UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1997
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 1-9792
Cavalier Homes, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
-------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) ation Number)
Highway 41 North & Cavalier Road, Addison, Alabama 35540
--------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(205) 747-0044
--------------
(Registrant's telephone number, including area code)
--------------
(Former name, former address and former fiscal year, if changed since last
year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at November 10, 1997
---------------------------- --------------------------------
Common Stock, $.10 Par Value 12,312,912 Shares
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information (Unaudited)
Consolidated Condensed Balance Sheets - 3
September 26, 1997 and December 31, 1996
Consolidated Condensed Statements of Income - 4
Thirteen and Thirty-nine Weeks Ended September 26, 1997
and September 27, 1996
Consolidated Condensed Statements of Cash Flows - 5
Thirty-nine Weeks Ended September 26, 1997 and
September 27, 1996
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. Other Information
Item 5. Other Matters 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
Certain items in the report that follows are marked with an asterisk (*),
indicating that they are subject to the "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995 found on page 15 of this
report.
-2-
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
<S> <C> <C>
September 26, December 31,
ASSETS 1997 1996
CURRENT ASSETS: ------------- ------------
Cash and cash equivalents $ 5,752 $ 24,529
Marketable securities available for sale 149 1,097
Accounts receivable, less allowance for
losses of $800 24,454 3,046
Notes and installment contracts receivable - current 1,398 1,086
Inventories 14,850 12,394
Deferred income taxes 4,754 4,663
Other current assets 1,353 2,475
------------- ------------
Total current assets 52,710 49,290
------------- ------------
PROPERTY, PLANT AND EQUIPMENT (Net) 28,720 24,760
------------- ------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,200 (1997)
and $941 (1996) 45,324 34,504
------------- ------------
GOODWILL, less accumulated amortization of
$773 (1997) and $588 (1996) 2,942 3,126
------------- ------------
OTHER ASSETS 4,221 3,894
------------- ------------
$ 133,917 $ 115,574
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,900 $ 951
Accounts payable 11,398 7,916
Amounts payable under dealer incentive programs 10,019 10,937
Accrued wages and related withholdings 3,019 1,652
Accrued incentive compensation 1,633 2,615
Estimated warranties 7,000 7,000
Accrued insurance 1,617 2,023
Other accrued expenses 7,692 7,722
------------- ------------
Total current liabilities 44,278 40,816
------------- ------------
DEFERRED INCOME TAXES 1,088 1,035
------------- ------------
LONG-TERM DEBT 10,030 4,918
------------- ------------
STOCKHOLDERS' EQUITY:
Series A Junior Participating Preferred Stock,
$.01 par value; 200,000 shares authorized, none issued
Preferred stock, $.01 par value;
300,000 shares authorized, none issued
Common stock, $.10 par value; authorized
50,000,000 shares; issued 12,312,912 (1997)
and 12,169,128 (1996) shares 1,231 1,217
Additional paid-in capital 32,629 31,057
Retained earnings 44,661 36,531
------------- ------------
Total stockholders' equity 78,521 68,805
------------- ------------
$ 133,917 $ 115,574
============= ============
See Notes to Consolidated Condensed Financial Statements
-3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------ ---------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
REVENUES:
Net sales $ 83,160 $ 88,976 $ 249,397 $ 254,598
Financial services 1,382 867 3,820 2,259
-------------- -------------- -------------- --------------
84,542 89,843 253,217 256,857
-------------- -------------- -------------- --------------
COST OF SALES 68,996 73,226 205,672 209,682
SELLING, GENERAL AND ADMINISTRATIVE:
Manufacturing 10,501 10,643 30,402 29,975
Financial services 821 550 2,179 1,417
-------------- -------------- -------------- --------------
80,318 84,419 238,253 241,074
-------------- -------------- -------------- --------------
OPERATING PROFIT 4,224 5,424 14,964 15,783
-------------- -------------- -------------- --------------
OTHER INCOME(EXPENSE):
Interest expense:
Manufacturing (48) (36) (127) (56)
Financial services (217) (126) (540) (369)
Other, net 299 750 984 1,314
-------------- -------------- -------------- --------------
34 588 317 889
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 4,258 6,012 15,281 16,672
-------------- -------------- -------------- --------------
INCOME TAXES 1,671 2,403 6,051 6,667
-------------- -------------- -------------- --------------
NET INCOME $ 2,587 $ 3,609 $ 9,230 $ 10,005
============== ============== ============== ==============
NET INCOME PER SHARE $ 0.21 $ 0.29 * $ 0.74 $ 0.82 *
============== ============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,469,674 12,412,960 * 12,426,065 12,223,371 *
============== ============== ============== ==============
* Adjusted for the five-for-four stock split in November 1996.
See Notes to Consolidated Condensed Financial Statements
-4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<S> <C> <C>
Thirty-nine Weeks Ended
-----------------------------------
September 26, September 27,
1997 1996
OPERATING ACTIVITIES: ------------- -------------
Net income $ 9,230 $ 10,005
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,185 2,741
Provision for credit losses and repurchase commitments 259 216
Gain on sale of property, plant and equipment (49) (12)
Equity in earnings of equity investments (261) (492)
Compensation related to issuance of stock options 134 169
Changes in assets and liabilities provided (used) cash, net of
effects of acquisitions:
Accounts receivable (21,408) (20,449)
Inventories (1,419) (4,852)
Accounts payable 2,660 6,233
Amounts payable under dealer incentive programs (918) 3,486
Estimated warranties - 729
Other assets and liabilities 1,235 4,754
------------- -------------
Net cash provided by (used in) operating activities (7,352) 2,528
------------- -------------
INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and equipment 86 54
Net cash paid in connection with acquisitions (871) (370)
Capital expenditures (6,650) (6,473)
Distribution from equity investments 138 779
Proceeds from sale or maturity of marketable securities 1,097 1,475
Purchase of marketable securities (149) -
Purchases and originations of notes and installment contracts (15,589) (13,745)
Principal collected on notes and installment contracts 4,100 2,097
------------- -------------
Net cash used in investing activities (17,838) (16,183)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 7,552 1,005
Payments on long-term debt (1,491) (826)
Cash dividends paid (1,100) (840)
Proceeds from exercise of stock options 4 3,553
Proceeds from dividend reinvestment and stock purchase plans 1,448 -
------------- -------------
Net cash provided by financing activities 6,413 2,892
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (18,777) (10,763)
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,529 21,005
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,752 $ 10,242
============= =============
See Notes to Consolidated Condensed Financial Statements
-5-
</TABLE>
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Thirty-nine Week Periods Ended September 26, 1997
and September 27, 1996
(Dollars in Thousands except per share amounts)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements
have been prepared in compliance with Form 10-Q instructions
and thus do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
these statements contain all adjustments necessary to present
fairly the Company's financial position as of September 26,
1997, and the results of its operations for the thirteen and
thirty-nine week periods ended September 26, 1997 and
September 27, 1996, respectively, and its cash flows for the
thirty-nine week periods ended September 26, 1997 and
September 27, 1996, respectively. All adjustments are of a
normal recurring nature.
The results of operations for the thirteen and thirty-nine
weeks ended September 26, 1997 are not necessarily indicative
of the results to be expected for the full year.
Inventories consist primarily of raw materials and are stated
at the lower of cost (first-in, first-out method) or market.
Certain amounts from the 1996 periods have been reclassified
to conform to the 1997 period presentation. These
reclassifications had no effect on results of operations or
stockholders' equity.
Net income per share is computed by dividing net income by
the weighted average number of shares of common stock
outstanding during the thirteen and thirty-nine week periods
after giving effect to the equivalent shares which are
issuable upon the exercise of stock options determined by the
treasury stock method in accordance with APB No. 15.
In June 1997, the Company purchased substantially all of the
assets and assumed certain existing liabilities of Pacer
Homes, Inc. for a net cash payment of $871.
2. ACCOUNTING STANDARDS NOT YET ADOPTED
During February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, which will
become effective for all financial statements issued for
periods ending after December 15, 1997, including interim
periods. SFAS No. 128 provides for the presentation of basic
and diluted earnings per share on the face of the financial
statements and supersedes Accounting Principles Board (APB)
Opinion No. 15, Earnings per Share. SFAS No. 128 requires the
restatement of earnings per share for prior periods presented
after its effective date. SFAS No. 128 does not have a
material effect upon the thirteen and thirty-nine week periods
ended September 26, 1997 and September 27, 1996, respectively.
However, the impact on other prior periods has not yet been
determined.
The FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, in June 1997, which
supersedes Statement 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 modifies previous annual
segment reporting and requires selected segment information in
quarterly reports. Statement No. 131 requires that a public
company report a measure of segment profit or loss, certain
specific revenue and expense items and segment assets. It
requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets and other amounts
disclosed for segments to corresponding amounts in the
company's general-purpose financial statements. The Statement
also provides for entity-wide disclosures about the products
and services a company provides, the material countries in
which it holds assets and reports revenue and its major
customers. SFAS No. 131 requires that companies disclose
segment data based upon how company management determines
resource allocations to segments and measures segments'
-6-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Thirty-nine Week Periods Ended September 26, 1997
and September 27, 1996
(Dollars in Thousands except per share amounts)
2. ACCOUNTING STANDARDS NOT YET ADOPTED (continued)
performance. This Statement is effective for financial
statements issued for fiscal years beginning after December
15, 1997. The adoption of the provisions of this Statement
is expected to result only in increased disclosures on segment
information and will not impact the amounts in the financial
statements.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<S> <C> <C>
Thirty-nine Weeks Ended
-----------------------------
September 26, September 27,
1997 1996
------------- -------------
Cash paid for: Interest $ 657 $ 432
Income taxes $ 5,864 $ 4,338
</TABLE>
4. CREDIT ARRANGEMENTS
The Company has a $23,000 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 $5,000. Interest
is payable under the revolving line of credit at the bank's
prime rate (8.5% at September 26, 1997).
The warehouse and term-loan agreement 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 $18,000. 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%, 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 $2,000 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
$18,000.
The Credit Facility contains certain restrictive and
financial covenants, which, among other things, limit the
aggregate of dividend payments and purchases of treasury stock
to 50% of consolidated net income for the two most recent
years, contain restrictions on the Company's ability to pledge
assets, incur additional indebtedness and make capital
expenditures, and require the Company to maintain certain
defined financial ratios. Amounts outstanding under the Credit
Facility are secured by the accounts receivable and
inventories of the Company, loans purchased and originated by
Cavalier Acceptance Corporation, the Company's wholly owned
finance subsidiary, and the capital stock of certain of the
Company's consolidated subsidiaries. The bank's commitment
under the Credit Facility will expire in April of 1998.
As of September 26, 1997, the Company had $8,556 borrowed
under the Credit Facility.
5. STOCKHOLDERS' EQUITY
A five-for-four stock split of the Company's common stock
which was effected in the form of a 25% stock dividend was
distributed on November 15, 1996 to stockholders of record on
October 31, 1996. All historical dividends and net income per
share amounts have been adjusted for the stock split.
-7-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Thirty-nine Week Periods Ended September 26, 1997
and September 27, 1996
(Dollars in Thousands except per share amounts)
5. STOCKHOLDERS' EQUITY (continued)
Cash dividends were paid during this quarter and the previous
three quarters as follows (all amounts are per share):
<TABLE>
<S> <C> <C> <C>
Split Adjusted
Record Date Payment Date Dividend Paid
---------------- ----------------- --------------
July 31, 1997 August 15, 1997 $ .030
April 30, 1997 May 15, 1997 $ .030
January 31, 1997 February 14, 1997 $ .030
October 31, 1996 November 15, 1996 $ .030
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
It is a customary practice 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 is
contingently liable for approximately $89,000 at September 26,
1997, such contingency is reduced by the resale value of the
homes which may be required to be repurchased. Losses under
these agreements have not been significant in the past, and
management expects no material loss in excess of the allowance
provided of $800. *
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 expenses based upon
various rates applied to current payroll costs and sales.
Annually, such insurance expenses are adjusted by the carrier
for loss experience factors subject to minimum and maximum
premium calculations. At September 26, 1997, the Company was
contingently liable for future retrospective premium
adjustments up to a maximum of $7,300 in the event that
additional losses are reported related to prior periods.
The Company is engaged in various legal proceedings that are
incidental to its business. Certain of the cases filed against
the Company and other companies engaged in businesses similar
to the Company often allege, among other things, breach of
contract and warranty, product liability, personal injury and
fraudulent, deceptive or collusive practices in connection
with the Company's operations. These kinds of suits sometimes
seek certification as class actions, the imposition of large
amounts of compensatory and punitive damages and trials by
jury. Courts have certified several of these types of cases as
class actions in recent years, and some cases such as these
have resulted in large damage awards, especially large
punitive damage awards. In the opinion of management, the
ultimate liability, if any, with respect to the proceedings in
which the Company is currently involved is not presently
expected to have a material adverse effect on the Company.
However, the potential exists for unanticipated material
adverse judgments against the Company.*
The Company and certain of its equity partners have jointly
and severally guaranteed revolving notes for four companies
and a letter of credit for one company in which the Company
owns various equity interests. The guarantees are limited to
various percentages of the outstanding debt up to a maximum
aggregate guaranty of $2,430. At September 26, 1997, there was
a total amount outstanding under the various notes and letters
of credit guaranteed by the Company of $4,000.
- ---------------------------------------
* See Safe Harbor Statement on page 15.
-8-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 26, 1997
General
The principal business of the Company since its inception has been the design,
production and sale of manufactured homes. In the first quarter of 1992, the
Company, through its wholly owned subsidiary, Cavalier Acceptance Corporation
("CAC"), commenced retail installment sale financing operations, and by the end
of 1993, these operations had become 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 economic and demographic factors that affect the housing market as a whole.
According to the Manufactured Housing Institute, the manufactured housing
industry posted gains in shipments from 1992 through 1996, with approximate
total annual shipments of 211,000 (1992) increasing to 363,000 (1996), and with
the greatest gains occurring in the southeastern United States. The Company
conducts a substantial portion of its business in the southeastern United States
and attributes past years' strong shipment growth to a reduction of alternative
housing, increased availability of retail financing, increased consumer
confidence and continuing strength in the national economy. The Company has
increased its production capacity to better take advantage of the growth in the
industry, increasing the number of manufacturing facilities from four at the end
of 1992 to fourteen at September 26, 1997. The fourteenth manufacturing facility
was added in June 1997 when the Company purchased substantially all of the
assets and assumed certain existing liabilities of Pacer Homes, Inc., a
manufacturer in Texas.
The manufactured housing industry has, over the past several years, experienced
increases in both the number of retail dealers and manufacturing capacity, which
the Company believes is currently resulting in slower retail turnover, higher
dealer inventories, lower order backlogs and increased price competition.
Industry statistics, according to the Manufactured Housing Institute, reflect a
decrease in home shipments of 3.4% through August 1997 as compared to the same
period in 1996, with approximate year-to-date shipments of 237,000 (1997)
compared to 245,000 (1996), and with the largest declines occurring in Alabama,
Mississippi and South Carolina, three large markets for the Company. It is
possible that these developments may also signal a return to seasonality in the
Company's manufacturing business, which was not a significant factor during the
period from 1992 through 1996; prior to this period, the greatest number of
homes in the manufactured housing industry were sold from April through October,
with lower shipments in the first and last part of the calendar year. The
Company is uncertain at this time as to what effect these factors will have on
sales and earnings during the balance of 1997 and thereafter. *
Results of Operations
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of net
sales or total revenue:
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
STATISTICAL ANALYSIS
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME SUMMARY For the Thirteen Weeks Ended
(Dollars in Thousands) ------------------------------------------------------------------------------------------------
September 26, 1997 September 27, 1996 Difference
---------------------------- ------------------------------- --------------------------
Net Sales $ 83,160 100.0% $ 88,976 100.0% $ (5,816) (6.5%)
Cost of Sales 68,996 83.0% 73,226 82.3% (4,230) (5.8%)
-------------- ------ ------------- ------ --------------
Gross Profit on Sales $ 14,164 17.0% $ 15,750 17.7% $ (1,586) (10.1%)
============== ============= ==============
Net Sales $ 83,160 $ 88,976 $ (5,816) (6.5%)
Financial Services 1,382 867 515 59.4%
-------------- ------------- --------------
Total Revenue $ 84,542 100.0% $ 89,843 100.0% $ (5,301) (5.9%)
============== ============= ==============
Selling, General
and Administrative $ 11,322 13.4% $ 11,193 12.5% $ 129 1.2%
Operating Profit $ 4,224 5.0% $ 5,424 6.0% $ (1,200) (22.1%)
Other Income (Expense) $ 34 -% $ 588 0.7% $ (554) (94.2%)
Net Income $ 2,587 3.1% $ 3,609 4.0% $ (1,022) (28.3%)
</TABLE>
- ---------------------------------------
* See Safe Harbor Statement on page 15.
-9-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 26, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME SUMMARY For the Thirty-nine Weeks Ended
(Dollars in Thousands) ------------------------------------------------------------------------------------------------
September 26, 1997 September 27, 1996 Difference
------------------------------- ------------------------------ --------------------------
Net Sales $ 249,397 100.0% $ 254,598 100.0% $ (5,201) (2.0%)
Cost of Sales 205,672 82.5% 209,682 82.4% (4,010) (1.9%)
-------------- ------ ------------- ------ --------------
Gross Profit on Sales $ 43,725 17.5% $ 44,916 17.6% $ (1,191) (2.7%)
============== ============= ==============
Net Sales $ 249,397 $ 254,598 $ (5,201) (2.0%)
Financial Services 3,820 2,259 1,561 69.1%
-------------- ------------- --------------
Total Revenue $ 253,217 100.0% $ 256,857 100.0% $ (3,640) (1.4%)
============== ============= ==============
Selling, General
and Administrative $ 32,581 12.9% $ 31,392 12.2% $ 1,189 3.8%
Operating Profit $ 14,964 5.9% $ 15,783 6.1% $ (819) (5.2%)
Other Income (Expense) $ 317 0.1% $ 889 0.3% $ (572) (64.3%)
Net Income $ 9,230 3.6% $ 10,005 3.9% $ (775) (7.7%)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
OPERATING DATA SUMMARY For the Thirteen Weeks For the Thirty-nine
(Dollars in Thousands) Ended Weeks Ended
--------------------------- ------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Installment Loan Originations $ 4,340 $ 4,814 $ 14,831 $ 13,639
Capital Expenditures $ 2,618 $ 2,318 $ 6,650 $ 6,473
Home Shipments 3,305 3,763 10,085 10,728
Floor Section Shipments 4,973 5,298 14,790 15,184
Independent Exclusive Dealers 145 107 145 107
Home Manufacturing Facilities 14 13 14 13
</TABLE>
Net Sales. The Company experienced a decline in net sales for the thirteen and
thirty-nine week periods ended September 26, 1997 over the comparable 1996
periods of $5,816,000 (6.5%) and $5,201,000 (2.0%), respectively. The Company
believes the decline in net sales for the third quarter and the year-to-date
period is due to increased competitive factors in the industry caused by the
growth over the last several years in the number of dealers operating in the
industry and increased manufacturing capacity, resulting in a slower retail
turnover and a build-up of dealer inventories, reduced order backlogs and
increased price competition. Homes sold for the third quarter and year-to-date
decreased from the comparable period in the prior year by 458 homes (12.2%) and
643 homes (6.0%), respectively. As part of the Company's marketing program, the
exclusive dealer distribution system has grown to 145 independent exclusive
dealers, up from 115 dealers at the end of 1996. The Company's product mix
continues to shift from single-section homes to multi-section homes. During the
thirteen weeks ended September 26, 1997, 50% of the Company's homes sold were
multi-section homes, compared to 41% for the previous year's comparable period.
For the thirty-nine week period, multi-section homes sold accounted for 47% of
1997 homes sold, compared to 42% for the comparable 1996 period.
Financial Services Revenue. Financial services revenue (primarily interest
income on retail installment contracts) during the current thirteen and
thirty-nine week periods increased $515,000 and $1,561,000, or 59.4% and 69.1%,
respectively, over the comparable periods in the previous year, primarily due to
the growth of the Company's loan portfolio to $48 million, which increased 54.8%
over the September 1996 loan portfolio of $31 million. While the financial
services segment has experienced growth in its loan portfolio, the rate of
growth is slowing due to the tightened market conditions of the manufactured
housing industry. * Installment loan originations for the quarter were
$4,340,000 as compared to the 1996 third quarter of $4,814,000.
