<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(281) 334-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common stock,
as of October 1, 1998.
COMMON STOCK, PAR VALUE $.05 PER SHARE 17,559,921
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -- May 31, 1998 and August 31,
1998........................................................ 2
Consolidated Statements of Operations -- three months ended
August 31, 1997 and 1998.................................... 3
Consolidated Statements of Cash Flows -- three months ended
August 31, 1997 and 1998.................................... 4
Notes to Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 14
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1998 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 20,852,000 $ 27,463,000
Cash in transit from financial institutions............... 35,289,000 36,312,000
------------ ------------
Total cash and cash equivalents................... 56,141,000 63,775,000
Inventories, net.......................................... 74,076,000 82,245,000
Accounts receivable....................................... 22,468,000 29,696,000
Manufacturer incentives receivable........................ 2,839,000 3,376,000
Deferred tax assets....................................... 4,405,000 4,451,000
Prepaid expenses and other current assets................. 9,952,000 11,075,000
------------ ------------
Total current assets.............................. 169,881,000 194,618,000
Property, plant and equipment, net.......................... 58,984,000 64,449,000
Goodwill (net of accumulated amortization of $9,173,000 and
$9,411,000, respectively)................................. 36,952,000 44,966,000
Investment in affiliate..................................... 3,916,000 4,452,000
Other assets................................................ 3,963,000 3,968,000
------------ ------------
$273,696,000 $312,453,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and capital
leases................................................. $ 941,000 $ 1,244,000
Floor plan payable, net of participations................. 43,463,000 66,426,000
Accounts payable.......................................... 27,840,000 28,514,000
Accrued expenses.......................................... 32,510,000 35,080,000
Accrued warranty costs.................................... 6,260,000 6,370,000
------------ ------------
Total current liabilities......................... 111,014,000 137,634,000
Notes payable and capital leases, less current
installments.............................................. 63,087,000 63,629,000
Deferred tax liabilities.................................... 199,000 198,000
Minority interest in consolidated subsidiary................ 933,000 998,000
Shareholders' equity:
Preferred stock, no par value, authorized 5,000,000
shares; no shares issued............................... -- --
Common stock, $0.05 par value; authorized 50,000,000
shares; issued and outstanding 17,274,667 and
17,536,421 shares at May 31, 1998 and August 31, 1998,
respectively........................................... 864,000 877,000
Additional paid-in capital................................ 43,468,000 49,201,000
Retained earnings......................................... 54,131,000 59,916,000
------------ ------------
Total shareholders' equity........................ 98,463,000 109,994,000
------------ ------------
$273,696,000 $312,453,000
============ ============
</TABLE>
2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Net sales................................................. $118,360,000 $137,880,000
Other revenues............................................ 6,372,000 9,651,000
------------ ------------
Total revenues.................................... 124,732,000 147,531,000
------------ ------------
Costs and expenses:
Cost of sales............................................. 89,241,000 99,934,000
Selling, general and administrative....................... 26,012,000 36,137,000
Acquisition costs......................................... 2,425,000 --
------------ ------------
Total costs and expenses.......................... 117,678,000 136,071,000
------------ ------------
Operating income.................................. 7,054,000 11,460,000
Interest expense............................................ (1,894,000) (2,444,000)
Other....................................................... 1,000 --
------------ ------------
Income before items shown below................... 5,161,000 9,016,000
Income tax expense.......................................... 2,900,000 3,703,000
------------ ------------
Income before items shown below................... 2,261,000 5,313,000
Earnings in affiliate....................................... 240,000 536,000
Minority interests.......................................... (47,000) (65,000)
------------ ------------
Net income before items shown below............... 2,454,000 5,784,000
Extraordinary item (net of income tax benefit of
$412,000)................................................. (634,000) --
------------ ------------
Net income........................................ $ 1,820,000 $ 5,784,000
============ ============
Earnings per share -- basic:
Income before extraordinary item.......................... $ 0.15 $ 0.33
Extraordinary item, net of income tax benefit............. (0.04) --
------------ ------------
Net income per share.............................. $ 0.11 $ 0.33
============ ============
Earnings per share -- diluted:
Income before extraordinary item.......................... $ 0.13 $ 0.31
Extraordinary item, net of income tax benefit............. (0.03) --
------------ ------------
Net income per share.............................. $ 0.10 $ 0.31
============ ============
</TABLE>
3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,820,000 $ 5,784,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,272,000 1,491,000
Minority interests in income of consolidated
subsidiary........................................... 47,000 65,000
Earnings in affiliate.................................. (240,000) (536,000)
Deferred taxes......................................... 200,000 46,000
Extraordinary item..................................... 634,000 --
Conforming of year ends................................ (678,000) --
Change in assets and liabilities, net of acquisitions
Increase in receivables.............................. (5,498,000) (2,724,000)
Decrease (increase) in inventories................... 161,000 (5,737,000)
Decrease (increase) in prepaid expenses and other
current assets.................................... 303,000 (946,000)
Decrease in other assets............................. 218,000 876,000
Decrease in accounts payable......................... (670,000) (649,000)
Increase in accrued expenses......................... 2,458,000 1,418,000
------------ ------------
Net cash provided by (used in) operating
activities...................................... 27,000 (912,000)
------------ ------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash
acquired............................................... (349,000) (4,483,000)
Purchases of property, plant and equipment................ (1,055,000) (4,945,000)
------------ ------------
Net cash used in investing activities............. (1,404,000) (9,428,000)
------------ ------------
Cash flows from financing activities:
Participation in floor plan payable....................... (27,484,000) 11,408,000
Borrowings under floor plan payable....................... 40,521,000 52,221,000
Repayments of floor plan payable.......................... (45,328,000) (45,072,000)
Proceeds from long-term debt borrowings................... 61,000,000 498,000
Principal payments of long-term debt...................... (33,394,000) (1,083,000)
Exercise of stock options................................. 405,000 2,000
------------ ------------
Net cash (used in) provided by financing
activities...................................... (4,280,000) 17,974,000
------------ ------------
Net (decrease) increase in cash and cash equivalents........ (5,657,000) 7,634,000
Cash and cash equivalents, beginning of period.............. 43,348,000 56,141,000
------------ ------------
Cash and cash equivalents, end of period.................... $ 37,691,000 $ 63,775,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 1,178,000 $ 248,000
Cash paid for income taxes................................ 51,000 171,000
============ ============
</TABLE>
4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. On June 10, 1997, the Company completed the acquisition of Brilliant
Holding Corporation ("Brilliant"). This transaction was accounted for as a
pooling of interests; accordingly, the accompanying consolidated financial
statements have been restated to include the results of Brilliant for all
periods presented. Because of the seasonal nature of the Company's business,
operating results for the three months ended August 31, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending May
31, 1999. These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
PRONOUNCEMENTS
In June 1997, the Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") was issued, which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements and the total of other comprehensive income for a period is required
to be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS 130 for fiscal year 1999 did not have a significant impact on the
consolidated financial statements of the Company.
In June 1997, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") was issued. SFAS 131 establishes standards for
disclosures about segments of an enterprise and related information. SFAS 131
establishes standards for reporting information about operating segments in
annual financial statements and requires the reporting of selected information
about operating segments in interim financial reports issued to stockholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. SFAS 131 is not required to be applied to
interim financial statements in the initial year of its application. Management
believes adoption of SFAS 131 during the fourth quarter of fiscal year 1999 will
not affect the results of operations or financial position but will affect the
disclosure of segment information.
BUSINESS COMBINATIONS
On June 10, 1997, Brilliant was acquired by the Company, and 474,099 shares
of the Company's common stock and options to purchase 25,901 shares of the
Company's common stock were issued in exchange for all of Brilliant's
outstanding common stock and options to purchase Brilliant's common stock. This
transaction was accounted for as a pooling of interests. Prior to the
acquisition, Brilliant used a fiscal year ending on December 31. The financial
statements for the three months ended August 31, 1998 combine each company's
three months ended August 31, 1998. Due to the different fiscal year ends,
retained earnings includes an
5
<PAGE> 7
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustment to record Brilliant's net loss for the five months ended May 31,
1997, which will not be included in the restated financial statements for any
fiscal period.
