<PAGE> 1
As filed with the U.S. Securities and Exchange Commission on December 2, 1997
Registration No. 333-_____
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
CAVALIER HOMES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2451 63-0949734
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
(205) 747-0044
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------------
DAVID A. ROBERSON
Highway 41 North and Cavalier Road
Addison, Alabama 35540
(205) 747-0044
(Name, address, including zip code and telephone number, including area code, of
agent for service)
With copies to:
JOHN B. GRENIER, ESQ. J. CHASE COLE, ESQ.
BRADLEY ARANT ROSE & WHITE LLP WALLER LANSDEN DORTCH & DAVIS, PLLC
2001 PARK PLACE, SUITE 1400 NASHVILLE CITY CENTER
BIRMINGHAM, ALABAMA 35203 511 UNION STREET, SUITE 2100
(205) 521-8000 NASHVILLE, TENNESSEE 37219
(615) 244-6380
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the Merger described in the enclosed Joint
Proxy Statement and Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate offering Amount of
securities to be registered registered per unit price registration fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $0.10 per share 7,609,189 Shares(1) * $71,336,145(2) $4,722.45
Rights to Purchase Series A Junior
Participating Preferred Stock 7,609,189 Rights (4) (4) (4)
===========================================================================================================================
</TABLE>
* Not Applicable
(1) This Registration Statement covers the maximum number of shares of
Registrant Common Stock which is expected to be issued in the Merger
(as defined herein) assuming the exercise of certain currently
outstanding options to purchase Belmont Common Stock.
(2) Estimated solely for purposes of determining the amount of the
registration fee, in accordance with Rule 457(f) under the Securities
Act of 1933.
(3) A fee of $16,321.71 was paid on September 23, 1997 pursuant to Section
14(g)(1)(A) of the Securities Exchange Act of 1934, and Rules 0-11 and
14a-(6)(i) promulgated thereunder, in connection with the filing of
preliminary proxy materials relating to the Merger as described herein,
and pursuant to Rule 457(b), such fee has been credited against the
registration fee payable in connection with this Registration
Statement.
(4) The Rights to Purchase Series A Junior Participating Preferred Stock
are currently attached to and trade with the shares of Registrant
Common Stock being registered hereby. Value attributable to such
Rights, if any, is reflected in the market price of Registrant Common
Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
CAVALIER HOMES, INC.
POST OFFICE BOX 300
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
(205) 747-0044
December 2, 1997
Dear Stockholder:
I am pleased to inform you that on August 14, 1997, Cavalier Homes,
Inc. and Belmont Homes, Inc. entered into an Agreement and Plan of Merger under
which Belmont will become a subsidiary of Cavalier and each outstanding share of
common stock of Belmont will be converted into 0.80 shares of common stock of
Cavalier. Cash will be paid in lieu of any fractional shares of Cavalier common
stock.
At a Special Meeting of stockholders of Cavalier to be held at the
offices of Cavalier at Highway 41 North and Cavalier Road, Addison, Alabama at
9:00 a.m., local time, on Wednesday, December 31, 1997, you will be asked to
approve the issuance of Cavalier common stock pursuant to the Agreement and Plan
of Merger. The Merger is conditioned, among other matters, on the approval of
the share issuance by Cavalier's stockholders and the approval of the
transaction by Belmont's shareholders. The Board of Directors has unanimously
approved the Agreement and Plan of Merger and has determined that the Merger and
the share issuance contemplated by the Agreement and Plan of Merger are fair to
and in the best interests of Cavalier and its stockholders. THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF SHARES IN THE MERGER AT
THE SPECIAL MEETING.
The Board's recommendation is based on its belief that the Merger will
deliver greater long-term value to Cavalier stockholders. The Board believes
that the combination will result in a number of strategic and financial
benefits, which ultimately will enhance stockholder value for the combined
company. In addition, Equitable Securities Corporation has acted as financial
advisor to Cavalier in connection with the Merger. Equitable delivered its
opinion to the Cavalier Board prior to the execution of the Agreement and Plan
of Merger, which opinion has been confirmed by Equitable in writing as of the
date of this Joint Proxy Statement and Prospectus, to the effect that, based
upon and subject to certain matters stated therein, as of the date of such
opinion, the consideration to be issued by Cavalier in the Merger and the
exchange ratio are fair to Cavalier from a financial point of view. The full
text of the written opinion, which sets forth a description of the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex B to the accompanying Joint Proxy Statement and Prospectus and should
be read carefully in its entirety.
Details of the proposed Merger and other important information
concerning Cavalier and Belmont are contained in the Joint Proxy Statement and
Prospectus. Please give this material your careful attention.
It is important that your shares be voted whether or not you plan to be
present at the meeting. Whether you plan to attend or not, please complete,
sign, date and return the enclosed form of proxy promptly so that Cavalier may
be assured of the presence of a quorum at the Special Meeting. If you attend the
Special Meeting and wish to vote your shares personally, you may revoke your
proxy.
We look forward to seeing you on December 31.
Sincerely yours,
CAVALIER HOMES, INC.
/s/ Barry B. Donnell
Barry B. Donnell
Chairman of the Board
/s/ David A. Roberson
David A. Roberson
President and Chief Executive Officer
<PAGE> 3
CAVALIER HOMES, INC
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 31, 1997
----------------------------------------
To the Stockholders of Cavalier Homes, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Cavalier Homes, Inc., a Delaware corporation ("Cavalier"), will be held on
Wednesday, December 31, 1997, at 9:00 a.m., local time, at the offices of
Cavalier, Highway 41 North and Cavalier Road, Addison, Alabama and at any
adjournment or postponement thereof (the "Special Meeting"), for the following
purposes:
1. To consider and vote upon a proposal for the issuance (the
"Share Issuance") of shares of common stock, par value $0.10
per share (the "Cavalier Shares"), of Cavalier, pursuant to an
Agreement and Plan of Merger, dated as of August 14 , 1997, as
amended (the "Merger Agreement"), by and among Cavalier,
Belmont Homes, Inc., a Mississippi corporation ("Belmont"),
and Crimson Acquisition Corp., a Mississippi corporation and a
wholly owned subsidiary of Cavalier ("Sub"). Upon the terms
and subject to the conditions of the Merger Agreement, Sub
will be merged with and into Belmont and Belmont will become a
wholly owned subsidiary of Cavalier (the "Merger"). In
connection with the Merger, and as more fully described in the
accompanying Joint Proxy Statement and Prospectus and in the
Merger Agreement included as Annex A thereto, (i) each share
of common stock, par value $0.10 per share, of Belmont (the
"Belmont Shares") issued and outstanding immediately prior to
the effective time of the Merger (the "Effective Time") will
be converted into the right to receive 0.80 Cavalier Shares
(the "Exchange Ratio"), (ii) stock options and warrants to
purchase Belmont Shares outstanding at the Effective Time will
be converted into options and warrants to purchase an equal
number of Cavalier Shares multiplied by the Exchange Ratio,
with the exercise price of such outstanding options and
warrants being divided by the Exchange Ratio, and (iii) by
means of an amendment to the Cavalier 1996 Key Employee Stock
Incentive Plan (the "Cavalier Stock Plan"), Cavalier Shares
equal to the number of Belmont Shares reserved at the
Effective Time for issuance pursuant to ungranted options
under the Belmont 1994 Incentive Stock Plan (the "Belmont
Stock Plan"), plus the number of Belmont Shares subject to
outstanding options under the Belmont Stock Plan which lapse,
terminate, expire or are canceled following 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.
2. To transact such other business as is incident to the conduct
of the Special Meeting.
The close of business on November 25, 1997 has been fixed as the record
date for the determination of the stockholders entitled to notice of and to vote
at the Special Meeting and at any adjournment or postponement thereof. Approval
of the Share Issuance requires the affirmative vote of a majority of the total
votes cast by the holders of Cavalier Shares with respect to the Share Issuance,
provided that the total number of votes cast thereon represents more than 50% of
the outstanding Cavalier Shares entitled to vote on the Share Issuance. Holders
of Cavalier Shares do not have any appraisal rights in connection with the Share
Issuance. The Special Meeting may be adjourned or postponed from time to time
without notice other than such notice as may be given at the meeting or any
adjournment or postponement thereof, and any business for which notice is hereby
given may be transacted at any such adjourned or postponed meeting.
Stockholders are invited to attend the Special Meeting. Whether or not
you expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the meeting, you
may vote your shares in person, which will revoke any previously executed proxy.
If your shares are held of record by a broker, bank or other nominee
and you wish to attend the Special Meeting, you must obtain a letter from the
broker, bank or other nominee confirming your beneficial ownership of the shares
and bring it to the Special Meeting. In order to vote your shares at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
In accordance with the General Corporation Law of the State of
Delaware, a complete list of the holders of record of Cavalier Shares entitled
to vote at the Special Meeting will be open to examination for any purpose
germane
<PAGE> 4
to the Special Meeting by any Cavalier stockholder during ordinary business
hours at Cavalier's headquarters for ten days preceding the Special Meeting and
continuing through the Special Meeting.
Regardless of how many shares you own, your vote is very important.
Please SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors,
/s/ Michael R. Murphy
MICHAEL R. MURPHY
Secretary
Addison, Alabama
December 2, 1997
<PAGE> 5
BELMONT HOMES, INC.
HIGHWAY 25 SOUTH
INDUSTRIAL PARK DRIVE
BELMONT, MISSISSIPPI 38827
December 2, 1997
To our Shareholders:
I am pleased to inform you that on August 14, 1997, Belmont Homes, Inc.
and Cavalier Homes, Inc. entered into an Agreement and Plan of Merger under
which Belmont will become a subsidiary of Cavalier and each outstanding share of
common stock of Belmont will be converted into 0.80 shares of common stock of
Cavalier. It is intended that the shareholders of Belmont will not recognize
gain or loss for federal income tax purposes to the extent Cavalier common stock
is received in the Merger in exchange for shares of Belmont common stock,
although the receipt of cash in lieu of fractional shares will be taxable.
At a Special Meeting of shareholders of Belmont to be held at the
Executive Inn, 1011 North Gloster, Tupelo, Mississippi 38801 at 9:00 a.m. local
time, on Wednesday, December 31, 1997, you will be asked to vote upon the
proposal to approve and adopt the Agreement and Plan of Merger. The Merger is
conditioned upon, among other things, the approval of the Agreement and Plan of
Merger by Belmont shareholders.
The Board of Directors has unanimously approved the Agreement and Plan
of Merger and has determined that the Merger contemplated by the Agreement and
Plan of Merger is fair to and in the best interests of Belmont and its
shareholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER.
Rauscher Pierce Refsnes, Inc. has acted as financial advisor to Belmont
in connection with the Merger and delivered its opinion to the Belmont Board
prior to the execution of the Agreement and Plan of Merger, which opinion has
been confirmed by Rauscher in writing as of the date of this Joint Proxy
Statement and Prospectus, to the effect that, based upon and subject to certain
matters stated therein, as of the date of such opinion, the exchange ratio is
fair to Belmont shareholders from a financial point of view. The full text of
the written opinion, which sets forth a description of the assumptions made,
matters considered and limitations on the review undertaken, is attached as
Annex C to the accompanying Joint Proxy Statement and Prospectus and should be
read carefully in its entirety.
The Belmont Board believes that the Merger offers Belmont shareholders
an opportunity to participate in an entity that, following the Merger, will
benefit from a number of strategic and financial synergies, as more fully
described in the attached Joint Proxy Statement and Prospectus.
Details of the proposed Merger and other important information
concerning Belmont and Cavalier are contained in the Joint Proxy Statement and
Prospectus. Please give this material your careful attention.
It is important that your shares be represented at the meeting. Whether
or not you plan to attend the Special Meeting, please complete, sign and date
the accompanying proxy card and return it in the enclosed postage-paid envelope.
Your prompt cooperation will be greatly appreciated.
We are gratified by your continued support.
Sincerely yours,
/s/ A. Douglas Jumper, Sr.
A. Douglas Jumper, Sr.
Chairman of the Board
<PAGE> 6
BELMONT HOMES, INC.
HIGHWAY 25 SOUTH, INDUSTRIAL PARK DRIVE
BELMONT, MISSISSIPPI 38827
----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 31, 1997
----------------------------------------
To the Shareholders of Belmont Homes, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Belmont Homes, Inc., a Mississippi corporation ("Belmont"), will be held on
Wednesday, December 31, 1997, at 9:00, local time, at the Executive Inn, 1011
North Gloster, Tupelo, Mississippi 38801 and at any adjournment or postponement
thereof (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 14, 1997, as
amended (the "Merger Agreement"), by and among Belmont,
Cavalier Homes, Inc., a Delaware corporation ("Cavalier"), and
Crimson Acquisition Corp., a Mississippi corporation and a
wholly owned subsidiary of Cavalier ("Sub"), and the Merger
(as hereinafter defined). Upon the terms and subject to the
conditions of the Merger Agreement, Sub will be merged with
and into Belmont and Belmont will become a wholly owned
subsidiary of Cavalier (the "Merger"). In the Merger, and as
more fully described in the accompanying Joint Proxy Statement
and Prospectus and in the Merger Agreement included as Annex A
thereto, each share of common stock, par value $0.10 per
share, of Belmont issued and outstanding immediately prior to
the effective time of the Merger (the "Belmont Shares") will
be converted into the right to receive 0.80 shares of common
stock, par value $0.10 per share, of Cavalier.
2. To transact such other business as is incident to the conduct
of the Special Meeting.
The close of business on November 21, 1997 has been fixed as the record
date for the determination of the shareholders entitled to notice of and to vote
at the Special Meeting and at any adjournment or postponement thereof. The
meeting may be adjourned or postponed from time to time without notice other
than such notice as may be given at the meeting or any adjournment or
postponement thereof, and any business for which notice is hereby given may be
transacted at any such adjourned or postponed meeting. An alphabetical list of
shareholders of Belmont entitled to notice of the Special Meeting will be
available for inspection by any shareholder beginning two business days after
the date of this notice and continuing through the Special Meeting at the
principal office of Belmont.
The affirmative vote of a majority of the outstanding Belmont Shares
entitled to vote at the Special Meeting is required to approve the Merger
Agreement. If the Merger is consummated, the shareholders of Belmont who (i) do
not vote in favor of the Merger, and (ii) who otherwise comply with applicable
Mississippi law relating to the exercise of dissenters' rights, will be entitled
to statutory appraisal rights for their Belmont Shares. See "TERMS OF THE MERGER
- -- Dissent and Appraisal Rights" in the accompanying Joint Proxy Statement and
Prospectus for a description of the procedures required to be followed to
perfect appraisal rights, and Annex D hereto for the full text of the
Mississippi law relating to the exercise of dissenters' rights.
Shareholders are invited to attend the Special Meeting. Whether or not
you expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the meeting, you
may vote your shares in person, which will revoke any previously executed proxy.
If your shares are held of record by a broker, bank or other nominee
and you wish to attend the Special Meeting, you must obtain a letter from the
broker, bank or other nominee confirming your beneficial ownership of the shares
and bring it to the Special Meeting. In order to vote your shares at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important.
Please SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors,
/s/ Thomas D. Keenum, Sr.
Thomas D. Keenum, Sr.
Secretary
Belmont, Mississippi
December 2, 1997
<PAGE> 7
PROSPECTUS
CAVALIER HOMES, INC.
Common Stock, $0.10 par value
-----------------------------------------
JOINT PROXY STATEMENT
CAVALIER HOMES, INC. BELMONT HOMES, INC.
Highway 41 North and Cavalier Road Highway 25 South, Industrial Park Drive
Addison, Alabama 35540 Belmont, Mississippi 38827
This Joint Proxy Statement and Prospectus ("Joint Proxy Statement and
Prospectus") relates to a proposed merger pursuant to an Agreement and Plan of
Merger, dated as of August 14, 1997, as amended (the "Merger Agreement"), by and
among Belmont Homes, Inc., a Mississippi corporation ("Belmont"), Cavalier
Homes, Inc., a Delaware corporation ("Cavalier"), and Crimson Acquisition Corp.,
a Mississippi corporation and a wholly-owned subsidiary of Cavalier ("Sub").
Upon the terms and subject to the conditions of the Merger Agreement,
Sub will be merged with and into Belmont, Belmont will be the surviving
corporation (the "Surviving Corporation") of such Merger and Belmont will become
a wholly-owned subsidiary of Cavalier (the "Merger"). In the Merger, and as more
fully described in this Joint Proxy Statement and Prospectus and in the Merger
Agreement, each share of common stock, par value $0.10 per share, of Belmont
(the "Belmont Shares") issued and outstanding immediately prior to the Merger
(except as otherwise provided in the Merger Agreement) will be converted into
the right to receive 0.80 (the "Exchange Ratio") shares of common stock, par
value $0.10 per share, of Cavalier (the "Cavalier Shares") and cash in lieu of
any fractional share. Outstanding stock options and warrants to purchase Belmont
Shares will be converted into options and warrants to purchase an equal number
of Cavalier Shares, multiplied by the Exchange Ratio, with the exercise price of
such outstanding options and warrants being divided by the Exchange Ratio. The
Merger Agreement also provides for the continuing availability following the
Merger of the shares reserved for the grant of new options pursuant to Belmont's
employee stock option plan, which will become available under the terms of
Cavalier's employee stock option plan. Pursuant to an amendment to the Cavalier
1996 Key Employee Stock Incentive Plan (the "Cavalier Stock Plan"), the number
of Belmont Shares reserved at the Effective Time for issuance pursuant to
ungranted options under the Belmont 1994 Incentive Stock Plan (the "Belmont
Stock Plan"), plus any number of such 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 Cavalier, Sub or Belmont not consented to by the applicable optionee,
lapse, terminate, expire or are cancelled following 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.
This Joint Proxy Statement and Prospectus constitutes the prospectus of
Cavalier filed as part of a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to up to 7,609,189 Cavalier Shares. Unless the context otherwise
requires, all references to Cavalier Shares in this Joint Proxy Statement and
Prospectus will include the associated preferred share purchase rights issued
pursuant to that certain Rights Agreement, dated as of October 23, 1996, between
Cavalier and ChaseMellon Shareholder Services, L.L.C. This Joint Proxy Statement
and Prospectus also serves as the proxy statement of Belmont relating to the
solicitation of proxies by its Board of Directors (the "Belmont Board") for use
at a special meeting of Belmont shareholders (including any adjournments or
postponements thereof) (the "Belmont Special Meeting") to be held at the
Executive Inn, 1011 North Gloster, Tupelo, Mississippi 38801 at 9:00 a.m. local
time, on December 31, 1997. At the Belmont Special Meeting, Belmont shareholders
will consider and vote upon a proposal to approve and adopt the Merger Agreement
and the Merger. In addition, this Joint Proxy Statement and Prospectus serves as
the proxy statement of Cavalier relating to the solicitation of proxies by the
Board of Directors of Cavalier (the "Cavalier Board") for use at a special
meeting of Cavalier stockholders (including any adjournments or postponements
thereof) (the "Cavalier Special Meeting") to be held at the offices of Cavalier,
Highway 41 North and Cavalier Road, Addison, Alabama 35540, at 9:00 a.m., local
time, on December 31, 1997. At the Cavalier Special Meeting, Cavalier
stockholders will consider and vote upon a proposal to approve the issuance of
Cavalier Shares in accordance with the terms of the Merger Agreement (the "Share
Issuance"). Approximately 7,609,189 Cavalier Shares will be issued in connection
with the Merger, approximately 360,000 Cavalier Shares will be reserved for
issuance upon exercise of outstanding Belmont stock options and warrants, and
approximately 500,000 Cavalier Shares (i.e., the number of Belmont Shares
available for grant under the Belmont Stock
<PAGE> 8
Plan multiplied by the Exchange Ratio) will be reserved for issuance pursuant to
awards to be granted under the Cavalier Stock Plan. See "TERMS OF THE MERGER --
Options and Warrants." The consummation of the Merger is subject, among other
things, to: (i) the approval of the Share Issuance by the affirmative vote of a
majority of the Cavalier Shares cast thereon at the Cavalier Special Meeting,
provided that the total number of votes cast on such proposal represents more
than 50% of the outstanding Cavalier Shares entitled to vote thereon at the
Cavalier Special Meeting, and (ii) the approval and adoption of the Merger
Agreement and the Merger by the affirmative vote of a majority of the
outstanding Belmont Shares entitled to vote thereon at the Belmont Special
Meeting. A copy of the Merger Agreement is attached hereto as Annex A.
Cavalier Shares are traded on the New York Stock Exchange ("NYSE")
under the symbol "CAV" and Belmont Shares are traded on The Nasdaq Stock Market
National Market ("Nasdaq") under the symbol "BHIX." The last reported sale
prices of Cavalier Shares and Belmont Shares on November 28, 1997 (the latest
practicable trading day before the printing of this Joint Proxy Statement and
Prospectus) were $9.75 and $7.625 per share, respectively. See "SUMMARY--
Trading Markets."
SEE "RISK FACTORS" ON PAGE 16 FOR CERTAIN ADDITIONAL FACTORS THAT
SHOULD BE CONSIDERED BY BELMONT SHAREHOLDERS AND CAVALIER STOCKHOLDERS IN
CONNECTION WITH THE PROPOSED ISSUANCE OF THE CAVALIER SHARES AND THE MERGER.
This Joint Proxy Statement and Prospectus and the accompanying form of
proxy are first being sent to Cavalier stockholders and Belmont shareholders on
or about December 2, 1997.
---------------------
THE CAVALIER SHARES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Joint Proxy Statement and Prospectus is December 2, 1997.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.............................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................1
SUMMARY .........................................................................................................3
The Companies................................................................................................3
Trading Markets..............................................................................................3
The Cavalier Special Meeting.................................................................................4
The Belmont Special Meeting..................................................................................5
The Proposed Merger; Terms of the Merger.....................................................................6
Comparison of Rights of Belmont Shareholders and Cavalier Stockholders.......................................9
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CAVALIER...............................................10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF BELMONT................................................11
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF CAVALIER..........................................13
COMPARATIVE PER SHARE DATA OF CAVALIER AND BELMONT...............................................................14
MARKET PRICE AND DIVIDENDS.......................................................................................15
RISK FACTORS.....................................................................................................16
Fixed Exchange Ratio Despite Change in Relative Stock Prices................................................16
Uncertainties in Integrating Business Operations and Achieving Benefits of the Merger.......................16
Potential Dilution..........................................................................................16
Conflicts of Interest of Certain Directors of Belmont and Cavalier..........................................17
Cyclical and Seasonal Nature of the Manufactured Housing Industry...........................................17
Limitations on Ability to Pursue Growth Strategy............................................................18
Uncertainties Regarding Retail Financing Activities.........................................................18
Limitations on Availability of Consumer and Dealer Financing................................................18
Potential Unavailability and Increases in Prices of Raw Materials...........................................18
Contingent Repurchase and Guaranty Obligations..............................................................19
Competitive Nature of the Industry..........................................................................19
Reliance on Executive Officers..............................................................................19
Dependence on Independent Dealers...........................................................................19
Potential Adverse Effects of Regulations....................................................................20
Compliance with Environmental Laws..........................................................................20
Litigation..................................................................................................21
Volatility of Stock Price...................................................................................21
THE CAVALIER SPECIAL MEETING.....................................................................................22
General.....................................................................................................22
Purpose of the Cavalier Special Meeting.....................................................................22
Record Date; Shares Outstanding.............................................................................22
Voting at the Cavalier Special Meeting......................................................................22
Solicitation of Proxies.....................................................................................23
Effect of Abstentions and "Broker Non-Votes"................................................................23
Appraisal Rights............................................................................................23
THE BELMONT SPECIAL MEETING......................................................................................24
General.....................................................................................................24
Purpose of the Belmont Special Meeting......................................................................24
Record Date; Shares Outstanding.............................................................................24
Voting at the Belmont Special Meeting.......................................................................24
Solicitation of Proxies.....................................................................................25
Effect of Abstentions and "Broker Non-Votes"................................................................25
Dissent and Appraisal Rights................................................................................25
THE PROPOSED MERGER..............................................................................................27
General.....................................................................................................27
Background of the Merger....................................................................................27
Recommendation of the Board of Directors of Cavalier and Cavalier's Reasons for the Merger..................30
Opinion of Financial Advisor to Cavalier....................................................................33
</TABLE>
i
<PAGE> 10
<TABLE>
<S> <C>
Recommendation of the Board of Directors of Belmont and Belmont's Reasons for the Merger...................38
Opinion of Financial Advisor to Belmont....................................................................40
Interests of Certain Persons in the Merger; Certain Relationships..........................................43
Plans for the Combined Companies Following the Merger......................................................46
TERMS OF THE MERGER.............................................................................................46
The Merger; Effective Time.................................................................................46
Conversion of Securities...................................................................................47
Options and Warrants.......................................................................................47
No Fractional Shares.......................................................................................48
Exchange of Stock Certificates.............................................................................48
Directors and Officers of Belmont..........................................................................48
Charter and Bylaws of Belmont..............................................................................49
Representations and Warranties.............................................................................49
Conduct of Business Pending the Merger.....................................................................49
Employee Benefits..........................................................................................49
Severance Policy...........................................................................................50
New Directors..............................................................................................50
Pooling-of-Interests and Tax-free Reorganization...........................................................50
Other Acquisition Proposals................................................................................50
Indemnification and Insurance..............................................................................50
Special Meetings...........................................................................................51
Conditions to the Merger...................................................................................51
Termination................................................................................................52
Effect of Termination; Remedies............................................................................53
Expenses...................................................................................................54
Amendment and Waiver.......................................................................................54
Regulatory Approvals.......................................................................................55
Accounting Treatment.......................................................................................55
Restrictions on Sales of Shares by Affiliates..............................................................55
NYSE Listing...............................................................................................56
Delisting and Deregistration of Belmont Shares.............................................................56
Dissent and Appraisal Rights...............................................................................56
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...........................................................57
NEW DIRECTORS OF CAVALIER.......................................................................................58
COMPENSATION OF DIRECTORS.......................................................................................58
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION..............................................................60
COMPARISON OF RIGHTS OF CAVALIER STOCKHOLDERS
AND BELMONT SHAREHOLDERS...................................................................................68
Amendments to Charter......................................................................................68
Amendments to Bylaws.......................................................................................68
Board Classification.......................................................................................69
Removal of Directors.......................................................................................69
Newly Created Directorships and Vacancies..................................................................69
Vote Required for Mergers, Consolidations, Share Exchanges, etc............................................69
Anti-takeover Provisions...................................................................................70
Dissenters' Rights.........................................................................................71
Limitation on Directors' Liability.........................................................................71
Indemnification............................................................................................72
Payment of Dividends.......................................................................................72
Rights Plans...............................................................................................72
DESCRIPTION OF CAVALIER CAPITAL STOCK...........................................................................73
General....................................................................................................73
Cavalier Shares............................................................................................73
Cavalier Common Preferred Shares...........................................................................73
Cavalier Stockholder Rights Plan...........................................................................73
Anti-Takeover Effects of Certain Cavalier By-Law Provisions................................................73
DESCRIPTION OF CAVALIER 1996 KEY EMPLOYEE STOCK INCENTIVE PLAN..................................................74
</TABLE>
ii
<PAGE> 11
<TABLE>
<S> <C>
MATERIAL CONTRACTS BETWEEN CAVALIER AND BELMONT.................................................................77
CERTAIN INFORMATION CONCERNING THE BUSINESS OF CAVALIER.........................................................77
CERTAIN INFORMATION CONCERNING THE BUSINESS OF BELMONT..........................................................77
General....................................................................................................77
Operations.................................................................................................78
Products...................................................................................................79
Competition................................................................................................80
Seasonality and Consumer Trends............................................................................80
Sales and Dealer Network...................................................................................81
Warranties and Service.....................................................................................81
Dealer and Retail Financing................................................................................81
Regulation.................................................................................................82
Trademarks.................................................................................................82
Legal Proceedings..........................................................................................83
Employees..................................................................................................83
Properties.................................................................................................83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BELMONT.......................................................................84
Results of Operations......................................................................................84
Liquidity and Capital Resources............................................................................88
Directors and Executive Officers of Belmont................................................................89
OWNERSHIP OF BELMONT SHARES.....................................................................................91
LEGAL MATTERS...................................................................................................92
EXPERTS.........................................................................................................92
OTHER MATTERS...................................................................................................92
PROPOSALS OF CAVALIER STOCKHOLDERS AND BELMONT SHAREHOLDERS.....................................................92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.....................................................................F-1
AGREEMENT AND PLAN OF MERGER...............................................................................Annex A
OPINION OF FINANCIAL ADVISOR TO CAVALIER...................................................................Annex B
OPINION OF FINANCIAL ADVISOR TO BELMONT....................................................................Annex C
DISSENTERS' RIGHTS.........................................................................................Annex D
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE MERGER OR THE OTHER MATTERS DISCUSSED IN
THIS JOINT PROXY STATEMENT AND PROSPECTUS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT AND PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY CAVALIER, SUB OR BELMONT. THIS JOINT PROXY STATEMENT
AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT AND
PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT AND PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS JOINT PROXY STATEMENT AND PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CAVALIER, SUB OR BELMONT SINCE THE DATE OF THIS JOINT PROXY STATEMENT
AND PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
iii
<PAGE> 12
AVAILABLE INFORMATION
Cavalier and Belmont are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
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, Suite 1300, New York, New York 10048, and 1401 Brickell Avenue,
Suite 200, Miami, Florida 33131. 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. In addition, material filed by Cavalier
can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005. 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, such as Cavalier and Belmont, that file
electronically with the Commission.
Cavalier has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Cavalier Shares to be issued
pursuant to the Merger Agreement. This Joint Proxy Statement and Prospectus
constitutes the prospectus of Cavalier filed as part of the Registration
Statement and does not contain all the information set forth in the Registration
Statement and exhibits thereto, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement and Prospectus:
(1) Cavalier's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (including the portions of Cavalier's
Proxy Statement for its Annual Meeting of Stockholders held
May 14, 1997 that are incorporated by reference therein) (File
No. 1-9792).
(2) Cavalier's Quarterly Reports on Form 10-Q for the quarters
ended March 28, 1997, June 27, 1997 and September 26, 1997
(File No. 1-9792).
(3) Cavalier's Current Report on Form 8-K dated August 20, 1997
(File No. 1-9792).
(4) The description of Cavalier Shares contained in Cavalier's
Registration Statement on Form 8-A, filed with the Commission
under the Exchange Act on December 9, 1987, as amended by
Cavalier's Form 8-A dated December 16, 1987, and as updated
(A) in the Registration Statement on Form S-3, effective June
23, 1993 (File No. 1-9792), to reflect the increase of the
number of shares of authorized common stock from 5,000,000
shares to 15,000,000 shares, (B) by the Registration Statement
on Form 8-A filed with the Commission under the Exchange Act
on December 2, 1994 (File No. 1- 9792), reflecting the listing
of the Common Stock on the NYSE, and (C) under the caption
"Proposed Amendment to Certificate of Incorporation" in the
Cavalier Proxy Statement dated March 25, 1997 (File No.
1-9792) to reflect the increase of the number of shares of
authorized common stock from 15,000,000 to 50,000,000.
(5) The description of the Preferred Stock Purchase Rights
contained in Cavalier's Registration Statement on Form 8-A
filed with the Commission under the Exchange Act on October
29, 1996 (File No. 1- 9792), and as amended by the Company's
Form 8-A filed on November 11, 1996 (File No. 1-9792).
All documents and reports filed by Cavalier or Belmont pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement and Prospectus and prior to the date of the Cavalier
Special Meeting and the Belmont Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated by reference herein
shall be deemed
1
<PAGE> 13
to be modified or superseded for purposes of this Joint Proxy Statement and
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement and Prospectus.
THIS JOINT PROXY STATEMENT AND PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO CAVALIER WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN
EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF CAVALIER SHARES OR
BELMONT SHARES, TO WHOM THIS JOINT PROXY STATEMENT AND PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
MICHAEL R. MURPHY, CAVALIER HOMES, INC., P. O. BOX 540, ADDISON, ALABAMA 35540,
TELEPHONE NUMBER (205)747-0044. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY
REQUESTED DOCUMENT, REQUESTS SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR TO THE
DATE OF THE CAVALIER SPECIAL MEETING AND THE BELMONT SPECIAL MEETING.
All information contained in this Joint Proxy Statement and Prospectus
relating to Belmont and its subsidiaries has been supplied by Belmont and all
information relating to Cavalier and its subsidiaries has been supplied by
Cavalier.
When used in or incorporated into this Joint Proxy Statement and
Prospectus with respect to Cavalier, the words "estimate," "project," "intend,"
"expect," "anticipate," and "believe" and similar expressions, as well as
certain statements marked with an asterisk in certain of Cavalier's periodic
reports filed under the Exchange Act that are incorporated herein, are intended
to identify or to be forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Joint Proxy Statement and Prospectus. Such statements are
subject to certain assumptions, risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Such assumptions, risks and uncertainties include, without
limitation, those assumptions, risks, and uncertainties identified under the
heading "RISK FACTORS" in this Joint Proxy Statement and Prospectus, and in the
Cavalier Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
and in the Cavalier Quarterly Report on Form 10-Q for the quarters ended March
28, 1997, June 27, 1997 and September 26, 1997 under the headings "'Safe Harbor'
Statement Under the Private Securities Litigation Reform Act of 1995." Cavalier
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
When used in or incorporated into this Joint Proxy Statement and
Prospectus with respect to Belmont, the words "estimate," "project," "intend,"
"expect," "anticipate," and "believe" and similar expressions are intended to
identify or to be forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Joint Proxy Statement and Prospectus. Such statements are subject
to assumptions, risks and uncertainties that could cause actual results to
differ materially from those contemplated in such forward-looking statements.
Such assumptions, risks and uncertainties include those assumptions, risks and
uncertainties identified under the heading "RISK FACTORS" in this Joint Proxy
Statement and Prospectus. Belmont does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
2
<PAGE> 14
SUMMARY
The following is a summary of certain information contained elsewhere
in this Joint Proxy Statement and Prospectus, including the Annexes hereto,
which are a part of this Joint Proxy Statement and Prospectus. This Summary is
not, and is not intended to be, complete in itself. Reference is made to, and
this Summary is qualified in its entirety by, the more detailed information
contained elsewhere in this Joint Proxy Statement and Prospectus. Shareholders
are encouraged to read carefully all of the information contained in the Joint
Proxy Statement and Prospectus and in the Annexes hereto. Unless otherwise
defined herein, capitalized terms used in this Summary have the respective
meanings ascribed to them elsewhere in this Joint Proxy Statement and
Prospectus.
THE COMPANIES
Cavalier
Cavalier, through its wholly-owned subsidiaries and their respective
divisions, designs, produces and sells manufactured homes. Cavalier markets its
homes through approximately 400 independent non-exclusive dealers, plus
approximately 140 independent exclusive dealers, located in 32 states with
approximately 600 sales centers. Cavalier currently operates 14 manufacturing
facilities. Through its wholly-owned subsidiary, Cavalier Acceptance Corporation
("CAC"), Cavalier also makes installment sale financing available to qualifying
retail customers of its exclusive dealers. The principal executive offices of
Cavalier are located at Highway 41 North and Cavalier Road, Addison, Alabama
35540, and its telephone number is (205) 747-0044. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," and "CERTAIN INFORMATION
CONCERNING THE BUSINESS OF CAVALIER."
Belmont
Belmont produces a variety of single- and double-section manufactured
homes which are marketed primarily in the southern United States. Belmont and
its wholly-owned subsidiaries operate four production facilities in Mississippi,
two production facilities in Arkansas, and two production facilities in Georgia.
The principal executive offices of Belmont are located at Highway 25 South,
Industrial Park Drive, Belmont Mississippi 38827, and its telephone number is
(601) 454-9217. See "AVAILABLE INFORMATION" and "CERTAIN INFORMATION CONCERNING
THE BUSINESS OF BELMONT."
Crimson Acquisition Corp.
Sub was incorporated in Mississippi on August 1, 1997 solely for the
purpose of consummating the Merger and the other transactions contemplated by
the Merger Agreement. Sub has no assets and no business and has carried on no
activities which are not directly related to its formation and its execution of
the Merger Agreement. Its principal executive offices are located at Highway 41
North and Cavalier Road, Addison, Alabama 35540, and its telephone number is
(205) 747-0044.
TRADING MARKETS
Cavalier Shares are traded on the NYSE under the symbol "CAV" and
Belmont Shares are traded on Nasdaq under the symbol "BHIX." The last reported
sale prices of Cavalier Shares and Belmont Shares on August 13, 1997, the last
trading day prior to the public announcement of the execution of the Merger
Agreement, were $10.1875 per Cavalier Share, as reported on the NYSE Composite
Transactions Tape, and $7.875 per Belmont Share, as reported on Nasdaq. The last
reported sale prices of Cavalier Shares and Belmont Shares on November 28, 1997,
the latest practicable trading day prior to the printing of this Joint Proxy
Statement and Prospectus, were $9.75 per Cavalier Share, as reported on the NYSE
Composite Transactions Tape, and $7.625 per Belmont Share, as reported on
Nasdaq. See "MARKET PRICE AND DIVIDENDS."
3
<PAGE> 15
THE CAVALIER SPECIAL MEETING
Time, Date and Place
The Cavalier Special Meeting will be held on Wednesday, December 31,
1997 at 9:00 a.m., local time, at the offices of Cavalier, Highway 41 North and
Cavalier Road, Addison, Alabama. See "THE CAVALIER SPECIAL MEETING --General."
Purpose of the Meeting
Cavalier stockholders will consider and vote upon a proposal to approve
the Share Issuance. See "THE CAVALIER SPECIAL MEETING -- Purpose of the Cavalier
Special Meeting."
Record Date
Cavalier stockholders of record at the close of business on November
25, 1997 (the "Cavalier Record Date") are entitled to notice of and to vote at
the Cavalier Special Meeting and at any adjournment or postponement thereof. See
"THE CAVALIER SPECIAL MEETING -- Record Date; Shares Outstanding."
Voting Rights
Each Cavalier Share is entitled to one vote with respect to all matters
presented at the Cavalier Special Meeting. See "THE CAVALIER SPECIAL MEETING --
Voting at the Cavalier Special Meeting."
Vote Required
Approval of the Share Issuance requires the affirmative vote of a
majority of the total votes cast by Cavalier stockholders with respect to the
Share Issuance, provided that the total number of votes cast thereon represents
more than 50% of the outstanding Cavalier Shares entitled to vote on the Share
Issuance. Consummation of the Merger is conditioned upon, among other things,
the approval of the Share Issuance by Cavalier stockholders. See "THE CAVALIER
SPECIAL MEETING -- Voting at the Cavalier Special Meeting."
Share Ownership of Management
At the close of business on the Cavalier Record Date, directors and
executive officers of Cavalier and their affiliates were the owners of an
aggregate of 823,930 Cavalier Shares (approximately 6.7% of the outstanding
shares) and held options to purchase an aggregate of 640,605 Cavalier Shares.
All directors and executive officers of Cavalier are expected to vote, or cause
to be voted, all shares over which they exercise voting control (approximately
6.7% of the outstanding shares) FOR the approval of the Share Issuance. See "THE
CAVALIER SPECIAL MEETING --Record Date; Shares Outstanding."
Revocability of Proxy
Any Cavalier stockholder who executes and returns a proxy may revoke
such proxy at any time before it is voted by (i) filing with the Secretary of
Cavalier, at or before the Cavalier Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same Cavalier Shares and delivering it to the Secretary of
Cavalier at or before the Cavalier Special Meeting or (iii) attending the
Cavalier Special Meeting and voting in person by ballot. Attendance at the
Cavalier Special Meeting will not in and of itself constitute revocation of a
proxy. See "THE CAVALIER SPECIAL MEETING -- Voting at the Cavalier Special
Meeting."
4
<PAGE> 16
THE BELMONT SPECIAL MEETING
Time, Date and Place
The Belmont Special Meeting will be held on Wednesday, December 31,
1997 at 9:00 a.m., local time, at the Executive Inn, 1011 North Gloster, Tupelo,
Mississippi 38801. See "THE BELMONT SPECIAL MEETING --General."
Purpose of the Meeting
Belmont shareholders will consider and vote upon a proposal to approve
and adopt the Merger Agreement and the Merger. See "THE BELMONT SPECIAL MEETING
- -- Purpose of the Belmont Special Meeting."
Record Date
Belmont shareholders of record at the close of business on November 21,
1997 (the "Belmont Record Date") are entitled to notice of and to vote at the
Belmont Special Meeting and at any adjournment or postponement thereof. See "THE
BELMONT SPECIAL MEETING -- Record Date; Shares Outstanding."
Voting Rights
Each Belmont Share is entitled to one vote with respect to all matters
presented at the Belmont Special Meeting. See "THE BELMONT SPECIAL MEETING --
Voting at the Belmont Special Meeting."
Vote Required
The affirmative vote of holders of a majority of the outstanding
Belmont Shares entitled to vote at the Special Meeting is required to approve
and adopt the Merger Agreement and the Merger. Consummation of the Merger is
conditioned upon, among other things, the approval and adoption of the Merger
Agreement by Belmont shareholders. See "THE BELMONT SPECIAL MEETING -- Voting at
the Belmont Special Meeting."