Selling, General and Administrative. Selling, general and administrative expense
increased $1,189,000 during the current thirty-nine week period over the
previous year's comparable period. This increase is primarily attributable to
the costs related to new or expanded manufacturing facilities of $1,110,000, a
$621,000 increase in CAC's administrative costs consistent with its growth and
expenses related to the Company's expanded marketing programs of $648,000,
partially offset by a reduction in executive incentive compensation of
$1,069,000. Selling, general and administrative expense as a percentage of total
revenue was 12.9% and 12.2% of sales for the thirty-nine week periods and 13.4%
and 12.5% for the thirteen week periods ended September 26, 1997 and September
27, 1996, respectively.
- ---------------------------------------
* See Safe Harbor Statement on page 15.
-10-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 26, 1997
Other Income (Expense).
Interest Expense. Interest expense increased by $103,000 and $242,000 for the
thirteen and thirty-nine week periods ended September 26, 1997, respectively, as
compared to the applicable 1996 periods, due to increased borrowings of
$7,552,000 incurred to primarily fund the Company's financial services segment.
Other, net. Other, net, declined by $451,000 and $330,000 for the thirteen and
thirty-nine week periods ended September 26, 1997, respectively, as compared to
the applicable 1996 periods. Other, net, is primarily comprised of interest
income, gains or losses on sales of investments, and equity earnings in
investments accounted for on the equity basis of accounting. The decline in
other, net, for both periods is primarily due to a decline in gains from sales
of investments of $234,000 due to a third quarter 1996 recovery of a previously
written-off asset, as well as a slight decline in aggregate earnings from the
Company's joint venture operations, recorded under the equity method of
accounting, as a result of tightening industry conditions.
Net Income. As discussed above, the manufactured housing industry is
experiencing an increase in competitive conditions. Alabama, Mississippi and
South Carolina sales were down industry wide 16.1%, 19% and 11.9%, respectively,
through August 1997 as compared to the same period in 1996. These states
represent three of the largest markets for the Company. Additionally, the
Company has incurred certain start-up costs at its Texas facility acquired in
June 1997, as well as costs due to certain labor shortages and inefficiencies
associated with its other Texas operations. As a result primarily of these
factors, net income per share during the current thirteen and thirty-nine week
periods was $.21 and $.74, respectively, compared to $.29 and $.82 from the
previous year's comparable periods. Net income per share has been adjusted for
all previous stock splits effected by the Company.
Liquidity and Capital Resources
The following table sets forth certain items relating to the measurement of
liquidity and capital resources from the Company's consolidated condensed
financial statements for the dates indicated:
<TABLE>
<S> <C> <C>
BALANCE SHEET SUMMARY Balances as of
-------------------------------------------------
(Dollars in Thousands) September 26, 1997 December 31, 1996
-------------------------------------------------
Cash and Cash Equivalents $ 5,752 $ 24,529
Accounts Receivable $ 24,454 $ 3,046
Working Capital $ 8,432 $ 8,474
Current Ratio 1.2 to 1 1.2 to 1
Long-Term Debt $ 10,030 $ 4,918
Ratio of Long-Term Debt to Equity 1 to 8 1 to 14
Installment Loan Portfolio $ 47,744 $ 36,425
</TABLE>
Working capital remained comparable from December 31, 1996 to September 26,
1997, primarily due to earnings during the period reduced by capital
expenditures and originations of installment contracts by CAC, which in turn
were offset by long-term debt borrowings and principal collected on installment
contracts.
The increase in accounts receivable from December 31, 1996 to September 26,
1997, is a normal seasonal occurrence. As is customary for the Company, most of
its manufacturing operations are idle during the final two weeks of the year for
vacations, holidays and reduced product demand, and during this time, the
Company collects the majority of its outstanding receivables.
The Company's primary business segment is the production and sale of
manufactured housing. In 1992, the Company began the operations of CAC to fund
installment sale contracts to the retail customers of the Company's independent
exclusive dealers. As the operations of CAC expanded, in February 1994, the
Company entered into a credit facility with its primary lender (the "Credit
Facility") (see footnote 4 to the consolidated condensed financial statements
included herein) to provide additional funds for CAC's growth. As of September
26, 1997, the Company's portfolio of installment sale contracts had grown to
approximately $48 million and had been funded primarily with internally
generated working capital, borrowings under the Credit Facility and a portion of
the net proceeds from an offering of the Company's common stock during 1994.
-11-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 26, 1997
Since entering into the Credit Facility, the Company has had aggregate
borrowings of $11.7 million in order to continue to fund the operations of CAC
and to reduce the interest rate risk of the Company's loan portfolio. The
Company expects to continue to borrow funds under the Credit Facility to finance
the continuing operations and growth of CAC. * On March 14, 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 Credit Facility contains certain restrictive covenants which limit, among
other things, (1) the aggregate of dividend payments and purchases of treasury
stock to 50% of consolidated net income for the two most recent years, (2) the
Company's ability to mortgage or pledge assets which exceed, in the aggregate,
$1 million without written consent of the lender, (3) incur additional
indebtedness, including lease obligations, which exceed in the aggregate $2.5
million and (4) make capital expenditures in excess of $6 million. In addition,
the Credit Facility is subject to certain financial covenants requiring the
Company to maintain on a consolidated basis certain defined levels of net
working capital (at least $3.5 million), tangible net worth (which must increase
at least $2 million per year, subject to a carryover for increases in excess of
$2 million in the prior year), debt-to-equity ratio (not to exceed 2 to 1) and
cash flow-to-debt service ratio (not less than 1.5 to 1). The Credit Facility
also requires CAC to comply with certain specified restrictions and financial
covenants.
The Company's growth strategy currently includes the continued expansion of the
financial services segment of its business. Accordingly, it is likely that the
Company will incur additional debt, or other forms of financing, in order to
continue to fund such growth.* The Company currently 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; however, there can be
no assurance to this effect.* In order to provide additional funds for continued
pursuit of the Company's growth strategies and for operations, 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 may depend upon market and other
conditions.* The Company may also engage in other transactions, such as selling
or securitizing all or portions of its installment loan portfolio, that are
designed to facilitate the ability of the Company to originate an increased
volume of loans and to reduce the Company's exposure to interest rate
fluctuations.* There can be no assurance that such possible additional
financing, or the aforementioned transactions involving the Company's
installment loan portfolio, will be available on terms acceptable to the
Company; if they are not, the Company may be forced to curtail the expansion of
its financial services business and to alter its growth strategies. In addition,
the Company may be forced to curtail the growth of its financial services
business due to an increase in competitive conditions in the industry. *
The Company's capital expenditures were approximately $6,650,000 for the
thirty-nine weeks ended September 26, 1997, as compared to $6,473,000 for the
comparable period of 1996. Capital expenditures during these periods included
normal property, plant and equipment additions and replacements and the
continued expansion and modernization of certain of the Company's manufacturing
facilities.
Recent Announcement
As reflected in Item 5 below, on August 14, 1997, the Company announced the
execution of a definitive agreement to merge a subsidiary of the Company with
Belmont Homes, Inc. (NASDAQ/NM:BHIX), subject among other conditions to
compliance with applicable regulatory requirements and the approval of the
shareholders of both companies. The Board of Directors of both companies
unanimously approved the transaction. The agreement calls for the exchange of
0.80 shares of Cavalier Homes, Inc. common stock for each outstanding share of
Belmont common stock. Cavalier will issue approximately 7.6 million shares of
common stock to provide for the exchange to holders of Belmont common stock. The
business combination is intended to qualify as a tax-free reorganization to the
shareholders of Belmont and be accounted for as a pooling-of-interests. The
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, has expired.
- ---------------------------------------
* See Safe Harbor Statement on page 15.
-12-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 26,1997
Belmont Homes, Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549 and at the following Regional
Offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a site on the World Wide
Web at http://www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The common stock of Belmont is quoted on the Nasdaq National Market, and such
reports, proxy statements and other information can also be inspected at the
offices of Nasdaq, 1735 K Street, Washington, D.C. 20006. The Company makes no
representation and assumes no responsibility for the accuracy or completeness of
any such reports, proxy statements or other information.
There can be no assurance that the proposed strategic combination with Belmont
will be consummated. There can also be no representation or assurance made as to
the possible impact of the potential strategic combination on the consolidated
financial condition and results of operations of the Company should such a
strategic combination occur.
ITEM 5 OTHER MATTERS
On August 14, 1997, the Company announced the execution of a definitive
agreement to merge a subsidiary of the Company with Belmont Homes, Inc.
(NASDAQ/NM:BHIX), subject among other conditions to compliance with applicable
regulatory requirements and the approval of the shareholders of both companies.
The Board of Directors of both companies unanimously approved the transaction.
The agreement calls for the exchange of 0.80 shares of Cavalier Homes, Inc.
common stock for each outstanding share of Belmont common stock. Cavalier will
issue approximately 7.6 million shares of common stock to provide for the
exchange to holders of Belmont common stock. The business combination is
intended to qualify as a tax-free reorganization to the shareholders of Belmont
and be accounted for as a pooling-of-interests. The applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has
expired.
There can be no assurance that the proposed strategic combination with Belmont
will be consummated. There can also be no representation or assurance made as to
the possible impact of the potential strategic combination on the consolidated
financial condition and results of operations of the Company should such a
strategic combination occur.
The Board of Directors has declared its regular quarterly cash dividend of $.03
per share payable on November 14, 1997 to stockholders of record on October 31,
1997.
-13-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 26, 1997
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
The exhibits required to be filed with this report are listed
below. The Company will furnish upon request the exhibit
listed upon the receipt of $15.00 per exhibit, plus $.50 per
page, to cover the cost to the Company of providing the
exhibit.
(a) (3) Articles of Incorporation and By-laws.
(a) The Amended and Restated Certificate of
Incorporation of the Company, 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) Amendment to the Amended and Restated
Certificate of Incorporation of the
Company, filed as Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q
for the quarter ended June 27, 1997, is
incorporated herein by reference.
(c) The Certificate of Designation of Series
A Junior Participating Preferred Stock
of Cavalier Homes, Inc. as filed with
the Office of the Delaware Secretary of
State on October 24, 1996 and filed as
Exhibit A to Exhibit 4 to the Company's
Registration Statement on Form 8-A filed
on October 30, 1996, is incorporated
herein by reference.
(d) The Amended and Restated By-laws of the
Company, filed as Exhibit 3(d) to the
Company's Quarterly Report on Form 10-Q
for the quarter ended June 27, 1997, is
incorporated herein by reference.
(e) Amendment No. 1 to the Amended and
Restated By-laws of the Company.
(4) Instruments Defining the Rights of Security
Holders.
(a) Articles four, six, seven, eight and
nine of the Company's Amended and
Restated Certificate of Incorporation,
as amended, referenced in Exhibit 3(a)
and 3(b) above.
(b) Article II, Sections 2.1 through 2.18;
Article III, Sections 3.1 and 3.2;
Article IV, Sections 4.1 and 4.3;
Article VI, Sections 6.1 through 6.5;
Article VIII, Sections 8.1 and 8.2; and
Article IX of the Company's Amended and
Restated By-laws, referenced in Exhibits
3(d) and 3(e) above.
(c) Rights Agreement between Cavalier Homes,
Inc. and ChaseMellon Shareholder
Services, LLC, filed as Exhibit 4 to the
Company's Current Report on Form 8-K
dated October 30, 1996, is incorporated
herein by reference.
(10) Material Contracts.
(a) Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc.
dated July 15, 1997, relating to
guaranty of payments by Lamraft, LP.
(b) Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc.
dated July 15, 1997, relating to
guaranty of payments by Hillsboro
Manufacturing, LP.
(c) Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc.
dated July 15, 1997, relating to
guaranty of payments by Woodperfect
of Texas, LP.
(d) The Agreement and Plan of Merger dated
as of August 14, 1997, by and among the
Company, Crimson Acquisition Corp. and
Belmont Homes, Inc., filed as Exhibit 2
to the Company's Current Report on Form
8-K dated August 19, 1997, is
incorporated herein by reference.
(e) Amendment No. 1 to the Agreement and
Plan of Merger referenced in Exhibit
10(b) above.
(11) Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule for Form
10-Q submitted as Exhibit 27 as an EDGAR
filing only.
(b) The Company filed a Current Report on Form
8-K on August 19, 1997, with respect to the
proposed strategic combination with Belmont
Homes, Inc.
-14-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 26, 1997
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Quarterly Report on Form
10-Q (including statements regarding trends in the industry and the business and
growth and financing strategies of the Company), as well as those statements
specifically designated with an asterisk (*), constitute forward-looking
statements, contain the words "estimates," "projects," "intends," "believes,"
"anticipates," "expects," and words of similar import, are based upon current
expectations and are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements and
words involve known and unknown assumptions, risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements or words.
Such assumptions, risks, uncertainties and factors include those associated with
general economic and business conditions; manufactured housing and retail
consumer financing industry trends, cyclicality and seasonality; availability of
consumer and dealer financing; changes and volatility and uncertainty in
interest rates; the sufficiency of reserves established for installment contract
receivables; warranty, product liability, workers' compensation and other
litigation arising in the course of the Company's manufacturing and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel and favorable relationships with employees; demographic changes;
whether the current and emerging generations of retirees will have the same
interest in purchasing manufactured homes; competition; raw material and labor
costs and availability; import protection and regulation; relationships with and
dependence on customers, distributors and dealers; changes in the business
strategy or development plans of the Company; the availability, terms and
deployment of capital; changes in or the failure to comply with government
regulations; and the inability or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of the Company; and other assumptions, risks, uncertainties and factors
reflected from time to time in the Company's filings with the Securities and
Exchange Commission. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
-15-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 26, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
----------------------------------
Registrant
Date: November 10, 1997 /s/ David A. Roberson
----------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: November 10, 1997 /s/ Michael R. Murphy
----------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
-16-
<PAGE>
AMENDMENT NO. 1
TO AMENDED AND RESTATED
BY-LAWS
OF
CAVALIER HOMES, INC.
Unless otherwise provided in the certificate of
incorporation of the corporation, and subject to the provisions of the
General Corporation Law of the State of Delaware concerning the fixing
of a date for determination of stockholders of record, each stockholder
shall be entitled to one vote for each share of capital stock held by
such stockholder. When a quorum is present at any meeting, the vote of
the holders of a majority of the "total votes" of the stock present in
person or represented by proxy at such meeting shall decide any
question, other than the election of directors, brought before such
meeting, unless the question is one upon which, by express provision of
a statute, the rules of any exchange (including, without limitation,
the New York Stock Exchange, Inc.) or other medium on which the
corporation's stock is listed or that otherwise facilitates the trading
thereof, or the certificate of incorporation, a different vote (whether
such different vote would require a higher or lower threshold of votes
to decide a question) is required, in which case such express provision
shall govern and control the decision of such question. All classes of
stock of the corporation will vote together as a single class on all
matters coming before the stockholders, except as otherwise provided by
the General Corporation Law of the State of Delaware or by the
certificate of incorporation. For purposes of these by-laws, "total
votes" shall be determined (i) by multiplying the number of shares of
each class of stock entitled to vote by the number of votes for each
share of such class as authorized by the certificate of incorporation
(or in the absence of such express authorization in the certificate of
incorporation, the number of votes for each share as provided by the
General Corporation Law of the State of Delaware), and (ii) by totaling
the sum of the votes of each class as determined in (i), which shall
produce the number of "total votes." Subject to the provisions of the
certificate of incorporation and to the rights of the holders of any
series of Preferred Stock to elect directors under specified
circumstances, all elections of directors by the stockholders of the
corporation shall be by plurality vote of the "total votes."
The undersigned hereby certifies that the provision set forth above was
duly adopted by the Board of Directors of Cavalier Homes, Inc.
effective September 19, 1997.
/s/ Michael R. Murphy
---------------------
Michael R. Murphy
Secretary
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
(Lamraft L.P.)
(Letter of Credit Facility)
Dated July 15, 1997
by
CAVALIER HOMES, INC.
in favor of
FIRST COMMERCIAL BANK
<PAGE>
TABLE OF CONTENTS
Page
Parties..................................................................... 1
Recitals.................................................................... 1
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions......................................... 1
SECTION 1.02 Accounting Principles............................... 4
SECTION 1.03 Action Taken Directly or Indirectly................. 4
SECTION 1.04 Governing Law....................................... 4
SECTION 1.05 General Provisions of Construction.................. 4
SECTION 1.06 Effect of Headings and Table of Contents............ 5
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations............................. 5
SECTION 2.02 Character of Obligations Hereunder.................. 6
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers............................................. 9
SECTION 3.02 Termination......................................... 10
SECTION 3.03 No Right of Subrogation. ........................... 10
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants............................... 11
SECTION 4.02 Information as to Guarantor......................... 11
ARTICLE V
Representations, Warranties and Agreements
SECTION 5.01 Financial Condition................................. 12
SECTION 5.02 Full Disclosure..................................... 13
SECTION 5.03 Pending Litigation; No Defaults..................... 13
SECTION 5.04 Title to Properties................................. 13
SECTION 5.05 No Defaults......................................... 13
SECTION 5.06 Governmental Consent................................ 13
SECTION 5.07 Compliance with Law................................. 13
SECTION 5.08 Restrictions on Guarantor........................... 14
SECTION 5.09 Maintenance of Tax Exemption........................ 14
SECTION 5.10 Indemnification..................................... 14
SECTION 5.11 Survival of Representations, Warranties
and Covenants....................................... 15
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default................................... 15
SECTION 6.02 Remedies............................................ 17
SECTION 6.03 Rights and Remedies of Credit Obligor in
the Event of Bankruptcy, Etc. of Guarantor.......... 17
SECTION 6.04 Agreement to Pay Attorneys' Fees.................... 18
SECTION 6.05 Waiver of Past Defaults............................. 18
SECTION 6.06 No Additional Waiver Implied by One Waiver.......... 18
SECTION 6.07 Remedies Subject to Applicable Law.................. 18
ARTICLE VII
Subordination Agreement.................. 18
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction........................................ 20
SECTION 8.02 Benefit of the Agreement............................ 21
SECTION 8.03 Notices............................................. 21
SECTION 8.04 Reproduction of Documents........................... 21
SECTION 8.05 Survival............................................ 22
SECTION 8.06 Successors and Assigns.............................. 22
SECTION 8.07 Effective Date of Agreement......................... 22
SECTION 8.08 Entire Agreement; Counterparts...................... 22
SECTION 8.09 Severability........................................ 22
SECTION 8.10 Date For Identification Purposes Only............... 22
SECTION 8.11 Exceptions to Covenants............................. 23
Testimonium................................................................. 24
Signatures.................................................................. 24
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
THIS AGREEMENT is executed July 15, 1997, by CAVALIER HOMES, INC., a
Delaware corporation (the "Guarantor"), and FIRST COMMERCIAL BANK, a state
banking corporation (the "Credit Obligor"), as lender and secured party.
Recitals
The Guarantor has an interest in Lamraft L.P., a Texas limited
partnership (the "Borrower").
The Borrower has applied to the Credit Obligor for the issuance of an
irrevocable, direct pay, letter of credit to secure $3,000,000 Adjustable Rate
Industrial Development Revenue Bonds, Series 1997 (Lamraft L.P. Project), dated
July 15, 1997, to be issued by the Hillsboro Industrial Development Corporation
to finance an industrial manufacturing project for use by the Borrower and
certain other Persons (as defined herein) related to the Borrower.
The Credit Obligor has agreed to issue the letter of credit (the
"Letter of Credit") for the benefit of the Borrower, for such purposes, upon the
terms and conditions and subject to the conditions precedent set forth in that
certain Credit Agreement of even date between the Borrower and the Credit
Obligor (the "Credit Agreement").
The assumption of the obligations of the Guarantor hereunder will
result in direct financial benefits to the Guarantor.
Agreement
NOW THEREFORE, in consideration of the foregoing Recitals and to induce
the Credit Obligor to enter into the Credit Agreement and to issue the Letter of
Credit, the Guarantor hereby covenants and agrees as follows:
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Bond Documents" shall mean collectively each of the following
documents as any of the same may at any time be amended, supplemented or
restated:
(a) the Indenture,
(b) the Loan Agreement,
(c) Remarketing Agreement with respect to the Bonds among
the Issuer, Borrower, Trustee, and First Commercial
Bank, as remarketing agent.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean all properties and interests in properties of
the Borrower which secure the Credit Obligor Indebtedness or are variously
defined, referenced or described as "Collateral" in any of the Credit Obligor
Financing Documents.
"Credit Agreement" shall have the meaning assigned in the recitals
hereto.
"Credit Guaranty" shall mean collectively the Limited Credit Guaranty
Agreements dated as of July 15, 1997 from the Guarantors to the Credit Obligor.
"Credit Obligor Financing Documents" shall mean collectively the Credit
Agreement, the Credit Guaranty, the Deed of Trust, as all said documents are
defined in the Recitals hereto, and any and all amendments or supplements to any
thereof.