A summary of Brilliant's results of operations for the five months ended
May 31, 1997 follows:
<TABLE>
<S> <C>
Net sales............................................... $28,984,000
Total costs and expenses................................ $29,845,000
-----------
Net loss................................................ $ (678,000)
===========
</TABLE>
On June 16, 1997, the Company completed the acquisition of N.C. Mobile Home
Corporation ("NC Homes"), which operates 11 retail sales centers in North
Carolina and one in Virginia. The results of the acquired operations of NC Homes
have been included with those of the Company from the date of the acquisition.
The excess purchase price over the estimated fair value of the net assets
acquired as of the acquisition date of $3.6 million has been recorded as
goodwill and is being amortized over 25 years. The estimated fair value of
assets acquired and liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Current assets.......................................... $ 7,994,000
Other assets............................................ 282,000
Goodwill................................................ 3,571,000
Floor plan payable...................................... (6,691,000)
Accounts payable........................................ (442,000)
Accrued liabilities..................................... (214,000)
-----------
$ 4,500,000
===========
Consideration:
Cash.................................................. $ 1,000,000
Note payable.......................................... 1,500,000
Common stock.......................................... 2,000,000
-----------
$ 4,500,000
===========
</TABLE>
On January 6, 1998, the Company completed the acquisition of Davis Homes,
Inc. ("Davis Homes") which operates three retail sales centers in Alabama. The
results of the acquired operations of Davis Homes have been included with those
of the Company from the date of the acquisition. The excess purchase price over
the estimated fair value of the net assets acquired as of the acquisition date
of $2.1 million has been recorded as goodwill and is being amortized over 25
years. The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
<TABLE>
<S> <C>
Current assets.......................................... $ 2,187,000
Other assets............................................ 518,000
Goodwill................................................ 2,075,000
Floor plan payable...................................... (1,976,000)
Accrued liabilities..................................... (121,000)
-----------
$ 2,683,000
===========
Consideration:
Cash.................................................. $ 1,472,000
Note payable.......................................... 247,000
Common stock.......................................... 964,000
-----------
$ 2,683,000
===========
</TABLE>
6
<PAGE> 8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 13, 1998, the Company completed the acquisition of First Value
Homes, Inc., ("First Value Homes") which operates two retail sales centers in
North Carolina. The results of the acquired operations of First Value Homes have
been included with those of the Company effective July 1, 1998. The excess
purchase price over the estimated fair value of the net assets acquired as of
the acquisition date of $8.3 million has been recorded as goodwill and is being
amortized over 25 years. The estimated fair value of assets acquired and
liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Current assets.......................................... $ 5,383,000
Other assets............................................ 1,179,000
Goodwill................................................ 8,306,000
Floor plan payable...................................... (3,024,000)
Accrued liabilities..................................... (843,000)
Accounts payable........................................ (349,000)
Notes payable and capital leases........................ (425,000)
-----------
$10,227,000
===========
Consideration:
Cash.................................................. $ 4,633,000
Common stock.......................................... 5,594,000
-----------
$10,227,000
===========
</TABLE>
The pro forma effects related to the NC Homes, Davis Homes and First Value
Homes acquisitions are not significant.
REPURCHASE AGREEMENTS
The Company has entered into agreements with various financial institutions
and other credit sources under which the Company has agreed to repurchase
manufactured homes sold to independent dealers in the event of default by a
dealer in its obligation to such credit sources. Under the terms of such
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from 12 to 15
months). At August 31, 1998, the Company's contingent repurchase liability was
approximately $80.9 million.
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1998 1998
----------- -----------
<S> <C> <C>
Manufactured homes:
New.............................................. $50,208,000 $62,050,000
Used............................................. 6,744,000 6,923,000
Furniture and supplies............................. 5,884,000 3,348,000
Raw materials and work-in-process.................. 11,240,000 9,924,000
----------- -----------
$74,076,000 $82,245,000
=========== ===========
</TABLE>
7
<PAGE> 9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT IN AFFILIATE
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the three months ended August 31, 1997 and
1998 follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Total revenues....................................... $2,003,000 $4,274,000
Net income........................................... $ 480,000 $1,072,000
========== ==========
</TABLE>
EARNINGS PER SHARE
The consolidated financial statements, including all references to the
number of shares of common stock and all per share information have been
adjusted to reflect the issuance of 474,099 shares of common stock exchanged for
all of the common stock of Brilliant, the 5-for-4 stock split effected on
February 7, 1997 and the 3-for-2 stock split effected on October 31, 1997.
The following data show the amounts used in computing earnings per share
and the weighted average number of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1998
--------------------------- ---------------------------
BASIC DILUTED BASIC DILUTED
EARNINGS PER EARNINGS PER EARNINGS PER EARNINGS PER
SHARE SHARE SHARE SHARE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before extraordinary
loss........................... $ 2,454,000 $ 2,454,000 $ 5,784,000 $ 5,784,000
Extraordinary loss............... (634,000) (634,000) -- --
----------- ----------- ----------- -----------
Net income............. $ 1,820,000 $ 1,820,000 $ 5,784,000 $ 5,784,000
=========== =========== =========== ===========
Weighted average common shares
outstanding.................... 17,106,920 17,106,920 17,406,487 17,406,487
Dilutive effect of stock
options........................ -- 844,896 -- 1,077,245
----------- ----------- ----------- -----------
Common shares denominator........ 17,106,920 17,951,816 17,406,487 18,483,732
=========== =========== =========== ===========
</TABLE>
LONG-TERM DEBT
The Company's loan agreement related to the 8.32% senior unsecured notes
contain certain requirements as to net working capital, consolidated net worth,
disposition of assets, additional long-term debt, redemption of common stock,
payment of dividends and prepayment of subordinated debt. At August 31, 1998,
the Company was in compliance with all such restrictions.
EVENTS SUBSEQUENT TO AUGUST 31, 1998
Effective September 1, 1998, the Company acquired all of the assets of DWP
Management, Inc. ("DWP") and all of the stock of its related companies, Value
Homes, Inc., Value Homes of Washington, Inc., Premiere Manufactured Homes, Inc.,
Premiere Manufactured Homes, Inc. of Washington, Park Place Mobil Homes, Inc.,
Kilroy's M.H., Inc. and Premiere Homes of Moses Lake, Inc. (the "DWP
Companies"), through the acquisition of the assets of DWP by a newly-formed
subsidiary of the Company, and through the merger of the DWP Companies into a
newly-formed subsidiary of the Company. The consideration for such transactions
consisted of a combination of cash, stock and notes totaling $13.6 million.
On September 30, 1998, the Company completed the private placement of $51
million of 7.24% senior unsecured notes with an average life of 7.5 years and a
final maturity in September 2008. The notes require
8
<PAGE> 10
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
semi-annual interest payments and equal annual principal reductions beginning in
2004. Proceeds from the notes will be used to fund pending acquisitions with the
remainder used for general corporate purposes.
A manufacturing subsidiary of the Company has been named as a defendant in
a class action lawsuit filed in Kentucky in September 1998, claiming wrongful
conduct, fraudulent misrepresentation and that manufactured housing units are
unsafe and/or dangerous for residential use. The size of the damages are
uncertain. The Company believes the claims are without merit and plans to
vigorously defend itself against these claims. The Company is unable to
determine at this time the potential liability, if any.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "should," and "expect" and similar expressions as they
relate to the Company or management of the Company are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in the
Company's most recently filed registration statement. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
GENERAL
American Homestar is one of the fastest growing vertically integrated
manufactured housing companies in the United States with operations in
manufacturing, retailing, financing and insurance.
In fiscal 1993, in response to growing demand for manufactured homes, the
Company began developing its expansion and vertical integration plan by opening
nine new retail sales centers and entering into a new venture (the "Homestar
Venture") with Oak Creek Homes, Inc. ("Oak Creek"), a long-time supplier, to
start-up and operate two manufacturing facilities. The costs associated with the
start-up of two new manufacturing facilities and the new retail sales centers
had an adverse effect on the Company's operating results in the second half of
fiscal 1993 and in the first half of fiscal 1994. By October 1993, both
manufacturing facilities had become profitable.
