of the selling price toward closing costs,
origination fees, and discount points under FHA and VA financing rules, and is
more likely to make such contributions during periods of volatile interest
rates.
Selling, general and administrative expenses increased as a percentage of
sales from 9.6% in 1995 to 10.1% in 1996. Management believes that the
increase reflected higher general and administrative expenses incurred by the
newer homebuilding divisions in Southern Indiana and Louisville, Kentucky.
Due primarily to the increase in unit sales, income before income taxes for
1996 increased approximately $6 million over 1995, or 32.4%. This represents an
increase from 10.5% of sales in 1995 to 10.7% of sales in 1996. Net income
increased $3.9 million or 36%. Net income as a percentage of sales was 6.6% in
1996, compared to 6.3% in 1995. The Company's effective tax rate was 38.9% in
1996 as compared to 40.3% in 1995.
BACKLOG
<TABLE>
<CAPTION>
The following table sets forth certain data relating to the operations of
the Company for the years ended December 31, 1995, 1996 and 1997.
<S> <C> <C> <C>
December 31
------------
1995 1996 1997
----------- ------------ ------------
Closings (for the period ended) . 1,675 2,068 2,774
Homes in backlog. . . . . . . . . 757 1,006 1,080
Aggregate sales value in backlog. $79,598,550 $108,084,640 $120,540,000
Average sales price of backlog. . $ 105,150 $ 107,440 $ 111,610
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Crossmann had cash balances of $5.5 million.
The Company's primary uses of capital are home construction costs and the
purchase and development of land. Real estate inventories were approximately
$153.5 million or 83% of total assets at December 31, 1997 compared to
approximately $113.2 million or 88% of total assets at December 31, 1996. To
assure the future availability of developed lots for next year's operations,
from time to time in the normal course of business the Company contracts to
purchase a portion of its developed lots from outside developers. Total
commitments for these purchases was approximately $118 million at December 31,
1997. The purchases of these lots are subject to various conditions imposed on
both the sellers and the Company. Capital is also used to add and improve
equipment used in administering the business and for model home furnishings.
During 1997, cash expenditures were financed with cash from operations and
with borrowings on a $60 million unsecured line of credit with Bank One, Indiana
N.A. and its participant, NBD Bank N.A. The line of credit bears interest at
the bank's prime lending rate, but permits portions of the outstanding balance
to be committed for fixed periods of time at a rate equal to LIBOR plus 2.4%.
The Company also has $19,444,444 in senior notes, payable over seven years at an
interest rate of 7.625%, held by the Minnesota Mutual Life Insurance Company and
Combined Insurance Company of America.
Both the note agreements and the bank line of credit require compliance
with certain financial and operating covenants and place certain limitations on
the Company's investments in land and unconsolidated joint ventures. They
also limit payments of cash dividends by the Company.
The notes and the modifications to the banks' credit agreement are
expected to provide adequate liquidity for planned internal growth and capital
expenditures. In the event that the Company seeks to accelerate growth through
the acquisition of large parcels of land or of other homebuilders, additional
capital may be necessary. The Company believes that such capital could be
obtained from banks or other financing alternatives, from the issuance of
additional shares, or from seller financing; however, there can be no assurances
that the Company would be able to secure the necessary capital.
INFLATION AND EFFECTS OF CHANGING PRICES
The Company historically has been able to raise sales prices by amounts at
least equal to its cost increases and accordingly has not experienced any
detrimental effect from inflation.
Housing demand, in general, is affected adversely by increases in interest
rates. If mortgage interest rates increase significantly, the Company's sales
of residential real estate could be adversely affected. In addition, gross
profit and net income can be affected as well because Crossmann can assist
buyers, subject to certain limitations by FHA and VA, by paying a portion of a
customer's points and closing costs needed to help in securing a mortgage loan.
YEAR 2000 SYSTEM REQUIREMENTS
Crossmann is performing an analysis if its systems and is working with
suppliers and service organizations to determine the impact of year 2000 issues.
Management is unable to predict at this time the full impact year 2000 issues
will have on its operations or future financial condition, but based on
preliminary evaluation, believes the cost of needed changes will not be
material.
FUTURE TRENDS
Management believes the Company's profitability results in part from high
volume production in its markets. In 1998, management will focus on building
the kind of strong relationships with vendors and land sellers in its new
markets that it enjoys in its more established markets in central Indiana.
Management views land acquisition and zoning as the greatest challenges to
its business in years to come. The Company will continue to seek to maximize
the value of each parcel it purchases so that it can continue to serve its core
customer.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Crossmann Communities, Inc.
and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Consolidated Balance Sheets as of December 31, 1996 and 1997. . . . . . . . . . . . . . . . 20
Consolidated Statements of Income for the Years Ended December 31, 1995, 1996, and 1997 . . 21
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995,1996, and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996, and 1997 23
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 24-30
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Crossmann Communities, Inc.
We have audited the accompanying consolidated balance sheets of Crossmann
Communities, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Crossmann Communities, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE
Indianapolis, Indiana
February 10, 1998
<TABLE>
<CAPTION>
Crossmann Communities, Inc
and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1996 and 1997
<S> <C> <C>
1996 1997
------------ ------------
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 100,000 $ 5,526,138
Retainages. . . . . . . . . . . . . . . . . . . . . . . . . 1,151,700 886,766
Real estate inventories . . . . . . . . . . . . . . . . . . 113,202,107 153,523,571
Furniture and equipment, net. . . . . . . . . . . . . . . . 2,919,333 3,310,345
Investments in joint ventures . . . . . . . . . . . . . . . 3,404,742 12,354,474
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . 2,737,328 3,817,650
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 4,821,259 5,856,819
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $128,336,469 $185,275,763
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable. . . . . . . . . . . . . . . . . . . . . . $ 14,110,634 $ 15,924,136
Accrued expenses and other liabilities. . . . . . . . . . . 5,250,256 7,426,217
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 49,326,220 51,122,431
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 68,687,110 74,472,784
Commitments and contingencies
Shareholders' equity:
Preferred shares, without par value:
Authorized shares - 10,000,000
No shares issued and outstanding
Common shares, without par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 9,188,652 and 11,107,853
at December 31, 1996 and 1997, respectively . . . . . 24,400,903 55,548,737
Retained earnings . . . . . . . . . . . . . . . . . . . . . 35,248,456 55,254,242
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 59,649,359 110,802,979
------------ ------------
Total liabilities and shareholders' equity . . . . . . . . . . $128,336,469 $185,275,763
============ ============
<FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Crossmann Communities, Inc.
and Subsidiaries
Consolidated Statements of Income
for the Years Ended December 31, 1995, 1996 and 1997
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
Sales of residential real estate. . . . . . . . . . . $177,589,906 $229,485,094 $316,435,463
Cost of residential real estate sold. . . . . . . . . 141,886,168 181,434,071 250,885,725
------------- ------------- -------------
Gross profit. . . . . . . . . . . . . . . . . . . . . 35,703,738 48,051,023 65,549,738
Selling, general and administrative expenses. . . . . 17,082,842 23,196,933 33,380,216
------------- ------------- -------------
Income from operations. . . . . . . . . . . . . . . . 18,620,896 24,854,090 32,169,522
Other income, net . . . . . . . . . . . . . . . . . . 687,389 853,896 2,102,473
Interest expense. . . . . . . . . . . . . . . . . . . (678,095) (1,039,251) (872,862)
------------- ------------- -------------
9,294 (185,355) 1,229,611
------------- ------------- -------------
Income before income taxes. . . . . . . . . . . . . . 18,630,190 24,668,735 33,399,133
Income taxes. . . . . . . . . . . . . . . . . . . . . 7,518,778 9,603,107 13,393,347
------------- ------------- -------------
Net income. . . . . . . . . . . . . . . . . . . . . . $ 11,111,412 $ 15,065,628 $ 20,005,786
============= ============= =============
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.65 $ 2.05
============= ============= =============
Diluted. . . . . . . . . . . . . . . . . . . . . . . $ 1.21 $ 1.63 $ 2.02
============= ============= =============
Weighted average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . 9,112,197 9,149,993 9,758,678
============= ============= =============
Diluted . . . . . . . . . . . . . . . . . . . . . . 9,183,489 9,261,199 9,927,482
============= ============= =============
<FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Crossmann Communities, Inc.
and Subsidiaries
Consolidated Statements of
Shareholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997
<S> <C> <C> <C> <C>
Common Shares Retained
---------- -----------
Shares Amount Earnings Total
---------- ----------- ----------- ------------
Balances at January 1, 1995 . . . 9,105,000 $23,939,754 $ 9,071,416 $ 33,011,170
Net income 11,111,412 11,111,412
Issuance of common shares. . . 17,250 89,125 89,125
---------- ----------- ------------
Balances at December 31, 1995 . . 9,122,250 24,028,879 20,182,828 44,211,707
Net income 15,065,628 15,065,628
Issuance of common shares. . . 66,402 372,024 372,024
---------- ----------- ------------
Balances at December 31, 1996 . . 9,188,652 24,400,903 35,248,456 59,649,359
Net income 20,005,786 20,005,786
Issuance of common shares, net
of offering costs . . . . . . 1,919,201 31,147,834 31,147,834
Balances at December 31, 1997. . 11,107,853 $55,548,737 $55,254,242 $110,802,979
========== =========== =========== ============
<FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Crossmann Communities, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1996 and 1997 (See Notes 7 and 8)
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- --------------
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 11,111,412 $ 15,065,628 $ 20,005,786
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 397,769 539,443 689,111
Amortization . . . . . . . . . . . . . . . . . 161,696 161,394 363,576
Deferred income taxes. . . . . . . . . . . . . (76,994) (169,308) (70,430)
Cash provided (used) by changes in:
Retainages. . . . . . . . . . . . . . . . . (342,678) (525,387) 269,434
Real estate inventories . . . . . . . . . . (15,015,713) (37,567,373) (31,894,099)
Other assets. . . . . . . . . . . . . . . . (340,196) (1,001,198) (877,623)
Accounts payable. . . . . . . . . . . . . . 3,569,110 2,974,123 553,229
Accrued expenses and other liabilities. . . 2,240,414 530,734 1,739,068
------------- ------------- --------------
Net cash provided (used) by operating activities . . 1,704,820 (19,991,944) (9,221,948)
INVESTING ACTIVITIES:
Purchases of furniture and equipment . . . . . . . . (860,488) (2,023,660) (1,026,085)
Proceeds from disposition of furniture and equipment 380,000 -0- -0-
Investments in joint ventures. . . . . . . . . . . . (734,500) (2,206,582) (8,949,732)
Business acquisitions, net of cash acquired. . . . . -0- (330,901) (421,925)
------------- ------------- --------------
Net cash used by investing activities. . . . . . . . (1,214,988) (4,561,143) (10,397,742)
Financing activities:
Proceeds from bank borrowings. . . . . . . . . . . . 84,076,258 119,832,796 161,113,458
Principal payments on bank borrowings. . . . . . . . (99,631,250) (97,534,584) (163,090,000)
Payments on notes and long-term debt . . . . . . . . -0- (3,250,099) (3,258,798)
Proceeds from issue of senior notes. . . . . . . . . 25,000,000 -0- -0-
Payment of deferred financing costs. . . . . . . . . (263,926) -0- -0-
Payments on related party loan . . . . . . . . . . . (4,527,089) -0- -0-
Net proceeds from sale of common shares. . . . . . . 89,125 372,024 30,281,168
------------- ------------- --------------
Net cash provided by financing activities. . . . . . 4,743,118 19,420,137 25,045,828
Net increase in cash and cash equivalents. . . . . . 5,232,950 5,132,950 5,426,138
Cash and cash equivalents at beginning of year . . . -0- 5,232,950 100,000
------------- ------------- --------------
Cash and cash equivalents at end of year . . . . . . $ 5,232,950 $ 100,000 $ 5,526,138
============= ============= ==============
<FN>
See accompanying notes.
</TABLE>
Crossmann Communities, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1995, 1996 and 1997
1. BASIS OF PRESENTATION
Crossmann Communities, Inc. ("Crossmann" or the "Company") is engaged primarily
in the development, construction, marketing and sale of new single-family homes
for first time and first move-up buyers. The Company also acquires and
develops land for construction of such homes and originates mortgage loans for
the buyers. The Company operates in Indianapolis, Ft. Wayne, and Lafayette,
Indiana; Cincinnati, Columbus and Dayton, Ohio; Louisville, and Lexington,
Kentucky, and Memphis, Tennessee.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company also owns a 50% interest in
certain unconsolidated joint ventures, which are accounted for using the equity
method.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Warranties are provided by the Company. Warranty reserves of approximately
$553,000 and $566,000 at December 31, 1996 and 1997, respectively, are recorded
based on historical trends of expenses incurred for repairs. The amount of the
warranty reserve is considered adequate; however, it is reasonably possible that
the reserves may not be sufficient for future claims.
Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Real Estate Inventories
Real estate inventories are stated at the lower of cost (specific identification
method) or net realizable value. In addition to direct land acquisition, land
development and housing construction costs, inventory costs include interest,
real estate taxes and related development and construction overhead costs which
are capitalized in inventory during the development and construction periods.
Net realizable value represents estimates, based on management's present plans
and intentions, of sale price less development and disposition cost, assuming
that disposition occurs in the normal course of business.
Goodwill
Goodwill is amortized over twenty years using the straight-line method.
Accumulated amortization was approximately $514,000 and $685,000 at December
31, 1996 and 1997, respectively.
The Company, using its best estimates based on reasonable and supportable
assumptions and projections, has reviewed long-lived assets and certain
identifiable intangibles to be held and used, and no impairment appears to exist
as of December 31, 1996 and 1997.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
respective assets ranging from 5 to 39 years. Accumulated depreciation is
approximately $1,645,000 and $2,334,000 at December 31, 1996 and 1997,
respectively. Repairs and maintenance costs are expensed as incurred.
Revenue Recognition
Revenue is recognized upon a formal closing and as title to the property
transfers to the buyer.
Income Taxes
Deferred tax assets and liabilities are computed based on differences between
the financial statement and income tax bases of assets and liabilities using the
enacted tax rate. Deferred income tax expense or benefit is based on the
change in assets and liabilities from period to period, subject to an ongoing
assessment of realization.
Per Share Disclosures
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, was issued and became effective for annual periods ending
after December 15, 1997. This statement established standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS in the statement of income.
New Pronouncements
In June 1997, SFAS No. 130, Comprehensive Income, was issued which becomes
effective in 1998 and requires reclassification of earlier financial statements
for comparative purposes. SFAS No. 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments and gains and
losses on certain securities be shown in the financial statements. SFAS No. 130
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. Adopting this
statement in January 1998 will have no financial impact on the Company's
consolidated financial statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, was issued. This Statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the effect, if any, of SFAS No.
131 on the Company's consolidated financial statements.
3. FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, defines the
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The following summarizes the estimated fair values
of financial instruments and the major methods and assumptions used in
estimating such amounts:
The recorded amounts of short-term financial instruments (primarily cash and
cash equivalents, retainages, and accounts payable) approximate the fair values
due to the relatively short period to maturity.
Debt with variable interest rates is recorded at carrying amounts which
approximate the fair value based on discounted future cash flows. The
carrying amount of senior notes payable at December 31, 1997, approximates the
fair value based upon debt instruments with similar terms and conditions.
4. REAL ESTATE INVENTORIES
<TABLE>
<CAPTION>
Real estate inventories at December 31 consist of:
<S> <C> <C>
1996 1997
------------ ------------
Residential homes under construction $ 50,512,565 $ 74,525,972
Land held for future development . . 16,644,887 18,988,624
Land under development . . . . . . . 30,639,075 35,212,285
Purchased developed lots . . . . . . 8,456,435 13,956,254
Homes held for resale. . . . . . . . 939,770 3,099,039
Model homes. . . . . . . . . . . . . 6,009,375 7,741,397
------------ ------------
$113,202,107 $153,523,571
------------ ------------
</TABLE>
The Company occasionally purchases homes from customers to facilitate the sale
of new homes. Such homes held for resale are recorded at the lower of cost or
market.
5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company has entered into joint ventures with various real estate developers
and owns 50% or less in each venture. The joint ventures are accounted for
using the equity method. Aggregated condensed financial information for
unconsolidated joint ventures is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- -----------
Revenue . . $ 29,171 $ 518,372 $24,978,053
Expenses. . 27,007 487,938 23,146,934
---------- ---------- -----------
Net income. $ 2,164 $ 30,434 $ 1,831,119
========== ========== ===========
Assets. . . $2,341,058 $7,962,009 $43,891,845
Liabilities 726,250 3,627,019 31,043,708
---------- ---------- -----------
Equity. . . $1,614,808 $4,334,990 $12,848,137
</TABLE>
For 1995 and 1996, assets of the joint ventures consisted primarily of developed
lots, land under development and land held for future development. Revenue
consisted primarily of residential lot sales. Land joint ventures provided
$217,000 and $2,843,994 in lots to the Company in 1996 and 1997 respectively.
Investments in land joint ventures include accounts receivable from the joint
ventures and certain lot deposits of approximately $1,312,000 and $917,300 in
1996 and 1997, respectively.
In October 1997, the Company entered into a joint venture with another
homebuilding company in Indianapolis. This joint venture provided $825,420 in
other income to the Company. Investments in joint ventures at December 31,
1997, includes $5,000,000 in notes receivable from this joint venture. The note
receivable bears interest at the prime rate of NBD Bank, N.A., (8.5% at December
31, 1997), payable quarterly, and matures in 2003.
6. Credit Arrangements
<TABLE>
<CAPTION>
Notes payable consists of the following at December 31:
<S> <C> <C>
1996 1997
Line of credit with banks, maximum $60,000,000, with interest payable
on funds committed for fixed periods at LIBOR (5.687% at December
31, 1997) plus 2.4% and on floating funds at the banks' prime rate (8.5%
at December 31, 1997) maturing in March 1999.. . . . . . . . . . . . . . $25,842,000 $30,897,000
Various notes payable collateralized by land, with periodic principal
payments, maturing from May 1997 through November 2000, and
bearing fixed and variable interest at rates ranging from 8.25% to . . . 1,261,998 780,987
prime plus 1%.
Senior notes payable, due December 2004 with annual principal
payments of $2,777,777, and quarterly interest payments at 7.625%
per annum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,222,222 19,444,444
$49,326,220 $51,122,431
=========== ===========
</TABLE>
The senior note and line of credit agreements require a minimum current ratio, a
minimum fixed charge coverage ratio, a maximum ratio of debt to tangible capital
base, a maximum ratio of land to equity, and a maximum ratio of debt to a
borrowing base derived from inventory levels. The senior note agreement
requires a pre-payment premium in the event of early extinguishment of the
debt. Additionally, both credit agreements limit investment in unconsolidated
joint ventures, payments of cash dividends, and require express written consent
of the lenders for certain transactions.
Interest capitalized during real estate development and construction was
approximately $1,299,700, $2,155,400, and $3,925,100 for 1995, 1996, and 1997,
respectively.
Interest paid, including amounts capitalized, was approximately $1,977,800,
$3,194,700 and $4,798,000 in 1995, 1996, and 1997, respectively. The weighted
average interest rate on borrowings outstanding was 7.92% at December 31, 1997.
<TABLE>
<CAPTION>
Scheduled maturities of notes payable for each of the five years and thereafter
as of December 31, 1997 are as follows:
<S> <C>
1998 . . . $ 3,358,764
1999 . . . 33,774,777
2000 . . . 2,877,777
2001 . . . 2,777,777
2002 . . . 2,777,777
Thereafter 5,555,559
-----------
$51,122,431
===========
</TABLE>
7. Shareholders' Equity
The Company has authorized 10,000,000 preferred shares which remain unissued at
December 31, 1997. The Board of Directors of the Company has not yet determined
the preferences, qualifications, relative voting or other rights of the
authorized preferred shares.
The Company issued 62,276 common shares to acquire a homebuilder in June of
1997.
The Company has incentive share option plans for employees and directors
pursuant to which 937,500 common shares are reserved. The options were issued
at market prices on the grant date, became exercisable on the grant date or in
some cases three years from the grant date, and expire ten years after the grant
date. Details of stock options are as follows. All figures have been adjusted
to reflect a three-for-two stock split effective August 18, 1997. As of
December 31, 1997, options outstanding had exercise prices between $5.17 and
$22.63 and a weighted average remaining contractual life of 7.9 years.
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Beginning Balance 195,000 $ 6.13 243,750 $ 5.76 270,450 $ 7.70
Options granted . 111,000 5.17 90,750 11.83 139,500 13.59
Options exercised (17,250) 5.17 (36,312) 5.46 (24,750) 5.19
Options forfeited (45,000) 6.06 (27,738) 7.26 (7,500) 11.83
-------- --------- -------- --------- -------- ---------
Ending Balance. . 243,750 $ 5.76 270,450 $ 7.70 377,700 $ 9.96
======== ========= ======== ========= ======== =========
Exercisable . . . 225,750 $ 5.75 255,450 $ 7.80 377,700 $ 9.96
======== ========= ======== ========= ======== =========
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for the option plans. No
compensation cost has been recognized for the plans because the stock option
price is equal to fair value at the grant date. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income and basic and diluted net
income per share for the years ended December 31, 1995, 1996 and 1997 would have
decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -----------
Net income:
As reported . . . . . . $11,111,412 $15,065,628 $20,005,786
Pro forma . . . . . . . 10,978,736 14,829,416 19,512,261
Basic net income per share:
As reported . . . . . . 1.22 1.65 2.05
Pro forma . . . . . . . 1.21 1.62 2.00
Diluted net income per share:
As reported . . . . . . 1.21 1.63 2.02
Pro forma . . . . . . . 1.20 1.60 1.97
</TABLE>
The fair value of the option grants are estimated on the date of grant using an
option pricing model with the following assumptions: no dividend yield,
risk-free interest rates of 6.07% to 7.13%, volatility of 39 to 42 and expected
lives ranging from five to ten years. The pro forma amounts are not
representative of the effects on reported net income for future years.
In 1997, the Company adopted SFAS No. 128 and accordingly, the accompanying
consolidated statements of income have been restated to reflect diluted as well
as basic net income per share amounts. The following is a reconciliation of the
weighted average common shares for the basic and diluted net income per share
computations:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------
<S> <C> <C> <C>
1995 1996 1997
Weighted average common shares . 9,112,197 9,149,993 9,758,678
Dilutive effect of stock options 71,292 111,206 168,804
--------- --------- ---------
Weighted average common shares
and incremental shares. . . . 9,183,489 9,261,199 9,927,482
========= ========= =========
</TABLE>
8. INCOME TAXES
<TABLE>
<CAPTION>
The reconciliation of income taxes computed at the U.S. federal statutory tax rate
to income tax expense for the years ended December 31, 1995, 1996 and 1997 is:
<S> <C> <C> <C>
1995 1996 1997
---------- ----------- -----------
Tax at U.S. statutory rate . . . . . . . . . . $6,520,567 $8,634,057 $10,785,504
State income taxes, net of federal tax benefit 931,510 1,233,437 2,607,843
Other, net . . . . . . . . . . . . . . . . . . 66,701 (264,387) -0-
$7,518,778 $9,603,107 $13,393,347
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
The following is a summary of the components of the provision for income taxes:
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- ------------
Current tax expense:
Federal . . . . . . . . . . $6,115,338 $8,014,453 $10,842,305
State . . . . . . . . . . . 1,480,434 1,757,962 2,621,472
----------- ----------- ------------
7,595,772 9,772,415 13,463,777
Deferred tax expense (benefit) (76,994) (169,308) (70,430)
----------- ----------- ------------
$7,518,778 $9,603,107 $13,393,347
=========== =========== ============
</TABLE>
Income taxes paid were $6,233,382, $7,570,365 and $12,514,567 during 1995, 1996
and 1997, respectively.
Deferred tax assets of approximately $326,000 and $396,000 at December 1996 and
1997, respectively, result principally from temporary differences in the
recognition of warranty expense for tax and financial reporting purposes.
9. Related Party Transactions
Office and warehouse space at the Company's headquarters is leased from a
related party. During 1995, 1996 and 1997 approximately $222,800, $251,200 and
$292,800, respectively, in rental payments were made to related parties
Interest paid on debt from related parties was approximately $447,000 in 1995.