Share Ownership of Management
At the close of business on the Belmont Record Date, directors and
executive officers of Belmont and their affiliates were the record owners of an
aggregate of approximately 1,570,687 Belmont Shares (approximately 16.6% of the
outstanding shares) and held options to purchase an aggregate of approximately
210,750 Belmont Shares. All directors and executive officers of Belmont are
expected to vote, or cause to be voted, all shares over which they exercise
voting control (approximately 16.6% of the outstanding shares) FOR the approval
and adoption of the Merger Agreement and the Merger. See "THE BELMONT SPECIAL
MEETING -- Record Date; Shares Outstanding."
Revocability of Proxy
Any Belmont shareholder who executes and returns a proxy may revoke
such proxy at any time before it is voted by (i) filing a written notice of
revocation with the Secretary of Belmont prior to the Belmont Special Meeting,
(ii) presenting another executed proxy with a subsequent date or (iii) attending
and voting in person at the Belmont Special Meeting. Attendance at the Belmont
Special Meeting will not in and of itself constitute revocation of a proxy. See
"THE BELMONT SPECIAL MEETING -- Voting at the Belmont Special Meeting."
Dissent and Appraisal Rights
If the Merger is consummated, the shareholders of Belmont who (i) do
not vote in favor of the Merger, and (ii) who otherwise comply with applicable
Mississippi law relating to the exercise of dissenters' rights, will be entitled
to statutory appraisal rights for their Belmont Shares. See "THE BELMONT SPECIAL
MEETING -- Dissent and Appraisal Rights" and Annex D to this Joint Proxy
Statement and Prospectus.
5
<PAGE> 17
THE PROPOSED MERGER; TERMS OF THE MERGER
General
Upon the terms and subject to the conditions of the Merger Agreement,
Sub will be merged with and into Belmont, Belmont will be the Surviving
Corporation of such merger and Belmont will become a wholly owned subsidiary of
Cavalier. See "TERMS OF THE MERGER -- The Merger; Effective Time."
Effective Time
The Merger will become effective upon the execution and filing of
appropriate Articles of Merger with the Secretary of State of the State of
Mississippi in accordance with the Mississippi Business Corporation Act or at
such subsequent date or time as shall be agreed by Cavalier and Belmont and be
specified in the Articles of Merger (the "Effective Time"). The Merger will be
effective on a date (the "Closing Date") to be specified by the parties to the
Merger Agreement, which will be no later than two business days after
satisfaction or waiver of the conditions set forth in Article VI of the Merger
Agreement. See "TERMS OF THE MERGER -- The Merger; Effective Time; and
- --Conditions to the Merger."
Conversion of Shares
In the Merger, each Belmont Share issued and outstanding immediately
prior to the Effective Time (except as otherwise provided in the Merger
Agreement) will be converted into the right to receive 0.80 Cavalier Shares. See
"TERMS OF THE MERGER -- Conversion of Securities."
Options and Warrants
At the Effective Time, each Belmont Option granted under the Belmont
Option Plans (as hereinafter defined) which is unexpired and unexercised
immediately prior thereto will cease to represent a right to acquire Belmont
Shares and will be assumed by Cavalier and converted into an Adjusted Option (as
hereinafter defined) to acquire, on the same terms and conditions as were
applicable under the Belmont Options and the plans under which they were issued,
that number of Cavalier Shares equal to the number of Belmont Shares issuable
immediately prior to the Effective Time upon exercise of the Belmont Options,
multiplied by the Exchange Ratio, with an exercise price equal to the exercise
price which existed under the corresponding Belmont Options divided by the
Exchange Ratio. See "TERMS OF THE MERGER -- Options and Warrants."
The Merger Agreement also provides for the continuing availability
following the Merger of the shares reserved for the grant of new options
pursuant to the Belmont Stock Plan, which will become available under the terms
of the Cavalier Stock Plan. Pursuant to an amendment to the Cavalier Stock Plan,
Cavalier Shares equal to the number of Belmont Shares which remain available
under the Belmont Stock Plan, or which thereafter become available under the
Belmont Stock Plan due to the expiration, cancellation, termination or lapse of
outstanding options, according to the express terms of such options and the plan
under which they were granted and not pursuant to any action by Cavalier, Sub or
Belmont not consented to by the applicable optionee, will be available for
issuance under the Cavalier Stock Plan, with such numbers in each case being
multiplied by the Exchange Ratio . See "TERMS OF THE MERGER -- Options and
Warrants" and "DESCRIPTION OF CAVALIER 1996 KEY EMPLOYEE STOCK INCENTIVE PLAN."
At the Effective Time, that certain warrant to purchase 75,000 Belmont
Shares which was issued to The Suddath Companies on October 25, 1996, in
connection with Belmont's acquisition of Bellcrest Homes, Inc. (the "Suddath
Warrant"), will be assumed by Cavalier and will become a warrant to acquire on
the same terms and conditions as were applicable to the Suddath Warrant prior to
the Effective Time that number of Cavalier Shares equal to the number of Belmont
Shares issuable immediately prior to the Effective Time upon exercise of the
Suddath Warrant, multiplied by the Exchange Ratio, with an exercise price of
$14.67 divided by the Exchange Ratio. See "TERMS OF THE MERGER -- Options and
Warrants."
6
<PAGE> 18
Fractional Interests
Fractional interests of Cavalier Shares will not be issued in the
Merger. Belmont shareholders will be paid cash in lieu of such fractional
interests. See "TERMS OF THE MERGER -- No Fractional Shares."
Recommendation of the Board of Directors of Cavalier and Cavalier's Reasons for
the Merger
The Cavalier Board, based on certain factors described in more detail
below, including the opinion of Equitable Securities Corporation ("Equitable"),
financial advisor to Cavalier, which opinion was delivered to the Cavalier Board
on August 13, 1997 and confirmed in writing as of the date of this Joint Proxy
Statement and Prospectus (the "Equitable Opinion"), concluded that the Merger is
fair to and in the best interests of Cavalier and its stockholders, unanimously
approved the Merger Agreement and resolved to recommend that Cavalier
stockholders approve the Share Issuance. A copy of the Equitable Opinion is
attached hereto as Annex B. Cavalier stockholders are urged to read the
Equitable Opinion in its entirety for assumptions made, procedures followed,
other matters considered and limits of the review by Equitable. The Cavalier
Board has reviewed the terms and conditions of the Merger Agreement and
considered certain factors, including the Equitable Opinion. After consideration
of each of these factors, the Cavalier Board unanimously concluded that the
Merger is in the best interests of Cavalier's stockholders and unanimously
approved the Merger Agreement and the terms and conditions of the Merger. The
Cavalier Board recognized that there were potential challenges to a combination
with Belmont, including challenges to both companies' management teams,
uncertainty in the manufactured housing industry and the prospects for the two
companies, the issuance of Cavalier Shares at a time when its shares and those
of other manufactured housing companies are trading below recent historical
levels, and the possibility that the transaction may have a dilutive effect on
Cavalier's earnings per share in 1997 and 1998. The Cavalier Board, however,
believes that the Merger represents an opportunity to create a larger and
stronger company with an enhanced balance sheet and a broader product line and
distribution base, and that in the current environment of increased competitive
conditions and potential industry consolidation, the Merger is of strategic
importance to Cavalier's efforts to position itself as an effective competitor
in the coming years. The Cavalier Board also believes that the combined company
can realize operational and financial benefits by leveraging each of the
separate companies' specific strengths. The Cavalier Board further believes that
the Merger will bring opportunities for cost savings, economies of scale and
other synergies, and ultimately for increased expansion of its finance
subsidiary and independent dealer network, resulting in possible improved
cash-flow and profit potential for the long-term growth of Cavalier and of
stockholder value.
THE CAVALIER BOARD UNANIMOUSLY RECOMMENDS THAT CAVALIER
STOCKHOLDERS VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE CAVALIER SPECIAL
MEETING. Certain directors of Cavalier may be deemed to have certain interests
in the Merger in addition to their interests as Cavalier stockholders. See "THE
PROPOSED MERGER-- Recommendation of the Board of Directors of Cavalier and
Cavalier's Reasons for the Merger; -- Opinion of Financial Advisor to Cavalier;
and -- Interests of Certain Persons in the Merger; Certain Relationships."
Recommendation of the Board of Directors of Belmont and Belmont's Reasons for
the Merger
The Belmont Board has reviewed the Merger Agreement and the terms and
conditions of the Merger, and Rauscher Pierce Refsnes, Inc. ("Rauscher"),
financial advisor to Belmont, has delivered its opinion on August 13, 1997 to
the Belmont Board which was confirmed as of the date of this Joint Proxy
Statement and Prospectus (the "Rauscher Opinion") to the effect that, as of such
date and based on, and subject to the assumptions, limitations and
qualifications set forth in such opinion, the Exchange Ratio is fair to Belmont
shareholders from a financial point of view. A copy of the Rauscher Opinion is
attached as Annex C to this Joint Proxy Statement and Prospectus. Belmont
shareholders are urged to read the Rauscher Opinion in its entirety for
assumptions made, procedures followed, other matters considered and limits of
the review by Rauscher. The Belmont Board has reviewed the terms and conditions
of the Merger Agreement and considered certain factors, including the Rauscher
Opinion. After consideration of each of these factors, the Belmont Board
unanimously concluded that the Merger is in the best interests of Belmont's
shareholders and unanimously approved the Merger Agreement and the terms and
conditions of the Merger. The Belmont Board believes that the Merger offers
Belmont and its shareholders an opportunity to continue to participate in the
manufactured housing industry through a stronger, combined company. Following
the consummation of the Merger, the Belmont Board believes that Cavalier's
ability to compete in the manufactured housing industry will be strengthened
7
<PAGE> 19
by the potential economies and cost savings expected to be afforded by the
Merger, and the complementary nature of the businesses and management teams of
Belmont and Cavalier. The Belmont Board believes that these and other potential
synergies offered by the Merger will, if any such benefits are ultimately
realized, be beneficial to Belmont's shareholders.
THE BELMONT BOARD UNANIMOUSLY RECOMMENDS THAT BELMONT
SHAREHOLDERS VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER AT THE BELMONT SPECIAL MEETING. Certain directors of Belmont
may be deemed to have certain interests in the Merger in addition to their
interests as Belmont shareholders. See "THE PROPOSED MERGER -- Recommendation of
the Board of Directors of Belmont and Belmont's Reasons for the Merger; --
Opinion of Financial Advisor to Belmont; and -- Interests of Certain Persons in
the Merger; Certain Relationships."
Interests of Certain Persons in the Merger; Certain Relationships
Belmont shareholders and Cavalier stockholders should be aware that
certain directors and members of management of Belmont and Cavalier may be
deemed to have an interest in the Merger in addition to their interests as
Belmont shareholders and Cavalier stockholders. The Belmont Board and the
Cavalier Board were aware of these interests and considered them, among other
matters, in approving the Merger Agreement and in recommending the Merger
Agreement and the Share Issuance for shareholder and stockholder approval. See
"THE PROPOSED MERGER -- Interests of Certain Persons in the Merger; Certain
Relationships."
New Directors of Cavalier
Cavalier has agreed to create two additional seats on the Cavalier
Board and to cause each of A. Douglas Jumper, Sr., Chairman of Belmont, and Mike
Kennedy, Senior Vice President of Administration and a director of Belmont, to
be elected to the Cavalier Board for a term expiring at Cavalier's next annual
meeting of stockholders following the Effective Time, subject to being
renominated as a director at the discretion of Cavalier's Board. See "NEW
DIRECTORS OF CAVALIER."
Conditions to the Merger
The respective obligations of each party to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of a number of
conditions, including, among others and without limitation, (i) the approval of
the Merger Agreement and the Merger by the requisite vote of Belmont
shareholders at the Belmont Special Meeting, with holders of not more than 7% of
the outstanding Belmont Shares electing to exercise their right to dissent, (ii)
the approval of the Share Issuance by the requisite vote of Cavalier
stockholders at the Cavalier Special Meeting, (iii) the receipt by Belmont of a
tax opinion of Bradley Arant Rose &White LLP ("Bradley Arant") respecting
certain federal income tax consequences of the Merger, (iv) receipt by each of
Belmont and Cavalier of "comfort" letters from the other's independent
accountants as well as letters stating that the Merger will qualify as a
pooling-of-interests transaction under Opinion 16 of the Accounting Principles
Board, (v) receipt by Cavalier and Belmont of the Equitable Opinion and the
Rauscher Opinion, respectively, as of the date of mailing this Joint Proxy
Statement and Prospectus, and (vi) the expiration or termination of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"). The waiting period under the HSR Act expired on
September 25, 1997. See "TERMS OF THE MERGER -- Conditions to the Merger; and --
Regulatory Approvals."
Regulatory Approvals
Other than the expiration or termination of the relevant waiting period
under the HSR Act, neither Cavalier nor Belmont is aware of any regulatory
approvals required by any governmental authorities to consummate the Merger.
See "TERMS OF THE MERGER -- Regulatory Approvals."
8
<PAGE> 20
Termination; Expenses; Termination Fee
Notwithstanding the approval of the Share Issuance by Cavalier
stockholders or the approval and adoption of the Merger Agreement and the Merger
by Belmont shareholders, under certain circumstances, the Merger Agreement may
be terminated and the Merger abandoned prior to the Effective Time, including a
failure to consummate the Merger before December 31, 1997 (which date was
extended on December 1, 1997 to on or before December 31, 1997), failure of
either the Belmont shareholders to approve the Merger Agreement and the Merger
or the Cavalier stockholders to approve the Share Issuance, material breach by
either party of covenants, agreements, representations or warranties contained
in the Merger Agreement, determination by the Belmont Board to engage in a
"Competing Transaction" (as hereinafter defined), determination by the Belmont
Board to rescind or modify its recommendation of the Merger to the Belmont
shareholders, failure of the Belmont Board to recommend against a tender offer
or exchange offer for 25% or more of the outstanding Belmont Shares, or if the
Average Closing Price (as hereinafter defined) of Cavalier Shares on specified
dates prior to the Belmont Special Meeting drops below 75% of the Average
Closing Price of Cavalier Shares on the date of the Merger Agreement. See "TERMS
OF THE MERGER -- Termination." Under specified circumstances, upon termination
of the Merger Agreement a party may be required to reimburse reasonable
documented out-of-pocket expenses, not to exceed $600,000, incurred by the other
party in connection with the transactions contemplated in the Merger Agreement.
Under certain circumstances upon termination of the Merger Agreement, if Belmont
or Cavalier enters into a definitive agreement with respect to a Competing
Transaction and consummates such a transaction, a termination fee of $2,000,000,
less any amounts paid or payable as reimbursement of reasonable documented
out-of-pocket expenses incurred in connection with the transactions contemplated
by the Merger Agreement, may be required to be paid by Belmont or Cavalier, as
the case may be. See "TERMS OF THE MERGER -- Expenses; and -- Effect of
Termination; Remedies."
Accounting Treatment
It is intended that the Merger will be accounted for as a
pooling-of-interests in accordance with generally accepted accounting
principles. See "TERMS OF THE MERGER -- Accounting Treatment."
Certain Federal Income Tax Consequences of the Merger
The Merger is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Belmont's and Cavalier's respective obligations to effect the Merger
are conditioned upon the delivery of an opinion from Bradley Arant, counsel to
Cavalier, on the date of the mailing of this Joint Proxy Statement and
Prospectus, which opinion must not be withdrawn or modified in any material way
prior to the Effective Time, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, for federal
income tax purposes the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and no gain or loss will be recognized by
Belmont shareholders upon the receipt of Cavalier Shares in exchange for their
Belmont Shares in connection with the Merger (except with respect to cash
received in lieu of fractional Cavalier Shares). Each shareholder is urged to
consult such shareholder's tax advisors as to the tax consequences of the Merger
to the shareholder under federal, state, local or any other applicable law after
taking into account the shareholder's particular tax status and attributes. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
NYSE Listing
Cavalier has agreed to cause the Cavalier Shares to be issued in
connection with the Merger to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time. See "TERMS OF THE
MERGER -- NYSE Listing; -- Conditions to the Merger."
Dissent and Appraisal Rights
Under the Delaware General Corporation Law, Cavalier stockholders will
not be entitled to any appraisal rights in connection with the Share Issuance.
Under the Mississippi Business Corporation Act, Belmont shareholders will be
entitled to appraisal rights in connection with the Merger Agreement and the
transactions contemplated thereby. See "TERMS OF THE MERGER -- Dissent and
Appraisal Rights" and Annex D to this Joint Proxy Statement and Prospectus.
COMPARISON OF RIGHTS OF BELMONT SHAREHOLDERS AND CAVALIER STOCKHOLDERs
Upon consummation of the Merger, Belmont shareholders will become
Cavalier stockholders. There are differences between the rights of Belmont
shareholders and the rights of Cavalier stockholders. These differences result
from differences between Mississippi and Delaware law and differences between
the governing instruments of Belmont and Cavalier. For a summary of certain
differences between the rights of Belmont shareholders and the rights of
Cavalier stockholders, see "COMPARISON OF RIGHTS OF CAVALIER STOCKHOLDERS AND
BELMONT SHAREHOLDERS."
9
<PAGE> 21
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CAVALIER
The following selected financial information of Cavalier for each year
of the five-year period ended December 31, 1996 has been derived from the
audited consolidated financial statements of Cavalier. The selected financial
information of Cavalier for the thirty-nine weeks ended September 26, 1997 and
September 27, 1996 have been derived from Cavalier's unaudited interim financial
statements, which contain all adjustments Cavalier considers necessary to
present fairly the financial position and results of operations for such
periods. All adjustments are of a normal recurring nature.
Cavalier acquired all of the outstanding common stock of Homestead
Homes, Inc. ("Homestead") on February 26, 1993, and on October 28, 1994,
Cavalier acquired all of the outstanding stock of Astro Mfg. Co., Inc.
("Astro"). The selected financial information of Cavalier reflects the effects
of the Homestead and Astro acquisitions from the respective dates of
acquisition.
The selected financial information of Cavalier should be read in
conjunction with the audited consolidated financial statements and other
financial information contained in Cavalier's Annual Report on Form 10-K for the
year ended December 31, 1996, incorporated by reference and contained elsewhere
herein, and the unaudited consolidated interim financial information contained
in Cavalier's Quarterly Report on Form 10-Q for the thirty-nine weeks ended
September 26, 1997, including the notes thereto, incorporated by reference and
contained elsewhere herein. See "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," and "UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION".
<TABLE>
<CAPTION>
(In thousands, except For the Thirty-Nine
per share amounts) Weeks Ended Year Ended December 31,
--------------------- ----------------------------------------------------
Sept. 26, Sept. 27,
STATEMENT OF INCOME DATA 1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $249,397 $254,598 $ 345,415 $ 272,486 $206,442 $155,595 $106,405
Financial services 3,820 2,259 3,333 1,764 703 230 60
-------- -------- --------- --------- -------- -------- --------
Total revenue $253,217 $256,857 $ 348,748 $ 274,250 $207,145 $155,825 $106,465
Net income(1) $ 9,230 $ 10,005 $ 15,366 $ 9,020 $ 5,079 $ 3,333 $ 2,014
Net income per share(1)(2) $ 0.74 $ 0.82 $ 1.25 $ 0.79 $ 0.52 $ 0.41 $ 0.28
Cash dividend per share(2) $ 0.090 $ 0.072 $ 0.102 $ 0.058 $ 0.034 $ 0.029 $ 0.023
Weighted average number of shares
outstanding(2) 12,426 12,223 12,258 11,486 9,836 8,092 7,279
BALANCE SHEET DATA
Net working capital $ 8,432 $ 8,931 $ 8,473 $ 11,121 $ 12,576 $ 5,483 $ 5,328
Total assets $133,917 $116,662 $ 115,574 $ 82,626 $ 63,763 $ 31,182 $ 19,966
Long-term debt $ 10,030 $ 5,340 $ 4,918 $ 4,314 $ 3,207 $ -- $ --
Stockholders' equity $ 78,521 $ 63,266 $ 68,805 $ 46,071 $ 36,460 $ 16,632 $ 9,835
</TABLE>
(1) Includes nonrecurring proceeds of $1.75 million received by Cavalier
pursuant to an officer's life insurance policy during the year ended
December 31, 1996.
(2) As adjusted for all stock splits through November 1996.
10
<PAGE> 22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF BELMONT
The following selected financial information of Belmont for each year
of the five-year period ended December 31, 1996 has been derived from the
audited consolidated financial statements of Belmont. The selected financial
information of Belmont for the nine months ended September 30, 1997 and 1996
have been derived from Belmont's unaudited interim financial statements, which
contain all adjustments Belmont considers necessary to present fairly the
financial position and results of operations for such periods. All adjustments
are of a normal recurring nature.
Belmont acquired all of the outstanding common stock of Spirit Homes,
Inc. ("Spirit") in October 1995, and in October 1996, Belmont acquired all of
the outstanding stock of Bellcrest Homes, Inc. ("Bellcrest"). The selected
financial information of Belmont reflects the effects of the Spirit and
Bellcrest acquisitions from the respective dates of acquisition.
The selected financial information of Belmont should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations of Belmont and the Financial Statements of Belmont and
related notes thereto, all contained elsewhere herein. See "AVAILABLE
INFORMATION," "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BELMONT," and "CONSOLIDATED FINANCIAL STATEMENTS OF BELMONT HOMES,
INC."
<TABLE>
<CAPTION>
Predecessor(1)
--------------------
Period Period
Year Ended from from Year
(In thousands, except per share data) December 31, Pro June 1, to January 1, Ended
------------------------------- Forma Dec. 31, to May 31, Dec. 31,
STATEMENT OF INCOME DATA: 1996 1995 1994 1993 1993 1993 1992
------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross sales $ 234,050 $ 150,576 $ 107,423 $ 70,765 $ 44,125 $ 26,639 $ 41,441
Less: dealer rebates 6,233 2,272 1,597 660 324 336 150
--------- --------- --------- --------- --------- --------- ---------
Net sales 227,817 148,304 105,826 70,105 43,801 26,303 41,291
Cost of sales 197,801 127,165 89,902 59,988 37,027 22,941 35,869
--------- --------- --------- --------- --------- --------- ---------
Gross profit 30,016 21,139 15,924 10,117 6,774 3,362 5,422
Selling, general and administrative
expenses 10,799 7,061 5,134 3,798 2,386 1,257 2,048
--------- --------- --------- --------- --------- --------- ---------
Income from operations 19,217 14,078 10,790 6,319 4,388 2,105 3,374
Other expenses (income), net (420) 314 1,062 1,014 637 (34) 104
Income taxes 7,524 5,154 3,349 1,996 1,430 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income 12,113 8,610 6,379 3,309 2,321 2,139 3,270
Income tax adjustment -- -- -- -- -- 789 1,242
--------- --------- --------- --------- --------- --------- ---------
Net income, adjusted for income taxes 12,113 8,610 6,379 3,309 2,321 $ 1,350 $ 2,028
========= =========
Dividend requirements on preferred stock -- (28) (81) (81) (43)
--------- --------- --------- --------- ---------
Net income applicable to common stock $ 12,113 $ 8,582 $ 6,298 $ 3,228 $ 2,278
========= ========= ========= ========= =========
Net income per common share $ 1.29 $ 1.23 $ 1.20 $ 0.61 $ 0.43
========= ========= ========= ========= =========
Weighted average common shares
outstanding 9,426 6,963 5,250 5,250 $ 5.250
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
BALANCE SHEET DATA:
Predecessor(1)
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Net working capital $ 13,525 $ 11,037 $ 5,519 $ 734 $ 3,146
Total assets 79,355 50,068 23,096 17,040 7,149
Long-term debt 1,303 6,919 9,850 10,878 1,343
Shareholders' equity (deficit) 53,847 29,048 5,307 (1,072) 4,079
</TABLE>
(1) On June 7, 1993, effective June 1, 1993, Belmont acquired BHI, Inc.
(the "Predecessor") in a transaction accounted for using the purchase
method of accounting. The acquisition was financed by the issuance of
debt and equity securities on July 22, 1993. Concurrently, Belmont
assumed the name of Belmont Homes, Inc., and the Predecessor changed
its name to BHI, Inc. The results of operations for 1993 are based on
pro forma operations of Belmont as if the acquisition had occurred on
January 1, 1993. The Predecessor operated as a subchapter "S"
corporation under the Code and, therefore, was not subject to corporate
federal income taxes. Belmont operates as a subchapter "C" corporation
under the Code and pays federal income taxes.
11
<PAGE> 23
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands, except per share data) -----------------
STATEMENT OF INCOME DATA: Sept. 30, Sept. 30,
1997 1996
--------- ---------
<S> <C> <C>
Gross sales $179,575 $170,638
Less: dealer rebates 7,493 3,947
-------- --------
Net sales 172,082 166,691
Cost of sales 154,875 144,289
-------- --------
Gross profit 17,207 22,402
Selling, general and administrative
expenses 11,140 7,402
-------- --------
Income from operations 6,067 15,000
Other expenses (income), net (1,503) (384)
Income taxes 2,388 5,848
-------- --------
Net income 5,182(1) 9,536
======== ========
Income tax adjustment - -
-------- --------
Net income, adjusted for income taxes $ 5,182(1) $ 9,536
Dividend requirements on preferred stock - -
Net income applicable to common stock $ 5,182(1) $ 9,536
Net income per common share $ 0.55(1) $ 1.02
Weighted average common shares
outstanding 9,482 9,378
======== ========
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1997 1996
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Net working capital $ 18,962 $ 20,312
Total assets 80,188 70,678
Long-term debt - 376
Shareholders' equity 59,029 50,974
</TABLE>
(1) Includes nonrecurring proceeds of $1.5 million received by Belmont
pursuant to an officer's life insurance policy.
12
<PAGE> 24
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF CAVALIER
The following table sets forth selected unaudited pro forma combined
financial information of Cavalier for each year of the three-year period ended
December 31, 1996 and for the thirty-nine week periods ended September 26, 1997
and September 27, 1996, which are presented to reflect the estimated impact of
the Merger on the historical consolidated financial statements of Cavalier,
accounted for as a pooling-of-interests. The statement of income data reflects
the effects of the Merger as though the transaction had occurred at the
beginning of the periods presented, and the balance sheet data assumes the
Merger had occurred at the applicable balance sheet date presented. The
unaudited pro forma combined financial information does not reflect any costs
savings anticipated by Cavalier as a result of the Merger, although the balance
sheet data do reflect non-recurring, direct costs of the Merger, currently
estimated as approximately $6 to $8 million. The unaudited pro forma combined
financial statements also do not reflect a one-time, non-recurring charge of
approximately $1 to $2 million that is expected to arise out of Cavalier's plans
to conform Belmont's contractual warranty and repurchase arrangements to its
own. Pro forma combined per share amounts are based upon Cavalier's weighted
average or outstanding shares, as applicable, for the periods presented plus the
number of Belmont's weighted average or outstanding shares, as applicable, for
the periods presented, adjusted for the Exchange Ratio of 0.80 Cavalier Shares
for each Belmont Share.
The selected unaudited pro forma combined financial information is not
necessarily indicative of the financial position or the results of operations
that would have occurred had the Merger been effective at the beginning of the
earliest period presented nor of future financial position or results of
operations.
The selected unaudited pro forma combined financial information should
be read in conjunction with the historical consolidated financial statements of
Cavalier and Belmont and the Unaudited Pro Forma Information including the notes
thereto incorporated by reference or appearing elsewhere in this Joint Proxy
Statement and Prospectus. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE", "TERMS OF THE MERGER -- Accounting Treatment" and
"UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
(In thousands, except For the Thirty-Nine
per share amounts) Weeks Ended Year Ended December 31,
PRO FORMA COMBINED ---------------------------- -----------------------------------------
STATEMENT OF INCOME September 26, September 27,
DATA 1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $ 421,479 $ 421,289 $ 573,232 $ 420,790 $ 312,268
Financial services 3,820 2,259 3,333 1,764 703
----------- ----------- ----------- ----------- -----------
Total revenues $ 425,299 $ 423,548 $ 576,565 $ 422,554 $ 312,971
Net income(1) $ 14,412 $ 19,541 $ 27,479 $ 17,602 $ 11,377
Net income per share(2) $ 0.72 $ 0.99 $ 1.39 $ 1.03 $ 0.81
Cash dividend per share(2) $ 0.055 $ 0.043 $ 0.061 $ 0.036 $ 0.021
Weighted average number of
shares outstanding(2) 20,012 19,725 19,799 17,056 14,036
PRO FORMA COMBINED
BALANCE SHEET DATA(3)
Net Working Capital $ 21,494 $ 16,098
Total assets $ 215,205 $ 196,029
Long-term debt $ 10,030 $ 6,221
Stockholders' Equity $ 131,650 $ 116,752
</TABLE>
(1) Includes non-recurring life insurance proceeds of $1.75 million for the
year ended December 31, 1996, and $1.5 million for the thirty-nine
weeks ended September 26, 1997, received by Cavalier and Belmont,
respectively.
(2) As adjusted for all Cavalier and Belmont stock splits through November
1996.
(3) In connection with the Merger, Cavalier expects to record
non-recurring, direct costs of the Merger, currently estimated to be
approximately $6 to $8 million, as a charge to operations in the fourth
quarter of 1997, the quarter in which the Merger is expected to be
completed. These charges are not reflected in the unaudited pro forma
combined statements of income as they are non-recurring, direct costs
of the Merger. An estimated pre-tax charge of $7 million (the midpoint
of the range of estimated costs), $5.9 million after tax, is recorded
in the unaudited pro forma combined balance sheet. The estimate is a
preliminary estimate and is subject to change.
13
<PAGE> 25
COMPARATIVE PER SHARE DATA OF CAVALIER AND BELMONT
The following tables set forth, for the periods and dates indicated,
net income and book value per share for Cavalier and Belmont on historical and
pro forma combined bases. The pro forma net income and book value per share
amounts are calculated using the pooling-of-interests method of accounting, as
though the Merger had occurred at the beginning of the periods presented. Pro
forma combined per share amounts are based upon Cavalier's weighted average or
outstanding shares, as applicable, for the periods presented plus the number of
Belmont's weighted average or outstanding shares, as applicable, for the periods
presented, adjusted for the Exchange Ratio of 0.80 Cavalier Shares for each
Belmont Share. The pro forma data do not reflect any costs savings anticipated
by Cavalier as a result of the Merger, although the pro forma book value data do
reflect non-recurring, direct costs of the Merger, currently estimated as
approximately $7 million, the mid-point of the range of estimated costs of $6 to
$8 million. The unaudited pro forma combined financial statements also do not
reflect a one-time, non-recurring charge of approximately $1 to $2 million that
is expected to arise out of Cavalier's plans to conform Belmont's contractual
warranty and repurchase arrangements to its own. See "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION."
The following information should be read in conjunction with the other
financial information, including the related footnotes, contained herein or
incorporated by reference.
<TABLE>
<CAPTION>
For the Thirty-Nine
Weeks Ended Year Ended December 31,
------------------------------ -----------------------------------------
HISTORICAL September 26, September 27,
CAVALIER HOMES, INC.(1)(5) 1997 1996 1996 1995 1994
- --------------------------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per share $ 0.74 $ 0.82 $ 1.25 $ 0.79 $ 0.52
Cash dividend per share $ 0.090 $ 0.072 $ 0.102 $ 0.058 $ 0.034
Book value per share $ 6.38 $ 5.65
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended December 31,
------------------------------ -----------------------------------------
HISTORICAL September 30, September 30,
BELMONT HOMES, INC.(2)(5) 1997 1996 1996 1995 1994
- --------------------------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per share $ 0.55 $ 1.02 $ 1.29 $ 1.23 $ 1.20
Cash dividend per share $ -- $ -- $ -- $ -- $ --
Book value per share $ 6.24 $ 5.69
</TABLE>
<TABLE>
<CAPTION>
For the Thirty-Nine
Weeks Ended Year Ended December 31,
------------------------------ -----------------------------------------
PRO FORMA COMBINED September 26, September 27,
CAVALIER HOMES, INC.(3)(5) 1997 1996 1996 1995 1994
- --------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per share $ 0.72 $ 0.99 $ 1.39 $ 1.03 $ 0.81
Cash dividend per share $ 0.055 $ 0.043 $ 0.061 $ 0.036 $ 0.021
Book value per share $ 6.62 $ 5.91
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended December 31,
------------------------------ -----------------------------------------
EQUIVALENT PRO FORMA September 30, September 30,
BELMONT HOMES, INC. (4)(5) 1997 1996 1996 1995 1994
- --------------------------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per share $ 0.58 $ 0.79 $ 1.11 $ 0.82 $ 0.65
Cash dividend per share $ 0.044 $ 0.034 $ 0.049 $ 0.028 $ 0.017
Book value per share $ 5.30 $ 4.73
</TABLE>
(1) As adjusted for all Cavalier stock splits through November 1996.
(2) As adjusted for all Belmont stock splits through November 1996.
(3) In connection with the Merger, Cavalier expects to record non-recurring,
direct costs of the Merger, currently estimated to be approximately $6 to
$8 million, as a charge to operations in the fourth quarter of 1997, the
quarter in which the Merger is expected to be completed. These charges are
not reflected in the unaudited pro forma combined condensed statements of
income as they are non-recurring, direct costs of the Merger. An estimated
pre-tax charge of $7 million (the midpoint of the range of estimated
costs), $5.9 million after tax, is recorded in the unaudited pro forma
combined condensed balance sheet. The estimate is a preliminary estimate
and is subject to change.
(4) The equivalent pro forma per share amounts of Belmont are calculated by
multiplying the pro forma combined per share amounts of Cavalier by the
exchange ratio of 0.80 Cavalier Shares for each Belmont Share.
(5) Includes non-recurring life insurance proceeds of $1.75 million with
respect to Cavalier for the year ended December 31, 1996, and $1.5 million
with respect to Belmont for the nine months ended September 30, 1997 and
for the pro forma thirty-nine weeks ended September 26, 1997.
14
<PAGE> 26
MARKET PRICE AND DIVIDENDS
Cavalier Shares are listed and traded on the NYSE under the symbol
"CAV." Belmont Shares are traded on Nasdaq under the symbol "BHIX." The table
below sets forth, for the quarters indicated, the high and low prices of
Cavalier Shares, as reported on the NYSE Composite Transactions Tape, the high
and low prices for Belmont Shares, as reported on Nasdaq, and the dividends that
have been paid by Cavalier on Cavalier Shares. Belmont has never paid dividends
on the Belmont Shares. Amounts for Cavalier Shares have been adjusted to reflect
a five-for-four stock split paid on August 15, 1995, a three-for-two stock split
paid on February 15, 1996 and a five-for-four stock split paid on November 15,
1996. Amounts for Belmont Shares have been adjusted to reflect a three-for-two
stock split paid on November 1, 1996, and reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Closing Sales Price
-------------------------------------------------------------
Cavalier Belmont
--------------------------- ------------------------ Cavalier
High Low High Low Dividends
-------- ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1995:
First Quarter $ 5 3/8 $ 4 1/4 $ -- $ -- $ 0.013
Second Quarter 5 1/8 4 5/8 6 29/32 6 0.013
Third Quarter 8 3/4 5 1/8 10 5/32 6 1/2 0.016
Fourth Quarter 11 5/8 8 3/4 13 11/32 9 11/32 0.016
1996:
First Quarter 12 3/8 9 3/8 12 11/32 10 1/4 0.024
Second Quarter 18 3/4 12 1/8 15 27/32 11 27/32 0.024
Third Quarter 19 1/8 12 7/8 17 13/32 12 3/32 0.024
Fourth Quarter 17 3/8 10 1/2 18 21/32 8 1/16 0.030
1997:
First Quarter 12 1/2 9 5/8 10 1/2 7 5/8 0.030
Second Quarter 12 9 1/8 8 1/4 6 5/8 0.030
Third Quarter 11 1/2 9 1/2 9 1/2 6 7/8 0.030
Fourth Quarter (through
November 28) 10 7/8 9 3/8 8 5/16 7 1/4
</TABLE>
Set forth below are the last reported sale prices of Cavalier Shares
and Belmont Shares on August 13, 1997, the last trading day prior to the public
announcement of the execution of the Merger Agreement, and on November 28, 1997,
the last practicable trading day prior to the date of this Joint Proxy Statement
and Prospectus, as well as the equivalent pro forma sale prices of Belmont
Shares on such dates, as determined by multiplying the last reported sale price
of Cavalier Shares by the Exchange Ratio.
<TABLE>
<CAPTION>
Cavalier Belmont Belmont
Shares Shares Equivalent
------ ------- ----------
<S> <C> <C> <C>
August 13, 1997 $ 10 3/16 $ 7 7/8 $8 5/32
November 28, 1997 9 3/4 7 5/8 7 4/5
</TABLE>
As of November 25 and November 21, 1997, respectively, there were
approximately 300 holders of record of Cavalier Shares and 100 holders of
record of Belmont Shares.
15
<PAGE> 27
RISK FACTORS
In considering whether to approve the Share Issuance or to approve the
Merger Agreement and the Merger, including the receipt of Cavalier Shares in
exchange for Belmont Shares, as the case may be, the stockholders of Cavalier
and the shareholders of Belmont should consider the following matters:
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICES
The Exchange Ratio is expressed in the Merger Agreement as a fixed
ratio. Accordingly, the Exchange Ratio will not be adjusted in the event of any
increase or decrease in the price of either Cavalier Shares or Belmont Shares,
except upon the occurrence of certain limited circumstances. See "TERMS OF THE
MERGER -- Termination." The price of Cavalier Shares at the Effective Time will
vary from its price at the date of this Joint Proxy Statement and Prospectus and
at the date of the Special Meetings, and, as a result of the Exchange Ratio, it
is possible that the per share consideration to be received by Belmont
shareholders in connection with the Merger may be less than the per share value
of the Belmont Shares at the Effective Time. Such variations may be the result
of changes in the business, operations or prospects of Cavalier or Belmont,
market assessments of the likelihood that the Merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Time may occur at a date
later than the Special Meetings, there can be no assurance that the price of
Cavalier Shares on the date of the Special Meetings will be indicative of its
price at the Effective Time. The Effective Time will occur within two business
days following the Special Meetings and the satisfaction or waiver of the other
conditions set forth in the Merger Agreement. Stockholders of Cavalier and
shareholders of Belmont are urged to obtain current market quotations for
Cavalier Shares and Belmont Shares. See "TERMS OF THE MERGER -- Termination."
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING BENEFITS OF THE
MERGER
In determining that the Merger is in the best interests of Cavalier or
Belmont, as the case may be, the Cavalier Board and the Belmont Board considered
the cost savings, operating efficiencies and other synergies and benefits that
may result from the consummation of the Merger. The consolidation of functions
and the integration of departments, systems and procedures present significant
management challenges. There can be no assurance that such actions will be
successfully accomplished as rapidly as currently expected, if at all. Moreover,
although the primary purpose of such actions will be to realize direct cost
savings and other operating efficiencies, synergies and benefits, there can be
no assurance of the extent to which or whether such cost savings, efficiencies,
synergies or benefits will be achieved.
POTENTIAL DILUTION
Voting. The Cavalier Shares to be issued to Belmont shareholders at the
Effective Time are expected to represent approximately 38% of the number of
Cavalier Shares outstanding immediately after the Effective Time. In addition,
pursuant to the Merger Agreement, two of the nine members of the Cavalier Board
immediately after the Effective Time will be former members of the Belmont
Board. Accordingly, the Merger will have the effect of reducing the percentage
voting interest in Cavalier represented by a Cavalier Share immediately prior to
the Effective Time, and the percentage voting interest in Belmont represented by
a Belmont Share immediately prior to the Effective Time. However, as a result of
the Merger, stockholders of Cavalier and shareholders of Belmont will each own a
voting interest in a significantly larger enterprise.
Earnings per Share and Book Value. See "COMPARATIVE PER SHARE DATA OF
CAVALIER AND BELMONT" for a table setting forth certain earnings, dividend and
book value per share data for Cavalier and Belmont on historical and pro forma
bases. For the holders of Cavalier Shares, on a pro forma basis the Merger would
have had an accretive effect on earnings per share for the fiscal year ended
December 31, 1996 (from $1.25 per share to $1.39 per share), a dilutive effect
on earnings per share for the thirty-nine week period ended September 26, 1997
(from $0.74 per share to $0.72 per share), and an accretive effect on book value
per share for the fiscal year ended December 31, 1996 (from $5.65 per share to
$5.91 per share) and for the thirty-nine week period ended September 26, 1997
(from $6.38 per share to $6.62 per share). For the holders of Belmont Shares, on
a pro forma basis the Merger would have had a dilutive effect on earnings per
share for the fiscal year ended December 31, 1996 (from $1.29 per share to $1.11
per share) and an accretive effect on earnings for the thirty-nine week period
ended September 26, 1997 (from $0.55 per share to $0.58 per share), and a
dilutive effect on book value per share for the fiscal year ended December 31,
1996 (from $5.69 per
16
<PAGE> 28
share to $4.73 per share) and for the thirty-nine week period ended September
26, 1997 (from $6.24 per share to $5.30 per share). The pro forma data do not
reflect any cost savings or other synergies or merger-related expenses
anticipated by Cavalier management as a result of the Merger. Whether the Merger
will in fact be accretive or dilutive to Cavalier stockholders with respect to
future earnings per share and book value will depend on the actual results
achieved by the combined company in the future as compared to the results that
could have been achieved by Cavalier on a stand-alone basis over the same
period, taking into consideration the number of Cavalier Shares to be issued in
the Share Issuance. No assurance can be given as to such future results, and,
accordingly, as to whether the Merger will be accretive or dilutive to Cavalier
stockholders with respect to future earnings per share or book value. Holders of
Belmont Shares, in considering the accretive or dilutive effect of the Merger,
should note that the comparability from a valuation perspective of historical
earnings per share for Belmont Shares to pro forma earnings per share for
Cavalier Shares would be affected by any difference in the price-earnings
multiples accorded to Cavalier Shares and Belmont Shares. Holders of Belmont
Shares should also review "THE PROPOSED MERGER -- Opinion of Financial Advisor
to Belmont" for an analysis of Belmont's contribution on a pro forma basis to
the combined entity resulting from the Merger of, among other things, revenue,
operating profit and net income.