Effective August 31, 1993, a combination was consummated with the
shareholders of Oak Creek exchanging their shares of Oak Creek common stock for
shares of the Company's common stock (the "Combination"). In connection with the
Combination, all of the retail sales management personnel and manufacturing
management personnel exchanged their shares of common stock in the Company's
subsidiaries for shares of the Company's common stock.
In September 1995, the Company formed 21st Century to originate, finance,
sell and service manufactured housing sales contracts from the Company and third
parties. 21st Century is managed by two former executive officers of Clayton and
its finance subsidiary, Vanderbilt Mortgage and Finance, Inc. The Company,
Clayton and management of 21st Century own 50%, 25% and 25%, respectively, of
the equity capital of 21st Century. 21st Century commenced operation in October
1995. The Company accounts for its investment in 21st Century using the equity
method of accounting, showing its proportionate share of 21st Century's earnings
or losses as "earnings or loss in affiliate."
In September 1996, the Company exercised its option to acquire Guerdon
after managing Guerdon's operations under a management agreement since March
1996. Guerdon produces manufactured homes in four facilities located in Oregon,
Idaho, Nebraska and Mississippi, and sells its homes to over 150 independent
retailers located in 17 states in the Pacific Northwest Rocky Mountain and South
Central regions of the United States.
9
<PAGE> 11
In September 1996, the Company acquired Heartland, a single plant
manufacturer of low- to medium-priced homes in North Carolina. Concurrent with
the Heartland acquisition, the Company also purchased the assets of Manu-Fac
Homes Inc. ("Manu-Fac"), a contractually affiliated group of 15 independent
retailers, which have since become franchisees of the Company.
In June 1997, the Company acquired Brilliant, which operates three
manufacturing plants in Northern Alabama. Also in June 1997, the Company
acquired N.C. Homes, which operates twelve retail sales centers in North
Carolina and one in Virginia. In January 1998, the Company acquired Davis Homes,
which operates three retail sales centers in Alabama. In July 1998, the Company
acquired First Value Homes which operates two retail sales centers in North
Carolina. In September 1998, the Company acquired DWP Management, Inc and its
related companies which operate six retail sales centers in Washington, Oregon
and New Mexico.
VERTICAL INTEGRATION AND INTERNALIZATION
The Company's growth strategy is based on an increasing degree of vertical
integration over time. Vertical integration allows the Company to increase its
profit margins on the manufacture and sale of its products, and provides the
ability to realize additional sources of income from financing the sales and
insuring the Company's products.
Several elements of the Company's growth strategy center on increasing the
rate of "internalization" of its retail sales (i.e. the proportion of new homes
sold by Company-owned retail sales centers that are also manufactured by the
Company). This strategy enables the Company to earn both a manufacturing profit
and a retailing profit on those home sales; however, only retail sales revenue
is recognized. Accordingly, increasing the internalization rate (without
otherwise affecting the Company's level of manufacturing and retailing activity)
has the effect of increasing gross margins and reducing reported revenues;
however, aggregate gross profit (in dollars) is not materially affected by
changes in the internalization rate.
Another key element of the Company's growth strategy is to increase the
degree of retail penetration of its financial services. As insurance product
penetration increases, both reported revenues and earnings should increase
without a corresponding increase in retail sales activity. Similarly, as 21st
Century finances more of the Company's retail sales, the Company's earnings
should increase without a corresponding increase in retail sales activity.
While the Company is currently assessing aspects of the potential impact of
the Year 2000 issue, it has not yet completed its review. The problems actually
encountered by the Company in addressing its Year 2000 issue may be more
pervasive than anticipated by management, and if so, could have adverse effects
on the Company's operations, results of operations or financial condition. See
"-- Liquidity and Capital Resources -- Impact of Year 2000."
RESULTS OF OPERATIONS
The following table summarizes certain key sales statistics for the three
months ended August 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Company-manufactured new homes sold at retail............... 1,048 1,249
Total new homes sold at retail.............................. 1,300 1,459
Internalization rate(1)..................................... 81% 86%
Previously-owned homes sold at retail....................... 397 510
Average retail selling price -- new homes................... $46,576 $52,245
Average number of new homes sold per retail sales center.... 19 16
Number of retail sales centers at end of period............. 69 93
Manufacturing shipments..................................... 2,616 2,966
Manufacturing shipments to independent dealers.............. 1,531 1,568
</TABLE>
- ---------------
(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
10
<PAGE> 12
The following table summarizes the Company's operating results, expressed
as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
AUGUST 31,
---------------
1997 1998
----- -----
<S> <C> <C>
Total revenues.............................................. 100.0% 100.0%
Gross profit................................................ 28.5% 32.3%
Selling, general and administrative before acquisition
costs..................................................... 20.9% 24.5%
Acquisition costs........................................... 1.9% 0%
Operating income............................................ 5.7% 7.8%
Net income before extraordinary loss........................ 2.0% 3.9%
Net income.................................................. 1.5% 3.9%
</TABLE>
Three months ended August 31, 1998 compared to three months ended August 31,
1997
Net Sales. Net sales of manufactured homes were $137.9 million for the
three months ended August 31, 1998, compared to $118.4 million for the three
months ended August 31, 1997. The increase was primarily the result of a 16%
increase in the number of new and previously-owned homes sold at retail as well
as a 12% increase in the average selling price of new homes. A decline in the
number of new homes sold per retail sales center from 19 in the first quarter of
fiscal 1998 to 16 in the first quarter of fiscal 1999 was primarily attributable
to retail management changes necessitated by the restructuring of the Company's
retail operations and average new homes sold from the recently acquired
operations of NC Homes being significantly lower than the average historically
generated by the Company's retail locations in Texas and the surrounding states.
The Company added five new retail sales centers during the first quarter of
fiscal 1999.
Other Revenues. Transportation revenues for the three months ended August
31, 1998 were $2.9 million, unchanged from $2.9 million for the three months
ended August 31, 1997. Transportation is not a key growth operation of the
Company and has over time represented a declining proportion of total revenues
and net income. Other revenues increased to $6.8 million for the three months
ended August 31, 1998, compared to $3.5 million for the three months ended
August 31, 1997. Revenues from insurance operations increased to $4.0 million
for the three months ended August 31, 1998, compared to $1.6 million for the
three months ended August 31, 1997.
Cost of Sales. Cost of manufactured homes sold were $99.9 million (72.5% of
net sales) for the three months ended August 31, 1998, as compared to $89.2
million (75.4% of net sales) for the three months ended August 31, 1997. The
increase in cost of sales was primarily due to higher sales volume. The decrease
in cost of sales, expressed as a percentage of sales, was primarily the result
of an increase in the internalization rate from 81% for the three months ended
August 31, 1997 to 86% for the three months ended August 31, 1998 and improved
gross margins in the Company's manufacturing operations. Cost of sales
attributable to transportation operations for the three months ended August 31,
1998 were $2.4 million (81.7% of transportation revenues), an increase of 1.9%
from $2.3 million (82.2% of transportation revenues) for the three months ended
August 31, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended August 31, 1998, were $36.1
million (24.5% of total revenues), as compared to $26.0 million (20.9% of total
revenues) for the three months ended August 31, 1997. The increase in selling,
general and administrative expenses was attributable to increased sales,
manufacturing and insurance activities as well as an increase in fixed costs and
expenses associated with new retail sales centers and expanded manufacturing
capacity. The increase in selling, general and administrative expenses,
expressed as a percentage of total revenues, was the result of an increase in
the internalization rate from 81% for the three months ended August 31, 1997 to
86% for the three months ended August 31, 1998 as well as new retail sales
centers which had not yet reached normal operating efficiency. The increase was
partially offset by a decrease in warranty costs.
11
<PAGE> 13
Acquisition Costs. During the first quarter of fiscal 1998, the Company
incurred $2.4 million in costs related to the Brilliant acquisition. These
acquisition costs primarily consisted of transaction costs and severance and
termination agreements with two former officers of Brilliant.
Interest Expense. Interest expense increased 29.0% to $2.4 million for the
three months ended August 31, 1998, from $1.9 million for the three months ended
August 31, 1997. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 8.32% senior
unsecured notes totaling $61 million in July 1997.