10. Leases
The Company leases office and warehouse space, vehicles and office equipment
pursuant to operating lease agreements expiring from February 1998 to June 2002.
Rent expense was approximately $314,800, $479,100 and $510,200 for 1995, 1996
and 1997, respectively. Annual minimum payments to be made to a related party
incorporated in the amounts below range from $284,436 in 1998 to $5,160 in 2001.
<TABLE>
<CAPTION>
Annual minimum operating lease payments due as of December 31, 1997 are as
follows:
<S> <C>
1998 $ 629,993
1999 362,839
2000 188,075
2001 54,989
2002 24,882
----------
$1,260,778
==========
</TABLE>
11. Employee Benefits
The Company's defined contribution savings plan covers substantially all
employees of the Company. Participants are allowed to make nonforfeitable
contributions up to limits established by the Internal Revenue Code. In 1995,
the Company matched in cash 50% of the first 6% of compensation contributed by
each participant, totalling $117,000. At December 31, 1995, the Company
declared a discretionary cash contribution of approximately $322,510.
During 1996, the Company amended the plan to permit investment by employees in
the Company's common shares. The Company registered the shares to be offered
under the plan with the Securities Exchange Commission on Form S-8 on March 22,
1996. In 1996 and 1997, as in 1995, the Company matched in cash 50% of the
first 6% of compensation contributed by each participant, totalling $114,800
and $142,500 respectively. On December 31, 1996 and 1997, the Company declared
a discretionary profit sharing contribution of approximately $340,000 and
$509,000 respectively, payable in the Company's common shares. These
contributions were the maximum amount deductible by the Company under the rules
set forth in section 404(a)(3) of the Internal Revenue Code.
12. Commitments and Contingencies
To assure the future availability of various developed lots, in the normal
course of business, the Company has contracted to purchase developed lots.
Total commitments for these purchases were approximately $118 million at
December 31, 1997. The purchase of these lots is subject to various conditions
imposed on both the sellers and the Company.
The Company from time to time is involved in routine litigation incidental to
its business. The Company does not believe that any liabilities resulting from
litigation to which it is a party will materially affect the Company's financial
position and results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this Item is contained in the sections captioned
"Election of Directors" and "Section 16(A) Beneficial Ownership Reporting
Compliance" of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 28, 1998 (the "Proxy Statement"), and is
incorporated herein by reference. Information with respect to Executive
Officers of the Company is set forth under the caption "Executive Officers of
the Registrant" in Part I, Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is contained in the section captioned
"Executive Compensation" of the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in the section captioned
"Security Ownership of Certain Beneficial Owners and Management" of the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained in the section captioned
"Certain Transactions" of the Company's Proxy Statement and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED WITH THIS REPORT. See Index to Consolidated Financial
Statements included in this report. See Item 14(d) for an index of the
supplementary financial statement schedule included in this report.
(B) REPORTS ON FORM 8-K. None.
(C) EXHIBITS. There are included in this report or incorporated by reference
the following exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<C> <S>
3.1 Amended and restated Articles of Incorporation of Crossmann Communities, Inc.(Incorporated
by reference to Exhibit 3.1 to Form S-1 Registration Statement No. 33-68396.)
3.2 Bylaws of Crossmann Communities, Inc. (Incorporated by reference to Exhibit 3.2 to Form S-1
Registration Statement No. 33-68396.)
4.1 Specimen Share Certificate for Common Shares. (Incorporated by reference to Exhibit 2.9 to
Form S-1 Registration Statement No. 33-68396.)
10.1 1993 Outside Director Stock Option Plan. (Incorporated by reference to Exhibit 10.2 to Form S-
1 Registration Statement No. 33-68396.)
10.2 1993 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to Form S-1
Registration Statement No. 33-68396.)
10.3 Partnership Agreement of Mark Anthony Partnership, dated April 17, 1991. (Incorporated by
reference to Exhibit 10.6 to Form S-1 Registration Statement No. 33-68396.)
10.4 Employee Stock Option Agreement, dated December 16, 1993 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.14 to Form 10-K
dated March 25, 1994.)
10.5 Employee Stock Option Agreement, dated June 28, 1994 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.17 to Form 10-K
dated March 24, 1995.)
10.6 Director Stock Option Agreement, dated March 25, 1994 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.20 to Form
10-K dated March 24, 1995.)
10.7 Director Stock Option Agreement, dated May 25, 1994 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.21 to Form
10-K dated March 24, 1995.)
10.8 Non-standardized Joinder Agreement for McCready and Keene, Inc. 401(k) Basic Regional
Prototype Plan (with Revised Options) for Crossmann Communities, Inc. (Incorporated by
reference to Exhibit 10.26 to Form 10-Q dated May 10, 1995.)
10.9 McCready and Keene, Inc. 401(k) Basic Regional Prototype Plan Basic Plan Document #03.
(Incorporated by reference to Exhibit 10.27 to Form 10-Q dated May 10, 1995.)
10.10 Trust Agreement for Crossmann Communities, Inc. 401(k) Profit Sharing Plan, by and between
Crossmann Communities, Inc. and Richard H. Crosser, John Scheumann, and Jennifer Holihen,
Trustees. (Incorporated by reference to Exhibit10.28 to Form 10-Q dated May 10, 1995.)
10.11 Employee Stock Option Agreement, dated March 2, 1995 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.32 to Form 10-K
dated March 20, 1996.
10.12 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.35 to Form
10-K dated March 20, 1996.)
10.13 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.36 to Form
10-K dated March20, 1996.)
10.14 Note Agreement dated as of December 19, 1995, $25,000,000 7.625% Senior Notes due
December 19, 2004, by Crossmann Communities, Inc., et al.(Incorporated by reference to
Exhibit 10.37 toForm 10-K dated March 20, 1996.)
10.15 7.625% Senior Note due December 19, 2004, issued to Combined Insurance Company of
America by Crossmann Communities, Inc. et al. (Incorporated by reference to Exhibit 10.38 to
Form 10-K dated March 20, 1996.)
10.16 7.625% Senior Note due December 19, 2004, issued to The Minnesota Mutual Life Insurance
Company by Crossmann Communities, Inc. et al. (Incorporated by reference to Exhibit 10.39 to
Form 10-K dated March 20, 1996.)
10.17 Amended and Restated Credit Agreement, dated December 22, 1995, by and between
Crossmann Communities, Inc. and Bank One, Indianapolis, N.A. (Incorporated by reference to
Form 10-K dated March 20, 1996.)
10.18 Employee Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.43 to Form 10-k
dated March 12, 1997.)
10.19 Director Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.45 to Form
10-K dated March 12, 1997.)
10.20 Director Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.45 to Form
10-K dated March 12, 1997.)
10.47 Employee Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and Jennifer A. Holihen.
10.48 Employee Stock Option Agreement, dated February 18, 1997 by and between Crossmann
Communities, Inc. and Jennifer A. Holihen.
10.49 Asset Purchase Agreement, dated September 30, 1997 by and among Crossmann Communities,
Inc., Crossmann Communities of Tennessee, LLC, Heartland Homes Holdings, LLC, Heartland
Homes, Inc., and Heartland Homes Limited Partnership.
10.50 Amended and Restated Operating Agreement for Trinity Homes, LLC dated October 17, 1997,
by and among Crossmann Communities, Inc., Trinity Homes, Inc., and Pyramid Mortgage Co.,
Inc.
19.1 Lease by and between Pinnacle Properties LLC ("Landlord") and Crossmann Communities, Inc.
("Tenant"),9202 North Meridian Street, Suite 300, Indianapolis, Indiana 46260, executed April
18, 1994. (Incorporated by references as Exhibit 19.1 to Form 10-Q filed with the Securities
and Exchange Commission August 12, 1994.)
21.1 Amended subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for the year ended December 31, 1997.
</TABLE>
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.
CROSSMANN COMMUNITIES, INC.
By /s/ John B. Schuemann
Chairman and Chief Exeuctive Officer
Dated March 24, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Signature . . . . . . . Title Date
/s/ John B. Scheumann . Chairman of the Board of Directors, Chief Executive Officer March 24, 1997
/s/ Richard H. Crosser. Director; President and Chief Operating Officer March 24, 1997
/s/ Jennifer A. Holihen Director; Chief Financial Officer; Treasurer; Secretary; March 24, 1997
Principal Financial and Accounting Officer
/s/ James C. Shook. . . Director March 24, 1997
/s/ Larry S. Wechter. . Director March 24, 1997
</TABLE>
EXHIBIT 10.47
- --------------
CROSSMANN COMMUNITIES, INC.
EMPLOYEE STOCK OPTION AGREEMENT
-------------------------------
THIS AGREEMENT made this thirteenth day of March, by and between Crossmann
Communities, Inc., an Indiana corporation (the "Company") and Jennifer A.
Holihen (the "Optionee"), pursuant to the terms, conditions and limitations
contained in the Employee Stock Option Plan, attached hereto and made a part
hereof and as it may be amended from time to time hereafter (the "Plan");
WHEREAS, the Board has determined that it is in the best interest of the
Company and appropriate to the stated purposes of the Plan, that the Company
grant to the Optionee an option to purchase shares of Common Stock of the
Company pursuant to the terms and conditions of the Plan and this Agreement,
NOW, THEREFORE, the Company and the Optionee do hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the
---------------
right and option to purchase, pursuant to the terms and conditions contained
herein and in the Plan, all or any part of an aggregate of 5,000 shares of the
Common Stock of the Company (the "Option").
2. Option Price. The Option price hereunder is $17.75 per share (the
------------
"Option Price") which Option Price is equal to one hundred percent (100%) of the
fair market value of the Common Stock on the date of grant of the Option (the
"Grant Date") under this Agreement, as determined under the terms of the Plan.
3. Exercise of Option. The Option shall be exercisable as of March 13,
------------------
1996, and shall continue to be exercisable subject to the provisions of Section
4, 6 and 7, until the tenth anniversary of the Grant Date (the "Expiration
Date").
(a) Method of Exercise. The Option shall be exercised by written
------------------
notice, which shall:
(i) state the election to exercise the Option, the number of
shares in respect of which it is being exercised, the person(s) in whose name(s)
the stock certificate(s) for such shares is (are) to be registered, including
pertinent address(es) and Social Security Number(s);
(ii) contain such representations and agreements, if any, as
may be required by the Company's counsel relative to the holder's investment
intent regarding such shares;
(iii) be signed by the Optionee; and
(iv) be in writing and delivered in person or by certified
mail to the Chairman of the Board of the Company.
The Option may not be exercised if the issuance of the shares upon
such exercise could constitute a violation of any applicable Federal or state
securities or other law or valid regulation. As a condition to his exercise of
the Option, the Company may require the person exercising the Option to make any
representation or warranty to the Company as may be required by any applicable
law or regulation.
(b) Payment Upon Exercise of Option. Payment of the full Option
-------------------------------
Price for shares upon which the Option is exercised shall accompany the written
notice of exercise described above. The Company shall cause to be issued and
delivered to the Optionee the certificate(s) representing such shares as soon as
practicable following the receipt of the notice and payment described above.
(c) Limitation on Exercise of Option. Notwithstanding any other
--------------------------------
provision of this Agreement to the contrary, the aggregate fair market value
(determined as of the Grant Date) of the Common Stock of the Company with
respect to which the Option is exercisable for the first time during any
calendar year, under all such incentive stock option plans (as defined in Code
Section 422A) of the Company and any parent or subsidiary corporations shall not
exceed One Hundred Thousand Dollars ($100,000.00).
(d) No Obligation to Exercise Option. This grant of options shall
--------------------------------
impose no obligation upon the Optionee to exercise any such Options.
4. Nontransferability of Option. The Option shall not be transferable
----------------------------
or assignable by the Optionee. The Option shall be exercisable, during the
Optionee's lifetime, only by him or her. The Option shall not be pledged or
hypothecated in any way, and shall not be subject to execution, attachment or
similar process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of the Option contrary to the provisions hereof, and the levy
of any process upon the Option, shall be null, void and without effect.
5. Termination of Employment. In the event Optionee shall cease to be
-------------------------
employed by the Company, all options granted to the Optionee under this
Agreement shall terminate immediately as to the unexercised portion thereof. In
the event of the death of an Optionee while in employ of the Company, the
Optionee's personal representative shall have the right subject to Section 3 of
this Agreement and the Plan, to exercise any and all Options which could have
been exercised on the date of death, at any time within twelve months from the
date of death.
6. Effect of Amendment, Suspension or Termination of Existing Options.
------------------------------------------------------------------
No amendment, suspension or termination of the Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations of the
Company or the Optionee with respect to the Option granted under the terms of
this Agreement.
7. Restrictions on Issuing Shares. The Company's shares shall not be
------------------------------
issued pursuant to the exercise of the Option unless the transferability of the
shares so issued and/or the actual issuance of the shares comply with all
relevant provisions of law, including but not limited to, the (i) limitations,
if any, imposed by the Sate of Indiana, (ii) restrictions, if any, imposed by
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the United States
Securities and Exchange Commission thereunder, and (iii) requirements of any
stock exchange upon which the shares may then be listed. The Board of
Directors, shall, in its sole discretion, determine if such restrictions or such
issuance of shares so complies with all relevant provisions of law.
(a) Withholding of Taxes. Shares shall not be issued upon
----------------------
exercise of the Option unless and until withholding tax, if any, or other
withholding liabilities, if any, imposed by any governmental entity have, in the
opinion of the Board of Directors, been satisfied or provision for their
satisfaction has been made.
(b) Other Restrictions. The Board of Directors may at the time
------------------
shares are actually issued pursuant to the exercise of the Option, place
such further restrictions on the transferability of any shares of Common Stock
to be issued to the Optionee upon the exercise of the Option as the Board, in
its sole discretion, determines to be reasonable, appropriate or necessary.
(c) No Rights Vested as a Shareholder. The Optionee and/or his
---------------------------------
successor in interest shall not have any of the rights of a shareholder of the
Company by reason of the grant of the Option until such Option is exercised and
optioned shares are issued pursuant to such Option.
8. Adjustments. In the event of any Company recapitalization,
-----------
dissolution, liquidation or reorganization, the adjustments described under the
terms of the Plan shall be applied.
9. Acknowledgment. The Optionee acknowledges receipt of a copy of the
--------------
Plan, a copy of which is attached hereto, and represents that Optionee is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all the terms and provisions thereof. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
IN WITNESS WHEREOF, the Company, by its authorized representative, and the
Optionee have entered into this Agreement on the date first written above.
CROSSMANN COMMUNITIES, INC.: OPTIONEE:
By: /s/Richard H. Crosser By: /s/Jennifer A. Holihen
- ---------------------------- --------------------------
Richard H. Crosser, President Jennifer A. Holihen, Optionee
EXHIBIT 10.48
- --------------
CROSSMANN COMMUNITIES, INC.
EMPLOYEE STOCK OPTION AGREEMENT
-------------------------------
THIS AGREEMENT made this eighteenth (18th) day of February, 1997 by and
between Crossmann Communities, Inc., an Indiana corporation (the "Company") and
JENNIFER HOLIHEN (the "Optionee"), pursuant to the terms, conditions and
limitations contained in the Employee Stock Option Plan, attached hereto and
made a part hereof and as it may be amended from time to time hereafter (the
"Plan");
WHEREAS, the Board has determined that it is in the best interest of the
Company and appropriate to the stated purposes of the Plan, that the Company
grant to the Optionee an option to purchase shares of Common Stock of the
Company pursuant to the terms and conditions of the Plan and this Agreement,
NOW, THEREFORE, the Company and the Optionee do hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the
---------------
right and option to purchase, pursuant to the terms and conditions contained
herein and in the Plan, all or any part of an aggregate of 5,000 shares of the
Common Stock of the Company (the "Option").
2. Option Price. The Option price hereunder is $19.75 per share (the
------------
"Option Price") which Option Price is equal to one hundred percent (100%) of the
fair market value of the Common Stock on the date of grant of the Option (the
"Grant Date") under this Agreement, as determined under the terms of the Plan.
3. Exercise of Option. The Option shall be exercisable as of February
------------------
18, 1997, and shall continue to be exercisable subject to the provisions of
Section 4, 6 and 7, until the tenth anniversary of the Grant Date (the
"Expiration Date").
(a) Method of Exercise. The Option shall be exercised by written
------------------
notice, which shall:
(i) state the election to exercise the Option, the number of
shares in respect of which it is being exercised, the person(s) in whose name(s)
the stock certificate(s) for such shares is (are) to be registered, including
pertinent address(es) and Social Security Number(s);
(ii) contain such representations and agreements, if any, as
may be required by the Company's counsel relative to the holder's investment
intent regarding such shares;
(iii) be signed by the Optionee; and
(iv) be in writing and delivered in person or by certified
mail to the Chairman of the Board of the Company.
The Option may not be exercised if the issuance of the shares upon
such exercise could constitute a violation of any applicable Federal or state
securities or other law or valid regulation. As a condition to his exercise of
the Option, the Company may require the person exercising the Option to make any
representation or warranty to the Company as may be required by any applicable
law or regulation.
(b) Payment Upon Exercise of Option. Payment of the full Option
-------------------------------
Price for shares upon which the Option is exercised shall accompany the written
notice of exercise described above. The Company shall cause to be issued and
delivered to the Optionee the certificate(s) representing such shares as soon as
practicable following the receipt of the notice and payment described above.
(c) Limitation on Exercise of Option. Notwithstanding any other
--------------------------------
provision of this Agreement to the contrary, the aggregate fair market value
(determined as of the Grant Date) of the Common Stock of the Company with
respect to which the Option is exercisable for the first time during any
calendar year, under all such incentive stock option plans (as defined in Code
Section 422A) of the Company and any parent or subsidiary corporations shall not
exceed One Hundred Thousand Dollars ($100,000.00).
(d) No Obligation to Exercise Option. This grant of options shall
--------------------------------
impose no obligation upon the Optionee to exercise any such Options.
4. Nontransferability of Option. The Option shall not be transferable
----------------------------
or assignable by the Optionee. The Option shall be exercisable, during the
Optionee's lifetime, only by him or her. The Option shall not be pledged or
hypothecated in any way, and shall not be subject to execution, attachment or
similar process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of the Option contrary to the provisions hereof, and the levy
of any process upon the Option, shall be null, void and without effect.
5. Termination of Employment. In the event Optionee shall cease to be
-------------------------
employed by the Company, all options granted to the Optionee under this
Agreement shall terminate immediately as to the unexercised portion thereof. In
the event of the death of an Optionee while in employ of the Company, the
Optionee's personal representative shall have the right subject to Section 3 of
this Agreement and the Plan, to exercise any and all Options which could have
been exercised on the date of death, at any time within twelve months from the
date of death.
6. Non-Competitive, Non-Solicitation and Non-Disclosure. In
-------------------------------------------------------
consideration for the grant of the Option by the Company, the Optionee consents
to the following restrictions on competition, solicitation, and disclosure of
certain information (the "Covenants"). The Company and the Optionee agree that
participation in the Plan bears a significant relationship to the Optionee's
employment situation, and that the Covenants are ancillary to the stated purpose
of the Plan, namely, providing key employees of the Company or of any subsidiary
corporation of the Company with an opportunity to acquire or increase a
proprietary interest in the Company, thereby (1) creating a stronger incentive
to expend maximum effort for the growth and success of the Company and its
subsidiaries and (2) encouraging such individuals to remain in the employ or
service of the Company or one or more of its subsidiaries.
The Optionee acknowledges that the Covenants, including the duration,
scope, and territory thereof, are, under the circumstances, reasonable and
necessary to safeguard the interests of the Company. In the event that these
restrictions are found to be overly broad or unreasonable, the Optionee agrees
that such restrictions shall be enforceable on such modified terms as may be
deemed reasonable and enforceable by a court having competent jurisdiction.
a. Non-Competition During the term of the Optionee's employment with
---------------
the Company, and for a period of two (2) years following the termination of the
Optionee's employment (irrespective of the timing, manner, cause, or other
circumstances of such termination), the Optionee shall not, directly or
indirectly, as an individual or as a director, officer, employee, partner,
shareholder, consultant, manager, agent, or in any other capacity become
associated with any individual, corporation, partnership or business that is
engaged, directly or indirectly, in any business carried on or engaged in by the
Company. The restrictions of this subparagraph (a) shall apply to the lesser of
(1) each and all of the markets in which the Company is now operating or shall
hereafter operate or (2) the maximum area declared by a court of competent
jurisdiction to be reasonable and enforceable.
b. Non-Solicitation. During the term of his or her employment with the
----------------
Company and the two (2) year period immediately following the cessation of his
or her employment with the Company, the Optionee shall not, directly or
indirectly, as an individual or on behalf of another company or in any other
capacity:
i. call upon, solicit, contact or service any customer, client, or
potential client of the Company;
ii. call upon, solicit, contact or service any individual,
corporation, partnership or any company or business of which the Optionee became
aware through the Company; or
iii. solicit for employment, endeavor to entice away from the
Company, recruit, hire or otherwise interfere with the Company's relationship
with any person who is employed by or otherwise engaged to perform services for
the Company.
c. Non-Disclosure. The Optionee recognizes that by reason of his or
---------------
her employment with the Company, he or she may acquire Confidential Information
concerning the Company's operation, the use or disclosure of which could cause
the Company and its affiliates or subsidiaries immeasurable and substantial loss
and damages. Accordingly, the Optionee covenants and agrees with the Company
that, except as necessary to perform his or her employment obligations to the
Company, or with the prior written consent of the Company, he or she or she will
not at any time directly or indirectly (i) disclose any Confidential Information
that he or she may learn of by association with the Company, or (ii) use any
Confidential Information other than in the performance of his or her employment
for the Company. The term "Confidential Information" includes information not
in the public record and not previously disclosed to the public or to the trade
by the Company's management or Board with respect to the products, facilities
and methods, trade secrets and other intellectual property, systems, procedures,
manuals, reports, price lists, customer lists, financial information, business
plans, prospects or opportunities of the Company or any of its subsidiaries or
affiliates. The Optionee's obligations set forth in this Section 6(c) and the
Company's remedies, whether legal or equitable, shall extend indefinitely.
7. Remedies for Breach of Covenants. The Optionee recognizes that
--------------------------------
breach of any of the Covenants contained in Section 6 herein may cause
irreparable injury to the Company, inadequately compensable in monetary damages.
Accordingly, in addition to any other legal or equitable remedies that may be
available to the Company, the Optionee agrees that the Company will be entitled
to seek and obtain injunctive relief against the breach or threatened breach of
any of the Optionee's obligations under the Covenants. The Company shall be
entitled to recover from the Optionee its reasonable attorneys' fees and costs
of any action to enforce the Covenants.
8. Effect of Amendment, Suspension or Termination of Existing Options.
------------------------------------------------------------------
No amendment, suspension or termination of the Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations of the
Company or the Optionee with respect to the Option granted under the terms of
this Agreement.
9. Restrictions on Issuing Shares. The Company's shares shall not be
------------------------------
issued pursuant to the exercise of the Option unless the transferability of the
shares so issued and/or the actual issuance of the shares comply with all
relevant provisions of law, including but not limited to, the (i) limitations,
if any, imposed by the Sate of Indiana, (ii) restrictions, if any, imposed by
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the United States
Securities and Exchange Commission thereunder, and (iii) requirements of any
stock exchange upon which the shares may then be listed. The Board of
Directors, shall, in its sole discretion, determine if such restrictions or such
issuance of shares so complies with all relevant provisions of law.
(a) Withholding of Taxes. Shares shall not be issued upon
----------------------
exercise of the Option unless and until withholding tax, if any, or other
withholding liabilities, if any, imposed by any governmental entity have, in the
opinion of the Board of Directors, been satisfied or provision for their
satisfaction has been made.
(b) Other Restrictions. The Board of Directors may at the time
------------------
shares are actually issued pursuant to the exercise of the Option, place
such further restrictions on the transferability of any shares of Common Stock
to be issued to the Optionee upon the exercise of the Option as the Board, in
its sole discretion, determines to be reasonable, appropriate or necessary.
(c) No Rights Vested as a Shareholder. The Optionee and/or his
---------------------------------
successor in interest shall not have any of the rights of a shareholder of the
Company by reason of the grant of the Option until such Option is exercised and
optioned shares are issued pursuant to such Option.