CONFLICTS OF INTEREST OF CERTAIN DIRECTORS OF BELMONT AND CAVALIER
In considering the recommendation of the Merger by the Belmont Board,
the shareholders of Belmont and the stockholders of Cavalier should be aware
that certain directors and executive officers of Belmont and Cavalier may be
deemed to have conflicts of interest with respect to the Merger. Such interests,
together with other relevant factors, were considered by the Belmont Board and
the Cavalier Board when recommending the Merger Agreement and the Merger to the
shareholders of Belmont and recommending the Share Issuance to the stockholders
of Cavalier. See "THE PROPOSED MERGER -- Interests of Certain Persons in the
Merger; Certain Relationships."
CYCLICAL AND SEASONAL NATURE OF THE MANUFACTURED HOUSING INDUSTRY
The manufactured housing industry is highly cyclical and seasonal and
has experienced wide fluctuations in aggregate sales in the past, resulting in
the failure of many manufacturing concerns. The market for manufactured homes is
affected by many of the same national and regional economic and demographic
factors that affect the broader housing industry. Historically, most sectors of
the home building industry, including the manufactured housing industry, have
been affected by, among other things, changes in general economic conditions,
inflation, levels of consumer confidence, employment and income levels, housing
demand, availability of alternative forms of housing, availability of financing
and the level and stability of interest rates. The Manufactured Housing
Institute ("MHI") reported that during the period from 1983 to 1991, aggregate
domestic shipments of manufactured homes declined 42.1% from 295,079 homes to
170,713 homes. According to industry statistics, after a ten-year low in
shipments of homes in 1991, the industry recovered significantly, posting
increases in shipments of 24%, 21%, 20%, 12% and 7% for 1992, 1993, 1994, 1995
and 1996, respectively. However, industry statistics reflect a decrease in home
shipments of approximately 3.1% through the first nine months of 1997 when
compared to the same period in 1996. Cavalier and Belmont attribute this
decrease at least in part to the fact that the manufactured housing industry
has, over the past several years, experienced increases in both the number of
retail dealers and manufacturing capacity, which they believe is currently
resulting in fewer home deliveries, higher dealer inventories, lower order
backlogs and increased price competition.
Sales in the manufactured housing industry are also seasonal in nature,
with sales of homes traditionally being stronger in April through October and
weaker during the first and last part of the calendar year. While seasonality
was not a significant factor in Cavalier's and Belmont's business during the
period of 1992 through 1996 when industry shipments were steadily increasing,
the recent decline in shipments may signal a return to the industry's
traditional seasonal patterns.
The duration and extent of the recent decrease in home shipments and
the tightening of competitive conditions, and their corresponding impact on the
future results of operations and financial condition of the combined companies,
is uncertain at this time. Furthermore, because of the cyclical and seasonal
nature of the manufactured housing industry and the recent increase in
competitive conditions, Cavalier and Belmont can give no assurance that the
industry is not entering a change in its cycle or returning to traditional
seasonal patterns, either of which could have a material adverse effect on
Cavalier's and Belmont's results of operations or financial condition.
17
<PAGE> 29
LIMITATIONS ON ABILITY TO PURSUE GROWTH STRATEGY
Cavalier's growth strategies are to (i) expand the financing activities
of CAC, (ii) develop its exclusive dealer network, (iii) expand its geographic
presence and manufacturing capacity and (iv) develop the production and
distribution of component parts for manufactured housing. Since 1991, Cavalier
has expanded manufacturing capacity to meet the increase in demand for its
manufactured homes. Downturns in shipments in the manufactured housing industry,
or a decline in the demand or growth in demand for Cavalier's homes, could have
a material adverse effect on Cavalier. Cavalier's ability to execute its
strategy will depend on a number of factors, including general economic and
industry conditions, its ability to sell to additional independent dealers, the
availability of semi-skilled workers in the areas in which Cavalier's
manufacturing facilities are located, the ability of CAC to be competitive and
other factors, many of which are beyond the control of Cavalier. There can be no
assurance that Cavalier's growth strategy will be successful. Further, if
Cavalier's growth strategy is unsuccessful, there can be no assurance that such
lack of success will not have a material adverse effect upon Cavalier's results
of operations or financial condition.
UNCERTAINTIES REGARDING RETAIL FINANCING ACTIVITIES
Cavalier engages in the business of making retail installment finance
loans to customers of its independent exclusive dealers through its finance
subsidiary, CAC. Cavalier maintains a reserve for estimated credit losses on
installment sale contracts owned by CAC to provide for future losses based on
Cavalier's historical loss experience, current economic conditions and portfolio
performance. The establishment of appropriate reserves is an inherently
uncertain process, and there can be no assurance that the ultimate losses
realized by CAC will not exceed Cavalier's loss reserves and have a material
adverse effect on Cavalier's results of operations and financial condition.
There also can be no assurance that volatility or a significant change in
interest rates will not materially affect CAC's and Cavalier's business, results
of operations or financial condition.
Cavalier's strategy currently includes the continued expansion of the
financial services segment of its business. Accordingly, it is likely that
Cavalier will incur additional debt, or other forms of financing, in order to
continue to fund such growth. Cavalier may also engage in other transactions,
such as selling or securitizing portions of its installment loan portfolio, that
are designed to facilitate the ability of CAC to originate an increased volume
of loans and to reduce Cavalier's exposure to interest rate fluctuations. There
can be no assurance that such possible additional financing, or the
aforementioned transactions involving Cavalier's installment loan portfolio,
will be available on terms acceptable to Cavalier. If they are not, Cavalier may
be forced to curtail the expansion of its financial services business and to
alter its strategies.
LIMITATIONS ON AVAILABILITY OF CONSUMER AND DEALER FINANCING
Consumer financing for manufactured home purchases is generally
provided by third-party lenders. The availability and cost of financing for
manufactured home purchasers and dealers is important to Cavalier's and
Belmont's sales and is dependent on financial institutions' lending practices,
the strength of the credit markets generally, governmental policies and other
conditions, all of which are beyond Cavalier's and Belmont's control. In
addition, in most states, manufactured homes are classified legally and by
taxing authorities as personal property rather than real estate. As a result,
financing for the purchase of manufactured homes is characterized by shorter
loan maturities and higher interest rates, and in certain periods such financing
is more difficult to obtain than conventional home mortgages. Unfavorable
changes in these factors may have a material adverse effect on Cavalier's
results of operations or financial condition.
POTENTIAL UNAVAILABILITY AND INCREASES IN PRICES OF RAW MATERIALS
Cavalier's and Belmont's operating costs may be significantly affected
by the availability and pricing of certain raw materials, particularly lumber,
gypsum, particle board and insulation. Sudden increases in demand for these
construction materials caused by natural disasters or other market forces can
greatly increase the costs of materials or limit the availability of such
materials. Increases in costs cannot always be reflected immediately in prices
and, consequently, may adversely impact profitability. Further, a reduction in
the availability of raw materials also may affect a company's ability to meet or
maintain production requirements.
18
<PAGE> 30
CONTINGENT REPURCHASE AND GUARANTY OBLIGATIONS
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 Cavalier's and Belmont'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 Cavalier's and Belmont's products from the lending
institutions for the balance due them in the event of repossession upon a
dealer's default. The risk of loss under repurchase agreements is mitigated by
the fact that (i) sales of manufactured homes are spread over a relatively large
number of independent dealers; (ii) the price Cavalier or Belmont is obligated
to pay under such repurchase agreements generally declines over the period of
the agreement and also declines during such period based on predetermined
amounts; and (iii) Cavalier and Belmont have been in many cases able to resell
homes repurchased from credit sources in the ordinary course of business without
incurring significant losses. Belmont has not established reserves for possible
repurchase losses. While Cavalier has established a reserve for possible
repurchase losses, there can be no assurance that Cavalier will not incur
material losses in excess of such reserves or that Belmont will not incur
material losses under such repurchase agreements in the future.
COMPETITIVE NATURE OF THE INDUSTRY
The production and sale of manufactured homes is a highly competitive
industry, characterized by low barriers to entry and severe price competition.
Competition is based primarily on price, product features and quality,
reputation for service and quality, depth of field inventory, delivery
capabilities, warranty repair service, dealer promotions, merchandising and
terms of dealer and retail consumer financing. In addition, Cavalier and Belmont
compete with other manufacturers, some of which maintain their own retail sales
centers, for quality independent dealers. In addition, manufactured homes
compete with other forms of low-cost housing, including site-built,
prefabricated and modular homes, apartments, townhouses and condominiums.
Cavalier and Belmont face direct competition from numerous manufacturers, many
of which possess greater financial, manufacturing, distribution and marketing
resources. As a result of these competitive conditions, Cavalier and Belmont may
not be able to sustain past levels of sales or to continue their recent sales
growth or profitability.
RELIANCE ON EXECUTIVE OFFICERS
The success of Cavalier's and Belmont's business is highly dependent
upon the personal efforts and abilities of the current executive officers of
Cavalier and Belmont, respectively. Specifically, the success of Cavalier is
highly dependent on the efforts of its Chairman of the Board, Barry B. Donnell,
its President and Chief Executive Officer, David A. Roberson, and its Chief
Financial Officer and Secretary-Treasurer, Michael R. Murphy. The success of
Belmont is highly dependent on the efforts of its President and Chief Executive
Officer, G. Hiller Spann, its Senior Vice President of Manufacturing, Keith
Kennedy, its Senior Vice President of Administration, Mike Kennedy, and its
Chief Financial Officer, William M. Kunkel. The loss of the services of one or
more of these individuals could have a material adverse effect upon Cavalier's
and Belmont's business. Other than those certain non-competition agreements
executed in connection with the Merger, as discussed below under "THE PROPOSED
MERGER -- Interests of Certain Persons in the Merger; Certain Relationships --
Non-Competition Agreements," neither Cavalier nor Belmont has employment or
non-competition agreements with any of its executive officers. Cavalier's and
Belmont's continued growth, including the expansion of CAC's business, will
depend upon their ability to attract and retain additional experienced
management personnel.
DEPENDENCE ON INDEPENDENT DEALERS
Cavalier and Belmont depend on independent dealers for substantially
all retail sales of their manufactured homes. Typically only one dealer within a
given market area distributes a particular product line of Cavalier or Belmont.
While Cavalier and Belmont believe that their relations with their independent
dealers are generally good, Cavalier's and Belmont's relationships with their
dealers are cancelable on short notice by either party, and there can be no
assurance that Cavalier or Belmont will be able to maintain these relations,
that these dealers will continue to sell Cavalier's or Belmont's homes or that
Cavalier or Belmont will be able to attract and retain quality independent
dealers.
19
<PAGE> 31
POTENTIAL ADVERSE EFFECTS OF REGULATIONS
Cavalier and Belmont are subject to a variety of federal, state and
local laws and regulations affecting the production, sale and financing of
manufactured housing. The National Manufactured Home Construction and Safety
Standards Act of 1974, as amended, and regulations promulgated by the U.S.
Department of Housing and Urban Development ("HUD") thereunder, impose
comprehensive national construction standards for manufactured homes and preempt
conflicting state and local regulations. Failure to comply with such regulations
could expose Cavalier and Belmont to a wide variety of sanctions, including
closing one or more manufacturing facilities. HUD has promulgated regulations
with respect to structural design and wind loads and energy conservation.
Neither Cavalier's nor Belmont's operations were materially affected by the
regulations; however, HUD has these matters under continuous review and it
cannot be predicted what effect (if any) additional regulations promulgated by
HUD would have on Cavalier or Belmont or the manufactured housing industry as a
whole. In addition, certain components of manufactured homes are subject to
regulation by the U.S. Consumer Product Safety Commission. Cavalier's and
Belmont's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
Cavalier and Belmont are also subject to the Magnuson-Moss Warranty
Federal Trade Commission Improvement Act, which regulates the descriptions of
warranties on products. The description and substance of Cavalier's and
Belmont's warranties are also subject to a variety of state laws and
regulations.
A variety of federal laws affect the financing of manufactured homes,
including the financing activities conducted by CAC. The Consumer Credit
Protection Act (Truth-in-Lending) and Regulation Z promulgated thereunder
require substantial disclosures to be made in writing to a consumer with regard
to various aspects of the particular transaction, including the amount financed,
the annual percentage rate, the total finance charge, itemization of the amount
financed and other matters and also set forth certain substantive limitations on
permissible contract terms. The Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit credit discrimination against any credit
applicant based on certain prohibited bases, and also require that certain
specified notices be sent to credit applicants whose applications are denied.
The Federal Trade Commission has adopted or proposed various trade regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to preserve consumers' claims and defenses. The Government National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for installment manufactured home sale contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive regulations and requirements in order for a manufactured home
installment sale contract to qualify for insurance under the Federal Housing
Authority ("FHA") program, and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection. In addition, the
financing activities of CAC may also become subject to the disclosure
requirements of the Home Mortgage Disclosure Act. In addition to the extensive
federal regulation of consumer credit matters, many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer credit lenders. For example, many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such business in that state, and many states also set
forth a number of substantive contractual limitations regarding provisions that
permissibly may be included in a consumer contract, as well as limitations upon
the permissible interest rates, fees and other charges that may be imposed upon
a consumer. Failure by Cavalier or CAC to comply with the requirements of
federal or state law pertaining to consumer credit could result in the
unenforceability of the particular contract for the affected consumer, civil
liability to the affected customers, criminal liability and other adverse
results.
There can be no assurance that Cavalier and Belmont will not be
adversely affected by a failure to comply with any laws or regulations
applicable to or affecting Cavalier or Belmont.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Cavalier's and Belmont's operations are subject to federal, state and
local laws and regulations relating to the generation, storage, handling,
emission, transportation and discharge of materials into the environment. In
addition, third parties and governmental agencies in some cases have the power
under such laws and regulations to require remediation of environmental
conditions and, in the case of governmental agencies and entities, to impose
fines and penalties. The requirements of such laws and enforcement policies have
generally become more strict in recent years. Accordingly,
20
<PAGE> 32
Cavalier and Belmont can give no assurance that they will not be required to
incur response costs, remediation expenses, fines, penalties or other similar
damages, expenses or liabilities, or to incur operational shut-downs, business
interruptions or similar losses, associated with compliance with environmental
laws and enforcement policies that either individually or in the aggregate would
have a material adverse effect on Cavalier's and Belmont's results of operations
or financial condition.
LITIGATION
Cavalier, Belmont and their subsidiaries are engaged in various
legal proceedings that are incidental to and arise in the course of their
business. Certain of the cases filed against Cavalier, Belmont and their
subsidiaries and companies engaged in businesses similar to them allege, among
other things, breach of contract and warranty, product liability, personal
injury and fraudulent, deceptive or collusive practices in connection with their
businesses. These kinds of suits are typical of suits that have been filed in
recent years, and they 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
recently, and many of these types of cases have resulted in large damage awards,
especially large punitive damage awards. The outcome of many of the cases in
which these companies are involved or may in the future become involved cannot
be predicted with any degree of reliability, and the potential exists for
unanticipated material adverse judgments against Cavalier, Belmont or their
respective subsidiaries.
VOLATILITY OF STOCK PRICE
Cavalier Shares are traded on the NYSE. The market price of the
Cavalier Shares may be subject to significant fluctuations in response to
variations in Cavalier's operating results and other factors affecting Cavalier
specifically and the stock market and the manufactured housing industry
generally.
21
<PAGE> 33
THE CAVALIER SPECIAL MEETING
GENERAL
This Joint Proxy Statement and Prospectus is being furnished to
Cavalier stockholders in connection with the solicitation of proxies by the
Cavalier Board for use at the Cavalier Special Meeting. Each copy of this Joint
Proxy Statement and Prospectus mailed to Cavalier stockholders is accompanied by
a form of proxy for use at the Cavalier Special Meeting. The Cavalier Special
Meeting is scheduled to be held on Wednesday, December 31, 1997, at 9:00 a.m.,
local time, at the offices of Cavalier, Highway 41 North and Cavalier Road,
Addison, Alabama.
CAVALIER STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CAVALIER IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
PURPOSE OF THE CAVALIER SPECIAL MEETING
At the Cavalier Special Meeting, Cavalier stockholders will be asked to
consider and vote upon: (i) a proposal to approve the Share Issuance and (ii)
the transaction of such other business as is incident to the conduct of the
Cavalier Special Meeting. Because the number of Cavalier Shares to be issued in
the Share Issuance will exceed 20% of the number of Cavalier Shares outstanding
immediately prior to the consummation of the Merger, the rules of the NYSE
require that Cavalier stockholders approve the Share Issuance.
The Cavalier Board, based upon certain factors, including the Equitable
Opinion, has concluded that the Merger is fair to and in the best interests of
Cavalier and its stockholders and has unanimously approved the Merger Agreement.
THE CAVALIER BOARD UNANIMOUSLY RECOMMENDS THAT CAVALIER STOCKHOLDERS VOTE IN
FAVOR OF THE APPROVAL OF THE SHARE ISSUANCE AT THE CAVALIER SPECIAL MEETING.
Certain directors of Cavalier may be deemed to have certain interests in the
Merger in addition to their interests as Cavalier stockholders. See "THE
PROPOSED MERGER -- Recommendation of the Board of Directors of Cavalier and
Cavalier's Reasons for the Merger; -- Opinion of Financial Advisor to Cavalier;
and -- Interests of Certain Persons in the Merger; Certain Relationships."
RECORD DATE; SHARES OUTSTANDING
The close of business on November 25, 1997 has been fixed as the
Cavalier Record Date for the determination of Cavalier stockholders entitled to
notice of and to vote at the Cavalier Special Meeting. On the Cavalier Record
Date, there were 12,317,691 Cavalier Shares issued and outstanding held by
approximately 300 stockholders of record. All directors and executive officers
of Cavalier are expected to vote, or cause to be voted, all Cavalier Shares over
which they exercise voting control (an aggregate of 823,930 Cavalier Shares or
approximately 6.7% of the outstanding Cavalier Shares on the Cavalier Record
Date) FOR the approval of the Share Issuance.
VOTING AT THE CAVALIER SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a
majority of the issued and outstanding Cavalier Shares entitled to vote at the
Cavalier Special Meeting is necessary to constitute a quorum at the Cavalier
Special Meeting.
Approval of the Share Issuance requires the affirmative vote of a
majority of the total votes cast by Cavalier stockholders with respect to the
Share Issuance, provided that the total number of votes cast thereon represents
more than 50% of the outstanding Cavalier Shares entitled to vote. The
consummation of the Merger is conditioned upon, among other things, approval of
the Share Issuance by Cavalier stockholders.
Proxies will be voted as specified by Cavalier stockholders. If a
Cavalier stockholder does not return a signed proxy, such stockholder's shares
will not be voted. Cavalier stockholders are urged to mark the boxes on the
proxy to indicate how their shares are to be voted. Each Cavalier stockholder
shall be entitled to cast one vote per Cavalier Share on each matter to be voted
upon at the Cavalier Special Meeting. If a Cavalier stockholder returns a signed
proxy, but
22
<PAGE> 34
does not indicate how such stockholder's shares are to be voted, the Cavalier
Shares represented by the proxy will be voted FOR the Share Issuance. The proxy
also confers discretionary authority on the management of Cavalier to vote the
Cavalier Shares represented thereby on any other matter that may properly arise
at the Cavalier Special Meeting, including, but not limited to, consideration of
a motion to adjourn or postpone the Cavalier Special Meeting to another time
and/or place.
Returning a signed proxy will not affect a Cavalier stockholder's right
to attend the Cavalier Special Meeting and vote in person. Any Cavalier
stockholder who executes and returns a proxy may revoke such proxy at any time
before it is voted by (i) filing with the Secretary of Cavalier, at or before
the Cavalier Special Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a subsequent proxy relating to the same
shares and delivering it to the Secretary of Cavalier at or before the Cavalier
Special Meeting or (iii) attending the Cavalier Special Meeting and voting in
person by ballot. Attendance at the Cavalier Special Meeting will not in and of
itself constitute revocation of a proxy.
As of the date of this Joint Proxy Statement and Prospectus, the
Cavalier Board does not know of any other matters to be presented for action by
Cavalier stockholders at the Cavalier Special Meeting. If, however, any other
matters not now known are incident to the conduct of and properly brought before
the Cavalier Special Meeting, the management of Cavalier will vote the proxies
upon the same according to their discretion and best judgment.
SOLICITATION OF PROXIES
Pursuant to the Merger Agreement, the entire cost of Cavalier's
solicitation of proxies will be borne by Cavalier. Cavalier may reimburse
investment bankers, brokers and other nominees for their expenses incurred in
obtaining voting instructions from beneficial owners of Cavalier Shares held of
record by such investment bankers, brokers and other nominees; however, Cavalier
has not entered into any written contract or arrangement for such repayment of
expenses. In addition to the use of mails, proxies may be solicited by personal
interviews, telephone or facsimile transmission machine by directors, officers
and employees of Cavalier, without additional compensation.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES"
At the Cavalier Special Meeting, abstentions and broker non-votes will
be counted for purposes of determining the presence or absence of a quorum. A
"broker non-vote" occurs respecting a given proposal when a broker holding
Cavalier Shares in street name returns an executed proxy (or voting directions)
which indicates that such broker does not have discretionary authority to vote
on such proposal. Under the rules of the NYSE, brokers who hold Cavalier Shares
as nominees will not have discretionary authority to vote such shares on the
Share Issuance in the absence of specific instructions from the beneficial
owners thereof.
Abstentions and broker non-votes will not affect the outcome of the
vote with respect to the proposal to approve the Share Issuance except to the
extent that abstentions and non-votes cause the total votes cast to be less than
a majority of the Cavalier Shares entitled to vote thereon.
APPRAISAL RIGHTs
Under the Delaware General Corporation Law, Cavalier stockholders will
not be entitled to any appraisal rights in connection with the Share Issuance.
See "TERMS OF THE MERGER -- Dissent and Appraisal Rights."
23
<PAGE> 35
THE BELMONT SPECIAL MEETING
GENERAL
This Joint Proxy Statement and Prospectus is being furnished to Belmont
shareholders in connection with the solicitation of proxies by the Belmont Board
for use at the Belmont Special Meeting. Each copy of this Joint Proxy Statement
and Prospectus mailed to Belmont shareholders is accompanied by a form of proxy
for use in connection with the Belmont Special Meeting. The Belmont Special
Meeting is scheduled to be held on Wednesday, December 31, 1997, at 9:00 a.m.,
local time at the Executive Inn, 1011 North Gloster, Tupelo, Mississippi 38801.
BELMONT SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO BELMONT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
PURPOSE OF THE BELMONT SPECIAL MEETING
At the Belmont Special Meeting, Belmont shareholders will be asked to
consider and vote upon: (i) a proposal to approve and adopt the Merger Agreement
and the Merger and (ii) the transaction of such other business as is incident to
the conduct of the Belmont Special Meeting.
The Belmont Board, based upon certain factors, including the Rauscher
Opinion, has concluded that the Merger is fair to and in the best interests of
Belmont's shareholders and has approved the Merger Agreement and the Merger.
THE BELMONT BOARD RECOMMENDS THAT BELMONT SHAREHOLDERS VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER AT THE BELMONT
SPECIAL MEETING. Certain directors of Belmont and members of its management may
be deemed to have certain interests in the Merger in addition to their interests
as Belmont shareholders. See "THE PROPOSED MERGER --Recommendations of the Board
of Directors of Belmont and Belmont's Reasons for the Merger; -- Opinion of
Financial Advisor to Belmont; and -- Interests of Certain Persons in the Merger;
Certain Relationships."
RECORD DATE; SHARES OUTSTANDING
The close of business on November 21, 1997 has been fixed as the
Belmont Record Date for the determination of Belmont shareholders entitled to
notice of and to vote at the Belmont Special Meeting. On the Belmont Record
Date, there were 9,466,486 Belmont Shares issued and outstanding held by
approximately 100 shareholders of record. All directors and executive officers
of Belmont are expected to vote, or cause to be voted, all Belmont Shares over
which they exercise voting control (an aggregate of 1,570,687 Belmont Shares or
approximately 16.6% of the shares outstanding on the Belmont Record Date) FOR
the approval and adoption of the Merger Agreement.
VOTING AT THE BELMONT SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a
majority of the issued and outstanding Belmont Shares entitled to vote at the
Belmont Special Meeting is necessary to constitute a quorum at the Belmont
Special Meeting.
The affirmative vote of the holders of a majority of the outstanding
Belmont Shares entitled to vote at the Special Meeting is required for approval
of the Merger Agreement and the Merger. Consummation of the Merger is
conditioned upon, among other things, approval and adoption of the Merger
Agreement and the Merger by the affirmative vote of a majority of the
outstanding Belmont Shares entitled to vote thereon.
Proxies will be voted as specified by Belmont shareholders. If a
Belmont shareholder does not return a signed proxy, and such shareholder does
not attend the Special Meeting and vote its shares, then such shareholder's
shares will not be voted. Belmont shareholders are urged to mark the boxes on
the proxy to indicate how their shares are to be voted. Each Belmont shareholder
shall be entitled to cast one vote per Belmont Share on each matter to be voted
upon at the Belmont Special Meeting. If a Belmont shareholder returns a signed
proxy, but does not indicate how such shareholder's shares are to be voted, the
Belmont Shares represented by the proxy will be voted FOR the approval and
adoption of the
24
<PAGE> 36
Merger Agreement and the Merger. The proxy also confers discretionary authority
on the management of Belmont to vote the Belmont Shares represented thereby on
any other matter that may properly arise at the Belmont Special Meeting,
including, but not limited to, consideration of a motion to adjourn or postpone
the Belmont Special Meeting to another time and/or place.
Returning a signed proxy will not affect a shareholder's right to
attend the Belmont Special Meeting and vote in person. Any Belmont shareholder
who executes and returns a proxy may revoke such proxy at any time before it is
voted by (i) filing a written notice of revocation with the Secretary of Belmont
prior to the Belmont Special Meeting, (ii) presenting another executed proxy
with a subsequent date or (iii) attending and voting in person at the Belmont
Special Meeting. Attendance at the Belmont Special Meeting will not in and of
itself constitute revocation of a proxy.
As of the date of this Joint Proxy Statement and Prospectus, the
Belmont Board does not know of any other matters to be presented for action by
Belmont shareholders at the Belmont Special Meeting. If, however, any other
matters not now known are incident to the conduct of and properly brought before
the Belmont Special Meeting, the management of Belmont will vote the proxies
upon the same according to their discretion and best judgment.
SOLICITATION OF PROXIES
Pursuant to the Merger Agreement, the entire cost of Belmont's
solicitation of proxies will be borne by Belmont. In addition to solicitation by
use of the mail, solicitations may also be made by personal interview, facsimile
transmission, telegram and telephone. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to their principals, and Belmont will reimburse them for expenses in so
doing.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES"
At the Belmont Special Meeting, abstentions and broker non-votes will
be counted for purposes of determining the presence or absence of a quorum. In
determining whether the proposal to approve and adopt the Merger Agreement and
the Merger has received the requisite number of affirmative votes, abstentions
and broker non-votes will have the same effect as a vote against such proposal
because under the Mississippi Business Corporation Act, approval and adoption of
the Merger Agreement and the Merger requires the affirmative vote of a majority
of the outstanding Belmont Shares entitled to vote at the Belmont Special
Meeting.
DISSENT AND APPRAISAL RIGHTS
Under the Mississippi Business Corporation Act, Belmont shareholders
are entitled to appraisal rights in connection with the Merger Agreement and the
consummation of the Merger.
A shareholder of Belmont is, pursuant to Section 79-4-13.01 et seq. of
the Mississippi Business Corporation Act (the "Dissent Provisions"), entitled to
dissent from, and obtain payment of the fair value of its Belmont Shares in the
event of the consummation of, the Merger pursuant to the Merger Agreement. A
shareholder entitled to dissent and obtain payment for its shares under the
Dissent Provisions may not challenge the corporate action creating its
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or Belmont. The fair value of the Belmont Shares may differ from the
consideration that a shareholder of Belmont is entitled to receive in the
Merger.
Under the Dissent Provisions, a record shareholder of Belmont may
assert dissenters' rights as to fewer than all the shares registered in its name
only if it dissents with respect to all shares beneficially owned by any one
person and notifies Belmont in writing of the name and address of each person on
whose behalf it asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which it dissents and its other shares
were registered in the names of different shareholders. A beneficial shareholder
of Belmont may assert dissenters' rights as to shares held on its behalf only if
it submits to Belmont the record shareholder's written consent to the dissent
not later than the time the beneficial shareholder asserts dissenters' rights,
and it does so with respect to all shares of which it is the beneficial
shareholder or over which it has power to direct the vote.
25
<PAGE> 37
A shareholder of Belmont who wishes to assert dissenters' rights must
deliver to Belmont, before a vote is taken to approve the Merger Agreement and
the Merger, written notice of its intent to demand payment for its Belmont
Shares if the Merger is effectuated and must not vote its Belmont Shares in
favor of the proposed action. A shareholder of Belmont who does not satisfy
these requirements is not entitled to payment for its shares under the Dissent
Provisions. If the Merger Agreement is authorized and approved at the Belmont
Special Meeting, Belmont must deliver a written dissenters' notice that sets
forth the various requirements of dissent and is accompanied by a copy of the
Dissent Provisions to all shareholders who have satisfied these requirements. A
shareholder of Belmont who is sent a dissenters' notice must demand payment,
certify as to whether it acquired beneficial ownership of its shares before the
date of the first announcement of the Merger to the news media and deposit its
certificates evidencing Belmont Shares in accordance with the terms of the
written dissenters' notice. A shareholder who demands payment and deposits its
shares in accordance with the Dissent Provisions retains all other rights of a
shareholder until these rights are canceled or modified by the consummation of
the Merger. A shareholder who fails to demand payment or deposit its
certificates in accordance with the terms of the written dissenters' notice will
not be entitled to payment under the Dissent Provisions.
As soon as the Merger is effectuated or upon receipt of a payment
demand from a shareholder, Belmont, as the Surviving Corporation of the Merger,
shall pay each dissenter who has properly demanded payment, certified its
beneficial ownership and deposited its certificates the amount that Belmont
estimates to be the fair value of its shares plus accrued interest thereon. Such
payment must be accompanied by, among other things, certain financial statement
information regarding Belmont, a statement of Belmont's estimate of the fair
value and a copy of the Dissent Provisions. In certain circumstances, a
dissenter may notify Belmont of its estimate of the fair value and interest due
and demand payment of its estimate (less any payment previously made by Belmont
pursuant to the Dissent Provisions), or may reject Belmont's proposed payment. A
dissenter waives its right to demand payment of its estimate, however, unless it
notifies Belmont of its demand in writing within thirty days after Belmont made
or offered payment for its shares. Within sixty days of a shareholder's demand
for the payment of its estimate, Belmont shall either commence a judicial
proceeding and petition a court to determine the fair value of the shares and
accrued interest, or pay each dissenter whose demand remains unsettled the
amount demanded by the shareholder. The court may assess the costs, fees and
expenses of the proceeding against Belmont, or, if the court finds that all or
some of the dissenters acted arbitrarily, vexatiously or not in good faith,
against some or all of the dissenters.
Under the terms of the Merger Agreement, Belmont Shares outstanding
immediately prior to the Effective Time and held by a Belmont shareholder who
has asserted dissenters' rights who shall, after the Effective Time, withdraw
his, her or its demand for appraisal or lose his, her or its right of appraisal,
in either case pursuant to the Dissent Provisions, shall be deemed to be
converted, as of the Effective Time, into the right to receive Cavalier Shares
at the Exchange Ratio.
While Belmont believes that all elements of the Dissent Provisions that
the Belmont shareholders would consider material in deciding whether to approve
the Merger and the Merger Agreement are set forth herein, the foregoing is only
a summary of the Dissent Provisions and is qualified in its entirety by
reference to the full text of such provisions, which is set forth as Annex D to
this Joint Proxy Statement and Prospectus. Each Belmont shareholder is urged to
read these provisions carefully.
26
<PAGE> 38
THE PROPOSED MERGER
GENERAL
Upon the terms and subject to the conditions of the Merger Agreement,
at the Effective Time, Sub will merge with and into Belmont, Belmont will be the
Surviving Corporation of such Merger and Belmont will become a wholly owned
subsidiary of Cavalier. In the Merger, each outstanding Belmont Share (except as
otherwise provided in the Merger Agreement) will be converted into the right to
receive 0.80 Cavalier Shares. Following consummation of the Merger, the
registration of Belmont Shares under the Exchange Act will be terminated and
Belmont will no longer be required to file periodic reports with the Commission.
Cavalier will, however, continue to be subject to the reporting requirements of
the Exchange Act and will continue to file periodic reports with the Commission.
BACKGROUND OF THE MERGER
In late 1995 and early 1996, members of the management of Cavalier and
Belmont, including the late Jerry F. Wilson, who was the founder, President and
Chief Executive Officer of Cavalier, and the late Jerold Kennedy, who was the
founder, President and Chief Executive Officer of Belmont, discussed the
possibility of the two companies entering into joint ventures to manufacture
supplies that would be used in the production of manufactured housing. These
discussions ultimately resulted in two separate joint ventures involving
Cavalier and Belmont, one to produce exterior doors and laminated wall panels
and the other to produce cabinet doors. Mr. Wilson and Mr. Kennedy had known
each other for a number of years as a result of their involvement in the
manufactured housing industry, and, during the time when these joint ventures
were being discussed, made reference to each other about the possibility of
combining Cavalier and Belmont at some point in the future; however, no
substantive negotiations between the companies were conducted and no agreements
were reached. Throughout 1996 and continuing through to the execution and
delivery of the Merger Agreement, Cavalier and Belmont from time to time
continued to have discussions and contacts with one another arising out of
matters related to these joint ventures. Cavalier and Belmont also discussed the
possibility of being involved in other joint ventures together, but none of
these discussions resulted in any additional joint venture agreements.
In late October of 1996, Mr. Wilson died unexpectedly of coronary heart
failure. In November 1996, following Belmont's announcement that its President
and Chief Executive Officer was ill, representatives of Equitable suggested to
Cavalier that Equitable approach Belmont to determine whether Belmont would have
an interest in discussing a strategic combination with Cavalier. Cavalier
responded that it had no objection to Equitable making such a contact.
Representatives of Equitable met with Mr. Kennedy soon thereafter, and Mr.
Kennedy responded that, due to the state of his health and for other reasons,
Belmont was not interested in engaging in any discussions of this nature at that
time.
On March 31, 1997, Belmont named John W. Allison, who was President of
Spirit Homes, Inc., a wholly owned subsidiary of Belmont, as Belmont's Acting
President and Chief Executive Officer. Mr. David A. Roberson, the new President
and Chief Executive Officer of Cavalier, and Mr. Allison met each other for the
first time at a trade show in Nashville in early April 1997 and talked on
several occasions thereafter, but their discussions were limited to the joint
ventures in which Cavalier and Belmont were engaged and not with respect to any
possible strategic combination.
At the end of April 1997, Mr. Allison contacted Mr. Roberson to inquire
as to whether Cavalier would be willing to meet to discuss whether there would
be any interest in pursuing a strategic combination with Belmont. Mr. Roberson
responded that he would be willing to have such a meeting. On May 14, 1997,
representatives of Cavalier and Belmont met. Immediately prior to this meeting,
Belmont furnished Cavalier with certain financial and business information,
including certain internal financial forecasts regarding Belmont that, at the
time delivered to Cavalier, were consistent with analysts estimates of Belmont's
future earnings. At the meeting, representatives of Cavalier and Belmont
explored areas of common interest and discussed the possibility of a strategic
combination, but did not discuss issues related to valuation or structure. Soon
after this meeting, Belmont advised Cavalier that, due to changes in conditions
in the manufactured housing industry, the financial forecasts delivered by
Belmont to Cavalier were inaccurate and should not be relied upon. As a result,
Cavalier did not rely upon such financial forecasts.
Mr. Allison and another member of Belmont management met with Barry
Donnell, Chairman of the Board of Cavalier, and Mr. Roberson on May 27, 1997,
and discussed valuation and other issues. Mr. Allison and Messrs. Roberson and
Donnell again discussed valuation issues several times on June 2 through a
series of telephone conference calls. During these conversations, Messrs.
Allison, Donnell and Roberson tentatively discussed valuation formulas based
upon the concept of a fixed exchange ratio. The parties further discussed
possible exchange ratios, ranging from 0.75 to 0.825 Cavalier Shares per Belmont
Share. Based upon the information available to them, in the last discussion on
June 2, Messrs. Donnell and Roberson stated that they would be willing to
suggest that Cavalier engage in discussions regarding a possible strategic
combination with Belmont assuming a fixed exchange ratio pricing formula whereby
up to 0.80 Cavalier Shares would be exchanged for each Belmont Share. These
valuation discussions were subject to due diligence, board approvals,
negotiation of mutually acceptable definitive agreements, and a number of other
conditions, Mr. Allison responded that he would be willing to report these
discussions to the Belmont Board for consideration. On June 2, 1997, the closing
price of the Cavalier Shares was
27
<PAGE> 39
$11.50, and the closing price of the Belmont Shares was $7.94. During this same
time period of late April, May and early June of 1997, representatives of
Belmont were approached by and met with another producer of manufactured homes,
which orally expressed an interest in acquiring Belmont for a consideration
involving either cash or stock and a valuation approximating the valuation for
Belmont implied by the Exchange Ratio (assuming a value for the Cavalier Shares
equal to the average closing price of Cavalier Shares during the 90 day trading
period prior to the execution of the Merger Agreement).
At its regular meeting on June 3, 1997, the Belmont Board received
reports from management regarding the discussions being held with
representatives of Cavalier and the other manufactured housing producer. The
Belmont Board considered carefully a number of matters related to the merits of
a combination with Cavalier, as well as the advantages and the disadvantages of
a transaction with the other company, and also considered Cavalier's position
that it was unwilling to proceed with any discussions with Belmont if Belmont
was also, simultaneously, negotiating with another company. In addition, the
Belmont Board discussed and considered at length the future direction of Belmont
and of the manufactured housing industry. Specifically, and without limitation,
the Belmont Board considered the increasing competition among and for
independent dealers of manufactured homes, the Belmont Board's belief that
Belmont should seek to establish a network of exclusive dealers to sell
Belmont's homes, and the Belmont Board's belief that Belmont could benefit from
the development of internal financing capabilities. The Belmont Board also
considered and discussed the strength of Cavalier's management team and that
Cavalier shared Belmont's view of the manufactured housing industry and the
steps that should be taken, such as developing an exclusive dealer network and
internal financing capabilities, to remain competitive in the industry. The
Belmont Board noted that Cavalier has a captive financing subsidiary and had
taken steps to develop an exclusive dealer network. In addition, as a result of
Belmont's ongoing relationship with Cavalier through two joint ventures and the
knowledge of Cavalier and its management derived through such relationship, the
directors concluded that Cavalier was familiar with Belmont and was in the best
position to consummate the proposed transaction. The Belmont Board also
discussed and considered these factors with respect to the other manufactured
housing producer. The Belmont Board considered carefully, and placed significant
emphasis on, Cavalier's adamant position that it would not continue discussions
with Belmont unless such discussions were exclusive. Although the Belmont Board
identified and reviewed all of these factors, and certain of the factors
discussed below under the heading "Recommendation of the Board of Directors of
Belmont and Belmont's Reasons for the Merger," the Belmont Board did not
undertake to quantify any of these factors or synergies with respect to either
Cavalier or the other manufactured housing producer because the Belmont Board
did not believe that these factors and synergies could be quantified in any
accurate or meaningful way. At the June 3 meeting, the Belmont Board authorized
management to proceed to engage in discussions with Cavalier regarding a
possible strategic combination and to report to the Board at a later date based
upon its belief that, subject to due diligence, negotiation of mutually
acceptable definitive agreements, and a number of other conditions, a strategic
combination with Cavalier might be in the best interests of the shareholders of
Belmont. Following this meeting of the Belmont Board, Belmont terminated its
discussions with the other manufactured housing producer and held no substantive
discussions regarding a possible business combination with this other company
after June 3, 1997.