Income Taxes. The income tax provision, expressed as a percentage of income
before income taxes, minority interest and earnings in affiliate, was 41.1% and
56.2% for the three months ended August 31, 1998 and 1997, respectively. The
decrease in the effective tax rate was primarily the result of nondeductible
acquisition costs related to the Brilliant acquisition.
Extraordinary Loss. In connection with the private placement of $61 million
of 8.32% senior unsecured notes in July 1997, the Company repaid existing
secured bank debt of approximately $31 million. Consequently, the Company
recorded an extraordinary loss of $634,000 (net of income tax benefit) which
represented the write-off of unamortized debt issue costs as well as a
prepayment penalty associated with the early repayment of the bank debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $0.9 million for the three months ended August
31, 1998. Net income before depreciation and amortization accounted for a
significant portion of the cash provided by operating activities for the three
months ended August 31, 1998. Substantial increases in inventory and other
working capital items required to open Company-owned retail sales centers
account for most of the operating cash requirements in the period. The increase
in accounts receivable also accounted for the significant portion of cash used
in operations for the first three months of fiscal 1999.
An important part of the Company's growth strategy is to continue to expand
the number of Company-owned retail sales centers and increase its manufacturing
capacity to supply a growing number of Company-owned retail sales centers and
franchises. Management estimates the capital required to open a new retail sales
center is approximately $1.0 million to $1.25 million, primarily for inventory
and working capital. Subject to continued increases in demand, the Company may
incur additional capital expenditures to further increase its manufacturing
capacity. The Company currently plans to open or acquire 30 to 40 retail sales
centers each year for the next two years and, in connection therewith, to use
cash to purchase inventory and operating assets and for working capital
purposes. Management expects increased cash generated by the Company's retail
sales centers and manufacturing operations to substantially fund the working
capital required to open new retail sales centers.
The Company had capital expenditures of $4.9 million for the three months
ended August 31, 1998. These expenditures were used primarily to fund new
Company-owned retail sales centers and expand manufacturing capacity. The
Company paid $4.5, net of cash acquired, to purchase First Value.
At August 31, 1998, the Company had a $125 million floor plan credit
facility with Associates Housing Finance, LLC ("the Associates"). The facility,
similar to a revolving credit facility, bears interest at a rate of prime less
0.05% (8.0% at August 31, 1998) and is used to finance the purchase of inventory
of new homes at its retail sales centers. The Company is able to purchase
participations in the floor plan credit facility, effectively reducing its net
borrowings under the facility. These participations earn interest at a rate of
prime less 0.75% (7.75% at August 31, 1998, with such interest income reported
as a reduction of total interest expense) and are immediately available to the
Company in cash as the Company redeems them. At August 31, 1998, the Company had
net borrowings of $66.4 million (gross borrowings of $96.1 million less
participations of $29.7 million).
On July 15, 1997, the Company completed the private placement of $61
million of 8.32% senior unsecured notes (the "Senior Notes"). Scheduled payments
of the Senior Notes begin in July 2002 and continue annually until paid in full
in July 2007. The Company used the net proceeds to repay approximately
12
<PAGE> 14
$31 million in existing bank debt. The remainder of the proceeds were used to
temporarily reduce borrowings under the Company's floor plan credit facility.
Management believes that the Company's current cash resources, available
floor plan credit facility and cash provided from operations will be sufficient
to satisfy internal working capital and capital expenditure requirements for the
next two fiscal years. Management also plans to pursue acquisition opportunities
in the future. Financing for such acquisitions may be provided by cash from
operations and from external sources. In September 1998, the Company completed
the private placement of $51 million of 7.24% senior unsecured notes with an
average life of 7.5 years and a final maturity in September 2008. The notes will
require semi-annual interest payments and equal annual principal reductions
beginning in 2004. Proceeds from the notes will be used to fund pending
acquisitions with the remainder used for general corporate purposes.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. The Company is currently
working to resolve the potential impact of the Year 2000 issue on the
computerized systems it utilizes internally, and with regard to its products and
customers.
Beginning in calendar 1998, the Company commenced replacement of its
then-current information technology system with a new system. The replacement,
which is expected to be completed in early 1999, is required to meet current and
future needs of the Company's business as well as to make more efficient various
administrative and operating functions. Because the Company did not undertake
this replacement for reasons of Year 2000 compliance, the costs of this
conversion have not been identified as Year 2000 compliance costs. The current
upgrading of the Company's software programs and operating systems will cost
approximately $2.3 million and the Company believes that these new programs and
systems will not be subject to the Year 2000 problem.
The Company relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers, which are outside of the Company's control. There is no
assurance that such parties will not suffer a Year 2000 business disruption,
which could have a material adverse effect on the Company's financial condition
and results of operations.
The Company has not yet developed a Year 2000 specific contingency plan.
The Company intends to prepare a contingency plan with respect to its financial
and accounting software no later than mid-calendar 1999. In addition, if further
Year 2000 compliance issues are discovered, the Company then will evaluate the
need for one or more contingency plans relating to those particular issues.
CONTINGENCIES
A manufacturing subsidiary of the Company has been named as a defendant in
a class action lawsuit filed in Kentucky in September 1998, claiming wrongful
conduct, fraudulent misrepresentation and that manufactured housing units are
unsafe and/or dangerous for residential use. The size of the damages are
uncertain. The Company believes the claims are without merit and plans to
vigorously defend itself against these claims. The Company is unable to
determine at this time the potential liability, if any.
13
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<C> <S> <C>
2.1 -- Note Purchase Agreement, 8.32% Senior August 1997, Form 10-Q
Unsecured Notes due July 7, 2007.
3.1 -- Restated Articles of Incorporation of S-1 Registration Statement
American Homestar Corporation. No. 33-78630
3.2 -- Articles of Amendment and Restated Articles May 1998 Form 10-K
of Incorporation
3.3 -- Amended and Restated Bylaws of American S-1 Registration Statement
Homestar Corporation. No. 33-78630
4.1 -- Specimen Common Stock Certificate. S-1 Registration Statement
No. 33-78630
10.1 -- Employment Agreement, dated September 15 Filed herewith
1998, by and between American Homestar
Corporation and Craig A. Reynolds.
10.2 -- Employment Agreement, dated September 15 Filed herewith
1998, by and between American Homestar
Corporation and Charles N. Carney, Jr.
10.3 -- The Company's Market Capitalization 1998 Definitive Proxy
Enhancement Stock Option Plan Statement
11 -- None
15 -- None
18 -- None
19 -- None
22 -- None
24 -- None
27 -- Financial Data Schedules Filed herewith
99 -- None
</TABLE>
(b) Form 8-K
The Company did not file any Reports on Form 8-K during the respective
period.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOMESTAR CORPORATION
By: /s/ CRAIG A. REYNOLDS
----------------------------------
Craig A. Reynolds
Executive Vice President,
Chief Financial Officer,
Secretary and Director
(Principal Financial and
Accounting Officer)
Date: October 14, 1998
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<C> <S> <C>
2.1 -- Note Purchase Agreement, 8.32% Senior August 1997, Form 10-Q
Unsecured Notes due July 7, 2007.
3.1 -- Restated Articles of Incorporation of S-1 Registration Statement
American Homestar Corporation. No. 33-78630
3.2 -- Amended and Restated Bylaws of American S-1 Registration Statement
Homestar Corporation. No. 33-78630
3.3 -- Amended and Restated Bylaws of American S-1 Registration Statement
Homestar Corporation. No. 33-78630
4.1 -- Specimen Common Stock Certificate. S-1 Registration Statement
No. 33-78630
10.1 -- Employment Agreement, dated September 15 Filed herewith
1998, by and between American Homestar
Corporation and Craig A. Reynolds.
10.2 -- Employment Agreement, dated September 15 Filed herewith
1998, by and between American Homestar
Corporation and Charles N. Carney, Jr.
10.3 -- The Company's Market Capitalization 1998 Definitive Proxy
Enhancement Stock Option Plan Statement
11 -- None
15 -- None
18 -- None
19 -- None
22 -- None
24 -- None
27 -- Financial Data Schedules Filed herewith
99 -- None
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of the 15th day of
September, 1998, by and between American Homestar Corporation, a Texas
corporation ("Employer") and Craig A. Reynolds ("Employee").