10. Adjustments. In the event of any Company recapitalization,
-----------
dissolution, liquidation or reorganization, the adjustments described under the
terms of the Plan shall be applied.
11. Acknowledgment. The Optionee acknowledges receipt of a copy of the
--------------
Plan, a copy of which is attached hereto, and represents that Optionee is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all the terms and provisions thereof. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
IN WITNESS WHEREOF, the Company, by its authorized representative, and the
Optionee have entered into this Agreement on the date first written above.
CROSSMANN COMMUNITIES, INC.: OPTIONEE:
By:/s/Richard H. Crosser By:/s/Jennifer A. Holihen
--------------------- ----------------------
Richard H. Crosser, President Jennifer A.
Holihen
EXHIBIT 10.49
- --------------
DOCUMENT - 8 X 11" ASSET PURCHASE AGREEMENT
DATED AS OF THE 30TH DAY OF SEPTEMBER, 1997
BY AND AMONG
CROSSMANN COMMUNITIES, INC.
CROSSMANN COMMUNITIES OF TENNESSEE, LLC
and
HEARTLAND HOMES HOLDINGS, L.L.C.,
HEARTLAND HOMES, INC.
and
HEARTLAND HOMES LIMITED PARTNERSHIP
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 30th day of September, 1997, by and among CROSSMANN COMMUNITIES, INC., an
Indiana corporation ("Crossmann"), Crossmann Communities of Tennessee, LLC, a
newly formed Indiana limited liability company which is owned 99% by Crossmann
and 1% by Deluxe Homes of Lafayette, Inc., a wholly-owned subsidiary of
Crossmann, and was formed in order to effect the transactions contemplated by
this Agreement (the "Company" and, collectively with Crossmann the "Purchaser")
and Heartland Homes Holding, L.L.C., an Oklahoma limited liability company
("Holding"), Heartland Homes, Inc., an Oklahoma corporation, wholly-owned by
Holding ("Homes"), and Heartland Homes Limited Partnership, an Oklahoma limited
partnership ("HHLP" or "Seller") of which Homes is a general partner
(collectively with Holding and Homes, the "Heartland Group").
WITNESSETH
WHEREAS, the Seller is engaged in the business of acquiring undeveloped and
developed real estate, developing such real estate, and building residential
homes thereon in Tennessee and Northern Mississippi (the "Memphis Operation").
WHEREAS, the Purchaser, in reliance upon the representations, warranties
and covenants of the Heartland Group set forth herein, desires to purchase from
the Seller, and the Seller desires to sell, transfer and convey the Acquired
Assets (as defined in Article X herein) to the Purchaser pursuant to the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, Article X lists defined terms used in this Agreement;
NOW THEREFORE, in consideration of the representations, warranties, mutual
covenants, and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Purchaser and the Heartland Group hereby agree as follows:
ARTICLE
SALE AND PURCHASE
Section. Transfer of the Acquired Assets. Subject to the terms and
------- ----------------------------------
conditions set forth herein, on the Closing Date, the Seller shall sell, convey,
transfer, assign, and deliver to the Purchaser, and the Purchaser shall
purchase, acquire, and accept from the Seller, all of the respective rights,
titles, and interests of the Seller in and to the Acquired Assets. The
Purchaser shall not purchase, acquire, or accept from the Seller any right,
title, or interest of the Seller in or to the Excluded Assets.
Section. Sale at Closing Date. The sales, conveyances, transfers,
------- -----------------------
assignments, and deliveries by the Seller of the Acquired Assets, as herein
-
provided, shall be effected on the Closing Date, free and clear of all Liens,
except for the Liens set forth on Schedule 1.02, by appropriate deeds, bills of
-------------
sale, endorsements, assignments, and other instruments of transfer and
conveyance satisfactory in form and substance to the Seller and the Purchaser.
Section. Assumption of Liabilities. Subject to the terms and conditions
------- -------------------------
set forth herein, from and after the Closing, the Purchaser shall assume, pay,
perform, and discharge, when due, only the liabilities and obligations of the
Seller which are (i) related to the Memphis Operation (ii) listed on Schedule
--------
1.03 (the "Assumed Liabilities") and (iii) subject to Section 4.01, Warranty
-- ------------
Liabilities. Notwithstanding the foregoing, the Purchaser shall not assume,
-
pay, perform or discharge any of the following:
-
any liability not listed on Schedule 1.03;
--------------
any liability or obligation which is secured by an Excluded Asset;
any unfunded pension liability;
any Tax liability which accrued on or before the Closing Date
(including any Tax liability resulting from the sale and transfer by the Seller
of the Acquired Assets hereunder), including past due or delinquent taxes or
interest or penalties thereon;
any liability arising from activities outside of the ordinary course
of business of the Memphis Operation;
any tort liability not specified on Schedule 1.03;
--------------
any other cost or expense, not listed on Schedule 1.03, including, but
-------------
not limited to, any cost or expense incurred in building residential homes (for
example, the Purchaser shall not be responsible for paying any contractor or
subcontractor that worked on a residential home if the sale of such home closed
prior to the Closing Date, unless those costs are included in the liabilities
set forth on Schedule 1.03); provided, however, that Seller shall retain the
-------------- -------- -------
responsibility for all of Seller's pre-closing operating expenses, including but
not limited to rent, utility bills, and promotional and advertising expenses;
any liability arising from any suit, cause, action, claim,
investigation, or arbitral action that was filed, in progress, pending, or
threatened against the Seller (or any of its assets or property) on or before
the Closing Date whether at law or in equity, whether civil or criminal in
nature, whether before any federal, state, county, or local court, commission,
board or agency;
any liability arising from any circumstances arising on or before the
Closing Date not listed on Schedule 1.03; or
--------------
any liability associated with the Oklahoma Operation including, but
not limited to any warranty liability.
.
Section. Purchase Price. The aggregate consideration (the "Purchase
------- ---------------
Price") to be paid by the Purchaser to the Seller for the Acquired Assets shall
be:
cash in the amount equal to the sum of (i) Four Hundred Fifty Thousand
Dollars ($450,000.00), payable at the Closing by wire transfer of next day
funds pursuant to payment instructions provided by the Seller and (ii) an amount
equal to the Net Assets of the Memphis Operation at the Closing Date, payable
pursuant to Section 1.05; and
-------------
the assumption of the Assumed Liabilities.
Section. Adjustment to Purchase Price.
------- -------------------------------
Escrow. At the Closing, Purchaser shall place into escrow, pursuant
------
to an escrow agreement mutually agreeable to Purchaser and Seller, an amount
equal to the Net Assets of the Memphis Operations as of August 31, 1997 (the
"Escrowed Amount").
Valuation of Net Assets as of Closing. The Net Assets of the Memphis
--------------------------------------
Operations as of Closing shall be determined by the Seller within ten (10)
business days of the Closing Date. Seller shall submit its determination of the
Net Assets as of Closing to the Purchaser for approval; the Purchaser shall have
five (5) business days to review the Seller's determination and notify the
Seller, in writing, of its approval or rejection of the Seller's determination.
In the event Purchaser objects to the Seller's determination, the parties shall
work together to reach a mutually acceptable determination. If a mutually
acceptable determination cannot be agreed upon within ten (10) business days of
the Purchaser's objection, the Net Assets at Closing shall be determined by an
independent third party selected by the Seller and the Purchaser. The cost of
obtaining such an independent third party shall be borne equally by the Seller
and the Purchaser.
Release of Escrowed Funds. If the Net Assets of the Memphis
----------------------------
Operations as of the Closing Date are less than or equal to the Escrowed Amount,
the escrow agent shall, upon receipt of a statement certified by an officer of
the Seller setting forth the amount of such Net Assets, release an amount equal
to the Net Assets of the Memphis Operations as of the Closing Date to the Seller
and release the remainder of the Escrowed Amount, if any, to the Purchaser. If
the Net Assets of the Memphis Operations as of the Closing Date is greater than
the Escrowed Amount, the escrow agreement shall, upon receipt of a statement
certified by an officer of the Seller setting forth the amount of such Net
Assets, release all of the Escrowed Amount to the Seller. Buyer shall have five
(5) business days from the date of the delivery of the certified statement to
deliver to the Seller, by certified check or wire transfer of next day funds,
pursuant to payment instructions provided by Seller, an amount equal to the
difference between the Escrowed Amount and the aggregate value of the Net Assets
at the Closing Date.
Section. Withholding of Tax. At Closing, the Purchaser shall withhold
------- -------------------
from the Purchase Price and pay to any applicable federal or state taxing
authority any and all amounts owed by the Seller which the Purchaser is required
to withhold and pay over to a federal or state taxing agency by law, including
but not limited to an amount equal to five (5) percent of the amount realized by
the Seller on the sale of the Acquired Assets located in Mississippi, as
required by Section 27-3-308 of the Mississippi Code.
Section. Subsequent Documentation. At any time and from time to time
------- -------------------------
after the Closing Date and without any further consideration, the Seller shall,
upon the request of the Purchaser, and the Purchaser shall, upon the request of
the Seller, promptly execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, such further instruments and other documents, and
perform, or cause to be performed, such further acts, as may be reasonably
required to evidence or effectuate the sale, conveyance, transfer, assignment,
and delivery hereunder of the Acquired Assets, the assumption by the Purchaser
of the Assumed Liabilities, the performance by the parties of any of their other
respective obligations under this Agreement, and to carry out the purposes and
intent of this Agreement.
Section. Allocation of Purchase Price. The Purchase Price shall be
------- -------------------------------
allocated among the Acquired Assets pursuant to Internal Revenue Code Section
1060 and as mutually agreed upon by the parties and set forth on Schedule 1.08.
-------------
ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE HEARTLAND GROUP
As a material inducement to the Purchaser to enter into this Agreement and
other agreements and documents executed by the Purchaser in connection with this
Agreement, and to consummate the transactions contemplated hereby and thereby
each of the entities comprising the Heartland Group represents and warrants to
the Purchaser that:
Section. Title to Property. Except as set forth in Schedule 2.01, the
------- ------------------ -------------
Seller has good, valid and marketable title to all of the Acquired Assets, free
and clear of all mortgages, liens, pledges, charges, claims, security interests,
encumbrances, easements, encroachments, rights of third parties, or other
interests of any kind or character, except for liens for property taxes not yet
due and payable.
Section. Authority; Consent. Each of Holding, Homes, and HHLP have the
------- ------------------
full capacity, right, power, and authority to enter into, execute, and deliver
this Agreement, to consummate the transactions contemplated by this Agreement,
and to comply with and fulfill the terms and conditions of this Agreement. HHLP
has the full capacity, right, power, and authority to sell, transfer, assign,
and deliver each and all of the Acquired Assets to the Purchaser. The execution
and delivery of this Agreement by each of Holding, Homes, and HHLP and the
consummation by each of Holding, Homes, and HHLP of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of the Board of Managers and the Members, the Board of
Directors and the shareholders, or the partners of each entity as applicable.
This Agreement constitutes a valid and binding obligation of each of Holding,
Homes, and HHLP enforceable in accordance with its terms and conditions, subject
as to enforcement to applicable bankruptcy, insolvency, reorganization, and
other similar laws of general applicability relating to or affecting creditors
rights generally. No further action is necessary by each of Holding, Homes, or
HHLP to make this Agreement valid and binding upon it and enforceable against it
in accordance with the terms hereof or to carry out the transactions
contemplated hereby. Except as set forth in Schedule 2.02, neither the
--------------
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by Holding, Homes or HHLP with
any of the provisions of this Agreement will:
Conflict with, violate, result in a breach of, constitute a material
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or give rise to any right of termination,
cancellation, or acceleration under any provision of the Articles of
Organization or the Operating Agreement of Holding (the "Articles of
Organization"), the Articles of Incorporation or Bylaws of Homes or the
Partnership Agreement or other operating document of HHLP (the "Operating
Agreement"), as the case may be of Holding, Homes, or HHLP or any of the terms,
conditions or provisions of any note, credit agreement, security or pledge
agreement, lien, bond, mortgage, indenture, license, lease, contract,
commitment, agreement, understanding, arrangement, restriction, or other
instrument or obligation to which Holding, Homes, or HHLP is a party or by which
Holding, Homes or HHLP or any of its respective properties or assets may be
bound;
Violate any law, rule or regulation of any government or governmental
agency or body, or any Judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental agency or body applicable to
Holding, Homes, or HHLP or any of its respective properties, assets, or
outstanding membership interests shares, partnership interests or other
securities of Holding, Homes, or HHLP; or
Constitute an event which, with or without notice, lapse of time, or
action by a third party, could result in the creation of any lien, charge, or
encumbrance upon any of the assets or properties of Holding, Homes, or HHLP, or
upon the Acquired Assets, or cause the maturity of any liability, obligation, or
debt of the Holding, Homes, or HHLP to be accelerated or increased.
Section. Consents and Approvals. Except as set forth on Schedule 2.03,
------- ---------------------- -------------
the execution, delivery, and performance of this Agreement by the Seller or the
consummation by the Seller of the transactions contemplated hereby will not
require any notice to, or consent, authorization, or approval from any court or
governmental authority or any other third party. Except as set forth in Section
-------
2.03, any and all notices, consents, authorizations, and approvals set forth on
- ----
Schedule 2.03 have been made and obtained.
- --------------
Section. Organization. Holding, Homes and HHLP are, as applicable, (a)
------- ------------
limited liability company duly organized, validly existing, and in good standing
under the laws of the State of Oklahoma, (b) a corporation organized under the
laws of the State of Oklahoma, or (c) a limited partnership organized under the
laws of the State of Oklahoma. The Seller has all the requisite power and
authority to own, lease, and operate its properties and to carry on the Memphis
Operation as it is now being conducted. Prior to the Closing, the Seller will
deliver to the Purchaser (a) a copy of the Articles of Organization, including
all amendments thereto, of Holding certified as true, complete, and presently in
effect by the Secretary of Holding, (b) a copy of the Articles of Incorporation
of Homes, (c) a copy of the Operating Agreement, as amended, certified as true,
complete and presently in effect by the General Partner of HHLP, (d)
Certificates of Good Standing of Holding, Homes and HHLP issued by the Secretary
of State for the State of Oklahoma, (e) a copy of the Operating Agreement,
including all amendments thereto of Holding certified as true, complete and
presently in effect by the Secretary of Holding and (f) a copy of the Bylaws,
including all amendments thereto, of Homes, certified as true, complete and
presently in effect by the Secretary of Homes
Section. Financial Statements of the Seller. True and complete copies of
------- ----------------------------------
the annual financial statements of the Seller for each of the years 1994, 1995,
and 1996 and the internally prepared interim balance sheets and income
statements of the Seller as of August 31, 1997, for the eight (8) months then
ended, are attached hereto as Schedule 2.05 (collectively the "Financial
--------------
Statements of the Seller"). The Financial Statements of the Seller are true and
correct in all material aspects, have been prepared from the books and records
of the Seller in accordance with generally accepted accounting principles, and
contain and reflect all necessary adjustments or accruals necessary for a fair
presentation of the financial condition and results of the operations of the
Seller for the periods indicated.
Section. Financial Statements of the Memphis Operation. True and
------- --------------------------------------------------
complete copies of the internally prepared financial statements of the Memphis
--
Operation for each of the years 1994, 1995, and 1996 and the internally prepared
interim balance sheet and income statement of the Memphis Operation as of August
31, 1997, for the eight (8) months then ended, are attached hereto as Schedule
--------
2.06 (collectively the "Financial Statements of the Memphis Operation"). The
---
Financial Statements of the Memphis Operation are true and correct in all
-
material aspects, have been prepared from the books and records of the Seller in
-
accordance with generally accepted accounting principles (except that the
allocation of overhead between the Memphis Operations and the Oklahoma
Operations may not comport with generally accepted accounting principles) and
contain and reflect all necessary adjustments or accruals necessary for a fair
presentation of the financial condition and results of the operations of the
Memphis Operation for the periods indicated. The Financial Statements of the
Memphis Operation set forth any and all amounts owed by or to the Seller by an
Affiliate of the Seller with respect to the Memphis Operation.
Section. Tax Matters. Except as set forth in Schedule 2.07:
------- ------------ --------------
All federal, state, county, and local taxes of any kind or character,
including, without limitation, income (including gross and adjusted gross),
receipts, property (including real, personal, and intangible), transfer, sales,
use, franchise, value added, excise, recording, financial institutions,
employees' income and social security withholding, and all other withholding,
social security, unemployment taxes, which are due and payable by or on behalf
of the Seller, and all interest and penalties thereon (collectively, the
"Taxes"), have been paid (and, to the extent applicable, withheld) in full (or
are adequately reflected as a liability in the Interim Financial Statements);
The Seller has filed all currently due federal, state, county, local,
and other tax returns, statements, forms, reports, and similar documents with
respect to Taxes required to be filed with the appropriate third parties and
governmental agencies in all jurisdictions in which such returns, statements,
forms, reports, and similar documents are required to be filed (collectively,
the "Returns"); and all such Returns are true, correct, and complete in all
material respects; and
There is not now in force any extension of time with respect to the
date on which any Return was or is due to be filed by, or on behalf of, or with
respect to the Seller or any waiver or agreement by the Seller for an extension
of time for the assessment of any Tax.
Section. Compliance with Laws; No Default or Litigation. Except as set
------- ----------------------------------------------
forth in Schedule 2.08:
--------------
The Seller is not in default or violation (nor is there, to the
knowledge of the Seller, any event which, with notice or lapse of time or both,
would constitute a default or violation) in any respect (i) under any contract,
agreement, lease, consent order, or other commitment to which it is a party or
any of the Acquired Assets is subject or bound or (ii) under any law, rule,
regulation, writ, injunction, order, or decree of any court or any federal,
state, local, or other governmental department, commission, board, bureau,
agency, or instrumentality (including, without limitation, applicable laws,
rules and regulations relating to environmental protection, antitrust, civil
rights, health, and occupational health and safety);
There are no actions, suits, claims, investigations, or legal
arbitration or administrative proceedings in progress, pending, or, to the
knowledge of the Seller, threatened by or against the Seller (or any of the
Acquired Assets) whether at law or in equity, whether civil or criminal in
nature, or whether before or by a federal, state, county, local, or other
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, nor has the Seller been charged with or received any notice
of any violation of any rule, regulation, ordinance, law, order, decree, or
requirement relating to the Seller, its properties, assets, or the transactions
contemplated by this Agreement; and
No action, suit, or proceeding has been instituted or, to the
knowledge of the Seller, threatened to restrain, prohibit, or otherwise
challenge the legality or validity of the transactions contemplated by this
Agreement.
Section. Personal Property Owned. Schedule 2.09 contains a list and
------- ------------------------- -------------
brief description of all tools, furniture, furnishings, machinery, supplies,
vehicles, equipment, and all other items of tangible personal property used in
the Memphis Operation (the "Personal Property").
Section. Personal Property Leased. Schedule 2.10 contains a list and
------- -------------------------- -------------
brief description of all leases and other agreements under which the Seller is a
lessee of, holds, or operates any tools, furniture, machinery, vehicles,
equipment, or other personal property owned by any third party and used in the
Memphis Operation (the "Leased Personal Property"). The Seller on or before the
Closing will deliver to the Purchaser copies of the leases and agreements listed
in Schedule 2.10. Each of such leases and agreements is in full force and effect
-------------
and constitutes a legal, valid, and binding obligation of the Seller,
enforceable in accordance with its terms. No consent of any lessor of the
Leased Personal Property is required in connection with the transactions
contemplated by this Agreement, except as set forth in Schedule 2.10. Except as
-------------
disclosed in Schedule 2.10, there is not any existing default or event which,
--------------
after notice or lapse of time, or both, would constitute a default or result in
a right to accelerate or loss of rights as to the Leased Personal Property.
None of the Acquired Assets is subject to any lease other than as set forth in
Schedule 2.10.
--------------
Section. Developed Real Property. Schedule 2.11 lists and contains a
------- ------------------------- -------------
legal description of each parcel of Developed Real Property in which Seller owns
an interest in connection with the Memphis Operation. For purposes of this
Agreement, Developed Real Property is real property, owned by the Seller in
connection with the Memphis Operation, which (i) has all necessary access to and
from public highways, streets, and roads and for which no pending or threatened
proceeding or other fact or condition exists that could limit or result in the
termination of such access and (ii) (a) is or can be connected to and, where
applicable, serviced by electric, gas, sewage or septic, telephone, and public
or private water facilities, and, when so connected, will be in compliance in
all material respects with all applicable laws and (b) for which all applicable
installation and connection charges have been paid in full. Developed Real
Property shall not include Land Contract Property and Land Option Property (as
those terms are defined below). Except as set forth on Schedule 2.11, Developed
-------------
Real Property is Substantially Complete. For purposes of this Agreement,
"Substantially Complete" means that each and all of the requirements listed
below have been met with respect to the Developed Real Property and each lot
contained therein (a "Lot" or "Lots"):
Final subdivision plats have been approved by all applicable
governmental authorities and recorded in the official records of the county,
municipality or applicable governmental authority;
Final acceptance letters have been issued by the appropriate
governmental authority which evidence that such authority has accepted for
permanent maintenance all the streets, water lines, sanitary sewer, and storm
sewers for the Lots;
The appropriate governmental authority has certified that operable
water and sewer taps are available to each of the Lots; and
The appropriate governmental authority has certified that building
permits are obtainable for the construction of single-family houses on the Lots.
Section. Undeveloped Real Property. Schedule 2.12 lists and sets forth
------- ------------------------- -------------
the legal description (or such other description legally sufficient to identify
the subject property) of each parcel of Undeveloped Real Property in which
Seller owns an interest in connection with the Memphis Operation (the
"Undeveloped Real Property"). For purposes of this Agreement, "Undeveloped Real
Property" shall be defined as all real property which is not Developed Real
Property, Land Contract Property or Land Option Property. Except as set forth
on Schedule 2.12, no fact, condition or restriction could preclude or prevent
--------------
the Undeveloped Real Property from (a) having access to and from public
highways, streets, and roads or (b) being connected to and, where applicable,
serviced by electric, gas, sewage or septic, telephone, and public or private
water facilities. Except as set forth on Schedule 2.12, Seller has secured all
-------------
easements and public dedications necessary to connect the utilities referenced
above from their current locations to the boundary of each parcel of Undeveloped
Real Property as such boundaries currently exist.
Section. Real Property Leases. Schedule 2.13 contains a list and brief
------- -------------------- -------------
description of each agreement, arrangement, contract, commitment, lease or
usufruct (each, a "Real Property Lease") pursuant to which Seller is the lessor
or the lessee (or has an equivalent interest in the case of usufructs or other
arrangements which may not be leases under applicable law) of any real property
in connection with the Memphis Operation (the "Leased Real Property"). As to
each Real Property Lease, (a) Seller has neither delivered nor received notice
that any breach or event of default exists, and (b) no condition or event has
occurred that with the giving of notice, the lapse of time, or both would
constitute a breach or event of default by Seller or any other person or entity.
Section. Land Contracts.
------- ---------------
Schedule 2.14(a) contains a list and brief description of all written
-----------------
and oral agreements, arrangements, contracts, and commitments pursuant to which
Seller (i) is obligated to purchase any developed or undeveloped real property
in connection with the Memphis Operation (the "Land Contract Property"), or (ii)
possesses an option to acquire any developed or undeveloped real property in
connection with the Memphis Operation (the "Option Real Property") as of the
date hereof. Schedule 2.14(a) also sets forth the legal description of each
-----------------
parcel of Land Contract Property and Option Real Property, or such other
description legally sufficient to identify the subject property.
Each parcel of developed real property included in the Land Contract
Property, when and if purchased, will satisfy all of the representations and
warranties set forth herein concerning the Developed Real Property. Each parcel
of undeveloped real property included in the Land Contract Property, when and if
purchased, will satisfy all of the representations and warranties set forth
herein concerning the Undeveloped Real Property.
Schedule 2.14(c) sets forth all letters of intent and similar
-----------------
proposals relating to the purchase of real property by Seller which have not
expired or been terminated.
Section. Real Property Generally.