"Credit Obligor Indebtedness" shall mean all indebtedness and other
amounts at any time to be paid to Credit Obligor by the Borrower or any Obligor
(as defined in the Credit Agreement) or any affiliate of any thereof under the
Credit Obligor Financing Documents.
"Deed of Trust" shall mean the Deed of Trust, Security Agreement and
Fixture Filing dated as of July 15, 1997, by the Borrower to the Credit Obligor.
"Default" shall mean an event or condition the occurrence of which
would, with or without the lapse of time or the giving of notice or both, be an
Event of Default.
"Event of Default" shall mean an event as defined in Article VI.
"Financing Documents" shall mean collectively the Bond Documents and
the Credit Documents.
"Financing Participants" shall mean the parties to the Financing
Documents.
"Guarantor" means Cavalier Homes, Inc., and the respective successors
and assigns thereof.
"Guarantor Indebtedness" shall mean all indebtedness and other amounts
at any time to be paid by the Borrower or any Obligor (as defined in the Credit
Agreement) or any affiliate of any thereof to the Guarantor.
"Guarantors" means collectively the following and the respective heirs,
executors, administrators and assigns thereof:
(i) Lee Roy Jordan,
(ii) Cavalier Homes, Inc.,
(iii) Patriot Homes, Inc.,
(iv) Schult Operating Company, and Schult Homes Corporation
(v) Southern Energy Homes, Inc.
"Indenture" shall mean the Trust Indenture dated as of July 15, 1997
between the Issuer and the Trustee with respect to the Bonds.
"Issuer" shall mean the Hillsboro Industrial Development Corporation,
and any successor to its functions.
"Letter of Credit" means the Irrevocable Letter of Credit No. 921 dated
the date of delivery thereof, issued by the Credit Obligor for the benefit of
the Borrower pursuant to the Credit Agreement.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease assignment or bailment for
security purposes. For the purposes of this Agreement, the Guarantor shall be
deemed to be the owner of any Property which it has acquired or holds or hold
subject to a conditional sale agreement, financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other person for security purposes.
"Loan Agreement" shall mean the Loan Agreement dated as of July 15,
1997 between the Issuer and the Borrower with respect to the Project.
"Material Adverse Effect" shall mean any act or circumstance or event
which (i) causes an Event of Default or Default, (ii) otherwise might be
material and adverse to the financial condition or business operations of the
Guarantor or (iii) would adversely affect the validity or enforceability of any
of the Financing Documents or any of the papers executed in connection
therewith.
"Maximum Guaranteed Percentage" shall mean twenty-four percent (24%).
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, an association, a trust, an unincorporated organization
and a government or any department, agency or political subdivision thereof.
"Project" shall mean the real and personal property described in the
Deed of Trust, Loan Agreement and Indenture as the "Project".
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
district, territorial, or other court or governmental department, board, bureau,
agency or instrumentality having jurisdiction over Guarantor.
SECTION 1.02 Accounting Principles
The Guarantor shall maintain books and records in accordance with
generally accepted accounting principles ("GAAP" as defined in the Credit
Agreement) consistently applied.
SECTION 1.03 Action Taken Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
SECTION 1.04 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
SECTION 1.05 General Provisions of Construction
(1) Capitalized terms used herein without definition shall have the
meaning assigned to them in the Indenture or the Credit Agreement.
(2) Singular terms shall include the plural as well as the singular,
and vice versa.
(3) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
subdivisions of this instrument as originally executed.
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
SECTION 1.06 Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations
(a) Subject to and limited by the provisions of subsection 2.01(d)
hereof, the Guarantor hereby absolutely and unconditionally guarantees the
punctual payment when due (whether at stated maturity, by acceleration or call
for redemption or otherwise), in lawful money of the United States of America,
of all of the following (collectively the "Obligations"):
(1) all letter of credit commissions, fees, charges and costs
becoming due and payable under the Credit Agreement in accordance with
the terms thereof;
(2) all amounts becoming due and payable under the Credit
Agreement in accordance with the terms thereof as reimbursement of
amounts paid by the Credit Obligor under the Letter of Credit;
(3) all late charges and all interest on late payments
becoming due and payable under the Credit Agreement in accordance with
the terms thereof;
(4) all amounts becoming due and payable under the Credit
Agreement in accordance with the terms thereof upon the occurrence and
continuance of an Event of Default under the Credit Agreement;
(5) all amounts becoming due and payable under the Credit
Agreement as reimbursement of increased costs to the Credit Obligor
caused by changes in laws or regulations or in the interpretation
thereof;
(6) all other amounts becoming due and payable by the Borrower
under the Credit Agreement;
(7) all amounts becoming due and payable by the Borrower under
the terms of the Deed of Trust (including but not limited to
reimbursement for advancements made by the Credit Obligor under this
Deed of Trust) and any other security agreements, guarantees, mortgages
or other documents now or hereafter evidencing or securing the
Borrower's performance of its obligations under the Credit Agreement;
and
(8) all other indebtedness, obligations (including obligations
of performance) and liabilities of the Borrower to the Credit Obligor
of every kind and description whatsoever, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter
incurred, contracted or arising, or acquired by the Credit Obligor from
any source, joint or several, liquidated or unliquidated, regardless of
how they arise or by what agreement or instrument they may be evidenced
or whether they are evidenced by any agreement or instrument, and
whether incurred as maker, endorser, surety, guarantor or otherwise,
and any and all extensions, restatements, and renewals of any of the
same; and
(9) all renewals and extensions of any or all the obligations
of the Borrower described in paragraphs (1) through (8) above
(including without limitation any renewal or extension of, and any
substitute for, the Letter of Credit), whether or not any renewal or
extension agreement is executed in connection therewith.
(b) The guaranty set forth in this Section is an absolute and
irrevocable guaranty of payment and not of collectibility or performance and is
in no way conditioned or contingent upon any attempt to collect from the
Borrower or any other Person, or to realize upon any Property subject to the
Lien of the Indenture or the Deed of Trust, or upon any other direct or indirect
security for the Bonds or the Obligations, or resort to any other remedies.
(c) Each default in payment of any amount of the Obligations shall give
rise to a separate cause of action hereunder and separate suits may be brought
hereunder as each cause of action arises.
(d) By acceptance hereof, the Credit Obligor covenants and agrees that,
anything herein or in the Financing Documents to the contrary notwithstanding,
the obligations of, and recourse against, the Guarantor for payment of any
amounts pursuant to this Agreement shall be limited to and shall not exceed the
Maximum Guaranteed Percentage of such amounts, as determined on the basis of the
aggregate amounts described in Section 2.01(a) or otherwise due hereunder which
are outstanding at the time demand for payment thereof is made in accordance
herewith, without regard to or taking into account any demand upon, or payment
or contribution by, any other Financing Participant with respect to such
amounts.
SECTION 2.02 Character of Obligations Hereunder
(a) All obligations of the Guarantor under this Agreement are
unconditional, primary, absolute and irrevocable under any and all
circumstances. Without limiting the generality of the foregoing, to the fullest
extent permitted under applicable law, the obligations of the Guarantor
hereunder shall not be subject to or impaired by:
(i) any inability or failure on the part of any party thereto
to perform or comply with the Financing Documents or the Bonds;
(ii) any invalidity or irregularity in any statutory or other
proceedings relating to the formation or existence of any of the
Financing Participants, to the issuance of the Bonds or to the
execution and delivery of any Financing Document;
(iii) any invalidity or unenforceability of, or any
impairment, modification or release of liability of any party under, or
any impossibility, impracticability, illegality or frustration of
performance by any party of, any of the Financing Documents or the
Bonds, for any reason whatsoever, including, without limitation, any
decision by any court invalidating or otherwise affecting the
obligations of any party under or in connection with any of the
Financing Documents or the Bonds;
(iv) any inability or failure on the part of any of the
Financing Participants to perform or comply with any of the Financing
Documents;
(v) any invalidity or unenforceability of, or any impairment,
modification or release of liability of the Guarantor under, or any
impossibility, impracticability, illegality or frustration of
performance by the Guarantor of this Agreement;
(vi) the voluntary or involuntary liquidation, dissolution,
merger, consolidation, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, moratorium, arrangement, composition with
creditors or readjustment of debt of, or other similar proceedings
affecting, any of the Financing Participants;
(vii) any waiver, consent, extension, indulgence or other
action or inaction in respect of any Financing Document or the Bonds,
including any modification, amendment or supplement to any of the
foregoing, the renewal or extension of the Bonds, the release of any
Property subject to the Lien of the Indenture or the Deed of Trust, or
the Loan Agreement or any other similar act;
(viii) any right of setoff, counterclaim or defense, or any
act, omission or breach on the part of the Borrower, the Credit Obligor
or the Guarantor or any of the other Financing Participants;
(ix) any claim whatsoever against the Borrower or the Issuer
or any of the other Financing Participants;
(x) any defect in the title, compliance with specifications,
value, condition, design, operation, merchantability, quality,
durability or suitability of, consequences of use or misuse of, or
unfitness for use of, the Project or any part thereof, any abandonment,
destruction, noncompletion, requisition, condemnation, foreclosure of
or damage to the Project or any part thereof, or any event of force
majeure relating to the Project or any part thereof;
(xi) any breach of any representation or warranty relating to
the Bonds or the Project;
(xii) any release, extinguishment or satisfaction of the
Borrower's obligations to make payments of Obligations until there have
been paid to the Credit Obligor in lawful currency of the United States
an amount sufficient to pay all Obligations (including interest on
overdue amounts of Obligations including, to the extent permitted by
applicable law, interest) that would have been due and owing to the
Credit Obligor by the Borrower had the Borrower's obligations not been
so released, extinguished or satisfied;
(xiii) the failure to give notice to the Guarantor of the
occurrence of any default or event of default under the Bonds or any of
the Financing Documents;
(xiv) the compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of any of the
parties to any of the Financing Documents under the Bonds or the
Financing Documents;
(xv) any assignment, pledge or mortgage of all or any part
of the interest of any of the Financing Participants in the Project or
the Collateral;
(xvi) any waiver of the payment, performance or observance by
any of the Financing Participants of any obligation, agreement or
covenant of any of them contained in the Bonds or the Financing
Documents;
(xvii) the extension of the time for payment of any amount of
the Obligations or any part thereof or of the time for performance of
any other obligations, agreements or covenants of any of the Financing
Participants under the Bonds or the Financing Documents;
(xviii) the modification or amendment (whether material or
otherwise) of any obligation, agreement or covenant contained in the
Bonds or the Financing Documents;
(xix) any failure, omission, or delay on the part of any of
the Financing Participants to enforce, assert or exercise any right,
power or remedy conferred upon any of them by the Bonds or the
Financing Documents;
(xx) the bankruptcy, insolvency, reorganization, appointment
of a receiver for, or dissolution of any of the Financing Participants,
or the entering by any or all of them into an agreement of composition
with creditors, or the making by any or all of them of an assignment
for the benefit of creditors;
(xxi) any rights of set-off, recoupment, counterclaim or other
defense, whether similar or dissimilar to the foregoing, which the
Guarantor might otherwise have against any of the Financing
Participants or any other person;
(xxii) the default or failure of any one or more of the
Financing Participants to perform fully any obligation, covenant or
agreement contained in the Bonds or the Financing Documents;
(xxiii) the release or discharge of any one or more of the
Financing Participants by operation of law, to the extent that such
release or discharge may be lawfully avoided, from the performance or
observance of any agreement or covenant contained in the Bonds or the
Financing Documents;
(xxiv) the invalidity or unenforceability of the Bonds or
the Financing Documents or of any provision of such instruments; or
(xxv) any other matter that might otherwise be raised in
avoidance of, or in defense against, an action to enforce the
obligations of the Guarantor under this Agreement.
(b) The Guarantor acknowledges that this Agreement is executed for the
benefit of the Credit Obligor and that the Credit Agreement and the Letter of
Credit will be executed and delivered in reliance on this Agreement. No act of
commission or omission of any kind at any time on the part of the Credit Obligor
in respect of any matter whatsoever shall in any way affect or impair any right,
power or benefit of the Credit Obligor under this Agreement and, to the extent
permitted by applicable law, no setoff, claim, reduction, diminution of any
obligation, or any defense of any kind or nature which the Guarantor may have
against the Credit Obligor shall be available against the Credit Obligor in any
suit or action brought by the Credit Obligor to enforce any right, power or
benefit under this Agreement.
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers
(a) The Guarantor hereby waives all of the following and all defenses,
counterclaims, or offsets which the Guarantor may have by reason thereof: (1)
notice of acceptance hereof, notice of any action taken or omitted in reliance
hereon, notice of any defaults by the Borrower in the payment of any such sums,
and notice of the creation, renewal, or accrual of any liability of the
Borrower, (2) any presentment, demand, notice or protest of any kind, (3) any
right (i) to have joined any of the other Financing Participants with the
Guarantor in any suit brought against the Guarantor on this Agreement, (ii) to
require the Credit Obligor to forthwith bring suit against any of the other
Financing Participants, and (iii) to require that the Credit Obligor obtain any
judgment against any of the other Financing Participants in connection with the
enforcement of any rights against the Guarantor hereunder, and (4) any other act
or thing (including without limitation alteration of the Bonds or the Financing
Documents or debt evidenced thereby or security therefor), or omission or delay
to do any other act or thing which may, by operation of law or otherwise, in any
manner or to any extent vary the risk of the Guarantor or which might otherwise
operate as a discharge of the Guarantor.
(b) The Guarantor hereby waives, as to the enforcement of this
Agreement, (1) all rights of exemption that the Guarantor may have under the
constitution and laws of any state as to any levy on and sale of property and
(2) presentation and demand for payment (or protest of nonpayment) of
Obligations or any part thereof.
SECTION 3.02 Termination
(a) The guaranties set forth in this Agreement shall remain in full
force and effect without reference to future changes in conditions, including,
to the extent permitted by applicable law, changes in law, until the Credit
Obligor shall have been indefeasibly paid in full any and all sums due under the
terms and provisions of the Obligations and the Financing Documents, and until
such sums are not subject to rescission or repayment upon any bankruptcy,
insolvency, arrangement, reorganization, moratorium, receivership or similar
proceeding affecting the Issuer, the Borrower, the Guarantor, or any of the
other Financing Participants.
(b) In the event any payment on the Obligations (whether such payment
is remitted by the Issuer, the Borrower, any Guarantor or any other person, from
realization on collateral, through setoff or otherwise) must be refunded, paid
over or otherwise released by the Credit Obligor as a result of such payment
being (1) a preference or fraudulent transfer under the Bankruptcy Code of 1978,
as amended, or other state or federal law or (2) disallowed as a permanent and
irrevocable payment on the Obligations for any other reason, then in each such
event this Agreement shall thereupon, ipso facto, be reinstated and revived to
the full extent of such refunded, paid over or released payment.
SECTION 3.03 No Right of Subrogation.
The Guarantor will not exercise any rights of subrogation which the
Guarantor may have unless and until this Agreement shall have been terminated as
provided in Section 3.02. If any payment is made to the Guarantor with respect
to any payments due by the Guarantor under this Agreement at any time prior to
such termination of this Agreement, he will be paid forthwith to the Credit
Obligor to be applied to installments due or coming due under the Obligations in
the order and the manner provided in the Credit Agreement or otherwise
determined by the Credit Obligor.
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants
The Guarantor covenants that so long as this Agreement is in effect,
the Guarantor shall
(a) Payment of Indebtedness, Taxes, etc. (i) Pay all indebtedness and
obligations of the Guarantor promptly and in accordance with normal terms where
failure to pay would have a Material Adverse Effect, and (ii) pay and discharge
or cause to be paid or discharged promptly all taxes, assessments and
governmental charges or levies imposed upon the Guarantor or upon his income and
profits, or upon any of his Property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies or otherwise, which, if unpaid, might become a
lien upon such properties or any part thereof where failure to pay would have a
Material Adverse Effect; provided, however, that the Guarantor shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings.
(b) Accounts, Financial Information. The Guarantor will maintain proper
books of record and account, in which full and correct entries will be made, in
accordance with generally accepted accounting principles, of all business and
affairs of the Guarantor. The Guarantor shall furnish to the Credit Obligor with
reasonable promptness (1) annual financial statements of the Guarantor prepared
and audited by certified public accountants in accordance with generally
accepted accounting principles, and (2) such other information regarding the
operations, business affairs and financial condition of the Guarantor as the
Credit Obligor may reasonably request.
(c) Legal Existence. The Guarantor will maintain and preserve its legal
existence and will not voluntarily dissolve without first discharging its
obligations under this Agreement.
(d) Further Assurances. On request of the Credit Obligor, promptly
correct any defect, error or omission which may be discovered in any of the
Financing Documents or in the contents of any of the papers executed in
connection therewith or in the execution or acknowledgement thereof, and
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary or as may be requested by the Credit Obligor to carry
out more effectively the purposes of this Agreement and the Financing Documents.
SECTION 4.02 Information as to Guarantor
Financial and Business Information. The Guarantor shall deliver to the
Credit Obligor:
(a) Notice of Default or Event of Default. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a default or an event of default under any Financing
Document, a written notice specifying the nature and period of
existence thereof and what action the Guarantor is taking or proposes
to take with respect thereto;
(b) Notice of Claimed Default. Immediately upon becoming aware
that the holder of any evidence of indebtedness or security of the
Guarantor has given notice or taken any other action with respect to a
claimed default or event of default thereunder which would cause a
default or event of default which would have a Material Adverse Effect,
a written notice specifying the notice given or action taken by such
holder and the nature of the claimed default or event of default and
what action the Guarantor are taking or proposes to take with respect
thereto;
(c) Requested Information. With reasonable promptness, such
data and information as from time to time may be reasonably requested;
(d) Notice of Litigation. Immediately upon becoming aware of
the existence of any proceedings before any Tribunal involving the
Guarantor which involves the probability of any final judgment or
liability against such Guarantor in an amount which would have a
Material Adverse Effect, a written notice specifying the nature thereof
and what action such Guarantor is taking and proposes to take with
respect thereto; and
(e) Notice from Regulatory Agencies. Promptly upon receipt
thereof, information with respect to and copies of any notices received
from federal or state regulatory agencies or any Tribunal relating to
an order, ruling, statute or other law or information which might have
a Material Adverse Effect on the franchises, permits, licenses, or
rights, or the condition, financial or otherwise, of the Guarantor.
ARTICLE V
Representations, Warranties and Agreements
The Guarantor represents, warrants and agrees that:
SECTION 5.01 Financial Condition
Since the date of application to the Credit Obligor for the Letter of
Credit, (i) there has been no change in the business, prospects, profits,
Properties or condition (financial or otherwise) of the Guarantor, except
changes in the ordinary course of business, none of which individually or in the
aggregate has a Material Adverse Effect, (ii) the Guarantor has not incurred any
material liability which has a Material Adverse Effect, and (iii) there exists
no default under the provisions of any instrument evidencing any such
liabilities or under any agreement relating thereto which would have a Material
Adverse Effect.
SECTION 5.02 Full Disclosure
No written statement furnished by the Guarantor to the Credit Obligor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact which the Guarantor has not disclosed to the Credit
Obligor in writing which has a Material Adverse Effect or, so far as the
Guarantor can now foresee, will have a Material Adverse Effect.
SECTION 5.03 Pending Litigation; No Defaults
There are no proceedings pending, or, to the knowledge of the
Guarantor, threatened, against or affecting the Guarantor in any court or before
any governmental authority or arbitration board or Tribunal which involve the
possibility of a Material Adverse Effect or the ability of the Guarantor to
perform this Agreement. The Guarantor is not in default with respect to any
order of any court, governmental authority, arbitration board or Tribunal which
would have a Material Adverse Effect.
SECTION 5.04 Title to Properties
The Guarantor has good and marketable title to the Properties thereof.
SECTION 5.05 No Defaults
No event has occurred and no conditions exist which would, in any
material respect, upon the issuance of the Letter of Credit, constitute (i) a
default under any note or other evidence of indebtedness or under any agreement
of the Guarantor if the effect of such default would have a Material Adverse
Effect or (ii) a default or event of default under the Financing Documents or
any of them, and the Guarantor is not in violation in any material respect of
any term of any agreement or other instrument to which he is a party or by which
he may be bound that would have a Material Adverse Effect.
SECTION 5.06 Governmental Consent
No consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Guarantor is
required in connection with the execution and delivery of the Financing
Documents to which the Guarantor is a party.
SECTION 5.07 Compliance with Law
The Guarantor:
(a) is not in violation of any laws, ordinances, governmental
rules or regulations to which Guarantor is subject, or
(b) has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of the
Property, or to the conduct of the business, of Guarantor, which
violation or failure to obtain would have a Material Adverse Effect.
SECTION 5.08 Restrictions on Guarantor
The Guarantor is not a party to any contract or agreement which
requires consent of any creditor of the Guarantor other than the Credit Obligor
or other party thereto to the right or ability of the Guarantor to incur debt or
guarantee indebtedness hereunder.