WITNESSETH:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I. RESPONSIBILITIES
Employee shall have the title, and perform the duties, of Executive Vice
President and Chief Financial Officer of Employer and/or such other positions
or duties as reasonably requested from time to time by the Executive Committee,
Chief Executive Officer(s) or Board of Directors of Employer. Employee will
faithfully devote his best efforts and all his working time to and for the
benefit of Employer; provided, however, that Employee may, at his option,
devote reasonable time and attention to civic, charitable, business or social
organizations or speaking engagements as he deems appropriate. It is
anticipated that Employee may devote a reasonable amount of time to serving on
the board of directors of one or more public or private corporations, provided
that the business activities of any such corporation are not competitive with
those of Employer.
ARTICLE II. COMPENSATION
SECTION 2.1 GENERAL TERMS. As compensation for his services rendered
under this Agreement, during the term of this Agreement, Employee shall be
entitled to receive the compensation as provided in EXHIBIT A attached hereto.
SECTION 2.2 REIMBURSEMENT. It is acknowledged by the parties that
Employee, in connection with the services to be performed by him pursuant to
the terms of this Agreement, will be required to make payments for travel,
communications, entertainment of business associates and similar expenses.
Employer will reimburse Employee for all reasonable expenses of types
authorized by Employer and incurred by Employee in the performance of his
duties hereunder. Employee will comply with such budget limitations and
approval and reporting requirements with respect to expenses as Employer may
establish from time to time.
AHC/Craig A. Reynolds - Employment Agreement Page 1
<PAGE> 2
ARTICLE III.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 3.1 DEFINITIONS. For purposes of this Agreement, "Confidential
Information" is any data or information that is unique to Employer,
proprietary, competitively sensitive, and not generally known by the public,
including, but not limited to, Employer's initial business plan, prospective
customers ("prospective customers" is understood to mean those potential
customers with whom or with which Employer is engaged in active discussion
about a business relationship) training manuals, product development plans,
bidding and pricing procedures, internal performance statistics, financial
data, confidential personnel information concerning employees of Employer,
operational or administrative plans, policy manuals, and terms and conditions
of contracts and agreements. The term "Confidential Information" shall not
apply to information which is (i) already in Employee's possession (unless such
information was obtained by Employee from Employer in the course of Employee's
employment by Employer); (ii) received by Employee from a third party with no
restriction on disclosure or (iii) required to be disclosed by any applicable
law or by an order of a court of competent jurisdiction.
SECTION 3.2 USE AND DISCLOSURE. Employee recognizes and acknowledges that
the Confidential Information constitutes valuable, special and unique assets of
Employer and its affiliates. Except as required to perform Employee's duties as
an employee of Employer, until such time as they cease to be Confidential
Information through no act of Employee in violation of this Agreement, Employee
will not use or disclose any Confidential Information of Employer.
SECTION 3.3 SURRENDER. Upon the request of Employer and, in any event,
upon the termination of this Agreement for any reason, Employee will surrender
to Employer (i) all memoranda, notes, records, drawings, manuals or other
documents pertaining to Employer's Business (as defined below) including all
copies and/or reproductions thereof and (ii) all materials involving any
Confidential Information of Employer.
ARTICLE IV. NONCOMPETITION
SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until one year after the termination of
Employee's employment hereunder (the "Restricted Period"), for any reason,
Employee will not, directly or indirectly, induce or attempt to influence any
officer, employee, or consultant of Employer to leave its employ for employment
by or with any competitor of Employer in the business of manufacturing,
retailing, or financing manufactured homes or to hire any such officer,
employee or consultant, whether or not so induced or influenced.
SECTION 4.2 REFORMATION AND SEVERANCE. If a judicial determination is made
that any of the provisions of the above restriction constitutes an unreasonable
or otherwise unenforceable restriction against Employee, it shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable. In this regard, the parties
hereby agree that any judicial authority construing this Agreement shall be
empowered to sever any portion of the prohibited business activity from the
coverage of this restriction and to apply the restriction
AHC/Craig A. Reynolds - Employment Agreement Page 2
<PAGE> 3
to the remaining portion of the business activities not so severed by such
judicial authority. Moreover, notwithstanding the fact that any provisions of
this restriction are determined by a court not be specifically enforceable
through injunctive relief, Employer shall nevertheless be entitled to seek to
recover monetary damages as a result of the breach of such provision by
Employee. The time period during which the restrictions shall apply shall be
tolled and suspended as to Employee for a period equal to the aggregate quantity
of time during which Employee violates such prohibitions in any respect.
ARTICLE V. TERM
Subject to Article VI below, this Agreement shall continue in full force
and effect for a term of three (3) years commencing on the Effective Date and
shall thereafter automatically renew for successive additional one year terms
unless either party provides the other with written notice of its intent not to
renew this Agreement at least ninety (90) days prior to the end of the term.
ARTICLE VI. TERMINATION
Employee's employment hereunder will terminate prior to the time set forth
in Article V hereof upon the occurrence of the following events:
(a) BY EMPLOYER WITHOUT CAUSE. Employer may terminate this Agreement
at any time, for any reason or without cause. In the event of the
termination of this Agreement pursuant to this Subsection, Employee shall
be entitled to receive the salary and bonuses, as if Employee continued to
be employed by the Company, and stock options shall continue to vest, as
provided for in Exhibit A until the later of (i) the date that this
Agreement would have expired had it not been terminated pursuant to this
Subsection or (ii) one year after termination pursuant to this Subsection.
(b) BY EMPLOYEE WITHOUT CAUSE. Employee may terminate this Agreement
at any time, for any reason or without cause. In the event of the
termination of this Agreement pursuant to this Subsection, Employee shall
be entitled to receive only the compensation earned by him as of, and
payable for the period prior to, the date of termination.
(c) BY EMPLOYER WITH CAUSE. This Agreement may be terminated by
Employer at any time upon written notice for any of the following reasons:
I. a substantial breach by the Employee of a material provision of
this Agreement, which breach remains uncorrected for more than
thirty (30) days following written notice detailing the specific
provision for which a breach is alleged, and setting forth the
actions, which, when taken, will correct the breach;
II. conviction of the Employee for a felony which materially affects
Employee's ability to perform his duties pursuant to this
Agreement; or
AHC/Craig A. Reynolds - Employment Agreement Page 3
<PAGE> 4
III. commission by Employee of an act of fraud, embezzlement, or
material dishonesty against Employer or its affiliates.
In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive only the compensation earned by him as
of, and payable for the period prior to, the date of termination.
(d) BY EMPLOYEE FOR CAUSE. This Agreement may be terminated by
Employee at any time upon written notice to Employer after the occurrence
of a Constructive Termination. As used in this Agreement, the term
"Constructive Termination" means any of the following:
I. a substantial breach by Employer of a material provision of
this Agreement, which breach remains uncorrected for more
than thirty (30) days following written notice detailing
the specific provision for which a breach is alleged, and
setting forth the actions, which, when taken, will correct
the breach;
II. a material reduction in Employee's compensation, duties and
responsibilities without Employee's consent; or
III. conviction of Employer for a felony related to activities
in which Employee has not participated.
In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive the salary and bonuses, as if Employee
continued to be employed by the Company, and stock options shall continue to
vest, as provided for in Exhibit A until the later of (i) the date that this
Agreement would have expired had it not been terminated pursuant to this
Subsection or (ii) one year after termination pursuant to this Subsection.
(e) TERMINATION ON DEATH. In the event of Employee's death, this
Agreement will be deemed to have terminated on the date of his death. In
the event of his death, Employer will pay to the testamentary trusts
created by Employee's Will or, if there are no such trusts, to his estate,
all salary and bonuses due and owing through the date of his death plus
all bonuses that would have been earned by Employee up through his date of
death (prorated to the date of death) together with a lump sum payment in
the amount of one hundred percent (100%) of the Employee's annual base
salary as provided in Exhibit A.
(f) TERMINATION ON DISABILITY. This Agreement will terminate
immediately in the event Employee becomes physically or mentally disabled.
Employee will be deemed disabled if, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from
his duties with Employer on a full-time basis for 120 consecutive business
days. In the event of the termination of this Agreement pursuant to this
Subsection, Employee shall be entitled to receive all salary and bonuses
due and owing through the date of his disability plus all bonuses that
would have been earned by Employee up through his date of disability
(prorated to date of disability).
