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EXHIBIT 10.4
MANAGEMENT AND CONSULTING AGREEMENT
THIS MANAGEMENT AND CONSULTING AGREEMENT (this "Agreement") is made and
effective as of the 15th day of March, 1999, by and among American Homestar
Corporation, a Texas corporation ("Manager"), Zaring National Corporation, an
Ohio corporation ("ZNC"), and HomeMax, Inc., a Delaware corporation ("Company").
The Company, ZNC and Manager are sometimes referred to herein as a "Party" and
collectively as the "Parties".
WITNESSETH:
WHEREAS, the Parties have entered into an Amended and Restated
Securities Purchase Agreement, dated as of March 15, 1999 (the "Purchase
Agreement"), pursuant to which, among other things, the Manager has made an
investment in the Company; and
WHEREAS, the Parties desire to enter into an agreement whereby Manager
will provide to ZNC certain consulting services with respect to its investment
in the Company and will provide to the Company certain services to assist the
Company in the operation of the businesses and assets of the Company and its
subsidiaries (the Company and its subsidiaries are sometime collectively
referred to herein as the "Affiliated Companies"); and
WHEREAS, Manager is willing to enter into such arrangement in
accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Parties hereby mutually covenant and agree as follows:
I.
DEFINITIONS
For purposes of this Agreement, each of the following terms shall have
the meaning ascribed thereto unless otherwise specified or clearly required by
the context in which such term is used.
1.1 "Affiliates" means, with respect to a Party, entities that directly
or indirectly through one or more intermediaries control, or are
controlled by, or are under common control with, such Party, and
the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership
of voting securities, by contract or otherwise; provided, however,
such term, with respect to each Party, shall not mean the other
Party or Parties.
1.2 "Term" shall have the meaning set forth in Section 7.1 below.
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II.
AUTHORITY AND RESPONSIBILITY OF THE COMPANY
2.1 Consistent with applicable law, the Board of Directors of the
Company (the "Board") shall retain the ultimate legal responsibility for the
operation and management of the business and assets of the Company during the
Term. Manager shall have only the authority and responsibility delegated to it
under this Agreement or by the Board from time to time.
III.
STATUS OF MANAGER
3.1 Manager shall have the authority and responsibility to deal with
the businesses and assets of the Affiliated Companies as delegated to it under
this Agreement. Manager shall render services hereunder as the Affiliated
Companies' agent to the extent specifically provided herein or as further
delegated from time to time by the Board. The relationship created by this
Agreement is one of principal and agent, and nothing to the contrary shall be
inferred from this Agreement. Employees of Manager shall be under the
supervision and control of Manager, and shall not be considered employees of any
of the Affiliated Companies.
IV.
AUTHORITY AND RESPONSIBILITY OF MANAGER
4.1 General. Manager shall consult with and provide advice to ZNC with
respect to ZNC's ownership interest in and management of the Affiliated
Companies. As an agent for the Affiliated Companies, Manager shall have the
authority and responsibility for supervising the management of the operation of
the Affiliated Companies' businesses and assets. In performing such duties,
Manager shall: (i) designate from time-to-time an executive of Manager or its
affiliates to provide direct supervision to the Chief Operating Officer of the
Company (currently Matthew Massarelli) with respect to the day-to-day operations
of the Affiliated Companies, subject to the policies and strategic direction of
the Board; and (ii) make available to the Affiliated Companies various industry
expertise and programs of Manager (e.g., advertising, marketing, training and
benefits), at a cost equal to Manager's direct cost of providing such expertise
and programs. Manager shall notify the Board if there is a dispute between the
Manager and the Chief Operating Officer of the Company prior to taking any
action with regard to such dispute. The Parties agree that it is their intent
and desire to specifically have the Affiliated Companies operated in the manner
set forth on Exhibit A, and Manager shall have the specific power and authority
to take, or refrain from taking, any actions in order to fulfill such
intentions. Manager hereby acknowledges that certain actions require the
approval of the Board as set forth in Section 3.2 of that certain
Securityholders Agreement dated of even date herewith by and among Manager, ZNC
and the Company. Manager shall review and provide suggested revisions to the
existing 1999 operating plan within 120 days of the Closing (as that term is
defined in the Purchase Agreement).