SECTION 5.09 Maintenance of Tax Exemption
The Guarantor represents that he has not taken any action, and he knows
of no action that any other Person has taken, which would cause interest on the
Bonds to be includible in the gross income of the holder thereof for federal
income tax purposes, and covenant that he will not take any action or omit to
take any action at any time, which action or omission would result in the loss
of the exemption from federal income taxation of the interest on the Bonds;
provided that no such representation or covenant is made with respect to any
Bonds for any period during which they are held by a "substantial user" or a
"related person" as those terms are used in Section 147 of the Code. The
Guarantor further represents that he will not take or omit to take any action,
or permit any Person to take any action or omit to take any action, which action
or omission will in any way cause the proceeds from the sale of the Bonds to be
applied, or result in such proceeds being applied, in any manner other than as
provided in the Financing Documents
SECTION 5.10 Indemnification
(a) The Guarantor will indemnify and hold harmless the Credit Obligor
and each Person, if any, who controls the Credit Obligor within the meaning of
Section 15 of the Securities Act of 1933, as amended, (the Credit Obligor and
any such person being in this Section collectively called a "Holder") against
any and all losses, claims, damages or liabilities, joint and several, or
actions in respect thereof, to which any Holder may become subject under any
statute or common law or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
this Agreement, including the financial statements referred to herein, or any
omission or alleged omission to state herein a material fact necessary in order
to make the statements herein not misleading; and will reimburse any Holder for
all legal or other expenses reasonably incurred by such Holder in connection
with defending any such action or claim.
(b) If any such action or claim shall be brought or asserted against
any Holder and in respect of which indemnity may be sought from the Guarantor,
such Holder shall promptly notify the Guarantor in writing and the Guarantor
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Any Holder shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Holder unless (a)
the employment thereof at the expense of Guarantor has been specifically
authorized by the Guarantor in writing, (b) the Guarantor have failed to assume
the defense and to employ counsel, or (c) the named parties to any such action
(including any impleaded parties) include both such Holder and the Guarantor,
and such Holder shall have been advised by such counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Guarantor (in which case, if such Holder notifies the
Guarantor in writing that it elects to employ separate counsel at the Guarantor'
expense, the Guarantor shall not have the right to assume the defense of such
action on behalf of such Holder, it being understood, however, that the
Guarantor shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for all such Holders,
which firm shall be designated in writing by such Holders). Each Holder, as a
condition of such indemnity, shall use its best efforts to cooperate with the
Guarantor in the defense of any such action or claim. The Guarantor shall not be
liable for any settlement of any such action effected without their written
consent, but if settled with the written consent of the Guarantor, or if there
be a final judgment for the plaintiff in any such action, the Guarantor agrees
to indemnify and hold harmless any such Holder from and against any loss or
liability by reason of such settlement or judgment.
SECTION 5.11 Survival of Representations, Warranties and Covenants
The representations, warranties and covenants of the Guarantor
contained in this Agreement, and any other document, instrument and agreement
referred to or contemplated by this Agreement, shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Borrower, any Holder or any other Person, or (ii) delivery of, and
payment for, the Bonds.
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default
An "Event of Default" shall exist under this Agreement if any of the
following occurs and is continuing (whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) Particular Covenant Defaults. The Guarantor fails to
perform or observe any covenant or agreement contained in Section 2.01
for a period of five Business Days after notification by the Credit
Obligor of such failure;
(b) Other Defaults. The Guarantor fails to comply with any
other provision of this Agreement, and such failure continues for a
period of thirty days after written notification by the Credit Obligor
of such failure;
(c) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of the Guarantor
contained in this Agreement, or in any instrument furnished in
compliance with or in reference to this Agreement, is false or
misleading in any material respect and action which eliminates such
falsity or misleading character is not completed for a period of thirty
days after written notification by the Credit Obligor of such false or
misleading statement;
(d) Default on Other Indebtedness. Default by the Guarantor in
any payment of any obligation for money received as an advance (or any
obligation under any conditional sale or other title retention
agreement or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money lien or
any obligation under notes payable or drafts accepted representing
extensions of credit) beyond any grace period provided with respect
thereto, or default in the performance of any other agreement, term or
condition contained in any agreement under which such obligation is
created (or any other default under any such agreement which shall
occur and be continuing beyond any period of grace provided with
respect thereto), if the effect of such default would have a Material
Adverse Effect, and such default shall remain uncured for a period of
ten days after the Guarantor has notice thereof;
(e) Involuntary Bankruptcy Proceedings. A receiver, liquidator
or trustee of the Guarantor, or of any of his Property, is appointed by
court order and such order remains in effect for more than sixty days,
or an order or decree for relief in an involuntary bankruptcy case is
entered with respect to the Guarantor, or any of his Property is
sequestered by court order and such order remains in effect for more
than sixty days, or a petition is filed against the Guarantor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, and is not dismissed within sixty days after
such filing;
(f) Voluntary Petitions. The Guarantor files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against him under any such law;
(g) General Assignment for Benefit of Creditors, etc. The
Guarantor makes a general assignment for the benefit of his creditors,
or is unable to pay his debts generally as they become due, or consents
to the appointment of a receiver, trustee or liquidator of the
Guarantor, or of all or any part of his Property;
(h) Undischarged Final Judgments or Settlements. One or more
final judgments shall be entered against the Guarantor, or the
Guarantor shall enter into settlement of any litigation, which
judgments and settlements are not covered by insurance, and which
judgments and settlements will have a Material Adverse Effect on the
Guarantor; or
(i) Other Defaults. The occurrence of an event of default
under any of the other Financing Documents and the expiration of the
applicable grace period, if any, specified therein.
SECTION 6.02 Remedies
If an Event of Default exists, the Credit Obligor may proceed to
protect its rights by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any covenant or agreement
of the Guarantor herein contained or in aid of the exercise of any power or
remedy granted to the Credit Obligor under any of the other Financing Documents.
The Credit Obligor may proceed directly against the Guarantor hereunder without
resorting to any other remedies which it may have and without proceeding against
any other security held by the Credit Obligor.
SECTION 6.03 Rights and Remedies of Credit Obligor in the Event of
Bankruptcy, Etc. of Guarantor
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
proceeding, or any general assignment for the benefit of creditors, relative to
the Guarantor, the Credit Obligor (irrespective of whether there has been a
default under this Agreement or any of the other Financing Documents) shall be
entitled and empowered to intervene in such proceedings, to file and prove a
claim or claims for the whole amount owing and unpaid and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Credit Obligor (including any claim for reasonable compensation to the
Credit Obligor, its agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities reasonably incurred, and all advances made, by the
Credit Obligor except as a result of its negligence or bad faith) allowed in
such judicial proceedings, to collect and receive any moneys or other property
payable or deliverable on any such claims, and to take such other action therein
as the Credit Obligor may deem necessary or appropriate to protect its
interests.
SECTION 6.04 Agreement to Pay Attorneys' Fees
In the event the Guarantor should default under any of the provisions
of this Agreement and the Credit Obligor should employ attorneys or incur other
expenses for the collection of any payments due hereunder or the enforcement of
performance or observance of any agreement or covenant on the part of the
Guarantor herein contained, the Guarantor will on demand therefor pay to the
Credit Obligor the reasonable fees of such attorneys and such other reasonable
expenses so incurred.
SECTION 6.05 Waiver of Past Defaults
The Credit Obligor may waive any past default hereunder and its
consequences. Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Agreement but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 6.06 No Additional Waiver Implied by One Waiver
If any agreement contained in this Agreement should be breached by the
Guarantor and thereafter waived by the Credit Obligor, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
SECTION 6.07 Remedies Subject to Applicable Law
All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Agreement invalid or unenforceable.
ARTICLE VII
Subordination Agreement
The Guarantor does hereby covenant and agree:
(a) That payment of the Guarantor Indebtedness when due and
payable in each month shall be and hereby is fully subordinated in
priority to the prior payment to Credit Obligor of the Credit Obligor
Indebtedness when due and payable in each month, provided, however,
that so long as no event of default exists under the Credit Obligor
Financing Documents the Guarantor may receive payment of the Guarantor
Indebtedness when due and payable (but not in advance of originally
scheduled due dates).
(b) That anything in any other contract, agreement or
instrument to the contrary notwithstanding, (a) all right, title and
interest of the Guarantor in and to the Collateral shall be and hereby
are fully subordinated in priority to the right, title and interest of
Credit Obligor in and to the Collateral as provided in the Credit
Obligor Financing Documents without regard to the respective dates on
which any of such interests were created and (b) that the claim of
Credit Obligor upon all the Collateral shall be and hereby is prior and
superior for all purposes to that of the Guarantor therein.
(c) Upon the occurrence of a default under any agreement or
document evidencing, providing for, or securing the Guarantor
Indebtedness or if the Guarantor Indebtedness shall become or be
declared immediately due and payable, then an event of default shall be
deemed to have simultaneously occurred under the Credit Obligor
Indebtedness and the Credit Obligor Financing Documents and the same
shall also become immediately due and payable, notwithstanding any
inconsistent terms in any document or instrument relating to any of the
foregoing. The Guarantor shall not, without the prior written consent
of Credit Obligor, accelerate the maturity of, or institute any
proceedings to enforce, any of the Guarantor Indebtedness.
(d) Upon the occurrence and continuation of an event of
default under any agreement or document evidencing, providing for, or
securing the Guarantor Indebtedness or the Credit Obligor Financing
Indebtedness, Credit Obligor shall first be entitled to receive all
proceeds and revenues from the Collateral when and as the same become
available, in payment in full of all Credit Obligor Indebtedness prior
to any of such proceeds or revenues being distributed to the Guarantor.
If, before the conditions for defeasance and termination of the Credit
Obligor Financing Documents shall have been satisfied in full, the
Guarantor should receive any payment or amount in violation of this
Agreement, or in the event that any payment or distribution of any
assets of the Borrower of any kind or character (whether in cash,
property or securities), shall be received by the Guarantor in
violation of this Agreement, such payment, amount or distribution shall
be held in trust for the benefit of, and shall be paid over upon demand
to, Credit Obligor or its representative for application to the payment
of the Credit Obligor Indebtedness until the Credit Obligor Financing
Documents shall have been defeased and terminated as provided therein.
(e) Upon any payment or distribution of any of the assets of
the Borrower of any kind or character upon any dissolution, winding up,
total or partial liquidation, or reorganization of the Borrower,
whether in voluntary or involuntary bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of assets and
liabilities of the Borrower or otherwise, or upon the acceleration or
maturity of the Credit Obligor Indebtedness and/or the Guarantor
Indebtedness: (a) Credit Obligor shall first be entitled to receive all
such assets in payment in full of the Credit Obligor Indebtedness
before the Guarantor is entitled to receive any amount of such assets;
and (b) any payment or distribution of any of the assets of the
Borrower of any kind or character (whether in cash, property or
securities) to which the Guarantor would be entitled except for the
provisions of this Agreement shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
receiver, liquidating trustee, other custodian, agent or other person,
directly to Credit Obligor or its representative, to the extent
necessary to pay in full all indebtedness owed thereto, before any
payment or distribution of such assets is made to the Guarantor.
(f) No right of Credit Obligor to enforce the subordination
provided herein shall at any time or in any way be prejudiced or
impaired by (a) any act or failure to act on the part of Credit
Obligor, or (b) any noncompliance by Credit Obligor with the terms of
any documents or instruments executed in connection with the Credit
Obligor Financing Documents (regardless of any knowledge thereof that
Credit Obligor may have or be charged with), or (c) any action Credit
Obligor may take or refrain from taking with respect to the Credit
Obligor Indebtedness or any security therefor, including without
limitation any modification of the terms of the Credit Obligor
Financing Documents or the granting or effecting of any release or
settlement with respect to the Credit Obligor Indebtedness or any
security therefor. Any waiver by Credit Obligor of any breach hereof by
the Guarantor or any indulgence by Credit Obligor to the Guarantor
shall apply only to the separate occasion thereof and shall not affect
the continuing obligation of the Guarantor hereunder.
(g) The Guarantor hereby agrees to execute and deliver to
Credit Obligor at its request such other, further or additional
agreements, requests, demands, notices, powers of attorney or other
writings as, in the sole discretion or opinion of Credit Obligor, may
be necessary or convenient in order to carry out the intent and purpose
hereof, or to effectuate this Agreement.
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction
The Guarantor irrevocably (a) agrees that any suit, action or other
legal proceeding arising out of this Agreement may be brought in the courts of
record of the State of Alabama or the courts of the United States located in the
State of Alabama; (b) consents to the jurisdiction of each such court in any
such suit, action or proceeding, and (c) waives any objection which the
Guarantor may have to trial by jury or to the laying of venue of any such suit,
action or proceeding in any of such courts.
SECTION 8.02 Benefit of the Agreement
This Agreement is entered into by the Guarantor for the benefit of the
Credit Obligor. The Guarantor agrees to pay all reasonable and necessary costs,
expenses and fees, including all reasonable attorneys' fees, which may be
incurred by the Credit Obligor in enforcing or attempting to enforce this
Agreement pursuant to the provisions hereof, whether the same shall be enforced
by suit or otherwise.
SECTION 8.03 Notices
(a) Any request, demand, authorization, direction, notice, consent, or
other document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with, the Guarantor or the Credit Obligor shall be
sufficient for every purpose hereunder if in writing and (except as otherwise
provided in this Agreement) either (i) delivered personally to the party or, if
such party is not an individual, to an officer, or other legal representative of
the party to whom the same is directed (provided that any document delivered
personally to the Credit Obligor must be delivered at its Principal Office
during normal business hours) at the addresses specified below, or (ii) mailed
by first-class, registered or certified mail, postage prepaid to the addresses
specified below; provided either party may change the address for receiving any
such notice or document by giving notice of the change to the other party as
provided in this Section:
Cavalier Homes, Inc.
Highway 41 North Cavalier Road
Addison, Alabama 35540
First Commercial Bank
2000 SouthBridge Parkway
Birmingham, Alabama 35209
Attn: Commercial Lending
(b) Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not an
individual, to an officer, or other legal representative of the party) at the
address specified pursuant to this Section, or, if sent by mail, 3 days after
such notice or document is deposited in the United States mail, proper postage
prepaid, addressed as provided above.
SECTION 8.04 Reproduction of Documents
The Guarantor hereby agrees that any Financing Document and all
documents relating thereto, including, without limitation, (a) supplements,
consents, waivers and modifications which may hereafter be executed, (b)
documents received by the Credit Obligor at any closing of any purchase of the
Bonds and (c) financial statements, certificates and other information
previously or hereafter furnished to the Credit Obligor, may be reproduced by
the Credit Obligor by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and they may destroy any
original document so reproduced. To the extent permitted by law, the Guarantor
agrees and stipulates that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by them in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 8.05 Survival
All warranties, representations and covenants made by the Guarantor
herein or on any certificate or other instrument delivered by or on behalf of
the Guarantor under this Agreement shall be considered to have been relied upon
by the Credit Obligor regardless of any investigation made by it or on its
behalf. All statements in any such certificate or other instrument shall
constitute warranties and representations by the Guarantor hereunder.
SECTION 8.06 Successors and Assigns
The terms of this Agreement shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors and assigns of
each of the parties.
SECTION 8.07 Effective Date of Agreement
of Agreement
The obligations of the Guarantor hereunder shall arise absolutely and
unconditionally when the Credit Agreement shall have been executed and
delivered.
SECTION 8.08 Entire Agreement; Counterparts
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and may be executed simultaneously in
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
SECTION 8.09 Severability
The invalidity or unenforceability of any one or more phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
validity or enforceability of the remaining portions of this Agreement, or any
part thereof.
SECTION 8.10 Date For Identification Purposes Only
The date of this Agreement is for identification purposes only and is
not intended to indicate that this Agreement was executed on such date.
SECTION 8.11 Exceptions to Covenants
The Guarantor shall not be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
executed under seal in its name and on its behalf by officers thereof duly
authorized thereunto, and the Credit Obligor has executed this Agreement by
causing its name to be hereunto subscribed by one of its duly authorized
officers, all as of the day and year first above written.
CAVALIER HOMES, INC.
By:
-----------------------
Its
-----------------------
S E A L
Attest:
------------------------
Its:
------------------------
Accepted:
FIRST COMMERCIAL BANK
By:
---------------------
Its
---------------------
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
(Hillsboro Manufacturing, L.P.)
(Revolving Credit Facility)
Dated July 15, 1997
by
CAVALIER HOMES, INC.
in favor of
FIRST COMMERCIAL BANK
<PAGE>
TABLE OF CONTENTS
Page
Parties..................................................................... 1
Recitals.................................................................... 1
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions.......................................... 2
SECTION 1.02 Accounting Principles................................ 4
SECTION 1.03 Action Taken Directly or Indirectly.................. 4
SECTION 1.04 Governing Law........................................ 4
SECTION 1.05 General Provisions of Construction................... 4
SECTION 1.06 Effect of Headings and Table of Contents............. 4
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations.............................. 5
SECTION 2.02 Character of Obligations Hereunder................... 6
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers.............................................. 9
SECTION 3.02 Termination.......................................... 10
SECTION 3.03 No Right of Subrogation. ............................ 10
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants................................. 10
SECTION 4.02 Information as to Guarantor........................... 11
ARTICLE V
Representations, Warranties and Agreements
SECTION 5.01 Financial Condition................................... 12
SECTION 5.02 Full Disclosure....................................... 12
SECTION 5.03 Pending Litigation; No Defaults....................... 12
SECTION 5.04 Title to Properties................................... 13
SECTION 5.05 No Defaults........................................... 13
SECTION 5.06 Governmental Consent.................................. 13
SECTION 5.07 Compliance with Law................................... 13
SECTION 5.08 Restrictions on Guarantor............................. 13
SECTION 5.09 Indemnification....................................... 14
SECTION 5.10 Survival of Representations, Warranties
and Covenants......................................... 14
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default..................................... 15
SECTION 6.02 Remedies.............................................. 16
SECTION 6.03 Rights and Remedies of Credit Obligor
in the Event of Bankruptcy, Etc. of Guarantor......... 17
SECTION 6.04 Agreement to Pay Attorneys' Fees...................... 17
SECTION 6.05 Waiver of Past Defaults............................... 17
SECTION 6.06 No Additional Waiver Implied by One Waiver............ 17
SECTION 6.07 Remedies Subject to Applicable Law.................... 17
ARTICLE VII
Subordination Agreement.................... 18
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction.......................................... 20
SECTION 8.02 Benefit of the Agreement.............................. 20
SECTION 8.03 Notices............................................... 20
SECTION 8.04 Reproduction of Documents............................. 21
SECTION 8.05 Survival.............................................. 21
SECTION 8.06 Successors and Assigns................................ 21
SECTION 8.07 Effective Date of Agreement........................... 21
SECTION 8.08 Entire Agreement; Counterparts........................ 21
SECTION 8.09 Severability.......................................... 22
SECTION 8.10 Date For Identification Purposes Only................. 22
SECTION 8.11 Exceptions to Covenants............................... 22
Testimonium.................................................................. 23
Signatures................................................................... 23
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
THIS AGREEMENT is executed July 15, 1997, by CAVALIER HOMES, INC., a
Delaware corporation (the "Guarantor"), and FIRST COMMERCIAL BANK, a state
banking corporation (the "Credit Obligor"), as lender and secured party.
Recitals
The Guarantor has an interest in Hillsboro Manfacturing, L.P., a Texas
limited partnership (the "Borrower").
The Borrower intends to acquire, construct and install certain
manufacturing facilities in the City of Hillsboro, Texas (the "Project").
The Borrower has applied to the Credit Obligor for extension of
revolving credit facilities of $1,000,000 to provide operating capital for the
Project.
The Credit Obligor has agreed to make such revolving credit facilities
available to the Borrower, for such purposes, upon satisfaction of the
conditions precedent thereto set forth herein and that, among other things:
(a) the Borrower and the Credit Obligor enter into that
certain Credit and Security Agreement (the "Credit Agreement")
providing for the extension of such revolving credit facilities and
certain security therefor;
(b) the Borrower delivers to the Credit Obligor the Revolving
Promissory Note provided by the Credit Agreement;
(c) the following Persons (as defined herein) having an
interest in the Borrower deliver to the Credit Obligor the various
Credit Guaranty Agreements dated July 15, 1997 with respect to the
obligations of the Borrower under the Credit Agreement:
(i) Cavalier Homes, Inc.
(ii) Patriot Homes, Inc.
(iii) Schult Operating Company, and Schult Homes
Corporation
(iv) Southern Energy Homes, Inc.
The assumption of the obligations of the Guarantor hereunder will
result in direct financial benefits to the Guarantor.