AHC/Craig A. Reynolds - Employment Agreement Page 4
<PAGE> 5
(g) PAYMENTS. Any payments to be made under this Article VI shall be
made, unless otherwise specifically provided for in this Article VI, at the
time it would have been due and payable if this Agreement had not been
terminated pursuant to this Article VI.
ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT
SECTION 7.1 TERMINATION PAYMENT.
(a) Notwithstanding anything to the contrary contained in Article VI
hereof, if, Employee's employment with Employer terminates pursuant to Article
VI (a) or (d) hereof within the twelve month period following a Change In
Control (as defined in Section 7.2 hereof), the Employee shall be entitled to
receive the following:
I. The salary and bonuses, as if Employee continued to be employed by the
Company, provided for in Exhibit A until the later of (i) the date that this
Agreement would have expired had a Change in Control not occurred; or (ii)
one-year after the date of termination of Employee's employment with Employer.
II. All options to purchase common stock of Employer shall fully vest.
(b) Notwithstanding anything to the contrary contained in Article VI
hereof, if, Employee's employment with Employer terminates pursuant to Article
VI (b) hereof within the twelve month period following a Change In Control (as
defined in Section 7.2 hereof), the Employee shall be entitled to receive the
following:
I. The salary and bonuses, as if Employee continued to be employed by the
Company, provided for in Exhibit A until the earlier of (i) the date that this
Agreement would have expired had a Change In Control not occurred; or (ii)
one-year after the date of termination of Employee's employment with Employer.
II. All options to purchase common stock of Employer shall fully vest.
SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof (i) when a change of stock ownership of Employer of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and any successor Item of a similar nature has occurred;
or (ii) upon the acquisition of beneficial ownership, directly or indirectly, by
any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange
Act) of securities of Employer representing 50% or more of the combined voting
power of Employer's then outstanding securities; or (iii) during any period of
two consecutive years, a majority of the Board of Directors ceases, for any
reason, to consist of Continuing Directors; provided that a Change In Control
will not be deemed to have occurred for purposes hereof with respect to any
person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
promulgated under the Exchange Act. As used herein, "Continuing Director" shall
mean a member of the Board of Directors of Employer who either (i) was a member
of the Board of Directors as of the beginning of the relevant two year period
AHC/Craig A. Reynolds - Employment Agreement Page 5
<PAGE> 6
or (ii) was nominated or appointed (before initial election as a director) to
serve as a director by a majority of the Continuing Directors.
SECTION 7.3 NO RIGHT TO CONTINUED EMPLOYMENT. This Article VII will not
give Employee any right of continued employment or any right to compensation or
benefits from Employer except the rights specifically stated herein.
ARTICLE VIII. GENERAL TERMS
SECTION 8.1 NOTICES. All notices and other communications hereunder will be
in writing or by written telecommunication, and will be deemed to have been duly
given if delivered personally or if sent by overnight courier or by written
telecommunication, to the relevant address set forth below, or to such other
address as the recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section:
If to Employer, to: with a copy to:
American Homestar Corporation Jackson Walker L.L.P.
2221 E. Lamar Boulevard, Suite 790 901 Main Street Suite 6000
Arlington, Texas 76006-7422 Dallas, Texas 75202
Attention: President Attention: Richard F. Dahlson
Fax No.: (817) 695-0120 Fax No.: (214) 953-5822
If to Employee, to:
Craig A. Reynolds
3106 Scenic Elm
Houston, Texas 77059
SECTION 8.2 WITHHOLDING. All payments required to be made by Employer
under this Agreement to Employee will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
SECTION 8.3 ENTIRE AGREEMENT; MODIFICATION. This Agreement and Exhibit A
attached hereto constitute the complete and entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
between the parties. The parties have executed this Agreement based upon the
express terms and provisions set forth herein and have not relied on any
communications or representations, oral or written, which are set forth in this
Agreement.
SECTION 8.4 AMENDMENT. The covenants and/or provisions of this Agreement
may not be modified by any subsequent agreement unless the modifying agreement:
(i) is in writing; (ii) contains an express provision referencing this
Agreement; (iii) is signed and executed on behalf of Employer by an officer of
Employer other than Employee; (iv) is approved by resolution of the Board; and
(v) is signed by Employee.
AHC/Craig A. Reynolds - Employment Agreement Page 6
<PAGE> 7
SECTION 8.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.
SECTION 8.6 CHOICE OF LAW. This Agreement and the performance hereof will
be construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
SECTION 8.7 COSTS. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
SECTION 8.8 SUCCESSORS AND ASSIGNS. The obligations, duties and
responsibilities of Employee under this Agreement are personal and shall not be
assignable. In the event of Employee's death or disability, this Agreement
shall be enforceable by Employee's estate, executors and/or legal
representatives.
SECTION 8.9 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any subsequent breach of the same or any other terms and conditions
hereof.
SECTION 8.10 SEVERABILITY. The provisions of this Agreement shall be
deemed severable, and if any portion shall be held invalid, illegal or
enforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties provided that the substance of the economic
relationship created by this Agreement remains materially unchanged.
SECTION 8.11 REMEDIES. The parties hereto acknowledge and agree that upon
any breach by Employee of his obligations under either of Articles III and IV
hereof, Employer will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief. No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.
SECTION 8.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.
AHC/Craig A. Reynolds - Employment Agreement Page 7
<PAGE> 8
IN WITNESS WHEREOF, Employer and Employee have caused this Agreement as of
the day and year first above written.
/s/ CRAIG A. REYNOLDS
--------------------------------------------------
Craig A. Reynolds
AMERICAN HOMESTAR CORPORATION
By: /s/ FINIS F. TEETER
--------------------------------------------------
Finis F. Teeter, Co-Chief Executive Officer
AHC/Craig A. Reynolds - Employment Agreement Page 8
<PAGE> 9
EXHIBIT A
COMPENSATION PLAN
A. Position: Executive Vice President and Chief Financial Officer of
American Homestar Corporation ("AHC"). This position
reports to the Executive Committee.
B. Base Salary: $180,000 annual rate, payable bi-weekly in arrears,
effective as of September 1, 1998.
C. Bonus Compensation Effective as of June 1, 1998:
1. Target Bonus: $100,000 per year, per the Company's Target Bonus Plan.
The Target Bonus is earned 100% for 100% achievement of the annual
Wall Street Forecast ("WSF") profit performance. Bonus is adjusted 2%
for each 1% above or below actual results as compared to the WSF. For
example, for 90% achievement of WSF, the bonus is 80% x Target, or
$80,000. For 110% achievement, the bonus is 120% x Target or
$120,000. The maximum bonus is 150%. The bonus is funded quarterly up
to 100% performance. Employee must be employed as of the end of the
fiscal quarter in order to earn and receive the Quarterly Bonus.
2. Annual AHC Profit Bonus: 0.50% of the net profit of American Homestar
Corporation, net of taxes, before Senior Management Annual AHC Profit
Bonus accrual. Paid at the end of the fiscal year. Employee must be
employed as of the end of the fiscal year in order to earn and
receive the annual bonus.
D. Auto Allowance: $600 per month, plus gas and oil expenses.
E. Insurance: Reimbursement for Actual Premiums for existing AICPA life
and disability insurance.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of the 15th day of
September, 1998, by and between American Homestar Corporation, a Texas
corporation ("Employer") and Charles N. Carney, Jr. ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I. RESPONSIBILITIES
Employee shall have the title, and perform the duties, of President and
Chief Operating Officer of Nationwide Housing Corporation, all of the Company
owned and controlled retailing operations and subsidiaries of Employer, and/or
such other positions or duties as reasonably requested from time to time by the
Executive Committee, Chief Executive Officer(s) or Board of Directors of
Employer. Employee will faithfully devote his best efforts and all his working
time to and for the benefit of Employer; provided, however, that Employee may,
at his option, devote reasonable time and attention to civic, charitable,
business or social organizations or speaking engagements as he deems
appropriate. It is anticipated that Employee may devote a reasonable amount of
time to serving on the board of directors of one or more public or private
corporations, provided that the business activities of any such corporation are
not competitive with those of Employer.