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Notwithstanding anything to the contrary contained herein, Manager
agrees, as agent for the Affiliated Companies, to supervise the management of
the businesses and assets of the Affiliated Companies in a lawful and prudent
manner, consistent with generally accepted standards of the manufactured housing
industry, this Agreement and the goals of the Company set forth on Exhibit A. In
performing its duties and responsibilities hereunder, ZNC and the Company
expressly agree that Manager may undertake business dealings with Manager's
subsidiaries on commercially reasonable terms typically available in the market
place. Manager's supervision activities under this Agreement shall be subject to
the terms hereof and the approval of the Board as provided for herein. Manager
will not be required to assume any existing guarantees by ZNC of any of the
obligations or liabilities of the Affiliated Companies.
4.2 Books and Records. In connection with the performance of its duties
hereunder, Manager shall have full access to the books, records and employees of
the Affiliated Companies. At the request of the Company or ZNC from time to
time, Manager will make available to the requesting party the books and records
of Manager relating to the performance of Manager's duties hereunder. Manager
shall provide to the Board monthly consolidated financial statements of the
Affiliated Companies and such other information as reasonably requested by the
Board. ZNC shall have full and complete access to all financial information of
the Affiliated Companies, including, but not limited to, information necessary
or appropriate to meet the requirements for full and complete reporting of the
financial condition of the Affiliated Companies.
V.
COMPENSATION OF MANAGER
5.1 In consideration for the services provided to the Affiliated
Companies by Manager hereunder, Manager shall be entitled to receive from ZNC a
management and consulting fee (the "Management Fee") equal to (i) $500,000 (the
"Firm Fee"); plus (ii) an amount equal to 25% of the cumulative calendar quarter
losses over $500,000 per calendar quarter of the Affiliated Companies for the
first four consecutive calendar quarters following the Closing, up to a maximum
additional fee of $750,000 (the "Additional Fee"). The Firm Fee shall consist of
$476,000 for the first year of the term (which first year compensation shall be
invoiced by Manager on a calendar quarterly basis, in amounts per quarter as
determined by Manager, and shall be due and payable within fifteen (15) days
after the date of invoice of the last of such four (4) calendar quarters) and
$1,000 per month thereafter (which monthly amount shall be due and payable on
the first day of each month). The Additional Fee shall be invoiced by Manager on
a calendar quarterly basis and shall be due and payable within fifteen (15) days
after the date of invoice of the last of such four (4) calendar quarters. Except
as provided in Section 4.1 above, the Management Fee shall be the sole
compensation of Manager for performing its duties hereunder. The Management Fee
does not include salaries, compensation and expenses associated with personnel
and services to be provided by employees of the Affiliated Companies, which
salaries, compensation and expenses shall be paid directly by the Affiliated
Companies.
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VI.
COVENANTS OF MANGER
6.1 Product Distinction. During the Term (as defined below), Manager
agrees that it shall give the Company-owned retail centers the same treatment
with respect to product distinction as it does to Manager's franchisees and
Manager-owned retail sales centers (specifically, Manager will provide
distinctive product lines in terms of brand name, floor plan designs and certain
decor features for Company-owned stores within a specific market area).
6.2 Retail Sites. During the Term, Manager shall allow the Company to
have access to Manager-controlled retail home sites on the same basis as
Manager's franchisees and Manager- owned retail sales centers.
VII.
TERM OF THE AGREEMENT
7.1 Term. The term of this Agreement shall begin on the date hereof and
shall continue until the earlier of: (i) three (3) years and ninety (90) days
from the date hereof; (ii) the mutual agreement of ZNC and Manager; (iii) a
default by Manager under any material term of this Agreement which default is
not cured within thirty (30) days after written notice to Manager (the "Term");
(iv) a default by Manager for failure to pay any principal or interest under the
Investor Note (as defined in the Purchase Agreement), which default is not cured
within the applicable cure period; or (v) a default by Manager for failure,
under the Securityholders Agreement (as defined in the Purchase Agreement) to
perform its obligation under 4.1 of the Securityholders Agreement with respect
to the Put (as that term is defined in the Securityholders Agreement).
VIII.
INDEMNIFICATION
8.1 Indemnification by the Company. The Company hereby agrees to
indemnify and hold Manager and its officers, directors, agents and
representatives (collectively the "Indemnitees") harmless from and against any
and all losses, liabilities, costs and damages (or actions or claims in respect
thereof) which any Indemnitee may suffer or incur, insofar as such claims,
liabilities, costs or damages (or actions or claims in respect thereof) arise
out of or are based upon the performance by Manager of its duties hereunder
(including, without limitation, any and all reasonable legal and other expenses
reasonably incurred by Indemnitee in connection with investigating, defending or
prosecuting any of such matters whether or not resulting in any loss, liability
or damage), except to the extent the same is caused by the gross negligence or
willful misconduct of any Indemnitee.