The Executive Committee of Belmont's Board met on June 11, 1997 to
consider, among other matters, the ongoing discussions regarding proposed
transactions involving Belmont. At this meeting, the members of the Executive
Committee reconfirmed that Belmont should continue its discussions regarding a
possible strategic combination with Cavalier and formally resolved to engage
Rauscher as Belmont's financial advisor with respect to such transaction.
Thereafter, members of Belmont and Cavalier management and their
respective legal advisors continued their conversations from time to time and
began negotiations of a confidentiality agreement.
Representatives of Cavalier and Belmont and their respective legal
advisors met on July 9, 1997 and discussed valuation and structural issues, due
diligence matters and procedures, and a potential timetable for a possible
combination. The parties also negotiated with each other regarding the terms and
conditions of a confidentiality agreement proposed by Cavalier. On July 11,
1997, Cavalier and Belmont executed a confidentiality agreement.
At a regular board meeting held on July 21, 1997, management of
Cavalier reported to the Board of Directors of Cavalier regarding the status of
discussions between management of Cavalier and Belmont. Mr. Roberson outlined
for the Board the terms and conditions of the transaction that were tentatively
being discussed, certain legal, financial, structural and operational issues
that he foresaw in such a combination, and the process that was being
undertaken. There ensued a general discussion of the possible transaction, and
various members of the Board asked questions of management and counsel to
Cavalier regarding certain matters with respect to the potential combination,
including, without limitation, issues regarding timing, structure, valuation,
personnel, the financial condition, results of operations and cash flows of
Belmont, the possibility of pooling-of-interests accounting treatment and a
tax-free reorganization, due diligence, the advantages and possible
disadvantages to Cavalier of such a merger, and similar matters. The Board
instructed management, in conjunction with the company's legal counsel,
accountants and financial advisors, to pursue these discussions and report to
the Board at a later date.
28
<PAGE> 40
On July 25, 1997, counsel for Cavalier distributed a proposed form of
merger agreement, and the parties thereafter discussed such agreement.
On July 29, 1997, representatives of Cavalier management and Cavalier's
legal and financial advisors met with representatives of Belmont and its legal
advisors to perform further due diligence with regard to each other and to
continue discussions regarding the terms and conditions of the possible
transaction. At this meeting, the parties also conducted negotiations regarding
the material terms of the draft agreement prepared by counsel for Cavalier. In
particular, Belmont resisted Cavalier's request for a stock option on Belmont's
shares to purchase up to 19.9% of Belmont Shares, on a fully diluted basis, upon
the occurrence of certain events, primarily related to the Belmont engaging in a
transaction with a party other than Cavalier or its subsidiaries, and Cavalier
and Belmont discussed the possibility of representation by members of the
Belmont Board on the Cavalier Board, the request by Belmont that it have the
right to terminate the agreement if Cavalier's stock price fell below a defined
level, the circumstances under which each party would be entitled to receive a
termination fee, and other matters relating to the terms and conditions proposed
to be included in the agreement.
On July 31, 1997, the Board of Directors of Belmont held a special
meeting to consider the possible transaction with Cavalier. At this meeting,
members of Belmont's Executive Committee, together with legal counsel to
Belmont, outlined the proposed terms and conditions of the transaction being
negotiated with Cavalier, the process that was underway, and certain legal and
financial considerations with respect to such transaction. The Belmont Board
discussed and considered the proposed transaction and various members of the
Belmont Board questioned members of Belmont's Executive Committee and legal
counsel regarding such transaction and related matters. During this meeting,
certain members of the Belmont Board emphasized their beliefs that, given the
existing relationship between Belmont and Cavalier, the compatibility of
Cavalier's operations and management style with those of Belmont, and the
perceived strengths and synergies that could potentially result from a strategic
combination with Cavalier, a strategic combination with Cavalier would be in the
best, long-term interests of Belmont and Belmont's shareholders. The Belmont
Board authorized management to continue with the discussions and also ratified
the Executive Committee's formal engagement of Rauscher as Belmont's financial
advisor.
At the close of business on August 1, 1997, the closing price for
Cavalier Shares, as reflected on the New York Stock Exchange, was $9.75 per
share, and the last sale price of Belmont Shares, as reported on Nasdaq, rose
from a low trading price of $7.75 per share on July 31, 1997 (and a previous
ten-day average of $7.83 per share) to $9.50 per share on high trading volume.
If the Merger had been consummated on August 1, 1997, therefore, each Belmont
Share would have been valued for purposes of the exchange at approximately
$7.80, assuming that the per share trading values of the Cavalier Shares and the
Belmont Shares were $9.75 and $9.50, respectively.
In response to a high level of trading activity in Belmont Shares,
questions from analysts regarding this market activity, the increasing per share
price of the Belmont Shares, and reports to the management of Belmont that
rumors were circulating in the market that Belmont might be engaged in
negotiations regarding a material transaction with a third party, early on the
following Monday morning, August 4, 1997, each of Cavalier and Belmont issued a
press release stating that they were in discussions for a possible strategic
combination that would provide for a fixed exchange ratio of 0.80 shares of
Cavalier for each outstanding share of Belmont. The press release stated that
the boards of each company had not met to approve the transaction, and that
there could be no assurance that a transaction would be agreed to or
consummated. The Executive Committee of the Belmont Board considered the
negative effect that this press release might have on the per share trading
price of Belmont Shares, but ultimately concluded that it would be prudent, in
light of the trading activity in the Belmont Shares and the concern that the
market might be trading on rumors of a transaction involving Belmont, to issue a
press release to inform the market of the status of the negotiations with
Cavalier. Belmont further believed that any press release that did not contain
the exchange ratio being discussed by Belmont and Cavalier might be misleading
and might further encourage rumors, and trading on rumors, regarding Belmont.
Between the issuance of this press release and the execution of the Merger
Agreement, Belmont was not contacted by any third party regarding any proposed
business combination.
On August 4, 1997, counsel for Cavalier distributed a revised form of
merger agreement in response to the July 29 meeting, the additional comments
received from counsel to Belmont following that meeting, and the other
discussions among the parties regarding the proposed form of agreement.
Thereafter, the parties continued to discuss and comment on the draft and to
conduct due diligence. On August 11, 1997, certain representatives of Belmont
and Cavalier and their
29
<PAGE> 41
respective legal advisors discussed the August 4 draft in detail, and on August
12, 1997, counsel for Cavalier distributed another revised form of merger
agreement.
On August 13, 1997, the Boards of Directors of Cavalier and Belmont met
independently to consider the proposed strategic combination. Prior to these
board meetings, each member of the Cavalier Board and the Belmont Board was
provided with the most recent draft of the Merger Agreement. At the Cavalier
meeting, legal counsel to Cavalier advised the Cavalier Board with regard to its
fiduciary duty to the stockholders of Cavalier in the context of evaluating the
terms of the Merger Agreement. Legal counsel to Belmont also advised the Belmont
Board in the context of evaluating the terms of the Merger Agreement. Management
of and legal counsel to Cavalier and Belmont also independently summarized their
findings with respect to their due diligence investigation of Belmont and
Cavalier, respectively, and the two managements discussed the strategic
implications of the Merger. In addition, Equitable made a presentation to the
Cavalier Board and Rauscher made a presentation to the Belmont Board, and each
discussed in detail the methodologies and considerations underlying their
analyses and delivered their opinions as to the fairness of the Exchange Ratio
from a financial point of view to the stockholders and shareholders of Cavalier
and Belmont. Members of each of the Cavalier Board and the Belmont Board asked
detailed questions of their respective legal counsel, management and financial
advisors and deliberated upon the merits of the Merger. Thereafter, the Boards
of Directors of both Cavalier and Belmont unanimously approved the Merger
Agreement and the transactions contemplated thereby. Cavalier and Belmont then
agreed to enter into the Merger based on the Exchange Ratio and the terms and
conditions of the Merger Agreement and executed the Merger Agreement early in
the morning of August 14, 1997. Cavalier and Belmont issued a press release
announcing such agreement immediately thereafter. On September 19, 1997,
Cavalier and Belmont amended the Merger Agreement to provide for the continuing
availability following the Merger of the shares reserved for the grant of new
options pursuant to the Belmont Stock Plan, which will become available under
the terms of the Cavalier Stock Plan. See "TERMS OF THE MERGER -- Options and
Warrants" and "DESCRIPTION OF CAVALIER 1996 KEY EMPLOYEE STOCK INCENTIVE PLAN."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CAVALIER AND CAVALIER'S REASONS FOR
THE MERGER
The Cavalier Board, based upon certain factors listed below, including
the Equitable Opinion, concluded that the Merger is fair to and in the best
interests of Cavalier and its stockholders, unanimously approved the Merger
Agreement and resolved to recommend that Cavalier stockholders approve the Share
Issuance. The Cavalier Board believes that the Merger represents a unique
opportunity to create a larger and stronger company with an enhanced balance
sheet and a broader product line and distribution base, and that in the current
environment of increased competitive conditions and potential industry
consolidation, the Merger is of strategic importance to Cavalier's efforts to
position itself as an effective competitor in the coming years. The Cavalier
Board also believes that the combined company can realize operational and
financial benefits by leveraging each of the separate companies' specific
strengths. The Cavalier Board further believes that the Merger will bring
opportunities for cost savings, economies of scale and other synergies, and
ultimately for increased expansion of its finance subsidiary and independent
dealer network, resulting in possible improved cash-flow and profit potential
for the long-term growth of Cavalier and of stockholder value.
The Cavalier Board recognized that there were potential challenges to a
combination with Belmont. In particular, the Cavalier Board noted that Belmont
and Cavalier had both recently lost certain key members of their management, and
that a combination at this time could present challenges to both companies'
management teams. The Cavalier Board also considered that the combination would
be undertaken at a time of uncertainty about conditions in the manufactured
housing industry and the prospects for each of the two companies, and that
Cavalier would be issuing shares of its stock in the combination at a time when
its share price and the share prices of other manufactured housing companies
were lower than they had been in recent years. The Cavalier Board discussed
that, while the transaction on a pro forma basis was accretive to Cavalier's
earnings per share for the period ending December 31, 1996, and had no effect
for the twenty-six week period ending June 27, 1997, the combination might have
a dilutive effect on Cavalier's earnings per share for the remainder of 1997 and
1998 before any cost savings or synergies are realized. Excluding the one-time
non-recurring direct costs of integrating the two companies in the Merger, which
are currently estimated at between $6 to $8 million, and prior to achieving any
such cost savings or synergies, the Cavalier Board noted that Equitable's
analysis suggested that the transaction might result in dilution on a pro forma
basis to Cavalier's earnings per share for the year ended December 31, 1997 of
approximately 12% and for the year ended December 31, 1998 of approximately 6%.
The Cavalier Board, however, also recognized the inherent uncertainty in this
analysis.
30
<PAGE> 42
The Cavalier Board further reviewed the potential for achieving cost
savings due to the significantly larger purchasing power of the combined
company, the elimination of costs associated with Belmont being a reporting
company whose shares are publicly traded, and the increased opportunities,
profits and efficiencies for Cavalier's component parts joint venture due to
increased volume. Management estimated that savings on an annual basis of
between .25% and 1.00% of revenues of the combined company, or a range of
approximately $1.5 to $6.0 million on a pre-tax basis, potentially could be
obtained, and that the amount of pre-tax income necessary to recover the
potential dilution suggested by Equitable (i.e., approximately $2.2 million) was
in the lower portion of this range. The Cavalier Board discussed that it might
take a year to achieve the necessary recoveries from these cost savings, and
that it could possibly take longer to fully realize the benefits of the Merger.
The Cavalier Board considered the remarks made by Equitable in its
presentation that the Flat Case of the Leveraged Transaction Analysis, as well
as the Pro Forma Merger Analysis in the absence of the achievement of certain
operating synergies, do not support the fairness of the transaction. However,
the Cavalier Board also recognized that the determination of the fairness of a
transaction is a complex process and is not necessarily susceptible to partial
analysis or summary description. Consequently, in considering the opinion of
Equitable, the Cavalier Board considered Equitable's analysis in its entirety
and did not consider any single method of valuation or analysis to be conclusive
with respect to the consideration to be paid by Cavalier in the Merger.
The Cavalier Board also considered a number of other synergies that
could not be quantified with precision, including those arising out of (i)
having a broader product and distribution base, (ii) the opportunity for
Cavalier to benefit from Belmont's expertise as a quality, low cost and
efficient manufacturer, (iii) the opportunity for Belmont to benefit from
Cavalier's marketing and distribution expertise, (iv) the ability of both
companies ultimately to benefit from an expanded customer base for Cavalier's
exclusive dealer network and its financial services products, (v) the ability to
obtain better access to capital markets and improved rates and terms from
lenders due to a stronger financial position, and (vi) the fact that the similar
operating philosophies of the two companies (e.g., decentralization of
operations and marketing by business unit) would make it easier to integrate the
companies. The Cavalier Board was aware and considered that there would be
significant non-recurring direct costs of the Merger for, among other things,
legal, accounting and investment banking services and transaction costs,
payments required under the Bellcrest Stock Purchase Agreement, additional
insurance coverage, the integration and centralization of certain administrative
functions, and the implementation of Cavalier's information systems in Belmont's
operations. However, other than quantifying the potential tangible cost savings
and assuming a general timetable of one year or longer to achieve the benefits
expected from the Merger, the Cavalier Board did not undertake a detailed
analysis of when these particular non-recurring costs would be recovered,
primarily because of their non-recurring nature and because the Board believed
that the costs were justified in light of the tangible and intangible benefits
expected to be derived from the Merger.
The following are the material factors considered by the Cavalier Board
in reaching its conclusions, certain of which factors contained positive and
negative elements as discussed above:
(i) the judgment, advice and analysis of its management with
respect to the potential strategic, financial and operational
benefits of the Merger, based in part on the business,
financial, accounting and legal due diligence investigations
performed with respect to Belmont;
(ii) current industry, economic and market conditions;
(iii) the advice of, and financial analysis prepared by, Equitable,
including the Equitable Opinion, to the effect that, as of the
date of such opinion and based on, and subject to, the
assumptions, limitations and qualifications set forth in such
opinion, the Exchange Ratio and the consideration to be paid
by Cavalier in the Merger are fair to the stockholders of
Cavalier from a financial point of view (See "--Opinion of
Financial Advisor to Cavalier");
(iv) information concerning the financial condition, results of
operations and cash flows and businesses of Cavalier and
Belmont, both on an historical and a prospective basis;
(v) the historical market prices and trading information with
respect to the Cavalier Shares and the Belmont Shares;
(vi) the express terms and conditions of the Merger Agreement,
including the requirement for Cavalier stockholder approval of
the Share Issuance and the fees and expenses that would be
payable by Cavalier upon termination under certain
circumstances;
(vii) the advice of Cavalier's independent auditors with respect to
the ability to account for the Merger as a
pooling-of-interests under generally accepted accounting
principles;
31
<PAGE> 43
(viii) the expectation that the Merger should be treated as a
tax-free reorganization under Section 368(a) of the Code;
(ix) the Cavalier Board's evaluation of the potential long-term
value of shares in the combined company resulting from the
Merger;
(x) the increased access to the capital markets expected to be
available to the combined company resulting from the Merger;
(xi) the synergies, cost savings and operational efficiencies that
may become available to the combined enterprise as a result of
the Merger, as well as the management challenges associated
with successfully integrating the businesses, cultures and
managements of two large corporations, particularly in light
of the competing demands for the attention of the management
of Cavalier, and the possibility that before any potential
cost savings or synergies are realized, the combination may
have a dilutive effect on earnings per share for the remainder
of 1997 and in 1998;
(xii) the potential strategic benefits of the Merger and the current
and anticipated environment in the manufactured housing
industry, the strategic options available to Cavalier and the
effects on Cavalier of potential further consolidation in the
industry;
(xiii) the opportunities for constructive sharing of resources and
expertise between Cavalier and Belmont, the complementary
corporate cultures and operating philosophies of Cavalier and
Belmont, and the anticipated impact of such cultures and
philosophies on the ability to consummate the Merger in a
timely fashion and on the combined company resulting from the
Merger;
(xiv) the corporate governance aspects of the Merger, including that
the size of the Cavalier Board would be increased to nine and
would include two members of the current Belmont Board;
(xv) the number of Cavalier Shares to be issued to shareholders of
Belmont in the Merger, and the percentage ownership of the
combined company represented thereby; and
(xvi) the ability to obtain required consents and regulatory
approvals to consummate the transaction.
There can be no assurances that the expected benefits of the Merger,
including those considered by the Cavalier Board, will be realized.
Cavalier believes that the foregoing discussion, while not exhaustive,
identifies and describes all material factors and information considered by the
Cavalier Board. In view of the variety of factors considered in connection with
its evaluation of the Merger, the Cavalier Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Cavalier Board may have given different weights to different
factors.
THE CAVALIER BOARD UNANIMOUSLY RECOMMENDS THAT CAVALIER STOCKHOLDERS
VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE CAVALIER SPECIAL MEETING. Certain
directors of Cavalier may be deemed to have certain interests in the Merger in
addition to their interests as Cavalier stockholders. See "-- Interests of
Certain Persons in the Merger; Certain Relationships."
OPINION OF FINANCIAL ADVISOR TO CAVALIER
On July 25, 1997, Cavalier retained Equitable to act as its exclusive
financial advisor in connection with the Merger. Prior to that date, Equitable
acted in a general financial advisory capacity for Cavalier from time to time.
On August 13, 1997, Equitable rendered its oral opinion, which was
confirmed by its written opinion dated the date that the Joint Proxy Statement
and Prospectus was delivered to the stockholders of Cavalier, to the Cavalier
Board to the effect that, based upon and subject to certain matters stated
therein, as of the date of such opinion, the Exchange
32
<PAGE> 44
Ratio and the consideration to be paid by Cavalier in connection with the Merger
(the "Merger Consideration") are fair to the Cavalier stockholders from a
financial point of view.
The full text of the Equitable Opinion dated the date of this Joint
Proxy Statement and Prospectus, which sets forth a description of the
assumptions made, general procedures followed, matters considered and
limitations on the review undertaken, is attached hereto as Annex B. The
Equitable Opinion is directed only to the fairness to Cavalier stockholders,
from a financial point of view, of the Exchange Ratio and the Merger
Consideration, and does not constitute a recommendation to any Cavalier
stockholder as to how such stockholder should vote on the Share Issuance.
Cavalier stockholders are urged to read the Equitable Opinion carefully in its
entirety, especially with regard to the assumptions made and matters considered
by Equitable.
In connection with its opinion, Equitable reviewed, among other things,
the Merger Agreement, certain publicly-available information regarding Cavalier
and Belmont and certain other financial reports, internal forward-looking
information and other information which were provided to Equitable. Cavalier
provided Equitable with a three-month rolling forecast of its results of
operations for the third quarter of 1997, which forecast was consistent with the
results ultimately reported by Cavalier for the quarter. Equitable also held
discussions with the managements and representatives of Cavalier and Belmont
concerning the historical and current operations of Cavalier and Belmont, their
respective financial condition and prospects, as well as the strategic and
operating benefits anticipated from the Merger. In addition, Equitable (i)
considered, to the extent available, the financial terms of certain other
similar transactions recently effected which it considered comparable to the
Merger, (ii) compared certain financial positions and operating results of
Cavalier and Belmont to other companies in the manufactured housing industry,
(iii) reviewed the pro forma financial effects of the Merger to Cavalier and
(iv) conducted such other financial studies, analyses and investigations and
reviewed such other factors as Equitable deemed appropriate for purposes of its
opinion. Except as disclosed in this section of this Joint Proxy Statement and
Prospectus, Equitable does not believe that any of such other studies, analyses,
investigations or factors, individually or in the aggregate, are material to the
Equitable Opinion.
In rendering this opinion, Equitable relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
certain financial and other information reviewed by them that was publicly
available or furnished to them by or on behalf of Cavalier and Belmont.
Equitable assumed that the internal forward-looking information and discussions
regarding the future prospects of Cavalier and Belmont were reasonable and
reflected good faith judgments of the respective managements of Cavalier and
Belmont at the time such information was prepared or discussions were held.
Equitable also assumed, with Cavalier's consent, that: (i) the Merger will be
accounted for under the pooling-of-interests method of accounting, (ii) the
Merger will be a tax-free reorganization and (iii) all material liabilities
(contingent or otherwise) of Belmont are as set forth in the financial
statements of Belmont or as otherwise disclosed to them in connection with this
engagement. Equitable has not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Belmont, nor were they
furnished with any such evaluations or appraisals. Equitable was not requested
to, and did not participate in, the structuring of the Merger, including making
any recommendation about the amount of Merger Consideration to be paid by
Cavalier. Equitable's opinion is based upon economic, market and other
conditions existing as of the date thereof and does not address the fairness of
the Merger Consideration to the stockholders of Cavalier as of any other date,
or any other aspect of the Merger. Subsequent developments may affect
Equitable's opinion. Equitable's opinion does not constitute a recommendation to
any stockholder of Cavalier as to whether or not that stockholder should vote to
approve the Merger. Furthermore, Equitable expressed no opinion as to the price
or trading range at which Cavalier shares will trade following the Merger.
Equitable noted in its presentation to the Cavalier Board that certain
analyses, when examined independently, may not support the fairness of the
transaction In particular, Equitable noted that the results of the Pro Forma
Merger Analysis and the Flat Case of the Leveraged Transaction Analysis could be
viewed as not supporting the fairness of the transaction. However, the
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analysis or the summary set forth below, without considering the analyses as
a whole, could create an incomplete view of the processes underlying the opinion
of Equitable. In arriving at its fairness opinion, Equitable considered the
results of all such analyses and did not attribute any particular weight to any
analyses or factors considered by it; rather, Equitable made its decision as to
the fairness on the basis of experience and professional judgment, after
considering the results of all such analyses. No company or transaction used in
the analyses as a comparison is identical to Cavalier or Belmont or the Merger.
The analyses were prepared solely for the purpose of Equitable providing its
opinion to the Cavalier Board as to the fairness to the holders of the Cavalier
Shares of the consideration to be paid to the shareholders of Belmont.
33
<PAGE> 45
Certain of Equitable's analyses are based upon anticipated financial
results based upon consensus analyst estimates, forward-looking information
provided by the management of Cavalier and discussions with management of
Cavalier and Belmont. In the case of Cavalier, Equitable utilized consensus
analyst estimates for purposes of its analysis and held discussions with
management concerning current trends of Cavalier's business. In the case of
Belmont, Equitable generated three projection scenarios. These scenarios contain
varying assumptions for revenue growth rates and operating margins and were
developed based upon a review of consensus analyst estimates, industry forecasts
and discussions with Belmont's management. The scenarios were developed in order
to provide the Cavalier Board with a range of potential outcomes. Due to the
uncertainty surrounding the trends in the manufactured housing industry in
general and Belmont in particular, the scenarios were not intended to estimate
the actual results of Belmont, but rather to provide information regarding a
range of potential financial effects. In particular, the Optimistic Case assumes
that Belmont's revenue increases at an annual rate of 7.5%, and that operating
income as a percentage of revenue increases from its current level to 8.8% over
the period from 1998 to 2001. The Flat Case assumes no future growth in
Belmont's revenues and operating income as a percentage of revenues increasing
from its current level to 7.9% over the period from 1998 to 2001. The Base Case
assumes that Belmont's revenues increase 5.0% annually, and that operating
income as a percentage of revenue increases from its current level to 8.2% over
the period from 1998 to 2001.
The analyses for both Cavalier and Belmont contain numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Cavalier's or Belmont's control. Any
estimates contained in Equitable's analyses are not necessarily indicative of
actual values or predictive of future values or results, which may be
significantly more or less favorable than as set forth therein.
The estimated financial results for Cavalier and Belmont considered
each company's operations on a stand-alone basis and did not give effect to the
Merger. As a result of the Merger, management of Cavalier and Belmont each
expect to realize certain operating efficiencies and cost savings. The expected
range of these savings varies based upon the overall manufactured housing
industry environment and other operating assumptions for the combined entity,
and these factors cannot be determined at this time. Cavalier's management
expects to achieve cost savings in purchasing, component manufacturing and
financial services. Equitable has assumed, based upon discussions with
management, that these savings could range between .25% and 1% of the revenues
of the combined entity. However, there can be no assurance that any savings will
materialize.
The following paragraphs summarize the material analyses performed by
Equitable in arriving at the opinion delivered to the Cavalier Board. In
considering these analyses, Equitable placed primary emphasis on the
Contribution Analysis, Pro Forma Merger Analysis, Historical Trading Analysis,
Premiums Paid Analysis and Analysis of Certain Other Publicly-Traded Companies.
Equitable placed less emphasis on the Analysis of Recent Acquisition
Transactions due to the current manufactured housing industry conditions
relative to the conditions at the time of the transactions presented. Equitable
also placed less emphasis on the Discounted Cash Flow Analysis and the Leveraged
Transaction Analysis due to their dependence upon projected financial results
and other assumptions which are subject to inherent uncertainty.
Contribution Analysis. Equitable analyzed the percentage of revenues,
operating profit, net income, total assets, stockholders equity and other
factors that each of Cavalier and Belmont would contribute to the total of the
combined entity. Based upon the latest 12 months data, Cavalier would contribute
59% of the combined entity's revenues, 62% of its operating profit, 62% of its
net income excluding life insurance proceeds, 61% of its assets and 57% of the
combined stockholders' equity. In addition, Cavalier would contribute 57% of the
homes sold in 1996. Equitable noted that, at the Exchange Ratio, the Cavalier
stockholders would own approximately 62% of the combined entity, within the
range of contribution based upon the statistics considered. This analysis
supported the fairness of the transaction due to the similarity of Cavalier's
ownership to its contribution to the combined entity.
Pro Forma Merger Analysis. Equitable analyzed certain pro forma effects
resulting from the Merger. The analysis indicated that the pro forma earnings
per share ("EPS") of Cavalier on a fully taxed basis, before assuming any
transaction costs or operating synergies resulting from the Merger, would be
approximately 12% lower in the fiscal year ending December 31, 1997 and
approximately 6% lower in the fiscal year ending December 31, 1998 than
comparable
34
<PAGE> 46
estimates for Cavalier on a stand-alone basis during the same periods. Equitable
noted that this analysis could be viewed as not supporting the fairness of the
transaction due to the reduction in Cavalier's estimated 1998 EPS in the first
year of combined operations. Equitable further noted that this analysis could
be viewed as supporting fairness only if certain operating synergies were
achieved. Equitable determined that approximately $2.2 million of additional
income before taxes would be necessary to result in no change to Cavalier's
stand-alone projected EPS in 1998, the first year of combined operations.
Equitable noted that the amount of operating synergies required to result in no
change to Cavalier's stand-alone EPS or to make it accretive were within the
range of potential operating synergies from the Merger that had been identified
by Cavalier management. These synergies are discussed in more detail under the
heading "Recommendation of the Board of Directors of Cavalier and Cavalier's
Reasons for the Merger."
Historical Trading Analysis. Equitable examined the history of the
trading prices, the trading prices as a multiple of the then-last 12 months EPS
of Cavalier and Belmont and the relative relationships to each other and
relative to Clayton Homes, Oakwood Homes and Champion Enterprises for the period
from June 2, 1995 to August 1, 1997. Equitable selected these companies for
purposes of comparison as a proxy of investors' view of the manufactured housing
industry. These companies were the largest companies in the manufactured housing
industry in terms of 1996 unit volume and are widely followed by the investment
community. This analysis indicated the degree to which Cavalier and Belmont had
traded at a premium or discounted multiple of last 12 months EPS relative to
each other and the aforementioned publicly-traded companies in the manufactured
housing industry. This analysis indicated that Belmont's multiple has
historically ranged from a 9.5 multiple point discount to a 1.9 multiple point
premium relative to Cavalier and has averaged a discount of 4.0 multiple points.
Belmont's multiple has historically ranged from an average 12.1 to 1.9 multiple
point discount relative to other selected manufactured housing companies and has
averaged a discount of 6.9 multiple points. At the time of the announcement on
August 4, 1997 regarding Cavalier's and Belmont's discussions, Belmont was
trading at a 1.9 multiple point premium to Cavalier, and an average 3.4 multiple
point discount to other selected manufactured housing companies. Cavalier's
multiple has historically ranged from an average 7.6 multiple point discount to
a 2.9 multiple point premium relative to other selected manufactured housing
companies and has averaged a discount of 2.9 multiple points. At the time of
announcement, Cavalier was trading at an average 5.9 multiple point discount to
other selected manufactured housing companies. Equitable concluded that the
market valuation of both Cavalier and Belmont at the time of announcement were
within their historical trading ranges.
Premiums Paid Analysis. Equitable determined the percentage premium of
the offer price implied by the Exchange Ratio over the trading prices for one
day, ten days, 30 days and 90 days prior to the announcement on August 4, 1997.
In addition, Equitable analyzed the percentage premium of the offer price
implied by the Exchange Ratio over the average trading prices for the ten days,
30 days and 90 days prior to the announcement. The analysis indicated that the
Exchange Ratio implied a discount of 17.9% to the price one day prior to the
announcement and premiums of 6.2%, 27.1% and 2.9% to the trading prices ten
days, 30 days and 90 days prior to the announcement, respectively. Relative to
the average trading prices prior to the announcement date, the offer price
implied by the Exchange Ratio resulted in a discount of 0.2% for the ten day
average and premiums of 9.2% and 11.8% for the 30 day average and 90 day
average, respectively. Equitable compared this information to all completed
pooling-of-interests transactions from August 1, 1996 for which the transaction
value and financial information was publicly available, which consisted of 61
transactions and which involved companies not necessarily comparable to Cavalier
and Belmont. This analysis indicated that the median premiums of the offer price
to the trading prices one day, one week and 30 days prior to the announcement
were 21.0%, 27.8% and 31.8%. The premium information for the selected
transactions was obtained from publicly-available data sources and was presented
on the basis of one day, one week and 30 days prior to the announcement date.
For purposes of comparison to the premium paid for Belmont, Equitable examined
the implied premium for the day prior to announcement and 30 days prior to
announcement. These premiums are comparable to the information provided on other
transactions for one day prior and 30 days prior to the announcement. In order
to provide a comparison to the typical trading range of Belmont in recent weeks,
Equitable analyzed the implied premium for Belmont for the 10 days prior to
announcement rather than one week prior to announcement due to the increased
trading activity in Belmont stock during the week before announcement. Equitable
noted from this analysis that the premiums implied by the Exchange Ratio and
paid for Belmont were less than or comparable to the premiums paid in other
transactions.
Analysis of Recent Acquisition Transactions. Using publicly available
information, Equitable reviewed the purchase prices and multiples paid in
selected merger and acquisition transactions involving manufactured housing
companies with at least $10 million of revenue for the twelve months preceding
acquisition. Equitable collected information on 15 transactions since January 1,
1994 and reviewed the relationship between the aggregate transaction value and
the acquired company's revenues, earnings before interest, taxes, depreciation
and amortization ("EBITDA") and income before income taxes for the twelve months
preceding acquisition.
35
<PAGE> 47
While selected transactions since 1994 were provided to the Cavalier Board for
purposes of its analysis, Equitable determined its relevant range for purposes
of its analysis by focusing on transactions during 1996 and 1997 and those
transactions which involved companies with sizes and operations similar to
Belmont. The transactions focused on were (presented in the format of
acquiror/target): American Homestar/Brilliant Holding Corporation, Belmont
Homes/Bellcrest Homes, Champion Enterprises/Redman Industries, American
Homestar/Guerdon Homes, Champion Enterprises/Homes of Legend, Champion
Enterprises/Grand Manor, Belmont Homes/Spirit Homes and Oakwood Homes/Destiny
Industries. Based upon Equitable's analysis of the transactions on which it
focused, Equitable determined that the relevant range of transaction multiples
was between 0.3 times and 0.4 times revenues, 5.6 times and 6.8 times EBITDA and
6.8 times and 7.8 times income before income taxes. The determination of the
relevant range was based upon Equitable's knowledge of the current environment
for manufactured housing acquisition transactions and an analysis of the
comparability of certain companies' financial results. Equitable noted that,
based upon the closing stock prices for Cavalier on August 12, 1997, the Merger
Consideration implied 0.3 times revenues, 4.0 times EBITDA and 4.8 times income
before taxes. Equitable concluded that the implied multiples paid for Belmont
were within or below the multiples paid for other manufactured housing
companies. In addition to the transactions Equitable utilized in determining
the relevant range, Equitable presented the Cavalier Board with information
regarding the following transactions: an investor group/General Manufactured
Housing, Southern Energy Homes/Imperial Homes, Champion Enterprises/Crest
Ridge Homes, Cavalier Homes/Astro Manufacturing, Oakwood Homes/Golden West
Homes, Southern Energy Homes/Imperial Manufactured Homes, and Champion
Enterprises/Dutch Housing. The information presented, where available
consisted of the type of consideration (cash or stock), the transaction value,
and the transaction value as a multiple of revenue, EBITDA, pre-tax income, and
net income.
Analysis of Certain Other Publicly-Traded Companies. Using
publicly-available information, Equitable reviewed the stock prices, market
multiple times profitability and certain other characteristics for certain other
companies in the manufactured housing industry. The companies included in this
analysis were American Homestar, Inc., Kit Manufacturing, Inc., Liberty Homes,
Inc., Nobility Homes, Inc., Schult Homes, Inc., Skyline Corporation, Southern
Energy Homes, Inc., Champion Enterprises, Inc., Clayton Homes, Inc., Fleetwood
Enterprises, Inc., Oakwood Homes Corporation and Palm Harbor Homes, Inc.
Equitable determined that the range of market multiples based upon these
companies' latest 12 months revenues, operating income and net income were 0.1
times to 1.9 times for revenues, 5.5 times to 12.6 times for operating income
and 9.1 times to 17.6 times for net income. Equitable noted that, based upon
Cavalier's stock price on August 12, 1997, the value of Belmont implied by the
Exchange Ratio was 0.1 times revenues, 4.8 times operating income and 7.8 times
net income. Equitable determined that the multiples implied by the Exchange
Ratio were within or below the market valuations of other manufactured housing
companies.
Discounted Cash Flow Analysis. Equitable also performed Discounted Cash
Flow Analysis. Using the information provided by the three scenarios set forth
above, Equitable performed stand-alone Discounted Cash Flow Analyses for
Belmont. Equitable calculated Free Cash Flow, based upon stand-alone earnings
before interest and taxes adjusted for: (i) taxes, (ii) certain non-cash items,
(iii) projected changes in non-cash working capital and (iv) projected capital
expenditures. Equitable analyzed the Belmont information and discounted the
stream of free cash flow over the period from 1998 through 2002 back to the
present time using discount rates ranging from 10% to 12%. To estimate the
residual values of Belmont at the end of the forecast period, Equitable applied
multiples ranging from 3.5 to 7.5 to the projected 2003 free cash flow and
discounted such value at the same range of discount rates. Equitable then
aggregated the present values of the free cash flows and the residual values to
derive a range of implied enterprise values for Belmont. The range of enterprise
values were then adjusted for outstanding debt less outstanding cash to derive a
range of equity values for Belmont. Based upon this analysis, the Flat Case
indicated a range of equity values of $56.3 million to $82.8 million for
Belmont. The Base Case indicated a range of equity values of $70.4 million to
$108.4 million for Belmont. The Optimistic Case projections indicated a range of
equity values of $85.6 million to $133.4 million. Equitable noted that at
Cavalier's stock price on August 12, 1997, the equity value implied by the
Exchange Ratio, approximately $77.3 million, was within the range of the values
calculated by this analysis.
Leveraged Transaction Analysis. Equitable also utilized the three
Belmont scenarios set forth above to calculate the value of Belmont in a
leveraged transaction. Equitable assumed for this analysis that Belmont was
acquired in a leveraged transaction which involved a capital structure
consisting of 30% equity, 25% subordinated debt and 45% senior debt, adjusted
for the use of existing cash on Belmont's balance sheet. The values were
calculated assuming the maximum value for Belmont which enabled the equity
investors to achieve internal rates of return ranging from 30% to 40% while the
subordinated debt achieved an internal rate of return of 20%. These returns were
calculated assuming a valuation in 2002 at 5.5 times EBITDA. This capital
structure and return levels were selected based upon Equitable's judgment of the
returns expected by investors in transactions of this type. Using the Flat Case,
this analysis resulted in a range of equity values for Belmont of $65.2 million
to $75.6 million. Using the Base Case, this analysis resulted in a range of
equity values for Belmont of $78.5 million to $91.4 million. Using the
Optimistic Case, this analysis resulted in a range of equity values for Belmont
of $91.3 million to $106.5 million. Equitable noted that, at Cavalier's stock
price as of August 12, 1997, the equity value implied by the Exchange Ratio,
approximately $77.3 million, was within the range of the values produced from
this analysis. The Flat Case of the leveraged transaction analysis is the only
case in which the implied value was higher than the indicated range and could
be viewed as not supporting fairness.
36
<PAGE> 48
Equitable, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. In the past, Equitable has performed investment
banking and financial advisory services for Cavalier from time to time for which
it has received compensation, including serving as sole managing underwriter for
Cavalier's offering of common stock in June 1994 for which Equitable received
customary underwriter's compensation. Equitable has also provided investment
banking and financial advisory services to Belmont, including serving as a
managing underwriter for the initial public offering of common stock of Belmont
in June 1995 and for an offering of common stock in January 1996. Equitable's
customary underwriter's gross compensation for the 1995 and 1996 offerings was
approximately $534,000 and $745,000, respectively. In the ordinary course of
business, Equitable trades the equity securities of Cavalier and Belmont for its
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in these securities.
Pursuant to the engagement letter, dated July 25, 1997, between
Cavalier and Equitable, Cavalier has agreed to pay Equitable a fee of $250,000
for services rendered in connection with the Merger. Of this amount, $50,000 was
paid when the engagement letter was executed and $100,000 was paid when
Equitable rendered its oral opinion to the Cavalier Board. The remaining
$100,000 is to be paid upon the consummation of the Merger. Cavalier has also
agreed to reimburse Equitable for certain expenses reasonably incurred by it in
connection with its engagement (including reasonable counsel fees) and to
indemnify Equitable and its officers, directors, employees, agents and
controlling persons against certain expenses, losses, claims, damages or
liabilities in connection with its services, including those arising under
federal securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BELMONT AND BELMONT'S REASONS FOR
THE MERGER
The Belmont Board, based upon various factors, including those listed
below, and upon the Rauscher Opinion, concluded that the Merger Agreement and
the Merger are in the best interests of the shareholders of Belmont, unanimously
approved the Merger Agreement and the Merger, and resolved to recommend to the
Belmont shareholders that they vote to approve the Merger Agreement and the
Merger. The Belmont Board believes that the Merger offers Belmont and its
shareholders an opportunity to continue to participate in the manufactured
housing industry through a stronger, combined company. Following the
consummation of the Merger, the Belmont Board believes that Cavalier's ability
to compete in the manufactured housing industry will be strengthened by the
potential economies and cost savings expected to be afforded by the Merger, and
the complementary nature of the businesses and management teams of Belmont and
Cavalier. The Belmont Board believes that these and other potential synergies
offered by the Merger will, if any such benefits are ultimately realized, be
beneficial to Belmont's shareholders.
The following are the material factors considered by the Belmont Board
in reaching its conclusions:
(i) the judgment, advice and analysis of its management with
respect to the potential strategic, financial and operational
benefits of the Merger, based in part on the business,
financial, accounting and legal due diligence investigations
performed with respect to Cavalier;
(ii) current industry, economic and market conditions;
(iii) the advice of, and financial analyses prepared by, Rauscher,
including the opinion rendered by Rauscher dated August 13,
1997 to the effect that, as of such date, based upon and
subject to certain matters stated therein, the Exchange Ratio
is fair to Belmont shareholders from a financial point of view
(See "-- Opinion of Financial Advisor to Belmont");
(iv) information concerning the financial condition, results of
operations and cash flows and business of Cavalier and
Belmont, both on an historical and a prospective basis;
(v) the historical market prices and trading information with
respect to the Cavalier Shares and the Belmont Shares;
37
<PAGE> 49
(vi) the express terms and conditions of the Merger Agreement,
including the requirement for Belmont shareholder approval and
the fees and expenses that would be payable by Belmont upon
termination under certain circumstances;
(vii) the concurrence of Belmont's independent auditors with the
assessment by the management of Belmont as to the
appropriateness of accounting for the Merger as a
pooling-of-interests under generally accepted accounting
principles;
(viii) the expectation that the Merger should be treated as a
tax-free reorganization under Section 368(a) of the Code;
(ix) the Belmont Board's evaluation of the potential long-term
value of shares in the combined company resulting from the
Merger;
(x) the increased access to the capital markets expected to be
available to the combined company resulting from the Merger;
(xi) the potential strategic benefits of the Merger and the current
and anticipated environment in the manufactured housing
industry, the strategic options available to Belmont and the
effects on Belmont of potential further consolidation in the
industry;
(xii) the complementary corporate cultures and operating
philosophies of Belmont and Cavalier, and the anticipated
impact of such cultures and philosophies on the ability to
consummate the Merger in a timely fashion and on the combined
company resulting from the Merger;
(xiii) the corporate governance aspects of the Merger, including that
the size of the Cavalier Board would be increased to nine and
would include two members of the current Belmont Board;
(xiv) although the Belmont Board did not undertake to quantify any
of these factors or synergies because the Belmont Board
did not believe that these factors and synergies could be
quantified in any accurate or meaningful way, the Belmont
Board did consider certain perceived synergies and advantages
of the combined company resulting from the Merger, including
the availability of internal financing for purchasers of
manufactured homes, access to a network of exclusive dealers,
enhanced purchasing leverage, and enhanced liquidity for the
shares of the combined company; and
(xv) the ability to obtain required consents and regulatory
approvals to consummate the transaction.