------- -------------------------
Good and Marketable Title. Seller has good and marketable title in
-----------------------------
fee simple to its Developed Real Property, Undeveloped Real Property and Land
Contract Property (collectively, the "Real Property"), except as set forth on
Schedule 2.15(a) and except that Seller will not acquire such title to its Land
--------------
Contract Property until the acquisition thereof. The Real Property constitutes
all the real property which Seller owns or has a right to acquire or in which it
otherwise has an interest in connection with the Memphis Operation, except for
any easements, rights of way, covenants, servitude, licenses or other interests,
whether arising by contract, statute, regulation, common law, equity or
otherwise which are appurtenant to any Real Property.
No Breach or Default. Except as to be set forth in Schedule 2.15(b),
--------------------- ----------------
the Seller has not given nor has it received any written notice that a breach or
an event of default exists any under or with respect to any agreements,
arrangements, contracts, covenants, conditions, deeds, deeds of trust,
rights-of-way, easements, mortgages, restrictions, surveys, title insurance
policies, and other documents granting Seller title to or an interest in or
otherwise affecting the Real Property, and, to the knowledge of the Seller, no
condition or event has occurred that with the giving of notice, the lapse of
time, or both would constitute a breach or event of default of any such
agreement or document, by Seller or any other person or entity.
No Condemnation. No condemnation, eminent domain, or similar
----------------
proceeding exists, is pending or, to the knowledge of the Seller, is threatened
with respect to, or that could affect, any Real Property or its development or
the construction, marketing, or sale of dwellings situated thereon or the
insurability or marketability of the title thereto.
Compliance with Laws. The buildings and improvements on and the
----------------------
subdivision of the Real Property do not violate (i) any applicable law,
including any building, set-back, or zoning law, ordinance, regulation, or
statute, or other governmental restriction in the nature thereof, or (ii) any
enforceable restrictive covenant affecting any such property.
Parties in Possession. There are no parties in possession of any
-----------------------
portion of the Real Property as lessees, tenants at sufferance, or trespassers,
except for rightful possessors of the Option Property, the Leased Property, or
the Land Contract Property.
Site Obligations. Except as set forth on Schedule 2.15(f), no Real
----------------- ----------------
Property is subject to any condition or obligation to any governmental entity or
other person or entity requiring the owner or any transferee thereof to donate
land (except for incidental rights of way), money or other property or to make
off-site public improvements.
Assessments. No developer-related charges or assessments by any
-----------
public authority or any other person or entity for public improvements or
otherwise made against the Real Property are unpaid (other than those set forth
on the Financial Statements of the Memphis Operation or incurred since the date
thereof in the ordinary course of business consistent with past practices),
including without limitation those for construction of sewer lines, water lines,
storm drainage systems, electric lines, natural gas lines, streets (including
perimeter streets), roads and curbs, excluding homeowner association dues and
per lot impact fees.
Subdivision Standards. Except as set forth on Schedule 2.15(h), the
---------------------- ----------------
Real Property and all lots included therein conform to the appropriate
governmental authority's subdivision standards, and there is no material
impediment to subdivision approval for the Undeveloped Real Property, such
approval to allow development of the Undeveloped Real Property for construction
and sale of single family homes at the density and materially in the manner in
which title Seller currently anticipates building thereon.
Moratoria. There is no moratorium applicable to any of the Real
---------
Property, to the extent Seller plans further development thereof, on (i) the
issuance of building permits for the construction of houses, or certificates of
occupancy therefor, or (ii) the purchase of sewer or water taps to the extent
the Seller plans or is required to rely on public water or sewer facilities.
Construction Conditions. Except as set forth on Schedule 2.15(j),
------------------------ ----------------
each of the lots included in the Developed Real Property, developed real
property included in the Land Contract Property and developed real property
included in the Land Option Property is stable and otherwise suitable for the
construction of a residential structure by customary means and without
extraordinary site preparation measures.
Certain Prior Uses. Except as set forth on Schedule 2.15(k), none of
------------------- ----------------
the Real Property has a gravesite that will materially impede the development of
residential homes and no permanent structures have been constructed on a fill or
borrow area in a manner that materially adversely affects the Seller's intended
use thereof or that does not comply with any applicable law in any material
respect.
Claims. Except as set forth on Schedule 2.15(l), no action described
------ ----------------
in Section 2.08(b) or (c) is pending or, to the knowledge of the Seller,
---------------- ---
threatened against the Seller with respect to any of the Real Property. All of
----
the Real Property is in compliance with all applicable zoning and subdivision
ordinances and none of the development-site preparation and construction work
performed on the Real Property has concentrated or diverted surface water or
percolating water improperly onto or from the Real Property in a manner that
affects Seller's present or intended use thereof or the value of the Real
Property.
Third Party Rights. Except as set forth on Schedule 2.15(m), Seller
-------------------- ----------------
has not granted to any person or entity any material contract or other right to
the use of any portion of the Real Property or to the furnishing or use of any
facility or amenity on or relating to the Real Property, other than sales
contracts in the ordinary course of business.
Zoning. Except as set forth on Schedule 2.15(n), all of the Real
------ ----------------
Property is zoned to permit single-family home construction and occupancy
thereon.
Section. Homeowner's Associations.
------- -------------------------
Schedule 2.16 sets forth a list of all homeowner associations in which
-------------
the Seller has or has had declarant rights (the "Homeowner Associations") and
all amounts owing between Seller and the Homeowner Associations
Except as set forth on Schedule 2.16, (i) all restrictive covenants
-------------
and other documents used by Seller in connection with the creation and operation
of the Homeowner Associations (A) in which Seller previously had declarant
rights complied in all materials respects with applicable laws at the time the
same were promulgated, and (B) in which Seller currently has declarant rights
currently comply in all material respects with applicable laws, and (ii) all
material disclosures and deliveries of information and documents required by
applicable laws as to such Homeowner Associations and their creation and
operation have been materially complied with.
To the knowledge of the Seller, no other claims exist by a Homeowner
Association against Seller, and each Homeowner Association has been operated, so
long as Seller has participated therein, in accordance with applicable laws.
Section. Environmental Compliance. Except as set forth in Schedule 2.17:
------- ------------------------ -------------
The Seller has at all times complied with all applicable Environmental
Requirements in its development and construction of the Real Property.
Further, to the knowledge of the Seller, no current or previous owner of any
Real Property materially violated any Environmental Requirements;
No Hazardous Material has ever been generated, manufactured, refined,
used, transported, treated, stored, handled, disposed, transferred, produced, or
processed at, to, or on any Real Property and no Hazardous Material has ever
been incorporated into any Real Property;
There are no existing or potential Environmental Claims relating to
any Real Property, and the Seller has not received any notification, nor does it
have any knowledge of, any alleged, actual, or potential responsibility for any
disposal, release, or threatened release at any location of any Hazardous
Material generated at or transported from any Real Property by or on behalf of
the Seller;
(i) No underground storage tank or other underground storage
receptacle (or associated equipment or piping) for Hazardous Materials is
currently located at or on any Real Property and there have been no releases of
any Hazardous Materials from any such underground storage tank or related piping
at any time prior to the Closing; and (ii) there have been no releases (i.e.,
any past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing, or dumping) of
Hazardous Materials at, on, to, or from any Real Property;
There are no PCBs or friable asbestos located or contained at, on, or
in any Real Property;
No lien or other encumbrance has been imposed on any Real Property by
any federal, state, local, or foreign governmental agency or authority due to
either the presence of any Hazardous Material on, off, or in the Real Property
or a violation of any Environmental Requirement;
The Seller has not received any notices issued pursuant to the
citizen's suit provision of any Environmental Requirement relating to any Real
Property;
The Seller has not received any request for information, notice,
demand, letter, administrative inquiry, formal or informal complaint, or claim
with respect to any Environmental Conditions or violation of any Environmental
Requirement relating to any Real Property;
There have been no environmental investigations, site assessments or
audits, or soil or groundwater sampling conducted at any Real Property by the
Seller, or, to the Seller's knowledge, by any other person.
None of the Real Property on which the Seller intends to construct a
residential dwelling is located within a "critical," "preservation,"
"conservation" or similar type of area which will materially affect the Seller's
present development plans therefor. No wetlands exist which will restrict
development of any of the Real Property as contemplated by the Seller nor render
the cost of its development of any Real Property materially in excess of the
Seller's budget therefor. No portion of the Real Property which the Seller has
developed or intends to develop for residential lots and dwellings is situated
within a "noise cone" such that the Federal Housing Administration will not
approve mortgages due to the noise level classification of such real property.
Any Real Property which cannot be developed in accordance with its official
development plan and preliminary plot without materially increasing development
costs above those contemplated by the Seller or materially delaying construction
shall be listed on Schedule 2.17.
--------------
Section. Contracts.
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Schedule 2.18(a) lists the following contracts and leases (other than
-----------------
those described in Schedule 1.03, Schedule 2.10, and Schedule 2.13), including
------------- ------------- -------------
all amendments thereto, which pertain to the Memphis Operation and to which the
Seller is a party (all the contracts, leases and amendments thereto listed on
Schedules 1.03, 2.10, 2.13 and 2.18(a) are defined as the "Contracts")
------- ---- ---- ---- -------
including, but not limited to all;
-------
Loans, lines of credit, letters of credit, security agreements,
pledges, mortgages, hypothecations, loan agreements, guaranties, or other
payment or collateral obligations;
Agreements of guaranty or indemnification;
Agreements, contracts, and commitments containing any covenant,
condition, or promise limiting the right of the Seller to engage in any activity
or compete with any person;
Written employment agreements, contracts, policies, and commitments
with or between the Seller and any of its employees, directors, or officers,
including without limitation those relating to severance;
Material written agreements with employees as a group;
Contracts with suppliers and vendors of parts, equipment, and other
items used by the Seller in the ordinary course of business; and
Joint venture or partnership agreements.
All of the Contracts are valid and binding obligations of the Seller,
are enforceable in accordance with their respective terms, are in full force and
effect and, except as otherwise specified in Schedule 2.18(a), will continue in
----------------
full force and effect without the consent of any other party so that, after the
Closing, the Purchaser will be entitled to the full benefits thereof. Except as
set forth in Schedule 2.18(b), (i) none of the Contracts contain any provision
----------------
that is triggered by any of the transactions contemplated by this Agreement;
(ii) none of the Contracts contain a provision imposing a penalty if any of the
amounts due thereunder are prepaid; (iii) there is not any existing default or,
to the knowledge of the Seller, event which, after notice or lapse of time, or
both, would constitute a default or result in a right to accelerate or loss of
rights; (iv) to the knowledge of the Seller, none of the material suppliers,
vendors or subcontractors used by Seller in connection with the Memphis
Operation has, or intends to, terminate or change significantly its relationship
with the Seller. Copies of the Contracts in written form have been delivered or
will be delivered to the Purchaser prior to the Closing.
Section. Accounts and Notes Receivable. The Seller on or before the
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Closing will deliver to the Purchaser a list of Accounts Receivable with respect
to the Memphis Operation owing to the Seller from its customers and all other
parties as of the date of Closing with such to be set forth in Schedule 2.19.
-------------
Such list shall include the amount of the obligation, date the obligation was
created, date when the obligation is due, and any applicable penalties or
discounts. The Seller has no knowledge of any facts or circumstances which will
interfere with the collection of Accounts Receivable in accordance with their
terms.
Section. Licenses and Permits. The Seller possesses all franchises,
------- ----------------------
licenses, permits, certificates, approvals, consents, clearances, notifications,
registrations, and other authorizations necessary to conduct the Memphis
Operation as now conducted (the "Permits"). Except as provided in Schedule
--------
2.20, all such Permits are freely transferable and will continue in full force
and effect without the consent of any other party so that, after the Closing,
the Purchaser will be entitled to the full benefits of any Permits.
Section. Intellectual Property.
------- ----------------------
Except as set forth in Schedule 2.21, Seller owns or possesses all
-------------
corporate names, trade names, trademarks, service marks, mailing lists,
copyrights, works of art, trade secrets, computer programs, know-how,
proprietary processes and formulae, technology and all other proprietary
technical information, whether patentable or unpatentable, and all applications
and registrations of the foregoing (collectively, "Intellectual Property"),
necessary to conduct the business of the Memphis Operation as presently
operated. Schedule 2.21 also contains a list and brief description of all such
-------------
Intellectual Property in written form used in the Memphis Operation which has
been registered with any state trademark office, with the U.S. Patent and
Trademark Office or with the U.S. Copyright Office, including computer programs
having a cost to Seller in excess of One Thousand Dollars ($1,000.00) per copy.
Except as set forth in Schedule 2.21, each copyright claimed to be owned by
-------------
Seller relating to a work of art used in the Memphis Operation created prior to
January 1, 1978 has been properly registered by Seller claiming ownership with
the U.S. Copyright Office. Except as set forth in Schedule 2.21, Seller is not
-------------
infringing upon or otherwise acting adversely to, or engaging in the
unauthorized use or misappropriation of, any Intellectual Property, rights of
publicity, or rights of privacy which are owned by any other person or entity,
and there is no claim or action by any such person or entity pending or
threatened with respect thereto.
Notwithstanding the above, the Heartland Group (i) has taken and will
continue to take any and all reasonably necessary actions to diligently defend
the rights to continue the present and future unrestricted use and registrations
of the Heartland Homes trademark (the "Mark") in connection with U.S.
Trademark Cancellation Proceedings Nos. 21,840 and 21,841 (the "Proceedings");
and (ii) will seek and receive the written approval of the Purchaser prior to
agreeing to any settlement respecting the Proceedings if such settlement
restricts or impedes the rights of the Purchaser to the use of the Mark as
provided in the License Agreement (as defined herein).
Section. Labor Relations: Employees. As of August 31, 1997, the Seller
------- --------------------------
employed a total of employees in connection with the Memphis Operation. As of
the Closing Date, except as set forth in Schedule 2.22:
--------------
The Seller has paid in full or accrued to all of its employees all
wages, salaries, commissions, bonuses, fringe benefit payments, and all other
direct and indirect compensation of any kind for all services performed by them
and each of them to the date hereof;
The Seller is in compliance with (i) all federal, state, and local
laws, ordinances, and regulations dealing with employment and employment
practices of any kind, and (ii) all wages and hours requirements and
regulations;
There is no unfair labor practice, safety, health, discrimination, or
wage claim, charge, complaint, or suit pending or threatened against or
involving the Seller before the National Labor Relations Board, Occupational
Safety and Health Administration, Equal Employment Opportunity Commission,
Department of Labor, or any other federal, state, or local agency;
There is no labor dispute, strike, work stoppage, interference with
production, or slowdown in progress, threatened against, or involving the
Seller;
There is no question of representation under the National Labor
Relations Act, as amended, or any state equivalent thereof, pending with respect
to the employees of the Seller;
There is no grievance pending or threatened which might have a
material adverse effect on the Seller or on the conduct of the Memphis
Operation;
There exists no collective bargaining agreement to which the Seller is
a party, and there is no collective bargaining agreement currently being
negotiated, subject to negotiation, or renegotiation by the Seller; and
There is no dispute, claim, or proceeding pending with or threatened
by the Immigration and Naturalization Service with respect to the Seller.
Section. Employee Benefit Plans.
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Schedule 2.23, attached hereto and made a part hereof, contains a list
-------------
of each (i) employee welfare benefit plan (as defined in Section 3(1) of ERISA
(hereinafter referred to as "Employee Welfare Benefit Plan") and (ii) employee
pension benefit plan (as defined in Section 3(2) of ERISA) (hereinafter referred
to as "Employee Pension Benefit Plan"), (a) which was maintained or administered
by the Seller immediately prior to the Closing, (b) to which the Seller
contributed to, or was legally obligated to contribute to immediately prior to
the Closing, or (c) under which the Seller had any liability immediately prior
to Closing, with respect to its current or former employees or independent
contractors. Solely for purposes of this Section 2.23, the Employee Welfare
------------
Benefit Plans and Employee Pension Benefit Plans are collectively referred to as
"Employee Benefit Plans" and individually referred to as an "Employee Benefit
Plan".
The Seller on or before the Closing will provide the Purchaser with
true and correct copies of (i) all Employee Benefit Plans listed on Schedule
--------
2.23, including all amendments thereto, (ii) the most recent summary plan
-
description for each Employee Benefit Plan, and (iii) the most recently filed
-
IRS Form 5500 for each Employee Benefit Plan.
Each of the Employee Benefit Plans is in compliance in all material
respects with the applicable provisions of ERISA and those provisions of the
Code applicable to the Employee Benefit Plans, and each Employee Benefit Plan
intended to be qualified under section 401(a) of the Code is so qualified. None
of the Employee Benefit Plans is subject to Title IV of ERISA or to section 412
of the Code. All contributions to, and payments from, the Employee Benefit
Plans which may have been required to be made in accordance with the Employee
Benefit Plans or the Code have been timely made. Each of the Employee Benefit
Plans has been administered at all times in all material respects in accordance
with its terms. There are no pending investigations by any governmental agency
involving the Employee benefit Plans except with respect to this transaction, no
termination proceedings involving the Employee Benefit Plans, and no threatened
or pending claims (except for claims for benefits payable in the normal
operation of the Employee Benefit Plans), suits, or proceedings against any
Employee Benefit Plan or assertion of any rights or claims to benefits under any
Employee Benefit Plan.
No Employee Benefit Plan fiduciary has engaged in a "prohibited
transaction" (as that term is defined in section 4975 of the Code or section 406
of ERISA) which could subject any Employee Benefit Plan to the tax or penalty on
prohibited transactions imposed by section 4975 or the sanctions imposed under
Title I of ERISA.
The Seller is not obligated to contribute to any multi-employer plan
(as defined in ERISA Section 3(37).
The Seller has complied with the requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (hereinafter referred to
as ("COBRA")) and the rules and regulations thereunder. Seller shall be solely
responsible and liable for providing any and all benefits to employees or others
(or their covered dependents) of Seller required under COBRA arising from any
qualifying event as defined under Code Section 4980B(f)(3) and ERISA Section 603
occurring on or before Closing.
Section. Warranty Liability. Except as set forth in Schedule 2.24, the
------- ------------------ -------------
Seller has not (a) incurred any costs in regard to any Warranty Liability at any
time (b) the Seller has not been notified, in writing or orally, of any pending
or potential Warranty Liability which has arisen or may arise in the future, (c)
nor does Seller have reason to anticipate any pending or potential Warranty
Liability.
Section. No Changes. Except as set forth in Schedule 2.25, since the
------- ----------- --------------
date of the August 31, 1997 Financial Statements of the Memphis Operation, the
Seller has not (a) incurred any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) with respect to the Memphis
Operation except in the ordinary course of business consistent with historic
practice, (b) incurred any indebtedness for borrowed money or entered into any
commitment to borrow money or guarantee, assumption, endorsement of, or other
assumption of any liability that is secured by the Acquired Assets except in the
ordinary course of business in connection with the Memphis Operation; (c) sold,
transferred or otherwise disposed of any of the Acquired Assets, without the
written consent of the Purchaser, other than sales in the ordinary course of
business; (d) declared or made any distributions to its partners in respect of
their partnership interests; (e) made any bonus or profit sharing distribution
of any kind; (f) entered into any transaction with respect to the Memphis
Operation except in the ordinary course of business consistent with past
practice; (g) made any illegal payments to any Person; or (h) made any changes
to its governing documents. The current Net Assets of the Memphis Operation is
a positive number; the Memphis Operation is not operating with a Net Asset
deficit.
Section. Letters of Intent and Sale Discussions. Except for the Letter
------- --------------------------------------
of Intent by and among Crossmann, dated August 7, 1997, the Seller has not
entered into any binding letter of intent nor other agreement pursuant to which
the Seller has agreed to merge or consolidate the Memphis Operations of Seller
with any other Person, sell or exchange any of the stock of the Seller, or sell,
transfer, or assign any asset of the Seller, except for sales of residential
homes made in the ordinary course of business.
Section. Due Diligence. With respect to all representations and
------- --------------
warranties which are qualified "to the knowledge of the Seller", "known to the
---
Seller", or words of similar import, the Seller has made reasonable
investigation of the subject matter of the representation of warranty and, where
appropriate, conferred with appropriate Personnel and/or examined appropriate
documents.
Section. Disclosure. This Agreement and the Exhibits and Schedules
------- ----------
attached hereto do not contain any untrue statements of a material fact or omit
to state a material fact necessary to make the statements contained herein not
misleading.
Section. Survival. All representations and warranties contained in this
------- --------
Agreement, except those in Section 2.17, shall survive the execution, delivery,
------------
and performance hereof for a period of eighteen months after the Closing Date;
provided, however, that the representations contained in Section 2.17 relating
------- ------- ------------
to environmental matters and the obligation to indemnify with respect to a
breach thereof shall survive for so long as any environmental regulatory
authority shall have the power to make any claim, assessment or reassessment
with respect thereto.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As a material inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated by this Agreement, the Company and
Crossmann represent and warrant to the Seller that:
Section. Authority: Consent. Each of the Company and Crossmann has the
------- ------------------
full capacity, right, power, and authority to enter into, execute, and deliver
this Agreement, to consummate the transactions contemplated by this Agreement,
to comply with and fulfill the terms and conditions of this Agreement, and to
purchase the Acquired Assets and assume the Assumed Liabilities from the Seller.
The execution and delivery of this Agreement by the Company and Crossmann and
the consummation by the Company and Crossmann of the transactions contemplated
herein have been duly and validly authorized by all necessary actions on the
part of the boards of directors of the Company and Crossmann. This Agreement
constitutes a valid and binding obligation of the Company and Crossmann,
enforceable against each of them in accordance with its terms and conditions,
subject as to enforcement to applicable bankruptcy, insolvency, reorganization,
and other similar laws of general applicability relating to or affecting
creditors rights generally. No further action is necessary by the Company or
Crossmann to make this Agreement valid and binding upon the Company and
Crossmann and enforceable against the Company and Crossmann in accordance with
the terms hereof or to carry out the transactions contemplated hereby. Neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the Company and Crossmann
with any of the provisions of this Agreement will:
Conflict with, violate, result in a breach of, constitute a default
under (or an event which, with notice or lapse of time or both, would constitute
a default), or give rise to any right of termination, cancellation, or
acceleration under any of the terms, conditions or provisions of any note, lien,
bond, mortgage, indenture, license, lease, contract, commitment, agreement,
understanding, arrangement, restriction, or other instrument or obligation to
which either the Company or Crossmann is a party or by which the Company,
Crossmann or any of their respective properties or assets may be bound;
Violate any law, rule, or regulation of any government or governmental
agency or body, or any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental agency or body applicable to the
Company, Crossmann or any of their respective properties, assets, outstanding
shares or other securities; or
Constitute an event which, with or without notice, lapse of time, or
action by a third party, could result in the creation of any lien, charge, or
encumbrance upon any of the assets or properties of the Company or Crossmann, or
cause the maturity of any liability, obligation, or debt of the Company or
Crossmann to be accelerated or increased.
Section. Consents and Approvals. Except as set out in Schedule 3.02, the
------- ---------------------- -------------
execution and delivery of this Agreement by the Company and Crossmann and the
consummation by the Company and Crossmann of the transactions contemplated
hereby will not require any notice to, or consent, authorization, or approval
from any court or governmental authority or any other third party. Any and all
notices, consents, authorizations, and approvals set forth in Schedule 3.02 have
-------------
been made and obtained.
Section. Corporate Organization. Company is a corporation, duly
------- -----------------------
organized, validly existing, and in good standing under the laws of the State of
---
Indiana. Company is a wholly-owned subsidiary of Crossmann. Crossmann is a
corporation incorporated and validly existing under the laws of the State of
Indiana, for which the most recent required annual report under Indiana Business
Corporation Law has been filed with the Indiana Secretary of State, and no
Articles of Dissolution appear as filed with the Indiana Secretary of State's
records. Prior to the Closing, the Company will deliver to the Seller (a) a
true and complete copy of the Articles of Incorporation, including all
amendments thereto, of the Company, (b) a Certificate of Existence (or similar
document) of the Company issued by the Secretary of State for the State of
Indiana, and (c) a copy of the By-laws, including all amendments thereto, of the
Company certified as true and complete and presently in effect by the Secretary
of the Company.