<PAGE>
Agreement
NOW THEREFORE, in consideration of the foregoing Recitals and to induce
the Credit Obligor to enter into the Credit Agreement and to make available the
said revolving credit facilities, the Guarantor hereby covenants and agrees as
follows:
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Collateral" shall mean all properties and interests in properties of
the Borrower which secure the Credit Obligor Indebtedness or are variously
defined, referenced or described as "Collateral" in any of the Credit Obligor
Financing Documents.
"Credit Agreement" shall have the meaning assigned in the recitals
hereto.
"Credit Guaranty" shall mean collectively the Limited Credit Guaranty
Agreements dated as of July 15, 1997 from the Guarantors to the Credit Obligor.
"Credit Obligor Financing Documents" shall mean collectively the Credit
Agreement, the Revolving Note, and the Credit Guaranty, and any and all
amendments or supplements to any thereof.
"Credit Obligor Indebtedness" shall mean all indebtedness and other
amounts at any time to be paid to Credit Obligor by the Borrower or any Obligor
(as defined in the Credit Agreement) or any affiliate of any thereof under the
Credit Obligor Financing Documents.
"Default" shall mean an event or condition the occurrence of which
would, with or without the lapse of time or the giving of notice or both, be an
Event of Default.
"Event of Default" shall mean an event as defined in Article VI.
"Financing Participants" shall mean the parties to the Credit Obligor
Financing Documents.
"Guarantor" means Cavalier Homes, Inc., and the respective successors
and assigns thereof.
"Guarantor Indebtedness" shall mean all indebtedness and other amounts
at any time to be paid by the Borrower or any Obligor (as defined in the Credit
Agreement) or any affiliate of any thereof to the Guarantor.
"Guarantors" means collectively the following Persons and the
respective heirs, executors, administrators and assigns thereof:
(i) Cavalier Homes, Inc.,
(ii) Patriot Homes, Inc.,
(iii) Schult Operating Company, and Schult Homes Corporation
(iv) Southern Energy Homes, Inc.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease assignment or bailment for
security purposes. For the purposes of this Agreement, the Guarantor shall be
deemed to be the owner of any Property which it has acquired or holds or hold
subject to a conditional sale agreement, financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other person for security purposes.
"Material Adverse Effect" shall mean any act or circumstance or event
which (i) causes an Event of Default or Default, (ii) otherwise might be
material and adverse to the financial condition or business operations of the
Guarantor or (iii) would adversely affect the validity or enforceability of any
of the Credit Obligor Financing Documents or any of the papers executed in
connection therewith.
"Maximum Guaranteed Percentage" shall mean thirty percent (30%).
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, an association, a trust, an unincorporated organization
and a government or any department, agency or political subdivision thereof.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Revolving Note" shall mean the Master Promissory Note (Revolving)
executed and delivered by the Borrower to the Credit Obligor pursuant to Section
2.02 of the Credit Agreement.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
district, territorial, or other court or governmental department, board, bureau,
agency or instrumentality having jurisdiction over Guarantor.
SECTION 1.02 Accounting Principles
The Guarantor shall maintain books and records in accordance with
generally accepted accounting principles ("GAAP" as defined in the Credit
Agreement) consistently applied.
SECTION 1.03 Action Taken Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
SECTION 1.04 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
SECTION 1.05 General Provisions of Construction
(1) Capitalized terms used herein without definition shall have the
meaning assigned to them in the Indenture or the Credit Agreement.
(2) Singular terms shall include the plural as well as the singular,
and vice versa.
(3) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
subdivisions of this instrument as originally executed.
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
SECTION 1.06 Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations
(a) Subject to and limited by the provisions of subsection 2.01(d)
hereof, the Guarantor hereby absolutely and unconditionally guarantees the
punctual payment when due (whether at stated maturity, by acceleration or call
for redemption or otherwise), in lawful money of the United States of America,
of all of the following (collectively the "Obligations"):
(1) all commissions, fees, charges and costs becoming due and
payable under the Credit Agreement in accordance with the terms
thereof;
(2) all amounts becoming due and payable under the Revolving
Note (including without limitation principal, interest, late charges,
and interest on overdue amounts);
(3) all amounts becoming due and payable under the Credit
Agreement and all future advances and amounts becoming due and payable
under the Revolving Note;
(4) all late charges and all interest on late payments
becoming due and payable under the Credit Agreement and the Revolving
Note;
(5) all amounts becoming due and payable under the Credit
Agreement and the Revolving Note upon the occurrence and continuance of
an event of default under the Credit Agreement;
(6) all other amounts becoming due and payable by the
Borrower under the Credit Agreement and the Revolving Note;
(7) all other indebtedness, obligations (including obligations
of performance) and liabilities of the Borrower to the Credit Obligor
of every kind and description whatsoever, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter
incurred, contracted or arising, or acquired by the Credit Obligor from
any source, joint or several, liquidated or unliquidated, regardless of
how they arise or by what agreement or instrument they may be evidenced
or whether they are evidenced by any agreement or instrument, and
whether incurred as maker, endorser, surety, guarantor or otherwise,
and any and all extensions, restatements, and renewals of any of the
same; and
(8) all renewals and extensions of any or all the obligations
of the Borrower described in paragraphs (1) through (7) above
(including without limitation any renewal or extension of, and any
substitute for, the Revolving Note), whether or not any renewal or
extension agreement is executed in connection therewith.
(b) The guaranty set forth in this Section is an absolute and
irrevocable guaranty of payment and not of collectibility or performance and is
in no way conditioned or contingent upon any attempt to collect from the
Borrower or any other Person, or to realize upon any Property subject to the
Lien of the Credit Documents, or upon any other direct or indirect security for
the Bonds or the Obligations, or resort to any other remedies.
(c) Each default in payment of any amount of the Obligations shall give
rise to a separate cause of action hereunder and separate suits may be brought
hereunder as each cause of action arises.
(d) By acceptance hereof, the Credit Obligor covenants and agrees that,
anything herein or in the Credit Obligor Financing Documents to the contrary
notwithstanding, the obligations of, and recourse against, the Guarantor for
payment of any amounts pursuant to this Agreement shall be limited to and shall
not exceed the Maximum Guaranteed Percentage of such amounts, as determined on
the basis of the aggregate amounts described in Section 2.01(a) or otherwise due
hereunder which are outstanding at the time demand for payment thereof is made
in accordance herewith, without regard to or taking into account any demand
upon, or payment or contribution by, any other Financing Participant with
respect to such amounts.
SECTION 2.02 Character of Obligations Hereunder
(a) All obligations of the Guarantor under this Agreement are
unconditional, primary, absolute and irrevocable under any and all
circumstances. Without limiting the generality of the foregoing, to the fullest
extent permitted under applicable law, the obligations of the Guarantor
hereunder shall not be subject to or impaired by:
(i) any inability or ailure on the part of any party thereto
to perform or comply with the Credit Obligor Financing Documents;
(ii) any invalidity or irregularity in any statutory or other
proceedings relating to the formation or existence of any of the
Financing Participants, or to the execution and delivery of any
Financing Document;
(iii) any invalidity or unenforceability of, or any
impairment, modification or release of liability of any party under, or
any impossibility, impracticability, illegality or frustration of
performance by any party of, any of the Credit Obligor Financing
Documents, for any reason whatsoever, including, without limitation,
any decision by any court invalidating or otherwise affecting the
obligations of any party under or in connection with any of the Credit
Obligor Financing Documents;
(iv) any inability or failure on the part of any of the
Financing Participants to perform or comply with any of the Credit
Obligor Financing Documents;
(v) any invalidity or unenforceability of, or any impairment,
modification or release of liability of the Guarantor under, or any
impossibility, impracticability, illegality or frustration of
performance by the Guarantor of this Agreement;
(vi) the voluntary or involuntary liquidation, dissolution,
merger, consolidation, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, moratorium, arrangement, composition with
creditors or readjustment of debt of, or other similar proceedings
affecting, any of the Financing Participants;
(vii) any waiver, consent, extension, indulgence or other
action or inaction in respect of any Financing Document, including any
modification, amendment or supplement to any of the foregoing, the
renewal or extension of the Bonds, the release of any Property subject
to the Lien of the Credit Agreement or any other similar act;
(viii) any right of setoff, counterclaim or defense, or any
act, omission or breach on the part of the Borrower, the Credit Obligor
or the Guarantor or any of the other Financing Participants;
(ix) any claim whatsoever against the Borrower or any of the
other Financing Participants;
(x) any defect in the title, compliance with specifications,
value, condition, design, operation, merchantability, quality,
durability or suitability of, consequences of use or misuse of, or
unfitness for use of, the Project or any part thereof, any abandonment,
destruction, noncompletion, requisition, condemnation, foreclosure of
or damage to the Project or any part thereof, or any event of force
majeure relating to the Project or any part thereof;
(xi) any breach of any representation or warranty relating to
the Project;
(xii) any release, extinguishment or satisfaction of the
Borrower's obligations to make payments of Obligations until there have
been paid to the Credit Obligor in lawful currency of the United States
an amount sufficient to pay all Obligations (including interest on
overdue amounts of Obligations including, to the extent permitted by
applicable law, interest) that would have been due and owing to the
Credit Obligor by the Borrower had the Borrower's obligations not been
so released, extinguished or satisfied;
(xiii) the failure to give notice to the Guarantor of the
occurrence of any default or event of default under the Credit Obligor
Financing Documents;
(xiv) the compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of any of the
parties to any of the Credit Obligor Financing Documents under the
Credit Obligor Financing Documents;
(xv) any assignment, pledge or mortgage of all or any part
of the interest of any of the Financing Participants in the Project or
the Collateral;
(xvi) any waiver of the payment, performance or observance by
any of the Financing Participants of any obligation, agreement or
covenant of any of them contained in the Credit Obligor Financing
Documents;
(xvii) the extension of the time for payment of any amount of
the Obligations or any part thereof or of the time for performance of
any other obligations, agreements or covenants of any of the Financing
Participants under the Credit Obligor Financing Documents;
(xviii) the modification or amendment (whether material or
otherwise) of any obligation, agreement or covenant contained in the
Credit Obligor Financing Documents;
(xix) any failure, omission, or delay on the part of any of
the Financing Participants to enforce, assert or exercise any right,
power or remedy conferred upon any of them by the Credit Obligor
Financing Documents;
(xx) the bankruptcy, insolvency, reorganization, appointment
of a receiver for, or dissolution of any of the Financing Participants,
or the entering by any or all of them into an agreement of composition
with creditors, or the making by any or all of them of an assignment
for the benefit of creditors;
(xxi) any rights of set-off, recoupment, counterclaim or other
defense, whether similar or dissimilar to the foregoing, which the
Guarantor might otherwise have against any of the Financing
Participants or any other person;
(xxii) the default or failure of any one or more of the
Financing Participants to perform fully any obligation, covenant or
agreement contained in the Credit Obligor Financing Documents;
(xxiii) the release or discharge of any one or more of the
Financing Participants by operation of law, to the extent that such
release or discharge may be lawfully avoided, from the performance or
observance of any agreement or covenant contained in the Credit Obligor
Financing Documents;
(xxiv) the invalidity or unenforceability of the Credit
Obligor Financing Documents or of any provision of such instruments; or
(xxv) any other matter that might otherwise be raised in
avoidance of, or in defense against, an action to enforce the
obligations of the Guarantor under this Agreement.
(b) The Guarantor acknowledges that this Agreement is executed for the
benefit of the Credit Obligor and that the Credit Agreement and the Letter of
Credit will be executed and delivered in reliance on this Agreement. No act of
commission or omission of any kind at any time on the part of the Credit Obligor
in respect of any matter whatsoever shall in any way affect or impair any right,
power or benefit of the Credit Obligor under this Agreement and, to the extent
permitted by applicable law, no setoff, claim, reduction, diminution of any
obligation, or any defense of any kind or nature which the Guarantor may have
against the Credit Obligor shall be available against the Credit Obligor in any
suit or action brought by the Credit Obligor to enforce any right, power or
benefit under this Agreement.
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers
(a) The Guarantor hereby waives all of the following and all defenses,
counterclaims, or offsets which the Guarantor may have by reason thereof: (1)
notice of acceptance hereof, notice of any action taken or omitted in reliance
hereon, notice of any defaults by the Borrower in the payment of any such sums,
and notice of the creation, renewal, or accrual of any liability of the
Borrower, (2) any presentment, demand, notice or protest of any kind, (3) any
right (i) to have joined any of the other Financing Participants with the
Guarantor in any suit brought against the Guarantor on this Agreement, (ii) to
require the Credit Obligor to forthwith bring suit against any of the other
Financing Participants, and (iii) to require that the Credit Obligor obtain any
judgment against any of the other Financing Participants in connection with the
enforcement of any rights against the Guarantor hereunder, and (4) any other act
or thing (including without limitation alteration of the Bonds or the Credit
Obligor Financing Documents or debt evidenced thereby or security therefor), or
omission or delay to do any other act or thing which may, by operation of law or
otherwise, in any manner or to any extent vary the risk of the Guarantor or
which might otherwise operate as a discharge of the Guarantor.
(b) The Guarantor hereby waives, as to the enforcement of this
Agreement, (1) all rights of exemption that the Guarantor may have under the
constitution and laws of any state as to any levy on and sale of property and
(2) presentation and demand for payment (or protest of nonpayment) of
Obligations or any part thereof.
SECTION 3.02 Termination
(a) The guaranties set forth in this Agreement shall remain in full
force and effect without reference to future changes in conditions, including,
to the extent permitted by applicable law, changes in law, until the Credit
Obligor shall have been indefeasibly paid in full any and all sums due under the
terms and provisions of the Obligations and the Credit Obligor Financing
Documents, and until such sums are not subject to rescission or repayment upon
any bankruptcy, insolvency, arrangement, reorganization, moratorium,
receivership or similar proceeding affecting the Issuer, the Borrower, the
Guarantor, or any of the other Financing Participants.
(b) In the event any payment on the Obligations (whether such payment
is remitted by the Issuer, the Borrower, any Guarantor or any other person, from
realization on collateral, through setoff or otherwise) must be refunded, paid
over or otherwise released by the Credit Obligor as a result of such payment
being (1) a preference or fraudulent transfer under the Bankruptcy Code of 1978,
as amended, or other state or federal law or (2) disallowed as a permanent and
irrevocable payment on the Obligations for any other reason, then in each such
event this Agreement shall thereupon, ipso facto, be reinstated and revived to
the full extent of such refunded, paid over or released payment.
SECTION 3.03 No Right of Subrogation.
The Guarantor will not exercise any rights of subrogation which the
Guarantor may have unless and until this Agreement shall have been terminated as
provided in Section 3.02. If any payment is made to the Guarantor with respect
to any payments due by the Guarantor under this Agreement at any time prior to
such termination of this Agreement, he will be paid forthwith to the Credit
Obligor to be applied to installments due or coming due under the Obligations in
the order and the manner provided in the Credit Agreement or otherwise
determined by the Credit Obligor.
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants
The Guarantor covenants that so long as this Agreement is in effect,
the Guarantor shall
(a) Payment of Indebtedness, Taxes, etc. (i) Pay all indebtedness and
obligations of the Guarantor promptly and in accordance with normal terms where
failure to pay would have a Material Adverse Effect, and (ii) pay and discharge
or cause to be paid or discharged promptly all taxes, assessments and
governmental charges or levies imposed upon the Guarantor or upon his income and
profits, or upon any of his Property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies or otherwise, which, if unpaid, might become a
lien upon such properties or any part thereof where failure to pay would have a
Material Adverse Effect; provided, however, that the Guarantor shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings.
(b) Accounts, Financial Information. The Guarantor will maintain proper
books of record and account, in which full and correct entries will be made, in
accordance with generally accepted accounting principles, of all business and
affairs of the Guarantor. The Guarantor shall furnish to the Credit Obligor with
reasonable promptness (1) annual financial statements of the Guarantor prepared
and audited by certified public accountants in accordance with generally
accepted accounting principles, and (2) such other information regarding the
operations, business affairs and financial condition of the Guarantor as the
Credit Obligor may reasonably request.
(c) Legal Existence. The Guarantor will maintain and preserve its legal
existence and will not voluntarily dissolve without first discharging its
obligations under this Agreement.
(d) Further Assurances. On request of the Credit Obligor, promptly
correct any defect, error or omission which may be discovered in any of the
Credit Obligor Financing Documents or in the contents of any of the papers
executed in connection therewith or in the execution or acknowledgement thereof,
and execute, acknowledge and deliver such further instruments and do such
further acts as may be necessary or as may be requested by the Credit Obligor to
carry out more effectively the purposes of this Agreement and the Credit Obligor
Financing Documents.
SECTION 4.02 Information as to Guarantor
Financial and Business Information. The Guarantor shall deliver to the
Credit Obligor:
(a) Notice of Default or Event of Default. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a default or an event of default under any Financing
Document, a written notice specifying the nature and period of
existence thereof and what action the Guarantor is taking or proposes
to take with respect thereto;
(b) Notice of Claimed Default. Immediately upon becoming aware
that the holder of any evidence of indebtedness or security of the
Guarantor has given notice or taken any other action with respect to a
claimed default or event of default thereunder which would cause a
default or event of default which would have a Material Adverse Effect,
a written notice specifying the notice given or action taken by such
holder and the nature of the claimed default or event of default and
what action the Guarantor are taking or proposes to take with respect
thereto;
(c) Requested Information. With reasonable promptness, such
data and information as from time to time may be reasonably requested;
(d) Notice of Litigation. Immediately upon becoming aware of
the existence of any proceedings before any Tribunal involving the
Guarantor which involves the probability of any final judgment or
liability against such Guarantor in an amount which would have a
Material Adverse Effect, a written notice specifying the nature thereof
and what action such Guarantor is taking and proposes to take with
respect thereto; and
(e) Notice from Regulatory Agencies. Promptly upon receipt
thereof, information with respect to and copies of any notices received
from federal or state regulatory agencies or any Tribunal relating to
an order, ruling, statute or other law or information which might have
a Material Adverse Effect on the franchises, permits, licenses, or
rights, or the condition, financial or otherwise, of the Guarantor.
ARTICLE V
Representations, Warranties and Agreements
The Guarantor represents, warrants and agrees that:
SECTION 5.01 Financial Condition
Since the date of application to the Credit Obligor for the Revolving
Note, (i) there has been no change in the business, prospects, profits,
Properties or condition (financial or otherwise) of the Guarantor, except
changes in the ordinary course of business, none of which individually or in the
aggregate has a Material Adverse Effect, (ii) the Guarantor has not incurred any
material liability which has a Material Adverse Effect, and (iii) there exists
no default under the provisions of any instrument evidencing any such
liabilities or under any agreement relating thereto which would have a Material
Adverse Effect.
SECTION 5.02 Full Disclosure
No written statement furnished by the Guarantor to the Credit Obligor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact which the Guarantor has not disclosed to the Credit
Obligor in writing which has a Material Adverse Effect or, so far as the
Guarantor can now foresee, will have a Material Adverse Effect.
SECTION 5.03 Pending Litigation; No Defaults
There are no proceedings pending, or, to the knowledge of the
Guarantor, threatened, against or affecting the Guarantor in any court or before
any governmental authority or arbitration board or Tribunal which involve the
possibility of a Material Adverse Effect or the ability of the Guarantor to
perform this Agreement. The Guarantor is not in default with respect to any
order of any court, governmental authority, arbitration board or Tribunal which
would have a Material Adverse Effect.
SECTION 5.04 Title to Properties
The Guarantor has good and marketable title to the Properties thereof.
SECTION 5.05 No Defaults
No event has occurred and no conditions exist which would, in any
material respect, upon the issuance of the Letter of Credit, constitute (i) a
default under any note or other evidence of indebtedness or under any agreement
of the Guarantor if the effect of such default would have a Material Adverse
Effect or (ii) a default or event of default under the Credit Obligor Financing
Documents or any of them, and the Guarantor is not in violation in any material
respect of any term of any agreement or other instrument to which the Guarantor
is a party or by which the Guarantor may be bound that would have a Material
Adverse Effect.
SECTION 5.06 Governmental Consent
No consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Guarantor is
required in connection with the execution and delivery of the Credit Obligor
Financing Documents to which the Guarantor is a party.
SECTION 5.07 Compliance with Law
The Guarantor:
(a) is not in violation of any laws, ordinances, governmental
rules or regulations to which Guarantor is subject, or
(b) has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of the
Property, or to the conduct of the business, of Guarantor,
which violation or failure to obtain would have a Material Adverse Effect.
SECTION 5.08 Restrictions on Guarantor
The Guarantor is not a party to any contract or agreement which
requires consent of any creditor of the Guarantor other than the Credit Obligor
or other party thereto to the right or ability of the Guarantor to incur debt or
guarantee indebtedness hereunder.