In addition, the Belmont Board considered the risks inherent in the
Merger, including the risk that the anticipated benefits of the Merger might
not be realized, that the Exchange Ratio is fixed and will not be adjusted in
the event of any increase or decrease in the trading values of the Cavalier
Shares or the Belmont Shares (except in certain limited circumstances), and the
difficulties associated with consolidating the operations of Belmont and
Cavalier and the related challenges that will be faced by management of the
combined company in such efforts. After considering all of such information,
however, the Belmont Board concluded that the Merger would be in the best
interests of the shareholders of Belmont. There can be no assurances, however,
that any expected benefits of the Merger, including those considered by the
Belmont Board, will be realized. Belmont also was aware in general terms of
Cavalier's belief that the Merger possibly could have a dilutive effect on
Cavalier's earnings per share for the remainder of 1997 and 1998, and that it
might take some period of time to achieve the cost savings Cavalier believed
potentially could be obtained. While Belmont did not independently quantify
these matters, nothing caused it to have a different expectation in this regard.
Belmont believes that the foregoing discussion, while not exhaustive,
identifies and describes all material factors and information considered by the
Belmont Board. In reaching the determination to approve and recommend the
Merger, and in view of the wide variety of factors considered, the Belmont Board
did not assign any relative or specific weights to the foregoing factors and
individual directors may have given differing weights to different factors.
Similarly, in considering the opinion of Rauscher, the Belmont Board considered
Rauscher's analysis in its entirety and did not consider any single method of
valuation or analysis to be conclusive with respect to the consideration to be
received in the Merger by the shareholders of Belmont. Rather, the Belmont Board
viewed its positions and recommendation as being based upon the totality of the
information presented including the advice and opinion of Rauscher, the Belmont
Board's determination that the Merger constituted an opportunity to
strategically align Belmont and Cavalier with the intention of building a
stronger, combined company, and the Belmont Board's conclusion that the combined
company would likely be better able to compete in the manufactured housing
market. As a result of its consideration of all of the factors set forth above
and its conclusion that the Merger would provide the shareholders of Belmont
with the best long-term opportunity to benefit from their investments in
Belmont, the Belmont Board considered the precise relationship of the per share
value of the Belmont Shares implied by the Exchange Ratio and the trading price
of the Belmont Shares at the time that the Merger Agreement was executed (i.e.,
$8.15, based on the closing price of the Cavalier Shares and the Belmont Shares
on August 13, 1997 of $10.1875 and $7.875, respectively, representing an implied
premium of approximately 3.5%) and determined that such per share value was not
a material factor in making its recommendation that the Belmont shareholders
vote in favor of the approval and adoption of the Merger Agreement and the
Merger.
THE BELMONT BOARD UNANIMOUSLY RECOMMENDS THAT THE BELMONT SHAREHOLDERS
VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER AT THE BELMONT SPECIAL MEETING. Certain directors of Belmont may be
deemed to have certain interests in the Merger in addition to their interests as
Belmont shareholders. See "-- Interests of Certain Persons in the Merger;
Certain Relationships."
38
<PAGE> 50
OPINION OF FINANCIAL ADVISOR TO BELMONT
Rauscher was retained by Belmont to act as Belmont's financial advisor
in connection with the proposed Merger. In connection with such engagement,
Belmont requested that Rauscher evaluate the fairness, from a financial point of
view, to the Belmont shareholders of the Exchange Ratio, which Exchange Ratio
was determined by negotiation between Belmont and Cavalier. Rauscher was not
requested to recommend the amount of consideration to be received by Belmont. On
August 13, 1997, at a meeting of the Board of Directors of Belmont held to
evaluate the proposed Merger, Rauscher delivered its opinion to the Belmont
Board to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Exchange Ratio was fair, from a
financial point of view, to the Belmont shareholders.
In connection with its opinion, Rauscher reviewed publicly available
business and financial information relating to Belmont and Cavalier. Rauscher,
among other things, reviewed the Merger Agreement and discussed with certain
members of senior management of Belmont and Cavalier the past and current
business operations, financial condition and future prospects of Belmont and
Cavalier. Rauscher reviewed certain financial analyses of Belmont and Cavalier
which were provided to Rauscher by the respective managements of Belmont and
Cavalier. Rauscher reviewed the financial terms of the Merger as set forth in
the Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of Belmont Shares and Cavalier Shares; the
respective companies' historical earnings and operating data; and the
capitalization and financial condition of Belmont and Cavalier. Rauscher
compared certain financial and stock market information for Belmont and Cavalier
with similar information for certain other companies, the securities of which
are publicly traded, and reviewed the financial terms of certain recent business
combinations in the manufactured housing industry whose operations Rauscher
considered relevant in evaluating those of Belmont and Cavalier. Rauscher also
evaluated the potential pro forma financial impact of the Merger on Cavalier. In
connection with this engagement, Rauscher was not requested to, and did not,
solicit third party indications of interest in a possible acquisition of
Belmont.
In addition, Rauscher considered such other information and financial,
economic and market criteria which Bauscher deemed relevant, and conducted such
other analyses as Rauscher deemed appropriate under the circumstances. Except as
discussed in this section, Rauscher does not believe that any of such other
analyses, individually or in the aggregate, are material to Rauscher's opinion.
In connection with its review, Rauscher relied upon and assumed the accuracy and
completeness of the financial and other information publicly available or
furnished to Rauscher by Belmont and Cavalier or their representatives. Rauscher
did not independently verify the accuracy or completeness of such information.
In addition, Rauscher did not make an independent evaluation or appraisal of the
assets of Belmont and Cavalier, nor was Rauscher furnished with any such
appraisals. Rauscher assumed, with the consent of the Belmont Board, that the
Merger will be treated as a pooling-of-interests in accordance with generally
accepted accounting principles and as a tax-free reorganization for federal
income tax purposes. Rauscher did not express any opinion as to what the value
of the Cavalier Shares actually will be when issued to Belmont Shareholders
pursuant to the Merger or the price at which the Cavalier Shares will trade
subsequent to the Merger. Although Rauscher evaluated the Exchange Ratio from a
financial point of view, Rauscher was not asked to and did not recommend the
specific consideration payable in the Merger, which was determined through
negotiation between Belmont and Cavalier. No other limitations were imposed by
Belmont on Rauscher with respect to the investigations made or procedures
followed by Rauscher in rendering its opinion.
A copy of the written opinion of Rauscher dated the date of this Joint
Proxy Statement and Prospectus, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as Annex
C, and is incorporated herein by reference. Belmont shareholders are urged to
read this opinion carefully in its entirety. The opinion of Rauscher is directed
to the Belmont Board and relates only to the fairness of the Exchange Ratio from
a financial point of view, does not address any other aspect of the Merger or
related transactions and does not constitute a recommendation to any shareholder
as to how such shareholder should vote at the Belmont Special Meeting.
Financial Analyses of the Financial Advisor. In preparing its opinion,
Rauscher performed a variety of financial and comparative analyses, including
those described below. The summary of such analysis does not purport to be a
complete description of the analysis underlying Rauscher's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily
39
<PAGE> 51
susceptible to summary description. Accordingly, Rauscher believes that its
analysis must be considered as a whole and that selecting portions of its
analysis and factors, without considering all analysis and factors, could create
a misleading or incomplete view of the processes underlying such analysis and
opinion. In its analysis, Rauscher made numerous assumptions with respect to
Belmont, Cavalier, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Belmont and Cavalier. The estimates contained in such analysis and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analysis. In
addition, analysis relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analysis and estimates are
inherently subject to substantial uncertainty. Rauscher's opinion and analysis
was only one of many factors considered by the Belmont Board in its evaluation
of the Merger and should not be viewed as determinative of the views of the
Belmont Board or management with respect to the Exchange Ratio or the proposed
Merger.
Selected Company Analysis. Using publicly available information,
Rauscher analyzed, among other things, the market value and trading multiples of
Belmont, Cavalier and six other selected publicly traded companies in the
manufactured housing industry, consisting of: Champion Enterprises, Inc.,
Fleetwood Enterprises, Inc., Liberty Homes, Inc., Schult Homes Corporation,
Skyline Corporation and Southern Energy Homes, Inc. (the "Selected Companies").
With respect to the Selected Companies, Rauscher focused on all of the
non-vertically integrated publicly-traded manufactured housing companies that do
not receive a major portion of their revenue from retailing and financing
operations. Rauscher compared market values as multiples of, among other things,
net income, estimated 1997 and 1998 net income and book value, and adjusted
market values (equity market value, plus total debt, minority interest and the
book value of preferred stock, less cash and cash equivalents) as multiples of,
among other things, revenue and EBITDA. Net income projections of Belmont,
Cavalier and the Selected Companies were based on the median estimates as
reported by Institutional Brokers Estimate System. All multiples were based on
closing stock prices as of August 8, 1997. Applying a range of multiples for the
Selected Companies (excluding the highest and lowest multiples) of the latest 12
months net income, estimated calendar 1996 and 1997 net income and book value of
9.1 times to 12.8 times, 9.3 times to 11.6 times, 8.1 times to 10.0 times and
1.4 times to 2.5 times, respectively, and latest 12 months revenue and EBITDA of
0.3 times to 0.5 times and 4.2 times to 5.8 times, respectively, to
corresponding financial data for Belmont resulted in an equity reference range
for Belmont of approximately $59.5 million to $144.9 million, as compared to the
equity value implied by the Exchange Ratio of approximately $75.7 million based
on the closing stock price of Cavalier Shares on August 8, 1997.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Rauscher reviewed the purchase price and implied
transaction multiples paid in the following nine selected transactions in the
manufactured housing industry (acquiror/target): Champion Enterprises,
Inc./Dutch Housing, Inc., Oakwood Homes Corporation/Golden West Homes, Southern
Energy Homes, Inc./Imperial Manufactured Homes of NC, Inc., Champion
Enterprises, Inc./Chandeleur Homes, Inc., Champion Enterprises, Inc./Crest Ridge
Homes, Inc., Belmont/Spirit Homes, Inc., American Homestar Corporation/Guerdon
Holdings, Inc., Champion Enterprises, Inc./Redman Industries, Inc. and Centex
Corporation/Cavco Industries, Inc. (together, the "Selected Transactions"). With
respect to the Selected Transactions, Rauscher focused on acquisitions of
non-vertically integrated manufactured housing companies, announced between
January 1994 and December 1996, for which sufficient financial data is publicly
available. Rauscher compared transaction values resulting from the Selected
Transactions as multiples of, among other things, latest 12 months net income,
and adjusted transaction values (equity market value, plus total debt, minority
interest and the book value of preferred stock, less cash and cash equivalents)
resulting from the Selected Transactions as multiples of, among other things,
latest 12 months revenue and EBITDA. Applying a range of multiples for the
Selected Transactions (excluding the highest and lowest multiples) of the latest
12 months net income of 3.7 times to 15.0 times, and latest 12 months revenue
and EBITDA of 0.2 times to 0.5 times and 3.5 times to 7.0 times, respectively,
to corresponding financial data for Belmont resulted in an equity reference
range for Belmont of approximately $33.3 million to $135.0 million, as compared
to the equity value implied by the Exchange Ratio of approximately $75.7 million
per share based on a closing stock price of Cavalier Shares on August 8, 1997.
No company, transaction or business used in the "Selected Company
Analysis" or "Selected Merger and Acquisition Transaction Analysis" as a
comparison is identical to Belmont, Cavalier or the Merger. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
40
<PAGE> 52
acquisition, public trading or other values of the Selected Companies, the
Selected Transactions or the business segment, company or transaction to which
they are being compared.
Contribution Analysis. Rauscher analyzed the respective contributions
of Belmont and Cavalier to the estimated revenue, EBITDA, operating profit and
net income of the combined company for fiscal year 1996 and the latest 12 months
ended June 30, 1997. This analysis indicated that (i) in fiscal year 1996,
Belmont would have contributed approximately 40.4% of revenue, 45.8% of EBITDA,
48.3% of operating profit and 44.1% of net income, and Cavalier would have
contributed approximately 59.6% of revenue, 54.2% of EBITDA, 51.7% of operating
profit, 55.9% of net income of the combined company, and (ii) for the latest 12
months ended June 30, 1997, Belmont would have contributed approximately 41.3%
of revenue, 39.8% of EBITDA, 40.4% of operating profit and 36.6% of net income,
and Cavalier would have contributed approximately 58.7% of revenue, 60.2% of
EBITDA, 59.6% of operating profit and 63.4% of net income, of the combined
company. Immediately following consummation of the Merger, shareholders of
Belmont and Cavalier would own approximately 37.8% and 62.2%, respectively, of
the combined company. Although the contribution analysis based upon Belmont's
1996 results does not support the conclusion of Rauscher that the Exchange Ratio
was fair, from a financial point of view, to the Belmont shareholders, the
contribution analysis based upon Belmont's results for the twelve-month period
ended June 30, 1997 (which analysis was emphasized by Rauscher in its verbal
presentation to the Belmont Board on August 13, 1997) is consistent with the
conclusion of Rauscher that the Exchange Ratio was fair, from a financial point
of view, to the Belmont shareholders. Rauscher emphasized the latest 12 month
period in its contribution analysis because of the change in Belmont's results
from operations in 1997 compared to 1996. Rauscher believes that Belmont's 1996
results are not indicative of Belmont's current operating profile. Rauscher
also emphasized to the Belmont Board that its opinion regarding the Exchange
Ratio should be viewed in its entirety, and that no single method of valuation
or analysis was conclusive with respect to the consideration to be received in
the Merger by the shareholders of Belmont.
Pro Forma Merger Analysis. Rauscher analyzed certain pro forma effects
resulting from the proposed Merger, including, among other things, the impact of
the proposed Merger on Cavalier's EPS for fiscal year 1996 and the six months
ended June 30, 1997. The results of the pro forma merger analysis suggested that
the proposed Merger would have been accretive to Cavalier's EPS for fiscal year
1996 and the six months ended June 30, 1997 by 10.7% and 0.6%, respectively.
Exchange Ratio Analysis. Rauscher reviewed the recent historical stock
market performance of Belmont Shares and Cavalier Shares in relation to each
other. This analysis indicated that between February 8, 1997 and August 8, 1997
the ratio of the price of a Belmont Shares to the price of a Cavalier Shares
averaged 0.74. Rauscher also noted that such ratio averaged 0.85 between August
9, 1996 and August 8, 1997. With respect to the average exchange ratio, Rauscher
emphasized the six-month average due to the significant decline in Belmont's
results from operations and share price from 1996 to 1997.
Pursuant to the terms of Rauscher's engagement, Belmont has agreed to
pay Rauscher for its services in connection with the proposed Merger an
aggregate financial advisory fee equal to $275,000. Belmont has also agreed to
reimburse Rauscher for reasonable travel and other out-of-pocket expenses
incurred by Rauscher in performing its services, including the reasonable fees
and expenses of its legal counsel, and to indemnify Rauscher and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Rauscher's engagement.
In the ordinary course of business, Rauscher and its respective
affiliates may actively trade or hold the securities of Belmont and Cavalier for
its own account or for the account of customers, and, accordingly, may at any
time hold a long or short position in such securities. Rauscher has in the past
provided investment banking and financial advisory services to Belmont unrelated
to the proposed Merger, for which services Rauscher has received compensation.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
General. Cavalier stockholders and Belmont shareholders should be aware
that certain directors and members of management of Cavalier and Belmont may be
deemed to have certain interests in the Merger in addition to their interests as
Cavalier stockholders and Belmont shareholders, as the case may be. The Cavalier
Board and the Belmont Board were aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the Merger and in
recommending for stockholder approval the Share Issuance, in the case of the
Cavalier Board, and for shareholder approval the Merger Agreement and the
Merger, in the case of the Belmont Board. These interests include, among other
things, provisions in the Merger Agreement relating to indemnification of
Belmont directors and officers, and certain other employee benefits described
below.
Directors' and Officers' Indemnification and Insurance. Cavalier has
agreed in the Merger Agreement that all rights to exculpation and
indemnification for acts or omissions occurring prior to the Effective Time
existing at the time of the signing of the Merger Agreement in favor of the
current or former directors or officers of Belmont (the "Indemnified Parties")
41
<PAGE> 53
as provided by law or in Belmont's Restated Articles of Incorporation, Bylaws or
any agreement will survive the Merger and continue in full force and effect in
accordance with their terms. In addition, for six years from the Effective Time,
Cavalier has agreed not to amend, repeal, or otherwise modify the Restated
Articles of Incorporation, Bylaws or any such agreement as any of them relate to
indemnification in any manner that would adversely affect the rights thereunder
of the Indemnified Parties, unless such modification is required by law, and has
further agreed to indemnify the Indemnified Parties to the same extent as such
Indemnified Parties are entitled to indemnification pursuant to the first
sentence of this paragraph. Furthermore, Cavalier has agreed, from and after the
Effective Time, to indemnify and hold harmless each officer and director of
Belmont to the extent such person would be entitled to indemnification pursuant
to the first sentence of this paragraph against any costs or expenses (including
attorneys' fees), losses, damages or amounts paid in settlement in connection
with any claim, action, suit or proceeding arising out of or pertaining to the
transactions contemplated by the Merger Agreement, provided that the Indemnified
Party agrees that, in the event that it is ultimately determined that such
Indemnified Party is not entitled to the payment of such expenses, such
Indemnified Party will reimburse Cavalier or Belmont, as the Surviving
Corporation of the Merger, for such expenses paid in advance. Cavalier has
agreed to maintain in effect Belmont's directors' and officers' liability policy
for the current term of such policy. Finally, Cavalier has agreed to honor the
terms of the Indemnification Agreements entered into between Belmont and its
existing officers and directors immediately prior to the execution of the Merger
Agreement.
Employee Benefit Plans. In the Merger Agreement, Cavalier has agreed to
provide generally to officers and employees of Belmont and its subsidiaries
employee benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of Cavalier Shares) on terms and
conditions which are not materially less favorable than those provided by
Belmont as of the date of the Merger Agreement to similarly situated officers
and employees. See "TERMS OF THE MERGER -- Employee Benefits."
New Directors. The Merger Agreement provides that Cavalier will create
two additional seats on the Cavalier Board and will cause each of A. Douglas
Jumper, Sr. and Mike Kennedy to be elected to the Cavalier Board for a term
expiring at Cavalier's next annual meeting of stockholders following the
Effective Time, subject to being renominated as a director at the discretion of
the Cavalier Board. As directors of Cavalier, Mr. Jumper and Mr. Kennedy will be
eligible to be granted options pursuant to Cavalier's 1993 Amended and Restated
Nonemployee Directors Stock Option Plan (the "Nonemployee Directors Plan") under
the same terms as apply to Cavalier's existing directors. See "NEW DIRECTORS OF
CAVALIER" and "COMPENSATION OF DIRECTORS."
Non-Competition Agreements. Contemporaneously with the execution of the
Merger Agreement, G. Hiller Spann, President and Chief Executive Officer of
Belmont and President of Bellcrest Homes, Inc., a wholly owned subsidiary of
Belmont, John W. Allison, Vice-Chairman of the Belmont Board of Directors, and
Keith Kennedy, Senior Vice President of Manufacturing of Belmont, entered into
agreements with Cavalier, Belmont and certain subsidiaries of Belmont pursuant
to which Messrs. Spann, Allison and Kennedy agreed not to compete with Cavalier,
Belmont and certain subsidiaries of Belmont (each a "Non-Competition Agreement"
and collectively, the "Non-Competition Agreements") in consideration for
continued at-will employment and certain severance payments that are described
below. The period for which Messrs. Kennedy's and Spann's agreements not to
compete applies commenced as of August 14, 1997 and terminates two (2) years
after the Effective Time. The period for which Mr. Allison's agreement not to
compete applies commences with the Effective Time of the Merger and terminates
one (1) year thereafter. Mr. Spann's agreement provides that in the event that
Mr. Spann is terminated from employment during his non-competition period for
reasons other than voluntary termination or cause (as therein defined), Mr.
Spann would be entitled to receive as a severance payment the full amount of his
salary at the time of termination for the balance of the non-competition period,
and would also be entitled to receive continued health coverage in accordance
with applicable law. Mr. Kennedy's agreement contains similar provisions. The
amount of these severance payments cannot be quantified with any precision
because it is not possible to know the amount of Messrs. Spann's and Kennedy's
salaries at the time of severance. Mr. Allison's agreement provides that in the
event that Mr. Allison is terminated from employment prior to the first
anniversary of the Effective Time for reasons other than voluntary termination
or cause (as defined in his agreement), Belmont will be required to maintain and
pay for health insurance coverage for Mr. Allison and his family for a period of
three years from the date of such termination, to the extent provided by law and
the applicable health insurance plan. Mr. Allison left full-time employment with
Belmont and its wholly-owned subsidiary, Spirit Homes, Inc., in September of
1997, although he remains as Vice-Chairman of the Belmont Board of Directors.
Each of the Non-Competition Agreements provides that it will be void and of no
effect if the Merger is not consummated.
42
<PAGE> 54
Amendment to the Bellcrest Stock Purchase Agreement. On October 25,
1996, the then existing shareholders of Bellcrest (the "Former Bellcrest
Shareholders"), in connection with the acquisition by Belmont of all of the
outstanding stock of Bellcrest, entered into a Stock Purchase Agreement with
Belmont. Included among the Former Bellcrest Shareholders was G. Hiller Spann,
current President and Chief Executive Officer of Belmont and President of
Bellcrest. This Stock Purchase Agreement provided for a portion of the purchase
price to be paid to the Former Bellcrest Shareholders to be contingent on the
achievement by Bellcrest of certain net income targets (the "Earnout"). The
maximum amount of the Earnout to be paid pursuant to this mechanism was
$3,500,000, of which $1,000,000 was paid by Belmont in March 1997. The balance
of $2,500,000 (assuming certain net income targets are achieved by Bellcrest) is
scheduled to be paid in two installments, with the first due no later than March
1, 1998 and the second no later than March 1, 1999. On August 14, 1997, the
Former Bellcrest Shareholders and Belmont amended the Stock Purchase Agreement
to clarify that the Former Bellcrest Shareholders are entitled to receive the
maximum amount that such shareholders could receive under the Earnout, or
$2,500,000, upon the consummation of the Merger. Of this amount, approximately
$745,000 will be paid to Mr. Spann. This amendment provides that it will be void
and of no effect if the Merger is not consummated.
Belmont Stock Option Plans. The Merger Agreement provides that at the
Effective Time all options (including options that have been conditionally
granted) to purchase Belmont Shares under Belmont's stock option plans,
including those held by directors and key employees, will be converted into
options to purchase Cavalier Shares as described under "TERMS OF THE MERGER --
Options and Warrants." As a result of the Merger, such options become fully
exercisable for the 30-day period following the approval by the Belmont
shareholders at the Special Meeting of the Merger Agreement and the Merger, and,
if not exercised during such period, will continue to be subject to their
pre-Merger vesting schedules.
The following table sets forth, with respect to the directors and
executive officers of Belmont, (i) the number of Belmont Shares subject to
options held by such persons, (ii) the weighted average exercise price for such
options and (iii) the aggregate value of such options (i.e., total stock value
less the exercise price) based upon the closing price of Belmont Shares on
November 28, 1997 of $7.625 per share.
<TABLE>
<CAPTION>
Number of Weighted Average Aggregate Value
Option Holder Option Shares(1) Exercise Price of Option Shares
- ------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Thomas D. Keenum, Sr. 1,500 $ 10.64 --
John W. Allison 42,750 10.64 --
G. Hiller Spann -- -- --
Mike Kennedy 48,000 10.64 --
Keith Kennedy 48,000 10.64 --
William M. Kunkel 45,000 6.00 $73,125
A. Douglas Jumper, Sr. 3,000 10.97 --
J.M. Page 3,000 10.97 --
Don D. Murphy 3,000 10.97 --
Hollis Sparks 1,500 9.88 --
Roger D. Moore 15,000 10.64 --
</TABLE>
- -------------------
(1) The option shares included in the table underlie options that are
either presently exercisable or will become exercisable for a period of 30 days
following the approval by the Belmont shareholders at the Special Meeting of the
Merger Agreement and the Merger.
The Merger Agreement provides for the continuing availability following
the Merger of the shares reserved for the grant of new options pursuant to the
Belmont Stock Plan, which will become available under the terms of the Cavalier
Stock Plan. Pursuant to an amendment to the Cavalier Stock Plan, Cavalier Shares
equal to the number of Belmont Shares which remain available under the Belmont
Stock Plan at the Effective Time, or which thereafter become available under the
Belmont Stock Plan due to the expiration, cancellation, termination or lapse of
outstanding options, pursuant to the express terms of such options and the plan
under which they were granted and not pursuant to any action by Cavalier, Sub or
Belmont not consented to by the applicable optionee, will be available for
issuance under the Cavalier
43
<PAGE> 55
Stock Plan, with such numbers in each case being multiplied by the Exchange
Ratio. These additional shares will be available for grant in the future to key
employees, including officers and employee directors, of Cavalier and of
Belmont.
Comparison of the Cavalier Stock Plan and the Belmont Stock Plan. The
terms of the Cavalier Stock Plan are substantially similar to the terms of the
Belmont Stock Plan, except for the following material differences. The Cavalier
Stock Plan provides for the grant of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock and performance
shares. The Belmont Stock Plan provides for the grant only of incentive stock
options and non-qualified stock options. The aggregate number of Cavalier Shares
available for grant under the Cavalier Stock Plan is the sum of (i) 600,000
shares (750,000 shares after the five-for-four stock split paid in November 1996
(the "Stock Split")); (ii) 1.5% of the Cavalier Shares outstanding on January
1,1997 and each January 1 thereafter; and (iii) Cavalier Shares which are
available for grant pursuant to new options or which are subject to options
granted under the Cavalier Homes, Inc. Long Term Incentive Compensation Plan,
the Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, and the Cavalier
Homes, Inc. 1993 Amended and Restated Nonqualified Stock Option Plan, but as to
which such options may from time to time expire, lapse or be canceled or
terminated. The aggregate number of Belmont Shares available for grant under the
Belmont Stock Plan is 1,000,000, of which approximately 625,000 remain to be
granted. As discussed above, the number of Cavalier Shares available for
issuance pursuant to awards under the Cavalier Stock Plan shall be increased
following the Merger by the number of shares available for issuance under the
Belmont Stock Plan multiplied by the Exchange Ratio.
The Cavalier Stock Plan is administered by the Compensation Committee
of Cavalier; provided that, with respect to actions taken regarding transactions
structured to be exempt from the provisions of Section 16(b) of the Exchange Act
and the rules and regulations thereunder in a circumstance where all members of
the Compensation Committee are not "non-employee directors" within the meaning
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), such action is
required to be taken by a committee or sub-committee of two (2) or more members
of the Compensation Committee or the Cavalier Board who are such non-employee
directors, or such transaction otherwise shall be structured to be exempt under
Section 16(b); and provided, further, that with respect to actions taken
regarding transactions designed to meet the "performance-based exception" to the
limits on deductibility of executive compensation under Section 162(m) of the
Code and the regulations promulgated thereunder in a circumstance where all
members of the Compensation Committee are not "outside directors" within the
meaning thereof, then such action shall be taken by a committee or sub-committee
of two (2) or more members of the Compensation Committee or the Cavalier Board
who are such outside directors. The Belmont Stock Plan is administered by the
Belmont Board if each director is a "disinterested person" within the meaning of
that term as used in Rule 16b-3, or by a committee of the Belmont Board
consisting of not less than three directors who are disinterested persons.
No grants of incentive stock options may be made under the Cavalier
Stock Plan after February 27, 2006. Absent earlier termination of the Belmont
Stock Plan, no grants of incentive stock options would have been allowed to be
made under the Belmont Stock Plan after December 13, 2004. Both plans provide
that no options shall be exercisable after the expiration of ten years from the
date the option is granted, although the Belmont Stock Plan further limits the
exercise period of incentive stock options granted to an employee who at the
time of the grant owns (as defined in Code Section 424) more than 10% of the
total combined voting power of all classes of Belmont stock or the stock of its
subsidiaries to a period of five years from the date the option is granted.
Options granted under the Belmont Stock Plan must be exercised within three
months following termination of employment under most circumstances, unless such
termination is for cause, in which event no option held by such terminated
employee shall be exercisable following the termination or removal. If a holder
of an option ceases to be an employee or an officer by reason of disability or
death, the option must be exercised with 12 months after the holder ceases to be
an employee of officer. Under the Cavalier Stock Plan, each individual award
grant sets forth the terms under which the recipient has the right to exercise
the option following termination of employment, which may be either more or less
restrictive than the Belmont conditions.
Both plans provide that the committee administering the plan will
determine the option prices at which to grant the options and awards as of the
date of the grant. Both plans also require the option price to be not less than
100% of the fair market value of the respective shares on the date of the grant
in order to qualify as incentive stock options. The Belmont Stock Plan further
provides that if a recipient of a grant owns (as determined in Code Section 424)
more than 10% of the total combined voting power of all classes of Belmont stock
or of the stock of its subsidiaries, the option price per share shall be not
less than 110% of the fair market value per Belmont Share. The Belmont Stock
Plan also provides that the option price for non-qualified options shall be not
less than 50% of the fair market value per Belmont Share on the date the option
is granted. No participant in the Cavalier Stock Plan may receive awards of
options, stock appreciation rights, restricted stock and performance shares
during any one calendar year covering in the aggregate more than 125,000
Cavalier Shares. The Belmont Stock Plan limits its grant of options to an amount
covering 250,000 Belmont Shares during any three-year period.
44
<PAGE> 56
The Cavalier Stock Plan provides for the withholding and payment of any
payroll or withholding taxes required by applicable law. The Belmont Stock Plan
makes no such provision. While both plans provide for the acceleration of the
vesting of options in the event of a change in control of the respective
companies, the Belmont Stock Plan limits the periods during which such
accelerated options may be exercised, while the Cavalier Stock Plan accelerates
the options and allows them to remain exercisable throughout their entire term.
Certain Relationships. In July 1997, Cavalier, along with three other
manufactured housing producers, became a limited partner in three separate
limited partnerships doing business in the State of Texas (the "Texas Limited
Partnerships"). One of the limited partnerships was formed to own real estate
(the "Real Estate Partnership") that will be leased to the two other operating
limited partnerships, one of which is expected to engage in the business of
producing roof trusses (the "Woodperfect Partnership") and the other of which is
expected to engage in the business of laminating wall panels (the "Hillsboro
Partnership"). Each of the operating partnerships are expected to sell their
products to manufactured housing producers, including those producers which are
partners in the partnership. Financing for these businesses was provided through
industrial bond financing, and the lease payments from the operating
partnerships to the Real Estate Partnership are designed to service this
indebtedness. Cavalier owns an approximate 20% interest in the Real Estate
Partnership and the Woodperfect Partnership, and an approximate 25% interest in
the Hillsboro Partnership. Lee Roy Jordan is also an approximate 20% limited
partner in the Real Estate Partnership and the Woodperfect Partnership. Mr.
Jordan is a director of Cavalier and a beneficial owner of 53,664 shares of the
common stock of Cavalier. Mr. Jordan is also the sole member in the two limited
liability companies that serve as the general partners to the Real Estate
Partnership and the Woodperfect Partnership. The limited liability company owns
a 0.01% interest in each of these two partnerships. The operating limited
partnerships have not commenced manufacturing operations as of the date of this
Joint Proxy Statement and Prospectus.
PLANS FOR THE COMBINED COMPANIES FOLLOWING THE MERGER
After the completion of the Merger, Cavalier expects Belmont will
continue generally to operate its business as presently conducted. Cavalier
currently has no plans for any merger, reorganization, liquidation, sale or
transfer of any material amount of assets of Belmont to any third party.
Cavalier expects that following the Merger its principal executive offices will
remain in Addison, Alabama, that Belmont's headquarters will remain in Belmont,
Mississippi, and that Belmont's Arkansas and Georgia subsidiaries will continue
to operate from their existing locations.
TERMS OF THE MERGER
The following is a summary of material provisions of the Merger
Agreement. A copy of the Merger Agreement is attached as Annex A to this Joint
Proxy Statement and Prospectus and is incorporated herein by reference.
THE MERGER; EFFECTIVE TIME
Upon the terms and subject to the conditions of the Merger Agreement,
at the Effective Time, Sub will merge with and into Belmont. Belmont will be the
surviving corporation in the Merger, and will continue its corporate existence
under the Mississippi Business Corporation Act under the same name as a
wholly-owned subsidiary of Cavalier. At the Effective Time, the separate
corporate existence of Sub will terminate. The Restated Articles of
Incorporation and Bylaws of Belmont as in effect immediately prior to the
Effective Time will be the articles of incorporation and bylaws, respectively,
of Belmont, as the corporation surviving the Merger. The Merger will become
effective upon the execution and filing of the Articles of Merger with the
Secretary of State of the State of Mississippi or at such subsequent date or
time as shall be agreed by Cavalier and Belmont and specified in the Articles of
Merger. Such filing will be made or otherwise become effective on the Closing
Date, which Closing Date will be no later than two business days after
satisfaction or waiver of the conditions set forth in Article VI of the Merger
Agreement.
CONVERSION OF SECURITIES
Upon the terms and subject to the conditions of the Merger Agreement,
at the Effective Time each outstanding Belmont Share will be converted into the
right to receive 0.80 fully paid and nonassessable Cavalier Shares. All Belmont
Shares that are owned by Belmont as treasury shares, and any Belmont Shares
directly or indirectly owned by Cavalier or any of its subsidiaries will be
canceled and will cease to exist at the Effective Time and no capital stock of
Cavalier or other consideration will be delivered in exchange therefor. Any
issued and outstanding Belmont Shares held by a Belmont shareholder who asserts
rights under the Dissent Provisions will not be converted as described above but
will become solely the right to receive payment of the fair value of his, her or
its Belmont Shares in such amount as may be
45
<PAGE> 57
determined to be due to such shareholder pursuant to the Dissent Provisions;
provided, however, that the Belmont Shares outstanding immediately prior to the
Effective Time and held by a shareholder asserting dissenters' rights who shall,
after the Effective Time, withdraw his, her or its demand for appraisal or lose
his, her or its right of appraisal, in either case pursuant to the Dissent
Provisions, will be converted as of the Effective Time into the right to receive
Cavalier Shares at the Exchange Ratio.
A description of the rights and privileges of Cavalier stockholders and
certain material differences between the rights of Belmont shareholders and
Cavalier stockholders are set forth under the caption "COMPARISON OF RIGHTS OF
CAVALIER STOCKHOLDERS AND BELMONT SHAREHOLDERS."
OPTIONS AND WARRANTS
At the Effective Time, each option to purchase Belmont Shares (each, a
"Belmont Option") granted under Belmont's stock option plans in effect on August
14, 1997 (the "Belmont Option Plans") which is unexpired and unexercised
immediately prior thereto will be assumed by Cavalier and converted, without
further action, into an option (an "Adjusted Option") to acquire, on the same
terms and conditions as were applicable under the Belmont Options and the plans
under which they were issued prior to the Effective Time (including without
limitation any provisions for acceleration), that number of Cavalier Shares
equal to the number of Belmont Shares issuable immediately prior to the
Effective Time upon exercise of the Belmont Options (without regard to actual
restrictions on exercisability) multiplied by the Exchange Ratio, with an
exercise price equal to the exercise price which existed under the corresponding
Belmont Options divided by the Exchange Ratio. In addition, notwithstanding the
foregoing, each Belmont Option which is an "incentive stock option" will be
adjusted as required by Section 424 of the Code, and the regulations promulgated
thereunder, so as not to constitute a modification, extension or renewal of the
option, within the meaning of Section 424(h) of the Code. As of the Effective
Time, all references to Belmont in each Belmont Option will be deemed to be
references to Cavalier, where appropriate, and Cavalier will assume the
obligations of Belmont under Belmont's 1994 Incentive Stock Plan, as amended,
but not under the 1994 Non-qualified Stock Option Plan for Non-Employee
Directors, which plan will be terminated as of the Effective Time (but without
adversely affecting the holders of outstanding options under such plan). As of
November 28, 1997, approximately 375,000 Belmont Shares were issuable upon
exercise of Belmont Options. Accordingly, approximately 300,000 Cavalier Shares
will be issuable upon exercise of Adjusted Options. Such options become fully
exercisable for the 30-day period following the approval by the Belmont
shareholders at the Special Meeting of the Merger Agreement and the Merger, and,
if not exercised during such period, will continue to be subject to their
pre-Merger vesting schedules.
The Merger Agreement provides for the continuing availability following
the Merger of the shares reserved for the grant of new options pursuant to the
Belmont Stock Plan, which will become available under the terms of the Cavalier
Stock Plan. Pursuant to an amendment to the Cavalier Stock Plan, Cavalier Shares
equal to the number of Belmont shares which remain available under the Belmont
Stock Plan, or which thereafter become available under the Belmont Stock Plan
due to the expiration, cancellation, termination or lapse of outstanding
options, pursuant to the express terms of such options and the plan under which
they were granted and not pursuant to any action by Cavalier, Sub or Belmont not
consented to by the applicable optionee, will be available for issuance under
the Cavalier Stock Plan, with such numbers in each case being multiplied by the
Exchange Ratio. As of November 28, 1997, there were approximately 625,000
Belmont Shares available to be granted pursuant to options under the Belmont
Stock Plan. Accordingly, an additional approximately 500,000 Cavalier Shares
will be available for issuance pursuant to awards under the Cavalier Stock Plan.
See "DESCRIPTION OF CAVALIER 1996 KEY EMPLOYEE STOCK INCENTIVE PLAN."
At the Effective Time, the Suddath Warrant will be assumed by Cavalier
and will become a warrant (the "Adjusted Warrant") to acquire, on the same terms
and conditions as were applicable to the Suddath Warrant prior to the Effective
Time, that number of Cavalier Shares equal to the 75,000 Belmont Shares issuable
immediately prior to the Effective Time upon exercise of the Suddath Warrant
(without regard to actual restrictions on exercisability) multiplied by the
Exchange Ratio, which amounts to 60,000 Cavalier Shares, with an exercise price
per share equal to $14.67 divided by the Exchange Ratio, or $18.34 per Cavalier
Share.
NO FRACTIONAL SHARES
No fractional Cavalier Shares will be issued to any of the Belmont
shareholders in the Merger. In lieu of any such fractional share, Cavalier will
pay cash in an amount equal to the value of such fractional interest (determined
with reference to the closing price of Cavalier Shares on the NYSE on the last
full trading day immediately prior to the Effective Time). No interest will be
paid or accrued on the cash in lieu of fractional shares (and unpaid dividends
and
46
<PAGE> 58
distributions, if any) payable to holders of certificates of Belmont Shares. No
such holder will be entitled to dividends, voting rights or any other rights as
a Cavalier stockholder in respect of any fractional Cavalier Shares.
EXCHANGE OF STOCK CERTIFICATES
As of the Effective Time, Cavalier will make available to an exchange
agent designated by Cavalier and reasonably acceptable to Belmont (the "Exchange
Agent"), for the benefit of Belmont shareholders, certificates representing
Cavalier Shares and will from time-to-time deposit cash in an amount reasonably
expected to be paid in lieu of fractional Cavalier Shares as described above.
Promptly after the Effective Time, Cavalier will cause the Exchange
Agent to mail a form of transmittal letter to the holders of certificates
representing Belmont Shares. The form of transmittal letter will contain
instructions with respect to the surrender of such certificates in exchange for
Cavalier Shares (and cash in lieu of fractional Cavalier Shares and unpaid
dividends and distributions, if any).
Upon surrender of a certificate representing Belmont Shares for
cancellation to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such certificate will be entitled to receive in
exchange therefore (i) a certificate representing that number of Cavalier Shares
which such holder has the right to receive as set forth under "Conversion of
Securities" above and (ii) a check representing the amount of cash in lieu of
fractional Cavalier Shares, if any, and unpaid dividends and distributions, if
any, which such holder has the right to receive, after giving effect to required
withholding taxes, and the Belmont Shares represented by such certificate so
surrendered shall then be canceled.
BELMONT STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED
PROXY CARD AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT EXCEPT WITH A
TRANSMITTAL FORM, WHICH WILL BE PROVIDED TO BELMONT SHAREHOLDERS FOLLOWING THE
EFFECTIVE TIME.
No dividends or other distributions declared with respect to Cavalier
Shares with a record date after the Effective Time will be paid to the holder of
any certificate representing Belmont Shares until such certificate has been
surrendered for exchange. Holders of certificates representing Belmont Shares
will be paid the amount of dividends or other distributions with a record date
after the Effective Time after surrender of such certificates without any
interest thereon.
