SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
____________ to ____________
Commission file number 1-9792
CAVALIER HOMES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Indentification Number)
Highway 41 N. and Cavalier Road,
Addison, Alabama 35540
(Address of principal executive
offices) Zip Code
Registrant's telephone number, including area code: (205) 747-1575
Securities registered pursuant to Section 12(b) of the Act:
Name of
Each Exchange
Title of Each class on Which Registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant ( I ) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and, (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock on the
New York Stock Exchange as of March 20, 1996, was $135,083,509.
Indicate the number of shares outstanding of each of
the Registrant's classes of common stock, as
of March 20, 1996.
9,158,204
Common, $0.10 par value
Documents Incorporated by Reference
PartIII of this report incorporates by reference certain portions
of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held May 15, 1996.
<PAGE>
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. is a Delaware corporation incorporated in 1985, with
its executive offices located at Highway 41 North and Cavalier Road, Addison,
Alabama. The Company also maintains administrative offices at 719 Scott Avenue,
Suite 600, Wichita Falls, Texas 76301. Unless otherwise indicated by the
context, references in this report to the "Company" or to "Cavalier" include the
Company, its subsidiaries and their respective predecessors, if any.
The Company designs and manufactures a wide range of high quality
manufactured homes and markets its homes primarily in the southeast, southwest
and midwest regions of the United States, with a focus on serving the low- to
medium-priced manufactured housing market. During 1995, approximately 77% of the
Company's revenues were generated from sales in its core markets of Alabama,
North Carolina, Texas, South Carolina, Mississippi, Louisiana, Georgia and
Tennessee. At December 31, 1995 the Company operated ten facilities engaged in
the manufacturing of homes, five of which are located in Alabama, two in North
Carolina, one in Georgia, one in Texas and one in Pennsylvania. The Company also
operates a component manufacturing facility located in Alabama. (For additional
information regarding the Company's manufacturing facilities, see "Recent
Developments".)
The Company's homes are sold under the Cavalier, Pacesetter, Brigadier,
Knox, Buccaneer, Challenger, Parkwood, Mansion, Olympic, Plantation, Town and
Country, Astro, and various other brand names. As of December 31, 1995, the
Company's homes were sold through approximately 475 independent dealers
(including 93 independent exclusive dealers) operating approximately 575 retail
sales centers. The Company's homes normally include furniture and appliances and
are comprised of one or more floor sections. The Company's single-section homes
range in size from 550 to 1,248 square feet and are sold at retail prices
ranging from approximately $13,000 to $30,000. Multi-section homes range in size
from 880 to 2,128 square feet and are sold at retail prices ranging from
approximately $20,000 to $75,000.
In 1991, the Company implemented an exclusive dealer program under which
participating independent dealers sell only the Company's homes. The Company
makes installment sale financing available to the retail customers of its
exclusive dealers and provides such dealers with other services and support. The
Company believes that its exclusive dealer program has helped to increase the
Company's sales.
The Company began offering retail installment sale financing in March 1992
through Cavalier Acceptance Corporation ("CAC"), the Company's wholly owned
finance subsidiary, for homes sold to qualifying retail customers of the
Company's independent exclusive dealers. During 1995 the Company adopted a
dealer stock option program that grants to exclusive dealers whose retail
customers finance their home purchase through CAC, options to purchase the
Company's common stock. The Company believes that it is one of the few major
manufactured home producers in the United States offering retail consumer
financing through independent dealers and the only company that offers a dealer
stock option program to those dealers. The Company intends to continue CAC's
financing activities as a means of increasing revenues, providing additional
services to its independent exclusive dealers and establishing an additional
profit center. (For information relating to revenues, operating profit and
indentifiable assets attributable to each industry segment of the Company, see
note 11 of "Notes to Consolidated Financial Statements" which are included
herein.)
Home Manufacturing Operations
At December 31, 1995, the Company, through seven wholly owned subsidiaries,
operated ten manufacturing facilities engaged in the production of manufactured
homes located in Alabama, North Carolina, Georgia, Texas and Pennsylvania. Each
of the Company's manufacturing subsidiaries is managed by its own supervisory
personnel, who participate in an incentive compensation system based upon each
subsidiary's profitability. The management of the Company's facilities typically
consists of a general manager, a production manager, a general sales manager, a
controller, a service manager, a purchasing manager and a quality control
manager. These mid-level managers control the operations of the respective
operating subsidiaries, with assistance and guidance from the Company's
executive officers.
In 1992, while operating four manufacturing facilities, the Company's
production levels increased significantly from production levels in 1991. In
1993, the Company acquired Homestead Homes, Inc. ("Homestead"), opened an
additional facility in Addison, Alabama and completed a renovation and expansion
of its Hamilton, Alabama plant. During 1994 the Company opened additional
manufacturing facilities in Winfield, Alabama and Fort Worth, Texas, expanded
and renovated its manufacturing facilities in Cordele, Georgia and Nashville,
North Carolina, and acquired Astro Mfg. Co., Inc. ("Astro") located in
Shippenville, Pennsylvania. During 1995 the Company opened a third facility in
Addison, Alabama. These additions and expansions enabled the Company to continue
increasing production in 1993, 1994 and 1995. At December 31, 1995 the Company
operated ten facilities engaged in manufacturing homes, ranging in size from
36,000 to 169,000 square feet. The Company's ten manufacturing facilities
normally operate on a single shift basis, usually for a five-day week, each with
the capacity to produce between 1,250 and 3,500 floor sections per year with an
aggregate capacity to produce approximately 23,500 floor sections per year. (For
additional information regarding the Company's manufacturing facilities, see
"Recent Developments".) The following table sets forth certain production
information during 1993, 1994 and 1995:
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
-------------------------------------------------------------------------------------
1993 1994 1995
------------------------- ------------------------- -------------------------
Number of homes sold:
Single-section homes 5,250 62.8% 6,309 62.8% 7,123 60.2%
Multi-section homes 3,104 37.2% 3,733 37.2% 4,705 39.8%
------------------------- ------------------------- -------------------------
Total homes 8,354 100.0% 10,042 100.0% 11,828 100.0%
Number of floors sold 11,491 13,799 16,543
</TABLE>
Construction of a home begins by welding steel frame members together. The
frame is then moved through the plant, stopping at a number of work stations
where various components and sub-assemblies are attached. Certain
sub-assemblies, such as plumbing, cabinets, ceilings and wall systems, are
assembled at off- line work stations. The completed home contains carpeting,
cabinets, appliances, wall and window coverings, and heating and plumbing
systems, and is ready for connection to customer-supplied water, sewage and
electrical systems.
The principal raw materials purchased by the Company are steel, lumber,
plywood, sheetrock, aluminum, galvanized pipe, insulating materials, electrical
supplies and plastics. The Company purchases axles, wheels, tires, kitchen
appliances, laminated wallboard, roof trusses, plumbing fixtures, furniture,
carpet, vinyl floor covering, windows and decorator accessories. Currently, the
Company maintains approximately two to three weeks' inventory of raw materials.
The Company is not dependent on any single source of supply and believes that
the materials and parts necessary for the construction and assembly of its homes
are readily available from other sources.
Because the cost of transporting a manufactured home is significant, there
is a limit to the distance between a manufacturing facility and the dealers it
can service. The Company believes that the location of its manufacturing
facilities in multiple states allows it to serve more dealers in more markets.
The Company generally arranges, at the dealer's expense, for the transportation
of finished homes to dealers using independent trucking companies. Dealers or
other independent installers are responsible for placing the home on site,
making utility connections and providing and installing certain accessory items
and appurtenances, such as decks, carports and foundations.
<PAGE>
Component Manufacturing Operations
During 1994 the Company, through its wholly owned subsidiary Quality
Housing Supply, Inc. ("Quality"), leased a manufacturing facility in Winfield,
Alabama for the production of laminated wallboards and distribution of other
component products used in the manufactured housing industry. During 1995,
Quality sold the majority of its products to subsidiaries of the Company. The
Company currently intends to expand the sales of Quality's products to
unaffiliated companies in the manufactured housing industry. At December 31,
1995, Quality had 18 employees engaged in manufacturing operations and 6
employees engaged in selling, general and administrative functions.
The Company's Alabama manufacturing facilities currently purchase roof
trusses and certain other wood products from a limited partnership in which the
Company owns a one-third interest. The Company believes prices obtained by the
Company for roof trusses and other wood products from this entity are
competitive with the Company's other sources of supply.
Products
The Company's homes include both single-section and multi-section models,
with the substantial majority of such products being "HUD Code Homes", which are
manufactured homes that meet the specifications of the U.S. Department of
Housing and Urban Development ("HUD"). The single-section homes are 14 to 16
feet wide, vary in length from 40 to 80 feet and contain between 550 and 1,248
square feet. The multi-section models consist of two or more floor sections that
are joined at the home site, vary in length from 40 to 80 feet and contain
between 880 and 2,128 square feet.
The Company currently produces over 300 different models of manufactured
homes with a variety of decors that are marketed under approximately 30 brand
names. The homes typically include a living room, dining area, kitchen, one to
four bedrooms and one or more bathrooms. Each home contains a cooking range and
oven, refrigerator, hot water heater and central heating. Depending on the
customer's preferences, most homes are furnished with complete living room and
bedroom furniture, dinette set, carpeting, vinyl flooring, drapes, and window
screens. Customers may also choose many available options, including fireplaces,
ceiling fans, dishwashers, garbage disposals, microwave ovens, stereos, bay
windows, composition shingle roofs, vinyl siding and sliding glass patio doors.
(For information regarding backlog and seasonality, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations, Backlog".)
During 1995 the Company began manufacturing a series of homes intended to
be located in subdivisions or residential communities and marketed by real
estate developers. These "Developer" homes differ from the Company's traditional
manufactured homes as they have sheetrock walls that have been taped and
textured and residential style roof-lines. These upscale homes can be set on a
permanent foundation and may include garages, porches, decks and other
site-built amenities not found in traditional manufactured homes.
Modular homes are homes designed to meet building codes administered by
states and local authorities, as opposed to the national HUD guidelines. Three
of the Company's manufacturing facilities have the capability to manufacture
modular homes meeting applicable regulatory standards.
The Company's product development and engineering personnel design homes in
consultation with operating management, sales representatives and dealers. They
also evaluate new materials and construction techniques and use computer-aided
and other design methods in a continuous program of product development, design
and enhancement. The Company's product development activities do not require
significant capital investments or expenditures.
Independent Dealer Network, Sales and Marketing
As of December 31, 1995, the Company's homes were sold through
approximately 475 independent dealers (including 93 independent exclusive
dealers) operating approximately 575 retail sales centers located in 30 states.
Approximately 77% of the Company's sales in 1995 were to dealers operating sales
centers in the Company's core markets. The Company's percentage of sales to
these core markets is as follows: Alabama - 18%, North Carolina - 16%, Texas -
10%, South Carolina - 8%, Mississippi - 8%, Louisiana - 7%, Georgia - 5%, and in
Tennessee - 5%.
The Company has written agreements with most of its independent dealers
requiring each dealer to maintain qualified service staff to perform day-to-day
repair work on the Company's homes sold by the dealer and requiring prompt
payment by the dealer for homes purchased. These agreements may be terminated at
any time by either party, with or without cause, after a short notice period,
generally 30 days. The Company does not have any control over the operations of,
or financial interests in, any of its independent dealers, including any of its
independent exclusive dealers. The Company is not dependent on any single
dealer, and in 1995, the Company's largest dealer accounted for approximately
2.7% of net sales.
The Company believes that its independent dealer network enables the
Company to achieve broader distribution of its products than if the Company
operated its own retail sales centers. To enable dealers to maximize retail
market penetration and enhance customer service, and to promote dealer loyalty,
typically only one dealer within a given market area distributes a particular
product line of the Company. Selling through independent dealers also allows the
Company to avoid the substantial investment in management and overhead
associated with the operation of company-owned sales centers. In addition, the
Company's strategy of selling its homes through independent dealers helps to
ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer acceptability, product design, quality and
price. Accordingly, a component of the Company's business strategy is to
continually strengthen its dealer relations. The Company believes its relations
with its independent dealers, including its independent exclusive dealers, are
good.
Since 1991, the Company has been developing an independent exclusive dealer
network. The Company's independent exclusive dealers market and sell only homes
manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of two to three
manufacturers in addition to those of the Company. Historically, sales of the
Company's homes to independent dealers operating a single sales center have
accounted for a significant portion of the Company's revenues, and the Company
has focused its efforts to develop an exclusive dealer network consisting of
these operators, as well as certain dealers operating multiple sales centers.
The Company makes installment sale financing through CAC available to the
retail customers of its exclusive dealers, allows them to participate in the
Dealership Stock Option Plan and provides these dealers with other services and
support. Beginning with 20 exclusive dealers in 1991, the Company's independent
exclusive dealer network grew to 51 in 1992, 60 exclusive dealers in 1993, 73
exclusive dealers in 1994 and 93 as of December 31, 1995, operating retail sales
centers located in 15 states. Sales to the Company's independent exclusive
dealers in 1993, 1994 and 1995 represented approximately 36%, 37% and 39%,
respectively, of the Company's sales for these periods.
Each of the Company's plants typically employs a general sales manager and
from two to eight sales representatives who are compensated on a commission
basis. The plant-level sales representatives are charged with the day-to-day
servicing of the needs of the Company's independent dealers, including its
independent exclusive dealers. The Company provides sales training to its
dealers and has instituted a program of bringing more dealers to the plants to
view new product designs as they are developed. The Company markets its homes
through product promotions, participation in regional manufactured housing shows
and advertisements in local media. As of December 31, 1995, the Company
maintained a sales force of 41 full-time salesmen and 7 full-time general sales
managers.
Retail Financing Activities
The Company believes that the introduction of retail financing as an
additional segment of the Company's operations can facilitate increased sales
and earnings. In addition, the Company's goal is for CAC's activities to provide
the Company with a source of consistent earnings which may, to a certain extent,
be insulated from fluctuating manufactured home sales volumes.
CAC seeks to provide highly competitive financing terms to customers of the
Company's 93 independent exclusive dealers. CAC currently offers various
conventional loan programs which require a down-payment ranging from 0% to 20%
of the purchase price, in cash, trade-in value of a previously-owned
manufactured home and/or appraised value of equity in any real property pledged
as collateral. Repayment terms generally range from 84 to 240 months, depending
upon the type of home and amount financed, the amount of the down payment and
the customer's creditworthiness. CAC's loans are secured by a purchase money
security interest in the manufactured home and, in certain instances, a mortgage
on real property pledged as additional collateral. Loans purchased and
originated by CAC normally provide a fixed rate of interest with equal monthly
payments and are non-recourse to the dealer. Currently, CAC operates in each of
the 15 states in which the Company has independent exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC provides
prompt credit approvals and funding of loans. CAC has established a standardized
credit scoring system to facilitate such prompt decision-making on loan
applications. The most important criteria in the scoring system are the income,
employment stability and credit worthiness of the borrower. The system requires
a minimum score before CAC will consider funding the installment sale contract.
Certain operating data relating to CAC are set forth in the following table:
<TABLE>
<S> <C> <C> <C>
December 31,
--------------------------------------------------
1993 1994 1995
--------------------------------------------------
Total loans receivable $ 3,100,000 $ 9,825,000 $ 19,209,000
Allowance for credit losses $ 104,000 $ 350,000 $ 551,188
Number of loans outstanding 144 415 758
Number of delinquencies 1 2 5
Loss ratio 0.3% 0.2% 0.5%
Weighted average annual percentage rate 10.9% 11.4% 11.3%
</TABLE>
CAC presently has 3 part-time and 15 full-time employees, including its
president, Jerry F. Wilson, Jr., the son of the Company's President and Chief
Executive Officer. Upon graduation from the University of Alabama in 1988 with a
degree in finance, Mr. Wilson was employed by Security Pacific Housing Services,
Inc., a leading retail lending institution for the manufactured housing
industry. After one year of service, Mr. Wilson was promoted to region credit
manager in Tampa, Florida, where he was responsible for credit decisions and
loan originations for manufactured home retail installment sale contracts in
excess of $2 million per month. Mr. Wilson joined the Company in 1990 and served
as director of New Business Development for the Company until CAC was
incorporated.
Although the level of CAC's future activities cannot presently be
determined, the Company expects CAC to utilize internally generated working
capital and borrowings under the Company's revolving, warehouse and term loan
agreement with its primary lender (described below under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources"), to fund retail installment sale
contracts on homes sold by the Company's independent exclusive dealers, and to
develop a portfolio of such installment sale contracts. The Company believes
that its relationships with its exclusive dealers will assist the development of
this portfolio. During 1995, the Company instituted a dealer stock option plan
which grants options to purchase the Company's common stock to exclusive dealers
that originate installment sales contracts with CAC. The Company believes this
dealer stock option program will further enhance the growth of CAC. (For
information relating to dealer stock option plan of the Company, see note 7 of
"Notes to Consolidated Financial Statements" which are included herein.)
CAC intends in the short-term to act principally as a permanent lender on
its conventional loans and to hold such loans as long-term receivables. The
Company believes that the term loan component of its warehouse and term loan
agreement will facilitate the Company's attempts to match liabilities and assets
of CAC both as to term and rate, which should reduce exposure from interest rate
fluctuations. In the future, CAC may "pool" certain of the installment sale
contracts in its portfolio for sale to institutional or other investors, either
on a full-, partial- or non-recourse basis.
The Company believes that borrowings under the warehouse and term loan
agreement and available working capital generated from operations will provide
CAC with adequate sources of capital to finance its anticipated purchases and
originations of installment sale contracts on the Company's homes in 1996.
However, if the Company cannot obtain sufficient sources of capital in the
future, the Company would have to curtail its financing activities until other
sources could be obtained.
Retail Insurance Activities
During 1994, the Company formed Cavalier Insurance Agency, Inc. ("CIA") to
sell various insurance products to retail purchasers of the Company's homes
including physical damage, extended home warranties and credit life insurance.
CIA also sells commercial lines insurance products including general liability
and property insurance to its independent exclusive dealers. At December 31,
1995 CIA had 2 full-time employees.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice, substantially
all of the Company's dealers finance their purchases of manufactured homes
through wholesale "floor plan" financing arrangements. Under a typical floor
plan financing arrangement, a financial institution provides the dealer with a
loan for the purchase price of the home and maintains a security interest in the
home as collateral. The financial institution which provides financing to the
dealer customarily requires the Company to enter into a separate repurchase
agreement with the financial institution under which the Company is obligated,
upon default by the dealer, to repurchase the financed homes at a declining
price based upon the Company's original invoice price plus, in specific cases,
certain administrative expenses. A portion of purchases by dealers are pre-sold
to retail customers and are paid through firm retail financing commitments.
The risk of loss under such repurchase agreements is mitigated by the fact
that (i) sales of the Company's manufactured homes are spread over a relatively
large number of independent dealers, the largest of which accounted for
approximately 2.7% of the Company's net sales in 1995, (ii) the repurchase
obligation expires on individual homes after a reasonable period of time
(generally 12 to 18 months from invoice date) and also declines during such
period based on predetermined amounts and (iii) the Company is in many cases
able to sell homes repurchased from credit sources in the ordinary course of
business without incurring significant losses. As of December 31, 1995, the
Company's contingent liability under these repurchase and other similar recourse
agreements was an amount estimated to be approximately $65 million. The Company
has provided an allowance for possible repurchase losses of $750,000 as of
December 3l, 1995, based on prior experience and current market conditions.
Management expects no material loss in excess of the allowance.
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, in addition
to price and other market factors, is an important element in the market
acceptance of manufactured homes. The Company maintains a rigorous quality
control inspection program at all production stages at each of its manufacturing
facilities. The Company's manufacturing facilities and the plans and
specifications of its manufactured homes have been approved by a HUD-designated
inspection agency. An independent, HUD-approved third-party inspector checks
each of the Company's manufactured homes for compliance during construction. The
Company believes that adherence to strict quality standards and continuously
refining design and production procedures enhances consumer satisfaction and
reduces warranty claims.
The Company provides the initial home buyer with a HUD-mandated, one-year
limited warranty against manufacturing defects in the home's construction.
Warranty services after sale are performed, at the expense of the Company, by
local plant personnel, by independent dealers or, in certain cases, local
independent contractors. In addition to the warranty by the Company, direct
warranties often are provided by the manufacturers of specific components and
appliances.
The Company maintains a full-time service manager at most of its
manufacturing facilities. In addition, the Company has 70 full-time service
personnel to provide on-site service and correct production deficiencies that
are attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
repairs. The Company also has focused on reducing response time to customer
service requests. At December 31, 1995, the Company had established a reserve
for future warranty claims of $5.8 million relating to homes sold, based upon
management's assessment of historical experience factors and current industry
trends.
Competition
The manufactured housing industry is highly competitive, characterized by
low barriers to entry and severe price competition. Competition is based on
price, product features and quality, reputation for service and quality, depth
of field inventory, delivery capabilities, warranty repair service, dealer
promotions, merchandising and terms of dealer and retail consumer financing. The
Company also competes with other manufacturers, some of which maintain their own
retail sales centers, for quality independent dealers. In addition, the
Company's manufactured homes compete with other forms of low-cost housing,
including site-built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly affected by
their ability to obtain satisfactory financing. The Company faces direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources.
The Company intends to increase substantially the level of retail financing
provided through CAC. The Company believes that increasing the level of
financing by CAC will have a positive impact on the Company's efforts to sell
its products and enhance its competitive ability within the Industry. Due to
strong competition in the retail finance segment of the industry from companies
much larger than CAC combined with the limited operating history of CAC, there
can be no assurance that CAC will be able to increase its financing or that
providing this financing will have a positive impact on the Company's ability to
compete.