ARTICLE
INDEMNIFICATION
Section. Indemnification by Heartland Group. The members of Heartland
------- -----------------------------------
Group, jointly and severally, shall indemnify and hold harmless the Company,
and its respective successors, shareholders, officers, directors, affiliates,
and agents from and against any and all damages, losses, obligations, demands,
liabilities, claims, encumbrances, penalties, costs, and expenses, including
reasonable attorneys' fees (and costs and reasonable attorneys' fees in respect
of any suit to enforce this provision if the Company prevails in such suit)
(each an "Indemnity Loss"), arising from or relating to (a) any
misrepresentation in or any breach of any representation or warranty by the
Seller, or any breach or failure of the Seller to perform any covenant or
obligation of the Seller contained in this Agreement or any related agreement,
instrument, document, exhibit, schedule or certificate furnished or required to
be furnished by the Seller pursuant to this Agreement, or any nonfulfillment of
any of the covenants or agreements of the Seller contained in this Agreement,
(b) any liability, obligation, or commitment of any nature (absolute, accrued,
contingent, or other) of the Seller which is not an Assumed Liability expressly
assumed by the Purchaser pursuant to this Agreement; and (c) any and all
actions, suits, investigations, proceedings, demands, assessments, audits, and
judgments arising out of any of the foregoing.
The Seller agrees to indemnify and hold harmless the Purchaser for any and
all Warranty Liabilities in excess of the Warranty Cap. Purchaser will notify
Seller, in writing, of any pending Warranty Liability; provided, however, that
-------- -------
Purchaser shall not be required to notify Seller of any Warranty Liability which
Purchaser, in good faith, estimates can be resolved for Five Thousand Dollars
($5,000) or less. The Seller shall have ten (10) business days to notify the
Purchaser, in writing, that the Seller will assume full responsibility for the
payment and resolution of such Warranty Liability. Failure of the Seller to
respond in the ten-day period shall be deemed a waiver by the Seller of its
right to assume responsibility for the Warranty Liability. Upon notification to
the Purchaser by the Seller that the Seller intends to assume responsibility for
any Warranty Liability, that Warranty Liability shall remain the full
responsibility of Seller until the problem giving rise to the Warranty Liability
has been resolved. Any costs or expenses incurred by the Seller in resolving
the problem giving rise to the Warranty Liability shall be added to the Warranty
Cap. Notwithstanding the foregoing, Purchaser and Seller agree that Purchaser
may take any actions during the ten day (10) period as may be reasonably
necessary to mitigate or prevent the occurrence of any additional costs
associated with a Warranty Liability; Seller shall remain responsible for such
mitigation expenses.
Section. Indemnification by the Purchaser. The Purchaser shall indemnify
------- --------------------------------
and hold harmless the Seller and its successors and their respective
shareholders, officers, directors, and agents from and against any and all
Indemnity Losses resulting from or relating to (a) any misrepresentation in or
any breach of any representation or warranty, or any breach or failure of the
Purchaser to perform any covenant or obligation of the Purchaser contained in
this Agreement or any related agreement, instrument, document, exhibit, schedule
or certificate furnished or required to be furnished by the Purchaser pursuant
to this Agreement or in connection with the transactions contemplated by this
Agreement, or any nonfulfillment of any of the covenants or agreements of the
Purchaser contained in this Agreement, (b) any Assumed Liability, and (c) any
and all suits, actions, investigations, proceedings, demands, assessments,
audits, and judgments arising out of any of the foregoing.
Section. Notice. If an indemnified party (the "Claimant") believes that
------- ------
it has suffered or incurred any Indemnity Loss, it shall so notify the party
which the Claimant believes has an obligation to indemnify (the "Indemnifying
Party") promptly in writing describing such loss or expense, the amount thereof,
if known, and the method of computation of such loss or expense, all with
reasonable particularity (the "Indemnification Notice"). If any action at law,
suit in equity, or administrative action is instituted by or against a third
party with respect to which the Claimant intends to claim any liability or
expense as an Indemnity Loss under this Article IV, it shall promptly notify the
----------
Indemnifying Party in writing of such action or suit describing such loss or
expenses, the amount thereof, if known, and the method of computation of such
loss or expense, all with reasonable particularity (the "Litigation Notice") in
lieu of an Indemnification Notice. To the extent failure to promptly notify the
Indemnifying Party of such action or suit can reasonably be deemed to increase
the liability or expense to the Claimant, the Indemnifying Party shall not be
obligated to reimburse claimant for the amount of the increase in liability or
expense.
Section. Arbitration.
------- -----------
If the Indemnifying Party does not agree that the Claimant is entitled
to full reimbursement for the amount specified in the Indemnification Notice or
Litigation Notice, as the case may be, the Indemnifying Party shall notify the
Claimant (the "Disagreement Notice") within twenty (20) days of its receipt of
the Indemnification Notice or Litigation Notice, as the case may be. Failure to
deliver a Disagreement Notice in a timely manner shall be considered an express
acknowledgment by the Indemnifying Party of its obligation to indemnify and hold
harmless the Claimant with respect to the Indemnity Loss set forth in the
Indemnification Notice or the Litigation Notice, as the case may be. At any
time after delivery of the Disagreement Notice, either the Claimant or the
Indemnifying Party may notify the other that the determination as to whether and
in what amount the Claimant is entitled to indemnification from the Indemnifying
Party shall then be made by an arbitration tribunal (the "Arbitration Notice").
The arbitration tribunal shall consist of three arbitrators, one to be selected
by the Claimant, one to be selected by the Indemnifying Party, and the third
arbitrator to be selected by the other two arbitrators. The arbitrators shall
each be independent of the parties and reasonably experienced in conducting
arbitration proceedings relating to similar matters and all arbitrators shall be
selected within thirty (30) days of the delivery of the Arbitration Notice. An
arbitration hearing shall then be held within thirty (30) days of the selection
of the third arbitrator, and the arbitration tribunal shall render its
determination as to whether and in what amount the Claimant is entitled to
indemnification within thirty (30) days of such hearing. All procedures with
respect to the arbitration proceeding provided for in this Section 4.04(a) shall
---------------
be in accordance with the rules of the American Arbitration Association, except
as otherwise specifically set forth in this Agreement.
Each party shall be responsible for its own costs and expenses
incurred in conducting the arbitration proceeding provided for in Section 4.04
------------
(a), including attorneys' fees.
--
The parties hereby irrevocably consent to be bound by the decision of
the arbitration tribunal with respect to indemnification determinations.
Section. Defense of Claims. The Indemnifying Party shall have twenty
------- -------------------
(20) Business Days after receipt of the Litigation Notice to notify the Claimant
that it acknowledges its obligation to indemnify and hold harmless the Claimant
with respect to the Indemnity Loss set forth in the Litigation Notice and that
it elects to conduct and control any legal or administrative action or suit with
respect to an indemnifiable claim (the "Election Notice"). If the Indemnifying
Party gives a Disagreement Notice or does not give the foregoing Election
Notice, the Claimant shall have the right to defend, contest, settle, or
compromise such action or suit in the exercise of its exclusive discretion;
provided, however, that the right of Claimant to indemnification hereunder shall
not be conclusively established hereby. If the Indemnifying Party gives the
foregoing Election Notice, the Indemnifying Party shall have the right to
undertake, conduct, and control, through counsel of its own choosing and at its
sole expense, the conduct and settlement of such action or suit, and the
Claimant shall cooperate with the Indemnifying Party in connection therewith;
provided, however, that (a) the Indemnifying Party shall not thereby consent to
the imposition of any injunction against the Claimant without the written
consent of the Claimant; (b) the Indemnifying Party shall permit the Claimant to
participate in such conduct or settlement through counsel chosen by the
Claimant, but the fees and expenses of such counsel shall be borne by the
Claimant except as provided in clause (c) below; and (c) upon a final
determination of such action or suit, the Indemnifying Party shall promptly
reimburse the Claimant, to the extent required under this Article IV, for the
----------
full amount of any Indemnity Loss incurred by the Claimant except fees and
expenses of counsel that the Claimant incurred after the assumption of the
conduct and control of such action or suit by the Indemnifying Party in good
faith; (d) the Claimant shall have the right to pay or settle any such action or
suit, provided that in such event the Claimant shall waive any right to
indemnity therefor by the Indemnifying Party and no amount in respect thereof
shall be claimed as an Indemnity Loss under this Article IV. In the event of a
----------
settlement under this Section 4.05(d), the Claimant shall also reimburse the
----------------
Indemnifying Party for fees and costs incurred by the Indemnifying Party prior
to the settlement.
Section. Computation of Indemnity Losses. The amount of Indemnity Losses
------- -------------------------------
hereunder shall be computed after giving effect to the receipt of any and all
insurance proceeds with respect thereto.
Section. Payment of Losses. The Indemnifying Party shall pay to the
------- -------------------
Claimant in cash the amount to which the Claimant may become entitled by reason
of the provisions of this Article IV, such payment to be made within fifteen
(15) Business Days after such amount is finally determined either by mutual
agreement of the parties or pursuant to the arbitration proceeding described in
Section 4.04 of this Agreement or, in the case of an Indemnity Loss described in
- ------------
a Litigation Notice, the date on which both such amount and Claimant's
obligation to pay such amount have been determined by a final judgment of the
trial court or administrative body having jurisdiction over such proceeding.
Section. Survival. Notwithstanding the foregoing, the Indemnifying Party
------- --------
shall have no liability with respect to any Indemnity Loss Notice which is not
received by the Indemnifying Party pursuant to Section 4.03 hereof on or before
------------
the second anniversary of the Closing Date; provided, however, that the
Indemnifying Party shall remain liable for any Indemnity Loss arising from a
breach of any representation contained in Section 2.17 relating to environmental
------------
matters and the obligation to indemnify with respect to a breach thereof (an
"Environmental Obligation") shall survive for so long as any environmental
regulatory authority shall have the power to make any claim, assessment or
reassessment with respect thereto but provided further that the Indemnifying
Party shall have no obligation with respect to an Environmental Obligation
relating to any specific property after the date five years from the date on
which the Seller has delivered to Purchaser and the Purchaser has accepted in
writing from the Seller a reasonably acceptable "Phase I" environmental site
assessment relating to that property (a "Phase I"). The scope and performance
of each Phase I shall meet or exceed ASTM Standard Practice E1527-94, Standard
Practice for Environmental Site Assessment Process. Each Phase I shall be
addressed to Purchaser or accompanied by a reliance letter addressed to the
Purchaser and shall be prepared by a consulting firm acceptable to Purchaser.
The cost and expense of obtaining such Phase I shall be borne solely by the
Seller. In the event Seller elects to obtain an insurance policy or insurance
policies to insure itself against any Environmental Obligation, Seller shall
name Crossmann and the Company as additional payees.
Section. Other Limitations. Notwithstanding the foregoing, (i) an
------- ------------------
Indemnifying Party shall only be liable to a Claimant to the extent the
-
aggregate amount of Indemnity Losses exceeds $20,000; and (ii) the Seller's
-
liability shall be limited to the Purchase Price (including cash, the amount of
the Assumed Liabilities and any portion of the Escrowed Amount released to the
Purchaser).
ARTICLE
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligations of the Seller to sell and transfer Acquired Assets
hereunder on the Closing Date are subject to the fulfillment, at or before the
Closing, of the following conditions, any one or more of which may be waived in
writing by the Seller in its sole discretion:
Section. Performance of the Obligations of the Purchaser. The Purchaser
------- -----------------------------------------------
shall have performed in all material respects all obligations under this
Agreement on or before the Closing Date, the representations and warranties of
the Purchaser set forth in Article III shall remain true, correct, and complete
in all material respects as of the Closing Date, and the Seller shall have
received a certificate from the Purchaser to that effect dated the Closing Date
and signed by the President or any other duly authorized officer of the
Purchaser.
Section. Consents and Approvals. All permits, consents, waivers,
------- ------------------------
authorizations, and approvals of any governmental or regulatory authority, state
--
or Federal, and of any other Person that may be reasonably required in
connection with the execution of this Agreement or the effectuation of the
transactions contemplated herein shall have been duly obtained and shall be in
full force and effect on the Closing Date.
Section. No Violation of Orders. No preliminary or permanent injunction
------- ----------------------
or other order issued by any court or governmental or regulatory authority,
domestic or foreign, that declares this Agreement invalid or unenforceable in
any respect or prevents the consummation of the transactions contemplated hereby
shall be in effect, and no proceeding relating to any order shall have
commenced.
ARTICLE
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to purchase, acquire, and accept the
Acquired Assets, and to assume the Assumed Liabilities on the Closing Date are
subject to the fulfillment, at or before the Closing, of the following
conditions, any one or more of which the Purchaser may, in its sole discretion,
waive in writing.
Section. Performance of the Obligations of the Seller. The Seller shall
------- --------------------------------------------
have performed in all material respects all obligations under this Agreement on
or before the Closing Date, the representations and warranties of the Seller
set forth in Article II shall remain true, correct, and complete in all material
----------
respects as of the Closing Date, and the Purchaser shall have received a
certificate from the Seller to that effect dated the Closing Date and signed by
the President or any other duly authorized officer of the Seller.
Section. Completion of Due Diligence. The Purchaser, in its sole
------- ------------------------------
discretion, shall be satisfied with the results of its due diligence regarding
--
the Acquired Assets, the Assumed Liabilities, and the Memphis Operation,
including, but not limited to, the information set forth on the Schedules to
this Agreement.
Section. Consents and Approvals. All Permits and Licenses necessary to
------- ----------------------
conduct the Memphis Operation, including any necessary transfer thereof, and all
consents, waivers, authorizations, and approvals of any governmental or
regulatory authority, state or Federal, and of any other Person, that may be
reasonably required in connection with the execution of this Agreement or the
effectuation of the transactions contemplated herein, shall have been duly
obtained and shall be in full force and effect on the Closing Date. Each party
(other than the Seller) to any of the Contracts specified in Schedule 2.18(a),
----------------
Schedule 1.03, Schedule 2.10, or Schedule 2.13 shall have provided its written
------------- ------------- -------------
consent to the assignment of the Contract to the Purchaser as provided herein,
to the extent such consent is required.
Section. No Violation of Orders. No preliminary or permanent injunction
------- ----------------------
or other order issued by any court or governmental or regulatory authority,
domestic or foreign, that declares this Agreement invalid or unenforceable in
any respect or prevents the consummation of the transactions contemplated
hereby, or which materially and adversely affects the Acquired Assets, the
Memphis Operation or the financial condition of the Seller shall be in effect,
and no proceeding relating to any order shall have commenced.
Section. Title Insurance. Prior to the Closing, Seller shall have
------- ----------------
furnished the Purchaser, a commitment for an owner's policy of title insurance
-
satisfactory to the Purchaser in its sole and absolute discretion, issued by a
nationally reputable title insurance company (the "Title Company"), and
containing the agreement of the Title Company to insure fee simple title to the
Real Property (except for the Leased Real Property, the Land Contract Property,
and the Option Real Property) in the name of the Purchaser upon delivery of a
general warranty deed from the Seller to the Purchaser. The cost of obtaining
such title insurance shall be borne equally by the Purchaser and the Seller.
Section. Survey. Prior to the Closing, the Seller, at the Seller's
------- ------
expense, shall have furnished to the Purchaser a boundary survey of the Real
Property, except for the Undeveloped Real Property and the Leased Real Property,
satisfactory to the Purchaser in its sole and absolute discretion.
Section. Indemnification and Reimbursement Agreement. The Purchaser, the
------- -------------------------------------------
Seller, certain members of Holding owning five (5) percent or more of the
outstanding units of ownership of Holding as of August 31, 1997 and certain
owners and officers of such members shall have entered into an indemnification
and reimbursement agreement in the form of Exhibit 6.07 attached hereto and
------------
incorporated herein by this reference (the "Indemnification and Reimbursement
Agreement").
Section. Noncompetition Agreement with Seller. The Seller, Homes,
------- ---------------------------------------
Holding, certain members of Holding as of August 31, 1997 and certain owners and
-
officers of such members who are presently engaged in any business, enterprise,
endeavor or activity which is substantially similar to the business or
activities conducted by the Purchaser or any of its subsidiaries or affiliates
shall have entered into a confidentiality and noncompetition agreement with the
Purchaser in the form of Exhibit 6.08 attached hereto and incorporated herein by
------------
this reference (the "Heartland Affiliates Noncompete Agreement").
Section. License Agreement. The Heartland Group shall have entered into
------- -----------------
a license agreement granting the Purchaser certain irrevocable rights to use the
"Heartland Homes" trade name, the form of which is attached hereto as Exhibit
-------
6.10 and incorporated herein by this reference (the "License Agreement").
---
ARTICLE
TERMINATION
Section. Termination; Failure to Close. The Purchaser may terminate this
------- -----------------------------
Agreement by giving written notice to the Seller at any time prior to the
Closing if the Purchaser is not satisfied, in its sole and absolute discretion,
with the condition of any of the Acquired Assets, the amount of any of the
Assumed Liabilities, or with the continuing operations of the Memphis Operation.
Notwithstanding anything contained in the preceding sentence to the contrary,
this Agreement and the transactions contemplated herein may be terminated at any
time on or before the Closing (i) by unanimous agreement of the parties or (ii)
by one party giving written notice to the other party on or before Closing in
the event of fraud in the inducement relating to the transactions contemplated
in this Agreement by the party receiving notice of termination.
Section. Effect of Termination. In the event of termination pursuant to
------- ---------------------
Section 7.01, this Agreement shall terminate and have no further effect, with no
- ------------
liability on any party hereto, other than liability arising out of a breach by
that party of any representation, warranty, covenant, or agreement contained
herein. ARTICLE ARTICLE
CLOSING AND POST-CLOSING MATTERS
Section. Closing Date. The closing of the purchase and sale of the
------- -------------
Purchased Assets (the "Closing") shall take place at 10:00 a.m. Indianapolis
time, on September 30, 1997 at the offices of Ray Beliles in Memphis, Tennessee.
Section. Deliveries by the Seller. At the Closing, the Seller shall
------- ---------------------------
deliver or cause to be delivered to the Purchaser the following duly executed
documents and other items in form satisfactory to the Purchaser:
The certification required in Section 6.01;
-------------
All assignments and such other instruments of sale, transfer,
conveyance and assignment of the Acquired Assets as the Purchaser may reasonably
request, including, but not limited to, all third party consents that may be
necessary to assign any of the Acquired Assets to the Purchaser;
A Certificate of Good Standing of each member of the Heartland Group
issued by the Secretary of State for the State of Oklahoma, dated as of the most
recent practicable date prior to the Closing;
Results of searches dated within ten (10) days of the Closing
disclosing any judgments, tax liens, Uniform Commercial Code financing
statements, or any other Liens filed or indexed against any of the Acquired
Assets;
All Permits necessary to conduct the Memphis Operation, transferred to
the Purchaser as required and permitted by law;
The Indemnification and Reimbursement Agreement provided for in
Section 6.07.
-------
The Heartland Affiliates Noncompete Agreement provided for in Section
-------
6.08.
- -----
The License Agreement provided for in Section 6.09.
--------------
All documents necessary to perfect title to or interest in any of the
Acquired Assets, including, but not limited to, a warranty deed, where
applicable, and any other document necessary to convey good and marketable title
to the Real Property;
A certificate of the Seller acknowledging (or waiving) delivery by the
Purchaser of the items set forth in Section 8.03. The failure of the Seller to
-------------
deliver this certificate will not in and of itself constitute a breach of this
Agreement if the certificate was not delivered because of Purchaser's failure to
deliver the items set forth in Section 8.03; and
-------------
Section. Deliveries by Purchaser. At the Closing, the Purchaser shall
------- ------------------------
deliver or cause to be delivered to the Seller (or, with respect to item (c), to
the escrow agent) the following duly executed documents and other items in form
satisfactory to the Seller:
The certification required in Section 5.01;
-------------
The sum of Four Hundred Fifty Thousand Dollars ($450,000.00);
an amount equal to the Net Assets of the Memphis Operations as of
August 31, 1997;
An assumption of the Assumed Liabilities and such other instruments of
assumption as the Seller reasonably may request; and
A certificate of the Purchaser acknowledging (or waiving) delivery by
the Seller of the items set forth in Section 8.02. The failure of the Purchaser
------------
to deliver this certificate will not in and of itself constitute a breach of
this Agreement if the certificate was not delivered because of Seller's failure
to deliver the items set forth in Section 8.02.
-------------
Section. Defense of Heartland Marks. After the Closing Date, the
------- -----------------------------
Heartland Group will (i) take all actions reasonably necessary to diligently
--
defend the rights to the continued unrestricted use and registration of the
Marks in the Proceedings and (ii) comply in all respects with the terms of the
License Agreement.
Section. Confidentiality. The Seller shall not directly or indirectly
------- ---------------
use, for its or his own benefit or otherwise, or disclose to any other Person,
any information relating to the Acquired Assets, the Memphis Operation, or the
terms and conditions of this Agreement, except to the extent that such
information (i) was in the public domain at the time of the Closing; (ii)
entered into the public domain after the Closing through no fault of the Seller;
(iii) is required to be disclosed by law or order of a court or governmental
body; or (iv) as is necessary in connection with Tax matters or the ordinary
conduct of the Memphis Operation.
Section. Employment of Seller Employees. After the Closing, the
------- ---------------------------------
Purchaser shall use its best efforts to hire all persons employed by the Seller
---
as of the Closing Date (the "Seller Employees"). Offers of employment shall be
on terms and conditions (including salary) set by the Purchaser and typical of
those governing the employment of other employees of Crossman and its
subsidiaries in like positions.
Section. Contractor's License; Subcontractor Agreement. After the
------- ------------------------------------------------
Closing Date, the Purchaser shall act promptly to file such documentation as may
-
be necessary to transfer the existing HHLP Contractor's License to the Company,
or to otherwise obtain a Contractor's License for the Company if such transfer
is not possible. Until the Company is able to consummate the transfer or
otherwise obtain a Contractor's License HHLP shall not affirmatively terminate
its authorization to do business in Tennessee or Mississippi or otherwise take
any action which would result in such termination. HHLP hereby engages and
authorizes the Company to act as its agent in Tennessee and Mississippi, with
the power to take any and all actions as may be necessary to carry on a
homebuilding business. The Company's power to act as HHLP's agent in Tennessee
and Mississippi, respectively, shall terminate on the date on which the Company
effectively obtains a Contractor's License in that state. With respect to any
home on which construction is continued, completed or commenced after the
Closing Date and the date on which the Company obtains the Contractor's Licenses
in Tennessee and Mississippi, HHLP hereby engages the Company to act as its
subcontractor and authorizes the Company to take any and all action which may
be necessary to successfully complete such construction. The Company shall be
entitled to all proceeds received in connection with such construction and with
the post-closing operation of the homebuilding business in Tennessee and
Mississippi. The Company agrees to indemnify, hold harmless and reimburse HHLP
for any and all liquidated and other damages, including attorneys' fees, that
may be assessed against or incurred by HHLP as a result of the Company's
performance of the subcontractor services. The Company shall be responsible for
any and all warranty claims associated with the subcontracted construction.
ARTICLE
CONDITION TO EXECUTION
Section. Condition to Execution. The execution of this Agreement shall
------- ----------------------
be conditioned on the simultaneous execution and delivery by the parties thereto
of a certain Executive Employment Agreement by and among Mark Livingston and
Purchaser attached hereto as Exhibit 9.01, provided however that Livingston will
------------
remain an employee of Heartland Homes and Heartland Homes will remain obligated
to pay Livingston his appropriate compensation until the Closing Date.
ARTICLE
MISCELLANEOUS
Section. Counterparts. This Agreement may be executed simultaneously in
------- ------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section. Expenses. The Purchaser and the Seller shall each bear their
------- --------
own legal, accounting, and out-of-pocket expenses in connection with this
Agreement and the negotiation and consummation of the transactions contemplated
herein, provided, however, that the Purchaser and the Seller hereby agree that
-------- -------
each of them shall be responsible for one-half of (i) the cost of obtaining the
title insurance described in Section 6.05 herein and (ii) any real estate
-------------
transfer that is incurred by either of them as a result of the transfer of the
Acquired Assets described herein.
Section. Public Announcements. Before the Closing the Purchaser, the
------- ---------------------
Seller, and their respective representatives shall not make any public release
of information regarding the matters contemplated herein, except (i) that a
press release mutually agreed upon by the Purchaser and the Seller shall be
jointly issued by the Purchaser and the Seller as soon as practicable after the
execution of this Agreement; (ii) that the Purchaser and the Seller may continue
communications with employees, customers, suppliers, franchises, lenders,
lessors, shareholders, and other groups as may be legally required or
appropriate and which is not inconsistent with the best interests of any party
or the prompt consummation of the transactions contemplated herein; and (iii) as
required by law.