ARTICLE II. COMPENSATION
SECTION 2.1 GENERAL TERMS. As compensation for his services rendered under
this Agreement, during the term of this Agreement, Employee shall be entitled to
receive the compensation as provided in EXHIBIT A attached hereto.
SECTION 2.2 REIMBURSEMENT. It is acknowledged by the parties that Employee,
in connection with the services to be performed by him pursuant to the terms of
this Agreement, will be required to make payments for travel, communications,
entertainment of business associates and similar expenses. Employer will
reimburse Employee for all reasonable expenses of types authorized by Employer
and incurred by Employee in the performance of his duties hereunder. Employee
will comply with such budget limitations and approval and reporting requirements
with respect to expenses as Employer may establish from time to time.
AHC/Charles N. Carney, Jr. - Employment Agreement Page 1
<PAGE> 2
ARTICLE III.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 3.1 DEFINITIONS. For purposes of this Agreement, "Confidential
Information" is any data or information that is unique to Employer,
proprietary, competitively sensitive, and not generally known by the public,
including, but not limited to, Employer's initial business plan, prospective
customers ("prospective customers" is understood to mean those potential
customers with whom or with which Employer is engaged in active discussion
about a business relationship) training manuals, product development plans,
bidding and pricing procedures, internal performance statistics, financial
data, confidential personnel information concerning employees of Employer,
operational or administrative plans, policy manuals, and terms and conditions
of contracts and agreements. The term "Confidential Information" shall not
apply to information which is (i) already in Employee's possession (unless such
information was obtained by Employee from Employer in the course of Employee's
employment by Employer); (ii) received by Employee from a third party with no
restriction on disclosure or (iii) required to be disclosed by any applicable
law or by an order of a court of competent jurisdiction.
SECTION 3.2 USE AND DISCLOSURE. Employee recognizes and acknowledges that
the Confidential Information constitutes valuable, special and unique assets of
Employer and its affiliates, except as required to perform Employee's duties as
an employee of Employer, until such time as they cease to be Confidential
Information through no act of Employee in violation of this Agreement, Employee
will not use or disclose any Confidential Information of Employer.
SECTION 3.3 SURRENDER. Upon the request of Employer and, in any event,
upon the termination of this Agreement for any reason, Employee will surrender
to Employer (i) all memoranda, notes, records, drawings, manuals or other
documents pertaining to Employer's Business (as defined below) including all
copies and/or reproductions thereof and (ii) all materials involving any
Confidential Information of Employer.
ARTICLE IV. NONCOMPETITION
SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until one year after the termination of
Employee's employment hereunder (the "Restricted Period"), for any reason,
Employee will not, directly or indirectly, induce or attempt to influence any
officer, employee, or consultant of Employer to leave its employ for employment
by or with any competitor of Employer in the business of manufacturing,
retailing, or financing manufactured homes or to hire any such officer,
employee or consultant, whether or not so induced or influenced.
SECTION 4.2 REFORMATION AND SEVERANCE. If a judicial determination is made
that any of the provisions of the above restriction constitutes an unreasonable
or otherwise unenforceable restriction against Employee, it shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable. In this regard, the parties
hereby agree that any judicial authority construing this Agreement shall be
empowered to sever any portion of the prohibited business activity from the
coverage of this restriction and to apply the restriction
AHC/Charles N. Carney, Jr. - Employment Agreement Page 2
<PAGE> 3
to the remaining portion of the business activities not so severed by such
judicial authority. Moreover, notwithstanding the fact that any provisions of
this restriction are determined by a court not be specifically enforceable
through injunctive relief, Employer shall nevertheless be entitled to seek to
recover monetary damages as a result of the breach of such provision by
Employee. The time period during which the restrictions shall apply shall be
tolled and suspended as to Employee for a period equal to the aggregate
quantity of time during which Employee violates such prohibitions in any
respect.
ARTICLE V. TERM
Subject to Article VI below, this Agreement shall continue in full force
and effect for a term of three (3) years commencing on the Effective Date and
shall thereafter automatically renew for successive additional one year terms
unless either party provides the other with written notice of its intent not to
renew this Agreement at least ninety (90) days prior to the end of the term.
ARTICLE VI. TERMINATION
Employee's employment hereunder will terminate prior to the time set forth
in Article V hereof upon the occurrence of the following events:
(a) BY EMPLOYER WITHOUT CAUSE. Employer may terminate this Agreement
at any time, for any reason or without cause. In the event of the
termination of this Agreement pursuant to this Subsection, Employee shall
be entitled to receive the salary and bonuses, as if Employee continued to
be employed by the Company, and stock options shall continue to vest, as
provided for in Exhibit A until the later of (i) the date that this
Agreement would have expired had it not been terminated pursuant to this
Subsection or (ii) one year after termination pursuant to this Subsection.
(b) BY EMPLOYEE WITHOUT CAUSE. Employee may terminate this Agreement
at any time, for any reason or without cause. In the event of the
termination of this Agreement pursuant to this Subsection, Employee shall
be entitled to receive only the compensation earned by him as of, and
payable for the period prior to, the date of termination.
(c) BY EMPLOYER WITH CAUSE. This Agreement may be terminated by
Employer at any time upon written notice for any of the following reasons:
I. a substantial breach by the Employee of a material provision of
this Agreement, which breach remains uncorrected for more than
thirty (30) days following written notice detailing the specific
provision for which a breach is alleged, and setting forth the
actions, which, when taken, will correct the breach;
II. conviction of the Employee for a felony which materially affects
Employee's ability to perform his duties pursuant to this
Agreement; or
AHC/Charles N. Carney, Jr. - Employment Agreement Page 3
<PAGE> 4
III. commission by Employee of an act of fraud, embezzlement, or
material dishonesty against Employer or its affiliates.
In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive only the compensation earned by him as
of, and payable for the period prior to, the date of termination.
(d) BY EMPLOYEE FOR CAUSE. This Agreement may be terminated by
Employee at any time upon written notice to Employer after the occurrence
of a Constructive Termination. As used in this Agreement, the term
"Constructive Termination" means any of the following:
I. a substantial breach by Employer of a material provision of this
Agreement, which breach remains uncorrected for more than thirty
(30) days following written notice detailing the specific
provision for which a breach is alleged, and setting forth the
actions, which, when taken, will correct the breach;
II. a material reduction in Employee's compensation, duties and
responsibilities without Employee's consent; or
III. conviction of Employer for a felony related to activities in
which employee has not participated.
In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive the salary and bonuses, as if Employee
continued to be employed by the Company, and stock options shall continue to
vest, as provided for in Exhibit A until the later of (i) the date that this
Agreement would have expired had it not been terminated pursuant to this
Subsection or (ii) one year after termination pursuant to this Subsection.
(e) TERMINATION ON DEATH. In the event of Employee's death, this
Agreement will be deemed to have terminated on the date of his death. In the
event of his death, Employer will pay to the testamentary trusts created by
Employee's Will or, if there are no such trusts, to his estate, all salary and
bonuses due and owing through the date of his death plus all bonuses that would
have been earned by Employee up through his date of death (prorated to the date
of death) together with a lump sum payment in the amount of one hundred percent
(100%) of the Employee's annual base salary as provided in Exhibit A.
(f) TERMINATION ON DISABILITY. This Agreement will terminate
immediately in the event Employee becomes physically or mentally disabled.
Employee will be deemed disabled if, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from his duties
with Employer on a full-time basis for 120 consecutive business days. In the
event of the termination of this Agreement pursuant to this Subsection, Employee
shall be entitled to receive all salary and bonuses due and owing through the
date of his disability plus all bonuses that would have been earned by Employee
up through his date of disability (prorated to date of disability).
AHC/Charles N. Carney, Jr. - Employment Agreement Page 4
<PAGE> 5
(g) PAYMENTS. Any payments to be made under this Article VI shall be
made, unless otherwise specifically provided for in this Article VI, at the
time it would have been due and payable if this Agreement had not been
terminated pursuant to this Article VI.
ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT
SECTION 7.1 TERMINATION PAYMENT.