Regulation
The Company's business is subject to a number of federal, state and local
laws, regulations and codes. Construction of manufactured housing is governed by
the National Manufactured Home Construction and Safety Standards Act of 1974 and
regulations issued thereunder by HUD, which have established comprehensive
national construction standards. The HUD regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection and ventilation. Such regulations preempt state
and local regulations on such matters. The National Commission on Manufactured
Housing has held hearings to develop recommendations relating to the regulation
of the manufactured housing industry. This commission has issued an interim
report to Congress which contains a number of recommendations relating to
various aspects of manufactured housing regulation, including inspection,
warranty and enforcement. The Company cannot presently determine what, if any,
legislation may be adopted by Congress or the effect any such legislation may
have on the Company or the manufactured housing industry as a whole.
The Company's manufacturing facilities and the plans and specifications of
its manufactured homes have been approved by a HUD-designed inspection agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose the Company to a wide variety of
sanctions, including closing the Company's plants. The Company believes its
manufactured homes meet or surpass all present HUD requirements.
Certain recently promulgated HUD regulations with respect to structural
design relating to wind load capacities of manufactured homes became effective
in July 1994. These regulations generally require that homes sold in
hurricane-prone areas be designed to withstand wind speeds of up to 110 miles
per hour. Such regulations resulted in an increase in the costs associated with
the manufacture of homes sold in the regions affected thereby, particularly
hurricane-prone areas. The Company's operations were minimally affected by these
regulations. HUD is also currently reviewing the existing wind load capacity
regulations for all other areas of the country, and the Company cannot predict
if additional regulations will be adopted or the effect any such regulations
would have on the Company or the manufactured housing industry as a whole.
HUD also has adopted energy conservation rules and regulations which became
effective in October 1994. The Company's operations were minimally affected by
these regulations. Federal Trade Commission regulations also require disclosure
of a manufactured home's insulation specification.
Certain components of manufactured and modular homes are subject to
regulation by the U.S. Consumer Product Safety Commission ("CPSC"), which is
empowered to ban the use of component materials believed to be hazardous to
health and to require the repair of defective components. The CPSC, the
Environmental Protection Agency and other governmental agencies are evaluating
the effects of formaldehyde. Manufactured, modular and site-built homes are all
built with particle board, paneling and other products that contain formaldehyde
resins. Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that meet HUD
standards for formaldehyde emissions and otherwise comply with HUD regulations
in this regard.
The Company's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations.
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines or the entry of injunctions, or
both. The Company currently does not believe it will be required under existing
environmental laws and enforcement policies to expend amounts which will have a
material adverse effect on its results of operations or financial condition.
However, the requirements of such laws and enforcement policies have generally
become more strict in recent years. Accordingly, the Company is unable to
predict the ultimate cost of compliance with environmental laws and enforcement
policies.
A variety of federal laws affect the financing of manufactured homes,
including the financing activities conducted by CAC. The Consumer Credit
Protection Act (Truth-in-Lending) and Regulation Z promulgated thereunder
require substantial disclosures to be made in writing to a consumer with regard
to various aspects of the particular transaction, including the amount financed,
the annual percentage rate, the total finance charge, itemization of the amount
financed and other matters and also sets forth certain substantive limitations
on permissible contract terms. The Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit credit discrimination against any credit
applicant based on certain prohibited bases, and also require that certain
specified notices be sent to credit applicants whose applications are denied.
The Federal Trade Commission has adopted or proposed various trade regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to preserve consumers' claims and defenses. The Government National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for installment manufactured home sale contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive regulations and requirements in order for a manufactured home
installment sale contract to qualify for insurance under the Federal Housing
Authority ("FHA") program, and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection. In addition, the
financing activities of CAC may also become subject to the disclosure
requirements of the Home Mortgage Disclosure Act. In addition to the extensive
federal regulation of consumer credit matters, many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer credit lenders. For example, many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such business in that state, and many states also set
forth a number of substantive contractual limitations regarding provisions that
permissibly may be included in a consumer contract, as well as limitations upon
the permissible interest rates, fees and other charges that may be imposed upon
a consumer. Failure by the Company or CAC to comply with the requirements of
federal or state law pertaining to consumer credit could result in the
unenforceability of the particular contract for the affected consumer, civil
liability to the affected customers, criminal liability and other adverse
results.
Employees
As of December 31, 1995, the Company had 2,553 employees, of whom 2,244
were engaged in home manufacturing, 18 in component manufacturing, 48 in sales,
70 in warranty and service, 153 in general administration, 18 in retail finance
services and 2 in insurance services. At year end only Astro's employees engaged
in manufacturing (109 employees) were covered by a collective bargaining
agreement. Management considers its relations with its employees to be good.
Recent Developments
In August 1995 the Company acquired an option to purchase the balance
(73.5%) of the outstanding shares of common stock of Wheelhouse Structures, Inc.
("Wheel House") not already owned by the Company. In January 1996, the Company
exercised its option to purchase the remaining shares of Wheel House and changed
its name to Riverchase Homes, Inc. The acquisition provided an additional 2,000
floor sections to the Company's aggregate annual manufacturing capacity. The
acquisition was immaterial to the Company's consolidated financial statements
and will be accounted for under the purchase method. (For information relating
to the acquisition, see note 2 in "Notes to Consolidated Financial Statements"
included herein.)
During February 1996, the Company entered into a lease for an additional
65,000 square foot manufacturing facility located in Mineral Wells, Texas. The
Company anticipates the facility to be operational by mid 1996 and it will add
an additional 1,500 floor sections to the Company's aggregate annual
manufacturing capacity.
ITEM 2. PROPERTIES
The following table sets forth information concerning the Company's facilities
as of December 31, 1995:
Date Expiration Approximate
Leased or of Lease Square
Location Acquired Description Term Feet
Addison, Alabama 1984 Corporate headquarters 1996 16,000
Addison, Alabama 1984 Manufacturing facility, 1996 169,000
warehouse and mill building
Addison, Alabama 1993 Manufacturing facility 1997 108,000
Addison, Alabama 1995 Manufacturing facility (1) 36,000
Hamilton, Alabama 1987 Manufacturing facility, (1) 113,500
warehouse and administrative offices
Winfield, Alabama 1994 Manufacturing facility 1999 71,000
Winfield, Alabama 1994 Component manufacturing facility 1999 48,000
Cordele, Georgia 1993 Manufacturing facility and (1) 110,000
administrative offices
Nashville,
North Carolina 1987 Manufacturing facility, (1) 130,000
warehouse and administrative offices
Robbins,
North Carolina 1987 Manufacturing facility and 1998 99,000
administrative offices
Shippenville,
Pennsylvania 1993 Manufacturing facility and (1) 134,000
administrative offices
Fort Worth, Texas 1994 Manufacturing facility and 1999 101,000
administrative offices
<PAGE>
Wichita Falls, Texas 1986 Administrative headquarters 1998 1,200
( 1 ) Company-owned facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, involved in
litigation arising in the ordinary course of its business. In the opinion of the
Company, none of such litigation is currently expected to have a material
adverse effect on the Company's consolidated results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK
HOLDER MATTERS
On December 5, 1994 the Company's common stock began trading on the New
York Stock Exchange under the symbol "CAV". Previously the Company's common
stock was traded on the American Stock Exchange under the symbol "CXV". The
following table sets forth, for each of the periods indicated, the reported high
and low closing sale prices per share on each of the respective exchanges
referred to above for the Company's common stock and the cash dividends paid per
share in such periods. The amounts have been adjusted, as appropriate, to
reflect a five-for-four stock split with respect to the Company's common stock,
effected as a 25% stock dividend, which was paid on August 15, 1995 and a
three-for-two stock split with respect to the Company's common stock, effected
as a 50% stock dividend which was paid on February 15, 1996. All adjusted prices
of the Company's common stock have been rounded to the nearest one-eighth of one
dollar.
As of March 20, 1996, the Company had approximately 3,600 record and
beneficial holders of its common stock, based upon information in securities
position listings by registered clearing agencies upon request of the Company's
transfer agent.
The Company intends to continue to pay regular quarterly dividends.
However, the payment of dividends on the Company's Common Stock is determined by
the Board of Directors of the Company in light of conditions then existing,
including the earnings of the Company and its subsidiaries, their funding
requirements and financial conditions, certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive covenants which, among other things, limit the aggregate dividend
payments and purchases of treasury stock to 50% of the Company's aggregate net
income for the two most recent fiscal years.
Closing Sales Price
---------------------------
High Low Dividends
------------- ------------ ------------
Fiscal year ended December 31, 1995
First Quarter 6 3/4 5 1/4 0.016
Second Quarter 6 3/8 5 3/4 0.016
Third Quarter 11 6 1/2 0.020
Fourth Quarter 14 1/2 10 7/8 0.020
Fiscal year ended December 31, 1994
First Quarter 8 7/8 7 0.011
Second Quarter 8 1/4 6 1/2 0.011
Third Quarter 7 1/2 6 5/8 0.011
Fourth Quarter 7 1/8 5 3/8 0.011
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
regarding the Company for the periods indicated. The statement of income data,
the balance sheet data, and other data of the Company for each of the five years
ended December 31, 1995, have been derived from the consolidated financial
statements of the Company. The Company's audited financial statements as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, including the notes thereto and the related report of
Deloitte & Touche LLP, independent auditors, are included elsewhere in this
report. The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements (including the Notes thereto) and the
other financial information contained elsewhere in this report, and with the
Company's consolidated financial statements and the notes thereto appearing in
the Company's previously filed Annual Reports on Form 10-K.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995
------------- -------------- ------------- ------------- -------------
(in thousands, except per share amounts)
Statement of Income Data:
Revenues:
Net sales $ 67,621 $ 106,405 $ 155,595 $ 206,442 $ 272,486
Financial services 60 230 703 1,764
-
------------- -------------- ------------- ------------- -------------
Total revenues 67,621 106,465 155,825 207,145 274,250
Cost of sales 58,577 91,863 133,423 176,041 227,646
Selling, general and administrative 8,830 11,258 17,049 22,975 31,974
------------- -------------- ------------- ------------- -------------
Operating profit 214 3,344 5,353 8,129 14,630
Other income(expense) - net 19 (20) 201 450 404
------------- -------------- ------------- ------------- -------------
Income before taxes $ 233 $ 3,324 $ 5,554 $ 8,579 $ 15,034
============= ============== ============= ============= =============
Net income $ 117 $ 2,014 $ 3,333 $ 5,079 $ 9,020
============= ============== ============= ============= =============
Net income per share (1) $ 0.02 $ 0.35 $ 0.51 $ 0.65 $ 0.98
============= ============== ============= ============= =============
Cash dividends per share (1) $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.07
============= ============== ============= ============= =============
Weighted average number of shares
outstanding (1) 5,479 5,823 6,474 7,868 9,189
============= ============== ============= ============= =============
Other Data:
Capital expenditures 338 1,124 2,933 6,330 8,034
============= ============== ============= ============= =============
December 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995
------------- -------------- ------------- ------------- -------------
Balance Sheet Data:
Working capital $ 3,831 $ 5,328 $ 5,483 $ 12,576 $ 11,121
Total assets 14,581 19,966 31,182 63,763 82,626
Long-term debt 160 3,207 4,981
- -
Stockholders' equity 7,168 9,835 16,632 36,460 46,072
(1) As adjusted for three five-for-four stock splits paid in November 1992, November 1993 and August 1995 and a
three-for-two split paid in February 1996.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal business of the Company since its inception has been the
design and production of manufactured homes. In the first quarter of 1992, the
Company, through its wholly owned subsidiary, CAC, commenced retail installment
sale financing operations. As of the end of 1993, the operations of CAC became
significant enough to require segment reporting by the Company.
The Company's business is cyclical and seasonal and is influenced by many
of the same national and regional economic and demographic factors that affect
the United States housing market generally. According to the Manufactured
Housing Institute ("MHI"), domestic shipments of manufactured homes reached a
ten-year low of 170,713 homes in 1991. However, the industry experienced a
turnaround during 1992, 1993, 1994 and 1995, with shipments increasing
approximately 24%, 21%, 20% and 12%, respectively, compared to the prior year.
The industry recovery has been most heavily concentrated in the southeastern
United States, where the Company conducts a substantial portion of its business.
According to MHI, shipments of manufactured homes in the Southeast (which MHI
designates as the south Atlantic and south central regions) increased
approximately 34% in 1992, 25% in 1993, 21% in 1994 and 15% in 1995, compared to
the prior year. The Company attributes the upturn in the manufactured housing
industry to increased consumer confidence, a reduction in the availability of
alternative housing, increased availability of consumer financing and an
improvement in the overall economy.
Although the Company's operations were adversely affected by the overall
conditions in the industry through the first quarter of 1991, the Company has
enjoyed significant and continued growth in both sales and earnings since that
time. The Company believes that the industry turnaround, combined with marketing
and other programs instituted by the Company during and subsequent to 1991,
including its exclusive dealer program and the retail finance operations of CAC,
are the principal reasons for the continued improvement in the Company's results
of operations.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. For the year ended December 31, 1995, net sales were
$272.5million, representing a 32% increase compared to 1994 net sales of $206.4
million. Net sales for 1995 were the highest in the Company's history. The
Company believes that the significant increase in its sales for the year was
primarily the result of the continuation of improving industry trends and
Company programs previously implemented, an increase in the average selling
price of the Company's homes and a full year's operations of manufacturing
facilities acquired and opened during 1994.
Actual shipments of homes during 1995 increased 18% to 11,828 homes, as
compared to 10,042 homes in 1994. Differences between the percentage increase in
net sales and the percentage increase in shipments are due to differences in
selling prices of individual homes sold or product mix in any given year. The
average selling price of homes rose from approximately $20,600 to $23,000,
primarily due to changes in construction standards mandated by the Deparment of
Housing and Urban Development during the latter part of 1994, price increases
instituted by the Company associated with rising prices in raw materials and a
slight increase in the percentage of multi-section homes sold.
Gross Profit on Sales. Gross profit on sales is derived by deducting cost
of sales from net sales. Gross profit on sales in 1995 increased to $44.8
million, or 16.5% of net sales, as compared to $30.4 million, or 14.7% of net
sales, in 1994. The increase in gross profit was primarily attributable to
increased sales volume, efficiencies achieved as a result of production level
increases, price increases instituted by the Company and a reduction in start-up
expenses associated with the opening of manufacturing facilities in the prior
year.
Financial Services Revenue. Financial services revenue is derived primarily
from interest on installment sale contracts held by CAC. Financial services
revenue was approximately $1.8 million for 1995, as compared to approximately
$703,000 for 1994. The increase in financial services revenue was primarily due
to an increase in the Company's loan portfolio to approximately $19.2 million at
the end of 1995, up from $9.8 million at the end of 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $32.0 million in 1995 from $23.0 million in 1994. The
increase in selling, general and administrative expenses was consistent with the
increase in sales and was attributable to the addition of personnel related to
the Company's continued growth, the addition of three manufacturing facilities
acquired or opened in the prior year, an increase in operating expenses of CAC
consistent with its growth, increased sales commissions, increased expenses for
performance compensation based on profits and other employment-related expenses
due to the hiring of additional personnel. As a percentage of total revenues,
selling, general and administrative expenses were 11.7% for 1995, compared to
11.1% for 1994.
Operating Profit. Operating profit is determined by deducting cost of sales
and selling, general and administrative expenses from total revenues. Operating
profit increased to $14.6 million in 1995, compared to $8.1 million in 1994,
consistent with the increase in total revenues. As a percentage of total
revenues, operating profit was 5.3% for 1995, compared to 3.9% for 1994.
Other Income (Expense):
Interest expense. The Company incurred approximately $508,000
in interest expense in 1995, compared to approximately $76,000 in 1994.
Interest expense increased in 1995 primarily due to borrowings by the
Company to fund the operations of CAC.
Other income, net. Other income or expense is comprised of
gain or loss upon sales of assets, interest income (unrelated to
financial services) and other investment income, and income or loss on
investments recorded under the equity method. Other income was
approximately $913,000 for 1995, compared to other income of
approximately $526,000 for 1994. The increase in other income in 1995
was primarily attributable to income from investments recorded under
the equity method and earnings from the Company's investment in certain
marketable debt and equity securities.
Net Income. Net income for 1995 increased by 78% to $9.0 million, compared
to $5.1 million in 1994. The increase in net income was due primarily to
increased sales for the period, increased manufacturing efficiency resulting in
increased gross profit and the growth of CAC. As a percentage of total revenues,
net income was 3.3% for 1995, compared to 2.5% for 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Sales. For the year ended December 31, 1994, net sales were $206.4
million, representing a 33% increase compared to 1993 net sales of $155.6
million. The Company believes that the significant increase in its sales for the
year was primarily the result of the continuation of improving industry trends
and Company programs discussed above, an escalation in the average selling price
of the Company's homes, the acquisition of an additional facility in
Pennsylvania, through the Company's acquisition of Astro Mfg. Co., Inc.
("Astro") and the opening of a new production facility in each of Winfield,
Alabama and Fort Worth, Texas.
Actual shipments of homes during 1994 increased 20% to 10,042 homes, as
compared to 8,354 homes in 1993. Differences between the percentage increase in
net sales and the percentage increase in shipments are due to differences in
selling prices of individual homes sold or product mix in any given year. The
average selling price of homes rose from approximately $18,600 to $20,600,
primarily due to a change in construction standards mandated by the Deparment of
Housing and Urban Development combined with price increases instituted by the
Company associated with rising prices in lumber and other raw materials. From
October 28, 1994, the date of the acquisition of Astro, through December 31,
1994, Astro had shipments of 140 homes and sales of approximately $3.1 million.
Although the acquisition of Astro contributed to the growth in the Company's
sales and shipments in 1994, the Company shipped 9,902 homes in 1994, exclusive
of shipments by Astro, or an increase of 19% compared to 1993. Sales for 1994,
exclusive of Astro, were approximately $203.3 million, or an increase of 31%
over 1993.
Gross Profit on Sales. Gross profit on sales in 1994 increased to $30.4
million, or 14.7% of net sales, as compared to $22.2 million, or 14.2% of net
sales, in 1993. The increase in gross profit was primarily attributable to
increased sales volume, efficiencies achieved as a result of production level
increases and price increases instituted by the Company.
Financial Services Revenue. Financial services revenue was approximately
$703,000 for 1994, as compared to approximately $230,000 for 1993. The increase
in financial services revenue was primarily due to an increase in the Company's
loan portfolio to approximately $9.8 million at the end of 1994, up from $3.1
million at the end of 1993.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $23.0 million in 1994 from $17.0 million in 1993. The
increase in selling, general and administrative expenses was consistent with the
increase in sales and was primarily due to the acquisition of Astro, the opening
of a manufacturing facility in each of Winfield, Alabama, and Fort Worth, Texas,
the addition of personnel related to the Company's continued growth, an increase
in operating expenses of CAC consistent with its growth, increased sales
commissions, increased expenses for performance compensation based on profits
and other employment-related expenses due to the hiring of additional personnel.
As a percentage of total revenues, selling, general and administrative expenses
were 11.1% for 1994, compared to 10.9% for 1993.
Operating Profit. Operating profit increased to $8.1 million in 1994,
compared to $5.4 million in 1993, consistent with the increase in total
revenues. As a percentage of total revenues, operating profit was 3.9% for 1994,
compared to 3.4% for 1993.
Other Income (Expense):
Interest expense. The Company incurred approximately $76,000
in interest expense in 1994, compared to approximately $35,000 in 1993.
Interest expense increased in 1994 primarily due to borrowings by the
Company to fund the operations of CAC.
Other income, net. Other income was approximately $526,000 for
1994, compared to other income of approximately $237,000 for 1993. The
increase of other income in 1994 was primarily attributable to
increased income from an investment recorded under the equity method
and an increase in earnings from the investment of a portion of the
proceeds from an offering of the Company's Common Stock.
Net Income. Net income for 1994 increased by $1.8 million to $5.1 million,
compared to $3.3 million in 1993. The increase in net income was due primarily
to increased sales for the period. As a percentage of total revenues, net income
was 2.5% for 1994, compared to 2.1% for 1993.
Cavalier Acceptance Corporation
During 1992, the Company began the operations of CAC, which was formed to
offer retail installment sale financing for manufactured homes sold through the
Company's independent exclusive dealer network. During 1993, the Company
purchased and originated approximately $2.6 million in installment sale
contracts, collected approximately $145,000 in principal amounts under such
contracts and had established an allowance for credit losses of $104,000 at
December 31, 1993. During 1994, the Company purchased and originated
approximately $7.3 million in installment sale contracts, collected
approximately $542,000 in principal amounts under such contracts and had
established an allowance for credit losses of $350,000 at December 31, 1994.
During 1995, the Company purchased and originated approximately $10.7 million in
installment sale contracts, collected approximately $1.3 in principal amounts
under such contracts and had established an allowance for credit losses of
$551,188 at December 31, 1995. The Company expects to continue to expand the
operations of CAC during 1996. The Company's current goal is to purchase and
originate approximately $15 million to $18 million in retail installment sale
contracts during 1996. The Company intends to purchase and originate loans
utilizing internally generated working capital and borrowings under a $23
million revolving, warehouse and term loan agreement (the "Credit Facility")
entered into in February 1994 and renewed in March 1996 with the Company's
primary lender. (For a further discussion of the Credit Facility, see "Liquidity
and Capital Resources".) Due to strong competition in the retail finance segment
of the industry from companies much larger than CAC and to the limited operating
history of CAC, there can be no assurance that the Company will be able to
achieve these purchase and origination goals. Numerous factors could affect both
the availability and mix of various sources of funds used to purchase and
originate loans. As CAC expands, the Company expects that the operations of CAC
will have a greater effect upon the Company's consolidated results of operations
and financial condition.