SECTION 5.09 Indemnification
(a) The Guarantor will indemnify and hold harmless the Credit Obligor
and each Person, if any, who controls the Credit Obligor within the meaning of
Section 15 of the Securities Act of 1933, as amended, (the Credit Obligor and
any such person being in this Section collectively called a "Holder") against
any and all losses, claims, damages or liabilities, joint and several, or
actions in respect thereof, to which any Holder may become subject under any
statute or common law or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
this Agreement, including the financial statements referred to herein, or any
omission or alleged omission to state herein a material fact necessary in order
to make the statements herein not misleading; and will reimburse any Holder for
all legal or other expenses reasonably incurred by such Holder in connection
with defending any such action or claim.
(b) If any such action or claim shall be brought or asserted against
any Holder and in respect of which indemnity may be sought from the Guarantor,
such Holder shall promptly notify the Guarantor in writing and the Guarantor
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Any Holder shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Holder unless (a)
the employment thereof at the expense of Guarantor has been specifically
authorized by the Guarantor in writing, (b) the Guarantor have failed to assume
the defense and to employ counsel, or (c) the named parties to any such action
(including any impleaded parties) include both such Holder and the Guarantor,
and such Holder shall have been advised by such counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Guarantor (in which case, if such Holder notifies the
Guarantor in writing that it elects to employ separate counsel at the Guarantor'
expense, the Guarantor shall not have the right to assume the defense of such
action on behalf of such Holder, it being understood, however, that the
Guarantor shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for all such Holders,
which firm shall be designated in writing by such Holders). Each Holder, as a
condition of such indemnity, shall use its best efforts to cooperate with the
Guarantor in the defense of any such action or claim. The Guarantor shall not be
liable for any settlement of any such action effected without their written
consent, but if settled with the written consent of the Guarantor, or if there
be a final judgment for the plaintiff in any such action, the Guarantor agrees
to indemnify and hold harmless any such Holder from and against any loss or
liability by reason of such settlement or judgment.
SECTION 5.10 Survival of Representations, Warranties and Covenants
The representations, warranties and covenants of the Guarantor
contained in this Agreement, and any other document, instrument and agreement
referred to or contemplated by this Agreement, shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Borrower, any Holder or any other Person, or (ii) delivery of, and
payment for, the Obligations.
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default
An "Event of Default" shall exist under this Agreement if any of the
following occurs and is continuing (whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) Particular Covenant Defaults. The Guarantor fails to
perform or observe any covenant or agreement contained in Section 2.01
for a period of five Business Days after notification by the Credit
Obligor of such failure;
(b) Other Defaults. The Guarantor fails to comply with any
other provision of this Agreement, and such failure continues for a
period of thirty days after written notification by the Credit Obligor
of such failure;
(c) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of the Guarantor
contained in this Agreement, or in any instrument furnished in
compliance with or in reference to this Agreement, is false or
misleading in any material respect and action which eliminates such
falsity or misleading character is not completed for a period of thirty
days after written notification by the Credit Obligor of such false or
misleading statement;
(d) Default on Other Indebtedness. Default by the Guarantor in
any payment of any obligation for money received as an advance (or any
obligation under any conditional sale or other title retention
agreement or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money lien or
any obligation under notes payable or drafts accepted representing
extensions of credit) beyond any grace period provided with respect
thereto, or default in the performance of any other agreement, term or
condition contained in any agreement under which such obligation is
created (or any other default under any such agreement which shall
occur and be continuing beyond any period of grace provided with
respect thereto), if the effect of such default would have a Material
Adverse Effect, and such default shall remain uncured for a period of
ten days after the Guarantor has notice thereof;
(e) Involuntary Bankruptcy Proceedings. A receiver, liquidator
or trustee of the Guarantor, or of any of his Property, is appointed by
court order and such order remains in effect for more than sixty days,
or an order or decree for relief in an involuntary bankruptcy case is
entered with respect to the Guarantor, or any of his Property is
sequestered by court order and such order remains in effect for more
than sixty days, or a petition is filed against the Guarantor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, and is not dismissed within sixty days after
such filing;
(f) Voluntary Petitions. The Guarantor files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against him under any such law;
(g) General Assignment for Benefit of Creditors, etc. The
Guarantor makes a general assignment for the benefit of his creditors,
or is unable to pay his debts generally as they become due, or consents
to the appointment of a receiver, trustee or liquidator of the
Guarantor, or of all or any part of his Property;
(h) Undischarged Final Judgments or Settlements. One or more
final judgments shall be entered against the Guarantor, or the
Guarantor shall enter into settlement of any litigation, which
judgments and settlements are not covered by insurance, and which
judgments and settlements will have a Material Adverse Effect on the
Guarantor; or
(i) Other Defaults. The occurrence of an event of default
under any of the other Credit Obligor Financing Documents and the
expiration of the applicable grace period, if any, specified therein.
SECTION 6.02 Remedies
If an Event of Default exists, the Credit Obligor may proceed to
protect its rights by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any covenant or agreement
of the Guarantor herein contained or in aid of the exercise of any power or
remedy granted to the Credit Obligor under any of the other Credit Obligor
Financing Documents. The Credit Obligor may proceed directly against the
Guarantor hereunder without resorting to any other remedies which it may have
and without proceeding against any other security held by the Credit Obligor.
SECTION 6.03 Rights and Remedies of Credit Obligor in the Event of
Bankruptcy, Etc. of Guarantor
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
proceeding, or any general assignment for the benefit of creditors, relative to
the Guarantor, the Credit Obligor (irrespective of whether there has been a
default under this Agreement or any of the other Credit Obligor Financing
Documents) shall be entitled and empowered to intervene in such proceedings, to
file and prove a claim or claims for the whole amount owing and unpaid and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Credit Obligor (including any claim for reasonable
compensation to the Credit Obligor, its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities reasonably incurred, and all
advances made, by the Credit Obligor except as a result of its negligence or bad
faith) allowed in such judicial proceedings, to collect and receive any moneys
or other property payable or deliverable on any such claims, and to take such
other action therein as the Credit Obligor may deem necessary or appropriate to
protect its interests.
SECTION 6.04 Agreement to Pay Attorneys' Fees
In the event the Guarantor should default under any of the provisions
of this Agreement and the Credit Obligor should employ attorneys or incur other
expenses for the collection of any payments due hereunder or the enforcement of
performance or observance of any agreement or covenant on the part of the
Guarantor herein contained, the Guarantor will on demand therefor pay to the
Credit Obligor the reasonable fees of such attorneys and such other reasonable
expenses so incurred.
SECTION 6.05 Waiver of Past Defaults
The Credit Obligor may waive any past default hereunder and its
consequences. Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Agreement but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 6.06 No Additional Waiver Implied by One Waiver
If any agreement contained in this Agreement should be breached by the
Guarantor and thereafter waived by the Credit Obligor, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
SECTION 6.07 Remedies Subject to Applicable Law
All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Agreement invalid or unenforceable.
ARTICLE VII
Subordination Agreement
The Guarantor does hereby covenant and agree:
(a) That payment of the Guarantor Indebtedness when due and
payable in each month shall be and hereby is fully subordinated in
priority to the prior payment to Credit Obligor of the Credit Obligor
Indebtedness when due and payable in each month, provided, however,
that so long as no event of default exists under the Credit Obligor
Financing Documents the Guarantor may receive payment of the Guarantor
Indebtedness when due and payable (but not in advance of originally
scheduled due dates).
(b) That anything in any other contract, agreement or
instrument to the contrary notwithstanding, (a) all right, title and
interest of the Guarantor in and to the Collateral shall be and hereby
are fully subordinated in priority to the right, title and interest of
Credit Obligor in and to the Collateral as provided in the Credit
Obligor Financing Documents without regard to the respective dates on
which any of such interests were created and (b) that the claim of
Credit Obligor upon all the Collateral shall be and hereby is prior and
superior for all purposes to that of the Guarantor therein.
(c) Upon the occurrence of a default under any agreement or
document evidencing, providing for, or securing the Guarantor
Indebtedness or if the Guarantor Indebtedness shall become or be
declared immediately due and payable, then an event of default shall be
deemed to have simultaneously occurred under the Credit Obligor
Indebtedness and the Credit Obligor Financing Documents and the same
shall also become immediately due and payable, notwithstanding any
inconsistent terms in any document or instrument relating to any of the
foregoing. The Guarantor shall not, without the prior written consent
of Credit Obligor, accelerate the maturity of, or institute any
proceedings to enforce, any of the Guarantor Indebtedness.
(d) Upon the occurrence and continuation of an event of
default under any agreement or document evidencing, providing for, or
securing the Guarantor Indebtedness or the Credit Obligor Financing
Indebtedness, Credit Obligor shall first be entitled to receive all
proceeds and revenues from the Collateral when and as the same become
available, in payment in full of all Credit Obligor Indebtedness prior
to any of such proceeds or revenues being distributed to the Guarantor.
If, before the conditions for defeasance and termination of the Credit
Obligor Financing Documents shall have been satisfied in full, the
Guarantor should receive any payment or amount in violation of this
Agreement, or in the event that any payment or distribution of any
assets of the Borrower of any kind or character (whether in cash,
property or securities), shall be received by the Guarantor in
violation of this Agreement, such payment, amount or distribution shall
be held in trust for the benefit of, and shall be paid over upon demand
to, Credit Obligor or its representative for application to the payment
of the Credit Obligor Indebtedness until the Credit Obligor Financing
Documents shall have been defeased and terminated as provided therein.
(e) Upon any payment or distribution of any of the assets of
the Borrower of any kind or character upon any dissolution, winding up,
total or partial liquidation, or reorganization of the Borrower,
whether in voluntary or involuntary bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of assets and
liabilities of the Borrower or otherwise, or upon the acceleration or
maturity of the Credit Obligor Indebtedness and/or the Guarantor
Indebtedness: (a) Credit Obligor shall first be entitled to receive all
such assets in payment in full of the Credit Obligor Indebtedness
before the Guarantor is entitled to receive any amount of such assets;
and (b) any payment or distribution of any of the assets of the
Borrower of any kind or character (whether in cash, property or
securities) to which the Guarantor would be entitled except for the
provisions of this Agreement shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
receiver, liquidating trustee, other custodian, agent or other person,
directly to Credit Obligor or its representative, to the extent
necessary to pay in full all indebtedness owed thereto, before any
payment or distribution of such assets is made to the Guarantor.
(f) No right of Credit Obligor to enforce the subordination
provided herein shall at any time or in any way be prejudiced or
impaired by (a) any act or failure to act on the part of Credit
Obligor, or (b) any noncompliance by Credit Obligor with the terms of
any documents or instruments executed in connection with the Credit
Obligor Financing Documents (regardless of any knowledge thereof that
Credit Obligor may have or be charged with), or (c) any action Credit
Obligor may take or refrain from taking with respect to the Credit
Obligor Indebtedness or any security therefor, including without
limitation any modification of the terms of the Credit Obligor
Financing Documents or the granting or effecting of any release or
settlement with respect to the Credit Obligor Indebtedness or any
security therefor. Any waiver by Credit Obligor of any breach hereof by
the Guarantor or any indulgence by Credit Obligor to the Guarantor
shall apply only to the separate occasion thereof and shall not affect
the continuing obligation of the Guarantor hereunder.
(g) The Guarantor hereby agrees to execute and deliver to
Credit Obligor at its request such other, further or additional
agreements, requests, demands, notices, powers of attorney or other
writings as, in the sole discretion or opinion of Credit Obligor, may
be necessary or convenient in order to carry out the intent and purpose
hereof, or to effectuate this Agreement.
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction
The Guarantor irrevocably (a) agrees that any suit, action or other
legal proceeding arising out of this Agreement may be brought in the courts of
record of the State of Alabama or the courts of the United States located in the
State of Alabama; (b) consents to the jurisdiction of each such court in any
such suit, action or proceeding, and (c) waives any objection which the
Guarantor may have to trial by jury or to the laying of venue of any such suit,
action or proceeding in any of such courts.
SECTION 8.02 Benefit of the Agreement
This Agreement is entered into by the Guarantor for the benefit of the
Credit Obligor. The Guarantor agrees to pay all reasonable and necessary costs,
expenses and fees, including all reasonable attorneys' fees, which may be
incurred by the Credit Obligor in enforcing or attempting to enforce this
Agreement pursuant to the provisions hereof, whether the same shall be enforced
by suit or otherwise.
SECTION 8.03 Notices
(a) Any request, demand, authorization, direction, notice, consent, or
other document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with, the Guarantor or the Credit Obligor shall be
sufficient for every purpose hereunder if in writing and (except as otherwise
provided in this Agreement) either (i) delivered personally to the party or, if
such party is not an individual, to an officer, or other legal representative of
the party to whom the same is directed (provided that any document delivered
personally to the Credit Obligor must be delivered at its Principal Office
during normal business hours) at the addresses specified below, or (ii) mailed
by first-class, registered or certified mail, postage prepaid to the addresses
specified below; provided either party may change the address for receiving any
such notice or document by giving notice of the change to the other party as
provided in this Section:
c/o Cavalier Homes, Inc.
Highway 41 North Cavalier Road
Addison, Alabama 35540
First Commercial Bank
2000 SouthBridge Parkway
Birmingham, Alabama 35209
Attn: Commercial Lending
(b) Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not an
individual, to an officer, or other legal representative of the party) at the
address specified pursuant to this Section, or, if sent by mail, 3 days after
such notice or document is deposited in the United States mail, proper postage
prepaid, addressed as provided above.
SECTION 8.04 Reproduction of Documents
The Guarantor hereby agrees that any Financing Document and all
documents relating thereto, including, without limitation, (a) supplements,
consents, waivers and modifications which may hereafter be executed, (b)
documents received by the Credit Obligor at any closing of any purchase of the
Bonds and (c) financial statements, certificates and other information
previously or hereafter furnished to the Credit Obligor, may be reproduced by
the Credit Obligor by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and they may destroy any
original document so reproduced. To the extent permitted by law, the Guarantor
agrees and stipulates that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by them in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 8.05 Survival
All warranties, representations and covenants made by the Guarantor
herein or on any certificate or other instrument delivered by or on behalf of
the Guarantor under this Agreement shall be considered to have been relied upon
by the Credit Obligor regardless of any investigation made by it or on its
behalf. All statements in any such certificate or other instrument shall
constitute warranties and representations by the Guarantor hereunder.
SECTION 8.06 Successors and Assigns
The terms of this Agreement shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors and assigns of
each of the parties.
SECTION 8.07 Effective Date of Agreement
The obligations of the Guarantor hereunder shall arise absolutely and
unconditionally when the Credit Agreement shall have been executed and
delivered.
SECTION 8.08 Entire Agreement; Counterparts
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and may be executed simultaneously in
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
SECTION 8.09 Severability
The invalidity or unenforceability of any one or more phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
validity or enforceability of the remaining portions of this Agreement, or any
part thereof.
SECTION 8.10 Date For Identification Purposes Only
The date of this Agreement is for identification purposes only and is
not intended to indicate that this Agreement was executed on such date.
SECTION 8.11 Exceptions to Covenants
The Guarantor shall not be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
executed under seal in its name and on its behalf by officers thereof duly
authorized thereunto and the Credit Obligor has executed this Agreement by
causing its name to be hereunto subscribed by one of its duly authorized
officers, all as of the day and year first above written.
CAVALIER HOMES, INC.
By:
-----------------------------
Its
-----------------------------
S E A L
Attest
--------------------
Secretary
Accepted:
FIRST COMMERCIAL BANK
By:
-----------------------------
Its
-----------------------------
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
(WoodPerfect of Texas, L.P.)
(Revolving Credit Facility)
Dated July 15, 1997
by
CAVALIER HOMES, INC.
in favor of
FIRST COMMERCIAL BANK
<PAGE>
TABLE OF CONTENTS
Page
Parties..................................................................... 1
Recitals.................................................................... 1
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions.......................................... 2
SECTION 1.02 Accounting Principles................................ 4
SECTION 1.03 Action Taken Directly or Indirectly.................. 4
SECTION 1.04 Governing Law........................................ 4
SECTION 1.05 General Provisions of Construction................... 4
SECTION 1.06 Effect of Headings and Table of Contents............. 4
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations.............................. 5
SECTION 2.02 Character of Obligations Hereunder................... 6
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers.............................................. 9
SECTION 3.02 Termination.......................................... 10
SECTION 3.03 No Right of Subrogation. ............................ 10
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants................................ 10
SECTION 4.02 Information as to Guarantor.......................... 11
ARTICLE V
Representations, Warranties and Agreements
SECTION 5.01 Financial Condition................................... 12
SECTION 5.02 Full Disclosure....................................... 12
SECTION 5.03 Pending Litigation; No Defaults....................... 12
SECTION 5.04 Title to Properties................................... 13
SECTION 5.05 No Defaults........................................... 13
SECTION 5.06 Governmental Consent.................................. 13
SECTION 5.07 Compliance with Law................................... 13
SECTION 5.08 Restrictions on Guarantor............................. 13
SECTION 5.09 Indemnification....................................... 14
SECTION 5.10 Survival of Representations, Warranties
and Covenants......................................... 14
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default..................................... 15
SECTION 6.02 Remedies.............................................. 16
SECTION 6.03 Rights and Remedies of Credit Obligor in
the Event of Bankruptcy, Etc. of Guarantor............ 17
SECTION 6.04 Agreement to Pay Attorneys' Fees...................... 17
SECTION 6.05 Waiver of Past Defaults............................... 17
SECTION 6.06 No Additional Waiver Implied by One Waiver............ 17
SECTION 6.07 Remedies Subject to Applicable Law.................... 17
ARTICLE VII
Subordination Agreement.................... 18
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction.......................................... 20
SECTION 8.02 Benefit of the Agreement.............................. 20
SECTION 8.03 Notices............................................... 20
SECTION 8.04 Reproduction of Documents............................. 21
SECTION 8.05 Survival.............................................. 21
SECTION 8.06 Successors and Assigns................................ 21
SECTION 8.07 Effective Date of Agreement........................... 21
SECTION 8.08 Entire Agreement; Counterparts........................ 21
SECTION 8.09 Severability.......................................... 22
SECTION 8.10 Date For Identification Purposes Only................. 22
SECTION 8.11 Exceptions to Covenants............................... 22
Testimonium.................................................................. 23
Signatures................................................................... 23
<PAGE>
LIMITED CREDIT GUARANTY AGREEMENT
THIS AGREEMENT is executed July 15, 1997, by CAVALIER HOMES, INC., a
Delaware corporation (the "Guarantor"), and FIRST COMMERCIAL BANK, a state
banking corporation (the "Credit Obligor"), as lender and secured party.
Recitals
The Guarantor has an interest in WoodPerfect of Texas, L.P., a Texas
limited partnership (the "Borrower").
The Borrower intends to acquire, construct and install certain
manufacturing facilities in the City of Hillsboro, Texas (the "Project").
The Borrower has applied to the Credit Obligor for extension of
revolving credit facilities of $2,000,000 to provide operating capital for the
Project.
The Credit Obligor has agreed to make such revolving credit facilities
available to the Borrower, for such purposes, upon satisfaction of the
conditions precedent thereto set forth herein and that, among other things:
(a) the Borrower and the Credit Obligor enter into that
certain Credit and Security Agreement (the "Credit Agreement")
providing for the extension of such revolving credit facilities and
certain security therefor;
(b) the Borrower delivers to the Credit Obligor the Revolving
Promissory Note provided by the Credit Agreement;
(c) the following Persons (as defined herein) having an
interest in the Borrower deliver to the Credit Obligor the various
Credit Guaranty Agreements dated July 15, 1997 with respect to the
obligations of the Borrower under the Credit Agreement:
(i) Lee Roy Jordan
(ii) Cavalier Homes, Inc.
(iii) Patriot Homes, Inc.
(iv) Schult Operating Company, and Schult Homes
Corporation
(v) Southern Energy Homes, Inc.
The assumption of the obligations of the Guarantor hereunder will
result in direct financial benefits to the Guarantor.
<PAGE>
Agreement
NOW THEREFORE, in consideration of the foregoing Recitals and to induce
the Credit Obligor to enter into the Credit Agreement and to make available the
said revolving credit facilities, the Guarantor hereby covenants and agrees as
follows:
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Collateral" shall mean all properties and interests in properties of
the Borrower which secure the Credit Obligor Indebtedness or are variously
defined, referenced or described as "Collateral" in any of the Credit Obligor
Financing Documents.
"Credit Agreement" shall have the meaning assigned in the recitals
hereto.
"Credit Guaranty" shall mean collectively the Limited Credit Guaranty
Agreements dated as of July 15, 1997 from the Guarantors to the Credit Obligor.