Section. Risk of Loss. Until the Closing, the risks of ownership and
------- --------------
loss of the Acquired Assets shall be borne by the Seller. If, prior to the
Closing, all or any part of the Acquired Assets are damaged by fire or by any
other cause whatsoever, or are taken, in whole or in part, by condemnation or
other exercise of eminent domain, the Seller shall promptly give the Purchaser
written notice of such damage or taking. In the event of any such damage or
taking, the Purchaser shall have the option to require the Seller either to:
convey the Acquired Assets on the Closing Date to the Purchaser in a
damaged condition and to assign to the Purchaser all of the Seller's right,
title and interest in and to (i) any claims Seller may have under any insurance
policies covering the Acquired Assets (with a credit for any deductible amount),
(ii) the proceeds of any self-insurance (as a credit against the Purchase Price)
or (iii) any condemnation proceeds; or
terminate this Agreement.
Section. Index and Captions. The index and the captions of the Sections
------- ------------------
and Articles of this Agreement are solely for convenient reference and shall not
be deemed to affect the meaning or interpretation of any paragraph hereof.
Section. Notices. All notices, requests, demands and other
------- -------
communications hereunder shall be in writing and shall be deemed to have been
-------
duly given and received (a) upon delivery, if personally delivered; (b) on the
fifth day after being deposited with the U.S. Postal Service, if sent by
certified or registered mail, return receipt requested; (c) on the next day
after being deposited with a reliable overnight delivery service; or (d) upon
receipt of an answer back, if transmitted by facsimile, postage prepaid in all
cases other than facsimile, addressed to the other party at the following
addresses, or facsimile numbers in the case of a facsimile:
If the Purchaser, to:
Crossmann Communities, Inc.
9202 North Meridian Street
Suite 300
Indianapolis, Indiana 46268
Attention: John Scheumann
Tel. No.: (317) 843-9514
Facsimile No.: (317) 571-2210
With a copy to:
Steven K. Humke
ICE MILLER DONADIO & RYAN
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
Tel. No.: (317) 236-2394
Facsimile No.: (317) 236-5817
If to the Seller to:
Mr. Kenneth R. Rees
Heartland Homes, Limited Partnership
3001 United Founders Blvd.
Oklahoma City, Oklahoma 73112
Tel. No.: (405) 843-8039
Facsimile No.: (405) 843-8048
With a copy to:
Michael M. Stewart
CROWE & DUNLEVY
1800 Mid-America Tower
20 North Broadway
Oklahoma City, OK 73102
Tel. No.: (405) 235-7747
Facsimile No.: (405) 272-5238
Any party may change its address for the purpose of this Section 10.06 by
-------------
giving the other party written notice of its new address in the manner set forth
above.
Section. Entire Agreement. This Agreement and the agreements expressly
------- ----------------
contemplated hereby, including the Exhibits and Schedules referred to herein
which form a part of this Agreement and a side letter that the parties may enter
into, contain the entire understanding of the parties hereto with respect to the
subject matter hereof and thereof. There are no representations, promises,
warranties, covenants, or undertakings other than those expressly set forth or
provided for in this Agreement or in the agreements expressly contemplated
hereby. This Agreement and the agreements expressly contemplated hereby
supersede all prior agreements and understandings between the parties with
respect to the transactions contemplated by this Agreement. No provision of
this Agreement may be amended or waived except in writing, and no such amendment
shall extend to anything other than the specific subject matter thereof.
Section. Waiver of Compliance. The party for whose benefit a warranty,
------- --------------------
representation, covenant, or condition is intended may, in writing, waive any
inaccuracies in the warranties and representations contained in this Agreement
or waive compliance with any of the covenants or conditions contained herein and
so waive performance of any of the obligations of the other party hereto, and
any defaults hereunder; provided, however, that such waiver must be in writing,
and shall not affect or impair the waiving party's rights with respect to any
other warranty, representation, covenant, or any default hereunder, nor shall
any waiver constitute a continuing waiver.
Section. Validity of Provisions. Should any part of this Agreement be
------- -----------------------
declared by any court of competent jurisdiction to be invalid, such decision
shall not affect the validity of the remaining portions of this Agreement, which
shall continue in full force and effect as if this Agreement had been executed
with the invalid portion thereof eliminated therefrom, it being the intent of
the parties that they would have executed the remaining portions of this
Agreement without including any such part or portion which may be declared
invalid.
Section. Schedules and Exhibits. Each and every Schedule and Exhibit to
------- ----------------------
this Agreement, and each and every document to be delivered in the future
pursuant to this Agreement is hereby incorporated into this Agreement and made
an integral part hereof.
Section. No Intention to Benefit Third Parties. The provisions of this
------- -------------------------------------
Agreement are not intended to, and shall not, benefit any Person other than the
parties to this Agreement, the provisions hereof are not intended to, and shall
not create any third party beneficiary right in any Person.
Section. Successors and Assigns. This Agreement shall be binding on, and
------- ----------------------
shall inure to the benefit of, the parties and their respective successors and
permitted assigns; provided, however, that no party may assign any rights or
obligations under this Agreement without the prior written consent of the other
parties hereto.
ARTICLE
DEFINITIONS
As used in this Agreement, the following terms have the meanings indicated
below:
"Accounts Receivable" means all accounts receivable and notes receivable,
pre-paid expenses, rights to refunds, and deposits with respect to the Memphis
Operation.
"Acquired Assets" means cash, Accounts Receivable, Assigned Contracts,
Files and Records, Leased Personal Property, Licenses, Partnerships, Permits (to
the extent transferable by the Seller), Personal Property, Real Property,
Supplies, and any other assets, those listed on Schedule 1.01(a), with respect
----------------
to the Memphis Operation. The term Acquired Asset shall not include any asset
which is an Excluded Asset.
"Affiliate" means any Person that directly or indirectly controls or is
under common control with the Purchaser or the Seller. As used in this
definition, "control" (including, its correlative meanings "controlled by" and
"under common control with") means possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interest, by contract
or otherwise).
"Assigned Contracts" shall include, but not be limited to, all sales
contracts, listed on Schedule 11.01 or other agreements for the conveyance of
--------------
residential property, any appraisals relating to the Real Property and any
unexpired warranties and guaranties of any subcontractors or suppliers regarding
their performance, quality of workmanship, or quality of materials supplied in
connection with the construction of residential homes or any other contracts or
agreements necessary to conduct the Memphis Operation.
"Business Day" means any day other than Saturday, Sunday, and any day on
which commercial banks in Indiana are authorized by law to be closed.
"Environmental Claims" means all accusations, allegations, investigations,
warnings, notice letters, notices of violations, liens, orders, claims, demands,
suits, or administrative or judicial actions for any injunctive relief, fines,
penalties, or any damage, including without limitation personal injury, property
damage (including any depreciation of property values), lost use of property,
natural resource damages, or environmental response costs arising out of
Environmental Conditions or under Environmental Requirements.
"Environmental Conditions" means the state of the environment, including
natural resources (e.g., flora and fauna), soil, surface water, ground water,
any present or potential drinking water supply, subsurface strata, or ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, transportation, spilling, leaking, pumping, pouring,
injecting, emptying, discharging, emitting, escaping, leaching, dumping,
disposal, release, or threatened release of Hazardous Materials, whether or not
discovered which could or does result in Environmental Claims. With respect to
Environmental Claims by third parties, Environmental Conditions also include the
exposure of persons to Hazardous Materials at the work place or the exposure of
persons or property to Hazardous materials migrating or otherwise emanating
from, to, or located at, under, or on the Real Property.
"Environmental Expenses" means any liability (including strict liability),
loss, cost, penalty, fine, punitive damage, encumbrance, or expense relating to
any Environmental Claim or Environmental Conditions, or incurred in compliance
with any Environmental Requirements, including without limitation the costs of
investigation, cleanup, remedial, monitoring, corrective, or other responsive
action, compliance costs, settlement costs, lost property value, and related
legal and consulting fees and expenses.
"Environmental Requirements" means all present and future laws, rules,
regulations, ordinances, codes, policies, guidance documents, approvals, plans,
authorizations, licenses, permits issued by all government agencies,
departments, commissions, boards, bureaus, or instrumentalities of the United
States, all states and political subdivisions thereof, and any foreign body, and
all judicial, administrative, and regulatory decrees, judgments, and orders
relating to human health, pollution, or protection of the environment (including
ambient air, surface water, ground water, land surface, or surface strata),
including (i) laws relating to emissions, discharges, releases, or threatened
releases of Hazardous Materials, and (ii) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recovery, transport, or other handling of Hazardous Materials.
Environmental Requirements shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund's Amendments and Reauthorization Act ("SARA"), the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended
("RCRA"), the Clean Water Act, as amended, the Safe Drinking Water Act, as
amended, the Clean Air Act, as amended, the Atomic Energy Act of 1954, as
amended, the Occupational Safety and Health Act, as amended, and all other
analogous laws or regulations promulgated or issued by any federal, state,
foreign, or other governmental authority or body.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means the assets of the Seller with respect to the
Oklahoma Operation and all other assets of the Seller which are not Acquired
Assets. The second mortgage of Larry Armstrong shall constitute one such
Excluded Asset.
"Files and Records" means all files and records of the Seller relating to
the Memphis Operation, whether in hard copy or magnetic or other format
including customer and supplier records, equipments maintenance records,
equipment warranty information, specifications and drawings, sales and
advertising material, computer software, and the records relating to the
employees to be employed by the Purchaser following the Closing.
"Hazardous Materials" means (i) any substance that is or becomes defined as
a "hazardous substance," "hazardous waste," "hazardous materials," pollutant, or
contaminant under any Environmental Requirements, including, but not limited to,
CERCLA, SARA, RCRA, and any other analogous federal, state, local, or foreign
law; (ii) petroleum (including crude oil and any fraction thereof); and (iii)
any natural or synthetic gas (whether in liquid or gaseous state).
"Judgment" means an order by a court of law requiring the payment of money.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
(statutory or other), option, easement, right-of-way, charge, or conditional
sale agreement.
"Memphis Operation" means (i) all of the operations and business of the
Seller located in Tennessee and Northern Mississippi and (ii) all of the assets
the Seller located in Tennessee and Northern Mississippi. Memphis Operation
excludes any liabilities not specifically assumed in Schedule 1.03(a).
-----------------
"Net Assets" means the excess, if any, of the book value of the Acquired
Assets over the Assumed Liabilities.
"Northern Mississippi" means that part of Mississippi more particularly
described as the geographical area north of U.S. Route 62 including in their
entireties any municipalities located along or adjacent to U.S. Route 62 even if
portions of such municipalities are south of the Route.
"Oklahoma Operation" means (i) all of the operations and business of the
Seller not arising from, on account of, used with, connected with, associated
with, or located in Tennessee or Northern Mississippi, (ii) all of the ownership
interests in the assets of the Seller except those arising from, on account of,
used with, connected with, associated with, or located in Tennessee and Northern
Mississippi, and (iii) all ownership interests of the Seller in the Excluded
assets listed on Schedule 1.01(b).
-----------------
"Owned Property" means any Real Property that was or is owned, leased or
otherwise under the control of the Seller in connection with the Memphis
Operations at any time before the Closing Date.
"Partnerships" means the Seller's partnership interest in all partnerships
including but not limited to those specified on Schedule 11.02.
----------------
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust, or
unincorporated organization, or any governmental agency, officer, department,
commission, board, bureau, or instrumentality thereof.
"Real Property" means all Developed Real Property (defined in Section
-------
2.11), Undeveloped Real Property (Defined in Section 2.12), Leased Real Property
------------
(defined in Section 2.13), Land Contract Property (defined in Section 2.14(a)),
------------ ---------------
and Option Real Property (defined in Section 2.14(a)) collectively.
----------------
"Warranty Cap" means Warranty Liability of up to One Hundred Thousand
Dollars ($100,000.00) in the aggregate.
"Warranty Liability" means any and all costs incurred as a result of a
warranty claim on a residential home which was constructed by Seller in
connection with the Memphis Operation. Such costs shall include, but not be
limited to, costs to repair, replace, fix, clean, remove, or correct any alleged
defect in a property upon which a warranty claim is made and any and all costs
to investigate and defend against a warranty claim. The term "Warranty
Liability" shall not refer to any warranty claim, or related cost or expense,
with respect to any home constructed or sold in connection with the Oklahoma
Operation.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have executed, or caused to be executed
by their duly authorized representatives, this Agreement as of the date first
above written.
"CROSSMANN"
CROSSMAN COMMUNITIES, INC.
By:
Jennifer A. Holihen, Secretary
"COMPANY"
CROSSMANN COMMUNITIES
OF TENNESSEE, LLC
By: Crossmann Communities, Inc., Member
By:
Jennifer A. Holihen, Secretary
"SELLER"
Heartland Homes Holding, L.L.C.
By:
Kenneth R. Rees, Chief Executive Officer
Heartland Homes, Inc.
By:
Kenneth R. Rees, President
Heartland Homes Limited Partnership
By: Heartland Homes, Inc., General Partner
By:
Kenneth R. Rees, President
EXHIBIT 10.50
- --------------
AMENDED AND RESTATED OPERATING AGREEMENT
FOR
TRINITY HOMES, LLC
October 17, 1997
AMENDED AND RESTATED OPERATING AGREEMENT FOR
TRINITY HOMES, LLC
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") is made
and entered into this 17th day of October, 1997 (the "Execution Date"), by and
among Trinity Homes, Inc. ("Trinity"), Crossmann Communities, Inc. ("Crossmann")
and Pyramid Mortgage Co., Inc. ("Pyramid"), as members of TRINITY HOMES, LLC, an
Indiana limited liability company (the "Company"). The Company was organized as
a limited liability company under the Indiana Business Flexibility Act, as
amended, Ind. Code 23-18-1-1 et seq. (the "Act"). Certain defined terms used
in this Agreement are set forth in Schedule I (Schedule of Definitions) attached
hereto and made a part hereof. In consideration of the mutual covenants and
agreements contained in this Agreement and other good and valuable
consideration, and intending to be legally bound hereby, the undersigned parties
hereby agree as follows:
ARTICLE
PURPOSES
As set forth in the Articles of Organization, the purposes of the Company
are to engage in and do any act in furtherance of any and all lawful businesses
and activities for which limited liability companies may be formed under the
Act.
ARTICLE
ORGANIZATIONAL MATTERS
SECTION. FORMATION. The Company was formed pursuant to the Act upon the
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filing of Articles of Organization ("Articles") on September 30, 1997. The
rights and obligations of the Members shall be as provided under the Act, the
Articles and this Agreement. The Members agree to each of the provisions of the
Articles.
SECTION. PRINCIPAL PLACE OF BUSINESS. The principal place of business of
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the Company shall be 12734 Hamilton Crossing Boulevard, Carmel, Indiana 46032,
or such other address as may be established by the Members.
SECTION. REGISTERED OFFICE AND REGISTERED AGENT. The Company's
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registered office shall be 9202 N. Meridian Street, Suite 300, Indianapolis,
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Indiana 46260 and the name of its initial registered agent at such address shall
be Jennifer A. Holihen. The Company may designate another registered office or
agent at any time by following the procedures set forth in the Act.
SECTION. EFFECTIVE DATE. This Agreement shall become effective on the
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Execution Date, and such date shall also be known as the "Effective Date,"
provided that on or prior to the Execution
Date the Share Purchase and LLC Funding Agreement dated October 15, 1997 by and
among Thomas D. Rush ("Rush"), Trinity, Pyramid, and the Remaining Shareholders
and Crossmann (the "Purchase Agreement") has been duly executed and delivered by
each of the parties thereto.
SECTION. DURATION. The existence of the Company shall continue in
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perpetuity, unless the Company is dissolved in accordance with Article X or the
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Act.
ARTICLE
MEMBERS AND CAPITAL STRUCTURE
SECTION. NAMES AND ADDRESSES OF MEMBERS. All Members of the Company and
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their last known business, residence or mailing address shall be listed on the
attached Exhibit A. The Members shall be required to update Exhibit A from time
to time as necessary to accurately reflect the information therein, including
the information referred to in Section 3.2 below.
SECTION. UNITS REPRESENTING MEMBERSHIP INTERESTS. The Interests of
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Members in the Company are divided into and represented by Units. Each Member's
respective number of Units is set forth in Exhibit A, as the same shall be
amended from time to time to reflect any changes in the number of Units of
Members. The Members agree that each Unit shall entitle the Member possessing
such Unit to:
equal governance rights per Unit and to one vote per Unit on matters
on which the Members may vote under the Articles, this Agreement and/or the Act.
subject to Article VII, an equal proportionate share per Unit of the
Company's net income, gains, losses, deductions and credits; and
subject to Article X, an equal proportionate share per Unit of amounts
distributed to the Members in respect of their Interests upon dissolution of the
Company.
Each Member of the Company is entitled to a certificate signed by the President
of the Company, setting forth (a) the name of the Company and that it was
organized under Indiana law, (b) the name of the person or entity to whom the
certificate was issued, and (c) the number of Units represented by the
certificate. The Board of Managers shall prescribe the form of the certificate.
Units are transferable only on the books of the Company. All transfers shall be
subject to any transfer restrictions imposed by this Operating Agreement or an
agreement among the Members and the Company. Units may be so transferred upon
presentation of the certificate representing the shares, endorsed by the
appropriate person or persons, and accompanied by (a) reasonable assurance that
those endorsements are genuine and effective, and (b) a request to register the
transfer. Transfer of Units are otherwise subject to any applicable provisions
of Article 8 of the Indiana Uniform Commercial Code. A new certificate may be
issued to replace a lost or destroyed certificate. Unless waived by the Board
of Managers, the Member in whose name the certificate was issued shall make an
affidavit or affirmation of the fact that his or its certificate is lost or
destroyed and shall give the Company a bond of indemnity in the amount and form
which the Board of Managers may prescribe.
SECTION. CAPITAL CONTRIBUTIONS. The initial Capital Contribution to the
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Company of each Member is set forth on Exhibit A. Absent approval by all of the
Members, no Capital Contributions may be made other than in cash, and the
Company shall not be obligated to recognize as a Capital Contribution any
transfer to the Company of property other than cash. The execution of this
Agreement by each of the initial Members of the Company constitutes their
respective approval of the initial Capital Contribution by Pyramid of 100% of
the ownership interest of Pyramid Mortgage, LLC and the initial Capital
Contribution of Trinity of all of its assets (other than the assets described on
Exhibit B (the "Excluded Assets")), subject to all of its liabilities (other
than the liabilities described on Exhibit B (the "Excluded Liabilities")). The
parties acknowledge and agree that the assets so contributed, net of the
liabilities so assumed, have a net book value of $2.6 million. No interest
shall be paid on any Capital Contribution.
SECTION. ADDITIONAL CAPITAL. Absent approval by all of the Members, the
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Members shall not be obligated to make any Capital Contributions other than the
initial Capital Contributions specified in Section 3.3. No Member shall have
the right to make Capital Contributions beyond that Member's initial Capital
Contribution as specified in Section 3.3. Each Member specifically waives any
preemptive rights.
SECTION. CAPITAL ACCOUNTS.
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An individual capital account (the "Capital Account") shall be
established and maintained on behalf of each Member, including any Additional
Member who shall hereafter receive an Interest, in the manner provided by
Treasury Regulation Section 1.704-1(b)(2)(iv). To the extent consistent with
Treasury Regulation Section 1.704-1(b)(2)(iv), the Capital Account of each
Member shall consist of (i) the amount of cash such Member has contributed to
the Company, plus (ii) the agreed fair market value of any property such Member
has contributed to the Company, net of any liabilities assumed by the Company or
to which such property is subject, plus (iii) the amount of profits or income
(including tax-exempt income) allocated to such Member, less (iv) the amount of
losses and deductions allocated to such Member, less (v) the amount of all cash
distributed to such Member, less (vi) the fair market value of any property
distributed to such Member, net of any liability assumed by such Member or to
which such property is subject, less (vii) such Member's share of any other
expenditures which are not deductible by the Company for federal income tax
purposes or which are not allowable as additions to the basis of Company
property, and (viii) subject to such other adjustments as may be required under
the Code. The Capital Account of a Member shall not be affected by any
adjustments to basis made pursuant to Section 743 of the Code but shall be
adjusted with respect to adjustments to basis made pursuant to Section 734 of
the Code to the extent provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m).
No Member shall have any liability or obligation to restore a negative
or deficit balance in such Member's Capital Account.
SECTION. NO RIGHTS OF REDEMPTION. No Member shall have the right to: (a)
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have that Member's Units or Interest redeemed, (b) have that Member's Capital
Contribution returned, or (c) subject to Article VII, otherwise receive property
of the Company; even if that Member disassociates prior to termination of the
Company. Even at termination, the Member's rights are limited to those set
forth in Article X. To the extent a Member has a right to demand a distribution
or return of the Member's Capital Contributions, the Member shall have only the
right to demand and receive cash therefor.
SECTION. MEMBER LOANS OR SERVICES. Crossmann shall be permitted to
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provide loans to the Company and receive reasonable interest as consideration
for such loans. All Members shall be permitted to serve the Company as Officers
and receive reasonable consideration for the provision of such services. Unless
otherwise approved by the unanimous consent of the Members, loans or services by
any Member to the Company shall not be considered Capital Contributions.
Crossmann shall be obligated to make a loan to the Company pursuant to the terms
of the Pledge Agreement.
SECTION. COMPANY LOANS OR DISTRIBUTIONS. The Company shall, upon
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unanimous agreement of its Members, which agreement will not unreasonably be
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withheld, loan or distribute to any Member funds for any tax liability to such
Member or its stockholder associated with the transfer of the assets described
in Section 3.3 of this Agreement.
SECTION. ADMISSION OF ADDITIONAL MEMBERS. The Members may admit to the
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Company Additional Members, which may include Substitute Members, who will be
entitled to participate in the rights of Members as described in Section 3.2,
with admission thereof on such terms as are determined by the Members.
Admission of any such Additional Member shall require the approval of all of the
Members, and such Additional Members shall be allocated net income, gains,
losses, deductions and credits by such method as may be provided in this
Agreement, and if no method is specified, then as may be permitted by Section
706(d) of the Code. The Members hereby approve the admission as Substitute
Members of the Collateral Agent or any Lender pursuant to the terms and
conditions of the Pledge Agreement, provided, however, that any Transfer made
pursuant to the Pledge Agreement is subject to the approval requirement set
forth in Section 8.2.
SECTION. NO MEMBER RESPONSIBLE FOR OTHER MEMBER'S COMMITMENT. In the
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event that any Member (or any of such Member's shareholders, partners, members,
owners, or Affiliates (collectively, the "Liable Member")) has incurred any
indebtedness or obligation prior to the date of this Agreement that relates to
or otherwise affects the Company, neither the Company nor any other Member shall
have any liability or responsibility for or with respect to such indebtedness or
obligation unless such indebtedness or obligation is assumed by the Company
pursuant to a written instrument signed by all Members; provided, however, that
each of the Members hereby acknowledges that the Company has assumed
indebtedness and liabilities of Trinity in connection with Trinity's capital
contribution as described in Section 3.3, and the Company's assumption of such
indebtedness is hereby approved by all Members, whether or not such assumption
is evidenced by a written instrument signed by all Members.
ARTICLE
MEMBERS
SECTION. ACTION BY THE MEMBERS. The Members may act by vote, resolution
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or other action approved or adopted at a meeting held in accordance with this
Section 4.1, by a written consent signed in accordance with this Section or by
written agreement of the holder(s) of the requisite number of Units. Rules for
the conduct at meetings of the Members and for action by written consent of the
Members follow:
Annual Meetings. Annual meetings of the Members shall be held on the
first Tuesday in March of each year at the Principal Office of the Company, or
on such other date or at such other place as may be designated by the unanimous
agreement of the Members.
Special Meetings. Special meetings of the Members may be called by
any Member possessing at least 100 Units or upon unanimous agreement of the
Board of Managers. Special meetings of the Members shall be called upon delivery
to the Members of notice of a special meeting of the Members given in accordance
with Section 4.1(c) signed and dated by the Member possessing at least 100 Units
or the Board of Managers, as the case may be.