Liquidity and Capital Resources
As of December 31, 1995, the Company had working capital of $11.1 million,
as compared to $12.6 million and $5.3 million at December 31, 1994 and 1993,
respectively. Working capital decreased in 1995, despite strong earnings during
the period and $2.0 million of borrowings by CAC under the Credit Facility,
primarily due to loan originations by CAC of $10.7 million and capital
expenditures during 1995 of $8 million. Working capital increased in 1994
compared to 1993 primarily due to strong earnings during the period combined
with proceeds from an offering of the Company's Common Stock during 1994.
The ratio of current assets to current liabilities was 1.4:1 at December
31, 1995, as compared to 1.5:1 and 1.4:1 at December 31, 1994 and 1993
respectively. Annualized inventory turnover was 23.6 in 1995, compared to 22.5
in 1994 and 26.5 in 1993.
The Company began the operations of CAC in March 1992 and purchased and
originated approximately $21 million in retail installment sale contracts from
inception through December 31, 1995, with funds derived from internally
generated working capital of the Company, proceeds from the 1994 Common Stock
offering and borrowings under the Credit Facility. Consistent with the intention
of the Company to expand further the operations of CAC, the Company entered into
the Credit Facility to provide additional funds for CAC's growth. As discussed
above under the heading "Cavalier Acceptance Corporation," the Company expects
to continue the expansion of the operations of CAC during 1996.
In February 1994, the Company entered into the Credit Facility, which then
consisted of a $13 million revolving, warehouse and term-loan agreement with its
primary lender. The Credit Facility contained a revolving line of credit which
provided for borrowings (including letters of credit) of up to 80% and 50% of
the Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $5 million. Interest was payable under the
revolving line of credit at the bank's prime rate. The warehouse and term-loan
agreements contained in the Credit Facility provided for borrowings of up to 80%
of the Company's eligible (as defined) installment sales contracts, up to a
maximum of $8 million. Interest on the term notes was fixed for a period of five
years from issuance at a rate based on the weekly average yield on five year
treasury securities averaged over the preceding 13 weeks, plus 2.4%, with a
floating rate for the remaining two years (subject to certain limits) equal to
the bank's prime rate plus .75%. The warehouse component of the Credit Facility
provided for borrowings of up to $2 million with interest payable at the bank's
prime rate plus 1%. However in no event could the aggregate borrowings under the
warehouse and term loan agreement exceed $8 million.
In March 1996 the Credit Facility was amended to increase the maximum
available borrowings under the warehouse and term loan agreements contained in
the Credit Facility to $18 million from the previous limit of $8 million. The
amendment increased the total amount of available borrowings under the Credit
Faciltiy (including the revolving line of credit) to $23 million from $13
million. In addition to the increase in available borrowings under the Credit
Facility, the interest rate on prospective borrowings under the term loan
portion of the agreement was reduced by .4%. All other major terms and
conditions of the Credit Facility remain unchanged by the recent amendment. The
Credit Facility, as amended, will expire in April of 1998.
On October 14, 1994 and January 31, 1995 the Company borrowed $3.7 million
and $2.0 million respectively under the Credit Facility in order to continue to
fund the operations of CAC and to minimize the interest rate risk of the
Company's loan portfolio.
Capital expenditures were approximately $8.0 million, $6.3 million and $2.9
million for the years ended December 31, 1995, 1994 and 1993, respectively.
During 1995 the Company incurred capital expenditures of $8.0 million financed
primarily with internally generated working capital. During 1994 the Company
incurred capital expenditures of $6.3 million which included $3.8 million in
capital expenditures financed through a portion of the proceeds of the Company's
Common Stock offering. The proceeds were utilized in the opening of two
additional manufacturing facilities and the expansion and modernization of
certain other manufacturing facilities. During 1995 capital expenditures
included normal property, plant and equipment additions and replacements plus
the acquisition of a third production facility in Addison, Alabama during the
fourth quarter.
The Company believes that existing cash and investment balances and funds
available under the Credit Facility, together with cash provided by operations,
will be adequate to fund the Company's operations and expansion plans for the
next twelve months. In order to provide additional funds that may be neccessary
for the continued pursuit of the Company's growth strategies and for operations
over the longer term, the Company may incur, from time to time, additional short
and long-term bank indebtedness and may issue, in public or private
transactions, its equity and debt securities, the availability and terms of
which will depend upon market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
<PAGE>
Impact of Inflation
Although increases, and particularly sudden increases, in the cost of
certain materials can adversely affect the Company's operations, the Company
generally has been able to increase its selling prices to offset increased
costs, including the costs of raw materials. Price competition, however, can
affect the ability of the Company to increase its selling prices to reflect
increased costs. In general, the Company believes that the relatively moderate
rate of inflation over the past several years has not had a significant impact
on its sales or profitability, but can give no assurance that this trend will
continue in the future.
Backlog
The Company typically builds a home after receipt of an order from an
independent dealer and, accordingly, does not generally maintain an inventory of
unsold homes. In accordance with industry practice, dealers can cancel orders
prior to production without penalty. The Company's backlog of orders for
manufactured homes was approximately $17.8 million as of December 31, 1995,
compared to approximately $16.6 million as of December 31, 1994. The Company
believes that substantially all of its unfilled orders as of December 31, 1995
will be produced by the Company by the end of the Company's first quarter ending
March 29, 1996. Backlog volume generally indicates the production levels at
which the Company will operate at any given time but is not indicative of sales
for a full year. Historically, sales in the manufactured housing industry have
been seasonal in nature, with sales of homes being weaker during the winter
months.
Impact of Accounting Statements
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 107 regarding disclosures of the fair value of financial
instruments. Adoption of this statement has resulted in only increased
disclosure regarding the affected instruments.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, which provides guidance on
recognition of impairment of a loan as well as methods for measurement of
impairment. SFAS No. 114 was adopted by the Company during 1995 and has had a
minimal impact on the Company's consolidated financial statements.
The Company has adopted SFAS No. 115, Accounting for Certain Investment in
Debt and Equity Securities, which provides guidance on classification and
accounting treatment of investment in certain marketable securities. SFAS No.
115 was adopted during 1994 when the Company first acquired marketable
securities subject to its provisions.
The Company intends to adopt SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of which provides
guidance for the accounting treatment of impairment of certain long-lived assets
and intangibles and the disposition thereof. SFAS No. 121 becomes effective for
fiscal years beginning after December 15, 1995. Management believes that
adoption of SFAS No. 121 would be immaterial to the Company's consolidated
financial statements if adopted currently.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
fiscal years beginning after December 15, 1995 and adoption of the recognition
and measurement provisions for nonemployee transactions entered into after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period.
Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, ("APB No. 25") but would be required to disclose in a
note to the financial statements pro forma net income and earnings per share as
if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption. The
Company has determined that it will continue to account for employee stock-based
transactions under APB No. 25 and will not elect to change to the fair value
method. Adoption of the disclosure provisions of this statement in 1996 related
to such employee stock-based transactions will result in only increased
disclosures regarding pro forma net income and earnings per share as if the
Company had applied the new method of accounting
During 1995, the Company approved the Dealership Stock Option Plan of
Cavalier Homes, Inc. (the "Dealer Plan") which provides for certain stock option
grants to eligible independent dealerships. Such grants under the Dealer Plan
are considered nonemployee transactions. The Company has adopted the recognition
and measurement provisions of SFAS No. 123 for grants subsequent to December 15,
1995, under the Dealer Plan. Compensation expense related to such dealership
grants was immaterial to the Company's 1995 consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited quarterly financial data for
the two years ended December 31, 1995 and 1994. The Company believes that the
following quarterly financial data includes all adjustments necessary for a fair
presentation, in accordance with generally accepted accounting principles. The
following quarterly financial data should be read in conjunction with the other
financial information contained elsewhere in this report. The operating results
for any interim period are not necessarily indicative of results for a complete
year or for any future period.
<TABLE>
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- ------------- -------------
(in thousands, except for per share amounts)
1995
Revenues:
Net sales $ $ $ $
57,813 70,755 70,900 73,018
Financial services
334 396 484 550
-------------- -------------- ------------- -------------
Total revenues
58,147 71,151 71,384 73,568
Gross profit on sales
8,971 11,266 12,281 12,322
Net income
1,518 2,412 2,479 2,612
Net income per share (1) .17 .27 .27 .27
1994
Revenues:
Net sales $ $ $ $
46,674 49,641 49,453 60,674
Financial services
109 142 197 255
-------------- -------------- ------------- -------------
Total revenues
46,783 49,783 49,650 60,929
Gross profit on sales
6,943 6,921 7,378 9,158
Net income
1,029 1,202 1,340 1,508
Net income per share (1) .15 .17 .15 .17
The sum of the quarterly amounts may not equal the annual amounts due to
rounding.
(1) Adjusted for the five-for-four split paid in August 1995 and the three-for-two split paid in February
1996.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 20
Consolidated Balance Sheets 21 - 22
Consolidated Statements of Income 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
Schedule -
II - Valuation and Qualifying Accounts 39
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the index at Item 8. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 1, 1996 (March 14, 1996 as to the
amendment to the Credit Facility described in Note 5)
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<S> <C> <C>
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,005,084 $ 16,034,922
Marketable securities held to maturity (Note 3) 1,956,301
Marketable securities available for sale (Note 3) 3,583,129 1,680,072
Accounts receivable, less allowance for losses
of $750,000 (1995) and $650,000 (1994) (Notes 5 and 10 1,893,400 2,856,661
Installment contracts receivable - current 693,967 281,310
Inventories (Note 5) 9,540,491 9,734,314
Deferred income taxes (Note 8) 3,647,984 2,648,844
Other current assets 1,954,350 602,355
------------- --------------
Total current assets 42,318,405 35,794,779
------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Land 581,873 453,373
Buildings and improvements 10,774,729 8,352,968
Machinery and equipment 14,226,764 8,970,793
------------- --------------
25,583,366 17,777,134
Less accumulated depreciation and amortization 6,689,869 4,582,479
------------- --------------
Total property, plant and equipment, net 18,893,497 13,194,655
------------- --------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $551,188 (1995) and
$350,000 (1994) (Notes 4 and 5) 17,964,038 9,193,858
------------- --------------
GOODWILL, less accumulated amortization
of $309,729 (1995) and $140,476 (1994) (Note 2) 2,213,000 2,368,552
------------- --------------
MARKETABLE SECURITIES HELD TO MATURITY (Note 3) 2,427,526
--------------
OTHER ASSETS 1,236,958 783,265
------------- --------------
TOTAL $ 82,625,898 $ 63,762,635
============= ==============
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<S> <C> <C>
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 666,467 $ 378,802
Accounts payable 7,098,602 6,090,552
Amounts payable under dealer incentive programs 6,997,496 5,184,643
Accrued wages and related withholdings 1,219,891 1,463,558
Accrued incentive compensation 2,018,702 1,366,443
Estimated warranties 5,800,000 4,200,000
Accrued insurance (Note 10) 1,676,164 2,018,357
Other accrued expenses 4,923,839 2,232,218
Income taxes 795,861 284,657
------------- --------------
Total current liabilities 31,197,022 23,219,230
------------- --------------
DEFERRED INCOME TAXES (Note 8) 1,042,862 875,868
------------- --------------
LONG-TERM DEBT (Note 5) 4,314,319 3,207,168
------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 2, 5, 6 and 7):
Preferred stock, $.01 par value; 500,000 shares authorized,
none issued
Common stock, $.10 par value; authorized 15,000,000 shares,
issued 8,993,951 shares (1995) and 4,715,678 shares (1994) 899,395 471,568
Additional paid-in capital 22,804,129 22,053,641
Retained earnings 22,368,171 13,985,005
Treasury stock, at average cost (20,451 shares) (49,845)
------------- --------------
Total stockholders' equity 46,071,695 36,460,369
------------- --------------
TOTAL $ 82,625,898 $ 63,762,635
============= ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
REVENUES:
Net sales $ 272,485,557 $ 206,441,436 $ 155,594,809
Financial services 1,764,047 703,326 229,812
--------------- --------------- ---------------
274,249,604 207,144,762 155,824,621
--------------- --------------- ---------------
COST OF SALES (Note 10) 227,645,745 176,041,402 133,422,978
SELLING, GENERAL AND ADMINISTRATIVE (Notes 7 and 9):
Manufacturing 30,847,715 22,429,655 16,841,880
Financial services 1,126,043 545,226 207,248
--------------- --------------- ---------------
259,619,503 199,016,283 150,472,106
--------------- --------------- ---------------
OPERATING PROFIT 14,630,101 8,128,479 5,352,515
--------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (7,060) (1,168) (30,243)
Financial services (501,325) (75,014) (5,012)
Other income, net 912,668 526,282 236,564
--------------- --------------- ---------------
404,283 450,100 201,309
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 15,034,384 8,578,579 5,553,824
INCOME TAXES (Note 8) 6,014,000 3,500,000 2,221,000
--------------- --------------- ---------------
NET INCOME $ 9,020,384 $ 5,078,579 $ 3,332,824
=============== =============== ===============
NET INCOME PER SHARE (Note 6) $ 0.98 $ 0.65 $ 0.51
=============== =============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 6) 9,188,996 7,868,419 6,473,895
=============== =============== ===============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<S> <C> <C> <C> <C>
Treasury
Additional Stock - At
Common Paid-in Retained Average
Stock Capital Earnings Cost
BALANCE, JANUARY 1, 1993 $ 279,147 $ 4,445,187 $ 6,122,932 $ (1,011,872)
Treasury stock reissued in connection
with acquisition 2,459,728 568,346
Stock options exercised (Note 7) 9,511 168,481
Income tax benefits attributable to
exercise of stock options (Note 7) 430,851
Five-for-four stock split effected in
the form of a dividend (Note 6) 72,010 (72,010)
Cash dividends paid ($.04 per share) (227,398)
Net income 3,332,824
Other 53,874
----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1993 360,668 7,486,111 9,228,358 (443,526)
Sales of common stock, net of
offering costs (Note 6) 109,000 12,734,619
Treasury stock reissued in connection
with acquisition (Note 2) 1,695,237 393,681
Stock options exercised (Note 7) 1,900 51,799
Income tax benefits attributable to
exercise of stock options (Note 7) 85,875
Cash dividends paid ($.04 per share) (321,932)
Net income 5,078,579
----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1994 471,568 22,053,641 13,985,005 (49,845)
Five-for-four stock split effected in the
form of a dividend (Note 6) 118,175 (118,175)
Treasury stock reissued and common
stock issued in connection with a
purchase option (Note 2) 819 413,399 49,845
Stock options exercised (Note 7) 9,035 688,825
Income tax benefits attributable to
exercise of stock options (Note 7) 281,548
Cash dividends paid ($.07 per share) (637,218)
Net income 9,020,384
Other (215,311)
Three-for-two stock split effected in the form
of a dividend (Note 6) 299,798 (299,798)
----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1995 $ 899,395 $ 22,804,129 $ 22,368,171 $ -
=========== ============ ============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
OPERATING ACTIVITIES:
Net income $ 9,020,384 $ 5,078,579 $ 3,332,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,509,043 1,745,800 973,467
Provision for credit losses and repurchase commitments 301,188 286,070 434,903
(Gain) loss on sale of property, plant and equipment 22,333 (19,604) 4,210
Equity in undistributed earnings of partnership
investment (236,602) (304,493) (138,618)
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable 863,261 (409,130) 3,376,185
Inventories 193,823 (2,371,652) (990,495)
Amounts payable under dealer incentive programs 1,812,853 778,690 820,753
Accrued wages and related withholdings (243,667) 83,688 (47,657)
Estimated warranties 1,600,000 750,000 486,350
Other assets and liabilities 2,898,579 4,128,727 1,498,356
------------- ------------- -------------
Net cash provided by operating activities 18,741,195 9,746,675 9,750,278
------------- ------------- -------------
INVESTING ACTIVITIES:
Net cash received (paid) in connection with acquisitions (215,311) (1,117,759) 567,406
Proceeds from sale of property, plant and equipment 62,549 36,908 37,800
Capital expenditures (8,033,725) (6,330,075) (2,933,258)
Purchases of marketable securities (1,004,181) (6,075,826)
Proceeds from maturity of marketable securities 3,209,847
Purchases and originations of installment contracts (10,720,802) (7,309,001) (2,625,294)
Principal collected on installment contracts 1,336,777 542,507 145,270
Other 138,354 55,000
------------- ------------- -------------
Net cash used in investing activities (15,226,492) (20,198,246) (4,808,076)
------------- ------------- -------------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock 12,843,619
Net payments under lines of credit (189,017)
Proceeds from long-term borrowings 2,000,000 3,700,000
Payments on long-term debt (605,184) (114,030) (288,290)
Proceeds from exercise of stock options 697,861 53,699 177,992
Cash dividends paid (637,218) (321,932) (227,398)
------------- ------------- -------------
Net cash provided by (used in) financing activities 1,455,459 16,161,356 (526,713)
------------- ------------- -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 4,970,162 5,709,785 4,415,489
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 16,034,922 10,325,137 5,909,648
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 21,005,084 $ 16,034,922 $ 10,325,137
============= ============= =============
See notes to consolidated fiancial statements.
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc. and its wholly owned
subsidiaries, (hereinafter collectively referred to as the "Company"). The
Company's ownership interests in a limited partnership and two C
corporations (all of which are 50% or less) are accounted for using the
equity method and are included in other assets in the accompanying
consolidated balance sheets. Intercompany profits, transactions and
balances have been eliminated in consolidation.
Nature of Operations - The Company designs and manufactures a wide range
of high quality manufactured homes which are sold to a network of
independent dealers located primarily in the southeast, southwest and
midwest regions of the United States. In addition, through its financing
subsidiary, Cavalier Acceptance Corporation ("CAC"), the Company offers
retail installment sale financing and related insurance products for
manufactured homes sold through the Company's independent exclusive dealer
network.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reported periods. Actual
results could differ from those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity of
those instruments. Additional information concerning the fair value of
other financial instruments is disclosed in Notes 4 and 5.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of less than 90 days to be cash equivalents.
Marketable Securities - The Company accounts for its marketable securities
in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
which requires that marketable securities be classified into three
categories - held to maturity, available for sale, and trading, each
having a specified accounting method as to carrying value and recognition
of unrealized gains and losses.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market. During
1995, 1994 and 1993, the Company purchased raw materials of approximately
$7,900,000, $7,360,000, and $4,960,000 respectively, from the limited
partnership referred to above.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method.
Maintenance and repairs are expensed as incurred.
Goodwill - Goodwill is being amortized over 15 years using the
straight-line method. The Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur.
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped to the dealer. All sales
are final and without recourse except for the contingency described in
Note 10.
Interest income on installment contracts receivable is recognized using
the interest method. Loan origination fees and related costs are not
material and are recognized in the period earned or incurred.
Product Warranties - The Company provides a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing
and electrical systems. A liability is provided for estimated future
warranty costs relating to homes sold, based upon management's assessment
of historical experience factors and current industry trends.
Allowance for Losses on Installment Contracts -The Company has provided an
allowance for estimated future losses resulting from retail financing
activities of its financial services subsidiary, CAC, primarily based upon
management's current assessment of individual loans in the portfolio and
repossession experience in the industry. CAC does not exclusively finance
sales for any dealer; all dealers have other financing sources available
to offer to their retail customers. Homes financed are subject to
repossession by CAC upon default by the borrower.
Insurance - The Company's workmen's compensation, product liability and
general liability insurance coverages are provided under incurred loss,
retrospectively rated premium plans. Under these plans, the Company incurs
insurance expense based upon various rates applied to current payroll
costs and sales. Annually, such insurance expense is adjusted by the
carrier for loss experience factors subject to minimum and maximum premium
calculations. Refunds or additional premiums are estimated when
sufficiently reliable data is available in accordance with the consensus
reached in Emerging Issues Task Force Issue No. 93-14, Accounting for
Multiple-Year Retrospectively Rated Insurance Contracts by Insurance
Enterprises and Other Enterprises.
Income Taxes - Effective January 1, 1993, the Company adopted SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires that deferred
income taxes be determined under an asset and liability method. Under this
method, deferred tax assets and liabilities are based on the expected
future tax consequences of temporary differences between the book and tax
bases of assets and liabilities. Previously, deferred income taxes were
determined under Accounting Principles Board Opinion No. 11, Accounting
for Income Taxes ("APB No. 11"). Under APB No. 11, deferred income taxes
were based on the historical tax effects of timing differences between
book and taxable income. The impact of adopting SFAS No. 109 in 1993 was
immaterial to the Company's consolidated financial statements.
Net Income Per Share - Net income per share is based on the weighted
average number of shares outstanding during each period including the
dilutive effect of stock options.
Accounting Standards Yet to be Adopted - In October 1995, the Financial
Accounting Standard Board ("FASB") issued SFAS No. 123, Accounting for
Stock-Based Compensation, which requires adoption of the disclosure
provisions no later than fiscal years beginning after December 15, 1995
and adoption of the recognition and measurement provisions for nonemployee
transactions entered into after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and other
equity instruments. Under the fair value method, compensation cost is
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, ("APB No. 25") but would
be required to disclose in a note to the financial statements pro forma
net income and earnings per share as if the company had applied the new
method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of
adoption. The Company has determined that it will continue to account for
employee stock-based transactions under APB No. 25 and will not elect to
change to the fair value method. Adoption of the disclosure provisions of
this statement in 1996 will result in only increased disclosures regarding
pro forma net income and earnings per share as if the Company had applied
the new method of accounting.
The FASB has also issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective
for fiscal years beginning after December 15, 1995 and management believes
its impact would be immaterial to the Company's financial statements if
adopted currently.
2. ACQUISITIONS
In August 1995, the Company acquired an option to purchase the balance
(73.5%) of the outstanding shares of common stock of Wheel House
Structures, Inc. ("Wheel House") not already owned by the Company through
the reissuance of treasury stock and the issuance of common stock with a
total value of $464,063. In January 1996, the Company exercised the option
and acquired the remaining common stock of Wheel House through the
issuance of common stock valued at $690,937. The total purchase price of
the acquisition was $1,155,000 and will be accounted for under the
purchase method. This acquisition was immaterial to the Company's
consolidated financial statements.