DIRECTORS AND OFFICERS OF BELMONT
Pursuant to the Merger Agreement, the directors of Sub immediately
prior to the Effective Time will be the directors of Belmont following the
Merger, and the officers of Belmont immediately prior to the Effective Time will
be the officers of Belmont following the Merger, in each case until their
respective successors are duly elected or appointed and duly qualified.
CHARTER AND BYLAWS OF BELMONT
Pursuant to the Merger Agreement, the Restated Articles of
Incorporation and the Bylaws of Belmont, as in effect prior to the Effective
Time, will be the articles of incorporation and bylaws of the Surviving
Corporation following the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Cavalier, Sub and Belmont regarding, among other things: corporate organization
and standing, subsidiaries, corporate power and authority, capitalization,
conflicts, consents and approvals, absence of certain changes, filings with the
Commission, taxes and tax returns, compliance with applicable law, this Joint
Proxy Statement and Prospectus and the Registration Statement, litigation,
brokerage and finder's fees, opinions of financial advisors, accounting matters,
tax-free reorganization, employee benefit plans, contracts, labor relations,
permits, environmental matters and stock ownership in Cavalier and Belmont. The
Merger Agreement contains certain additional representations and warranties of
Belmont relating to state takeover laws. The representations and warranties of
each of Belmont, Sub and Cavalier will not survive the Merger.
47
<PAGE> 59
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Merger Agreement to the
Effective Time, Belmont agreed to, and agreed to cause each of its subsidiaries
to, generally conduct their operations in the ordinary course except as
expressly contemplated by the Merger Agreement and the Merger, including without
limitation to not, without the prior written consent of Cavalier: (i) effect
certain actions with respect to its securities; (ii) sell, encumber or otherwise
dispose of any material property or assets, other than in the ordinary course of
business consistent with past practice; (iii) make or propose any changes in its
Restated Articles of Incorporation, Bylaws or other organizational documents;
(iv) merge or consolidate with any other person or acquire a material amount of
assets or capital stock of any other person or enter into any confidentiality
agreement with any person, other than in connection with the Merger Agreement
and the Merger, except under certain circumstances; (v) incur, or otherwise
become liable for, indebtedness other than in the ordinary course of business
consistent with past practice, or guarantee, endorse or otherwise become liable
for obligations of any other entity, other than in the ordinary course of
business consistent with past practice; (vi) enter into or modify any
employment, severance or similar agreements or arrangements with, or otherwise
increase the compensation or benefits provided to, any employee other than in
the ordinary course of business consistent with past practice; (vii) change its
method of doing business or change any method or principle of accounting in a
manner that is inconsistent with past practice; (viii) settle any legal actions
involving an amount in excess of $25,000; (ix) modify, terminate, release or
assign any material rights or claims with respect to any material contract to
which Belmont is a party, except under certain circumstances; (x) incur or
commit to any capital expenditures, obligations or liabilities in respect
thereof, other than in the ordinary course of business consistent with past
practice; (xi) take any other action that would reasonably be expected to
prevent or materially delay Belmont from consummating the transactions
contemplated by the Merger Agreement, except under certain circumstances; (xii)
make any material tax election or settle or compromise any material tax
liability, other than in connection with currently pending proceedings or other
than in the ordinary course of business; (xiii) pay any material claims other
than in the ordinary course of business and consistent with past practice or
liabilities reflected or reserved against in the financial statements of Belmont
or incurred in the ordinary course of business and consistent with past
practice; or (xiv) agree to take any action prohibited by the foregoing.
During the period from the date of the Merger Agreement to the
Effective Time, Cavalier agreed to (i) generally conduct its operations and the
operations of its subsidiaries in a manner designed in its reasonable judgment
to enhance the long-term value of Cavalier and the Cavalier Shares and the
business prospects of Cavalier and (ii) take no action that would (A) materially
adversely affect the ability to obtain any consents required for the
transactions contemplated by the Merger Agreement, or (B) materially adversely
affect the ability of any party to the Merger Agreement to perform its covenants
and agreements under the Merger Agreement.
EMPLOYEE BENEFITS
In the Merger Agreement, Cavalier agreed to provide generally to
officers and employees of Belmont and its subsidiaries employee benefits under
employee benefit plans on terms and conditions which are not materially less
favorable than those currently provided by Belmont and its subsidiaries. Belmont
officers and employees will be entitled to receive credit for time of service to
Belmont or any of its subsidiaries for such purposes. Cavalier also agreed that
the Belmont Homes, Inc. 401(k) Profit Sharing Plan (the "BH 401(k)") will either
be (i) merged into the Cavalier Homes, Inc. Employees 401(k) Retirement Plan
(the "CH 401(k)"), (ii) terminated as of such date prior to, on or after the
Effective Time, or (iii) continued, all as Cavalier determines and specifies
consistent with the requirements of the Code and ERISA. In the event of the
merger or termination of the BH 401(k), then from and after the January 1
following such merger or termination, for purposes of determining eligibility to
participate in, and vesting in accrued benefits under the CH 401(k), employment
by Belmont or its subsidiaries will be credited as if it were employment by
Cavalier, except to the extent otherwise required by applicable law, but such
service shall not be credited for purposes of determining benefit accrual under
the CH 401(k).
SEVERANCE POLICY
Cavalier has agreed to provide G. Hiller Spann, John W. Allison and
Keith Kennedy with certain severance benefits if the Surviving Corporation
terminates such employees for any reason other than "cause" within certain
periods following the Effective Time. See "THE PROPOSED MERGER -- Interests of
Certain Persons in The Merger; Certain Relationships -- Non-Competition
Agreements."
48
<PAGE> 60
NEW DIRECTORS
Cavalier has agreed to create two additional seats on the Cavalier
Board and to cause each of A. Douglas Jumper, Sr. and Mike Kennedy to be elected
to the Cavalier Board for a term expiring at Cavalier's next annual meeting of
stockholders following the Effective Time, subject to being renominated as a
director at the discretion of the Cavalier Board. See "NEW DIRECTORS OF
CAVALIER."
POOLING-OF-INTERESTS AND TAX-FREE REORGANIZATION
Cavalier and Belmont agreed to use their reasonable efforts to cause
the Merger to (i) qualify for pooling-of-interests accounting treatment and (ii)
constitute a tax-free "reorganization" under Section 368(a) of the Code.
OTHER ACQUISITION PROPOSALS
Belmont has agreed that, during the term of the Merger Agreement, it
will not (i) solicit, initiate or encourage any inquiries or the making of any
proposal with respect to any recapitalization, merger, consolidation or other
business combination involving Belmont, or acquisition or disposition of any
capital stock (except in connection with the exercise of options, as permitted
by the terms of the Merger Agreement) or any material portion of the assets of
Belmont (except for acquisition of assets in the ordinary course of business
consistent with past practice), or any combination of the foregoing (a "Belmont
Competing Transaction"), (ii) negotiate or otherwise engage in discussions with
any person (other than Cavalier), with respect to any Belmont Competing
Transaction or (iii) enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or that
directly results in impeding, interfering with or frustrating the Merger. The
Merger Agreement does provide that Belmont may (a) furnish information to, and
negotiate or otherwise engage in discussions with, any party who delivers an
unsolicited bona fide proposal for a Belmont Competing Transaction if the
Belmont Board determines in good faith that failing to take such action would
reasonably be expected to constitute a breach of the fiduciary duties of the
Belmont Board to the Belmont shareholders under Mississippi law, and (b) take a
position with respect to a Belmont Competing Transaction, or amend or withdraw
such position, in compliance with Rule 14e-2 promulgated under the Exchange Act
with regard to a Belmont Competing Transaction; provided, however, that Belmont
shall take a position recommending against such Belmont Competing transaction
unless it determines in good faith that to take such a position would reasonably
be expected to constitute a violation of the fiduciary duties of the Belmont
Board to the Belmont shareholders under Mississippi law. Belmont also agreed in
the Merger Agreement to cease immediately all existing activities, discussions
and negotiations with any parties conducted prior to the date of the Merger
Agreement with respect to any Belmont Competing Transaction. Belmont also agreed
to advise Cavalier immediately of the receipt of any inquiries, discussions,
negotiations, or proposals relating to a Belmont Competing Transaction and,
unless prohibited by law from doing so, to keep Cavalier advised on a current
basis of the status and the reasonable details with respect to any such
proposals or inquiries and any discussions or negotiations.
INDEMNIFICATION AND INSURANCE
Cavalier has agreed in the Merger Agreement that all rights to
exculpation and indemnification for acts or omissions occurring prior to the
Effective Time existing at the time of the signing of the Merger Agreement in
favor of the Indemnified Parties as provided by law or in Belmont's Restated
Articles of Incorporation, Bylaws or in any agreement will survive the Merger
and continue in full force and effect in accordance with their terms. In
addition, for six years from the Effective Time, Cavalier has agreed not to
amend, repeal, or otherwise modify the Restated Articles of Incorporation,
Bylaws or any such agreement as any of them relate to indemnification in any
manner that would adversely affect the rights thereunder of the Indemnified
Parties, unless such modification is required by law. Cavalier has further
agreed, from and after the Effective Time, to indemnify and hold harmless each
officer and director of Belmont to the extent such person would be entitled to
indemnification pursuant to the first sentence of this paragraph against any
costs or expenses (including attorneys' fees), losses, damages or amounts paid
in settlement in connection with any claim, action, suit or proceeding arising
out of or pertaining to the transactions contemplated by the Merger Agreement,
provided that the Indemnified Party agrees that, in the event that it is
ultimately determined that such Indemnified Party is not entitled to the payment
of such expenses, such Indemnified Party will reimburse Cavalier or the
Surviving Corporation for such expenses paid in advance. Cavalier has agreed to
maintain in effect Belmont's directors' and officers' liability policy for the
current term of such policy. Finally, Cavalier has agreed to honor the terms of
the Indemnification Agreements entered into between Belmont and its existing
officers and directors immediately prior to the execution of the Merger
Agreement.
49
<PAGE> 61
SPECIAL MEETINGS
Cavalier and Belmont each have agreed to duly call, give notice of,
convene and hold a meeting of its stockholders or shareholders, as the case may
be, to be held as promptly as practicable following the date of the Merger
Agreement for the purpose of obtaining the requisite stockholder and shareholder
approvals and adoptions in connection with the Merger Agreement, the Share
Issuance and the Merger, and to use their respective reasonable efforts to cause
such meetings to occur on the same date. Cavalier and Belmont have also agreed
that the Cavalier Board and Belmont Board, subject to their fiduciary duties
under applicable law, will (i) recommend that its stockholders or shareholders,
as the case may be, approve such matters and (ii) use reasonable efforts to
obtain any necessary approvals by its stockholders or shareholders, as the case
may be.
CONDITIONS TO THE MERGER
The respective obligations of each party to consummate the Merger are
generally subject to fulfillment of the following conditions: (i) no order or
decree which prevents the consummation of the Merger shall have been issued and
remain in effect, and no statute, rule or regulation shall have been enacted by
any Governmental Authority (as defined in the Merger Agreement) which prevents
the consummation of the Merger; (ii) all waiting periods under the HSR Act shall
have expired or been terminated and all other material consents, approvals,
permits or authorizations required to be obtained prior to the Effective Time
from any Governmental Authority shall have been obtained; (iii) the Merger
Agreement and the Merger shall have been approved and adopted by the Belmont
shareholders under Applicable Law, and the Share Issuance shall have been
approved by the Cavalier stockholders in accordance with the rules of the NYSE;
(iv) the Registration Statement shall have become effective under the Securities
Act and no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
initiated by the Commission or any other Governmental Authority; (v) no action
shall have been instituted by any Governmental Authority which seeks to prevent
consummation of the Merger or which seeks material damages and continues to be
outstanding; (vi) the Cavalier Shares to be issued in the Merger shall have been
authorized for listing on the NYSE, subject to official notice of issuance; and
(vii) all consents, waivers and approvals of third parties required in
connection with the transactions contemplated by the Merger Agreement shall have
been obtained, except where the failure to obtain such consents, waivers and
approvals, in the aggregate, would not be expected to result in a material
adverse effect on Cavalier or Belmont, as the case may be.
The obligations of Belmont to consummate the Merger are subject to the
fulfillment of the following conditions unless waived by Belmont: (i) the
representations and warranties of each of Cavalier and Sub shall be true and
correct on the date of the Merger Agreement and on and as of the Closing Date,
other than breaches of representations and warranties which would not have a
material adverse effect on Cavalier; (ii) each of Cavalier and Sub shall have
performed in all material respects each of its obligations in the Merger
Agreement; (iii) Cavalier and Sub shall have delivered to Belmont a certificate
signed by certain of Cavalier's officers certifying as to the satisfaction of
the matters described in (i) and (ii) above; (iv) Belmont shall have received an
opinion dated as of the date of the making of the Joint Proxy Statement and
Prospectus of Bradley Arant, which opinion has not been withdrawn or modified in
any material way, to the effect that (a) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and (b) no gain
or loss will be recognized by Belmont shareholders with respect to Cavalier
Shares received in the Merger in exchange for Belmont Shares, except with
respect to cash received in lieu of fractional Cavalier Shares, and Belmont
shall further have received an opinion of Bradley Arant dated as of the Closing
Date regarding certain corporate matters of Cavalier and Sub and certain
securities matters regarding the Cavalier Shares; (v) Belmont shall have
received a letter from KPMG Peat Marwick LLP, dated the date of the Joint Proxy
Statement and Prospectus and confirmed in writing at the Effective Time, stating
that the Merger will qualify as a pooling-of-interests transaction under Opinion
16 of the Accounting Principles Board; (vi) Belmont shall have received from
Cavalier the "comfort" letters of Deloitte & Touche LLP described in the Merger
Agreement; and (vii) Belmont shall receive an opinion from Rauscher dated as of
the date of mailing of the Joint Proxy Statement and Prospectus to the effect
that, as of the date thereof, the Exchange Ratio is fair to the Belmont
shareholders from a financial point of view.
The obligations of Cavalier and Sub to consummate the Merger are
subject to the fulfillment of the following conditions unless waived by each of
Cavalier and Sub: (i) the representations and warranties of Belmont shall be
true and correct on the date of the Merger Agreement and on and as of the
Closing Date, other than such breaches of representations and warranties which
would not have a material adverse effect on Belmont; (ii) Belmont shall have
performed in all material respects each of its obligations in the Merger
Agreement; (iii) Belmont shall have delivered to Cavalier a certificate, dated
as of the Closing Date and signed by certain of Belmont's officers certifying as
to the satisfaction of the matters described in (i) and (ii) above; (iv) each
person who may be at the Effective Time or was on the date of the Merger
Agreement an "affiliate" of Belmont within the meaning of Rule 145 under the
Securities Act shall
50
<PAGE> 62
have executed and delivered to Cavalier a Belmont Affiliate Letter (as defined
below under "-- Restrictions on Sales of Shares by Affiliates"); (v) Cavalier
shall have received a letter from Deloitte & Touche LLP, dated the date of the
Joint Proxy Statement and Prospectus and confirmed in writing at the Effective
Time, stating that the Merger will qualify as a pooling-of-interests transaction
under Opinion 16 of the Accounting Principles Board; (vi) Cavalier shall have
received from Belmont the "comfort" letter of KPMG Peat Marwick LLP as described
in the Merger Agreement; (vii) each of G. Hiller Spann, John W. Allison and
Keith Kennedy who, contemporaneously with the execution of the Merger Agreement,
entered into Non-Competition Agreements (see "THE PROPOSED MERGER -- Interests
of Certain Persons in the Merger; Certain Relationships -- Non-Competition
Agreements") shall have remained employees of Belmont and/or its subsidiaries,
as the case may be, and there shall have been no breach of such agreements;
(viii) the tax opinion of Bradley Arant referenced in the previous paragraph
shall have been delivered and shall not have been withdrawn by such firm; (ix)
Cavalier shall have received an opinion of Waller Lansden, dated as of the
Closing Date, regarding certain corporate matters of Belmont and its
subsidiaries; (x) the holders of not more than 7% of the outstanding Belmont
Shares shall have elected to exercise their right to dissent from the Merger in
accordance with the Mississippi Business Corporation Act; and (xi) Cavalier
shall have received the opinion of Equitable to the effect that, as of the date
of the mailing of the Joint Proxy Statement and Prospectus, the Exchange Ratio
is fair to Cavalier from a financial point of view. Since the date of the Merger
Agreement, John W. Allison resigned as Belmont's President and Chief Executive
Officer and as the President of Belmont's wholly owned subsidiary Spirit Homes,
Inc. Cavalier has waived the closing condition applicable to these resignations.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the Belmont
shareholders or the Share Issuance by the Cavalier stockholders: (i) by mutual
consent of Cavalier and Belmont; (ii) by either Cavalier or Belmont if (a) a
statute, rule, regulation or executive order shall have been enacted prohibiting
the consummation of the Merger, or (b) any permanent injunction or other order
or decree of a court or other competent Governmental Authority preventing the
consummation of the Merger shall have become final and nonappealable; (iii) by
either Cavalier or Belmont if the Merger shall not have been consummated before
December 31, 1997, unless extended by both the Cavalier Board and the Belmont
Board (which date was extended on December 1, 1997 to on or before December 31,
1997); (iv) by Cavalier or Belmont if at the meeting of Belmont shareholders
held for such purpose the requisite vote of Belmont shareholders to approve the
Merger and the Merger shall not have been obtained; (v) by Cavalier or Belmont
if at the meeting of Cavalier stockholders held for such purpose the requisite
vote of the Cavalier stockholders to approve the Share Issuance shall not have
been obtained; (vi) by Cavalier or Belmont if there shall have been a material
breach of any of the covenants or agreements or any of the representations or
warranties set forth in the Merger Agreement on the part of the other party,
which breach is not cured within 30 days following written notice, or which
breach, by its nature, cannot be cured prior to the Closing (as defined in the
Merger Agreement), but only if such breach would constitute a failure of a
condition of Closing; (vii) by Cavalier or Belmont if the Belmont Board shall
determine that the failure to engage in a Belmont Competing Transaction would
result in a breach of the fiduciary duties of the Belmont Board and shall
further determine to engage in a Belmont Competing Transaction; provided,
however, that Belmont may not terminate the Merger Agreement for this reason
unless (a) Belmont shall have delivered to Cavalier a written notice of the
determination by the Belmont Board to terminate the Merger Agreement for this
reason, (b) five business days shall have elapsed after delivery to Cavalier of
such notice, (c) at the end of such five business-day period the Belmont Board
shall continue to believe that the failure to engage in such Belmont Competing
Transaction would reasonably be expected to be a breach of the fiduciary duties
of the Belmont Board (after giving effect to any adjustment to the terms and
conditions of the transaction proposed by Cavalier in response to such Belmont
Competing Transaction), at the time of such termination, Belmont shall have paid
to Cavalier the Termination Fee (as defined in the Merger Agreement and
discussed below) and (d) as soon as reasonably practicable thereafter Belmont
shall enter into a definitive acquisition, merger or similar agreement to
effect, or shall effect, such Belmont Competing Transaction; (viii) by Cavalier
if the Belmont Board shall not have recommended the Merger to Belmont
shareholders, or shall have resolved not to make such recommendation, or shall
have materially modified or rescinded its recommendation of the Merger to
Belmont shareholders, or shall have modified or rescinded its approval of the
Merger Agreement, or shall have resolved to do any of the foregoing; (ix) by
Cavalier if an offer for 25% or more of the Belmont Shares is commenced by any
person and the Belmont Board fails to recommend against such offer by its
shareholders within the time period presented by Rule 14e-2 under the Exchange
Act, or if the Belmont Board shall have recommended to the Belmont shareholders
any Belmont Competing Transaction or shall have resolved to do so; or (x) by
Belmont if the Average Closing Price (as defined in the Merger Agreement) of the
Cavalier Shares on the seventh business day before the date of the Belmont
shareholders meeting held to approve the Merger, and on the last trading day
before such meeting, shall be less than 75% of the Average Closing Price of the
Cavalier Shares on the date of the Merger Agreement; provided, however, that if
Belmont elects to terminate the Merger Agreement under clause (x) above, it must
give prompt written notice of such election to Cavalier, and Belmont and
Cavalier have agreed to cooperate with each other during the five business day
period following Cavalier's receipt of such
51
<PAGE> 63
notice to enable Cavalier to propose a modification to the terms of the Merger
Agreement that are acceptable to Belmont. If Cavalier and Belmont agree to a
modification of the terms of the Merger Agreement, no termination of the Merger
Agreement will have occurred and the Merger Agreement will remain in effect in
accordance with its terms. In such event, any references to "Exchange Ratio" in
the Merger Agreement will be deemed to refer to the Exchange Ratio as adjusted
by the mutual agreement of Cavalier and Belmont. Furthermore, if Belmont has
given notice of its intention to terminate the Merger Agreement, and Belmont and
Cavalier have not reached an agreement as to any modification of the Merger
Agreement, the Merger Agreement, nonetheless, will not terminate and will remain
in effect in accordance with its original terms if, on the last trading day
before the Belmont Special Meeting, the Average Closing Price of Cavalier Shares
is equal to or greater than 75% of the Average Closing Price of Cavalier Shares
on the date of the Merger Agreement. The Average Closing Price (defined as the
average per share closing price of the Cavalier Shares for the ten consecutive
trading days ending at the close of trading on the applicable date) of Cavalier
Shares on the date of the Merger Agreement was $10.050, and 75% of such price is
$7.538.
EFFECT OF TERMINATION; REMEDIES
In the event of the termination of the Merger Agreement, the Merger
Agreement, except for provisions regarding (i) confidentiality, (ii) the
Termination Fee (as discussed below), (iii) remedies, and (iv) expenses, shall
become void and have no effect. Cavalier and Belmont have agreed that, as
exclusive between the two of them, but not as to third party beneficiaries of
the Merger Agreement, the remedies provided for below shall be the sole and
exclusive remedy for any claim arising out of or relating to the negotiation,
execution, delivery or performance of the Merger Agreement or the Merger.
If the Merger Agreement is terminated: (i) by Cavalier or Belmont (A)
if at the Belmont Special Meeting the requisite vote of the Belmont shareholders
to approve the Merger is not obtained or, (B) if the Belmont Board determines to
engage in a Belmont Competing Transaction; (ii) by Cavalier (A) if there is a
material breach by Belmont of any of its covenants or agreements or any of its
representations or warranties set forth in the Merger Agreement, or (B) if the
Belmont Board does not recommend the Merger to the Belmont shareholders, or
materially modifies or rescinds its recommendation of the Merger to the Belmont
shareholders, or modifies or rescinds its approval of the Merger Agreement, or
resolves to do any of the foregoing, or (C) if an offer for 25% or more of the
outstanding shares of capital stock of Belmont is made, and the Belmont Board
does not recommend against acceptance of such offer by the Belmont shareholders,
or (D) if the Belmont Board recommends to the Belmont shareholders any Belmont
Competing Transaction or resolves to do so; (iii) by Cavalier if the holders of
more than 7% of the outstanding Belmont Shares elect to exercise their right to
dissent from the Merger, and a Competing Transaction Event (as defined below)
occurs; or (iv) by Cavalier or Belmont as a result of Belmont having failed to
receive the Rauscher Fairness Opinion in a circumstance where Cavalier has
received the Equitable Fairness Opinion and a Competing Transaction Event
occurs; then in each such case Belmont will pay to Cavalier the reasonable
expenses incurred by Cavalier in connection with the transactions contemplated
by the Merger Agreement, up to $600,000; but if Cavalier terminates the Merger
Agreement as a result of the breach of Belmont's representation and warranty
regarding Belmont's title to its property, then the maximum amount of such
reimbursable expenses will be $300,000 rather than $600,000.
If the Merger Agreement is terminated: (i) by Cavalier or Belmont if at
the Cavalier Special Meeting the requisite vote of the Cavalier stockholders to
approve the Share Issuance is not obtained; or (ii) by Belmont due to the
material breach by Cavalier of any of its covenants or agreements or any of its
representations or warranties; then Cavalier will pay to Belmont the reasonable
expenses incurred by Belmont in connection with the transactions contemplated by
the Merger Agreement, up to $600,000.
If the Merger Agreement is terminated (i) by Cavalier (A) if there is a
material breach by Belmont of any of its covenants or agreements or any of its
representations or warranties set forth in the Merger Agreement, or (B) if the
Belmont Board does not recommend the Merger to the Belmont shareholders, or
materially modifies or rescinds its recommendation of the Merger to the Belmont
shareholders, or modifies or rescinds its approval of the Merger Agreement, or
resolves to do any of the foregoing, or (C) if an offer for 25% or more of the
outstanding shares of capital stock of Belmont is made, and the Belmont Board
does not recommend against acceptance of such offer by the Belmont shareholders,
or (D) if the Belmont Board recommends to the Belmont shareholders any Belmont
Competing Transaction or resolves to do so; or (ii) by Cavalier or Belmont (A)
if at the Belmont Special Meeting the requisite vote of the Belmont shareholders
to approve the Merger is not obtained or, (B) if the Belmont Board determines to
engage in a Belmont Competing Transaction; or (iii) by Cavalier if the holders
of more than 7% of the outstanding Belmont Shares elect to exercise their right
to dissent from the Merger; or (iv) by Cavalier or Belmont as a result of
Belmont having failed to receive the Rauscher Fairness Opinion in a circumstance
where Cavalier has received the Equitable Fairness
52
<PAGE> 64
Opinion, and if in each case a Competing Transaction Event occurs, then Belmont
will pay to Cavalier a termination fee in an amount equal to $2,000,000, less
any expenses of Cavalier required to be paid by Belmont.
If the Merger Agreement is terminated: (i) by Belmont due to the
material breach by Cavalier of any of its covenants or agreements or any of its
representations or warranties, or (ii) by Cavalier or Belmont because the
Cavalier stockholders do not approve the Share Issuance, and if in each case a
Cavalier Competing Transaction Event occurs (as defined below), Cavalier will
pay to Belmont a termination fee in an amount equal to $2,000,000, less any
expenses of Belmont required to be paid by Cavalier.
A "Competing Transaction Event" means either of the following events:
(i) Belmont enters into a definitive agreement with respect to a Belmont
Competing Transaction prior to termination or within 12 months following such
termination and such Belmont Competing Transaction is thereafter consummated; or
(ii) a Belmont Competing Transaction is consummated prior to termination or
within 12 months following such termination. For this purpose, a Competing
Transaction means a transaction or series of related transactions involving, or
constituting any purchase of, more than 50% of the assets, voting power or then
outstanding common stock of Belmont.
As used herein, the term "Cavalier Competing Transaction Event" has the
same meaning with respect to Cavalier as the term "Competing Transaction Event"
has with respect to Belmont, with such changes in such definition as are
appropriate to contemplate Cavalier in lieu of Belmont.
EXPENSES
Except as otherwise provided below, Cavalier and Belmont have agreed to
pay their own costs and expenses associated with the transactions contemplated
by the Merger Agreement; except that the costs of environmental audits (whether
Phase I or Phase II environmental audits) conducted with respect to the
facilities, operations, business or properties of Belmont or its subsidiaries
shall be borne by Belmont, if, in the case of Phase II environmental audits,
such audits were approved in advance by Belmont in writing.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto, at any time
before or after adoption of the Merger Agreement by the Belmont shareholders or
authorization of the Share Issuance by the Cavalier stockholders, but after such
approval or authorization, no amendment shall be made which by law requires
further approval or authorization by the Belmont shareholders or the Cavalier
stockholders, as the case may be, without such further approval or
authorization. Notwithstanding the foregoing, the Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties thereto.
At any time prior to the Effective Time, Cavalier (with respect to
Belmont) and Belmont (with respect to Cavalier and Sub) may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained in the Merger Agreement. Any agreement on the
part of a party thereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. On September
5, 1997, Cavalier waived its closing condition that John W. Allison remain as
the President and Chief Executive Officer of Belmont and the President of Spirit
Homes, Inc. Mr. Allison resigned from such offices effective September 5, 1997
and currently serves Belmont as its Vice-Chairman and as a member of the
Executive Committee of the Belmont Board.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger cannot be consummated until requisite
pre-merger notifications have been filed and certain information has been
furnished to the Antitrust Division of the U.S. Department of Justice (the
"Antitrust Division") and the FTC and specified waiting period requirements have
been satisfied. Cavalier and Belmont filed pre-merger notification and report
forms under the HSR Act with the FTC and the Antitrust Division on August 26,
1997. Counsel to Cavalier has received a letter from the FTC indicating that the
waiting period under the HSR Act expired at 11:59 p.m., New York City time, on
September 25, 1997. At any time before or after the Effective Time, and
notwithstanding that the HSR Act waiting period has expired, the FTC or the
Antitrust Division could take such action under antitrust laws as such entity
deems necessary or desirable in the public interest, including seeking to enjoin
consummation of the Merger or seeking
53
<PAGE> 65
divestiture of substantial assets of Cavalier or Belmont. At any time before or
after the Effective Time, and notwithstanding that the HSR Act waiting period
has expired, any state could take such action under its antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin consummation of the Merger or seeking divestiture of
businesses or assets of Cavalier or Belmont. Private parties also may seek to
take legal action under federal and/or state antitrust laws under certain
circumstances. Cavalier and Belmont believe that the Merger will be effected in
compliance with federal and state antitrust laws. However, there can be no
assurance that a challenge to consummation of the Merger on antitrust grounds
will not be made or that, if such a challenge were made, Cavalier and Belmont
would prevail or would not be required to accept certain conditions, including
certain divestitures, in order to consummate the Merger.
Other than expiration or termination of the relevant waiting periods
under the HSR Act, neither Belmont nor Cavalier are aware of any regulatory
approvals required from any governmental authorities to consummate the Merger.
ACCOUNTING TREATMENT
Cavalier currently proposes to account for the Merger as a
pooling-of-interests in accordance with generally accepted accounting
principles. Under this accounting method, the recorded assets and liabilities of
Cavalier and Belmont will be carried forward at their recorded amounts to the
combined enterprise, income of the combined enterprise will include income of
Cavalier and Belmont for the entire fiscal year in which the Merger occurs and
the reported income of Cavalier and Belmont for prior periods will be combined
and restated as income of the combined enterprise. Cavalier, upon consummation
of the Merger, will conduct a review of Belmont's accounting policies and
procedures and generally conform such policies and procedures to those used by
Cavalier.
Cavalier currently expects, upon completion of the Merger, to conform
the Belmont warranty period for certain items covered for a period of 90 days to
a period of 12 months. In addition, the Belmont repurchase agreements with
various floor planning institutions will be superseded by the Cavalier
repurchase agreements currently in effect for all covered outstanding floor
planned product. The Cavalier agreements generally provide for principal
payments to begin significantly later than the Belmont agreements. This
difference represents better terms to the dealer/customer; however, they provide
for the assumption of more financial risk upon repurchase due to a higher
outstanding principal balance. Cavalier's management believes that the longer
warranty period and improved terms for the dealer afford Cavalier a competitive
edge which should extend to Belmont. It is expected that the conforming changes
will result in a one-time charge to earnings, not included in the non-recurring
costs of the Merger, in the quarter the Merger is consummated of approximately
$1 to $2 million. This charge has not been included in the pro forma financial
statements set forth in this Joint Proxy Statement and Prospectus.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The Cavalier Shares issuable to former Belmont shareholders pursuant to
the Merger have been registered under the Securities Act. Such shares will be
freely transferrable under the Securities Act, except for shares issued to any
person who may be deemed to be an affiliate of Belmont or Cavalier, as the case
may be, for purposes of Rule 145 under the Securities Act (an "Affiliate").
Pursuant to the terms of the Merger Agreement, each of Cavalier and Belmont has
agreed to use its reasonable efforts to cause each director, executive officer
and other person who is an Affiliate of Belmont to deliver to Cavalier a written
agreement (a "Belmont Affiliate Letter"), providing that such person will not
sell, transfer or otherwise dispose of or offer or agree to sell, transfer or
dispose of or in any other way reduce such person's risk of ownership or
investment in (any of the foregoing, a "Disposition") any of the Cavalier Shares
issued to such person in the Merger pursuant to the terms of the Merger
Agreement (the "Affiliate Shares") in violation of the Securities Act or the
rules and regulations promulgated thereunder.
The Belmont Affiliate Letter provides among other things that the
Affiliate signing such letter will not make any Disposition (i) of any Belmont
Shares (and other rights exercisable for or convertible into such shares) such
Affiliate holds in the 30-day period immediately preceding the Effective Time or
(ii) of Cavalier Shares after the Effective Time, until Cavalier shall have
publicly released a report including the combined financial results of Cavalier
and Belmont for a period of at least 30 days of combined operations of Cavalier
and Belmont.
Affiliates of Cavalier have likewise delivered to Cavalier a written
agreement (a "Cavalier Affiliate Letter") providing that such person will not
make any Disposition of any Cavalier Shares held of record or beneficially by
such Affiliate (i) in the 30-day period immediately preceding the Effective
Time, or (ii) after the Effective Time until Cavalier shall have publicly
released a report including the combined financial results of Cavalier and
Belmont for a period of at least 30 days of combined operations of Cavalier and
Belmont.
54
<PAGE> 66
NYSE LISTING
Cavalier has agreed to use its reasonable efforts to cause the approval
for listing on the NYSE of the Cavalier Shares to be issued in connection with
the Merger, subject to official notice of issuance. The obligations of the
parties to the Merger Agreement to consummate the Merger are subject to the
approval for listing on the NYSE of the Cavalier Shares, subject to official
notice of issuance. See "TERMS OF THE MERGER -- Conditions to the Merger."
DELISTING AND DEREGISTRATION OF BELMONT SHARES
If the Merger is consummated, the Belmont Shares will be delisted from
Nasdaq, and will be deregistered under the Exchange Act.
DISSENT AND APPRAISAL RIGHTS
Under the Mississippi Business Corporation Act Belmont shareholders are
entitled to appraisal rights in connection with the Merger Agreement and the
consummation of the Merger.
A shareholder of Belmont is, pursuant to the Dissent Provisions,
entitled to dissent from, and obtain payment of the fair value of his Belmont
Shares in the event of the consummation of, the Merger pursuant to the Merger
Agreement. A shareholder entitled to dissent and obtain payment for his shares
under the Dissent Provisions may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or Belmont. The fair value of the Belmont Shares may differ from the
consideration that a shareholder of Belmont is entitled to receive in the
Merger.
Under the Dissent Provisions, a record shareholder of Belmont may
assert dissenters' rights as to fewer than all the shares registered in his name
only if he dissents with respect to all shares beneficially owned by any one
person and notifies Belmont in writing of the name and address of each person on
whose behalf he asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which he dissents and his other shares
were registered in the names of different shareholders. A beneficial shareholder
of Belmont may assert dissenters' rights as to shares held on his behalf only if
he submits to Belmont the record shareholder's written consent to the dissent
not later than the time the beneficial shareholder asserts dissenters' rights,
and he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
A shareholder of Belmont who wishes to assert dissenters' rights must
deliver to Belmont, before a vote is taken to approve the Merger Agreement,
written notice of his intent to demand payment for his Belmont Shares if the
Merger is effectuated and must not vote his Belmont Shares in favor of the
proposed action. A shareholder of Belmont who does not satisfy these
requirements is not entitled to payment for his shares under the Dissent
Provisions. If the Merger Agreement is authorized and approved at the Belmont
Special Meeting, Belmont will deliver a written dissenters' notice that sets
forth the various requirements of dissent and is accompanied by a copy of the
Dissent Provisions to all shareholders who have satisfied these requirements. A
shareholder of Belmont who is sent a dissenters' notice must demand payment,
certify as to whether he acquired beneficial ownership of his shares before the
date of the first announcement of the Merger to the news media and deposit his
certificates evidencing Belmont Shares in accordance with the terms of the
written dissenters' notice. A shareholder who demands payment and deposits his
shares in accordance with the Dissent Provisions retains all other rights of a
shareholder until these rights are canceled or modified by the consummation of
the Merger. A shareholder who fails to demand payment or deposit his
certificates in accordance with the terms of the written dissenters' notice will
not be entitled to payment under the Dissent Provisions.
As soon as the Merger is effectuated or upon receipt of a payment
demand from a shareholder, Belmont, as the Surviving Corporation of the Merger,
shall pay each dissenter who has properly demanded payment, certified his
beneficial ownership and deposited his certificates the amount that Belmont
estimates to be the fair value of his shares plus accrued interest thereon. Such
payment must be accompanied by, among other things, certain financial statement
information regarding Belmont, a statement of Belmont's estimate of the fair
value and a copy of the Dissent Provisions. In certain circumstances, a
dissenter may notify Belmont of his estimate of the fair value and interest due
and demand payment of his estimate (less any payment previously made by Belmont
pursuant to the Dissent Provisions), or may reject Belmont's proposed payment. A
dissenter waives his right to demand payment of his estimate, however, unless it
notifies Belmont of its demand in writing within thirty days after Belmont made
or offered payment for his shares. Within sixty days of a shareholder's demand
for the payment of his estimate, Belmont shall either commence a judicial
proceeding and petition a court to determine the fair value of the shares and
accrued interest, or pay each dissenter whose demand remains unsettled the
amount demanded by the shareholder. The court
55
<PAGE> 67
may assess the costs, fees and expenses of the proceeding against Belmont, or,
if the court finds that all or some of the dissenters acted arbitrarily,
vexatiously or not in good faith, against some or all of the dissenters.
Under the terms of the Merger Agreement, Belmont Shares outstanding
immediately prior to the Effective Time and held by a Belmont shareholder who
has asserted dissenters' rights who shall, after the Effective Time, withdraw
his, her or its demand for appraisal or lose his, her or its right of appraisal,
in either case pursuant to the Dissent Provisions, shall be deemed to be
converted as of the Effective Time, into the right to receive the Cavalier
Shares at the Exchange Ratio.
While Belmont believes that all elements of the Dissent Provisions that
the Belmont shareholders would consider material in deciding whether to approve
the Merger and the Merger Agreement are set forth herein, the foregoing is only
a summary of the Dissent Provisions and is qualified in its entirety by
reference to the full text of such provisions, which is set forth as Annex D to
this Joint Proxy Statement and Prospectus. Each Belmont shareholder is urged to
read these provisions carefully.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material United States federal
income tax consequences of the Merger to the Belmont shareholders. The
discussion is based on provisions of the Code, Treasury Regulations thereunder
and administrative rulings and court decisions which are in effect on the date
of this Joint Proxy Statement and Prospectus. All of the foregoing are subject
to change and any such change could be made with retroactive effect and/or
affect the continuing validity of this discussion. Belmont and Cavalier have not
sought and will not seek any rulings from the Internal Revenue Service with
respect to any of the matters discussed herein.
The federal income tax discussion set forth below does not consider the
facts and circumstances of particular Belmont shareholders and may not be
applicable to certain classes of special status taxpayers, including insurance
companies, securities dealers, financial institutions, tax-exempt organizations,
investment companies, foreign persons and persons who acquired Belmont Shares
pursuant to the exercise of employee stock options or rights or otherwise as
compensation. The following discussion does not address the federal income tax
consequences of any of the transactions described in the section of this Joint
Proxy Statement and Prospectus, entitled "THE PROPOSED MERGER -- Interests of
Certain Persons in the Merger; Certain Relationships." In addition, no
information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. Belmont shareholders are
urged to consult their tax advisors as to their respective personal tax
situations including the applicability and effect of foreign, state, local and
other tax laws.
The obligation of Belmont to effect the Merger is conditioned on
delivery to Belmont of an opinion dated as of the date of the mailing of this
Joint Proxy Statement and Prospectus from Bradley Arant, counsel to Cavalier,
based on certain representations to be made by Belmont and Cavalier and on
assumptions set forth in the opinion, that for federal income tax purposes (1)
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code and (2) no gain or loss will be recognized by Belmont shareholders
with respect to Cavalier Shares received in the Merger in exchange for Belmont
Shares except with respect to cash received in lieu of fractional Cavalier
Shares. The full text of the written opinion is attached as an exhibit to the
Registration Statement.
In particular, the Bradley Arant tax opinion provides that the material
federal income tax consequences of the Merger for Belmont shareholders will be
the following:
i. The proposed transaction will constitute a reorganization
within the meaning of section 368(a)(1)(A). Cavalier, Sub and Belmont each will
be "a party to a reorganization" within the meaning of section 368(b).
ii. No gain or loss will be recognized by the shareholders of
Belmont upon the exchange of Belmont Shares (including fractional share
interests, if any) solely for Cavalier Shares.
iii. The basis of the Cavalier Shares (including fractional
share interests, if any) to be received by Belmont shareholders will, in each
case, be the same as the basis of the Belmont Shares surrendered in exchange
therefor.