(a) Notwithstanding anything to the contrary contained in Article VI
hereof, if, Employee's employment with Employer terminates pursuant to Article
VI (a) or (d) hereof within the twelve month period following a Change In
Control (as defined in Section 7.2 hereof), the Employee shall be entitled to
receive the following:
I. The salary and bonuses, as if Employee continued to be employed
by the Company, provided for in Exhibit A until the later of (i) the date that
this Agreement would have expired had a Change In Control not occurred; or (ii)
one-year after the date of termination of Employee's employment with Employer.
II. All options to purchase common stock of Employer shall fully vest.
(b) Notwithstanding anything to the contrary contained in Article VI
hereof, if, Employee's employment with Employer terminates pursuant to Article
VI (b) hereof within the twelve month period following a Change In Control (as
defined in Section 7.2 hereof), the Employee shall be entitled to receive the
following:
I. The salary and bonuses, as if Employee continued to be employed by
the Company, provided for in Exhibit A until the earlier of (i) the date that
this Agreement would have expired had a Change In Control not occurred; or
(ii) one-year after the date of termination of Employee's employment with
Employer.
II. All options to purchase common stock of Employer shall fully vest.
SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof (i) when a change of stock ownership of Employer
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and any successor Item of a similar nature has occurred;
or (ii) upon the acquisition of beneficial ownership, directly or indirectly, by
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) of securities of Employer representing 50% or more of the combined voting
power of Employer's then outstanding securities; or (iii) during any period of
two consecutive years, a majority of the Board of Directors ceases, for any
reason, to consist of Continuing Directors; provided that a Change In Control
will not be deemed to have occurred for purposes hereof with respect to any
person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
promulgated under the Exchange Act. As used herein, "Continuing Director" shall
mean a member of the Board of Directors of Employer who either (i) was a member
of the Board of Directors as of the beginning of the relevant two year period
AHC/Charles N. Carney, Jr. - Employment Agreement Page 5
<PAGE> 6
or (ii) was nominated or appointed (before initial election as a director) to
serve as a director by a majority of the then Continuing Directors.
SECTION 7.3 NO RIGHT TO CONTINUED EMPLOYMENT. This Article VII will not
give Employee any right of continued employment or any right to compensation or
benefits from Employer except the rights specifically stated herein.
ARTICLE VIII. GENERAL TERMS
SECTION 8.1 NOTICES. All notices and other communications hereunder will
be in writing or by written telecommunication, and will be deemed to have been
given if delivered personally or if sent by overnight courier or by written
telecommunication, to the relevant address set forth below, or to such other
address as the recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section:
If to Employer, to: with a copy to:
American Homestar Corporation Jackson Walker L.L.P.
2221 E. Lamar Boulevard, Suite 790 901 Main Street Suite 6000
Arlington, Texas 76006-7422 Dallas, Texas 75202
Attention: President Attention: Richard F. Dahlson
Fax No.: (817) 695-0120 Fax No.: (214) 953-5822
If to Employee, to:
Charles N. Carney, Jr.
2203 South Centery Court
Friendswood, Texas 77546
SECTION 8.2 WITHHOLDING. All payments required to be made by Employer
under this Agreement to Employee will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
SECTION 8.3 ENTIRE AGREEMENT; MODIFICATION. This Agreement and Exhibit A
attached hereto constitute the complete and entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties. The parties have executed this Agreement based
upon the express terms and provisions set forth herein and have not relied on
any communications or representations, oral or written, which are not set forth
in this Agreement.
SECTION 8.4 AMENDMENT. The covenants and/or provisions of this Agreement
may not be modified by any subsequent agreement unless the modifying agreement:
(i) is in writing; (ii) contains an express provision referencing this
Agreement; (iii) is signed and executed on behalf of Employer by an officer of
Employer other than Employee; (iv) is approved by resolution of the Board; and
(v) is signed by Employee.
AHC/Charles N. Carney, Jr. - Employment Agreement Page 6
<PAGE> 7
SECTION 8.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.
SECTION 8.6 CHOICE OF LAW. This Agreement and the performance hereof will
be construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
SECTION 8.7 COSTS. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
SECTION 8.8 SUCCESSORS AND ASSIGNS. The obligations, duties and
responsibilities of Employee under this Agreement are personal and shall not be
assignable. In the event of Employee's death or disability, this Agreement
shall be enforceable by Employee's estate, executors and/or legal
representatives.
SECTION 8.9 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any subsequent breach of the same or any other terms and conditions
hereof.
SECTION 8.10 SEVERABILITY. The provisions of this Agreement shall be
deemed severable, and if any portion shall be held invalid, illegal or
enforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties provided that the substance of the economic
relationship created by this Agreement remains materially unchanged.
SECTION 8.11 REMEDIES. The parties hereto acknowledge and agree that
upon any breach by Employee of his obligations under either of Articles III and
IV hereof, Employer will have no adequate remedy at law, and accordingly will
be entitled to specific performance and other appropriate injunctive and
equitable relief. No remedy set forth in this Agreement or otherwise conferred
upon or reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.
SECTION 8.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.
AHC/Charles N. Carney, Jr. - Employment Agreement Page 7
<PAGE> 8
IN WITNESS WHEREOF, Employer and Employee have caused this Agreement as of
the day and year first above written.
/s/ CHARLES N. CARNEY, JR.
---------------------------------------------
Charles N. Carney, Jr.
AMERICAN HOMESTAR CORPORATION
By: /s/ FINIS F. TEETER
---------------------------------------------
Finis F. Teeter, Co-Chief Executive Officer
AHC/Charles N. Carney, Jr. - Employment Agreement Page 8
<PAGE> 9
EXHIBIT A
COMPENSATION PLAN
A. Position: President and Chief Operating Officer of Nationwide
Housing Corporation, all of the Company owned and
controlled retailing operations and subsidiaries of
Employer. This position reports to the Executive
Committee.
B. Base Salary: $240,000 annual rate, payable bi-weekly in arrears,
effective as of September 1, 1998.
C. Bonus Compensation Effective as of June 1, 1998:
1. Target Bonus: $200,000 per year, per the Company's Target Bonus
Plan. The Target Bonus is earned 100% for 100% achievement of the
annual Wall Street Forecast ("WSF") profit performance. Bonus is
adjusted 2% for each 1% above or below actual results as compared
to the WSF. For example, for 90% achievement of WSF, the bonus
is 80% x Target, or $160,000. For 110% achievement, the bonus is
120% x Target or $240,000. The maximum bonus is 150%. The bonus
is funded quarterly up to 100% performance. Employee must be
employed as of the end of the fiscal quarter in order to earn and
receive the Quarterly Bonus.
2. Annual AHC Profit Bonus: 0.5% of the net profit of American
Homestar Corporation, net of taxes, before Senior Management
Annual AHC Profit Bonus accrual. Paid at the end of the fiscal
year. Employee must be employed as of the end of the fiscal year
in order to earn and receive the annual bonus.
D. Auto Allowance: $600 per month, plus gas and oil expenses.
E. Stock Options:
1. 100,000 shares of new stock options, to be vested over three (3)
years. The options will be granted at a per share price equal to
the closing market price on August 31, 1998.
2. Existing options will be modified to fully vest at the
expiration of this three (3) year Employment Agreement.
3. 100,000 shares of stock options pursuant to the new Senior
Management Performance Option Plan, to be submitted for
Shareholder approval. The options will be granted as of
August 31, 1998, at a per share price equal to the closing
market price on August 31, 1998, subject to Shareholder approval.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 63,775,000
<SECURITIES> 0
<RECEIVABLES> 33,072,000
<ALLOWANCES> 0
<INVENTORY> 82,245,000
<CURRENT-ASSETS> 194,618,000
<PP&E> 64,449,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 312,453,000
<CURRENT-LIABILITIES> 137,634,000
<BONDS> 0
0
0
<COMMON> 877,000
<OTHER-SE> 109,117,000
<TOTAL-LIABILITY-AND-EQUITY> 312,453,000
<SALES> 137,880,000
<TOTAL-REVENUES> 147,531,000
<CGS> 99,934,000
<TOTAL-COSTS> 136,071,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,444,000
<INCOME-PRETAX> 9,016,000
<INCOME-TAX> 3,703,000
<INCOME-CONTINUING> 5,784,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,784,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.31
</TABLE>