On October 28, 1994, the Company acquired all of the outstanding stock
of Astro Mfg. Co., Inc.("Astro") for $3,138,432 in cash and 160,686 shares
of the Company's common stock previously held in treasury.
This acquisition was accounted for using the purchase method and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the
acquisition date. The excess of consideration paid over the estimated fair
value of the net assets acquired was recorded as goodwill. Deferred income
taxes were established for the difference in bases between financial and
tax reporting of these assets and liabilities at the acquisition date. The
consolidated statements of income include the results of Astro's
operations from its acquisition date forward.
The estimated fair value of assets acquired and liabilities assumed in
this acquisition is summarized as follows:
Cash $ 1,959,572
Other current assets 2,938,886
Property, plant and equipment 1,871,063
Goodwill 1,382,624
Other assets 84,580
Current liabilities (2,388,757)
Deferred income taxes (473,337)
Other liabilities (201,382)
-------------
$ 5,173,249
=============
Consideration consisting of:
Cash $ 3,138,432
Fair value of treasury stock reissued 1,873,607
Amounts paid or accrued for acquisition costs 161,210
-------------
Total purchase price $ 5,173,249
=============
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1994 has been prepared as though the
acquisition occurred as of January 1, 1994. The pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have been achieved had
the acquisition taken place as of January 1, 1994 or in the future.
Net sales $ 217,212,893
Net income 5,056,124
Net income per share .64
3. MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance
sheets at December 31, 1995 and 1994 according to management's intent. As
permitted by A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities issued by the FASB in
November 1996, the Company reassessed the appropriateness of the
classifications of all its marketable securities. Accordingly, at December
31, 1995 the Company transferred approximately $2,500,000 of marketable
securities classified as held to maturity to available for sale. At
December 31, 1995 and 1994, the carrying amounts of marketable securities,
which approximate their fair values, were as follows:
1995 1994
Marketable securities held to maturity:
Due in one year or less:
Corporate bonds $ 1,461,569
United States Treasury Notes 494,732
-------------
1,956,301
-------------
Due in one year to five years:
Corporate bonds 1,427,526
United States Treasury Notes 1,000,000
-------------
2,427,526
-------------
Total held to maturity $ 4,383,827
=============
Marketable securities available for sale:
Closed end funds $ 1,097,225 $ 1,680,072
Corporate bonds 1,481,723
United States Treasury Notes 1,000,000
Common stocks 4,181
------------- -------------
$ 3,583,129 $ 1,680,072
============= =============
4. ALLOWANCE FOR LOSSES ON INSTALLMENT CONTRACTS
At December 31, 1995, the average term of CAC's loan portfolio was
approximately 187 months and the weighted average interest rate was 11.3%.
At December 31, 1995, the Company estimates the fair value of its
installment contracts to be $20,320,000. The fair value of the installment
contracts was determined using interest rates currently offered by CAC on
similar contracts.
Activity in the allowance for losses on installment contracts was as
follows:
1995 1994 1993
Balance, beginning of year $ 350,000 $ 104,000 $ 22,000
Provision for losses 311,000 265,000 90,000
Charge-offs, net (110,000) (19,000) (8,000)
----------- ----------- ------------
Balance, end of year $ 551,000 $ 350,000 $ 104,000
=========== =========== ============
5. CREDIT ARRANGEMENTS
In February 1994, the Company executed a $13 million revolving, warehouse
and term-loan agreement (the "Credit Facility") with its primary bank,
whose president is a director of the Company. The Credit Facility contains
a revolving line of credit which provides for borrowings (including
letters of credit) of up to 80% and 50% of the Company's eligible (as
defined) accounts receivable and inventories, respectively, up to a
maximum of $5 million. Interest is payable under the revolving line of
credit at the bank's prime rate (8.5% at December 31, 1995).
The warehouse and term-loan agreements contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as defined)
installment sale contracts, up to a maximum of $8 million. Interest on
term notes is fixed for a period of five years from issuance at a rate
based on the weekly average yield on five year treasury securities
averaged over the preceding 13 weeks, plus 2.4%, and floats for the
remaining two years at a rate (subject to certain limits) equal to the
bank's prime rate plus .75%. The warehouse component of the Credit
Facility provides for borrowings of up to $2 million with interest payable
at the bank's prime rate plus 1%. However, in no event may the aggregate
outstanding borrowings under the warehouse and term-loan agreement exceed
$8 million.
The Credit Facility contains certain restrictive covenants, which limit
the aggregate of dividend payments and purchases of treasury stock to 50%
of consolidated net income for the two most recent years. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CAC and the capital stock of certain of the Company's consolidated
subsidiaries.
In March of 1996, the Company executed an amendment to the Credit Facility
which increased the maximum available borrowings under the warehouse and
term-loan agreements contained in the Credit Facility to $18 million from
the previous limit of $8 million. The amendment increased the total amount
of available borrowings under the Credit Facility (including the revolving
line of credit) to $23 million from $13 million. In addition to the
increase in available borrowings under the Credit Facility, the interest
rate on prospective borrowings under the term-loan portion of the
agreement was reduced by .40%. The bank's commitment under the Credit
Facility will expire in April of 1998. All other major terms and
commitments under the agreement remain unchanged.
At December 31, 1995, the Company's long-term debt consists of three term
loans which bears interest at fixed rates ranging from 9.40% to 10.15% for
the first five years, and floats for the remaining two years as described
above. Principal repayment requirements are as follows:
Year Ending
December 31, Amount
1996 $ 666,467
1997 736,120
1998 811,438
1999 883,673
2000 900,400
Thereafter 982,688
--------------
Total $ 4,980,786
==============
The fair value of the outstanding borrowings under the Credit Facility is
estimated by the Company to be $5,224,000 at December 31, 1995. This
estimate was determined using the current rate at which the Company
believes it could obtain a similar credit facility.
Cash paid for interest during the years ended December 31, 1995, 1994
and 1993 was $494,087, $61,832 and $35,255, respectively.
6. STOCKHOLDERS' EQUITY
In June 1994, the Company completed a secondary public offering of
1,000,000 shares of its common stock at $13 per share. In July 1994, the
Company sold an additional 90,000 shares at the same price per share. The
Company received net proceeds of $12,843,619 (after offering costs) from
these sales.
On July 17, 1995 and September 7, 1993, the Company's Board of Directors
declared five-for-four stock splits on the Company's common stock, which
were effected in the form of 25% stock dividends, distributed on August
15, 1995 and November 15, 1993 to stockholders of record on July 31, 1995
and October 4, 1993, respectively.
On January 22, 1996, the Board of Directors authorized a three-for-two
stock split effected in the form of a 50% stock dividend. The stock
dividend was distributed on February 15, 1996 to holders of record on
January 31, 1996. Stockholders' equity at December 31, 1995 has been
restated to give retroactive recognition for this stock split. All
applicable share and per share data have been restated to give effect for
all stock splits.
7. STOCK OPTION PLANS
Dealership Stock Option Plan -
During 1995, the Company's Board of Directors approved the
Dealership Stock Option Plan of Cavalier Homes, Inc. (the "Dealer
Plan") under which an aggregate of 450,000 shares of the Company's
common stock may be issued to the eligible independent dealerships
(as defined in the Plan) at a price equal to the fair market value of
the Company's common stock as of a date during the calendar quarter
for which such option is to be granted, such date to be determined by
the plan administrator. Options granted under the Dealer Plan are
immediately exercisable and expire three years from the grant date.
Options exercisable and shares available for future grants were
17,850 and 432,150, respectively. All outstanding options are
exercisable at a price of $10.92. The Company adopted the recognition
and measurement provisions of SFAS No. 123 for Dealer Plan options
granted after December 15, 1995. Compensation expense related to this
plan was immaterial to the Company's 1995 consolidated financial
statements.
Employee and Director Plans:
During 1993, the Company adopted the Cavalier Homes, Inc. 1993
Amended and Restated Nonqualified Stock Option Plan (the "1993
Nonqualified Plan") and the Cavalier Homes, Inc. 1993 Amended and
Restated Nonemployee Directors Stock Option Plan (the "1993
Nonemployee Directors Plan"). These plans provide for the issuance of
stock options to key employees and nonemployee directors to acquire
up to 773,438 and 281,250 shares, respectively, of common stock.
Under the 1993 Nonqualified Plan and the 1993 Nonemployee Directors
Plan, options generally may be granted at an exercise price of not
less than 60% and 100%, respectively, of the fair market value of the
underlying shares at the date of grant. Options granted are generally
exercisable within six months from the date of grant and must be
exercised within ten years from such date, except under certain
conditions.
The Company has also adopted the 1988 Nonqualified Stock Option Plan
(the "1988 Plan") under which the Company may grant nonqualified
stock options to directors, officers, or key employees with respect
to an aggregate of 585,938 of its common shares. Options may be
granted at an exercise price of not less than 60% of the fair market
value of the underlying shares on the date of grant. Options
generally are exercisable after six months from the date of grant and
must be exercised within ten years, except under certain conditions.
The Company adopted in 1986 the Long Term Incentive Compensation
Plan (the "1986 Plan") under which it may grant restricted stock
awards, stock appreciation rights, and qualified or nonqualified
stock options to key employees with respect to an aggregate of
292,969 of its common shares. Qualified stock options may be granted
at an exercise price of not less than 100% of the fair market value
of the underlying shares on the date of grant. Nonqualified options
may be granted at an exercise price determined by the Compensation
Committee of the Board of Directors. Options generally are
exercisable at a cumulative rate of 20% annually after one year and
must be exercised within ten years from the date of grant, except
under certain conditions.
As of December 31, 1995, substantially all available options under
the 1988 Plan and the 1986 Plan had been granted.
Compensation expense with respect to options granted at less than fair
market value at date of grant under the employee and director plans was
immaterial for the years ended December 31, 1995, 1994 and 1993. With
respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense reflected in the Company's financial statements have
been credited to additional paid-in-capital. These benefits, which totaled
$281,548 (1995), $85,875 (1994), and $430,851 (1993), represent a noncash
financing transaction for purposes of the consolidated statements of cash
flows.
Information regarding the employee and director stock option plans is
summarized below:
Shares Per Option
Shares under option:
Outstanding at January 1, 1993 228,984
Options granted 868,271 $4.27 - $5.97
Options exercised (178,335) .68 - 1.07
---------------
Outstanding at December 31, 1993 918,920
Options granted 90,469 5.33 - 8.67
Options exercised (35,623) .68 - 4.27
Options terminated (8,203)
---------------
Outstanding at December 31, 1994 965,563
Options granted 98,447 5.53 - 11.75
Options exercised (139,857) .68 - 5.33
Options terminated (35,187)
---------------
Outstanding at December 31, 1995 888,966
===============
Stock options exercisable and shares available for future grants at
December 31, 1995 were 833,738 and 141,585, respectively, under these
plans.
8. INCOME TAXES
Provision for income taxes consist of:
1995 1994 1993
Current:
Federal $ 5,994,000 $ 3,313,000 $ 2,208,000
State 855,000 581,000 390,000
------------- ------------- -------------
6,849,000 3,894,000 2,598,000
------------- ------------- -------------
Deferred:
Federal (734,000) (333,000) (320,000)
State (101,000) (61,000) (57,000)
------------- ------------- -------------
(835,000) (394,000) (377,000)
------------- ------------- -------------
Total $ 6,014,000 $ 3,500,000 $ 2,221,000
============= ============= =============
Total income tax expense for 1995, 1994, and 1993 is different from the
amount that would be computed by applying the expected federal income tax
rate of 35% to income before income taxes.
The reasons for this difference are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Income tax at expected federal income tax rate $ 5,262,000 $ 3,003,000 $ 1,944,000
State income taxes, net of federal tax effect 752,000 343,000 220,000
Non-deductible operating expenses 171,000 110,000 52,000
Effect of graduated tax rates (121,000) (86,000) (56,000)
Other (50,000) 130,000 61,000
------------- ------------- -------------
$ 6,014,000 $ 3,500,000 $ 2,221,000
============= ============= =============
The approximate tax effects of temporary differences at December 31,
1995 and 1994 were as follows:
1995 1994
Assets (Liabilities)
Current differences:
Warranty expense $ 1,731,000 $ 1,309,000
Inventory capitalization 176,000 159,000
Allowance for losses on receivables 488,000 390,000
Accrued expenses 979,000 759,000
Other 274,000 32,000
-------------- -------------
$ 3,648,000 $ 2,649,000
============== =============
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (1,109,000) $ (950,000)
Other 66,000 74,000
-------------- -------------
$ (1,043,000) $ (876,000)
============== =============
</TABLE>
Cash paid for income taxes for the years ended December 31, 1995, 1994
and 1993 was $5,905,107, $3,519,401 and $2,022,253, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors an Employee 401(k) Retirement Plan covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of their basic compensation as defined in the
Plan. The amount of the Company's matching contribution is discretionary
as determined by the Board of Directors. Company contributions amounted to
$229,000, $175,000 and $141,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating leases:
Four of the Company's manufacturing facilities are leased under separate
operating lease agreements (the "Related Leases") with partnerships or
companies whose owners are certain officers, directors or stockholders of
the Company. The Related Leases require monthly payments ranging from
$6,000 to $25,000 and provide for lease terms ending from August 1996 to
April 1999 as well as renewal option periods. The Related Leases also
contain purchase options whereby the Company can purchase the respective
manufacturing facility for amounts ranging from $850,000 to $1,750,000 at
any time during the lease terms.
The Company also leases two other manufacturing facilities under operating
leases with unrelated parties. These leases currently require monthly
payments of $8,000 and $13,500 through January 1998 and March 1999,
respectively, and include renewal option periods. The Company has the
option under one of these leases to (i) cancel the lease with a one year
notice and (ii) purchase the manufacturing facility for $995,000 at any
time during the lease term.
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December
31, 1995 are as follows:
Year Ending
December 31, Amount
1996 $ 681,000
1997 521,000
1998 353,000
1999 101,500
--------------
Total $ 1,656,500
==============
Total rent expense was $1,044,000, $832,000 and $641,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, including rents paid
to related parties of $723,000 (1995), $662,000 (1994) and $460,000
(1993).
Contingent Liabilities and Other:
a. It is customary practice for companies in the manufactured housing
industry to enter into repurchase and other recourse agreements with
lending institutions which have provided wholesale floor plan
financing to dealers. Substantially all of the Company's sales are
made to dealers located primarily in the southeast, southwest and
midwest regions of the United States pursuant to repurchase
agreements with lending institutions.. These agreements generally
provide for repurchase of the Company's products from the lending
institutions for the balance due them in the event of repossession
upon a dealer's default. Although the Company was contingently liable
for an amount estimated to be $65 million under these agreements as
of December 31, 1995, such contingency is reduced by the resale value
of the homes which are required to be repurchased. The Company has an
allowance for losses of $750,000 (1995) and $650,000 (1994) based
on prior experience and current market conditions. Management
expects no material loss in excess of the allowance.
b. Under the insurance plans described in Note 1, the Company is
contingently liable at December 31, 1995 for future retrospective
premium adjustments up to a maximum of approximately $6,300,000 in
the event that additional losses are reported related to prior
years. The Company recorded an estimated liability of approximately
$1,117,000 (1995) and $970,000 (1994) related to such incurred but
not reported claims. Management expects no material loss in excess
of the allowance.
c. The Company and certain of its equity partners have jointly and
severally guaranteed certain short-term debt, with a balance of
$1,100,000 at December 31, 1995, of the limited partnership in which
the Company owns a 33% interest.
d. The Company is engaged in various litigation which is routine in
nature and, in management's opinion, will have no material adverse
effect on the Company's financial statements.
e. During 1994, the Company entered into split-dollar life insurance
agreements with two of its executive officers which provide for
payment of the related insurance premiums by the Company and also
for reimbursement to the Company of such premiums upon payment of
death benefits under the policies.
11. INDUSTRY SEGMENT INFORMATION
The Company's primary activities are the design, production and wholesale
sale of manufactured homes to a system of independent dealers. The Company
also offers retail financing of its homes through its exclusive
independent dealer network. For purposes of segment reporting, corporate
assets consist primarily of cash, certain property and equipment and other
investments. Operating profit is considered to be income before general
corporate expenses, interest and income taxes.
<PAGE>
Financial information for these segments is summarized in the following
table:
<TABLE>
<S> <C> <C> <C> <C>
General
Financial Corporate
Manufacturing Services (Unallocated) Total
Year ended December 31, 1995:
Revenues $ 272,485,557 $ 1,764,047 $ 274,249,604
Operating profit 15,393,701 638,004 $ (1,401,604) 14,630,101
Identifiable assets 56,804,039 22,387,690 3,434,169 82,625,898
Depreciation and
amortization 2,443,561 58,672 6,810 2,509,043
Capital expenditures 7,760,483 260,151 13,091 8,033,725
Year ended December 31, 1994:
Revenues $ 206,441,436 $ 703,326 $ 207,144,762
Operating profit 8,927,547 158,100 $ (957,168) 8,128,479
Identifiable assets 45,747,771 14,178,925 3,835,939 63,762,635
Depreciation and
amortization 1,722,401 13,426 9,973 1,745,800
Capital expenditures 6,330,075 - - 6,330,075
Year ended December 31, 1993:
Revenues $ 155,594,042 $ 229,812 $ 767 $ 155,824,621
Operating profit 6,640,453 22,564 (1,310,502) 5,352,515
Identifiable assets 27,143,220 3,449,685 588,733 31,181,638
Depreciation and
amortization 965,215 6,844 1,408 973,467
Capital expenditures 2,851,429 81,829 - 2,933,258
* * * * *
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts Deductions Period
---------------- --------------- --------------- ---------------- ----------------
Allowance for Losses on Accounts
Receivable:
Year Ended December 31, 1995 $ $
650,000 152,554 - (52,554) 750,000
================ =============== =============== ================ ================
Year Ended December 31, 1994 $ $
560,000 62,860 50,000 (22,860) 650,000
================ =============== =============== ================ ================
Year Ended December 31, 1993 $ $
450,000 353,377 - (243,377) 560,000
================ =============== =============== ================ ================
Allowance for Credit Losses:
Year Ended December 31, 1995 $ $
350,000 311,190 - (110,002) 551,188
================ =============== =============== ================ ================
Year Ended December 31, 1994 $ $
103,930 265,048 - (18,978) 350,000
================ =============== =============== ================ ================
Year Ended December 31, 1993 $ $
22,404 89,526 - (8,000) 103,930
================ =============== =============== ================ ================
Accumulated Amortization of Goodwill:
Year Ended December 31, 1995 $ $
140,476 166,763 - - 307,239
================ =============== =============== ================ ================
Year Ended December 31, 1994 $ $
47,405 93,071 - - 140,476
================ =============== =============== ================ ================
Year Ended December 31, 1993 $ $
- 47,405 - - 47,405
================ =============== =============== ================ ================
Accumulated Amortization of Non-Compete
Agreement:
Year Ended December 31, 1995 $ $
122,232 66,672 - - 188,904
================ =============== =============== ================ ================
Year Ended December 31, 1994 $ $
55,560 66,672 - - 122,232
================ =============== =============== ================ ================
Year Ended December 31, 1993 $ $
- 55,560 - - 55,560
================ =============== =============== ================ ================
Warranty Reserve:
Year Ended December 31, 1995 $ $
4,200,000 11,385,825 (9,785,825) 5,800,000
================ =============== =============== ================ ================
Year Ended December 31, 1994 $ $
3,100,000 7,740,813 350,000 (6,990,813) 4,200,000
================ =============== =============== ================ ================
Year Ended December 31, 1993 $ $
2,383,500 4,940,758 230,150 (4,454,408) 3,100,000
================ =============== =============== ================ ================
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see
"Election of Directors," "Executive Officers and Principal Stockholders," and
"Compliance with Section 16(a) of the Exchange Act" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders," "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"), "Compensation Committee Interlocks
and Insider Participation," and "Certain Relationships and Related Transactions"
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 15, 1996, which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
For a description of the security ownership of management and certain beneficial
owners, see "Executive Officers and Principal Stockholders" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 15,
1996, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the
Company, see "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships And Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
which are incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The financial statements contained in this report and the
page on which they may be found are as follows:
Financial Statement Description Form 10-K Page No.
Independent Auditors' Report 20
Consolidated Balance Sheets as of December 31, 1995
and 1994 21
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 23
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1995, 1994 and 1993 24
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statements 26
2. The financial statement schedules required to be filed with this
report and the pages on which they may be found are as follows:
Schedule Schedule Description Form 10-K Page No.
II Valuation and Qualifying Accounts 39
3. The exhibits required to be filed with this report are listed below.
The Company will furnish upon request any of the exhibits listed upon the
receipt of $15.00 per exhibit, plus $.50 per page, to cover the cost to the
Company of providing the exhibit.
(3) Articles of Incorporation and By-laws.
* (a) The Restated Certificate of Incorporation of the Company, as amended,
filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is Incorporated herein by reference.
* (b) The By-laws of the Company, as amended, filed as Exhibit (b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
(4)
* (a) Articles four, six, seven, nine and ten of the Company's Restated
Certificate of Incorporation, as amended, included in Exhibit 3(a) above.
* (b) Article II, Sections 1 through 11; Articles III, Sections 1 and 2;
Article IV, Sections 1 and 2; Article VI, Sections 1 through 6; Article VIII,
Sections 1 through 3; Article IX, Section 1 of the Company's By-laws, included
in Exhibit 3(b) above.
(10) Material contracts
* (a) Option and Stock Exchange Agreement by and among Wheelhouse
Structures, Inc., Shareholders of Wheel House Structures, Inc. and Cavalier
Homes, Inc. dated as of August 28, 1995, filed as Exhibit 2(a) to the Company's
Registration Statement on Form S-3 (Registration No. 333-00607), is incorporated
herein by reference.