"Credit Obligor Financing Documents" shall mean collectively the Credit
Agreement, the Revolving Note, and the Credit Guaranty, and any and all
amendments or supplements to any thereof.
"Credit Obligor Indebtedness" shall mean all indebtedness and other
amounts at any time to be paid to Credit Obligor by the Borrower or any Obligor
(as defined in the Credit Agreement) or any affiliate of any thereof under the
Credit Obligor Financing Documents.
"Default" shall mean an event or condition the occurrence of which
would, with or without the lapse of time or the giving of notice or both, be an
Event of Default.
"Event of Default" shall mean an event as defined in Article VI.
"Financing Participants" shall mean the parties to the Credit Obligor
Financing Documents.
"Guarantor" means Cavalier Homes, Inc., and the respective successors
and assigns thereof.
"Guarantor Indebtedness" shall mean all indebtedness and other amounts
at any time to be paid by the Borrower or any Obligor (as defined in the Credit
Agreement) or any affiliate of any thereof to the Guarantor.
"Guarantors" means collectively the following Persons and the
respective heirs, executors, administrators and assigns thereof:
(i) Lee Roy Jordan,
(ii) Cavalier Homes, Inc.,
(iii) Patriot Homes, Inc.,
(iv) Schult Operating Company, and Schult Homes Corporation
(v) Southern Energy Homes, Inc.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease assignment or bailment for
security purposes. For the purposes of this Agreement, the Guarantor shall be
deemed to be the owner of any Property which it has acquired or holds or hold
subject to a conditional sale agreement, financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other person for security purposes.
"Material Adverse Effect" shall mean any act or circumstance or event
which (i) causes an Event of Default or Default, (ii) otherwise might be
material and adverse to the financial condition or business operations of the
Guarantor or (iii) would adversely affect the validity or enforceability of any
of the Credit Obligor Financing Documents or any of the papers executed in
connection therewith.
"Maximum Guaranteed Percentage" shall mean twenty-four percent (24%).
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, an association, a trust, an unincorporated organization
and a government or any department, agency or political subdivision thereof.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Revolving Note" shall mean the Master Promissory Note (Revolving)
executed and delivered by the Borrower to the Credit Obligor pursuant to Section
2.02 of the Credit Agreement.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
district, territorial, or other court or governmental department, board, bureau,
agency or instrumentality having jurisdiction over Guarantor.
SECTION 1.02 Accounting Principles
The Guarantor shall maintain books and records in accordance with
generally accepted accounting principles ("GAAP" as defined in the Credit
Agreement) consistently applied.
SECTION 1.03 Action Taken Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
SECTION 1.04 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
SECTION 1.05 General Provisions of Construction
(1) Capitalized terms used herein without definition shall have the
meaning assigned to them in the Indenture or the Credit Agreement.
(2) Singular terms shall include the plural as well as the singular,
and vice versa.
(3) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
subdivisions of this instrument as originally executed.
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
SECTION 1.06 Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
ARTICLE II
Guaranty
SECTION 2.01 Guaranty of Obligations
(a) Subject to and limited by the provisions of subsection 2.01(d)
hereof, the Guarantor hereby absolutely and unconditionally guarantees the
punctual payment when due (whether at stated maturity, by acceleration or call
for redemption or otherwise), in lawful money of the United States of America,
of all of the following (collectively the "Obligations"):
(1) all commissions, fees, charges and costs becoming due and
payable under the Credit Agreement in accordance with the terms
thereof;
(2) all amounts becoming due and payable under the Revolving
Note (including without limitation principal, interest, late charges,
and interest on overdue amounts);
(3) all amounts becoming due and payable under the Credit
Agreement and all future advances and amounts becoming due and payable
under the Revolving Note;
(4) all late charges and all interest on late payments
becoming due and payable under the Credit Agreement and the Revolving
Note;
(5) all amounts becoming due and payable under the Credit
Agreement and the Revolving Note upon the occurrence and continuance of
an event of default under the Credit Agreement;
(6) all other amounts becoming due and payable by the Borrower
under the Credit Agreement and the Revolving Note;
(7) all other indebtedness, obligations (including obligations
of performance) and liabilities of the Borrower to the Credit Obligor
of every kind and description whatsoever, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter
incurred, contracted or arising, or acquired by the Credit Obligor from
any source, joint or several, liquidated or unliquidated, regardless of
how they arise or by what agreement or instrument they may be evidenced
or whether they are evidenced by any agreement or instrument, and
whether incurred as maker, endorser, surety, guarantor or otherwise,
and any and all extensions, restatements, and renewals of any of the
same; and
(8) all renewals and extensions of any or all the obligations
of the Borrower described in paragraphs (1) through (7) above
(including without limitation any renewal or extension of, and any
substitute for, the Revolving Note), whether or not any renewal or
extension agreement is executed in connection therewith.
(b) The guaranty set forth in this Section is an absolute and
irrevocable guaranty of payment and not of collectibility or performance and is
in no way conditioned or contingent upon any attempt to collect from the
Borrower or any other Person, or to realize upon any Property subject to the
Lien of the Credit Documents, or upon any other direct or indirect security for
the Bonds or the Obligations, or resort to any other remedies.
(c) Each default in payment of any amount of the Obligations shall give
rise to a separate cause of action hereunder and separate suits may be brought
hereunder as each cause of action arises.
(d) By acceptance hereof, the Credit Obligor covenants and agrees that,
anything herein or in the Credit Obligor Financing Documents to the contrary
notwithstanding, the obligations of, and recourse against, the Guarantor for
payment of any amounts pursuant to this Agreement shall be limited to and shall
not exceed the Maximum Guaranteed Percentage of such amounts, as determined on
the basis of the aggregate amounts described in Section 2.01(a) or otherwise due
hereunder which are outstanding at the time demand for payment thereof is made
in accordance herewith, without regard to or taking into account any demand
upon, or payment or contribution by, any other Financing Participant with
respect to such amounts.
SECTION 2.02 Character of Obligations Hereunder
(a) All obligations of the Guarantor under this Agreement are
unconditional, primary, absolute and irrevocable under any and all
circumstances. Without limiting the generality of the foregoing, to the fullest
extent permitted under applicable law, the obligations of the Guarantor
hereunder shall not be subject to or impaired by:
(i) any inability or failure on the part of any party thereto
to perform or comply with the Credit Obligor Financing Documents;
(ii) any invalidity or irregularity in any statutory or other
proceedings relating to the formation or existence of any of the
Financing Participants, or to the execution and delivery of any
Financing Document;
(iii) any invalidity or unenforceability of, or any
impairment, modification or release of liability of any party under, or
any impossibility, impracticability, illegality or frustration of
performance by any party of, any of the Credit Obligor Financing
Documents, for any reason whatsoever, including, without limitation,
any decision by any court invalidating or otherwise affecting the
obligations of any party under or in connection with any of the Credit
Obligor Financing Documents;
(iv) any inability or failure on the part of any of the
Financing Participants to perform or comply with any of the Credit
Obligor Financing Documents;
(v) any invalidity or unenforceability of, or any impairment,
modification or release of liability of the Guarantor under, or any
impossibility, impracticability, illegality or frustration of
performance by the Guarantor of this Agreement;
(vi) the voluntary or involuntary liquidation, dissolution,
merger, consolidation, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, moratorium, arrangement, composition with
creditors or readjustment of debt of, or other similar proceedings
affecting, any of the Financing Participants;
(vii) any waiver, consent, extension, indulgence or other
action or inaction in respect of any Financing Document, including any
modification, amendment or supplement to any of the foregoing, the
renewal or extension of the Bonds, the release of any Property subject
to the Lien of the Credit Agreement or any other similar act;
(viii) any right of setoff, counterclaim or defense, or any
act, omission or breach on the part of the Borrower, the Credit Obligor
or the Guarantor or any of the other Financing Participants;
(ix) any claim whatsoever against the Borrower or any of the
other Financing Participants;
(x) any defect in the title, compliance with specifications,
value, condition, design, operation, merchantability, quality,
durability or suitability of, consequences of use or misuse of, or
unfitness for use of, the Project or any part thereof, any abandonment,
destruction, noncompletion, requisition, condemnation, foreclosure of
or damage to the Project or any part thereof, or any event of force
majeure relating to the Project or any part thereof;
(xi) any breach of any representation or warranty relating to
the Project;
(xii) any release, extinguishment or satisfaction of the
Borrower's obligations to make payments of Obligations until there have
been paid to the Credit Obligor in lawful currency of the United States
an amount sufficient to pay all Obligations (including interest on
overdue amounts of Obligations including, to the extent permitted by
applicable law, interest) that would have been due and owing to the
Credit Obligor by the Borrower had the Borrower's obligations not been
so released, extinguished or satisfied;
(xiii) the failure to give notice to the Guarantor of the
occurrence of any default or event of default under the Credit Obligor
Financing Documents;
(xiv) the compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of any of the
parties to any of the Credit Obligor Financing Documents under the
Credit Obligor Financing Documents;
(xv) any assignment, pledge or mortgage of all or any part
of the interest of any of the Financing Participants in the Project or
the Collateral;
(xvi) any waiver of the payment, performance or observance by
any of the Financing Participants of any obligation, agreement or
covenant of any of them contained in the Credit Obligor Financing
Documents;
(xvii) the extension of the time for payment of any amount of
the Obligations or any part thereof or of the time for performance of
any other obligations, agreements or covenants of any of the Financing
Participants under the Credit Obligor Financing Documents;
(xviii) the modification or amendment (whether material or
otherwise) of any obligation, agreement or covenant contained in the
Credit Obligor Financing Documents;
(xix) any failure, omission, or delay on the part of any of
the Financing Participants to enforce, assert or exercise any right,
power or remedy conferred upon any of them by the Credit Obligor
Financing Documents;
(xx) the bankruptcy, insolvency, reorganization, appointment
of a receiver for, or dissolution of any of the Financing Participants,
or the entering by any or all of them into an agreement of composition
with creditors, or the making by any or all of them of an assignment
for the benefit of creditors;
(xxi) any rights of set-off, recoupment, counterclaim or other
defense, whether similar or dissimilar to the foregoing, which the
Guarantor might otherwise have against any of the Financing
Participants or any other person;
(xxii) the default or failure of any one or more of the
Financing Participants to perform fully any obligation, covenant or
agreement contained in the Credit Obligor Financing Documents;
(xxiii) the release or discharge of any one or more of the
Financing Participants by operation of law, to the extent that such
release or discharge may be lawfully avoided, from the performance or
observance of any agreement or covenant contained in the Credit Obligor
Financing Documents;
(xxiv) the invalidity or unenforceability of the Credit
Obligor Financing Documents or of any provision of such instruments; or
(xxv) any other matter that might otherwise be raised in
avoidance of, or in defense against, an action to enforce the
obligations of the Guarantor under this Agreement.
(b) The Guarantor acknowledges that this Agreement is executed for the
benefit of the Credit Obligor and that the Credit Agreement and the Letter of
Credit will be executed and delivered in reliance on this Agreement. No act of
commission or omission of any kind at any time on the part of the Credit Obligor
in respect of any matter whatsoever shall in any way affect or impair any right,
power or benefit of the Credit Obligor under this Agreement and, to the extent
permitted by applicable law, no setoff, claim, reduction, diminution of any
obligation, or any defense of any kind or nature which the Guarantor may have
against the Credit Obligor shall be available against the Credit Obligor in any
suit or action brought by the Credit Obligor to enforce any right, power or
benefit under this Agreement.
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers
(a) The Guarantor hereby waives all of the following and all defenses,
counterclaims, or offsets which the Guarantor may have by reason thereof: (1)
notice of acceptance hereof, notice of any action taken or omitted in reliance
hereon, notice of any defaults by the Borrower in the payment of any such sums,
and notice of the creation, renewal, or accrual of any liability of the
Borrower, (2) any presentment, demand, notice or protest of any kind, (3) any
right (i) to have joined any of the other Financing Participants with the
Guarantor in any suit brought against the Guarantor on this Agreement, (ii) to
require the Credit Obligor to forthwith bring suit against any of the other
Financing Participants, and (iii) to require that the Credit Obligor obtain any
judgment against any of the other Financing Participants in connection with the
enforcement of any rights against the Guarantor hereunder, and (4) any other act
or thing (including without limitation alteration of the Bonds or the Credit
Obligor Financing Documents or debt evidenced thereby or security therefor), or
omission or delay to do any other act or thing which may, by operation of law or
otherwise, in any manner or to any extent vary the risk of the Guarantor or
which might otherwise operate as a discharge of the Guarantor.
(b) The Guarantor hereby waives, as to the enforcement of this
Agreement, (1) all rights of exemption that the Guarantor may have under the
constitution and laws of any state as to any levy on and sale of property and
(2) presentation and demand for payment (or protest of nonpayment) of
Obligations or any part thereof.
SECTION 3.02 Termination
(a) The guaranties set forth in this Agreement shall remain in full
force and effect without reference to future changes in conditions, including,
to the extent permitted by applicable law, changes in law, until the Credit
Obligor shall have been indefeasibly paid in full any and all sums due under the
terms and provisions of the Obligations and the Credit Obligor Financing
Documents, and until such sums are not subject to rescission or repayment upon
any bankruptcy, insolvency, arrangement, reorganization, moratorium,
receivership or similar proceeding affecting the Issuer, the Borrower, the
Guarantor, or any of the other Financing Participants.
(b) In the event any payment on the Obligations (whether such payment
is remitted by the Issuer, the Borrower, any Guarantor or any other person, from
realization on collateral, through setoff or otherwise) must be refunded, paid
over or otherwise released by the Credit Obligor as a result of such payment
being (1) a preference or fraudulent transfer under the Bankruptcy Code of 1978,
as amended, or other state or federal law or (2) disallowed as a permanent and
irrevocable payment on the Obligations for any other reason, then in each such
event this Agreement shall thereupon, ipso facto, be reinstated and revived to
the full extent of such refunded, paid over or released payment.
SECTION 3.03 No Right of Subrogation.
The Guarantor will not exercise any rights of subrogation which the
Guarantor may have unless and until this Agreement shall have been terminated as
provided in Section 3.02. If any payment is made to the Guarantor with respect
to any payments due by the Guarantor under this Agreement at any time prior to
such termination of this Agreement, he will be paid forthwith to the Credit
Obligor to be applied to installments due or coming due under the Obligations in
the order and the manner provided in the Credit Agreement or otherwise
determined by the Credit Obligor.
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants
The Guarantor covenants that so long as this Agreement is in effect,
the Guarantor shall
(a) Payment of Indebtedness, Taxes, etc. (i) Pay all indebtedness and
obligations of the Guarantor promptly and in accordance with normal terms where
failure to pay would have a Material Adverse Effect, and (ii) pay and discharge
or cause to be paid or discharged promptly all taxes, assessments and
governmental charges or levies imposed upon the Guarantor or upon his income and
profits, or upon any of his Property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies or otherwise, which, if unpaid, might become a
lien upon such properties or any part thereof where failure to pay would have a
Material Adverse Effect; provided, however, that the Guarantor shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings.
(b) Accounts, Financial Information. The Guarantor will maintain proper
books of record and account, in which full and correct entries will be made, in
accordance with generally accepted accounting principles, of all business and
affairs of the Guarantor. The Guarantor shall furnish to the Credit Obligor with
reasonable promptness (1) annual financial statements of the Guarantor prepared
and audited by certified public accountants in accordance with generally
accepted accounting principles, and (2) such other information regarding the
operations, business affairs and financial condition of the Guarantor as the
Credit Obligor may reasonably request.
(c) Legal Existence. The Guarantor will maintain and preserve its legal
existence and will not voluntarily dissolve without first discharging its
obligations under this Agreement.
(d) Further Assurances. On request of the Credit Obligor, promptly
correct any defect, error or omission which may be discovered in any of the
Credit Obligor Financing Documents or in the contents of any of the papers
executed in connection therewith or in the execution or acknowledgement thereof,
and execute, acknowledge and deliver such further instruments and do such
further acts as may be necessary or as may be requested by the Credit Obligor to
carry out more effectively the purposes of this Agreement and the Credit Obligor
Financing Documents.
SECTION 4.02 Information as to Guarantor
Financial and Business Information. The Guarantor shall deliver to the
Credit Obligor:
(a) Notice of Default or Event of Default. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a default or an event of default under any Financing
Document, a written notice specifying the nature and period of
existence thereof and what action the Guarantor is taking or proposes
to take with respect thereto;
(b) Notice of Claimed Default. Immediately upon becoming aware
that the holder of any evidence of indebtedness or security of the
Guarantor has given notice or taken any other action with respect to a
claimed default or event of default thereunder which would cause a
default or event of default which would have a Material Adverse Effect,
a written notice specifying the notice given or action taken by such
holder and the nature of the claimed default or event of default and
what action the Guarantor are taking or proposes to take with respect
thereto;
(c) Requested Information. With reasonable promptness, such
data and information as from time to time may be reasonably requested;
(d) Notice of Litigation. Immediately upon becoming aware of
the existence of any proceedings before any Tribunal involving the
Guarantor which involves the probability of any final judgment or
liability against such Guarantor in an amount which would have a
Material Adverse Effect, a written notice specifying the nature thereof
and what action such Guarantor is taking and proposes to take with
respect thereto; and
(e) Notice from Regulatory Agencies. Promptly upon receipt
thereof, information with respect to and copies of any notices received
from federal or state regulatory agencies or any Tribunal relating to
an order, ruling, statute or other law or information which might have
a Material Adverse Effect on the franchises, permits, licenses, or
rights, or the condition, financial or otherwise, of the Guarantor.
ARTICLE V
Representations, Warranties and Agreements
The Guarantor represents, warrants and agrees that:
SECTION 5.01 Financial Condition
Since the date of application to the Credit Obligor for the Revolving
Note, (i) there has been no change in the business, prospects, profits,
Properties or condition (financial or otherwise) of the Guarantor, except
changes in the ordinary course of business, none of which individually or in the
aggregate has a Material Adverse Effect, (ii) the Guarantor has not incurred any
material liability which has a Material Adverse Effect, and (iii) there exists
no default under the provisions of any instrument evidencing any such
liabilities or under any agreement relating thereto which would have a Material
Adverse Effect.
SECTION 5.02 Full Disclosure
No written statement furnished by the Guarantor to the Credit Obligor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact which the Guarantor has not disclosed to the Credit
Obligor in writing which has a Material Adverse Effect or, so far as the
Guarantor can now foresee, will have a Material Adverse Effect.
SECTION 5.03 Pending Litigation; No Defaults
There are no proceedings pending, or, to the knowledge of the
Guarantor, threatened, against or affecting the Guarantor in any court or before
any governmental authority or arbitration board or Tribunal which involve the
possibility of a Material Adverse Effect or the ability of the Guarantor to
perform this Agreement. The Guarantor is not in default with respect to any
order of any court, governmental authority, arbitration board or Tribunal which
would have a Material Adverse Effect.
SECTION 5.04 Title to Properties
The Guarantor has good and marketable title to the Properties thereof.
SECTION 5.05 No Defaults
No event has occurred and no conditions exist which would, in any
material respect, upon the issuance of the Letter of Credit, constitute (i) a
default under any note or other evidence of indebtedness or under any agreement
of the Guarantor if the effect of such default would have a Material Adverse
Effect or (ii) a default or event of default under the Credit Obligor Financing
Documents or any of them, and the Guarantor is not in violation in any material
respect of any term of any agreement or other instrument to which the Guarantor
is a party or by which the Guarantor may be bound that would have a Material
Adverse Effect.
SECTION 5.06 Governmental Consent
No consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Guarantor is
required in connection with the execution and delivery of the Credit Obligor
Financing Documents to which the Guarantor is a party.
SECTION 5.07 Compliance with Law
The Guarantor:
(a) is not in violation of any laws, ordinances, governmental
rules or regulations to which Guarantor is subject, or
(b) has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of the
Property, or to the conduct of the business, of Guarantor, which
violation or failure to obtain would have a Material Adverse Effect.
SECTION 5.08 Restrictions on Guarantor
The Guarantor is not a party to any contract or agreement which
requires consent of any creditor of the Guarantor other than the Credit Obligor
or other party thereto to the right or ability of the Guarantor to incur debt or
guarantee indebtedness hereunder.
SECTION 5.09 Indemnification
(a) The Guarantor will indemnify and hold harmless the Credit Obligor
and each Person, if any, who controls the Credit Obligor within the meaning of
Section 15 of the Securities Act of 1933, as amended, (the Credit Obligor and
any such person being in this Section collectively called a "Holder") against
any and all losses, claims, damages or liabilities, joint and several, or
actions in respect thereof, to which any Holder may become subject under any
statute or common law or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
this Agreement, including the financial statements referred to herein, or any
omission or alleged omission to state herein a material fact necessary in order
to make the statements herein not misleading; and will reimburse any Holder for
all legal or other expenses reasonably incurred by such Holder in connection
with defending any such action or claim.