8.2 Indemnification by Manager. Manager hereby agrees to indemnify and
hold the Company and its officers, directors, agents and representatives
(collectively, the "Company Indemnitees") harmless from and against any and all
losses, liabilities, costs and damages (or actions
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or claims in respect thereof) which any Company Indemnitee may suffer or incur,
insofar as such claims, liabilities, costs or damages (or actions or claims in
respect thereof) arise out of or are based upon the gross negligence or willful
misconduct of Manager (including, without limitation, any and all reasonable
legal and other expenses reasonably incurred by Company Indemnitee in connection
with investigating, defending or prosecuting any of such matters whether or not
resulting in any loss, liability or damage).
IX.
MISCELLANEOUS
9.1 Relationship of Parties. This Agreement does not create a
partnership, joint venture, or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever be construed to create a partnership, joint venture, or
association, or the relationship of lessor and lessee or bailor and bailee, or
to impose any duty, obligation, or liability that would arise therefrom with
respect to any of the Parties.
9.2 No Third Party Beneficiaries. Except to the extent a third party is
expressly given rights herein, any agreement to pay an amount and any assumption
of liability herein contained, expressed or implied, shall be only for the
benefit of the Parties and their respective legal representatives, successors,
and assigns, and such agreements or assumption shall not inure to the benefit of
the obligees of any indebtedness of any Party whomsoever, it being the intention
of the Parties hereto that no person or entity shall be deemed a third party
beneficiary of this Agreement except to the extent a third party is expressly
given rights herein.
9.3 Governing Law. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN AND SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED
PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE.
9.4 Assignment. No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party to such assignment.
9.5 Enforcement. In the event either Party shall resort to legal action
to enforce the terms and provisions of this Agreement, the prevailing Party may
recover from the other Party the costs of such action including, without
limitation, reasonable attorneys' fees.
9.6 Severability. In the event any provision of this Agreement is held
to be unenforceable for any reason, such provision shall be severable from this
Agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent that it is a provision that is not
essential and the absence of which would not have prevented the parties from
entering into this
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Agreement. The unenforceability of a provision that has been performed shall not
be grounds for invalidation of this Agreement under circumstances in which the
true controversy between the parties does not involve such provision.
9.7 Entire Agreement. This Agreement supersedes all previous contracts,
agreements and understandings between the Parties concerning the subject matter
hereof, and constitutes the entire agreement between the Parties with respect to
the subject matter hereof. No oral statements or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment, such amendment(s) to become effective on the
date(s) stipulated therein.
9.8 Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of all
Parties.
9.9 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
9.10 Notices and Demands. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently made and received as
provided in Section 10.5 of the Purchase Agreement.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized representatives as of the day and
year first above written.
AMERICAN HOMESTAR CORPORATION
By:
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Laurence A. Dawson, Jr., President
ZARING NATIONAL CORPORATION
By:
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Its:
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HOMEMAX, INC.
By:
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Its:
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EXHIBIT A
a. Restructure the consolidated balance sheets of the Affiliated Companies
with longer term assets, including working with ZNC to explore the
potential early termination of Operating Leases.
b. Obtain a stand alone credit facility for the working capital needs of
the Affiliated Companies.
c. 21st Century Mortgage Corporation, a subsidiary of Manager, will be the
primary supplier of financial services to the Affiliated Companies
customers at competitive rates and with competitive retailer programs.
Manager agrees to work with the Company to improve its funding rates.
d. Manager's insurance subsidiaries will be the primary supplier of
insurance products to the Affiliated Companies' customers at
competitive rates and with competitive retailer programs. Manager
agrees to use the staff in its insurance subsidiaries to assist the
Affiliated Companies in training, licensing and developing the skills
of the employees of the Affiliated Companies with regard to maximizing
the goal of insurance penetration.
e. Manager and its subsidiaries will be the exclusive suppliers of homes
to the Affiliated Companies, subject to market demands and the product
or production limitations of Manager and its subsidiaries.
f. All pricing, volume incentives and other programs offered by Manager to
the Affiliated Companies will be equal to or better than those offered
to Manager's franchisees or Manager-owned stores. Outsourcing of
products will be allowed by Manager at those locations where adequate
product lines are not available, production capacity is limited, or in
instances where customer service levels are substandard to industry
norms, until such time as those issues are resolved by Manager.
g. Manager shall manage the Affiliated Companies with a goal of building
and enhancing long term profitability, including building the HomeMax
brand and image.