* (b) Dealership Stock Option Plan of Cavalier Homes, Inc. filed as Exhibit
4(c) to the Comapny's Registration Statement on Form S-3 dated September 11,
1995, (Registration No. 33-62487), is incorporated herein by reference.
(c) Lease Agreement between City of Mineral Wells, Texas and Cavalier Homes
of Texas dated February 27, 1996.
(d) Amendments to the Revolving, Warehouse and Term Loan Agreement among
the Company and First Commercial Bank Birmingham, Alabama) dated March 14, 1996.
* (e) Stock Purchase Agreement, as amended, by and among Astro Mfg. Co.,
Inc., Shareholders of Astro Mfg. Co., Inc. and Cavalier Homes, Inc. dated as of
October 14, 1994, filed as Exhibit 2(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, is incorporated herein by
reference.
* (f) Holdback agreement between Cavalier Homes, Inc. and Raymond A.
Peltcs, dated October 28, 1994, filed as Exhibit 2(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994, is incorporated
herein by reference.
* **(g) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, as
amended, filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, is Incorporated herein by reference.
* (h) Lease between Cavalier Homes of Alabama, Inc. and Robert L. Burdick,
John W Lowe, and Jerry F. Wilson, as tenants in common dated September 1, 1988,
as amended, filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by reference.
* (I) Commercial Sub-Lease between Winston County Industrial Development
Association and Cavalier Homes of Alabama, Inc., dated March 5, 1993 filed as
Exhibit 10(d) to the Company's Registration Statement on Form S-2 (Registration
No. 33-59452), is incorporated herein by reference.
* (j) Agreement and Plan of Merger, dated February 26, 1993, among
Homestead Homes, Inc., the Stockholders of Homestead Homes, Inc., Cavalier
Acquisition Corporation and Cavalier Homes, Inc. filed as Exhibit 2 to the
Company's Current Report on Form 8-K dated February 26, 1993, as amended on Form
8, dated March 12, 1993, is incorporated herein by reference.
* (k) Revolving, Warehouse and Term Loan Agreement among the Company and
First Commercial Bank Birmingham, Alabama) dated February 17, 1994, filed as
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
* (l) Lease Agreement between Leonard Properties and Cavalier Homes of
Texas dated February 17, 1994, filed as Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, is incorporated herein
by reference.
* **(m) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan, filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by reference.
* **(n) Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee
Directors Stock Option Plan, filed as Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, is incorporated herein
by reference.
* (o) Guaranty Agreement between SouthTrust Bank of Marion County and
Cavalier Homes, Inc. dated February 18, 1993, relating to guaranty of payments
by WoodPerfect, Ltd., filed as Exhibit 10(i) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, is incorporated herein by
reference.
* (p) Sub-lease Agreement with Option to Purchase between Winfield
Industrial Development Association, Inc and Buccaneer Homes of Alabama, Inc.
dated May 9, 1994 filed as Exhibit 10(k) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No, 33-78644), is incorporated
herein by reference.
* (q) Lease Agreement with Option to Purchase between Marion County
Industrial Development Association, Inc and Quality Housing Supply, Inc. dated
May 9, 1994 filed as Exhibit 10(l) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No, 33-78644), is incorporated
herein by reference.
(11) Statement Re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
* Incorporated by reference herein.
**Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAVALIER HOMES, INC.
Registrant
By:/s/ JERRY F. WILSON
Date: April 1, 1996
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Signature Title Date
/s/ JERRY F. WILSON Director and Principal April 1, 1996
- ---------------------------- Executive Officer
/s/ DAVID A. ROBERSON Principal Financial and April 1, 1996
- ---------------------------- Accounting Officer
/s/ BARRY DONNELL Chairman of the Board and Director April 1, 1996
- ----------------------------
/s/ THOMAS A. BROUGHTON, III Director April 1, 1996
- ----------------------------
/s/ JOHN W LOWE Director April 1, 1996
- ----------------------------
/s/ LEE ROY JORDAN Director April 1, 1996
- ----------------------------
<PAGE>
INDEX
Page in
Sequentially
Exhibit Numbered
Number Filing
(10) Material Contracts
(c) Lease Agreement between City of Mineral Wells,
Texas and Cavalier Homes of Texas.
(d) Amendments to the Revolving, Warehouse and
Term Loan Agreement.
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule filed as an EDGAR Exhibit
only.
Exhibit 10(c)
LEASE AGREEMENT
THE STATE OF TEXAS )
COUNTY OF PARKER
Recitals
A. City of Mineral Wells, Texas ("Landlord"), a Texas municipal
corporation, owns that certain real property in Parker County, Texas located at
the Mineral wells Municipal Airport and more fully described as follows:
INITIAL LEASE PARCEL "A" ("LEASED PREMISES"):
Being 11.378 acres out of the J. W. Merritt Survey, Abstract 2779,
Parker County, Texas and being more particularly described as
follows:
Beginning at a 3/8 inch spike set for the Southwest Corner of this
tract, said point being South 43 degrees 38 minutes 28 seconds
West, a distance of 3344.68 feet from the Northeast Corner of said
J. W. Merritt Survey;
Thence North 00 degrees.27 minutes 18 seconds East along and with the edge of
existing asphalt pavement, a distance of 270.48 feet to a 3/8 inch spike set for
the Northwest Corner of this tract;
Thence South 89 degrees 30 minutes 38 seconds East, a distance of 342.80 feet to
d 3/8 inch spike set in asphalt pavement for an ell corner of this tract;
Thence North 00 degrees 29 minutes 23 seconds East, a distance of 30.00 feet to
a 3/8 inch spike set in asphalt pavement for an ell corner of this tract;
Thence 89 degrees 30 minutes 37 seconds East, a distance of 847.04 feet to a 3/8
inch spike set in asphalt pavement for the Northeast Corner of this tract;
Thence South 00 degrees 07 minutes 39 seconds East, a distance of 753.26 feet to
a 3/8 inch spike set at the edge of asphalt pavement for the Southeast Corner of
this tract;
Thence North 89 degrees 28 minutes 52 seconds West along and with the edge of
asphalt pavement, a distance of 323.40 feet to a 3/8 inch spike set for an ell
corner of this tract;
Thence North 00 degrees 48 minutes 35 seconds West along and with the edge of
asphalt pavement, a distance of 442.88 feet to a 3/8 inch spike set for an
interior corner of this tract;
Thence North 77 degrees 16 minutes 05 seconds West, a distance of 48.48 feet to
a 3/8 inch spike set for an interior corner of this tract;
Thence North 89 degrees 32 minutes 30 seconds West generally along and with the
edge of asphalt pavement, a distance of 813.62 feet to the place of beginning
and containing 11.378 acres.
OPTIONAL PARCEL "B"
Being 21.455 acres out of the J. W. Merritt Survey,
Abstract 2779, Parker County, Texas and being more particularly described as
follows:
Beginning at a 3/8 inch spike set for the Northwest
Corner of this tract, said point being South 28 degrees
53 minutes 13 seconds West, a distance of 2309.86 feet
from the Northeast Corner of said J. W. Merritt Survey;
Thence East, a distance of 1081.08 feet to a 3/8 inch spike set at the edge of
asphalt pavement for the Northeast Corner of this tract;
Thence South 00 degrees 21 minutes 14 seconds West generally along and with the
edge of asphalt pavement, a distance of 870.74 feet to a 3/8 inch spike set for
the Southeast Corner of this tract;
Thence North 89 degrees 28 minutes 52 seconds West generally along and with the
edge of asphalt pavement, a distance of 1077.66 feet to a 3/8 inch spike set for
the Southwest Corner of this tract;
Thence North 00 degrees 07 minutes 39 seconds East, a distance of 860.97 feet to
the place of beginning and containing 21.455 acres.
See Attachment A for maps of both parcels.
Parcel "A", together with the improvements situated thereon, shall hereinafter
be referred to as the ~Leased Premises". In the event Tenant exercises its
option pertaining to Parcel "B", then said Parcel "B" shall also be referred to
as the Leased Premises".
B. Cavalier Town & Country of Texas, Inc. ("Tenant"), a Texas
corporation, desires to lease the Leased Premises from Landlord upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:
That, for value received, Landlord and Tenant have agreed:
1. Leased Premises
1.1: Lease Pursuant to the terms of this Lease Agreement ("Lease"), and
subject to the provisions of Section 1.2 below, Landlord hereby leases and lets
unto Tenant and Tenant does hereby take from Landlord the Leased Premises.
Tenant acknowledges that it has inspected the Leased Premises and accepts the
Leased Premises as suitable for the purposes for which the same are hereby
leased, subject to the modifications, renovations, improvements and additions to
be made by Tenant
1.2: Possession Landlord has a tenant, Industrial Technology, Inc.,
currently occupying a portion of the Leased Premises on a month to month basis
pending completion of a new building as mentioned in Section 3.4= If not sooner
vacated, Landlord shall cause the Leased Premises to be vacated and deliver
occupancy thereof to Tenant no later than 70 days after the date the
displacement fee is placed in escrow by Tenant. Tenant may commence renovations
and improvements to the unoccupied portion of the Leased Premises
notwithstanding the "Commencement Date" of this Lease, provided FAA approval has
been obtained and that such operations do not interfere with the use of the
premises by Industrial Technology, Inc., and all the terms and conditions of
this Lease, except for payment of rent. shall be applicable during the period
from the time Tenant takes partial occupancy for purposes of installation of
improvements to the
Commencement Date.
2. Term
2.1: Initial Term The initial term of this Lease is for a period of 10
years commencing as of ("Commencement Date") and ending on . The "Commencement
Date" of this Lease shall be the day inserted above by mutual agreement of the
parties which shall be not more than ten (10) days following the date the
property is vacated by Industrial Technology, Inc. The ending date of the
initial term of this Lease shall be ten (10) years following the "Commencement
Date".
2.2: Renewal Terms Tenant shall have the option to renew this Lease, by
written notice of such renewals delivered to Landlord as hereinafter provided,
under the same terms, conditions and covenants set forth herein, except that the
rents payable hereunder for each renewal term shall be adjusted as set forth in
Section 3.2 and Tenant shall have three consecutive five (5) year options to
renew this Lease.
2.3: Notice Requirements Tenant may elect to exercise any option by
giving Landlord written notice at least 180 days prior to the expiration of the
then existing term of the Lease. Notwithstanding the foregoing, in the event
Tenant does not exercise any of its renewal options in the time period or in the
manner provided in this Lease, each such option shall nevertheless continue in
full force and effect and shall not lapse until 20 days after Landlord shall
have notified Tenant in writing to inquire whether Tenant desires to exercise
such option.
2.4: Early Termination After the first five (5) years of the initial
term and during any renewal term, Tenant shall have the right to terminate this
Lease Agreement at any time by giving the Landlord a minimum of 180 days written
notice of Tenant's intention to terminate the Lease Agreement.
3. Rents
3.1: Initial Term As rents for the Leased Premises during the initial
term, Tenant shall pay Landlord at Landlord's offices in Mineral Wells, Palo
Pinto County, Texas the aggregate sum of $346,800, with the first years rent
(prepaid rent) being in the amount of $33,600, being due and payable upon the
"Commencement Date" and the balance of $313,200 being due and payable in 108
equal monthly installments of $2,900 each beginning on the 1st anniversary date
of this Lease, and like payments of S2,900 being due and payable an or before
the same day of each successive calendar month thereafter until all of such
monthly installments have been paid.
3.2: Renewal Term In the event Tenant exercises its right to renew this
lease as set forth above, the rent payable hereunder shall be adjusted effective
as of the first day of the renewal term in accordance with this Section 3.2.
Effective on the 1st day of the renewal term, the monthly rent payment due
pursuant to this Lease shall be adjusted to an amount equal to $4,000 per month
for each of the three subsequent five (5) year options. The monthly rent payment
shall remain constant during the remainder of each renewal term, subject to the
adjustments, if any, under 3.5 hereof.
3.3: Prepaid Rent On the ~Commencement Date" of this Lease, Tenant
shall deliver to Landlord the sum of $33,600 as prepaid rent for the first year
of this Lease. It is understood and agreed that this prepaid rent shall be
applied to the commission fee owed by Landlord to Brazos Realty.
3.4: Displacement Fee Tenant agrees to pay Industrial Technology, Inc.
a displacement fee of $100,000 for vacating the premises and constructing a new
building on other property under lease to Industrial Technology, Inc. Such funds
shall be paid into an escrow account for use by Industrial Technology, Inc. in
constructing its new facility. The parties shall enter into a separate escrow
agreement which sets forth the procedures for disbursement of funds and The
Mineral Wells Industrial Foundation, Inc. shall be named as the escrow agent for
purposes of disbursement of funds. The $100,000 shall be placed in escrow within
ten (10) days following the execution of this Lease and prior to the
construction of the new improvements by Industrial Technology, Inc.
3.5: Tenant agrees that Tenant will employ a minimum of seventy-five
(75) full-time employees by within 180 days from the "Commencement Date" of this
Lease and a minimum of one hundred thirty-five (135) full-time employees by June
1, 1997.
If, by June 1, 1997 or at June 1 of each lease year thereafter, Tenant
is not within ninety percent (90%) of the employment level goal (135 full-time
employees), then the Landlord may, at its option, increase the monthly lease
rental to an amount equal to (135 full-time employees divided by the actual
number of employees) times the then appllrahLe lease rate (52,900 during initial
term and $4,000 during any renewal term.}. Such lease rate shall be effective
beginning on the 1st day of the following lease year and shall remain in force
and effect for ali of such leave year, provided the monthly rental shall not
exceed $4,~OD during the initial lease tprm mor $6sQQQ during any renewal term.
Tenant shall advise Landlord as to the number of Landlord's full-time employees
within ten (10) days following June 1 of each lease year. Landlord shall
determine during the month preceding each new Lease year whether to exercise its
option to increase monthly rental, if Tenant shall have failed to achieve such
employment goal. Landlord shall notify Tenant prior to the beginning of the new
Lease year as to whether rental has been increased. If Tenant has reached ninety
percent (90%) of its employment goal as of June l of any lease year, rental for
the following year shall be the amount of rental as set forth in 3.1 and 3.2
above. This Section 3.5 does not imply that Tenant must operate the plant. If
the plant closes for reasons other than a temporary closing (e.g., a casualty or
a remodeling), then rent shall be computed at the rate of $4,000 during the
initial term and $6,000 during the renewal terms. 4. Insurance
4.1: Required Coverage Tenant, at its sole cost and expense, will
obtain and maintain, with insurance carriers duly licensed to do business in
Texas, the following insurance coverages with respect to the Leased Premises:
(a) Fire and basic property insurance in an amount not less than the
replacement value of the Leased Premises.
(b) At Tenant's option, fire and basic property insurance in an amount
to be determined by Tenant insuring Tenant's leasehold improvements to the
Leased Premises.
(c) General liability insurance in an amount not less than $1,000,000
per person and $1,000,000 per occurrence for bodily injury and $250,000 for
property damage.
(d) The insurance carrier underwriting the insurance described in (a)
above shall have a rating of an AM Best Rating of A, if available at competitive
rates, otherwise at the next best rating of not less than B.
Each such insurance policy shall name Landlord and Tenant as insured parties as
their interest may appear. The policy required under (a) above must provide that
any proceeds for loss or damage to buildings or to improvements are payable
jointly to Landlord and Tenant for the purposes provided for in this Lease.
Tenant shall furnish to Landlord certificates or other evidence of the required
insurance coverage prior to Tenant's occupancy of the Leased Premises. Prior to
the expiration of any such coverage, Tenant shall furnish Landlord evidence of
the continuation of such coverage.
4.2: Waiver of Subrogation Rights Landlord and Tenant hereby waive
their respective rights of subrogation against the other for all claims and
causes whatsoever arising out of any injury upon or loss or damage to the Leased
Premises or any part thereof resulting from a risk or peril included within the
insurance policies herein required and/or purchased by either party. Each party
will promptly notify their respective insurers of this waiver.
5. Taxes
Tenant shall pay the ad valorem taxes lawfully levied or assessed
against the Leased Premises during the term of this Lease or any renewal. Tenant
shall pay such taxes and assessments directly to the taxing authority entitled
to receive such payment; provided, however, Tenant shall have the right, at its
sole risk and expense, to contest any such tax or assessment. Tenant shall have
all the rights under the applicable tax laws of the State of Texas pertaining to
the payment of taxes during the pendency of any dispute with the taxing
authorities.
6. Maintenance Tenant shall throughout the term of this Lease maintain
and keep the Leased Premises repaired. Subject to the provisions of Sections 19
and 20 hereof, at the end of the term of the Lease, Tenant shall surrender and
deliver up the Leased premises to Landlord in good repair and condition (damage
by fire, tornado or other casualty and normal wear and use excepted). In the
event Tenant should fail to maintain the Leased Premises in a reasonable manner,
and such failure should continue for a period of go days after Landlord's
written notice to Tenant thereof, or if such failure cannot reasonably be cured
within the said 90 days and Tenant shall not have commenced to cure such failure
within said 90 days and shall not thereafter with reasonable diligence and good
faith proceed to cure such failure, Landlord shall have the right (but not the
obligation) to cause repairs to be made, and the costs thereof shall be payable
by Tenant to Landlord on the next rental installment date. In the alternative,
Landlord may declare Tenant in default and exercise its remedies under Section
14 hereof.
For purposes of this Paragraph, maintaining and keeping the Leased
Premises repaired shall mean that Tenant shall be fully and completely
responsible, at its sole cost and expense, for repairing and maintaining the
exterior and interior of the improvements, including all plumbing, heating,
air-conditioning and electrical facilities, interior and exterior walls, roofing
and flooring, together with all paved areas situated on the Leased Premises.
Tenant shall be solely responsible for replacing, as necessary, any unusable
portion(s) of all system components (HVAC, electrical and plumbing) and interior
walls and doors. In the event any portion of the exterior walls, roof,
foundation, flooring or other structural portions of the building or paved area
of the premises become unsafe, unusable, unfit for its intended purpose, damaged
or destroyed (for any reason other than fire or Acts of God covered by
insurance) to the extent that same must be replaced for Tenant's continued
reasonable use of the premises, Tenant shall so notify Landlord in writing.
After notification to Landlord, Tenant may (i) replace the defective portion of
the premises at its sole cost and expense; or (ii) terminate this Lease. In the
event Tenant elects to incur the costs of replacement as set forth in (i) above,
Tenant shall, beginning with the first month following completion of replacement
be entitled to reduce its monthly rental payments by fifty percent (50%) of the
otherwise applicable amounts until such time as Tenant has recovered its actual
cost of replacement. At no time shall the monthly reduced rental be less than
fifty percent (506) of the rentals provided for in this Lease which would
otherwise be applicable in the absence of this Section 6. If the Lease
terminates prior to Tenant recovering its costs, Tenant shall not be entitled to
any further compensation. The costs incurred by Tenant in replacement shall be
reasonable and necessary and documented with invoices from all vendors,
suppliers and contractors furnishing materials and services. Notwithstanding
anything contained herein to the contrary, Tenant shall have no right to reduce
its rental if the replacement is for structures, additions or other improvements
constructed by Tenant following occupancy under this Lease by Tenant. Landlord
shall have no obligation to maintain, repair or replace any property covered by
this Lease, except to the extent as set forth in Section 10 hereof.
7. Inspection Landlord and Landlord's authorized agents shall have the
right to enter the Leased Premises during TenantXs normal business hours of
operation for the purpose of inspecting the general condition and state of
repair of the Leased Premises.
8. Use Tenant may occupy and use the Leased Premises for the
manufacture and sale of manufactured homes and general office and/or warehouse
facilities in connection therewith and for no other purposes without the prior
written consent of Landlord which consent shall not be unreasonably withheld or
delayed. Landlord agrees not to withhold its consent provided the new use is
industry or manufacturing related and the new use is under the supervision of a
responsible employer. Tenant shall conduct its business and control its agents,
employees, invitees and visitors in a way as is lawful and reputable in
accordance with manufacturing industry standards and will not create a nuisance
or otherwise interfere with, annoy or inconvenience Landlord or the occupants of
surrounding real property. Tenant shall maintain the grounds (keeping same free
of loose trash and debris) in a reasonably neat condition, taking into account
the nature of Tenant's manufacturing operation. Tenant agrees that whenever
reasonably possible, all items stored outside will be on the South side of the
facility and under the new shed roof. Tenant agrees to make reasonable efforts
to limit the traffic and activity on the North side of the plant to maintain a
reasonable noise level and to blend in with the then existing tenants at the
Airport. Tenant shall be responsible to obtain any and all authorizations from
applicable governing authorities for the conduct of such business, including
waivers and certificates of permissive use and exemption, if necessary, from
applicable zoning ordinances. Tenant, its successors and assigns, will not make
or permit any use of the property which would interfere with landing or taking
off of aircraft at the Mineral Wells Municipal Airport, or otherwise constitute
an airport hazard. This includes such items as electrical or electronic
interference with communications, electrical or electronic equipment, creation
of smoke or dust or glaring or misleading lights. Landlord has determined that
the use of the Leased premises by Tenant for the manufacture and sale of
manufactured homes and general office and/or warehouse facilities in connection
therewith will be compatible with the operations of the airport facilities
located adjacent to the Leased Premises, and will attempt to obtain from the FAA
a letter or other assurance addressed to Tenant confirming that such use will be
compatible with airport operations.