(b) If any such action or claim shall be brought or asserted against
any Holder and in respect of which indemnity may be sought from the Guarantor,
such Holder shall promptly notify the Guarantor in writing and the Guarantor
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Any Holder shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Holder unless (a)
the employment thereof at the expense of Guarantor has been specifically
authorized by the Guarantor in writing, (b) the Guarantor have failed to assume
the defense and to employ counsel, or (c) the named parties to any such action
(including any impleaded parties) include both such Holder and the Guarantor,
and such Holder shall have been advised by such counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Guarantor (in which case, if such Holder notifies the
Guarantor in writing that it elects to employ separate counsel at the Guarantor'
expense, the Guarantor shall not have the right to assume the defense of such
action on behalf of such Holder, it being understood, however, that the
Guarantor shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for all such Holders,
which firm shall be designated in writing by such Holders). Each Holder, as a
condition of such indemnity, shall use its best efforts to cooperate with the
Guarantor in the defense of any such action or claim. The Guarantor shall not be
liable for any settlement of any such action effected without their written
consent, but if settled with the written consent of the Guarantor, or if there
be a final judgment for the plaintiff in any such action, the Guarantor agrees
to indemnify and hold harmless any such Holder from and against any loss or
liability by reason of such settlement or judgment.
SECTION 5.10 Survival of Representations, Warranties and Covenants
The representations, warranties and covenants of the Guarantor
contained in this Agreement, and any other document, instrument and agreement
referred to or contemplated by this Agreement, shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Borrower, any Holder or any other Person, or (ii) delivery of, and
payment for, the Obligations.
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default
An "Event of Default" shall exist under this Agreement if any of the
following occurs and is continuing (whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) Particular Covenant Defaults. The Guarantor fails to
perform or observe any covenant or agreement contained in Section 2.01
for a period of five Business Days after notification by the Credit
Obligor of such failure;
(b) Other Defaults. The Guarantor fails to comply with any
other provision of this Agreement, and such failure continues for a
period of thirty days after written notification by the Credit Obligor
of such failure;
(c) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of the Guarantor
contained in this Agreement, or in any instrument furnished in
compliance with or in reference to this Agreement, is false or
misleading in any material respect and action which eliminates such
falsity or misleading character is not completed for a period of thirty
days after written notification by the Credit Obligor of such false or
misleading statement;
(d) Default on Other Indebtedness. Default by the Guarantor in
any payment of any obligation for money received as an advance (or any
obligation under any conditional sale or other title retention
agreement or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money lien or
any obligation under notes payable or drafts accepted representing
extensions of credit) beyond any grace period provided with respect
thereto, or default in the performance of any other agreement, term or
condition contained in any agreement under which such obligation is
created (or any other default under any such agreement which shall
occur and be continuing beyond any period of grace provided with
respect thereto), if the effect of such default would have a Material
Adverse Effect, and such default shall remain uncured for a period of
ten days after the Guarantor has notice thereof;
(e) Involuntary Bankruptcy Proceedings. A receiver, liquidator
or trustee of the Guarantor, or of any of his Property, is appointed by
court order and such order remains in effect for more than sixty days,
or an order or decree for relief in an involuntary bankruptcy case is
entered with respect to the Guarantor, or any of his Property is
sequestered by court order and such order remains in effect for more
than sixty days, or a petition is filed against the Guarantor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, and is not dismissed within sixty days after
such filing;
(f) Voluntary Petitions. The Guarantor files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against him under any such law;
(g) General Assignment for Benefit of Creditors, etc. The
Guarantor makes a general assignment for the benefit of his creditors,
or is unable to pay his debts generally as they become due, or consents
to the appointment of a receiver, trustee or liquidator of the
Guarantor, or of all or any part of his Property;
(h) Undischarged Final Judgments or Settlements. One or more
final judgments shall be entered against the Guarantor, or the
Guarantor shall enter into settlement of any litigation, which
judgments and settlements are not covered by insurance, and which
judgments and settlements will have a Material Adverse Effect on the
Guarantor; or
(i) Other Defaults. The occurrence of an event of default
under any of the other Credit Obligor Financing Documents and the
expiration of the applicable grace period, if any, specified therein.
SECTION 6.02 Remedies
If an Event of Default exists, the Credit Obligor may proceed to
protect its rights by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any covenant or agreement
of the Guarantor herein contained or in aid of the exercise of any power or
remedy granted to the Credit Obligor under any of the other Credit Obligor
Financing Documents. The Credit Obligor may proceed directly against the
Guarantor hereunder without resorting to any other remedies which it may have
and without proceeding against any other security held by the Credit Obligor.
SECTION 6.03 Rights and Remedies of Credit Obligor in the Event of
Bankruptcy, Etc. of Guarantor
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
proceeding, or any general assignment for the benefit of creditors, relative to
the Guarantor, the Credit Obligor (irrespective of whether there has been a
default under this Agreement or any of the other Credit Obligor Financing
Documents) shall be entitled and empowered to intervene in such proceedings, to
file and prove a claim or claims for the whole amount owing and unpaid and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Credit Obligor (including any claim for reasonable
compensation to the Credit Obligor, its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities reasonably incurred, and all
advances made, by the Credit Obligor except as a result of its negligence or bad
faith) allowed in such judicial proceedings, to collect and receive any moneys
or other property payable or deliverable on any such claims, and to take such
other action therein as the Credit Obligor may deem necessary or appropriate to
protect its interests.
SECTION 6.04 Agreement to Pay Attorneys' Fees
In the event the Guarantor should default under any of the provisions
of this Agreement and the Credit Obligor should employ attorneys or incur other
expenses for the collection of any payments due hereunder or the enforcement of
performance or observance of any agreement or covenant on the part of the
Guarantor herein contained, the Guarantor will on demand therefor pay to the
Credit Obligor the reasonable fees of such attorneys and such other reasonable
expenses so incurred.
SECTION 6.05 Waiver of Past Defaults
The Credit Obligor may waive any past default hereunder and its
consequences. Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Agreement but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 6.06 No Additional Waiver Implied by One Waiver
If any agreement contained in this Agreement should be breached by the
Guarantor and thereafter waived by the Credit Obligor, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
SECTION 6.07 Remedies Subject to Applicable Law
All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Agreement invalid or unenforceable.
ARTICLE VII
Subordination Agreement
The Guarantor does hereby covenant and agree:
(a) That payment of the Guarantor Indebtedness when due and
payable in each month shall be and hereby is fully subordinated in
priority to the prior payment to Credit Obligor of the Credit Obligor
Indebtedness when due and payable in each month, provided, however,
that so long as no event of default exists under the Credit Obligor
Financing Documents the Guarantor may receive payment of the Guarantor
Indebtedness when due and payable (but not in advance of originally
scheduled due dates).
(b) That anything in any other contract, agreement or
instrument to the contrary notwithstanding, (a) all right, title and
interest of the Guarantor in and to the Collateral shall be and hereby
are fully subordinated in priority to the right, title and interest of
Credit Obligor in and to the Collateral as provided in the Credit
Obligor Financing Documents without regard to the respective dates on
which any of such interests were created and (b) that the claim of
Credit Obligor upon all the Collateral shall be and hereby is prior and
superior for all purposes to that of the Guarantor therein.
(c) Upon the occurrence of a default under any agreement or
document evidencing, providing for, or securing the Guarantor
Indebtedness or if the Guarantor Indebtedness shall become or be
declared immediately due and payable, then an event of default shall be
deemed to have simultaneously occurred under the Credit Obligor
Indebtedness and the Credit Obligor Financing Documents and the same
shall also become immediately due and payable, notwithstanding any
inconsistent terms in any document or instrument relating to any of the
foregoing. The Guarantor shall not, without the prior written consent
of Credit Obligor, accelerate the maturity of, or institute any
proceedings to enforce, any of the Guarantor Indebtedness.
(d) Upon the occurrence and continuation of an event of
default under any agreement or document evidencing, providing for, or
securing the Guarantor Indebtedness or the Credit Obligor Financing
Indebtedness, Credit Obligor shall first be entitled to receive all
proceeds and revenues from the Collateral when and as the same become
available, in payment in full of all Credit Obligor Indebtedness prior
to any of such proceeds or revenues being distributed to the Guarantor.
If, before the conditions for defeasance and termination of the Credit
Obligor Financing Documents shall have been satisfied in full, the
Guarantor should receive any payment or amount in violation of this
Agreement, or in the event that any payment or distribution of any
assets of the Borrower of any kind or character (whether in cash,
property or securities), shall be received by the Guarantor in
violation of this Agreement, such payment, amount or distribution shall
be held in trust for the benefit of, and shall be paid over upon demand
to, Credit Obligor or its representative for application to the payment
of the Credit Obligor Indebtedness until the Credit Obligor Financing
Documents shall have been defeased and terminated as provided therein.
(e) Upon any payment or distribution of any of the assets of
the Borrower of any kind or character upon any dissolution, winding up,
total or partial liquidation, or reorganization of the Borrower,
whether in voluntary or involuntary bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of assets and
liabilities of the Borrower or otherwise, or upon the acceleration or
maturity of the Credit Obligor Indebtedness and/or the Guarantor
Indebtedness: (a) Credit Obligor shall first be entitled to receive all
such assets in payment in full of the Credit Obligor Indebtedness
before the Guarantor is entitled to receive any amount of such assets;
and (b) any payment or distribution of any of the assets of the
Borrower of any kind or character (whether in cash, property or
securities) to which the Guarantor would be entitled except for the
provisions of this Agreement shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
receiver, liquidating trustee, other custodian, agent or other person,
directly to Credit Obligor or its representative, to the extent
necessary to pay in full all indebtedness owed thereto, before any
payment or distribution of such assets is made to the Guarantor.
(f) No right of Credit Obligor to enforce the subordination
provided herein shall at any time or in any way be prejudiced or
impaired by (a) any act or failure to act on the part of Credit
Obligor, or (b) any noncompliance by Credit Obligor with the terms of
any documents or instruments executed in connection with the Credit
Obligor Financing Documents (regardless of any knowledge thereof that
Credit Obligor may have or be charged with), or (c) any action Credit
Obligor may take or refrain from taking with respect to the Credit
Obligor Indebtedness or any security therefor, including without
limitation any modification of the terms of the Credit Obligor
Financing Documents or the granting or effecting of any release or
settlement with respect to the Credit Obligor Indebtedness or any
security therefor. Any waiver by Credit Obligor of any breach hereof by
the Guarantor or any indulgence by Credit Obligor to the Guarantor
shall apply only to the separate occasion thereof and shall not affect
the continuing obligation of the Guarantor hereunder.
(g) The Guarantor hereby agrees to execute and deliver to
Credit Obligor at its request such other, further or additional
agreements, requests, demands, notices, powers of attorney or other
writings as, in the sole discretion or opinion of Credit Obligor, may
be necessary or convenient in order to carry out the intent and purpose
hereof, or to effectuate this Agreement.
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction
The Guarantor irrevocably (a) agrees that any suit, action or other
legal proceeding arising out of this Agreement may be brought in the courts of
record of the State of Alabama or the courts of the United States located in the
State of Alabama; (b) consents to the jurisdiction of each such court in any
such suit, action or proceeding, and (c) waives any objection which the
Guarantor may have to trial by jury or to the laying of venue of any such suit,
action or proceeding in any of such courts.
SECTION 8.02 Benefit of the Agreement
This Agreement is entered into by the Guarantor for the benefit of the
Credit Obligor. The Guarantor agrees to pay all reasonable and necessary costs,
expenses and fees, including all reasonable attorneys' fees, which may be
incurred by the Credit Obligor in enforcing or attempting to enforce this
Agreement pursuant to the provisions hereof, whether the same shall be enforced
by suit or otherwise.
SECTION 8.03 Notices
(a) Any request, demand, authorization, direction, notice, consent, or
other document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with, the Guarantor or the Credit Obligor shall be
sufficient for every purpose hereunder if in writing and (except as otherwise
provided in this Agreement) either (i) delivered personally to the party or, if
such party is not an individual, to an officer, or other legal representative of
the party to whom the same is directed (provided that any document delivered
personally to the Credit Obligor must be delivered at its Principal Office
during normal business hours) at the addresses specified below, or (ii) mailed
by first-class, registered or certified mail, postage prepaid to the addresses
specified below; provided either party may change the address for receiving any
such notice or document by giving notice of the change to the other party as
provided in this Section:
c/o Cavalier Homes, Inc.
Highway 41 North Cavalier Road
Addison, Alabama 35540
First Commercial Bank
2000 SouthBridge Parkway
Birmingham, Alabama 35209
Attn: Commercial Lending
(b) Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not an
individual, to an officer, or other legal representative of the party) at the
address specified pursuant to this Section, or, if sent by mail, 3 days after
such notice or document is deposited in the United States mail, proper postage
prepaid, addressed as provided above.
SECTION 8.04 Reproduction of Documents
The Guarantor hereby agrees that any Financing Document and all
documents relating thereto, including, without limitation, (a) supplements,
consents, waivers and modifications which may hereafter be executed, (b)
documents received by the Credit Obligor at any closing of any purchase of the
Bonds and (c) financial statements, certificates and other information
previously or hereafter furnished to the Credit Obligor, may be reproduced by
the Credit Obligor by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and they may destroy any
original document so reproduced. To the extent permitted by law, the Guarantor
agrees and stipulates that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by them in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 8.05 Survival
All warranties, representations and covenants made by the Guarantor
herein or on any certificate or other instrument delivered by or on behalf of
the Guarantor under this Agreement shall be considered to have been relied upon
by the Credit Obligor regardless of any investigation made by it or on its
behalf. All statements in any such certificate or other instrument shall
constitute warranties and representations by the Guarantor hereunder.
SECTION 8.06 Successors and Assigns
The terms of this Agreement shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors and assigns of
each of the parties.
SECTION 8.07 Effective Date of Agreement
The obligations of the Guarantor hereunder shall arise absolutely and
unconditionally when the Credit Agreement shall have been executed and
delivered.
SECTION 8.08 Entire Agreement; Counterparts
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and may be executed simultaneously in
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
SECTION 8.09 Severability
The invalidity or unenforceability of any one or more phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
validity or enforceability of the remaining portions of this Agreement, or any
part thereof.
SECTION 8.10 Date For Identification Purposes Only
The date of this Agreement is for identification purposes only and is
not intended to indicate that this Agreement was executed on such date.
SECTION 8.11 Exceptions to Covenants
The Guarantor shall not be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
executed under seal in its name and on its behalf by officers thereof duly
authorized thereunto and the Credit Obligor has executed this Agreement by
causing its name to be hereunto subscribed by one of its duly authorized
officers, all as of the day and year first above written.
CAVALIER HOMES, INC.
By:
--------------------------
Its
--------------------------
S E A L
Attest
----------------------
Secretary
Accepted:
FIRST COMMERCIAL BANK
By:
----------------------------
Its
----------------------------
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT
AND PLAN OF MERGER BY AND AMONG
CAVALIER HOMES, INC.,
CRIMSON ACQUISITION CORP. AND
BELMONT HOMES, INC.
This Amendment No. 1 to Agreement and Plan of Merger (this
Amendment) is made and entered into as of the 19th day of September, 1997, by
and among Cavalier Homes, Inc., a Delaware corporation (Parent), Crimson
Acquisition Corp., a Mississippi corporation and a wholly owned subsidiary of
Parent (Sub), and Belmont Homes, Inc., a Mississippi corporation (the Company).
W I T N E S S E T H:
WHEREAS, Parent, Sub and the Company entered into an Agreement
and Plan of Merger dated as of August 14, 1997 (the Merger Agreement); and
WHEREAS, Parent, Sub and the Company desire to amend the
Merger Agreement to reflect the intention of the parties to the Merger Agreement
that in order to effect the assumption of the Belmont 1994 Incentive Stock Plan,
as amended (the Belmont Stock Plan), by Parent and the continuing availability
following the Merger (as defined in the Merger Agreement) of the number of
shares reserved for issuance thereunder under Cavalier's 1996 Key Employee Stock
Incentive Plan, as amended (the Cavalier Stock Plan), Parent will use reasonable
efforts to cause the Cavalier Stock Plan to be amended effective upon the
Effective Time of the Merger to provide that shares of Parent Common Stock equal
to the number of shares of Company Common Stock which are reserved for issuance
under the Belmont Stock Plan pursuant to options not yet granted under such plan
as of the Effective Time, plus any number of shares subject to outstanding
options under the Belmont Stock Plan which, pursuant to the express terms of
such options and the plan under which they were granted and not pursuant to any
action by Parent, Sub or the Company not consented to by the applicable
optionee, lapse, expire, terminate or are cancelled after the Effective Time,
will be available for issuance under the Cavalier Stock Plan, with such numbers
in each case being multiplied by the Exchange Ratio;
NOW, THEREFORE, in consideration of the foregoing premises,
and the mutual and dependent covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Parent, Sub, and the Company hereby agree as follows:
1. Capitalized Terms. Capitalized terms used but not
defined herein shall have the respective meanings ascribed to them in the
Merger Agreement.
2. Amendment. The Merger Agreement is hereby amended
by adding the following sentence at the end of Section 2.4(a) of the Merger
Agreement:
Prior to the Effective Time, Parent shall use reasonable
efforts to cause the 1996 Key Employee Stock Incentive Plan of
Cavalier Homes, Inc., as amended (the Cavalier Stock Plan), to
be amended to provide that shares of Parent Common Stock equal
to the number of shares of Company Common Stock which are
reserved for issuance under the Belmont 1994 Incentive Stock
Plan, as amended (the Belmont Stock Plan), pursuant to options
not yet granted under such plan as of the Effective Time, plus
any number of shares subject to outstanding options under the
Belmont Stock Plan which, pursuant to the express terms of
such options and the plan under which they were granted and
not pursuant to any action by Parent, Sub or the Company not
consented to by the applicable optionee, lapse, expire,
terminate, or are cancelled after the Effective Time, will be
available for issuance under the Cavalier Stock Plan, with
such numbers in each case being multiplied by the Exchange
Ratio, and shall use reasonable efforts to take such other and
further action as may be necessary to effectuate the purposes
of the foregoing.
3. No Other Amendment. Except as amended hereby, the
Merger Agreement shall remain in
full force and effect according to its original tenor.
IN WITNESS WHEREOF, Parent, Sub and the Company have executed
and delivered this Amendment No. 1 to the Agreement and Plan of Merger on the
date first written above.
CAVALIER HOMES, INC.
By /s/ Michael R. Murphy
Its Chief Financial Officer/Secretary-Treasurer
CRIMSON ACQUISITION CORP.
By /s/ Michael R. Murphy
Its Vice President
BELMONT HOMES, INC.
By /s/ G.H. Spann
Its President
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------ ------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------ -------------
PRIMARY AND FULLY DILUTED
Net Income $ 2,587,000 $ 3,609,000 $ 9,230,000 $ 10,005,000
============= ============= ============ =============
SHARES:
Primary
Average common shares outstanding 12,296,021 12,117,729 12,240,020 11,731,115
Dilutive effect if stock options
were exercised 173,653 295,231 186,045 492,256
------------- ------------- ------------ -------------
Average common shares outstanding
as adjusted (primary) 12,469,674 12,412,960 12,426,065 12,223,371
============= ============= ============ =============
Fully Diluted
Average common shares outstanding 12,469,674 12,412,960 12,426,065 12,223,371
Additional dilutive effect if
stock options were excercised
(fully) 5,127 - 7,376 -
------------- ------------- ------------ -------------
Average common shares outstanding
as adjusted (fully diluted) 12,474,801 12,412,960 12,433,441 12,223,371
============= ============= ============ =============
Primary and Fully Diluted Net Income per
Common Share $ 0.21 $ 0.29 $ 0.74 $ 0.82
============= ============= ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000789863
<NAME> Cavalier Homes, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-26-1997
<EXCHANGE-RATE> 1
<CASH> 5,752
<SECURITIES> 0
<RECEIVABLES> 24,454
<ALLOWANCES> 800
<INVENTORY> 14,850
<CURRENT-ASSETS> 52,710
<PP&E> 28,720
<DEPRECIATION> 11,913
<TOTAL-ASSETS> 133,917
<CURRENT-LIABILITIES> 44,278
<BONDS> 0
0
0
<COMMON> 1,231
<OTHER-SE> 77,290
<TOTAL-LIABILITY-AND-EQUITY> 133,917
<SALES> 249,397
<TOTAL-REVENUES> 253,217
<CGS> 205,672
<TOTAL-COSTS> 205,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 667
<INCOME-PRETAX> 15,281
<INCOME-TAX> 6,051
<INCOME-CONTINUING> 9,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,230
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