56
<PAGE> 68
iv. The holding period of Cavalier Shares (including
fractional share interests, if any) to be received by the shareholders of
Belmont will include the period during which the Belmont Shares exchanged
therefore were held by them, provided that such Belmont Shares were held as
capital assets on the date of the exchange.
v. Where solely cash is received by shareholders who assert
dissenters' rights in exchange for their Belmont Shares, the cash payment will
be treated as received by such shareholders as a distribution in redemption of
such Belmont Shares subject to the provisions and limitations of section 302 of
the Code.
vi. The payment of cash in lieu of a fractional share interest
of a Cavalier Share will be treated as if each fractional share was distributed
as part of the exchange and then redeemed by Cavalier. These payments will be
treated as having been received as distributions in full payment in exchange for
stock redeemed as provided in section 302(a) of the Code.
THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH BELMONT SHAREHOLDER'S TAX STATUS AND ATTRIBUTES.
AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED IN THE FOREGOING
DISCUSSION MAY NOT APPLY TO EVERY BELMONT SHAREHOLDER. ACCORDINGLY, EACH
SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR AS TO PARTICULAR
FACTS AND CIRCUMSTANCES WHICH MAY BE SPECIFIC TO SUCH SHAREHOLDER AND NOT COMMON
TO SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES THAT MAY ARISE OUT OF THE MERGER AND/OR ANY SALE
THEREAFTER OF CAVALIER SHARES RECEIVED IN THE MERGER.
NEW DIRECTORS OF CAVALIER
Cavalier has agreed to create two additional seats on the Cavalier
Board and to cause each of A. Douglas Jumper, Sr. and Mike Kennedy to be elected
to the Cavalier Board for a term expiring at Cavalier's next annual meeting of
stockholders following the Effective Time, subject to being renominated as a
director at the discretion of the Cavalier Board.
A. DOUGLAS JUMPER, SR., 65, has served as a director of Belmont since
June, 1993 and as Chairman of the Board since July 1993. Mr. Jumper has been the
President and co-owner of S&J Steel Builders, Inc. of Booneville, Mississippi
since 1963. Mr. Jumper is a director of BancorpSouth, Inc., a bank holding
company headquartered in Tupelo, Mississippi, and River Oaks Furniture, Inc., a
furniture manufacturer headquartered in Belden, Mississippi.
MIKE KENNEDY, 37, has served as Senior Vice President of Administration
of Belmont since September 5, 1997. Mr. Kennedy was elected a director of
Belmont on July 31, 1997. Prior to September 5, 1997 and since March 31, 1997,
Mr . Kennedy served as Acting Senior Vice President of Administration of
Belmont. Prior to such time and since October 1993, Mr. Kennedy served Belmont
in various capacities. From March 1990 until October 1993, Mr. Kennedy was a
sales representative for Fabwell, Inc., a metal fabricating company.
COMPENSATION OF DIRECTORS
Cavalier currently pays each nonemployee director $2,500 and each
director who is employed by the Company $1,250 for each board meeting at which
he is in attendance. Each director who participates in a telephone conference
board meeting receives $250 per meeting. Directors who are members of committees
also receive $750 for attendance for each committee meeting held on a date when
no board meeting is held and $250 for each committee meeting held by conference
telephone. Directors are also reimbursed for travel and out-of-pocket expenses
incurred in connection with attending board and committee meetings.
Pursuant to Cavalier's Nonemployee Directors Plan, each person who is
not an employee of Cavalier and is elected to serve as a director of Cavalier is
granted an option to purchase 20,000 shares of common stock effective as of the
date of such first election. In addition to these grants, annually on January 15
each nonemployee director receives an option to purchase 5,000 shares of common
stock; provided, however, that no director of Cavalier may be granted options to
purchase more than 125,000 shares of stock under the Nonemployee Directors Plan.
All such options are granted at an exercise price equal to the fair market value
of the common stock on the date of grant. Options granted under the Nonemployee
Directors Plan generally have a term of ten years, and are exercisable at any
time beginning six
57
<PAGE> 69
months after the date of grant; provided, however, that no option is exercisable
unless, at all times during the period from the date of grant and ending twelve
months before the date of exercise, the optionee was a director of Cavalier.
58
<PAGE> 70
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements are
presented to reflect the estimated impact of the Merger on the historical
consolidated financial statements of Cavalier, accounted for as a
pooling-of-interests. The statement of income reflects the effects of the Merger
as though the transaction had occurred at the beginning of the periods
presented, and the balance sheet assumes the Merger had occurred at the
applicable balance sheet date presented. The unaudited pro forma combined
financial statements do not reflect any costs savings anticipated by Cavalier as
a result of the Merger, although the balance sheet does reflect non-recurring,
direct costs of the Merger, currently estimated at approximately $6 million to
$8 million. The unaudited pro forma combined financial statements also do not
reflect a one-time, non-recurring charge of approximately $1 to $2 million that
is expected to arise out of Cavalier's plans to conform Belmont's contractual
warranty and repurchase arrangements to its own. Pro forma combined per share
amounts are based on Cavalier's weighted average or outstanding shares, as
applicable, for the periods presented plus the number of Belmont's weighted
average or outstanding shares, as applicable, for the periods presented,
adjusted for the Exchange Ratio of 0.80 Cavalier Shares for each Belmont Share.
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of Cavalier and Belmont and have
been prepared as if the Merger occurred on January 1, 1994. The unaudited pro
forma adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that the managements of Cavalier and Belmont
believe are reasonable.
The unaudited pro forma financial statements are not necessarily
indicative of actual or future financial position or results of operations that
would have or will occur upon consummation of the Merger and should be read in
conjunction with the audited historical consolidated financial statements,
including the notes thereto, of Cavalier and Belmont. The audited consolidated
financial statements of Cavalier are incorporated by reference in this Joint
Proxy Statement and Prospectus, and the audited consolidated financial
statements of Belmont are contained elsewhere herein.
See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "TERMS OF THE MERGER -- Accounting Treatment."
59
<PAGE> 71
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------- ------------------
HISTORICAL HISTORICAL
------------------- ------------------
For the Thirty-Nine Nine Months
Weeks Ended Ended PRO FORMA
September 26, 1997 September 30, 1997 Reclassification COMBINED
------------------ ------------------ ---------------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 249,397 $ 172,082 $ $ 421,479
Financial services 3,820 -- 3,820
--------- --------- -------- ---------
253,217 172,082 425,299
--------- --------- -------- ---------
COST OF SALES 205,672 154,875 360,547
SELLING, GENERAL AND
ADMINISTRATIVE:
Manufacturing 30,402 11,140 41,542
Financial services 2,179 -- 2,179
--------- --------- -------- ---------
238,253 166,015 404,268
--------- --------- -------- ---------
OPERATING PROFIT 14,964 6,067 21,031
--------- --------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (127) (432) (559)
Financial services (540) -- (540)
Life insurance proceeds -- 1,500 1,500
Other income, net 984 435 1,419
--------- --------- -------- ---------
317 1,503 1,820
--------- --------- -------- ---------
INCOME BEFORE INCOME
TAXES 15,281 7,570 22,851
INCOME TAXES 6,051 2,388 8,439
--------- --------- -------- ---------
NET INCOME $ 9,230 $ 5,182 $ -- $ 14,412
========= ========= ======== =========
NET INCOME PER SHARE(B) $ 0.74 $ 0.55 $ 0.72
========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING(B) 12,426 9,482(C) (1,896)(C) 20,012
========= ========= ======== =========
</TABLE>
60
<PAGE> 72
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------- ------------------
HISTORICAL HISTORICAL
------------------- ------------------
For the Thirty-Nine Nine Months
Weeks Ended Ended PRO FORMA
September 27, 1996 September 30, 1996 Reclassification COMBINED
------------------ ------------------ ---------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 254,598 $ 166,691 $ $ 421,289
Financial services 2,259 -- 2,259
--------- --------- -------- ---------
256,857 166,691 423,548
--------- --------- -------- ---------
COST OF SALES 209,682 144,289 353,971
SELLING, GENERAL AND
ADMINISTRATIVE:
Manufacturing 29,975 7,402 37,377
Financial services 1,417 -- 1,417
--------- --------- -------- ---------
241,074 151,691 392,765
--------- --------- -------- ---------
OPERATING PROFIT 15,783 15,000 30,783
--------- --------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (56) (75) (131)
Financial services (369) -- (369)
Other income, net 1,314 459 1,773
--------- --------- -------- ---------
889 384 1,273
--------- --------- -------- ---------
INCOME BEFORE INCOME
TAXES 16,672 15,384 32,056
INCOME TAXES 6,667 5,848 12,515
--------- --------- -------- ---------
NET INCOME $ 10,005 $ 9,536 $ -- $ 19,541
========= ========= ======== =========
NET INCOME PER SHARE(B) $ 0.82 $ 1.02 $ 0.99
========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING(B) 12,223 9,378(C) (1,876)(C) 19,725
========= ========= ======== =========
</TABLE>
61
<PAGE> 73
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------ ------------------
HISTORICAL HISTORICAL
------------------ ------------------
Year Ended Year Ended PRO FORMA
December 31, 1996 December 31, 1996 Reclassification COMBINED
------------------ ------------------ ---------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 345,415 $ 227,817 $ $ 573,232
Financial services 3,333 -- 3,333
--------- --------- -------- ---------
348,748 227,817 576,565
--------- --------- -------- ---------
COST OF SALES 284,024 197,801 481,825
SELLING, GENERAL AND
ADMINISTRATIVE:
Manufacturing 40,793 10,799 51,592
Financial services 2,076 -- 2,076
--------- --------- -------- ---------
326,893 208,600 535,493
--------- --------- -------- ---------
OPERATING PROFIT 21,855 19,217 41,072
--------- --------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (68) (285) (353)
Financial services (492) -- (492)
Life insurance proceeds 1,750 -- 1,750
Other income, net 1,504 705 2,209
--------- --------- -------- ---------
2,694 420 3,114
--------- --------- -------- ---------
INCOME BEFORE INCOME
TAXES 24,549 19,637 44,186
INCOME TAXES 9,183 7,524 16,707
--------- --------- -------- ---------
NET INCOME $ 15,366 $ 12,113 $ -- $ 27,479
========= ========= ======== =========
NET INCOME PER SHARE(B) $ 1.25 $ 1.29 $ 1.39
========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING(B) 12,258 9,426(C) (1,885)(C) 19,799
========= ========= ======== =========
</TABLE>
62
<PAGE> 74
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------- ------------------
HISTORICAL HISTORICAL
------------------- ------------------
Year Ended Year Ended PRO FORMA
December 31, 1995 December 31, 1995 Reclassification COMBINED
------------------ ------------------ ---------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 272,486 $ 148,304 $ $ 420,790
Financial services 1,764 -- 1,764
--------- --------- -------- ---------
274,250 148,304 422,554
--------- --------- -------- ---------
COST OF SALES 227,646 127,165 354,811
SELLING, GENERAL AND
ADMINISTRATIVE:
Manufacturing 30,848 7,061 37,909
Financial services 1,126 -- 1,126
--------- --------- -------- ---------
259,620 134,226 393,846
--------- --------- -------- ---------
OPERATING PROFIT 14,630 14,078 28,708
--------- --------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (7) (825) (832)
Financial services (501) -- (501)
Other income, net 912 511 1,423
--------- --------- -------- ---------
404 (314) 90
--------- --------- -------- ---------
INCOME BEFORE INCOME
TAXES 15,034 13,764 28,798
INCOME TAXES 6,014 5,154 11,168
DIVIDENDS ON PREFERRED
STOCK -- 28 28
--------- --------- -------- ---------
NET INCOME $ 9,020 $ 8,582 $ -- $ 17,602
========= ========= ======== =========
NET INCOME PER SHARE(B) $ 0.79 $ 1.23 $ 1.03
========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING(B) 11,486 6,963(C) (1,393)(C) 17,056
========= ========= ======== =========
</TABLE>
63
<PAGE> 75
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------- ------------------
HISTORICAL HISTORICAL
------------------- ------------------
Year Ended Year Ended PRO FORMA
December 31, 1994 December 31, 1994 Reclassification COMBINED
------------------ ------------------ ---------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 206,442 $ 105,826 $ $ 312,268
Financial services 703 -- 703
--------- --------- -------- ---------
207,145 105,826 312,971
--------- --------- -------- ---------
COST OF SALES 176,041 89,902 265,943
SELLING, GENERAL AND
ADMINISTRATIVE:
Manufacturing 22,430 5,134 27,564
Financial services 545 -- 545
--------- --------- -------- ---------
199,016 95,036 294,052
--------- --------- -------- ---------
OPERATING PROFIT 8,129 10,790 18,919
--------- --------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (1) (1,185) (1,186)
Financial services (75) -- (75)
Other income, net 526 123 649
--------- --------- -------- ---------
450 (1,062) (612)
--------- --------- -------- ---------
INCOME BEFORE INCOME
TAXES 8,579 9,728 18,307
INCOME TAXES 3,500 3,349 6,849
DIVIDENDS ON PREFERRED
STOCK -- 81 81
--------- --------- -------- ---------
NET INCOME $ 5,079 $ 6,298 $ -- $ 11,377
========= ========= ======== =========
NET INCOME PER SHARE(B) $ 0.52 $ 1.20 $ 0.81
========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING(B) 9,836 5,250(C) (1,050)(C) 14,036
========= ========= ======== =========
</TABLE>
64
<PAGE> 76
CAVALIER HOMES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 26, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAVALIER BELMONT
------------------ ------------------
HISTORICAL HISTORICAL
------------------ ------------------ PRO FORMA
September 26, 1997 September 30, 1997 DEBIT CREDIT RECLASSIFICATION COMBINED
------------------ ------------------ ----- ------ ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,752 $ 4,521 $ $ $ $ 10,273
Certificates of Deposit -- 8,588 8,588
Marketable securities available
for sale 149 -- 149
Accounts receivable 24,454 10,940 35,394
Notes and installment contracts
receivable - current 1,398 -- 1,398
Inventories 14,850 12,350 27,200
Deferred income taxes 4,754 -- 1,100(E) 1,818(A) 7,672
Other current assets 1,353 2,815 (1,818)(A 2,350
--------- -------- -------- -------- -------- --------
Total current assets 52,710 39,214 1,100 93,024
--------- -------- -------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT 28,720 21,607 50,327
--------- -------- -------- -------- -------- --------
INSTALLMENT CONTRACTS
RECEIVABLE 45,324 -- 45,324
--------- -------- -------- -------- -------- --------
GOODWILL 2,942 16,925 19,867
--------- -------- -------- -------- -------- --------
OTHER ASSETS 4,221 2,442 6,663
--------- -------- -------- -------- -------- --------
$ 133,917 $ 80,188 $ 1,100 $ -- $ -- $215,205
========= ======== ======== ======== ======== ========
LIABILITIES AND STOCK HOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,900 $ -- $ $ $ $ 1,900
Accounts Payable 11,398 6,084 17,482
Amounts payable under dealer
incentive programs 10,019 -- 3,212(A) 13,231
Accrued wages and related withholdings 3,019 -- 4,291(A) 7,310
Accrued incentive compensation 1,633 -- 1,633
Estimated warranties 7,000 -- 3,990(A) 10,990
Accrued insurance 1,617 -- 1,617
Other accrued expenses 7,692 14,168 7,000(E) (11,493)(A) 17,367
--------- -------- -------- -------- -------- --------
Total current liabilities 44,278 20,252 7,000 -- 71,530
--------- -------- -------- -------- -------- --------
DEFERRED INCOME TAXES 1,088 907 1,995
--------- ------- -------- -------- -------- --------
LONG-TERM DEBT 10,030 -- 10,030
--------- -------- -------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock 1,231 947 947(D) 757(D) 1,988
Additional paid-in-capital 32,629 27,372 757(D) 947(D ) 60,191
Retained earnings 44,661 34,203 5,900(D) 72,964
Adjustment to predecessor basis -- (3,493)
--------- ------- -------- -------- -------- --------
Total stockholders' equity 78,521 59,029 7,604 1,704 131,650
--------- -------- -------- -------- -------- --------
$ 133,917 $ 80,188 $ 7,604 $ 8,704 $ -- $215,205
========= ======== ======== ======== ======== ========
</TABLE>
65
<PAGE> 77
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) The reclassifications reflected in the unaudited pro forma combined
balance sheet are to separate Belmont amounts from other
non-current assets and other accrued expenses consistent with
Cavalier's presentation.
(B) As adjusted for all Cavalier and Belmont stock splits through November
1996.
(C) The total number of additional Cavalier Shares included in the
computation of pro-forma weighted average shares outstanding is
calculated as 0.80 of the Belmont weighted average shares outstanding
for each period presented.
(D) The Unaudited Pro Forma Combined Balance Sheet reflects the issuance of
0.80 Cavalier Shares for each issued and outstanding Belmont Share to
effect the Merger. The estimated total number of Cavalier Shares
assumed to be issued in connection with the Merger is estimated to be
7,574,000. The related estimated total number of additional
Cavalier Shares included in the computation of weighted average
shares outstanding is 7,586,000, constituting 7,574,000 shares
estimated to be issued to effect the Merger and an additional 12,000
shares (accounted for using the treasury stock method) for the 360,000
Cavalier Shares issuable upon the exercise of Belmont's outstanding
stock options and warrants.
(E) In connection with the Merger, Cavalier expects to record
non-recurring, direct costs of the Merger, currently estimated to be
approximately $6 million to $8 million, as a charge to operations in
the fourth quarter of 1997, the quarter in which the Merger is expected
to be completed. Approximately 43% of these charges are reserves
against costs of $2.5 million arising from the earn-out provision
contained in the Stock Purchase Agreement between Belmont and the
shareholders of Bellcrest, dated October 25, 1996, and
against severance costs to be paid to certain individuals pursuant to
employment arrangements, approximately 26% are investment banking,
legal and accounting fees, and the remaining 31% are other costs
associated with combining and realigning the operations of the two
companies. These charges are not reflected in the unaudited pro forma
combined statements of income as they are non-recurring, direct costs
of the Merger. An estimated pre-tax charge of $7 million (the midpoint
of the range of estimated costs), $5.9 million after tax, is recorded
in the unaudited pro forma combined balance sheet. The estimate is a
preliminary estimate and is subject to change.
(F) The unaudited pro forma combined income statements do not reflect a
one-time, nonrecurring charge of approximately $1 to $2 million that is
expected to arise from Cavalier's plans to conform Belmont's
contractual warranty and repurchase agreements to its own. It is
expected that, upon completion of the Merger, Cavalier will conform
the Belmont warranty period for certain items covered for a period of
90 days to a period of 12 months. In addition, the Belmont repurchase
agreements with various floor planning institutions will be superseded
by the Cavalier repurchase agreements currently in effect for all
covered outstanding floor planned product. The Cavalier agreements
generally provide for principal payments to begin significantly later
than the Belmont agreements. This difference represents better terms to
the dealer/customer; however, they provide for the assumption of more
financial risk upon repurchase due to a higher outstanding principal
balance. Cavalier management believes that the longer warranty period
and improved terms for the dealer will afford Cavalier a competitive
edge which should extend to Belmont. It is expected these changes will
result in a one-time charge to earnings, not included in the
non-recurring costs of the Merger, in the quarter the Merger is
consummated of approximately $1 to $2 million. This charge has not
been included in the pro forma financial statements set forth in this
Joint Proxy Statement and Prospectus.
66
<PAGE> 78
COMPARISON OF RIGHTS OF CAVALIER STOCKHOLDERS
AND BELMONT SHAREHOLDERS
The following is a summary of the material differences between the
rights of Cavalier stockholders and the rights of Belmont shareholders. Since
Cavalier is organized under the Delaware General Corporation Law and Belmont is
organized under the Mississippi Business Corporation Act, these differences
arise from various provisions of the corporate laws of such states as well as
from various differences in the provisions of the Amended and Restated
Certificate of Incorporation (the "Cavalier Certificate") and the Amended and
Restated By-laws (as amended, the "Cavalier By-laws") of Cavalier and the
Restated Articles of Incorporation (as amended, the "Belmont Articles") and the
Bylaws (the "Belmont Bylaws") of Belmont.
While Cavalier and Belmont believe that all elements of the differences
between the rights of Cavalier stockholders and the Belmont shareholders that
the Cavalier stockholders and the Belmont shareholders would consider material
in deciding whether to approve the Share Issuance, the Merger and the Merger
Agreement, as applicable, are set forth herein, the following summary of such
differences is qualified in its entirety by reference to the Mississippi
Business Corporation Act and the Delaware General Corporation Law, respectively,
and the Cavalier Certificate, Cavalier By-laws, Belmont Articles and Belmont
Bylaws.
AMENDMENTS TO CHARTER
To amend a certificate of incorporation, the Delaware General
Corporation Law requires the affirmative recommendation of the Cavalier Board
and the approval of a majority of all outstanding shares entitled to vote
therefor. Under the Delaware General Corporation Law, the holders of the
outstanding shares of a class are entitled to vote as a class upon any proposed
amendment to the certificate of incorporation if the amendment would increase or
decrease the number of authorized shares of such class, increase or decrease the
par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect
adversely the holders thereof.
To amend articles of incorporation, the Mississippi Business
Corporation Act generally requires approval of the holders of a majority of all
outstanding shares entitled to vote thereon at a meeting of shareholders. Under
the Mississippi Business Corporation Act, the holders of the outstanding shares
of a class are entitled to vote as a separate voting group upon any proposed
amendment that would increase or decrease the aggregate number of authorized
shares of the class, effect an exchange or the reclassification of all or part
of the shares of the class and the shares of another class, effect an exchange
or reclassification, or create the right of exchange, of all or part of the
shares of another class into the shares of the class, change the designation,
rights, preferences or limitations of all or part of the shares of the class,
change the shares of all or part of the class into a different number of shares
of the same class, create a new class of shares having rights or preferences
with respect to distributions or to dissolution that are prior, superior or
substantially equal to the shares of the class, increase the rights, preferences
or number of authorized shares of any class that, after giving effect to the
amendment, have rights or preferences with respect to distributions or to
dissolution that are prior, superior or substantially equal to the shares of the
class, limit or deny an existing preemptive right of all or part of the shares
of the class, or cancel or otherwise affect rights to distributions or dividends
that have accumulated but not yet been declared on all or part of the shares of
the class.
AMENDMENTS TO BYLAWS
Under the Delaware General Corporation Law, the authority to adopt,
amend or repeal the by-laws of a Delaware corporation is held exclusively by the
stockholders entitled to vote unless such authority is conferred upon the board
of directors in the corporation's certificate of incorporation. The Cavalier
Certificate expressly grants to its Board of Directors the power to make, alter
or repeal the Cavalier By-laws. In addition, the Cavalier By-laws provide that
in the case of amendments by stockholders, the affirmative vote of the holders
of at least 80% of the total votes of all the then outstanding Cavalier Shares
with voting rights will be required to amend any provision of the By-laws.
The Mississippi Business Corporation Act provides that the shareholders
or the board of directors of a Mississippi corporation may amend or repeal the
bylaws unless such power is expressly reserved to the shareholders by the
corporation's articles of incorporation or by the Mississippi Business
Corporation Act, or the shareholders in amending or repealing a particular bylaw
provide expressly that the board of directors may not amend or repeal that
bylaw. The Belmont Articles do not expressly reserve such power to the
shareholders. The Belmont Bylaws provide that they may be amended by the
affirmative vote of the holders of the majority of the outstanding stock of
Belmont, or by the affirmative vote of the majority of the entire Belmont Board,
unless the shareholders provide expressly that the Belmont Board may not amend
or appeal a particular bylaw; provided, however, that the Belmont Board may not
amend
67
<PAGE> 79
the Belmont Bylaws to take any action which is reserved exclusively to the
shareholders pursuant to the Mississippi Business Corporation Act. A vote of
80% of the outstanding voting stock of Belmont must vote in favor of increasing
the size of the Belmont Board if the Belmont Board does not recommend such an
increase. The Belmont Bylaws provide that the Belmont Board is without
authority to amend the provisions regarding amendment of the Belmont Bylaws
summarized in this paragraph.
BOARD CLASSIFICATION
There are no board classifications for either Cavalier or Belmont,
although Belmont has provisions for classifications if the number of board
members reaches nine or higher. All members of the board of directors of both
Cavalier and Belmont are elected at their respective annual stockholders'
meetings.
REMOVAL OF DIRECTORS
The Cavalier By-laws provide for the removal of any director or the
entire board of directors at any time, with or without cause, by the holders of
a majority of shares of Cavalier then entitled to vote generally in the election
of directors. This provision for removal is subject to the rights of the holders
of any series of preferred stock with respect to such series of preferred stock.
The Cavalier Board has designated 200,000 shares of preferred stock as Series A
Junior Participating Preferred Stock ("Series A Preferred Stock"). The
Certificate of Designations of Series A Junior Participating Preferred Stock of
Cavalier Homes, Inc., dated as of October 23, 1996, provides that if at the time
of any annual meeting of stockholders for the election of directors, the
equivalent of six quarterly dividends (whether or not consecutive) payable on
any share or shares of Series A Preferred Stock are in default, the number of
directors constituting the board shall be increased by two. It further provides
that the holders of record of the Series A Preferred Stock, voting separately as
a class to the exclusion of the holders of common stock, shall be entitled to
vote for the election of two directors of the corporation. Until the default in
payments of all dividends which permitted the election of said directors ceases
to exist, any director who has been elected pursuant to the preceding sentence
may be removed at any time, either with or without cause, only by affirmative
vote of the holders of the shares of Series A Preferred Stock at the time
entitled to cast a majority of the votes entitled to be cast for the election of
any such director, and any vacancy thereby created may be filled by the vote of
such holders. There are currently no outstanding shares of Series A Preferred
Stock.
The Belmont Articles and the Belmont Bylaws provide that shareholders
may remove directors only for cause. A director may be removed only if the
number of votes cast to remove him exceeds the number of votes cast not to
remove him. A director may be removed by the shareholders or board only at a
meeting called for the purpose of removing him, and the meeting notice must
state that the purpose or one of the purposes of the meeting is removal of the
director.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The Belmont Bylaws provide that vacancies in the Belmont Board,
including a vacancy resulting from an increase in the number of directors, may
be filled by the shareholders or by the Belmont Board (even if the number of
directors then in office is less than a quorum). The Cavalier By-laws provide
that vacancies or newly created directorships may generally be filled by a
majority vote of the directors in office, although less than a quorum, or by a
sole remaining director. Any vacancies in directorships that have been created
pursuant to the terms of the Certificate of Designations of Cavalier's Series A
Junior Participating Preferred Stock as described above may be filled only by
the holders of Series A Preferred Stock.
VOTE REQUIRED FOR MERGERS, CONSOLIDATIONS, SHARE EXCHANGES, ETC.
The Mississippi Business Corporation Act generally requires the
affirmative vote of a majority of a corporation's outstanding shares entitled to
vote, unless the articles of incorporation require a greater proportion (the
Belmont Articles do not require a greater proportion) to authorize a merger,
consolidation, share exchange, dissolution or disposition of all or
substantially all of its assets, except that (a) unless required by the articles
of incorporation, no authorizing shareholder vote is required of a corporation
surviving a merger if (i) such corporation's articles of incorporation are not
materially changed by the merger; (ii) each shareholder of stock of such
corporation will hold the same number of shares with identical designations,
preferences, limitations and relative rights after the merger; and (iii) the
number of shares to be issued in the merger does not exceed 20% of such
corporation's outstanding common stock immediately prior to the effective date
of the merger.
68
<PAGE> 80
The Delaware General Corporation Law generally requires the approval by
both the board of directors and the stockholders of the corporation of an
agreement of merger or consolidation for such an agreement to be adopted. No
vote of stockholders of a corporation surviving a merger is necessary to
authorize a merger if the agreement of merger does not amend in any respect the
certificate of incorporation of such corporation, each share of stock of such
corporation outstanding immediately prior to the effective date of the merger is
to be an identical outstanding or treasury share of the surviving corporation
after the effective date of the merger, and either no shares of common stock of
the surviving corporation and no shares, securities or obligations convertible
into such stock are to be issued or delivered under the plan of merger, or the
authorized but unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of the corporation outstanding immediately prior to the
effective date of the merger. Unless a dissolution is adopted by a majority of
the board of directors, under the Delaware General Corporation Law, a
dissolution must be approved by all stockholders entitled to vote thereon. Only
if the dissolution is initiated by the board of directors may it be approved by
a simple majority of the corporation's stockholders. Under the Delaware General
Corporation Law, the sale, lease or exchange of all or substantially all of the
corporation's property and assets must be authorized by a resolution adopted by
the holders of a majority of the outstanding stock of the corporation.
ANTI-TAKEOVER PROVISIONS
The Mississippi Shareholder Protection Act (the "Protection Act")
requires that a business combination be approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by outstanding shares of voting
stock of the corporation, voting together as a single class, and (b) two-thirds
(2/3) of the votes entitled to be cast by holders of voting stock other than
voting stock held by the interested shareholder (as defined below) who is a
party to the business combination, except that the provisions of the Protection
Act shall not apply if the business combination is approved by at least 80% of
the corporation's continuing directors or the aggregate amount of the offer
meets certain fair price criteria. Unless a corporation's certificate of
incorporation provides otherwise, the provisions of the Protection Act also do
not apply to any business combination of (i) a corporation having fewer than 500
beneficial owners of its stock, (ii) a corporation which elects not to be
governed by the requirements of the Protection Act by the adoption, upon a
majority vote of its shareholders, of a provision in its certificate of
incorporation stating that such corporation has elected not to be so governed,
or (iii) investment companies or banks.
"Business combination" is defined in the Protection Act as:
(i) any transaction of the corporation with any interested
shareholder or other corporation which is an affiliate of an interested
shareholder; (ii) any sale, lease, transfer or other disposition in
transactions with any interested shareholder of assets having an
aggregate market value of 20% or more of the total market value of the
outstanding stock of the corporation or of its assets; (iii) the
issuance or transfer by the corporation of any securities of the
corporation or any subsidiary which have an aggregate market value of
5% or more of the total market value of the outstanding stock of the
corporation to any interested shareholder or any affiliate of any
interested shareholder; (iv) the adoption of any plan or proposal for
the liquidation, dissolution of or similar transaction involving the
corporation; or (v) any reclassification or recapitalization of
securities or any merger, consolidation or share exchange of the
corporation with any of its subsidiaries which increases by 5% or more
of the total number of outstanding shares.
"Interested shareholder" means any person or associated group of
persons acting in concert (other than the corporation and/or any subsidiaries)
that (i) is the beneficial owner of 20% or more of the voting power of the
outstanding voting stock of the corporation, or (ii) is an affiliate of the
corporation and at any time within the two-year period immediately prior to the
date in question was the beneficial owner of 20% or more of the voting power of
the then outstanding voting stock of the corporation.
The Mississippi Control Share Act (the "Control Act") applies to all
issuing public corporations in existence on and after January 1, 1991 which have
more than 500 of their shareholders resident in Mississippi, more than 10% of
their shares owned by Mississippi residents, or more than 10% of their
shareholders resident in Mississippi. The Control Act reduces the voting power
of control shares having voting power of one-fifth (1/5) or more of all voting
power to zero unless the shareholders of the issuing public corporation approve
a resolution granting the shares the same voting rights as they had before they
became control shares.
"Control shares" means issued and outstanding shares of an issuing
public corporation that, except for the Control Act, would have voting power
when added to all other shares of the issuing corporation owned of record or
69
<PAGE> 81
beneficially by an acquiring person that would entitle the acquiring person to
exercise the voting power of the issuing public corporation in the election of
directors within certain ranges of voting power. The acquisition of control
shares does not constitute a "control share acquisition" for purposes of the
Control Act if the acquisition is made in good faith and not for the purpose of
circumventing the Control Act pursuant to a merger or plan of consolidation
effected in compliance with Section 79-4-11.01 et seq. of the Mississippi
Business Corporation Act.
The Delaware General Corporation Law prohibits certain transactions
between a Delaware corporation and an "interested stockholder," which is defined
generally as a person that is directly or indirectly a beneficial owner of 15%
or more of the voting power of the outstanding voting stock of a Delaware
corporation and such person's affiliates and associates. This provision
prohibits certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
of 10% of the consolidated assets of the corporation, and certain other
transactions) between an interested stockholder and a corporation for a period
of three years after the date the interested stockholder became an interested
stockholder. However, the prohibition does not apply if: (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder became an interested stockholder; (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation (excluding shares held by directors of the corporation who are also
officers and shares held under certain employee stock plans) in the transaction
in which it became an interested stockholder; or (iii) the business combination
is approved by a majority of the board of directors and the affirmative vote of
two-thirds of the votes entitled to be cast by stockholders other than the
interested stockholder at an annual or special meeting. This provision of the
Delaware General Corporation Law applies automatically to a Delaware corporation
unless otherwise provided in its certificate of incorporation or bylaws or if it
has less than 2,000 stockholders of record and does not have voting stock listed
on a national securities exchange or authorized for quotation on The NASDAQ
Stock Market. The Cavalier Certificate does not mention this provision of the
Delaware General Corporation Law.
DISSENTERS' RIGHTS
Under the Mississippi Business Corporation Act and the Delaware General
Corporation Law, holders of shares have the right, in certain circumstances, to
dissent from certain extraordinary corporate transactions as to which they have
voting rights by demanding payment in cash for their shares equal to the fair
value of such shares, as determined by agreement with the corporation or by a
court in an action timely brought by the corporation or the dissenters.
Unlike the Mississippi Business Corporation Act, the Delaware General
Corporation Law grants dissenters' appraisal rights only in the case of certain
mergers and not in certain transactions involving a sale or transfer of assets,
a share exchange, a charter amendment or control share acquisition and certain
other transactions. The Delaware General Corporation Law does not extend
appraisal rights in a merger to holders of shares listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 stockholders if stockholders are
required to accept as consideration in the merger only stock of the surviving
corporation, shares of stock of another corporation which at the effective date
will be listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders, cash in lieu of fractional shares or a combination of the above.
LIMITATION ON DIRECTORS' LIABILITY
The Belmont Articles provide that directors shall not be personally
liable to Belmont or its shareholders for money damages for any action taken or
any failure to take action as a director, except for liability for: (i) the
amount of a financial benefit received by a director to which he is not
entitled; (ii) an intentional infliction of harm on Belmont or its shareholders;
(iii) a violation of Section 79-4-8.33 of the Mississippi Business Corporation
Act (involving unlawful distributions to shareholders and loans to directors,
officers or employees); or (iv) an intentional violation of criminal law. The
Articles further provide that if the Mississippi Business Corporation Act is
amended to eliminate or limit the liability of directors even further, then the
liability of a director of the company shall be eliminated or limited to the
fullest extent permitted by the amended Mississippi Business Corporation Act.
The Cavalier Certificate provides that a director of Cavalier shall not
be personally liable to Cavalier or its stockholders for monetary damages, for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or may be hereafter amended (involving
willful or negligent issuance of unlawful dividends or willful or negligent
unlawful stock purchase or redemption); or (iv) for any transactions from which
the
70
<PAGE> 82
director derived an improper personal benefit. The Cavalier Certificate further
provides that if the Delaware General Corporation Law is amended to eliminate or
limit the liability of directors further, then the liability of a director of
Cavalier shall be eliminated or limited to the fullest extent permitted by the
amended Delaware General Corporation Law.
INDEMNIFICATION
Both the Mississippi Business Corporation Act and Delaware General
Corporation Law contain provisions setting forth conditions under which a
corporation may indemnify its directors and officers. These provisions are
generally referred to as "statutory indemnification" provisions. Corporations
are permitted to adopt charter provisions or bylaws which provide for additional
indemnification of directors and officers. These non-exclusive provisions are
generally referred to as "non-statutory indemnification" provisions.
Non-statutory indemnification provisions are generally adopted to expand the
circumstances and liberalize the conditions under which indemnification will
occur. The statutory indemnification provisions under the Mississippi Business
Corporation Act and the Delaware General Corporation Law are substantially the
same.
The Belmont Articles provide that Belmont shall indemnify, and upon
request shall advance expenses prior to disposition of the proceeding to, its
directors, officers, employees or agents to the full extent permitted by the
Mississippi Business Corporation Act, despite the fact that such person has not
met the standard of conduct set forth in the Mississippi Business Corporation
Act or would be disqualified from indemnification under the Mississippi Business
Corporation Act, if a determination is made that the director, officer, employee
or agent is fairly and reasonably entitled to indemnification in view of all of
the relevant circumstances, and the acts or omission of the officer, employee or
agent did not constitute gross negligence or willful misconduct.
The Cavalier By-laws provide that Cavalier will indemnify its directors
and officers in actions, suits or proceedings (other than derivative actions)
against expenses, judgments, fines and amounts paid in settlement by such
director or officer if such director or officer acted in good faith in a manner
he reasonably believed to be in or not opposed to the best interest of Cavalier
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The Cavalier By-laws give Cavalier the
power in its discretion to indemnify any employee or agent of Cavalier in the
same manner as Cavalier is required to indemnify its officers and directors
pursuant to the foregoing sentence. The Cavalier By-laws provide that Cavalier
shall indemnify any director or officer of Cavalier who is a party to any
derivative action on behalf of Cavalier against expenses incurred by such
director or officer if such director or officer acted in good faith in a manner
he reasonably believed to be in or not opposed to the best interest of Cavalier,
and except that no indemnification shall be made in respect of any claim as to
which such person shall have been judged to be liable to Cavalier unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine that such person is fairly and
reasonably entitled to indemnity. The Cavalier By-laws give Cavalier the power
in its discretion to indemnify any employee or agent of Cavalier in the same
manner as Cavalier is required to indemnify its officers and directors pursuant
to the foregoing sentence. Both the Belmont Articles and the Cavalier By-laws
provide that Belmont and Cavalier, as applicable, may purchase and maintain
insurance on behalf of their respective directors, officers, employees or
agents.
PAYMENT OF DIVIDENDS
Under the Delaware General Corporation Law, a corporation may generally
pay dividends out of surplus or, if there is no surplus, out of the net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year, unless the capital of the corporation has been diminished by
depreciation in the value of its property, losses or otherwise to an amount less
than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. The Mississippi Business Corporation Act permits Belmont to pay
dividends and make other distributions unless, as a result, Belmont would not be
able to pay its debts as they become due in the usual course of business, or its
assets would be less than its liabilities (each as valued as provided in the
Mississippi Business Corporation Act) plus any preferential rights.
RIGHTS PLANS
Cavalier has adopted a Stockholder Rights Plan, which is described more
fully under "DESCRIPTION OF CAVALIER CAPITAL STOCK -- Cavalier Stockholder
Rights Plan." Belmont shareholders will receive one Right (as defined in such
plan) with respect to each Cavalier Share received pursuant to the Merger
Agreement.
71
<PAGE> 83
DESCRIPTION OF CAVALIER CAPITAL STOCK
GENERAL
The authorized capital stock of Cavalier consists of 50,000,000 shares
of common stock, $.10 par value each (as heretofore defined, "Cavalier Shares"),
and 500,000 shares of preferred stock, $.01 par value each ("Cavalier Preferred
Shares"). As of November 25, 1997, there were 12,317,691 Cavalier Shares issued
and outstanding, 1,439,148 Cavalier Shares issuable upon the exercise or
conversion of options, warrants or convertible securities granted or issuable by
Cavalier, and no Cavalier Preferred Shares issued and outstanding.
CAVALIER SHARES
Holders of Cavalier Shares are entitled to one vote per share and have
no preemptive rights to subscribe for any additional securities which Cavalier
may issue. There are no redemption provisions or sinking fund provisions
applicable to the Cavalier Shares, nor are the Cavalier Shares subject to calls
or assessments by Cavalier. Cavalier common stockholders do not have preference,
conversion or exchange rights. In the event of liquidation, dissolution or
winding up of Cavalier, Cavalier common stockholders will be entitled to share
equally in the assets available for distribution after payment of all creditors
and the liquidation preferences of any shares of Cavalier Preferred Shares
issued and outstanding.
CAVALIER PREFERRED SHARES
The Cavalier Board is authorized by the Cavalier Certificate to provide
for the issuance from time to time of one or more classes or series of Cavalier
Preferred Shares and to fix the voting powers and the designations, preferences,
qualifications or restrictions which Cavalier Preferred Shares will have with
respect to any other class or series of capital stock of Cavalier. Cavalier has
designated 200,000 shares of Series A Junior Participating Preferred Stock,
none of which is currently outstanding.
CAVALIER STOCKHOLDER RIGHTS PLAN
Cavalier has adopted a Stockholder Rights Plan. The terms and
conditions of the plan are set forth in a Rights Agreement dated October 23,
1996 between Cavalier and ChaseMellon Shareholder Services, LLC. Pursuant to the
plan, the Cavalier Board declared a dividend of one Right (as defined in the
Rights Agreement) for each share of Cavalier's outstanding common stock to
stockholders of record on November 6, 1996. On November 15, 1996, Cavalier
effected a five-for-four stock split of Cavalier Shares by means of a stock
dividend of one Cavalier Share for each four Cavalier Shares outstanding. The
Rights, when exercisable, currently entitle the holder to purchase a unit of
0.80 one-hundredth share of Series A Junior Participating Preferred Stock, par
value $0.01, at a purchase price of $ 80 per unit. Upon certain events relating
to the acquisition of, or right to acquire, beneficial ownership of 20% or more
of Cavalier's outstanding common stock by a third party, or a change in control
of Cavalier, the Rights entitle the holder to acquire, after the Rights are no
longer redeemable by Cavalier, shares of common stock of Cavalier (or, in
certain cases, securities of an acquiring person) for each Right held at a
significant discount. The Rights will expire on November 6, 2006, unless
redeemed earlier by Cavalier at $.01 per Right under certain circumstances.