9. Utilities Tenant accepts the Leased Premises with the existing
utility connections into the Leased Premises Tenant shall pay the cost of all
utility services, including but not limited to, all charges for gas, water and
electricity used on the Leased Premises and all costs of garbage and trash
removal and sewer services.
lO. Fire and Casualty Damage
10.1: Total If the Leased Premises should be totally destroyed by fire,
tornado or other casualty, or if they should be so damaged that rebuilding or
repairs cannot reasonably be completed within 180 working days from the date of
the occurrence of the damage, this Lease may terminate at the option of Tenant
and any unearned portion of the $33,600 prepaid rent for the first year and that
portion of the $100,000 displacement fee prorated for the remaining portion of a
10 year period beginning January 1, 1996 shall be refunded to Tenant out of the
insurance proceeds. Provided the addition and improvements contemplated by
Tenant have been made in accordance with Exhibit "B" hereof and insurance
proceeds are jointly paid to Tenant and Landlord representing the full
replacement value of the premises (including the improvements made by Tenant),
and Tenant elects to terminate this Lease, then such proceeds shall be divided
75~ to City (less any rent or displacement fee refunds) and 25~ to Tenant.
10.2: Partial
(a) If the Leased Premises should be damaged by fire, tornado or other
casualty but not to such an extent that rebuilding or repairs cannot reasonably
be completed within 180 working days from the date of the occurrence of the
damage, this Lease shall not terminate, but Landlord shall, to the extent of
insurance proceeds derived from such casualty which are paid to Landlord and
Tenant, proceed forthwith to rebuild or repair the Leased Premises to
substantially the condition existing prior to such damage.
If the casualty occurs during the final 180 days of the Lease term, Landlord
shall not be required to rebuild or repair such damage unless Tenant has
notified Landlord in writing that Tenant is exercising its right to renew this
Lease pursuant to the notice provisions of 2.} above. If Tenant has not
exercised its right to renew this Lease following notice from Landlord pursuant
to 2.3 above, then this Lease shall terminate, effective as of the date of said
damage. If the Leased Premises are to be rebuilt or repaired and are
untenantable in whole or in part following such damage, the rents payable
hereunder during the period in which it is untenantable shall be adjusted
equitably.
(b) Notwithstanding anything in this Section 10.2 which might be deemed
to be to the contrary, except as hereinafter provided, Landlord shall not be
required to spend any amount in excess of the insurance proceeds derived from
such casualty in connection with the rebuilding or repair of the Leased
Premises. In the event the insurance proceeds available to Landlord are
insufficient for such purpose, Landlord shall so notify Tenant in writing. In
such event Landlord may elect not to rebuild or repair the Leased Premises and
to terminate the Lease effective as of the date of such damage unless Tenant
agrees to pay all of the repair costs in excess of such insurance proceeds.
11. Hold Harmless
11.1: by Tenant Tenant will indemnify and hold Landlord harmless
against any claims, damages, costs and expenses, including reasonable attorney~s
fees for defending claims and demands arising from the conduct or management of
Tenant's business on the premises or its use of the premises, or for any breach
on Tenant's part of any conditions of this Lease, or from any act or negligence
of Tenant, its officers, agents, contractors, employees, subtenants or invitees
in or about the premises. In case of any action or proceeding brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord, will
defend the action or proceeding by competent counsel experienced in the area of
controversy.
11.2: By Landlord Landlord shall indemnify, defend and save and hold
Tenant harmless from and against any and all liabilities, losses, damages,
claims, fines, causes of action, attorneys' fees and court costs, due to death,
personal injury, property damage or financial loss due to any breach on
Landlord's part of any condition of this Lease or arising out of or attributable
to the presence on the Leased Premises of any hazardous or regulated substance
or product, which were on the Leased Premises as of the effective date of this
Lease, including but not limited to crude oil products and asbestos, under any
applicable federal or state law in effect as of the date of execution of this
Lease.
12. Condemnation
12.1: Total If, during the term of this Lease, all or a substantial
part of the Leased Premises should be taken for any public or quasi-public use
under any governmental law, ordinance or regulation or by right of eminent
domain or should be sold to the condemning authority under threat of
condemnation, this Lease shall terminate and the rents payable hereunder shall
be abated during the unexpired portion of this Lease effective as of the date of
taking by the condemning authority, and the $33,600 prepaid rent (or the
unearned portion thereof, if applicable) and that portion of the $100,000
displacement fee prorated for the remaining portion of a 10 year term beginning
as of the "Commencement Date" shall be refunded to Tenant.
12.2: Partial If less than a substantial part of the Leased Premises
shall be so taken or sold, this Lease shall not terminate but Landlord shall
forthwith, at its sole expense, restore and reconstruct the Leased Premises
provided such restoration and reconstruction shall make the same reasonably
tenantable and suitable for the uses for which the same are hereby leased. If
the use of the Leased Premises shall be impaired by such taking or sale, the
rents payable hereunder during the unexpired portion of this Lease shall be
adjusted equitably. If, in the opinion of Landlord and Tenant, such restoration
and reconstruction cannot be completed within 180 days following the date of
such taking or sale, Landlord or Tenant may elect to terminate this Lease by
giving prior written notice thereof to the other party, and the 333,600 prepaid
rent (or the unearned portion thereof, if applicable) and that portion of the
$100,000 displacement fee prorated for the remaining portion of a 10 year term
beginning as of the "Commencement Date~ shall be refunded to Tenant.
12.3: Condemnation Awards Landlord and Tenant shall each be entitled to
pursue, receive and retain separate condemnation awards, and portions of the
lump sum awards, as may be allocated to their respective interests in any
condemnation proceedings; provided, however, that the parties agree that the
first monies payable with respect to such condemnation shall first be payable to
Tenant for its unamortized leasehold improvement (using Tenant's legally
authorized federal income tax depreciation schedules). The termination of this
Lease shall not affect the rights of Landlord and Tenant to such awards.
13. Holding Over Should Tenant hold over the Leased Premises, or any
part thereof, after the expiration of the term of this Lease, unless otherwise
agreed in writing, such holding over shall constitute and be construed as a
tenancy from month to month only, at a monthly rental equal to the rents paid
for the last month of the term of this Lease. Nothing herein shall be deemed to
be Landlord's consent to such holding over.
14. Default by Tenant
14.1: Events The following events shall be deemed to be
events of default by Tenant under this Lease:
(a) If Tenant shall fail to make any of the payments required hereunder
and such failure shall continue for a period of 15 days after written notice
thereof to Tenant;
(b) If Tenant shall fail to comply with any term, condition or covenant
of this Lease, other than the payments set forth above, or the provisions of
18.2, and shall not cure such failure within 60 days after written notice
thereof to Tenant, or if such failure cannot reasonably be cured within the said
60 days and Tenant shall not have commenced to cure such failure within said 60
days and thereafter proceeded with reasonable diligence and good faith to cure
such failure.
(c) Upon any bankruptcy action filing under Chapter 7 of the United
States Bankruptcy Code in which Tenant is named as the debtor.
14.2: Remedies Upon the occurrence of any such event of default,
Landlord shall have the option to pursue any one or more of the following
remedies:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Leased Premises to Landlord, and if Tenant fails so to do,
Landlord may, without prejudice to any other remedy which Landlord may have for
possession or arrearages in rents, enter upon and take possession of the Leased
Premises and expel or remove any agent, representative or employees of Tenant or
any other person who may be occupying the leased Premises or any part thereof.
(b) Enter upon and take possession of the Leased Premises and expel or
remove any agent, representative or employees of Tenant and any other person who
may be occupying the same or any part thereof, and relet the Leased Premises and
receive the rents therefor; and Tenant agrees to pay to Landlord on demand any
deficiency that may arise by reason of such reletting and the reasonable
expenses incurred by Landlord in connection with such reletting.
14.3: No Waiver Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of the terms,
conditions and covenants herein contained.
15. Assignment and Subleasing
15.1: By Tenant Tenant may not assign this Lease or sublet the Leased
Premises or any portion thereof, without obtaining the prior written consent of
Landlord. Landlord agrees not to unreasonably withhold its consent. Provided,
however, no assignment or sublease shall relieve Tenant of its obligations
hereunder unless Landlord consents in writing. Any provision to the contrary
notwithstanding, Tenant may assign this Lease or sublet the premises, in whole
or in part, without consent of Landlord to (i) any corporation into which or
with which Tenant has merged or consolidated; (ii) any parent corporation,
wholly or subsidiary or affiliated corporation of Tenant; (iii) any person or
entity that acquires all or substantially all of the assets or operations of
Tenant within the state in which the premises are located; or (iv) any
partnership greater than 50% of which shall be owned by Tenant or the parent
corporation of Tenant, provided Tenant or such parent corporation is a general
partner.
15.2: By Landlord Landlord may assign or transfer all or any part of
its interest in this Lease without the prior written consent of Tenant, however,
it shall be subject to this Lease Agreement.
16. Alterations. Additions and Improvements
16.1: In General Tenant may make any alterations, additions or
improvements (collentively hereinafter referred~to -as "Improvements") to the
Leased Premises without the prior written consent of Landlord, except for any
alteration which could affect the structural integrity of the existing building,
any excavation or a-.y modifications to the exterior of the existing building
for which advance written consent must be obtained from Landlord. Any
alteration, addition or improvement made by Tenant (not including any repairs to
or replacements of any property in existence on the Leased Premises prior to
occupancy by Tenant) may be removed by Tenant when this Lease terminates,
provided Tenant is not then in default, and-further provided that any and all
damages occasioned by such removal shall be repaired by Tenant, at its sole cost
and expense, and the property restored by Tenant, at its sole cost and expense,
to the condition the property was in prior to the alteration, addition or
improvement. Such repair and restoration shall be done immediately following
removal of the alteration, addition or-improvement.
16.2: Notice of Proposed Construction or Alteration Tenant, and its
successors and assigns, will complete an FAA Form 7460-1, Notice of Proposed
Construction or Alteration, and receive a favorable determination from the FAA
prior to any construction on the property. Provided, however, that Landlord
understands that time is of the essence with respect to the initial renovation,
modification and alteration of the building on the Leased Premises, and agrees
to use its best efforts to obtain a favorable determination from the FAA for
such work as soon as possible and give assistance to Tenant in obtaining such
favorable determination in connection with the initial work and any future work.
16.3: Manufactured Housing. IMPROVEMENTS. Parking & Ingress
and Egress
(i) Notwithstanding the foregoing, Landlord acknowledges that Tenant as
occupying the Leased Premises for the purpose of the manufacture and sale of
manufactured homes and general office and/or warehouse facilities relating
thereto, and Tenant intends to make substantial improvements to the Leased
Premises to accommodate its intended use thereof. Landlord hereby consents to
the remodeling and construction of improvements contemplated by Tenant now or in
the future to prepare the Leased Premises for the Tenant's intended use thereof,
including, but not limited to the improvements in Exhibit "B" attached hereto,
except for any alteration (not including the approved alterations described in
Exhibit B") which could affect the structural integrity of the building, any
excavation or any modifications to the exterior of the existing building for
which advance written consent must be obtained from Landlord; provided, however,
that all such remodeling and construction be accomplished in a good all
workmanlike manner, in compliance with all applicable congtI-uction and local
codes and ordinances.
(ii) For purposes of ingress and egress to the Leased Premises from the
public road, Landlord does hereby grant to Tenant a non-exclusive easement
during the term of the Lease over and across a roadway described in Exhibit ~C~
attached hereto. The use of said roadway shall not violate any height
restrictions as set forth in Part 77 Safety Services of the FAA Rules and
Regulations.
(iii) Tenant is hereby granted the right to use during the ter~ of this
Lease that area described in Exhibit "D" attached hereto for parking vehicles,
provided that such use shall at no time violate any rules or regulations
established by the FAA.
(iv) Tenant shall within 2 months from January 1, 1996 fence certain
areas gf the Leased Premises pursuant to Exhibit "B". The approximate 650 feet
of fence along the Northwestern edge of the Leased Premises shall be 8 feet in
height in a solid style fence, with the balance of the fencing being standard 6
foot chainlink.
(v) Tenant shall within 6 months paint the exterior of the existing
building with a color compatible with the surrounding buildings.
16.4: Trade Fixtures and Equipment Tenant may, at any time and at its
sole expense, erect or install shelves, bins, gigs, machinery, equipment
(including cranes) or other trade fixtures in or on the Leased Premises.
Provided that Tenant is not then in default of any material term or condition in
this Lease after any applicable cure period has expired, Tenant shall have the
right to remove all such machinery, equipment and trade fixtures upon the
termination of this Lease; provided, however, Tenant shall repair any damage
done to the Leased Premises by such removal. Tenant shall have a period of up to
90 days after the termination of this Lease to remove all such items, and Tenant
shall continue to pay rent at the monthly rental rate then in effect until
Tenant has completed such removal process or notified Landlord that Tenant has
abandoned any remaining items. All such items remaining on the Leased Premises
after the expiration of such 90 day period shall become the property of
Landlord.
16.5: Signs Tenant may erect and install such signs on or attached to
the Leased Premises as Tenant desires, provided that Tenant shall at all times
comply with all applicable laws, ordinances and regulations relating thereto,
and Tenant shall remove all such signs at the termination of this Lease and
repair any damage resulting from such removal.
16.6: Mechanics' Liens Notwithstanding anything herein which might be
deemed to be to the contrary, Tenant shall at all times protect and preserve the
Leased Premises from and against any mechanics lien created in connection with,
or resulting from, any improvements to the Leased Premises by Tenant. Tenant
reserves the right to contest any claim by any person who might be entitled to a
mechanic's lien against the Leased Premises, at Tenants sole risk and expense.
In the event of any such contest, Tenant does not have to pay the contested
amount so long as Tenant diligently pursues such contest in accordance with
applicable law; provided, however, in the event any mechanics lien is filed
against the Leased Premises, Tenant shall file a bond to indemnify Landlord and
the Leased Premises against the lien in accordance with the applicable
provisions of the Texas Property Code prior to the time that any action to
enforce the mechanics lien may be taken by the claimant.
16.7 Consent to Mortgage Tenant may at any time execute and deliver one
or more mortgages or deeds of trust (such mortgage or deed of trust being
hereinafter called a "Leasehold Mortgage to Tenant's leasehold estate and rights
hereunder without the consent of Landlord but only upon prior written notice;
provided, however, that Tenant shall be and remain liable hereunder for the
payment of all rent and other charges as required under this Lease, and for the
performance of all the covenants and conditions of this Lease. If either Tenant
or the mortgagee, grantee or corporate trustee under any such Leasehold Mortgage
shall send Landlord a notice advising Landlord of the existence of such
Leasehold Mortgage and the address of the mortgagee, grantee or corporate
trustee thereunder for the service of notices, such mortgagee, grantee or
corporate trustee shall be deemed to be a "Leasehold Mortgagee~ as such term is
used in this Lease. Landlord shall be under no obligation under this Section to
any mortgagee, grantee or corporate trustee under a Leasehold Mortgage of whom
Landlord has not received such notice. The provisions of this Section 16.6 are
for the benefit of any Leasehold Mortgagee (as above defined) and shall be
enforceable only by any such Leasehold Mortgagee.
(i) If any event of default shall occur, written notice to that effect
shall be sent by Landlord to each Leasehold Mortgagee and Landlord shall take no
action to terminate this Lease or to interfere with the occupancy, use or
enjoyment of the Leased Premises, provided that:
(1) If an event of default shall be a default in the payment of any installment
of rent or other charges, Leasehold Mortgagee shall remedy such default not
later than thirty (30) days after the giving of such simultaneous notice; or
(2) If such event of default shall be a default in observing or performing any
other covenant or condition to be observed or performed by Tenant hereunder, and
such default can be remedied by such Leasehold Mortgagee without obtaining
possession of the Leased Premises, such Leasehold Mortgagee shall remedy such
default not later than thirty (30) days after the giving of such notice,
provided that, in the case of a default which cannot with diligence be remedied,
or the remedy of which cannot be commenced, within such period of thirty (30)
days, such Leasehold Mortgagee shall have such additional period as may be
necessary to remedy such default with diligence and continuity but in no event
shall the period of default exceed 180 days after the giving of notice of
default; or
(3) If such event of default shall be a default which can only be remedied by
such Leasehold Mortgagee upon obtaining possession of the Leased Premises, such
Leasehold Mortgagee shall obtain such possession with diligence and continuity,
through a receiver or otherwise, and shall remedy such default within thirty
(30) days after obtaining such possessor., provided that, in the case of a
default which cannot with diligence be remedied, or the remedy of which cannot
be commenced, within such period of thirty (30) days, such Leasehold Mortgagee
shall have an additional period as may be necessary to remedy such default with
diligence and continuity but in. no event shall the period of default exceed
ninety (90) days after the giving of notice of default.
(ii) If the Leasehold Mortgagee fails to cure the default within the
time period set forth above, Landlord may pursue any of its remedies for
default.
(iii) Upon compliance with the foregoing, any notice of Landlord
advising of any such event of default or any action of Landlord to terminate
this Lease or to interfere with the occupancy, use or enjoyment of the Leased
Premises by reason thereof shall be deemed rescinded and this Lease shall be
reinstated and shall continue in full force and effect.
If any Leasehold Mortgagee or a person designated by such Leasehold
Mortgagee shall either become the owner of the interest of Tenant hereunder upon
the exercise of any remedy provided for in the Leasehold Mortgage, such
Leasehold Mortgagee shall have the right to assign this Lease after obtaining
Landlord's advance consent, which Landlord shall not unreasonably withhold.
No Leasehold Mortgagee shall become personally liable for the
performance or observation of any covenants or conditions to he performed or
observed by Tenant unless and until such Leasehold Mortgagee becomes the owner
of Tenant's interest hereunder upon the exercise of any remedy provided for in
any Leasehold Mortgage. Thereafter, such Leasehold Mortgagee shall be liable for
the performance and observance of such covenants and conditions only so long as
such Leasehold Mortgagee owns such interest.
17. Compliance with Law During the term hereof, Tenant shall comply
with all governmental laws, ordinances and regulations applicable to the use of
the Leased Premises and shall promptly comply with all governmental orders and
directives for the correction, prevention and abatement of nuisances in or upon,
or connected with the Leased Premises, all at Tenant's sole expense
18. Quiet Environment and Non-Discrimination
18.1: Landlord's Warranty Landlord warrants that it owns the Leased
Premises free and clear of all liens and encumbrances, that it has full right
and power to execute and perform this Lease and that Tenant, on payment of the
rents and performance of the covenants herein contained, shall peaceably and
quietly have, hold and enjoy the Leased Premises during the full term of this
Lease, subject to the terms of that certain Indenture from the United States of
America to the City of Mineral Wells dated May 30, 1974 recorded in volume 584,
Page 317, Deed Records of Parker County, Texas, except as to Paragraph G, Page
6, which has been released by document dated August 28, 1974 recorded in Volume
589, Page 301, Deed Records of Parker County, Texas and any other provisions of
said indenture which are waived Or released by the USA, including the release of
reverter as contained in the Deed of Release dated February 14, 1996.
18.2: Non-Discrimination Tenant does hereby covenant and
agree as follows:
(i) No person on the grounds of race, color or national origin shall be
excluded from participation in, denied the benefits of, or be otherwise subject
to discrimination in the use of said facilities.
(ii) That in the construction of any improvements on, over or under
such lien and the furnishing of services thereon, no persons on the grounds of
race, color or national origin shall be excluded from participation in, denied
the benefits of, or be otherwise subject to discrimination.
(iii) That the Tenant shall use the premises in compliance with all
other requirements imposed by or pursuant to 49 CFR Part 21, Non-Discrimination
in Federally Assisted Programs of the Department of Transportation, and as said
regulations may be amended.
18.3 Rights and Privileges Reserved to the Landlord
(a) Landlord reserves the right to take any reasonable action it
considers necessary to protect the aerial approaches of the Airport against
obstruction, together with the right to prevent Tenant from erecting or
permitting to be erected any building or other structure on or adjacent to the
Airport which, in the reasonable opinion of the Landlord, would limit the
usefulness of the Airport or constitute a hazard to aircraft.
tb) The right to further develop or improve the landing area of the
Airport as it sees fit, regardless of the desires or views of the Tenant, and
without interference or hindrance.
(c) The right, but not the obligation, to maintain and keep in repair
the landing area of the Airport and all publicly owned facilities of the
Airport, together with the-right to reasonably direct and control all activities
of Tenant in this regard.
19. Option to Lease At any time during the first 5 years of the term of
this Lease, Tenant shall have an option to lease Optional Parcel s contiguous to
the Leased Premises on the terms and conditions set forth herein. Tenant may
exercise this option by giving Landlord written notice of its election to do so
in accordance with the notice requirements set forth in Section 2.3. At such
time as tenant desires to consider exercising this option, Tenant shall meet
with Landlord to determine what incentives might be available at that time in
addition to the guaranteed incentive rental rates delineated herein, including
potential tax abatement, a low interest loan and a Phase I Environmental study
paid for by the Landlord. It is further understood that Tenant will receive the
appropriate incentive rental rate plus any additional incentives that might be
made available only if:
(i) Tenant completes construction of a new manufacturing facility on
Parcel B within 1 year of exercise of the option subject to force majeure; and
(ii) Tenant creates at least 150 new jobs within 1 year from the date
of completion of the new building.
The lease for Parcel B will be on the same terms and conditions as this
Lease, except as noted above, and except that the rental provisions of-this
Lease will be modified to reflect the following additional rental amounts for
Parcel B and the term of the Lease Agreement shall be extended to forty (40)
years from January 1, 1996 for both Parcels A and s (subject to provisions of
Section 2.4):
The additional rent for Parcel B shall be as follows:
(i) If the Option to Lease is exercised within eighteen (18) months of
the date of the execution of this Lease Agreement, the monthly rent for Parcel B
shall be One Thousand and No/100 ($1,000.00) Dollars per month;
(i$) If the Option to Lease Parcel s is exercised after the eighteenth
(18th) month, but prior to the thirty-seventh (37th) month following the
execution of this Lease Agreement, then the rent shall be Two Thousand and
No/100 ($2,000.00) Dollars per month;
(iii) If the Option to Lease Parcel B is exercised after the
thirty-sixth (36th) month, but prior to the expiration date of the five (5) year
option, the rent shall be Three Thousand and No/100 ($3,000.00) Dollars per
month.