Notice of Meetings of the Members. The Company shall deliver or mail
written notice stating the date, time, and place of any Members' meeting and, in
the case of a special Members' meeting or when otherwise required by law, a
description of the purposes for which the meeting is called, to each Member of
record entitled to vote at the meeting, at such address as appears in the
records of the Company and at least 10, but not more than 30, days before the
date of the meeting.
Waiver of Notice. A Member may waive notice of any meeting, before or
after the date and time of the meeting as stated in the notice, by delivering a
signed waiver to the Company for inclusion in the minutes. A Member's
attendance at any meeting, in person or by proxy (i) waives objection to lack of
notice or defective notice of the meeting, unless the Member at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at
the meeting that is not within the purposes described in the meeting notice,
unless the Member objects to considering the matter when it is presented.
Voting by Proxy. A Member may appoint a proxy to vote or otherwise
act for the Member at a meeting pursuant to a written appointment form executed
by the Member or the Member's duly authorized attorney-in-fact, provided that
the appointment form is submitted to the Company for inclusion in the Company
records. The general proxy of a fiduciary is given the same effect as the
general proxy of any other Member.
Presence. Any or all Members may participate in any annual or special
Members' meeting by, or through the use of, any means of communication by which
all Members participating may simultaneously hear each other during the meeting.
A Member so participating is deemed to be present in person at the meeting.
Conduct of Meetings. At any Members' meeting, the Chairman of the
Board of Managers shall preside or appoint a person to preside at the meeting
and the Secretary shall prepare minutes of the meeting which shall be placed in
the minute books of the Company.
Quorum; Approval. The presence of a majority of the Members at an
annual or special meeting is necessary for a quorum, unless approval of any
action to be taken is required from all the Members, in which case the presence
of all the Members is necessary for a quorum. Any action proposed to be taken
by the Members shall be approved upon the affirmative vote of a majority of the
Members, unless approval by all the Members is required by the Articles, this
Agreement or the Act.
Action by Written Consent. Any action required or permitted to be
taken at a Members' meeting may be taken without a meeting if the action is
taken by all the Members entitled to vote on the action. The written consent
shall therefore be delivered to the Company for inclusion in the minutes.
SECTION. ACTION BY THE REMAINING MEMBERS. Whenever the Articles, this
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Agreement or the Act provide or require approval or other action by the
remaining Members (i.e., those Members, other than the Member in question). The
approval or other action of the remaining Members may be obtained or taken by
written agreement thereof.
SECTION. WAIVER OF PARTITION. Each Member on behalf of such Member, its
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successors and its assigns, hereby waives any rights to have any Company
property partitioned.
ARTICLE
MANAGERS
SECTION. MANAGERS.
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The Company shall have a Board of Managers. The number of Managers
constituting the Board of Managers shall be six. The Managers shall be elected
as follows: (i) three (3) Managers shall be selected by Crossmann; and (ii)
three (3) Managers shall be selected by Pyramid and Trinity, acting together.
If a Manager selected by a Member ceases for any reason to be a Manager, then
such Member shall have the right to appoint a successor to complete the term of
such Manager. Both (i) Crossmann and (ii) Trinity and Pyramid shall have the
right to reasonably object to a Manager selected by the other. Each Manager
must be a Member or a director, officer or employee of a Member. A Manager
shall serve for a term of one (1) year and until the Manager's successor has
been duly elected and qualified. Such elections shall be recorded in the
records of the Company. The initial Managers shall be James D. McKenzie, John
E. McKenzie, Mark W. Thune, Jennifer A. Holihen, Richard H. Crosser and John B.
Scheumann. If the Collateral Agent or any Lender acquires the Units of Trinity
and Pyramid or a portion of such Units, then the Collateral Agent or such Lender
shall succeed to the rights of Trinity and Pyramid, in whole or in part, as
applicable, to select Managers.
Managers shall not be personally liable for the debts, obligations or
liabilities of the Company, whether arising in contract, tort or otherwise, or
for the acts or omissions of any Member, other Manager, agent or employee of the
Company. A Manager shall perform the Manager's duties as a Manager in good
faith, in a manner the Manager reasonably believes to be in the best interests
of the Company, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances. A Manager is not liable for any
action taken as a Manager, or any failure to take any action, unless the Manager
has breached or failed to perform the Manager's duties and the breach or failure
to perform constitutes willful misconduct or recklessness.
In performing the Manager's duties, a Manager shall be entitled to
rely on information, opinions, reports, or statements of the following persons
or groups unless the Manager has knowledge concerning the matter in question
that would cause such reliance to be unwarranted:
One or more employees or other agents of the Company whom the
Manager reasonably believes to be reliable and competent in the matters
presented;
Any attorney, public accountant, or other person as to matters which
the Manager reasonably believes to be within such person's professional or
expert competence; or
A committee upon which the Manager does not serve, duly designated in
accordance with a provision of the Articles or this Agreement, as to matters
within its designated authority, which committee the Manager reasonably
believes to merit competence.
Except to the extent provided in the Articles, every Manager is an
agent of the Company for the purpose of apparently carrying on in the usual way
the business of the Company, and the act of every Manager, including the
execution in the Company name of any instrument for apparently carrying on in
the usual way the business of the Company, binds the Company, unless such act is
in contravention of the Articles or this Agreement or unless the Manager so
acting otherwise lacks the authority to act for the Company, and the person with
whom the Manager is dealing has knowledge of the fact that such Manager has no
such authority.
SECTION. POWERS OF THE MANAGERS. The Board of Managers shall advise and
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consult with the Officers regarding the day-to-day operation of the Company and
shall perform all lawful acts as are required by the Articles, this Agreement or
the Act; provided, however, that the following actions shall only be taken upon
the unanimous consent of the Board of Managers:
Approval of the Company's annual operating budget, which budget shall
be submitted to the Board of Managers by the President of Company on or before
November 1 of each calendar year and shall be approved by the Board of Managers
on or before December 31 of each calendar year;
Election and removal, with or without cause, of any Officer and the
identification and definition of the powers and duties of the Officers;
Approval of the annual compensation and bonus for each Officer;
Approval of all indebtedness of the Company in excess of $50,000;
Approval of the Company's depositories; and
Approval of all transactions not in the ordinary course of business of
the Company, including but not limited to, a transfer of all or substantially
all of the assets of the Company or other acquisition transaction.
SECTION. MEETINGS. The Board of Managers shall meet at least once each
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year. Meetings may be called by any of the Managers or by any Member owning at
least 100 Units. The person(s) who call the meeting shall deliver or mail
written notice stating date, time and place of any Board of Managers' meeting at
least 10 days before the date of the meeting.
SECTION. SALARIES. The Company may pay to any Officer or other Person, a
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salary and/or bonus as compensation for services rendered to the Company;
provided, however, that such salary or bonus is unanimously approved by the
Board of Managers. Such salaries and/or bonuses shall be treated as expenses of
the Company and shall not be deemed to constitute distributions to the recipient
of any profit, loss or capital of the Company. No Manager shall receive a
salary; provided, however, that any Manager who is also an Officer or employee
may receive a salary for his or her duties as an Officer or employee.
SECTION. REMOVAL. The Members may, by unanimous consent, remove all or
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any lesser number of Managers with or without cause. Any removal of a Manager
shall become effective when written notice thereof signed by all of the Members
is given to such Manager unless a later effective date is specified in such
notice. Such notice must be delivered to the Manager being removed, any
remaining Managers and the Manager elected to replace the removed Manager.
Should a Manager be removed who is also a Member, such removal shall not affect
the Person's rights as a Member except as may otherwise be provided in the Act,
the Articles or this Agreement.
SECTION. RESIGNATION. A Manager or Officer may resign from his or her
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position as a Manager or Officer at any time by delivering written notice to all
of the Members. Such resignation shall become effective when such notice is
received, unless a later effective date is specified in such notice.
SECTION. VACANCIES. Any vacancy in a Manager position shall be filled by
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appointment of the Member who appointed such Manager; subject to the approval of
the other parties entitled to appoint a Manager. The Managers shall unanimously
agree to the appointment of any individual to fill a vacancy in an Officer
position. An individual chosen to fill a vacancy shall serve the unexpired term
of his or her predecessor in office. Any position on the Board of Managers to
be filled by reason of an increase in the number of Managers shall be filled by
the unanimous consent of all of the Members. A Manager chosen to fill a
position resulting from an increase in the number of Managers shall hold office
until the next annual meeting of Members and until his or her successor has been
duly elected and qualified.
SECTION. OFFICERS. Subject to Section 5.2, the day-to-day operations of
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the Company shall be run by the officers of the Company (the "Officers"). The
Officers shall serve for a term of one year and until such Officer's successor
has been duly elected and qualified. One individual may hold more than one
office, and a Manager may also serve as an Officer of the Company.
The Chairman of the Board of Managers is responsible for presiding at
all meetings of the Members and Managers. The Chairman has such powers and
duties as the Members or Managers may from time to time prescribe.
The President of the Company is responsible for managing and
supervising the affairs and personnel of the Company. The President has
authority to execute, with the Secretary, powers of attorney appointing other
corporations, partnerships, or individuals as the agents of the Company, subject
to law, the Articles and this Agreement. Notwithstanding any other provision of
this Article V, the President may not enter into any notes, agreements or other
instruments on behalf of the Company which would result in a material change in
the operation of the Company, including but not limited to a transfer of all or
substantially all of the assets of the Company or any other acquisition
transaction, except with the unanimous consent of the Board of Managers. The
President has such other powers and duties as the Members or Managers may from
time to time prescribe.
Each Vice President of the Company has all powers of, and performs all
the duties incumbent upon, the President during the Presidents's absence or
disability. Each Vice President has such other powers and duties as the Board
of Managers may from time to time prescribe.
The Secretary of the Company is responsible for (a) attending all
meetings of the Members and Managers, (b) preparing true and complete minutes of
the proceedings of all meetings of the Members and Managers, (c) maintaining and
safeguarding the books (except books of account) and records of the Company, and
(d) authenticating the records of the Company. If required, the Secretary
attests the execution of deeds, leases, agreements, powers of attorney and other
official documents by the Company. The Secretary serves all notices of the
Company required by law, the Managers, or this Agreement. The Secretary has
such other duties as the Board of Managers may from time to time prescribe.
The Treasurer of the Company is responsible for (a) keeping correct
and complete books of account which show accurately at all times the financial
condition of the Company, (b) safeguarding all funds, notes, securities, and
other valuables which may from time to time come into the possession of the
Company, and (c) depositing all funds of the Company with such depositories as
the Board of Managers shall designate. The Treasurer shall furnish at meetings
of the Board of Managers, or when otherwise requested, a statement of the
financial condition of the Company. The Treasurer has such other duties as the
Board of Managers may from time to time prescribe.
Subject to Section 5.2, the Board of Managers may from time to time
designate and elect assistant officers who shall have such powers and duties as
the officers whom they are elected to assist, specify and delegate to them, and
such other powers and duties as the Managers or the President may from time to
time prescribe. An assistant secretary may, during the absence or disability of
the Secretary, discharge all responsibilities imposed upon the Secretary of the
Company, including, without limitation, attest the execution of all documents by
the Company.
SECTION. RATIFICATION OF PLEDGE AGREEMENT. The Members hereby ratify and
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approve the execution by and on behalf of the Company of the Pledge Agreement
and hereby acknowledge and authorize performance by the Company of all of its
duties and obligations under the Pledge Agreement.
ARTICLE
ACCOUNTING AND RECORDS
SECTION. APPOINTMENT OF TAX MATTERS MANAGER. Jennifer A. Holihen is
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hereby designated as the Tax Matters Manager ("TMM"). The TMM shall be
responsible for all matters involving federal, state, local or other taxes of
any type. The TMM shall serve as such until a successor is duly elected by a
Majority in Interest of the Members and qualified, or until the earlier
withdrawal or retirement of the TMM, or removal by a Majority in Interest of the
Members.
SECTION. RECORDS AND ACCOUNTING. The books and records of the Company
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shall be kept, and the financial position and the results of its operations
recorded, in accordance with generally accepted accounting principles. The
books and records of the Company shall reflect all Company transactions and
shall be appropriate and adequate for the Company's business. The fiscal year
of the Company for financial reporting and for federal income tax purposes shall
be the calendar year.
SECTION. ACCESS TO RECORDS. The books and records of the Company, to the
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extent required by the Act, shall be maintained at the Company's principal place
of business, and each Member, and his, her, or its duly authorized
representative, to the extent required by the Act, shall have access to where
they are located and have the right to inspect and copy them during ordinary
business hours. The Remaining Shareholders, Trinity and Pyramid shall be
authorized to provide information and reports with respect to the Company and
its business to the Lenders in accordance with their obligations under the
Pledge Agreement, and the Company shall cooperate in connection therewith.
SECTION. ANNUAL TAX INFORMATION. The Company shall use its best efforts
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to deliver to each Member within 90 days after the end of each fiscal year all
information necessary for the preparation of such Member's federal and state
income tax returns. The Company shall also use its best efforts to prepare,
within 90 days after the end of each fiscal year, a financial report of the
Company for such fiscal year containing a balance sheet as of the last day of
the year then ended, an income statement for the year then ended, a statement of
sources and applications of funds, and a statement of reconciliation of the
Capital Accounts of the Members.
SECTION. ACCOUNTING DECISIONS. All decisions as to accounting matters,
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except as otherwise specifically set forth in this Agreement, shall be made by
unanimous agreement of the Members. The Members may rely upon the advice of the
Company's accountants as to whether such decisions are in accordance with
accounting methods followed for federal income tax purposes.
SECTION. FEDERAL INCOME TAX ELECTION. In case of a transfer of all or
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part of the Interest of any Member, the Company may elect, pursuant to Sections
734, 743, and 754 of the Code to adjust the basis of the assets of the Company.
ARTICLE
ALLOCATIONS AND DISTRIBUTIONS
SECTION. ALLOCATION OF NET INCOME, NET LOSS OR CAPITAL GAINS. Except as
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may be expressly provided otherwise in this Article VII, and subject to the
provisions of Sections 704(b) and 704(c) of the Code, the net income, net loss,
or capital gains of the Company for each fiscal year of the Company shall be
allocated to the Members, pro rata in accordance with their respective
Percentage Interests.
SECTION. SPECIAL ALLOCATIONS. The following special allocations shall be
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made in the following order:
Minimum Gain Chargeback. Except as otherwise provided in Treasury
Regulation Section 1.704-2(f), notwithstanding any other provision of this
Article VII, if there is a net decrease in Company Minimum Gain during any
fiscal year, each Member shall be specially allocated items of Company income
and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Treasury Regulation Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance with Treasury
Regulation Sections 1.704-2(f)(6) and 1.704- 2(j)(2). This Section 7.2(a) is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
Member Nonrecourse Debt Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulation Section 1.704-2(i)(4), notwithstanding any other
provision of this Article VII, if there is a net decrease in Member Nonrecourse
Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal
Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Treasury Regulation Section 1.704-2(i)(5), shall be specifically allocated items
of Company income and gain for such fiscal year (and, if necessary, subsequent
fiscal years) in an amount equal to such Member's share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance with Treasury
Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 7.2(b) is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulation Section 1.704- 2(i)(4) and shall be interpreted consistently
therewith.
Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Treasury
Regulation Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible, provided that an allocation
pursuant to this Section 7.2(c) shall be made only if and to the extent that
such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article VII have been tentatively made as if
this Section 7.2(c) were not in the Agreement.
Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any fiscal year which is in excess of the sum of
(i) the amount such Member is obligated to restore pursuant to any provision of
this Agreement, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulation Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 7.2(d) shall be
made only if and to the extent that such Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in this
Article VII have been made as if Section 7.2(c) hereof and this Section 7.2(d)
were not in the Agreement.
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year
shall be specifically allocated among the Members in proportion to their
Percentage Interests.
Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for
any fiscal year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i)(1).
Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of
the Code is required pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of the Member's Interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in accordance with their Interests in the Company in the event Treasury
Regulation Section 1.704(b)(2)(iv)(m)(2) applies, or to the Member to whom such
distribution was made in the event Treasury Regulation Section
1.704-1(b)(2)(iv)(m)(4) applies.
SECTION. CURATIVE ALLOCATIONS. The allocations set forth in Sections
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7.2(a) through 7.2(g) hereof (the "Regulatory Allocations") are intended to
comply with certain requirements of the Treasury Regulations. It is the intent
of the Members that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Company income, gain, loss or deduction pursuant to this Section
7.3. Therefore, notwithstanding any other provision of this Article VII (other
than the Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss, or deduction so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement and all Company
items were allocated pursuant to Section 7.1.
SECTION. DISTRIBUTIONS. Available Cash, if any, shall be distributed to
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the Members only upon the unanimous approval of the Members and shall be
distributed pro rata in accordance with their respective Percentage Interests;
provided, however, that the Company and its Members and Managers shall cause
distributions of Available Cash to be made in accordance with the obligations of
the Company pursuant to the Pledge Agreement.
SECTION. ALLOCATION OF INCOME AND LOSS AND DISTRIBUTIONS IN RESPECT OF
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INTERESTS TRANSFERRED.
If any Interest is transferred, or is increased or decreased by reason
of the admission of an Additional Member or otherwise, during any fiscal year of
the Company, each item of net income, gain, loss, deduction, or credit of the
Company for such fiscal year shall be assigned pro rata to each day in the
particular period of such fiscal year to which such item is attributable (i.e.,
the day on or during which it is accrued or otherwise incurred), and the amount
of each such item so assigned to any such day shall be allocated to the Member
based upon the Member's respective Percentage Interest at the close of such day.
Authorized distributions of Company assets in respect of an Interest
shall be made only to the Members who, according to the books and records of the
Company, are the holders of record of the Interests in respect of which such
distributions are made on the actual date of distribution, except as provided in
the Pledge Agreement. Neither the Company nor any Member shall incur any
liability for making distributions in accordance with the provisions of the
preceding sentence, whether or not the Company or the Member has knowledge or
notice of any transfer or purported transfer of ownership of an Interest which
has not met the requirements of Article VIII. Notwithstanding any provision
above to the contrary, gain or loss of the Company realized in connection with a
sale or other disposition of any of the assets of the Company shall be allocated
solely to the parties owning Interests as of the date such sale or other
disposition occurs.
ARTICLE
RESTRICTIONS ON WITHDRAWAL AND TRANSFERS OF INTERESTS
SECTION. WITHDRAWAL. No Member shall withdraw from the Company or
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otherwise voluntarily cause an Event of Dissociation as to that Member except
-
upon the express written consent of a Majority in Interest of the remaining
Members. Upon any such withdrawal or other voluntarily caused Event of
Dissociation, the Member shall be an Assignee as to the Member's Units, shall
not be entitled to have the Member's Interest redeemed or to otherwise receive
any distribution or other payment on account of the Member's withdrawal or other
voluntarily caused Event of Dissociation. The Company may recover damages for
breach of this Section 8.1 and may offset the Company's damages against any
amount owed to a Member for distributions or otherwise.
SECTION. BASIC RESTRICTIONS ON TRANSFER. Except for any Transfer
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pursuant to the Pledge Agreement or pursuant to the terms of Section 8.6, none
--
of the Units (Interest) of Member or any portion thereof shall be the subject of
a Transfer. Any Transfer or purported Transfer not in compliance with this
Article VIII shall be null and void. Any Transfer to any person or entity not
already a Member of the Company (including any Transfer made pursuant to the
Pledge Agreement or in accordance with Section 8.6) shall automatically
constitute an Event of Dissociation unless the non-transferring Member(s) (the
"Surviving Member(s)") and the Assignee consent to the Transfer.
SECTION. FURTHER RESTRICTIONS ON TRANSFER. In addition to the
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restrictions set forth in Section 8.2, except for any Transfer pursuant to the
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Pledge Agreement, no Member shall Transfer all or any part of the Member's
Interest: (a) without registration under applicable federal and state
securities laws, unless an exemption therefrom applies and, if requested by the
Company, the Member delivers an opinion of counsel satisfactory to the Company,
that registration under any such laws is not required; or (b) if the Interest or
portion thereof, when added to the total of all other Interests sold or
exchanged in the preceding 12 consecutive months prior thereto, would result in
the termination of the Company for tax purposes under Section 708 of the Code.
SECTION. STATUS OF TRANSFEREE AND TRANSFEROR. Notwithstanding anything
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contained in this Agreement to the contrary, except for a Transfer pursuant to
the Pledge Agreement, any transferee or recipient of a Unit or Units subject to
an effective Transfer shall be an Assignee and shall have no right to (a) vote
any Units or portion thereof subject to the Transfer or to otherwise participate
in the management of the business or affairs of the Company, (b) become a
Substitute Member or otherwise exercise any rights of a Member, or (c) have
access to the Company records; unless all of the remaining Members, in their
sole and absolute discretion approve the admission of the Assignee as a
Substitute Member and the Assignee executes documentation satisfactory to the
remaining Members accepting and adopting the terms of this Agreement. The
transferor in a Transfer of the transferor's entire Interest to an Assignee
shall cease to be a Member and shall not have any power to exercise any rights
of a Member; provided, however, that such transferor is not released from any
unpaid contributions or other liability.
SECTION. PLEDGE OF INTERESTS. The pledge or granting of a security
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interest, lien or other encumbrance in or against all or any portion of a
Member's Interest shall not be a Transfer subject to the restrictions of this
Article VIII; provided, that, in any event, the foreclosure of or exercise of
other secured party remedies with respect to such pledge, security interest,
lien or other encumbrance resulting in a Transfer of any such Interest shall
nonetheless be a Transfer for the purpose of this Article VIII.
SECTION. CALL RIGHTS.
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Adjusted Value.
thIn e event that the Board of Managers are unable to agree on any
action set forth in Section 5.2 which requires unanimous approval of the Board
of Managers (the "Triggering Event"), Trinity and Pyramid (or any successor to
their Units) shall jointly have the right to purchase Crossmann's Interest. To
exercise such right Trinity and Pyramid (or such successor) shall deliver to
Crossmann written notice of exercise of such right (the "Trinity Notice") within
three days of the Triggering Event (the "Exercise Period"). The Trinity Notice
shall state the date for the closing of the purchase of Crossmann's Interest,
which date shall not be more than 10 days from the date of the Triggering Event
(the "Purchase Period").
In the event Trinity and Pyramid (or such successor) do not deliver
the Trinity Notice within the Exercise Period or fail to close the purchase
within the Purchase Period, Crossmann shall have the right to purchase Trinity's
and Pyramid's Interests (or the interests of any successor). To exercise such
right, Crossmann shall deliver to Trinity and Pyramid (or such successor) a
notice (the "Crossmann Notice") within 3 days of the later of (A) the expiration
of the Exercise Period or, if the Trinity Notice is delivered to Crossmann (B)
the expiration of the Purchase Period. The Crossmann Notice shall state the
date of the closing of the purchase of Trinity's and Pyramid's Interest (or the
interests of any successor) which date shall not be more than 10 days from the
date of the Crossmann Notice.
The purchase price for Crossmann's Interest shall be $6,450,000,
except as may be adjusted pursuant to Section 8.6(a)(v) herein and shall be paid
in cash by Trinity and Pyramid (or such successor) at the closing of the sale of
Crossmann's Interest. The parties hereto agree that $6,450,000 is the
approximate fair market value of Crossmann's Interest as of the date of the
execution of this Agreement.
The aggregate purchase price for Trinity's Interest and Pyramid's
Interest (or the interests of any successor) shall be $6,450,000, except as may
be adjusted pursuant to Section 8.6(a)(v) herein and shall be paid in cash by
Crossmann at the closing of the sale of Trinity's and Pyramid's Interests (or
the interests of any successor). The parties hereto agree that $6,450,000 is
the approximate fair market value of Trinity's Interest and Pyramid's Interest
as of the date of the execution of this Agreement.
To the extent that at the date of the closing of a sale described in
this Section 8.6(a) the Capital Account of either Crossmann or Pyramid and
Trinity (or a successor), as applicable, is greater than less than the Capital
Account of such Member(s) as of the date hereof then the purchase price to be
paid for (A) Crossmann's Interest or (B) Trinity's Interest and Pyramid's
Interest, as applicable, shall be adjusted upward or downward, dollar for
dollar, to the extent of any such excess or deficiency.