(iv) If the Lease is extended 40 years then, as a part of the lease
negotiations, the parties shall consider equitable rental adjustments for the
additional 15 years, taking into account inflationary factors.
20. Right of First Refusal If at any time during the period of the
Option delineated above, the Landlord receives a firm offer to lease or sell
Parcel B, Tenant shall be so notified in writing. Tenant shall have a period not
to exceed 60 days to negotiate acceptable terms to exercises its option on
Parcels. If Tenant and Landlord are unable to negotiate acceptable terms for
such Lease, then Tenant~s option shall terminate. At any time during the
existence of this Lease, Tenant may request Landlord to offer the Leased
Premises and/or Parcel B for sale in fee simple. Landlord may grant or deny such
request in its sole discretion and shall retain its right to reject any or all
bids in the event the property is offered for sale. It is understood that
Landlord may sell such property only if City has concurrence of the FAA as
stipulated under Public Law -80-289. Landlord agrees to attempt to obtain such
concurrence if the property is offered for sale.
21. Waiver of Default No waiver by the parties hereto of any default or
breach of any term, condition or covenant of this Lease shall be deemed to be a
waiver of any subsequent default or breach of the same or any other term,
condition or covenant contained herein.
22. Successors The terms, conditions and covenants contained in this
Lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective successors in interest.
23. Notices Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when delivered personally or
(whether actually received or not) when deposited in the United States mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed to the parties hereto at the respective addresses set out opposite
their names below, or at such other address as they have theretofore specified
by written notice delivered in accordance herewith:
(a) If to Landlord:
City of Mineral Wells, Texas
c/o City Hall
Mineral Wells, Texas 76068
(b) If to Tenant:
Cavalier Town & Country of Texas, Inc.
c/o Keith Finley
P.O. Box 161727
Fort Worth, Texas 76161
with a copy concurrently sent in a like manner to:
Cavalier Town & Country of Texas, Inc.
c/o Barry Donnell
P.0. Box 5003
Wichita Falls, Texas 76301
24. Amendment This Lease may not be amended except in a writing
executed by both Landlord and Tenant.
25. Entire Agreement This Lease constitutes the sole agreement of
Landlord and Tenant and supersedes any prior understanding or written or oral
agreements respecting the subject matter.
26. Arbitration
26.1: Demand for Arbitration If a dispute should arise under this
Agreement relating to any provision hereof except non-payment of rent by Tenant,
either party may make a demand for arbitration by filing a demand in writing
with the other party.
26.2: Appointment of Arbitrators If the parties are able to agree on
one arbitrator, the dispute shall be resolved by that arbitrator. If the parties
are unable to agree on one arbitrator within lO days after the demand for
arbitration, each party shall designate in writing an arbitrator, and a third
arbitrator shall be chosen by the 2 party-designated arbitrators. Should either
party fail to timely join in the designation of the arbitrators, any
undesignated arbitrator shall be appointed in accordance with the provisions of
the Texas General Arbitration Act (the "Act").
26.3: Hearing All arbitration hearings conducted pursuant to this
Agreement, and all judicial proceedings to enforce any of the provisions of this
Agreement shall take place in Palo Pinto County, Texas. The hearing before the
arbitrator(s) of the matter to be arbitrated shall be at the time and place
within said county selected by the arbitrator(s) within 30 days after the
designation of the final arbitrator(s). Notice of hearing shall be given and the
hearing conducted in accordance with the applicable provisions of the Act. At
the hearing, any relevant evidence may be presented by either party, and the
formal rules of evidence applicable to judicial proceedings shall not govern.
Evidence may be admitted or excluded in the sole discretion of the arbitration.
The arbirtrator shall hear and determine the matter and shall execute and
acknowledge their award in writing and deliver a copy thereof to each of the
parties by personal delivery or by registered or certified mail.
26.4: Arbitration Award If there is only one arbitrator, his or her
decision shall be binding and conclusive on the parties. If there are 3
arbitrators, the decision of any 2 shall be binding and conclusive on the
parties. The submission of a dispute to the arbitrator(s) and the rendering of
the arbitrators~ decision shall be a condition precedent to any right of legal
action on the dispute. If necessary, a judgment confirming the award of the
arbitrator(s) may be rendered by any court having jurisdiction, or such court
may vacate, modify or correct the award in accordance with the applicable
provisions of the Act.
26.5: N@w Arbitrator(s) If the arbitrator(s) selected pursuant to
Section 25.2 above shall fail to render a decision within 30 days after the date
of the hearing, unless both parties-otherwise agree, such arbitrator(s) shall be
discharged and 1 or 3 new arbitrator(s) shall be appointed and shall proceed in
the same manner, and the process shall be repeated until a decision is finally
reached by the arbitrator(s).
26.6: Costs of Arbitration The costs and expenses of arbitration,
including the fees of the arbitrator(s), if any, shall be shared equally by the
parties unless the arbitrator(s) allocate the cost thereof differently.
27. Recording Lease Agreement A duplicate original copy hereof may be
recorded in the appropriate records of Parker County, Texas, or instead Landlord
or Tenant is authorized to execute, record and/or file a Memorandum of Lease
Agreement which may by reference incorporate all of the terms hereof.
28. Authorization Subject to Section 145 of the City Charter, Landlord
represents and warrants unto Tenant that it is a municipal corporation organized
under the laws of Texas, that it has all requisite authority to execute and
deliver the Lease and to perform its obligations hereunder, and that the City
Council is the governing body of such municipal corporation, and that the City
Council has reviewed this Lease and has entered a resolution on the Minutes of
the City Council Meeting approving this Lease and authorizing the Mayor to
execute the same, and that this Lease is a valid and binding obligation of said
municipal corporation. Tenant represents and warrants unto Landlord that it is a
Texas corporation in good standing under the laws of Texas-and that it has all
requisite authority to execute and deliver the Lease and to perform its
obligations hereunder, and that its Board of Directors has approved this Lease
and has authorized the President of the corporation to sign the same. Each party
represents and warrants that the person or persons who have executed this Lease
have the requisite authority and approval to do so. Each party represents and
warrants to the other party that this Lease is a legal, valid and binding
obligation, enforceable against each such party in accordance with its terms.
29. This Lease shall not be effective unless and until it is approved
by the Federal Aviation Administration of the United States of America. The term
"approval of the FAA" shall mean approval by the Federal Aviation Administration
and a waiver of all rights of reversion of the FAA under Indenture dated May 30,
1974 and recorded in Volume S84, Page 317, Deed Records of Parker County, Texas
upon such terms and conditions that are satisfactory to Tenant. Attached hereto
as Exhibit "E" is a letter from the Federal Aviation Administration indicating
that the Lease Agreement "appears to be reasonable and acceptable~.
30. Approval of Alterations Section 16.2 of the Lease requires FAA
approval of any construction or alteration. Attached as Exhibit "F" is letter
from the Federal Aviation Administration dated February 12, 1996 approving the
plans for the proposed expansion of the existing building as submitted by Tenant
in request dated January 18, 1996.
EXECUTED on the dates set forth below.
ATTEST:
Neta Mason, City Clerk
CITY Of MINERAL WELLS, TEXAS
By:
M. Crawford
LANDLORD
CAVALIER TOWN & COUNTRY OF TEXAS, INC.
By:
Keith Finley, President
TENANT
Exhibit 10(d)
FIRST AMENDMENT TO
REVOLVING, WAREHOUSE AND TERM LOAN AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to Revolving,
Warehouse and Term Loan Agreement made by and among Cavalier Homes, Inc., a
Delaware corporation ("Cavalier Homes"), Cavalier Homes of Alabama, Inc., an
Alabama corporation, Cavalier Town & Country of Texas, Inc., a Texas corporation
(formerly named Cavalier Homes of Texas, Inc.), Star Industries, Inc., a
Delaware corporation, Buccaneer Homes of Alabama, Inc., an Alabama corporation,
Brigadier Homes of North Carolina, Inc., a North Carolina corporation, Mansion
Homes, Inc., a North Carolina corporation, Homestead Homes, Inc., a Georgia
corporation, and Cavalier Acceptance Corporation, an Alabama corporation
("Cavalier Acceptance") (collectively, the "Initial Participating Subsidiaries";
Cavalier Homes and the Initial Participating Subsidiaries, together with all
entities who hereafter become Participating Subsidiaries or Participating
Partnerships, being sometimes collectively referred to as the "Borrowers"), and
First Commercial Bank, an Alabama state banking corporation ("Lender"), is dated
as of the 14th day of March, 1996.
R E C I T A L S :
Cavalier Homes, the Initial Participating Subsidiaries and
Lender entered into that certain Revolving, Warehouse and Term Loan Agreement
dated as of February 17, 1994 (the "Agreement") pursuant to which Lender made
available, subject to the terms and conditions thereof, to such Borrowers, a
revolving loan in the maximum principal amount of up to $5,000,000 (the
"Revolving Loan"), and to Cavalier Acceptance, a warehouse and term loan
facility of up to $8,000,000 (the "Warehouse Loan" and the "Term Loans",
respectively).
The Revolving Loan is currently evidenced by a Revolving Note
in the principal amount of $5,000,000 dated February 17, 1994 (as heretofore
amended, the "Revolving Note"), and the Warehouse Loan is currently evidenced by
a Warehouse Note in the principal amount of $2,000,000 dated February 17, 1994
(as heretofore amended, the "Warehouse Note").
Borrowers have requested that Lender agree to extend the
availability of Advances under the Revolving Loan and the Warehouse Loan to
April 15, 1998, and to increase the maximum aggregate principal amount available
to Cavalier Acceptance under Article III of the Agreement from $8,000,000 to
$18,000,000, and Lender is willing to do so, but only on the express condition,
among others, that Borrowers enter into this Amendment, pursuant to which the
Agreement shall be amended and modified.
NOW, THEREFORE, the parties hereto do hereby agree, each with
the other, as follows:
If not otherwise defined herein or the context shall
not expressly indicate otherwise, all capitalized terms which are used herein
shall have their respective meanings given to them in the Agreement.
Section 2.10 of the Agreement is hereby amended by
deleting the term "$15,000" from the second full sentence thereof and
substituting the term "$12,500" in lieu thereof.
(A) Schedule I of the Agreement is hereby amended to
delete the definition of "$8,000,000 Loan" therefrom in its entirety and to
substitute the following definition of "$18,000,000 Loan" therefor:
"$18,000,000 Loan" means the aggregate unpaid
principal balance of all Advances made pursuant to Article III
of the Agreement, whether in the form of the Warehouse Loan or
the Term Loan(s).
(B) Schedule I of the Agreement is hereby amended
to restate clause (G) of the definition of "Eligible Contract" as follows:
The portfolio index score used by Cavalier Acceptance
to underwrite such Chattel Paper was not less than 70;
provided, however, that for Chattel Paper originated after
March 14, 1996, up to fifteen percent (15%) of all such
Chattel Paper may have a portfolio index score of (a) at least
56, but less than 70 or (b) such other credit score which
causes such Chattel Paper to be rated a C-Rated Contract from
a credit-quality standpoint (or the equivalent score or
rating, as the case may be, under the Fair Isaac credit
scoring system, as such equivalence is determined by Lender in
its sole discretion);
(C) Schedule I of the Agreement is hereby amended to add the
following definition:
"C-Rated Contract" means an Eligible Contract with a "C"
rating from a credit-quality standpoint as set forth in the
proviso to subclause (G) to the definition of Eligible
Contract.
(D) Schedule I of the Agreement is hereby amended to restate
the definition of "Contracts Borrowing Base" to read in its entirety as follows:
"Contracts Borrowing Base" means, at any time, with respect to
the $18,000,000 Loan, the amount computed on the Compliance
Certificate for the $18,000,000 Loan most recently delivered
to, and accepted by, Lender in accordance with the Agreement
and equal to the aggregate of:
(A) Eighty percent (80%) of the
aggregate outstanding principal balance of Eligible
Contracts that are rated higher than a C-Rated
Contract from a credit-quality standpoint; plus
(B) Seventy percent (70%) of the
aggregate outstanding principal balance of Eligible
Contracts that are C-Rated Contracts.
The Agreement and the Schedules and Exhibits
thereto are hereby amended (i) by deleting the term "$8,000,000 Loan"
therefrom in each place such term appears and substituting the term
"$18,000,000 Loan" in lieu thereof and (ii) by deleting the term
"$8,000,000" therefrom in each place such term appears and substituting
the term "$18,000,000" in lieu thereof.
Section 3.6(B)(1) of the Agreement is hereby amended by
deleting the first sentence thereof in its entirety and substituting the
following sentences in lieu thereof:
Interest on the principal balance of each Term Loan,
from time to time outstanding, will be payable at a rate (the
"Term Rate") that will be fixed for five years at the per
annum rate of interest equal to (x) 240 basis points (2.40%)
above the Five Year Treasury in the case of Term Loans
converted from the Warehouse Loan prior to March 14, 1996 or
(y) 200 basis points (2.00%) above the Five Year Treasury in
the case of Term Loans converted from the Warehouse Loan on or
after March 14, 1996.
Article III of the Agreement is hereby amended to
add a new Section 3.10 thereto, which shall read in its entirety as follows:
3.10 Non-Usage Fees for $18,000,000 Loan.
Cavalier Acceptance shall pay to Lender a non-usage fee (the
"Non Usage Fee") equal to one-eighth of one percent (.00125)
of the Unused Commitment Amount (as hereinafter defined). As
used in this Section 3.10, the term "Unused Commitment Amount"
shall be calculated on April 15, 1998 and shall be equal to
the product of (x) $18,000,000 multiplied by (y) the Unused
Percentage. The Unused Percentage shall be calculated pursuant
to the formula described in Section 3.9 hereof, but all
relevant measurements shall be made as of April 15, 1998. The
Non-Usage Fee shall be due on April 30, 1998. If Cavalier
Acceptance does not pay the Non-Usage Fee when due, Lender at
its option may, but shall not be required to, and without
further notice or demand upon Cavalier Acceptance, charge
against any deposit account of Cavalier Acceptance all or any
part of the Non-Usage Fee due hereunder.
Section 7.1(J)(1) of the Agreement is hereby
amended to delete the term "$250,000" therefrom and to substitute the term
"$500,000" in lieu thereof, with the intended effect of such change being
to increase the threshold amount for litigation reporting from $250,000 to
$500,000.
Section 7.2(L) of the Agreement is hereby amended
to delete the term "$1,500,000" therefrom and to substitute the term
"$2,000,000" in lieu thereof, with the intended effect of such change being to
increase the maximum "lease" (as defined therein) obligations from $1,500,000 to
$2,000,000 in any fiscal year of Cavalier Homes.
(A) Section 8.3(B)(ii) of the Agreement is
hereby amended by deleting the term "$100,000" therefrom and substituting the
term "$300,000 in lieu thereof, with the intended effect of such change being to
increase the permitted capital expenditures for Cavalier Acceptance from
$100,000 to $300,000 in any year; provided, however, that for the 1996 fiscal
year of Cavalier Acceptance, the maximum capital expenditures shall be $500,000,
with the maximum capital expenditures for succeeding fiscal years to be
$300,000.
(B) Section 7.2(U) is hereby amended and restated in
its entirety as follows:
Neither Cavalier Homes, nor the Consolidated
Entities, will make capital expenditures for any fiscal year
in excess of $6,000,000 in the aggregate.
Section 7.2(H) of the Agreement is hereby amended as
follows:
(A) To delete the term "$750,000" from subsection
(2) thereof and to substitute the term "$1,000,000" in lieu thereof; and
(B) To add a new subsection (7) thereto, which shall read in
its entirety as follows:
(7) Up to $25,000,000 of unsecured, convertible
subordinated debentures issued by Cavalier Homes, provided
that (i) the holders of such Indebtedness agree in favor of
Lender and other creditors (collectively, the "Senior
Creditors") that the rights of such holders shall be junior
and subordinate to the payment rights of the Senior Creditors
and (ii) the documents evidencing such Indebtedness contain
such additional provisions regarding Lender's right to prior
payment and priority as may be acceptable to Lender in its
discretion.
Section 7.2(M) of the Agreement is hereby amended to
renumber subclause (3) as subclause (4), and to
insert a new subclause 3) thereto, which shall
read in its entirety as follows: (3) Investments described in
the memorandum dated July 12, 1994 (a copy of which is
incorporated as Exhibit L to the Agreement) with respect to
the corporate bonds rated Baa or better in paragraph 1 of said
memorandum, and the equity investments described in paragraph
2 of said memorandum so long as such equity investments do not
exceed, at any time, more than 40% of all investments
described in this Section 7.2(M);
The Agreement is hereby further amended to add
Exhibit L thereto in the form of Exhibit L attached to this Amendment.
Section 3.1(C) of the Agreement is hereby amended
by amending and restating the final sentence of said paragraph as follows:
The Eligible Contracts delivered by Cavalier Acceptance to
Lender with respect to each Term Loan shall for certain
purposes hereunder be allocated to such Term Loan (the
"Allocated Eligible Contracts"); provided, however, that no
more than fifteen percent (15%) of the Contracts allocated to
any applicable Term Loan shall be C-Rated Contracts.
Schedule I to the Agreement is hereby further
amended by amending and restating the definition of "Loan Termination Date" in
its entirety to read as follows:
"Loan Termination Date" means, (i) with respect to
the Revolving Loan, the earliest of (A) April 15, 1998 or (B)
upon demand by Lender; (ii) with respect to the Warehouse
Loan, the earliest of (A) April 15, 1998 or (B) the date to
which the maturity of the Warehouse Note may be accelerated
pursuant to Section 9.2 of the Agreement; and (iii) with
respect to any Term Loan, the earlier of (A) the maturity date
of the applicable Term Note or (B) the date to which the
maturity of the applicable Term Note may be accelerated
pursuant to Section 9.2 of the Agreement.
In connection with this Amendment, Lender
acknowledges its receipt of (i) a Commitment Fee from Cavalier Homes equal to
one-quarter of one percent (.0025) of the Revolving Loan Commitment ($12,500.00)
and (ii) a Commitment Fee from Cavalier Acceptance equal to one-quarter of one
percent (.0025) of the aggregate Warehouse and Term Loan Commitment
($45,000.00). Each of the Borrowers acknowledges that such Commitment Fees have
been fully-earned by Lender and are non-refundable.
The parties acknowledge that Cavalier Town &
Country of Texas, Inc. changed its corporate name from Cavalier Homes of Texas,
Inc. on April 11, 1994. The parties hereto agree that each reference in the Loan
Documents to such former corporate name shall be deemed to refer to such
Borrower's present corporate name from the date such corporate name change was
legally effective.
As conditions to the effectiveness of this
Amendment, Borrowers shall have delivered to Lender: a Revolving Note
Modification Agreement in the form of Exhibit A hereto, duly executed
(the "Revolving Note Modification") a Warehouse Note Modification Agreement
in the form of Exhibit B hereto, duly executed (the "Warehouse Note
Modification") (the Revolving Note Modification and the
Warehouse Note Modification are sometimes hereinafter referred to
collectively as the "Note Modifications"); a written opinion of legal
counsel for Borrowers, dated as of the date of this Amendment and addressed
to Lender, in the form of Exhibit C hereto; such UCC-1 financing statements
and amendments to existing UCC-1 financing statements as Lender may
request, including, but not limited to, those requested in connection with
the name change referred to in paragraph above or in connection with new or
additional locations of Collateral; and such additional documentation
(including, but not limited to, a certificate of the corporate secretary or
assistant secretary of each Borrower in the form of Exhibit D hereto,
certifying as to incumbency and signatures of the officers of such Borrower
signing this Amendment and the Note Modifications and each other document
delivered pursuant hereto, together with a copy of resolutions of such
Borrower's board of directors authorizing the execution, delivery and
performance of this Amendment and the Note Modifications and the Agreement
and the Notes as amended thereby) as may be requested by Lender, or its
counsel, to satisfy Lender that this Amendment and the Note Modifications
have been duly authorized, executed and delivered on behalf of each
Borrower that is a party thereto, constitute the valid and binding
obligations thereof, and that the Notes as amended are entitled to the
security of the Agreement and the Security Documents.
Notwithstanding the execution of this Amendment, all of the indebtedness
evidenced by each of the Notes (as amended and/or increased by the Note
Modifications) shall remain in full force and effect, and any Collateral
described in any agreement providing security for any Obligation of the
Borrowers or any of them so defined to include the Notes, or any of them,
shall remain subject to the liens, pledges, security interests and
assignments of any such agreements as security for the indebtedness
evidenced by each of the Notes, the Obligations, and all other indebtedness
described therein; nothing contained in this Amendment or in the Note
Modifications shall be construed to constitute a novation of any of the
indebtedness evidenced by the Notes or to release, satisfy, discharge or
otherwise affect or impair in any manner whatsoever the validity or
enforceability of any of the indebtedness evidenced by the Notes; the
liens, pledges, security interests, assignments and conveyances effected by
the Agreement, the Security Documents and any other agreement securing any
of the Notes, or the priority thereof; the liability of any maker,
endorser, surety, guarantor or other Person that may now or hereafter be
liable under or on account of any of the Notes or any agreement securing
any or all of the Notes; or any other security or instrument now or
hereafter held by Lender as security for or as evidence of any of the
above-described indebtedness. Without in any way limiting the foregoing,
each Borrower acknowledges and agrees that the indebtedness evidenced by
each of the Notes as amended and/or increased pursuant to the Note
Modifications is and shall remain secured by the Collateral described in
the Agreement, each Assumption Agreement and in the Security Documents and
Cavalier Homes specifically, in its capacity as guarantor under that
certain Continuing Guaranty Agreement dated February 17, 1994 by Cavalier
Homes in favor of Lender (the "Guaranty Agreement"), acknowledges and
agrees that the "Liabilities" (as defined in the Guaranty Agreement) of
Cavalier Acceptance which are unconditionally guaranteed by Cavalier Homes
include the $18,000,000 Loan.