Dispute Resolution. If a Triggering Event has occurred and neither
Crossmann or Trinity and Pyramid (or any successors to their Units) elects to
exercise its call right pursuant to the terms set forth in Section 8.6(a) above,
the action on which the Board of Managers was unable to unanimously agree shall
be submitted to binding arbitration. Such arbitration shall be administered by
the American Arbitration Association according to its rules or as otherwise
mutually agreed in writing by the parties hereto. Such arbitration proceedings
shall be held in Marion County, Indiana or a contiguous county and shall be held
within thirty (30) days from the date on which the Triggering Event occurred.
Outstanding Loans. To the extent that at the date of closing of a
sale described in Section 8.6(a) above, any loans made by the selling Member to
the Company remain outstanding, such loans shall be repaid by the Company at the
date of the closing.
ARTICLE
DISSOCIATION OF A MEMBER
SECTION. DISSOCIATION. A person ceases to be a Member upon the
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occurrence of any of the following events (each an "Event of Dissociation"):
----
the Person withdraws from the Company, including any retirement or
resignation from membership in the Company (as opposed to retirement or
resignation merely from employment with the Company or any position as an
officer of the Company);
a Transfer of the Person's entire Interest, whether or not the
Assignee is admitted as a Substitute Member, unless the Transfer is approved by
the Surviving Member(s) and the Assignee as provided by Section 8.2 herein;
in the case of a Person who is an individual, the individual's death
or adjudication by a court of competent jurisdiction of the individual's mental
incompetency or insanity;
in the case of a Person who is acting as a Member by virtue of being a
trustee of a trust, the termination of the trust, but not merely the
substitution of a new trustee;
in the case of a Person that is a partnership, limited partnership,
limited liability partnership or limited liability company, the dissolution and
commencement of winding up of the partnership, limited partnership, limited
liability partnership or limited liability company;
in the case of a Person that is a corporation, the dissolution of the
corporation;
in the case of a Person that is an estate, the distribution by the
fiduciary of the estate's entire Interest in the Company; or
Bankruptcy of the Person.
SECTION. RIGHTS OF DISSOCIATING MEMBER. Upon an Event of Dissociation as
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to a Member:
if the dissociation causes a dissolution and winding up of the Company
under Article X, the Member shall be entitled to participate in the winding up
of the Company to the same extent as any other Member, except that if the Event
of Dissociation is a breach of this Agreement, any distributions to which the
Member would have been entitled shall be reduced by any damages sustained by the
Company as a result of the dissolution and winding up; and
if the Event of Dissociation does not cause a dissolution and winding
up of the Company under Article X, the Member shall not be entitled to any
distribution solely by reason of the Member's dissociation, and thereafter shall
only be entitled to participate as an Assignee in the Company. The Member shall
not be entitled to a redemption of the Member's Interest or otherwise receive
the value of the Member's Interest until such time, and in the manner, provided
under Article X for the dissolution and winding up of the Company.
ARTICLE
DISSOLUTION AND WINDING UP
SECTION. DISSOLUTION. The Company shall be dissolved and its affairs
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wound up on the first of the following to occur:
A unanimous determination by the Members that the Company shall be
dissolved;
(b) The occurrence of a Transfer described in Section 9.1(b) without
the approval of the Surviving Members and the Assignee of such a Transfer; or
(c) At such earlier time as may be provided by applicable law.
Notwithstanding any other provision of this Agreement or the Act, the Members
hereby agree that the business of the Company shall be continued upon the
occurrence of an Event of Dissociation and that the Company shall not be
dissolved upon the occurrence of an Event of Dissociation other than pursuant to
the terms of Section 10.1.
SECTION. WINDING UP. Upon dissolution, the Members shall proceed to wind
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up and liquidate the business and affairs of the Company, and the Company may
only carry on business that is appropriate to wind up and liquidate the business
and affairs of the Company, including the following: (a) collecting the
Company's assets; (b) disposing of properties that will not be distributed in
kind to Members; (c) discharging or making provision for discharging
liabilities; (d) distributing the remaining property among the Members; and (e)
doing every other act necessary to wind up and liquidate the business and
affairs of the Company. The Members shall follow the procedure for disposing of
known claims set forth in Ind. Code 23-18-9-8 and shall publish notice of the
dissolution of the Company pursuant to Ind. Code 23-18-9-9.
SECTION. DISTRIBUTION OF ASSETS. Upon the winding up of the Company, the
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assets shall be distributed as follows:
To creditors, including Members who are creditors to the extent
permitted by law, in the order of priority as provided by law to satisfy the
liabilities of the Company whether by payment or by the establishment of
adequate reserves, excluding liabilities for distributions to Members pursuant
to Article VII;
To Members to repay any loans to the Company or to satisfy any
liabilities for distributions pursuant to Article VII which remain unpaid; and
To Members in accordance with the positive balances in their Capital
Accounts after giving effect to all contributions, distributions and allocations
for all periods.
ARTICLE
INVESTMENT REPRESENTATIONS
By the execution of this Agreement each of the Members acknowledges,
agrees, represents and warrants that:
The Member understands that investment in the Member's Interest
(Units) in the Company involves a high degree of risk and is suitable only for
sophisticated investors. The Member further understands that Interests (Units)
are being offered in reliance upon an exemption from registration provided by
the federal Securities Act of 1933, as amended, and an exemption from
registration provided by applicable state securities laws.
The Member is purchasing the Member's Interest (Units) for the
Member's own investment and not with a view to the distribution or resale
thereof to any other Person.
The Company has disclosed to the undersigned, in writing, and the
Member acknowledges, that the transferability of the Interest (Units) is
severely limited and that the undersigned must continue to bear the economic
risk of this investment for an indefinite period as these securities have not
been registered under the Securities Act of 1933 or any state securities laws
and therefore cannot be offered or sold unless they are subsequently registered
under such acts or an exemption from such registration is available.
The Member agrees that in addition to other prohibitions of and
restrictions on transfer under this Agreement, the Member's Interest (Units)
will not be sold without registration under the Securities Act of 1933 and any
applicable state securities law, or until the undersigned has obtained an
opinion of counsel satisfactory to the Company that such registration is not
required in connection with any such transaction.
The Member agrees that any certificates representing the Member's
Interest (Units) may contain the following legend: "The Units represented by
this certificate were acquired for investment only and not for resale. They
have not been registered under the Securities Act of 1933 or any state
securities law. These Units may not be sold, transferred, pledged, or
hypothecated, except in accordance with the Amended and Restated Operating
Agreement of the Company and if first registered under such laws, or unless the
Company has received an opinion of counsel satisfactory to it that registration
under such laws is not required." The Company may issue stop transfer
instructions to its transfer agent (if any) or make a notation to such effect on
its appropriate records.
The Member's principal residence is at the address for the Member
noted in this Agreement.
The Member has and has had access to all material facts with respect
to the Interest (Units) by reason of active involvement in the organization
and/or management of the Company.
The Member understands and agrees that the Member has no right to
require the Company to register the Interest (Units) under Federal or state
securities laws at any time, or to join in any future registration.
The Member agrees to hold the Company and its Members and controlling
persons (as defined in the Securities Act of 1933, as amended), and any persons
affiliated with any of them or with the distribution of the Interest (Units),
harmless from all expenses, liabilities, and damages (including reasonable
attorneys' fees) deriving from a disposition of the Interest (Units) in a manner
in violation of the Securities Act of 1933, as amended, or of any applicable
state securities law or which may be suffered by reason of a breach of any of
the covenants, representation and warranties contained in this Article XI.
ARTICLE
AMENDMENTS
SECTION. PROPOSAL OF AMENDMENTS. Amendments to the Articles and this
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Agreement may be proposed in writing by any Member. Copies of any amendments
proposed to be made pursuant to this Section 12.1 shall be sent to the Members.
SECTION. APPROVAL OF AMENDMENTS. Any amendment to this Agreement must be
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approved in writing by all the Members.
ARTICLE
MISCELLANEOUS
SECTION. COMPLETE AGREEMENT. This Agreement and the Articles constitute
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the complete and exclusive statement of agreement among the Members with respect
to its subject matter. This Agreement and the Articles replace and supersede
all prior agreements by and among the Members or any of them. This Agreement
and the Articles supersede all prior written and oral statements and no
representation, statement, or condition or warranty not contained in this
Agreement or the Articles will be binding on the Members or have any force or
effect whatsoever.
SECTION. GOVERNING LAW. This Agreement and the rights of the parties
-------
under this Agreement will be governed by, interpreted, and enforced in
accordance with the laws of the State of Indiana.
SECTION. BINDING EFFECT; CONFLICTS. Subject to the provisions of this
-------
Agreement relating to transferability, this Agreement will be binding upon and
inure to the benefit of the Members, and their respective distributees,
successors and assigns. This Agreement is subject to, and governed by, the Act
and the Articles. In the event of a direct conflict between the provisions of
this Agreement and the mandatory provisions of the Act or the provisions of the
Articles, the provisions of the Act or the Articles, as the case may be, will be
controlling.
SECTION. HEADINGS; INTERPRETATION. All headings herein are inserted only
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for convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement. The singular
shall include the plural, and the masculine gender shall include the feminine
and neuter, and vice versa, as the context requires.
SECTION. SEVERABILITY. If any provision of this Agreement is held to be
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illegal, invalid, unreasonable, or unenforceable under the present or future
laws effective during the term of this Agreement, such provision will be fully
severable; this Agreement will be construed and enforced as if such illegal,
invalid, unreasonable, or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement will remain in
full force and effect and will not be affected by the illegal, invalid,
unreasonable, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid, unreasonable, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid,
unreasonable, or unenforceable provision as may be possible and be legal, valid,
reasonable, and enforceable.
SECTION. MULTIPLE COUNTERPARTS. This Agreement may be executed in
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several counterparts, each of which will be deemed an original but all of which
-
will constitute one and the same instrument. However, in making proof with
respect to this Agreement it will be necessary to produce only one copy hereof
signed by the party to be charged.
SECTION. ADDITIONAL DOCUMENTS AND ACTS. Each Member agrees to promptly
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execute and deliver to the Company such additional documents, statements of
interest and holdings, designations, powers of attorney, and other instruments,
and to perform such additional acts, as the Company may determine to be
necessary, useful or appropriate to complete the organization of the Company,
effectuate, carry out and perform all of the terms, provisions, and conditions
of this Agreement and the transactions contemplated by this Agreement, and to
comply with all applicable laws, rules and regulations.
SECTION. NO THIRD PARTY BENEFICIARY. Except pursuant to the Pledge
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Agreement, this Agreement is made solely and specifically among and for the
benefit of the Members and their respective successors and assigns subject to
the express provisions of this Agreement relating to successors and assigns.
This Agreement is expressly not intended for the benefit of any creditor of the
Company or any other third party. No creditor or other third party will have
any rights, interest, or claims under the Agreement or be entitled to any
benefits under or on account of this Agreement as a third party beneficiary or
otherwise.
SECTION. NOTICES. Any notice to be given or to be served upon the
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Company or any Member in connection with this Agreement must be in writing and
-
will be deemed to have been given and received when delivered to the address
specified by the party to receive the notice. Such notices will be given to a
Member at the address specified on Exhibit A. Any Member or the Company may, at
any time by giving five days' prior written notice to the other Members and the
Company, designate any other address in substitution of the foregoing address to
which such notice will be given.
SECTION. TITLE TO COMPANY PROPERTY. Legal title to all property of the
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Company will be held and conveyed in the name of the Company.
SECTION. RELIANCE ON AUTHORITY OF PERSON SIGNING AGREEMENT. In the event
-------
that a Member is not a natural person, neither the Company nor any Member will
(a) be required to determine the authority of the individual signing this
Agreement to make any commitment or undertaking on behalf of such Person or to
determine any fact or circumstance bearing upon the existence of the authority
of such individual, or (b) be required to see to the application or distribution
of proceeds paid or credited to individuals signing this Agreement on behalf of
such Entity.
SECTION. NO REMEDIES EXCLUSIVE. To the extent any remedies are provided
-------
herein for a breach of this Agreement, the Articles or the Act, such remedies
shall not be exclusive of any other remedies the aggrieved party may have, at
law or in equity.
SECTION. ADVICE OF COUNSEL. Each person signing this Agreement:
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understands that this Agreement contains legally binding provisions,
is advised, and has had the opportunity, to consult with that person's
own attorney, and
has either consulted with the person's own attorney or consciously
decided not to consult with the person's own attorney.
SECTION. INCORPORATED SCHEDULE AND EXHIBITS. The following Schedules and
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Exhibits are attached to and/or have been identified as Schedules and Exhibits
to this Agreement and are incorporated in this Agreement by reference as if
fully set forth herein:
Schedule I to Operating Agreement (Schedule of Definitions)
Exhibit A to Operating Agreement. Names and Addresses of Members; Capital
Contributions; and Units of Members
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement on the date
set forth opposite their signatures, to be effective on the Effective Date.
CROSSMANN COMMUNITIES, INC.
Date: By: Its:
TRINITY HOMES, INC.
Date: By: Its:
PYRAMID MORTGAGE CO., INC.
Date: By: Its:
<PAGE>
SCHEDULE I
TO
OPERATING AGREEMENT
(SCHEDULE OF DEFINITIONS)
The terms used in this Agreement with their initial letters capitalized
shall have, unless the context otherwise requires or unless otherwise expressly
provided in this Agreement, the meanings specified in this Schedule I. Any term
used but not defined in this Agreement shall have the meanings set forth in the
Act. The singular shall include the plural, and the masculine gender shall
include the feminine and neuter, and vice versa, as the context requires. When
used in this Agreement, the following terms shall have the meanings set forth
below:
"ACT" means the Indiana Business Flexibility Act, as the same may be
amended from time to time.
"ADDITIONAL MEMBER" means any individual or Entity admitted as a Member
pursuant to Section 3.9.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:
Credit to such Capital Account any amounts which such Member is obligated
to restore pursuant to any provision of this Agreement or is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
Debit to such Capital Account the items described in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be applied in a manner consistent with such intent.
"AFFILIATE" means any individual, partnership, corporation, limited
liability company, trust, or other Entity directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common control with a
Member. The term "control," as used in the immediately preceding sentence,
means, with respect to a corporation the right to exercise, directly or
indirectly, more than 50% of the voting rights attributable to the controlled
corporation, and, with respect to any individual, partnership, trust or other
Entity, the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies thereof.
"AGREEMENT" means this Operating Agreement of the Company, as originally
executed and as amended from time to time.
"ASSIGNEE" means any "assignee" as that term is used in Ind. Code
23-18-6-3 and -4, and includes any transferee or recipient of a Transfer of any
Unit or Units, or any portion thereof.
"AVAILABLE CASH" means all cash funds of the Company on hand from time to
time (other than cash funds obtained as contributions to the capital of the
Company by the Members and cash funds obtained from loans to the Company) after
payment or provision for (i) all operating expenses of the Company as of such
time, (ii) all outstanding and unpaid current obligations of the Company as of
such time, and (iii) a working capital reserve. All decisions made by the
Company, its Board of Managers and its Members relating to the operation of the
Company's business, the Company's obligations, establishment and maintenance of
a working capital reserve and the resulting amount of Available Cash shall be
made in good faith, with a view toward maximizing gross sales, gross profit and
pre-tax income, and in compliance with the Company's obligation under the Pledge
Agreement. The Company, the Board of Managers and the Members shall arrange for
adequate capital and cash flow for the reasonable and realistic operations of
the Company, propose and set reasonable and realistic budgets and goals for the
Company, and shall not sell or permit to be sold any assets of the Company
except in the ordinary course of business. In the event of any transactions
between the Company and any of the Members, or any owners or affiliates or
subsidiaries thereof, all activities will be undertaken in good faith and at
fair and competitive pricing.
"BANK" means NBD Bank, N.A.
"BANKRUPTCY" means, and a Member shall be deemed a "Bankrupt Member" upon,
(i) the entry of a decree or order for relief against the Member by a court of
competent jurisdiction in any involuntary case brought against the Member under
any bankruptcy, insolvency or other similar law (collectively, "Debtor Relief
Laws") generally affecting the rights of creditors and relief of debtors now or
hereafter in effect, (ii) the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar agent under applicable Debtor
Relief Laws for the Member or for any substantial part of its assets or
property, (iii) the ordering of the winding up or liquidation of the Member's
affairs, (iv) the filing of a petition in any such involuntary bankruptcy case,
which petition remains undismissed for a period of 180 days or which is not
dismissed or suspended pursuant to Section 303 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy laws),
(v) the commencement by the Member of a voluntary case under any applicable
Debtor Relief Laws now or hereafter in effect, (vi) the consent by the Member to
the entry of an order for relief in an involuntary case under any such laws or
to the appointment of or the taking of possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar agent under any
applicable Debtor Relief Laws for the Member or for any substantial part of its
assets or property, or (vii) the making by a Member of any general assignment
for the benefit of its creditors.
"CAPITAL ACCOUNT" means the individual accounts established and maintained
pursuant to Section 3.5(a) and in the manner provided by Treasury Regulation
Section 1.704-1(b)(2)(iv), as amended from time to time.
"CAPITAL CONTRIBUTION" means the total value of cash and agreed fair market
value of property contributed and agreed to be contributed to the Company by
each Member, as shown on Exhibit A, as the same may be amended from time to
time. Any reference in this Agreement to the Capital Contribution of a current
Member shall include a Capital Contribution previously made by any prior Member
for the interest of such current Member, reduced by any distribution to such
prior Member in return of "Capital Contribution" as contemplated in this
Agreement. Additional Capital Contributions may be made by a Member only with
the consent of all other Members.
"CODE" means the Internal Revenue Code of 1986, as amended. All references
in this Agreement to sections of the Code shall include any corresponding
provision or provisions of any succeeding law.
"COLLATERAL AGENT" means NBD Bank, N.A., in its capacity as "Collateral
Agent" under the Pledge Agreement.
"COMPANY" means shall have the meaning set forth in the preamble to this
Agreement.
"COMPANY MINIMUM GAIN" has the meaning set forth in Treasury Regulation
Sections 1.704-2(b)(2) and 1.704-2(d) with respect to "partnership minimum
gain," substituting the word "member" for "partner" and "company" for
"partnership" wherever they appear.
"ENTITY" means any association, corporation, general partnership, limited
partnership, limited liability partnership, limited liability company, joint
stock association, joint venture, firm, trust, business trust, cooperative, or
foreign associations of like structure.
"EVENT OF DISSOCIATION" means any of the events listed in Section 9.1 upon
which a Person ceases to be a Member.
"LENDERS" means NBD Bank, N.A., Eagle Investments I, LLC and Thomas D.
Rush, each in his or its capacity as a "Lender" under the Pledge Agreement.
"INTEREST" means the entire ownership interest of a Member in the Company
at any particular time, including the right of such Member to any and all
benefits to which a Member may be entitled as provided in this Agreement and
under the Act, together with the obligations of such Member to comply with all
of the terms and provisions of this Agreement.
"MAJORITY IN INTEREST OF THE MEMBERS" means the Member(s) who hold a
majority of the outstanding Units. "Majority in Interest of the remaining
Members" means those Members holding a majority of the outstanding Units,
excluding the Member in question and that Member's Units. In this regard,
Unit(s) or any portion thereof that are the subject of an effective Transfer to
an Assignee not a Substitute Member shall not be considered outstanding Units.
"MANAGER" OR "MANAGERS" means the Persons elected as Managers pursuant to
Section 5.1.
"MEMBER" OR "MEMBERS" refers to the parties to this Agreement as indicated
on Exhibit A, and any Additional Members or Substitute Members.
"MEMBER NONRECOURSE DEBT" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4) with respect to "partner nonrecourse debt," substituting
the word "member" for "partner" and "company" for "partnership" wherever they
appear.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treasury Regulation Section 1.704-2(i)(3).
"MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2) with respect to "partner
nonrecourse deductions," substituting the word "member" for "partner" and
"company" for "partnership" wherever they appear.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(1).
"OPERATING AGREEMENT" means this Agreement.
"PERCENTAGE INTEREST" means the number of Units of a Member in relation to
the total number of outstanding Units of all Members.
"PERSON" means an individual or an Entity.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated October
, 1997, by and among Trinity, Pyramid, the Remaining Shareholders, the Company,
Crossmann, Lenders and the Collateral Agent.
"PRINCIPAL OFFICE" means the address established pursuant to Section 2.2.
"REMAINING SHAREHOLDERS" means Mark W. Thune, James D. McKenzie and John E.
McKenzie.
"SUBSTITUTE MEMBER" means any individual or entity admitted as a Member
pursuant to Section 8.4.
"SURVIVING MEMBER" shall mean, in the event of a Transfer of the Units
(Interest) of any Member, the remaining Member(s) of the Company, excluding the
Assignee.
"TRANSFER" means any "assignment" as that term is used in Ind. Code
23-18-6-3 and -4, and includes any gift, sale, exchange, assignment, conveyance,
alienation or other transfer, whether voluntary or involuntary, and includes any
Transfer to a receiver, bankruptcy trustee, judgment creditor, lienholder,
holder of a security interest, pledge or other encumbrance, and Transfer upon
judicial order or other legal process (such as a Transfer in connection with
divorce proceedings).
"UNIT" refers to a unit of measurement of a Member's Interest as
established in Section 3.2. Whenever reference is made to "Percentage
Interest," a Unit may be converted into the same by dividing a Member's number
of Units by the total of all Units outstanding. In this regard, Unit(s) or any
portion thereof that are the subject of an effective Transfer to an Assignee not
a Substitute Member shall not be considered outstanding Units.
EXHIBIT A
---------
TO OPERATING AGREEMENT
----------------------
NAMES AND ADDRESSES OF MEMBERS; CAPITAL
CONTRIBUTIONS; AND UNITS OF MEMBERS
(AS OF OCTOBER 1, 1997)
<TABLE>
<CAPTION>
<S> <C> <C>
Current
--------
Capital Number
-------------------- --------
Member. . . . . . . . . . . . . . Contribution of Units
- --------------------------------- -------------------- --------
Crossmann Communities, Inc. . . . $ 2.6 million 450
9202 North Meridian Street
Suite 300
Indianapolis, Indiana 46268
Trinity Homes, Inc. . . . . . . . $ 2.6 million 400
12734 Hamilton Crossing Boulevard in assets
Carmel, Indiana 46032
Pyramid Mortgage Company, Inc.. . 100% of ownership 50
2734 Hamilton Crossing Boulevard. interest in Pyramid
Carmel, Indiana 46032 . . . . . . Mortgage, LLC
</TABLE>
EXHIBIT 21.1
- -------------
AMENDED SUBSIDIARIES OF THE REGISTRANT
- ------------------------------------------
1. Merit Realty, Inc.
2. Crossmann Communities of Ohio, Inc.
3. Deluxe Homes of Lafayette, Inc.
4. Deluxe Homes, Inc.
5. Trimark Homes, Inc.
6. Trimark Development, Inc.
7. Crossmann Management, Inc.
8. Deluxe Aviation, Inc.
9. Crossmann Investment, Inc.
10. Crossmann Mortgage Corp.
11. Cutter Homes, LTD.
12. Crossmann Communities of Tennessee, LLC
EXHIBIT 23.1
- -------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-94568, 333-2626, 333-4980 and 333-05147 on Forms S-8 and Registration
Statement No. 333-35509 on Form S-3 each of Crossmann Communities, Inc. of our
report dated February 10, 1998, appearing in the Annual Report on Form 10-K of
Crossmann Communities, Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Crossmann Communities, Inc.
Exhibit 27.1
Article 5 Financial Data Schedule for 1997 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5526138
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 153523571
<CURRENT-ASSETS> 0
<PP&E> 5644149
<DEPRECIATION> 2333804
<TOTAL-ASSETS> 185275763
<CURRENT-LIABILITIES> 0
<BONDS> 51122431
0
0
<COMMON> 55548737
<OTHER-SE> 55254242
<TOTAL-LIABILITY-AND-EQUITY> 185275763
<SALES> 316435463
<TOTAL-REVENUES> 316435463
<CGS> 250885725
<TOTAL-COSTS> 250885725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 872862
<INCOME-PRETAX> 33399133
<INCOME-TAX> 13393347
<INCOME-CONTINUING> 20005786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20005786
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.02
</TABLE>