Borrowers, jointly and severally, agree to pay directly or reimburse Lender
,on demand, for all of Lender's expenses, including the reasonable fees and
expenses of its legal counsel and UCC filing fees and expenses, incurred in
connection with the preparation, amendment, modification or enforcement of
this Amendment or the Agreement, and the collection or attempted collection
of the Notes.
Borrowers,jointly and severally,hereby represent and warrant to Lender that
the officers of each Borrower executing this Amendment and the Note
Modifications have been duly authorized to do so and such amendments and
the Agreement and the Notes, as amended thereby, are valid and binding upon
each Borrower which is a party thereto in every respect, enforceable in
accordance with their terms, each and every representation and warranty set
forth in Article VI of the Agreement is true and correct as of the date
hereof except as set forth on Exhibit E attached hereto, and no Event of
Default, nor any event that, upon notice or lapse of time or both, would
constitute an Event of Default, has occurred and is continuing.
Unless otherwise expressly modified or
amended hereby, all terms and conditions of the Agreement shall remain in full
force and effect, and the same, as amended hereby, are hereby ratified and
confirmed in all respects.
This Amendment shall inure to and be binding upon
and enforceable by Borrowers and Lender and their respective successors and
assigns.
This Amendment may be executed in one or more
counterparts, each of which when executed and delivered shall constitute an
original. All such counterparts shall together be deemed to be one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, by and through their respective duly authorized officers as of the
day and year first above written.
BORROWERS:
CAVALIER HOMES, INC.
By: [L.S.]
Its:
CAVALIER HOMES OF ALABAMA, INC.
By: [L.S.]
Its Secretary
<PAGE>
CAVALIER TOWN & COUNTRY
OF TEXAS, INC.
By: [L.S.]
Its Secretary
STAR INDUSTRIES, INC.
By: [L.S.]
Its Secretary
BUCCANEER HOMES OF ALABAMA, INC.
By: [L.S.]
Its Secretary
BRIGADIER HOMES OF NORTH
CAROLINA, INC.
By: [L.S.]
Its Secretary
MANSION HOMES, INC.
By: [L.S.]
Its Secretary
HOMESTEAD HOMES, INC.
By: [L.S.]
Its Secretary
CAVALIER ACCEPTANCE CORPORATION
By: [L.S.]
Its:
LENDER:
FIRST COMMERCIAL BANK
By: [L.S.]
Its
<PAGE>
EXHIBIT E
Exceptions to Representations and Warranties
[SPECIFY EXHIBIT TO BE SUPPLEMENTED.]
[Information to be provided by Borrowers.]
<PAGE>
EXHIBIT A
REVOLVING NOTE MODIFICATION AGREEMENT
This Revolving Note Modification Agreement (this "Note
Modification") is entered into as of the ______ day of March, 1996, by and among
Cavalier Homes, Inc., a Delaware corporation, Cavalier Homes of Alabama, Inc.,
an Alabama corporation, Cavalier Town & Country of Texas, Inc., a Texas
corporation (formerly named Cavalier Homes of Texas, Inc.), Star Industries,
Inc., a Delaware corporation, Buccaneer Homes of Alabama, Inc., an Alabama
corporation, Brigadier Homes of North Carolina, Inc., a North Carolina
corporation, Mansion Homes, Inc., a North Carolina corporation, Homestead Homes,
Inc., a Georgia corporation, and Cavalier Acceptance Corporation, an Alabama
corporation (collectively referred to as the "Borrowers"), and First Commercial
Bank, an Alabama state banking corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Borrowers are obligated to Lender pursuant to that
certain Revolving Note dated February 17, 1994 in the original principal amount
of $5,000,000 (as heretofore amended, the "Revolving Note"); and
WHEREAS, Borrowers have requested that Lender agree to extend
the stated maturity date of the Revolving Note, and Lender has agreed to do so
on the condition, among others, that the Revolving Note be amended, as
hereinafter provided.
NOW, THEREFORE, Borrowers and Lender hereby agree as follows:
The Revolving Note is hereby amended to delete
the phrase "upon demand, but if no demand is made, on March 31, 1995," from the
first paragraph of the Revolving Note, and to substitute in lieu thereof the
phrase "upon demand, but if no demand is made, on "April 15, 1998,".
Except as herein amended the Revolving Note shall
remain in full force and effect, and said Revolving Note, as hereby amended, is
ratified and affirmed in all respects. From and after the date hereof, all
references to the Revolving Note shall mean the Revolving Note, as amended
hereby.
Upon execution of this Note Modification, the
IN WITNESS WHEREOF, the parties hereto have executed this Note
Modification under seal as of the _______ day of March, 1996.
BORROWERS:
CAVALIER HOMES, INC.
By: [L.S.]
Its:
CAVALIER HOMES OF ALABAMA, INC.
By: [L.S.]
Its Secretary
CAVALIER TOWN & COUNTRY
OF TEXAS, INC.
By: [L.S.]
Its Secretary
STAR INDUSTRIES, INC.
By: [L.S.]
Its Secretary
BUCCANEER HOMES OF ALABAMA, INC.
By: [L.S.]
Its Secretary
BRIGADIER HOMES OF NORTH
CAROLINA, INC.
By: [L.S.]
Its Secretary
MANSION HOMES, INC.
By: [L.S.]
Its Secretary
HOMESTEAD HOMES, INC.
By: [L.S.]
Its Secretary
CAVALIER ACCEPTANCE CORPORATION
By: [L.S.]
Its:
LENDER:
FIRST COMMERCIAL BANK
By:
Its:
<PAGE>
EXHIBIT B
WAREHOUSE NOTE MODIFICATION AGREEMENT
This Warehouse Note Modification Agreement (this "Note
Modification") is entered into as of the ______ day of March, 1996, by and
between Cavalier Acceptance Corporation, an Alabama corporation ("Borrower"),
and First Commercial Bank, an Alabama state banking corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Borrower is obligated to Lender pursuant to that
certain Warehouse Note dated February 17, 1994 in the original principal amount
of $2,000,000 (as heretofore amended, the "Warehouse Note"); and
WHEREAS, Borrower has requested that Lender agree to extend
the stated maturity date of the Warehouse Note, and Lender has agreed to do so
on the condition, among others, that the Warehouse Note be amended, as
hereinafter provided.
NOW, THEREFORE, Borrower and Lender hereby agree as follows:
The Warehouse Note is hereby amended to delete the
term "January 31, 1995" from the first paragraph of the Warehouse Note each
place such term appears, and to substitute the term "April 15, 1998" in lieu
thereof.
Except as herein amended the Warehouse Note shall
remain in full force and effect, and said Warehouse Note, as hereby amended, is
ratified and affirmed in all respects. From and after the date hereof, all
references to the Warehouse Note shall mean the Warehouse Note, as amended
hereby.
Upon execution of this Note Modification, the
Lender may attach the same to the original Warehouse Note, whereupon it shall
become a part thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Note
Modification under seal as of the _______ day of March, 1996.
BORROWER:
CAVALIER ACCEPTANCE CORPORATION
By: [L.S.]
Its:
LENDER:
FIRST COMMERCIAL BANK
By:
Its:
<PAGE>
First Commercial Bank
[DATE]
Page 19
EXHIBIT C
FORM OF OPINION OF COUNSEL
[Date]
First Commercial Bank
P.O. Box 11746
Birmingham, Alabama 35202-1746
Re: First Amendment to Revolving, Warehouse and Term Loan Agreement Between
First Commercial Bank (the "Lender") and Cavalier Homes, Inc., a Delaware
corporation ("Cavalier Homes"), Cavalier Acceptance Corporation, an Alabama
corporation ("Cavalier Acceptance") and Certain Other Subsidiaries of Cavalier
Homes (all entities, other than Lender, are referred to herein collectively as
the "Borrowers")
Gentlemen:
We refer to that certain Revolving, Warehouse and Term Loan Agreement dated
as of February 17, 1994 (the "Original Loan Agreement") among the Borrowers and
the Lender, pursuant to and subject to the terms and conditions whereof, the
Lender agreed to make a revolving line of credit loan (the "Revolving Loan
Commitment") in the maximum principal amount of $5,000,000 to the Borrowers and
a warehouse and term loan facility in the maximum aggregate principle amount of
up to $8,000,000 available to Cavalier Acceptance (the "Warehouse and Term Loan
Commitment"). We have represented the Borrowers in connection with that certain
First Amendment to Revolving, Warehouse and Term Loan Agreement dated as of
March _____, 1996 (the "Amendment") among the Borrowers and the Lender, pursuant
to which the Lender has agreed to extend the stated maturity dates of the
Revolving Loan and the Warehouse Loan and to increase the maximum principal
amount available to Cavalier Acceptance under the Warehouse and Term Loan
Commitment to $18,000,000. The Original Loan Agreement, as amended by the
Amendment, is hereinafter referred to as the "Loan Agreement". Unless otherwise
defined herein, capitalized terms used in this letter shall have the meaning
given to them in the Loan Agreement. The opinion is furnished to you pursuant to
Section _______ of the Amendment.
In our capacity as such counsel, we have examined executed counterparts of
the following documents (which are herein collectively referred to as the
"Amendment Documents").
1. The Amendment;
2. Revolving Note
Modification Agreement dated as of March ______, 1996 (the "Revolving Note
Modification"), by and among Borrowers and the Lender; and
<PAGE>
3. Warehouse Note
Modification Agreement dated as of March ______, 1996 (the "Warehouse Note
Modification"), by and between Cavalier Acceptance and the Lender.
We have also previously been furnished and examined executed counterparts
of the Original Loan Agreement, the Revolving Note, the Warehouse Note, the
Security Documents, the Subrogation and Contribution Agreement, and the other
Loan Documents delivered to you in connection with the Closing on February 17,
1994 (the foregoing documents, as heretofore amended, together with the
Amendment Documents are sometimes collectively referred to as the "Loan
Documents").
In connection with our representation of the Borrowers, we have examined
the above-referenced Loan Documents, and we have made such additional
investigations and examined such other documents and records as we have deemed
relevant and necessary in order to render the opinions as hereinafter set forth.
With regard to the opinions expressed in paragraph 1 hereof relating to the good
standing or qualification of the Borrowers, we have relied with your consent
upon certain certificates relating to said good standing, qualification or
existence (copies of which are attached to this letter) from such public
officials.
Based upon the foregoing, and subject to the exceptions, qualifications and
assumptions as may be expressly set forth herein, we are of the following
opinion:
Each of the Borrowers is
duly organized, validly existing and in good standing under the laws of the
state of its incorporation to the best of our knowledge.
Each of the Borrowers has
the corporate power and authority to execute, deliver and perform the
Amendment Documents and the Loan Documents as amended thereby, to own its
properties and assets, and to carry on its business as now being conducted and
as contemplated by the Loan Agreement. The execution, delivery and performance
of the Amendment Documents and the Loan Documents as amended thereby have been
duly authorized by all necessary corporate action of the part of each Borrower
which is a party thereto, and the execution, delivery and performance by each
Borrower which is a party thereto of the Amendment Documents and the Loan
Documents as amended thereby, (i) do not, and will not, to the best of our
knowledge, violate any applicable statute, (ii) do not, and will not, to the
best of our knowledge, violate any judgment, order or decree applicable to the
Borrowers, (iii) do not, and will not, violate the articles of incorporation,
by-laws, or other governing instruments of such Borrower, and (iv) do not, and
will not, to the best of our knowledge, conflict with or constitute a default
under the provisions under any material agreement to which such Borrower is a
party or by which it or any of its properties are bound.
The Amendment, the
Revolving Note Modification and the Warehouse Note Modification have each
been duly executed and delivered by each of the Borrowers which is a party
thereto, and each of such instruments, together with the Revolving Note, the
Warehouse Note, and the other Loan Documents as amended thereby, constitutes the
legal, valid and binding obligation of each of the Borrowers which is a party
thereto, enforceable against each such Borrower in accordance with the
respective terms of each such instrument, except as the enforcement thereof may
be limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally, or by general principles of equity
(whether considered in a proceeding in equity or at law).
To the best of our
knowledge, and except as specified in an exhibit to the Loan Agreement, and
with respect to which nothing to the contrary has come to our attention, there
are no actions, suits or proceedings pending or threatened against or affecting
the Borrowers, or any of them, at law or in equity, or by or before any
governmental authority, involving any of the transactions contemplated in or by
the Loan Agreement or involving the possibility of any judgment or liability
that may result in any material adverse change in the business, operations or
properties of the Borrowers.
To the best of our
knowledge, none of the Borrowers is an "investment company" or a company
"controlled" by an "investment company", as such quoted terms are defined in the
Investment Company Act of 1940, as amended.
The opinions expressed herein are solely for your benefit and for the
benefit of any Person or entity to whom you may sell or assign a participating
interest in any of the Loans, and may not be relied upon by any other Person or
entity without our prior written consent in each case.
Very truly yours,
{--------------------------}
<PAGE>
EXHIBIT D
CERTIFICATE OF [ASSISTANT] SECRETARY
I, __________________________________________, certify that:
I am the duly elected, qualified and serving [Assistant] Secretary of
_____________________________________ (the "Company"), which Company is a
corporation duly organized and existing under the laws of the State of
____________________;
Exhibit A attached hereto is a true and correct copy of resolutions duly
adopted [at a duly called and constituted meeting of the Board of Directors of
the Company on ___________________________] [in a joint action by unanimous
written consent of the Board of Directors and sole shareholder of the Company
effective on ______________________]; such action of the Board of Directors [and
sole shareholder] was authorized by the certificate [articles] of incorporation
and by-laws of the Company; such resolutions are authorized by the by-laws of
Company and are not contrary to the certificate [articles] of incorporation of
the Company; such resolutions remain in full force and effect and have not been
modified or amended and constitute all of the action (corporate or otherwise)
required to authorize the transactions contemplated in such resolutions;
The By-laws of the Company as certified to First Commercial Bank (the
"Bank") on [February 17, 1994] remain in full force and effect and have not been
modified or amended since the date of the aforesaid certification except as set
forth on Exhibit B attached hereto;
The Certificate [Articles] of Incorporation, together with all amendments
thereto, as certified to the Bank on [February 17, 1994] have not been further
amended since the date of the aforesaid certification except as set forth on
Exhibit C attached hereto; and
Set forth below are the genuine signatures of the individuals who hold the
corporate offices set forth opposite their names and who individually are
authorized to execute and deliver all documents and instruments on behalf of the
Company and do such other acts as are necessary or appropriate to effect the
transactions authorized by the resolutions described above:
NAME TITLE SIGNATURE
Chairman
President
Vice President
[Assistant] Secretary
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
the corporate seal of the Company as of this the ________ day of March, 1996.
[CORPORATE SEAL]
[Assistant] Secretary
EXHIBITS
(A) Resolutions of the Board of Directors
(B) Amendments to Bylaws
(C) Amendments to Certificate [Articles] of
Incorporation
I, , the of (the "Company") do certify that ___________________________ is
the duly elected and qualified [Assistant] Secretary of the Company as of the
date hereof and has custody of the records and minutes of the meetings of the
Board of Directors and Shareholders of the Company. This day of , 1996.
<PAGE>
EXHIBIT E
Exceptions to Representations and Warranties
1. Loan from First National Bank, Hamilton, Alabama to Cavalier
Acceptance Corporation and Cavalier Homes, Inc. to which certain
real estate is pledged as security, i.e., the Buccaneer Homes of
Alabama,Inc. plant at Hamilton, Alabama.The principal amount of the
loan commitment is $750,000 and is being increased to $1,000,000.
2. Representations and Warranties do not apply to Astro Mfg. Co., Inc.,
Quality Housing Supply, Inc., and Riverchase Homes, Inc.
3. Exhibit F should be amended to reflect mortgage to First National Bank,
Hamilton, Alabama referred to above and constitutes a lien on certain
real estate.
4. Paragraph 6.1(M) to the original loan Agreement. The Borrowers make
known to the Lender that there may be certain state tax returns that
have not been filed as of the date of this Amendment to the Loan
Agreement which the Borrowers believe are not material to the conduct
of its business.
5. Cavalier Homes, Inc. is a guarantor on a $2,000,000 Revolving line of
Credit Loan, for WoodPerfect, LTD. at SouthTrust Bank in Marion County,
Alabama.
<PAGE>
July 12, 1994
Board of Directors
Barry Donnell and Jerry Wilson
Investment Recommendations
Gentlemen:
We have reviewed recommendations from the following firms regarding our cash
management and investment policies:
1. Merrill Lynch 5. First Commercial Bank
2. Equitable Securities 6. Kidder Peabody & Co.
3. Prudential Securities 7. Smith Barney Shearson
4. Mesirow Financial 8. Wells Fargo Bank
Some parameters would be to take as little market risks as possible and not try
to guess what interest rates will do either in short term or long term.
Diversifying types of investments as well as laddering maturities would seem
advisable. After-tax yields should be evaluated to see if tax free bonds and/or
the 70% dividend exclusion on stocks held for 46 days should be utilized.
Corporate bonds, certificates of deposit, mutual funds, and U. S. Treasuries
were reviewed. Our cash management program at First Commercial should be
reviewed in order to make sure we are maximizing our interest income.
For the past three weeks, we have averaged $14-16 million in cash which will
allow us to invest $12-14 million in higher interest rate investments than the
approximate 4% we have been earning on over-night repos.
After careful consideration for the above, we recommend the following:
1. $3 million to be invested in short-term (24 months or less) corporate bonds
Baa or better and not exceed $250,000 on any one credit with the intention of
holding until maturity. Current yields (6.25-8.25)
2. $2 million to be invested in high yielding stocks (primarily utility) with
large capitalizations (above $1.5 billion) and an S & P ranking of B+ or above
with no more than $250,000 to be invested in any company. Current average yield
7.8% after tax = 6.9%.
3. Merrill Lynch - $500,000 7-day tax-exempt variable rate preferred (VRP)
AAA/aaa (current after-tax yield 4.0% = approximately 6.67 taxable int.)
$500,000 29-day tax-exempt VRP
$500,000 49-day tax-exempt VRP
$500,000 STRAP-6 mo. pfd. stocks VRP
4. A demand loan to Wood Perfect, Inc. in the amount of $1,000,000 at prime plus
1/2% (currently 7.75%) secured by inventories and accounts receivables, second
to the bank, plus a guaranty from Harden Manufacturing Co., for half of the
balance.
5. $2 million in no-loan mutual funds - high yield Government Trusts closed end
funds with not more than $250,000 invested in any one fund.
6. $3 million in U.S. Treas. and/or agencies -(GNMA/FNMA) with various
maturities up to years?)
(Current yield 5.12% due 12-94)
(FNMA 6.18 due 11-95)
( 6.60 due 12-96)
(U. S. Treas. 5.01 due 12-94)
( 5.92 due 11-95)
( 6.32 due 12-96)
Not to exceed $250,000 invested
in any one issue.
PART IV
Exhibit 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<S> <C> <C> <C>
For the Years Ended December 31,
1995 1994 1993
PRIMARY AND FULLY DILUTED
Net Income $ $ $
9,020,384 5,078,579 3,332,824
=============== ================ ================
Shares*
Primary
Average common shares outstanding
8,857,332 7,699,339 6,307,343
Dilutive effect if stock options were
exercised 331,664 169,080 166,552
--------------- ---------------- ----------------
Average common shares outstanding as
adjusted (primary)
9,188,996 7,868,419 6,473,895
=============== ================ ================
Fully diluted
Average common shares outstanding as
adjusted (primary)
9,188,996 7,868,419 6,473,895
Additional dilutive effect if stock options
were exercised (fully)
- - 23,636
--------------- ---------------- ----------------
Average common shares outstanding as
adjusted (fully diluted)
9,188,996 7,868,419 6,497,531
=============== ================ ================
Primary and Fully Diluted Net Income
per common share $ $
0.98 0.65 0.51
=============== ================ ================
</TABLE>
* Adusted for the five-for-four splits paid November 1993 and August 1995 and
the three-for-two stock split paid February 1996.
PART IV
Exhibit 21
CAVALIER HOMES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Name
Astro Mfg. Co., Inc.
Cavalier Acceptance Corporation
Cavalier Insurance Agency, Inc.
Cavalier Town & Country of Texas, Inc.
Cavalier Homes of Alabama, Inc.
Homestead Homes, Inc.
Quality Housing Supply, Inc.
Riverchase Homes, Inc.
Star Industries, Inc.
Buccaneer Homes of Alabama, Inc.
Valley Homes, Inc.
Brigadier Homes of North Carolina, Inc.
Mansion Homes, Inc.
PART IV
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-20842, 33-20859, 33-86232, and 33-86236 of Cavalier Homes, Inc. of Form S-8,
and to the incorporation by reference in Registration Statements Nos. 33-63060
(as amended), 33-86348 (as amended), 33-62487 (as amended), and 333-00607 (as
amended) of Cavalier Homes, Inc. on Form S-3 of our report dated March 1, 1996
(March 14, 1996 as to the amendment to the Credit Facility described in Note 5),
appearing in this Annual Report on Form 10-K of Cavalier Homes, Inc. for the
year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.000
<CASH> 21005084
<SECURITIES> 3583129
<RECEIVABLES> 2643400
<ALLOWANCES> 750000
<INVENTORY> 9540491
<CURRENT-ASSETS> 42318405
<PP&E> 25583366
<DEPRECIATION> 6689869
<TOTAL-ASSETS> 82625898
<CURRENT-LIABILITIES> 31197022
<BONDS> 0
0
0
<COMMON> 899395
<OTHER-SE> 45172300
<TOTAL-LIABILITY-AND-EQUITY> 82625898
<SALES> 272485557
<TOTAL-REVENUES> 274249604
<CGS> 227645745
<TOTAL-COSTS> 227645745
<OTHER-EXPENSES> 31973758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508385
<INCOME-PRETAX> 15034384
<INCOME-TAX> 6014000
<INCOME-CONTINUING> 9020384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9020384
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