ANTI-TAKEOVER EFFECTS OF CERTAIN CAVALIER BY-LAW PROVISIONS
Certain provisions of Cavalier's By-laws summarized in the following
paragraphs may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in his or her best interest, including those attempts that might result in a
premium over the market price for the Cavalier Shares held by stockholders.
Special Meeting of Stockholders. The Cavalier By-laws provide that
special meetings of stockholders of Cavalier may be called by the president of
Cavalier and shall be called by the president or secretary at the request in
writing of a majority of the Cavalier Board. No other persons are authorized to
call special meetings of stockholders. Accordingly, this provision may make it
more difficult for stockholders to take action opposed by the Cavalier Board.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Cavalier's By-laws provide that stockholders seeking to bring
business before an annual or special meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. Cavalier's By-laws
also specify certain requirements for a stockholder's notice to be in proper
written form. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
72
<PAGE> 84
DESCRIPTION OF CAVALIER 1996 KEY EMPLOYEE STOCK INCENTIVE PLAN
The Merger Agreement provides for the continuing availability following
the Merger of the shares reserved for the grant of new options pursuant to the
Belmont Stock Plan, which will become available under the terms of the Cavalier
Stock Plan. Pursuant to an amendment to the Cavalier Stock Plan, Cavalier Shares
equal to the number of Belmont Shares which remain available under the Belmont
Stock Plan at the Effective Time, or which thereafter become available under the
Belmont Stock Plan due to the expiration, cancellation, termination or lapse of
outstanding options, pursuant to the express terms of such options and the plan
under which they were granted and not pursuant to any action by Cavalier, Sub or
Belmont not consented to by the applicable optionee, will be available for
issuance under the Cavalier Stock Plan, with such numbers in each case being
multiplied by the Exchange Ratio (collectively, the "Additional Option Shares").
The following is a summary of the principal terms and provisions of the Cavalier
Stock Plan.
The aggregate number of Cavalier Shares available for grant under the
Cavalier Stock Plan is the sum of (i) 600,000 shares (750,000 shares after the
five-for-four stock split paid in November 1996 (the "Stock Split")); (ii) 1.5%
of the Cavalier Shares outstanding on January 1,1997 and each January 1
thereafter; and (iii) Cavalier Shares which are available for grant pursuant to
new options or which are subject to options granted under the Cavalier Homes,
Inc. Long Term Incentive Compensation Plan, the Cavalier Homes, Inc. 1988
Nonqualified Stock Option Plan, and the Cavalier Homes, Inc. 1993 Amended and
Restated Nonqualified Stock Option Plan (collectively defined under the Cavalier
Stock Plan as the "Prior Plans"), but as to which such options may from time to
time expire, lapse or be canceled or terminated. The amendment to the Cavalier
Stock Plan contemplated by the Merger Agreement would include the Additional
Option Shares under such plan in similar fashion as the shares under the "Prior
Plans." No further options or other benefits are to be granted under the Prior
Plans, or the Belmont Stock Plan, but any options outstanding under such plans
may be exercised in accordance with the terms thereof.
The Cavalier Stock Plan is administered by the Compensation Committee
of Cavalier; provided that, with respect to actions taken regarding transactions
structured to be exempt from the provisions of Section 16(b) of the Exchange Act
and the rules and regulations thereunder in a circumstance where all members of
the Compensation Committee are not "non-employee directors" within the meaning
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), such action is
required to be taken by a committee or sub-committee of two (2) or more members
of the Compensation Committee or the Cavalier Board who are such non-employee
directors, or such transaction otherwise shall be structured to be exempt under
Section 16(b); and provided, further, that with respect to actions taken
regarding transactions designed to meet the "performance-based exception" to the
limits on deductibility of executive compensation under Section 162(m) of the
Code and the regulations promulgated thereunder in a circumstance where all
members of the Compensation Committee are not "outside directors" within the
meaning thereof, then such action shall be taken by a committee or sub-committee
of two (2) or more members of the Compensation Committee or the Cavalier Board
who are such outside directors. Under the Cavalier Stock Plan, the Compensation
Committee has full power to (i) designate the key employees to receive awards
from time to time, (ii) determine the sizes and types of awards, (iii) determine
the terms and provisions of awards as it deems appropriate, (iv) construe and
interpret the plan and establish, amend or waive rules and regulations relating
to the administration of the plan, (v) amend the terms and provisions of any
outstanding award to the extent such terms and provisions are within the
discretion of the Compensation Committee and (vi) make all other decisions and
determinations necessary or advisable for the administration of the plan.
The Cavalier Stock Plan is to remain in effect until all shares subject
to it have been purchased or acquired. Notwithstanding the foregoing, no grants
of incentive stock options ("ISOs") will be made under the plan after February
27, 2006. As of the date of this Joint Proxy Statement and Prospectus, no ISOs
have been granted under the Cavalier Stock Plan.
Only "key employees" of Cavalier and its subsidiaries are eligible to
participate in the Cavalier Stock Plan. The fact that an employee is a director
of Cavalier does not make him ineligible for an award unless he is a member of
the Compensation Committee. The selection of key employees is entirely within
the discretion of the Compensation Committee. The concept of a "key employee"
is, however, somewhat flexible and such factors as the duties and
responsibilities of employees, the value of their services, their present and
potential contributions to the success of Cavalier and other relevant factors
will be considered.
The Cavalier Stock Plan provides for the grant of options to purchase
Cavalier Shares at option prices to be determined by the Compensation Committee
as of the date of grant. For stock option awards intended to qualify as ISOs,
the option price may not be less than the fair market value of Cavalier Shares
on the date of grant. For such purpose "fair market value" means the average of
the high and low sales price per share of the Cavalier Shares as reported by
either (i) any national securities exchange on which the Cavalier Shares are
actively traded or (ii) Nasdaq on the day on which
73
<PAGE> 85
such fair market value is determined or, if the Cavalier Shares are not traded
on such exchange or system on such date, then on the immediately preceding date
on which Cavalier Shares were traded on such exchange or system. Each grant of
options is to be evidenced by an award agreement which is to specify the option
price, the term of the option, the number of shares subject to the option and
such other provisions as the Compensation Committee may determine. The shares
subject to an option may be purchased in such installments and on such exercise
dates as set forth in the award agreement. Options granted under the Cavalier
Stock Plan will expire not more than 10 years from the date of grant. The award
agreement will also set forth the extent (if any) to which the participant will
have the right to exercise his options following termination of employment.
Awards of options under the Cavalier Stock Plan, which may be either
ISOs (which must qualify for special tax treatment) or non-qualified stock
options ("NQSOs"), are to be determined by the Compensation Committee in its
discretion. Notwithstanding the foregoing, the Compensation Committee may not
grant ISOs to any participant that, in the aggregate, are first exercisable
during any one calendar year to the extent that the aggregate fair market value
of the shares subject to such options, at the time of grant, exceeds $100,000.
Payment for shares issued pursuant to the exercise of an option may be
made either in cash or by tendering Cavalier Shares with a fair market value at
the date of the exercise equal to the portion of the exercise price which is not
paid in cash.
A participant granted an option under the plan will have no rights as a
stockholder of Cavalier with respect to the shares subject to such option except
to the extent shares are actually issued. Options may not be sold, transferred,
pledged or assigned, except as otherwise provided by law or in an award
agreement relating to NQSOs. The Compensation Committee may impose restrictions
on the transfer of shares acquired pursuant to the exercise of options as it may
deem advisable.
The Cavalier Stock Plan also provides for the grant of stock
appreciations rights ("SARs"), either in tandem with stock options or
freestanding, which entitle holders upon exercise to receive either cash or
Cavalier Shares or a combination thereof as the Compensation Committee, in its
discretion, shall determine with a value equal to the difference between (i) the
fair market value on the exercise date of the Cavalier Shares with respect to
which an SAR is exercised and (ii) the fair market value of such shares on the
date of grant or, if different, the exercise price of the related option in the
case of a tandem SAR. As of the date of this Joint Proxy Statement and
Prospectus, no SARs have been granted under the Cavalier Stock Plan.
The Cavalier Stock Plan provides for the award of shares of restricted
stock to such key employees and on such terms and conditions as determined from
time to time by the Compensation Committee. The restricted stock award agreement
entered into with the participant contains the terms of the award, including the
number of shares of restricted stock granted and the applicable period of
restriction. Additional restrictions may include the continued service of the
participant with Cavalier, the attainment of specified performance goals or any
other conditions deemed appropriate by the Compensation Committee. As of the
date of this Joint Proxy Statement and Prospectus, no awards of restricted stock
have been made under the Cavalier Stock Plan.
In addition to restricted stock, the Compensation Committee may award
performance shares to key employees. The value of a performance share will equal
the fair market value of a Cavalier Share. The number of performance shares
granted or the vesting of granted performance shares can be contingent on the
attainment of certain performance goals or other conditions over a period of
time (the "performance period"), all as determined by the Compensation Committee
and evidenced by an award agreement to be entered into with the participant.
During the performance period, the Compensation Committee will determine whether
any performance shares have been earned. Earned performance shares may be paid
in cash, Cavalier Shares or a combination thereof having an aggregate fair
market value equal to the value of the performance shares as of the payment
date. Cavalier Shares used to pay earned performance shares may have additional
restrictions as determined by the Compensation Committee. In addition, the
Compensation Committee may cancel any earned performance shares and replace them
with stock options determined by the Compensation Committee to be of equivalent
value based on a conversion formula specified in the participant's performance
share award agreement. As of the date of this Joint Proxy Statement and
Prospectus, no performance share awards have been made under the Cavalier Stock
Plan.
Compensation from the exercise of options and SARs that are granted
under the Cavalier Stock Plan and that have an exercise price at least equal to
fair market value at the date of grant are designed to be treated as
"performance- based compensation" for purposes of Section 162(m) of the Code. In
addition, the plan authorizes the Compensation Committee to make awards of
restricted stock or performance shares that are conditioned on the satisfaction
of certain
74
<PAGE> 86
performance criteria. For such awards intended to result in "performance-based
compensation," the Compensation Committee, or the members thereof or the
Cavalier Board who are "outside directors" within the meaning of Section 162(m),
are to establish prior to, or within the permitted period of time after the
commencement of, the applicable performance period the applicable performance
criteria. The Compensation Committee (or members thereof or the Cavalier Board
as described above) may select from among the following objective performance
measures for such purposes: (i) incentive net income, (ii) earnings per share,
(iii) return on assets, (iv) return on equity, (v) revenues or (vi) total
stockholder return, as such terms are defined in the plan.
The Cavalier Stock Plan provides for the withholding and payment of any
payroll or withholding taxes required by applicable law. The plan permits a
participant to satisfy such requirement, with the approval of the Compensation
Committee and subject to the terms of the Cavalier Stock Plan, by having
Cavalier withhold from the participant a number of Cavalier Shares otherwise
issuable under the award having a fair market value equal to the amount of the
applicable payroll and withholding taxes.
The Cavalier Stock Plan generally provides for the acceleration of
vesting provisions contained in awards granted under the plan upon a change in
control of Cavalier, as defined in the plan.
The Cavalier Board may alter, amend, discontinue, suspend or terminate
the Cavalier Stock Plan at any time in whole or in part. Notwithstanding the
foregoing, stockholder approval is required for any change to the Cavalier Stock
Plan which requires stockholder approval in order for the plan to continue to
comply with Rule 16b-3, and no amendment or modification of the Cavalier Stock
Plan may materially and adversely affect any award previously granted without
the consent of the participant. Under recently adopted revisions to Rule 16b-3,
stockholder approval is no longer required with respect to amendments to the
plan in order for the plan to continue to comply with such rule.
The general principles of federal income tax law that apply to the
Cavalier Stock Plan are summarized in the following discussion. All provisions
of federal income tax law are subject to change. Currently, the maximum tax rate
applicable to capital gain income of individuals is less than the maximum tax
rate applicable to ordinary income. The following material, therefore, discusses
the characterization of income under the various plan features as ordinary
income or capital gain or loss. State and local tax consequences are not
described.
ISOs granted under the Cavalier Stock Plan will be subject to the
applicable provisions of the Code, including Section 422 thereof. If no
"disqualifying disposition" of Cavalier Shares issued to an optionee upon the
exercise of an ISO is made within one year after the exercise date or within two
years after the date the ISO was granted, then (i) no income will be recognized
by the optionee at the time of the grant of the ISO, (ii) no income will be
recognized by the optionee at the date of exercise, (iii) upon sale of the
shares acquired by exercise of the ISO, any amount realized in excess of the
option price will be taxed to the optionee as a long-term capital gain and any
loss sustained will be a long-term capital loss and (iv) no deduction will be
allowed to Cavalier for federal income tax purposes. If a "disqualifying
disposition" of such shares is made, the optionee will recognize taxable
ordinary income in an amount equal to the excess of the fair market value of the
shares purchased at the time of exercise over the option price (the "bargain
purchase element") and Cavalier will be entitled to a federal income tax
deduction equal to such amount. The amount of any gain in excess of the bargain
purchase element realized upon a "disqualifying disposition" will be taxable as
capital gain to the holder (for which Cavalier will not be entitled to a federal
income tax deduction). Upon exercise of an ISO, the optionee may be subject to
alternative minimum tax.
With respect to NQSOs granted under the Cavalier Stock Plan, (i) no
income is recognized by the optionee at the time the NQSO is granted, (ii) at
exercise, ordinary income is recognized by the optionee in an amount equal to
the difference between the option price and the fair market value of the shares
on the date of exercise, and Cavalier receives a tax deduction for the same
amount and (iii) on disposition, the net appreciation or depreciation after the
date of exercise is treated as either short-term or long-term capital gain or
loss depending on whether the shares have been held for more than one year.
With respect to the receipt of restricted shares under the Cavalier
Stock Plan that are subject to a substantial risk of forfeiture, upon becoming
entitled to receive such shares at the end of the applicable restriction period
without a forfeiture, the recipient will recognize ordinary income in an amount
equal to the fair market value of the shares at that time. However, a recipient
who makes an election under Section 83(b) of the Code within 30 days of the date
of the grant will recognize ordinary taxable income on the date of the grant
equal to the fair market value of the shares of restricted stock as if the
shares were unrestricted and could be sold immediately. If the shares subject to
such election are subsequently forfeited, the recipient will not be entitled to
any deduction, refund or loss for tax purposes. Upon sale of the shares after
the restriction period has expired, the holding period to determine whether the
recipient has long-term or short-term capital gain or loss begins when the
restriction period expires, and the tax basis will be the fair market value of
the shares at that
75
<PAGE> 87
time. However, if the recipient timely elects to be taxed as of the date of
grant, the holding period commences on the date of the grant and the tax basis
will be the fair market value of the shares on the date of the grant as if the
shares were then unrestricted and could be sold immediately. Cavalier generally
will be entitled to a deduction, equal to the amount that is taxable as ordinary
compensation income to the recipient, for Cavalier's taxable year in which the
recipient recognizes such income.
MATERIAL CONTRACTS BETWEEN CAVALIER AND BELMONT
Cavalier and Belmont each own a 33 1/3% interest in Ridge Pointe
Manufacturing, L.L.C., a joint venture in which Southern Energy Homes, Inc. also
participates. Ridge Pointe Manufacturing, L.L.C. produces a variety of cabinet
doors for use in manufactured homes. In addition, Cavalier and Belmont each own
a 50% interest in Quality Housing Supply, LLC, which is an operation that
produces exterior doors and laminated wall panels for use in manufactured homes.
See " THE PROPOSED MERGER -- Background of the Merger."
CERTAIN INFORMATION CONCERNING THE BUSINESS OF CAVALIER
Cavalier designs and produces manufactured homes for sale to
independent dealers using assembly line techniques. Cavalier typically builds a
home after receipt of an order from an independent dealer, and accordingly does
not generally maintain a significant inventory of unsold homes. As of September
26, 1997, Cavalier had approximately $16.1 million of orders believed by
Cavalier management to be firm, compared to approximately $35.9 million and
$12.3 million of such orders as of September 27, 1996 and December 31, 1996,
respectively. Based on Cavalier's prior experience, substantially all of the
orders at September 26, 1997 can be expected to be filled during the current
fiscal year. While there is no assurance that dealers will not cancel such
orders, or that lenders will provide financing, Cavalier's experience has been
that cancellations of orders have not been significant. Cavalier believes that
while backlog volume generally indicates the production levels at which Cavalier
will operate at any given time, it is not necessarily indicative of sales for an
extended period or a full year.
Sales in the manufactured home industry have historically been seasonal
in nature, with the greatest number of homes being sold from April through
October, and lower shipments occurring in the first and last part of each
calendar year. During the period 1992 through 1996, however, the manufactured
housing industry experienced a significant increase in sales, and seasonality
was not a material factor affecting the industry. Industry statistics through
September 1997, however, reflect a decline in shipments. It is possible that
this decline, along with an overall tightening of industry conditions, may
represent a return to the seasonality historically present in the manufactured
housing industry.
Cavalier believes that it is currently in compliance in all material
respects with applicable laws relating to the generation, storage, handling,
emission, transportation and discharge of materials into the environment. See
"RISK FACTORS -- Compliance with Environmental Laws."
CERTAIN INFORMATION CONCERNING THE BUSINESS OF BELMONT
GENERAL
Belmont produces and markets a variety of single- and double-section
manufactured homes under a variety of brand names through approximately 410
dealers and 550 sales centers in 20 states, primarily in the southern United
States. Belmont has long-established relationships with most of its dealers, and
management believes these relationships contribute significantly to Belmont's
selling efforts. Belmont targets its homes to a variety of price points within
the moderately-priced segment of the manufactured housing market. Belmont's
single-section homes range in size from 672 square feet to 1,280 square feet and
sell at retail prices between $12,500 and $34,100. Belmont's double-section
homes range in size from 1,040 square feet to 2,356 square feet and sell at
retail prices between $20,000 and $59,600.
Belmont was incorporated in Mississippi in 1993 and is a successor to a
business which commenced operations in 1987. Belmont acquired all of the
outstanding capital stock of Spirit Homes, Inc. ("Spirit") in October 1995 for
$9.8 million in cash and notes. The operations of Belmont's Spirit subsidiary
are located in Conway, Arkansas, and produce single and double-sectioned
manufactured homes marketed under the "Spirit" and "River Valley" names. The
homes manufactured by Spirit range in size from approximately 896 square feet to
approximately 2,180 square feet, and range in suggested retail price from
approximately $19,500 to approximately $48,700. On October 25, 1996, Belmont
acquired
76
<PAGE> 88
all of the outstanding capital stock of Bellcrest for $9.5 million in cash.
Further, if the Merger is consummated, additional payments equal to $2.5 million
will be paid by Belmont to the former shareholders of Bellcrest. See "THE
PROPOSED MERGER--Interests of Certain Persons in the Merger." The operations of
Belmont's Bellcrest subsidiary are located in Millen, Georgia, and produce
single and double-sectioned manufactured homes marketed through the "Bellcrest"
name. The homes manufactured by Bellcrest range in size from approximately 924
square feet to approximately 2,396 square feet, and range in suggested retail
price from approximately $22,000 to approximately $59,600. Multi-sectioned
manufactured homes have historically accounted for greater than two-thirds of
the annual sales of Bellcrest.
At the end of 1996, Belmont manufactured homes in 11 production
facilities, five of which were located in Mississippi, four of which were
located in Arkansas, and two of which were located in Georgia. Currently,
Belmont manufactures homes in eight production facilities, having closed a
facility in Arkansas and idled one facility located in Mississippi and one in
Arkansas.
OPERATIONS
Belmont strives to offer homes with standard features at competitive
prices at a variety of price points within the manufactured housing market. The
designs of Belmont's manufactured homes emphasize basic features, including
central heating and a kitchen with a refrigerator and a range. Most optional
features permit the consumer to customize the home.
Belmont seeks to produce high quality homes at the lowest manufacturing
cost possible. In contrast to competitors that operate decentralized production
facilities, Belmont clusters its production facilities. As a result, Belmont is
able to utilize a centralized management team and sales staff for each cluster.
Within a cluster, each facility is dedicated to the production of a particular
type of home. This specialized production system is intended to allow Belmont to
schedule longer production runs of each type of floor plan, resulting in higher
volume, lower manufacturing costs and, Belmont believes, improved quality. A
production run might include more than 30 floors of the same floor plan. Belmont
currently operates four facilities in Mississippi, two facilities located in
Arkansas, and two facilities in Georgia.
Raw Materials. The principal materials used in the production of
Belmont's homes include lumber, gypsum, particleboard, paneling, insulation,
steel, wiring, plumbing, carpet, vinyl, linoleum, fasteners and hardware items,
appliances, electrical items, windows and doors. These materials and components
are generally readily available and are purchased by Belmont from numerous
sources on standard industry terms, which generally require payment within 30
days and offer a 2% discount for payment within ten days. The proximity of
Belmont's suppliers permits the delivery of such materials on an as-needed
basis, thereby reducing the need to maintain a significant inventory of raw
materials. No supplier accounted for more than approximately 12% of Belmont's
raw material purchases during 1996. While Belmont is dependent upon the timely
delivery of such raw materials to its facilities, the loss of any one supplier
would not have a material effect on Belmont. Belmont purchases the appliances
for its homes from General Electric, but Belmont is not a party to and does not
intend to enter any long-term contracts with suppliers. Belmont's management
believes that Belmont's current policy of purchasing from many suppliers enables
it to benefit from lower costs and avoid any supply problems caused by using one
source of raw materials. Belmont purchases certain materials and components from
two limited liability companies in which each of Belmont and Cavalier have
ownership interests. See "MATERIAL CONTRACTS BETWEEN CAVALIER AND BELMONT."
Belmont's management believes that the size of its purchases allows it
to obtain favorable volume discounts. Belmont's costs of operations, however,
can be significantly affected by the availability and pricing of raw materials.
Sudden increases in demand for construction materials, particularly lumber and
insulation, can greatly increase the costs of production. In the past, Belmont
has added a lumber surcharge to the price of its homes to offset anticipated
lumber price increases Belmont may experience. While Belmont historically has
been able to reflect a significant portion of raw material cost increases in its
current prices by anticipating such increases, such raw material cost increases
cannot always be reflected immediately in Belmont's prices, and, consequently,
may adversely affect Belmont's profitability.
Quality Control. The operation of clustered production facilities
allows the dedication of each facility to a particular type of home, which
permits lengthy production runs of the same floor plan. Increased repetition
makes employees more proficient, which results in improved quality. Belmont
adheres to strict quality standards, which Belmont's management believes equal
or surpass standards enforced by HUD and, continually refines its production
procedures to increase productivity and reduce warranty claims. Personnel at
each of the Belmont's facilities track and correct production deficiencies at
various stages of
77
<PAGE> 89
production that are attributable to the manufacturing process. In accordance
with HUD requirements, an independent HUD-approved, third-party inspector
inspects each of Belmont's manufactured homes for compliance during construction
at Belmont's manufacturing facilities.
Before a home moves from one production station to another, the foreman
in charge of the station inspects the home. Belmont also employs inspectors who
perform a final inspection prior to shipping each home. One of the inspectors
serves as quality control manager and reports the results of the inspections
directly to Belmont's president. In addition, the quality control manager, the
other inspectors and all foremen meet daily to review problems in production and
to suggest improvements to the manufacturing process. Each facility must be
certified in accordance with HUD requirements.
Transportation. Belmont uses a combination of its own drivers and
common carriers to deliver its homes. The trucks used by Belmont's employee
drivers are owned by the driver and leased to Belmont. Each lease is terminable
by either party upon 30 days notice. Belmont's management believes that an
employee driving his own truck will take better care of both the truck and the
home being delivered.
PRODUCTS
Belmont also seeks to offer homes with standard features at competitive
prices at a variety of price points within the moderately-priced segment of the
manufactured housing market. Management believes that the acquisition of
Bellcrest in October 1996 increased the breadth of Belmont's products,
especially in the multi-sectioned product line.
Product Lines. Belmont sells its homes under the Premier, Glenwood,
Delta, Spirit, River Valley, Bellcrest and other brand names. Belmont's product
lines differ primarily in terms of price, size, style and quality of
furnishings. Premier homes contain two to four bedrooms, a living room, dining
room, kitchen, one or two bathrooms and standard features such as central
heating, a range, refrigerator, furniture, carpet and draperies. Optional
features which may be added to the standard models include, among other things,
fireplaces, vaulted ceilings and patio doors. The Glenwood line features more
expensive carpet, cabinets, draperies, furniture and appliances than the Premier
line. Spirit homes contain a more elaborate floor plan and more elaborate
presentation than Premier homes. Standard features include vaulted textured
ceilings in certain rooms, a range, refrigerator, carpeting and draperies.
Optional features added to the standard models include, among other things,
fireplaces, vaulted textured ceilings throughout, hard board siding, shingled
roofs and storm windows. The River Valley line features less expensive standard
features and fewer options than the Spirit line. The Bellcrest line includes ten
separate brands with homes offering a variety of standard and optional features
similar to the Premier and Spirit lines.
Design and Costs. Belmont designs its homes to provide attractive,
practical features at affordable prices. Belmont believes that it has been able
to develop designs that are responsive to consumers' needs while maintaining low
operating costs. In order to continue to provide practical homes at attractive
prices, management annually reviews Belmont's existing designs to determine
which designs should be eliminated and which should be modified to respond to
design trends, material availability or cost concerns. Additionally, in
anticipation of trade shows, Belmont seeks to develop several new single-section
and multi-section models each year.
In its attempt to control costs, Belmont places particular emphasis on
the versatility of the designs so that a few basic features of each decor can be
interchanged within a variety of styles. This flexibility offers the consumer
additional variations of decors to suit their particular tastes. Additionally,
the use of standardized floor plans permits Belmont to take advantage of
efficiencies of scale in scheduling. Belmont also offers numerous combinations
of exterior designs, including different colors of vinyl siding and hard board
siding, trim and, on its double-section and Wind Zone homes, shingle roofing.
Based on significant increases in Belmont's sales of multi-section
homes in the past five years, management believes that the demand for
multi-section homes will continue to increase as a percentage of manufactured
housing sales, while the market for 14-foot single-section homes will continue
to decline, consistent with Belmont's recent experience. As a result, Belmont
generally utilizes its larger production facilities to produce multi-section
homes and its smaller production facilities to produce single-section homes.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon factors including
total price to the dealer, product features, quality, warranty repair service
and
78
<PAGE> 90
the terms of dealer and retail customer financing. A number of firms have been
operating longer and possess greater manufacturing, financial and other
resources than Belmont, and there are numerous firms producing manufactured
homes in the states in which Belmont operates, many of which are in direct
competition with Belmont in the states where its homes are sold. Certain of
Belmont's competitors provide customers with financing from captive finance
subsidiaries. Belmont does not have the ability to directly provide financing to
customers. Additionally, management believes that a significant amount of new
manufactured housing production capacity has been developed in the past three
years and that the number of retail dealers has increased during the same
period. A downturn in the manufactured housing industry could result in excess
industry capacity, which in turn could result in increased competition adversely
affecting Belmont's results of operations or financial condition. In addition,
Belmont competes with other manufacturers, some of which maintain their own
retail sales centers, for independent dealers. While management believes that
financing has generally become more available in the manufactured housing
industry in recent years, a contraction in consumer credit could provide an
advantage to those competitors with internal financing capabilities. In
addition, Belmont's management believes that manufacturers with exclusive dealer
networks may have certain competitive advantages in the market. Manufactured
homes also compete with site-built homes, as well as apartments, townhouses,
condominiums and existing site-built and manufactured homes.
The barriers to entry into the manufactured housing industry are
relatively low. Belmont's management believes, however, that the qualifications
for obtaining inventory, accounts receivable and finished goods financing, which
are based upon the financial strength of the manufacturer and each of its
dealers, have in recent years become more difficult to meet.
SEASONALITY AND CONSUMER TRENDS
The manufactured housing industry has historically been seasonal, with
lower shipments occurring in the first and last part of each calendar year.
Prior to 1996 and since 1991, the manufactured housing industry had experienced
a significant increase in sales during these and other periods, reducing the
seasonality that has affected the industry. According to the MHI, nationwide
shipments in 1996 increased 7% to 363,411 homes from 339,601 homes in 1995,
while industry shipments in Belmont's primary and secondary markets increased by
12.2% and 5.7% respectively. However, according to MHI, monthly industry
shipments declined 5.5% in November 1996 and 4.5% in December 1996 compared to
same month sales in 1995. The November 1996 decline was the first such monthly
decline since December 1991. Belmont's management believes that this decline in
fourth quarter shipments represents a return to the seasonality historically
present in the manufactured housing industry. Belmont's management expects that
this seasonality will be present for the foreseeable future.
According to MHI, 1996 was the first year in the history of the
manufactured housing industry that sales of multi-section homes surpassed sales
of single-section homes. In 1996, industry shipments of multi-section homes
increased to 52.2% of all manufactured homes sold in the United States during
the year, from 48.8% in 1995. Belmont's shipments of multi-section homes in 1996
increased to 25.8% or 2,870 homes of the total homes sold by Belmont during the
year, from 17% or 1,335 multi-section homes sold in 1995. Approximately 74% of
the homes sold by Belmont during 1996 were, therefore, single-section homes.
During the fourth quarter of 1996, although Belmont's shipment of homes
increased 5% to 2,905 homes (primarily as a result of Belmont's acquisition of
Bellcrest in October 1996), when compared to sales of 2,766 homes in the fourth
quarter of 1995, sales of Belmont's single-section homes decreased 12.5% during
the fourth quarter of 1996 to 2,000 homes, when compared to sales of 2,287
single-section homes in the fourth quarter of 1995.
Belmont believes that industry conditions have recently become more
competitive and seasonal. The return of seasonality is consistent with
historical trends present in the industry. Management also believes, based upon
recent trends, that the multi-section segment of the industry has become more
competitive among manufacturers and more attractive to purchasers of
manufactured housing. Belmont's management believes that this increased
competition and return to seasonality could adversely affect Belmont's future
sales and results of operations.
SALES AND DEALER NETWORK
Belmont sells manufactured homes through approximately 410 independent
dealers and 550 sales centers in 20 states, principally in the southern United
States. Approximately 80% of Belmont's sales during 1996 occurred in its primary
market states of Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Missouri,
Oklahoma, Tennessee and Texas. Management believes that the quality of its
independent dealer network has been, and will continue to be, important to
Belmont's performance. For the year ended December 31, 1996, gross sales at
Belmont's ten largest independent dealers accounted for approximately 20%.
79
<PAGE> 91
Management believes that providing attractive and well-built homes at
affordable prices is essential to recruiting and retaining independent dealers.
Belmont provides each independent dealer with a territory which Belmont
considers exclusive. Although not contractually bound to maintain any exclusive
territories on behalf of its independent dealers, management believes this
practice encourages dealer loyalty. Belmont markets its homes to independent
dealers through target mailings, trade publications and participation in
regional trade shows and participates in advertising campaigns of its dealers on
a cooperative basis. Additionally, Belmont supports its independent dealers
through the distribution of floor plan literature and brochures. Belmont's
strategy of selling its homes through independent dealers helps to ensure that
Belmont's homes are competitive with those of other manufacturers in terms of
consumer satisfaction, product design, quality and price.
Belmont's senior management and sales personnel maintain personal
contact with Belmont's independent dealers. Each member of Belmont's sales staff
focuses on a particular region or state and is paid a commission based upon the
sales generated. Belmont gives its sales personnel considerable discretion in
the amount and nature of contact with the independent dealers in their
territory, which allows the independent dealers to receive individualized
service. Because these independent dealers have significant influence over a
retail customer's purchase decision, Belmont encourages its independent dealers
to promote Belmont's homes, monitors each independent dealer's inventory and
offers a volume purchase rebate to all of its independent dealers. Belmont also
sponsors activities with dealers at trade shows and rewards certain dealers with
expense-paid promotional trips. Belmont does not have formal marketing
agreements with its independent dealers, and substantially all of Belmont's
dealers also sell homes of other manufacturers.
WARRANTIES AND SERVICE
Belmont provides the initial consumer with a HUD-mandated one-year
limited warranty on the structure of the home. Belmont also offers a 90-day
warranty on plumbing and electrical components. In addition to Belmont's
warranty, direct warranties are provided by the manufacturers of the components,
appliances and floor covering included in the homes. Upon delivery of a home,
the dealer completes a checklist detailing any needed repairs to the home and
sends it to Belmont's service manager, who is responsible for taking the
necessary corrective action.
Warranty and service expense for Belmont approximated 2.1% of gross
sales in 1995 and 3.2% of gross sales in 1996. Belmont maintains a warranty
reserve which management believes is adequate to cover estimated warranty claims
to be incurred and which to date has been sufficient to cover Belmont's warranty
expenses. Belmont often incurs service expenditures after the warranty period
has expired. Management believes that this practice increases dealer loyalty and
maintains goodwill.
DEALER AND RETAIL FINANCING
Almost all of Belmont's independent dealers finance their purchases
through "floor plan" arrangements under which a financial institution provides
the dealer with a loan for the purchase price of the home and receives a
security interest in the home as collateral. In connection with a "floor plan"
arrangement, the financial institution providing the financing customarily
requires Belmont to enter into a separate repurchase agreement with the
financial institution under which Belmont is obligated, upon default by the
independent dealer, to repurchase the homes for an amount equal to the unpaid
loan balance plus certain administrative and handling expenses. At December 31,
1996, Belmont had a contingent repurchase liability under floor plan financing
arrangements of approximately $86.1 million. The risk of loss under such
repurchase agreements is mitigated by the fact that (i) sales of Belmont's
manufactured homes are spread over a large number of independent dealers, and
(ii) the price Belmont is obligated to pay generally declines over the term of
the repurchase agreement (generally 12 months). The costs incurred by Belmont
under such repurchase agreements have been nominal. No assurance can be given,
however, that Belmont will not suffer losses with respect to, and as a
consequence of, these financing arrangements. Belmont has no contingent
liability with respect to any financing arrangement made by the home buyer to
purchase his or her home from the dealer.
REGULATION
Belmont's business is subject to a number of federal, state and local
laws. Construction of manufactured housing is governed by the National
Manufactured Housing Construction and Safety Standards Act of 1974. In 1976, HUD
issued regulations under this Act establishing comprehensive national
construction standards. The HUD regulations cover all aspects of manufactured
home construction, including structural integrity, fire safety, wind loads,
thermal protection and ventilation. Such regulations preempt conflicting state
and local regulation on such matters. These regulations are subject to continual
change. New wind load regulations became effective in July 1994 for certain
hurricane-prone areas and new
80
<PAGE> 92
thermal protection standards affecting all regions of the country to a varying
degree became effective October 1994. Despite the scope and strict enforcement
of these regulations, there can be no assurance that one of Belmont's homes will
not be damaged or destroyed by an act of God, especially hurricanes and
tornadoes. Belmont's manufacturing facilities and the plans and specifications
of its manufactured homes have been approved at the opening of each facility for
compliance with applicable federal regulations by HUD-designated inspection
agencies. An independent, HUD-approved third-party inspector checks each of
Belmont's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose Belmont to a wide variety of
sanctions, including closing one or more of Belmont's production facilities.
Manufactured, modular and site-built homes are all built with
particleboard, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks.
Belmont uses materials in its manufactured homes that meet HUD standards for
formaldehyde emissions and that otherwise comply with HUD regulations in this
regard. In addition, certain components of manufactured homes are subject to
regulation by the CPSC which is empowered to ban the use of component materials
believed to be hazardous to health and to require, through HUD regulations, the
manufacturer to repair defects in components of its homes. The CPSC, the
Environmental Protection Agency and other governmental agencies have in the past
evaluated the effects of formaldehyde. Regulations of the Federal Trade
Commission also require disclosure of a manufactured home's insulation
specifications.
The transportation of manufactured homes on highways is subject to
regulation by various federal, state and local authorities. Such regulations may
prescribe size and road use limitations and impose lower than normal speed
limits and various other requirements.
Belmont's manufactured homes are also subject to local zoning and
housing regulations. A number of states require manufactured home producers to
post bonds to ensure the satisfaction of consumer warranty claims, but no claims
have been made against Belmont with respect to these bonds. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation and must be
complied with by the dealer or other person installing the home.
Belmont is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act which regulates the descriptions of warranties on
products. The description and substance of Belmont's warranties are also subject
to a variety of state laws and regulations.
Belmont's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation, disposal and discharge of materials into the environment.
Governmental authorities have the power to enforce compliance with these
regulations, and violations may result in the payment of fines or the entry of
injunctions, or both. Furthermore, the requirements of such environmental laws
and enforcement policies have generally become stricter in recent years.
Belmont believes that it is currently in compliance in all material
respects with applicable laws relating to the generation, storage, handling,
emission, transportation and discharge of materials into the environment. See
"RISK FACTORS -- Compliance with Environmental Laws."
TRADEMARKS
Belmont has applied with the United States Patent and Trademark office
to register "Belmont Homes," and "Spirit Homes," as trademarks. Belmont's
management believes that the "Belmont Homes" and "Spirit Homes" marks have
significant value and are important factors in marketing Belmont's products.
81
<PAGE> 93
LEGAL PROCEEDINGS
Belmont is, from time to time, a party to litigation which arises in
the normal course of its business. Belmont does not have pending any litigation
that, separately or in the aggregate, is currently expected to have a material
adverse effect on the operating results or financial condition of Belmont. See
"RISK FACTORS -- Litigation."
EMPLOYEES
As of September 7, 1997, Belmont employed 1,885 full-time employees
involved in the following functional areas: manufacturing, 1,647;
transportation, 46; sales, 31; field service, 49; administration and clerical,
94; and management, 18. Belmont's manufacturing operations require primarily
semi-skilled labor, and the personnel levels fluctuate with seasonal changes in
production volume. Belmont believes that it has a good relationship with its
employees. None of Belmont's employees is covered by a collective bargaining
agreement, and Belmont has never experienced any work stoppage.
PROPERTIES
Belmont produces its manufactured homes in eight facilities, four of
which are located in Mississippi, two of which are located in Arkansas and two
of which are located in Georgia. The Company's facilities generally operate on a
one shift per day, five days per week basis, 50 weeks per year. A production
manager oversees operations in each facility with the assistance of five to
eight foremen, each of whom is responsible for a particular stage of the
production process. The following table provides certain information with
respect to the Company's manufacturing facilities:
<TABLE>
<CAPTION>
Date Opened
Facility Or Acquired Square Feet Capacity (1)
- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Belmont, MS 1 March 1998 77,000 1,750
2 December 1993 80,000 2,500
3 March 1995 104,000 4,100
Clarksdale, MS 1 August 1995 86,000 2,000
Conway, AR 1 June 1996 110,000 3,400
2 September 1996 110,000 3,400
Millen, GA 1 October 1996 66,000 2,000
2 October 1996 56,000 1,500
TOTAL 689,000 20,650
======= ======
</TABLE>
- ---------------
(1) Capacity figures are estimates of management on the basis of one
shift per day, five days per week, 50 weeks per year.
Belmont's production facilities are clustered, which allows management
to minimize the duplication of personnel necessitated by having production
facilities located in different states or regions, enhance quality control and
reduce start-up costs of additional facilities. Belmont believes it realizes
specific cost savings by having one purchasing staff responsible for the
procurement, handling and storage of inventory for its clustered production
facilities. Additionally, Belmont is able to utilize one sales staff for each
cluster of its facilities. Manufacturers generally provide dealers with their
products within a limited radius based upon the cost of transporting the home to
the dealer. Belmont's management believes that the cost savings resulting from
Belmont's centralized operations and transportation arrangements permit Belmont
to expand the radius of its dealer network and still offer its homes at
competitive prices.
82
<PAGE> 94
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BELMONT
RESULTS OF OPERATIONS
Belmont achieved record sales and profits in 1996 due to management's
plant expansion strategy, a growing manufactured housing industry and the
acquisition of Bellcrest during the fourth quarter. Gross sales increased 55% to
$234.1 million from $150.6 million the previous year, following a 40% increase
in 1995. Net income in 1996 increased 41% to $12.1 million compared to $8.6
million in 1995.
The manufactured housing market historically has been highly cyclical
and seasonal and is influenced by many of the same national and regional
economic and demographic factors which affect the overall housing market,
including availability of financing, regional employment trends, consumer
confidence and availability of alternative housing. Management believes
long-term industry growth is, and will continue to be, most affected by the
affordability of manufactured housing relative to site-built housing. According
to the Manufactured Housing Institute, industry shipments grew 7% to 363,411
homes in 1996, the fifth consecutive year of growth. Industry shipments
increased 12% in 1995 and 20% in 1994. Belmont's shipments continued to exceed
the industry, increasing 42% to 11,103 homes in 1996; following gains of 29% in
1995 and 46% in 1994. However, monthly industry shipments declined 5.5% in
November 1996 and 4.5% in December 1996 compared to same month sales in 1995.
The November 1996 decline was the first monthly decline since December 1991.
Belmont Management believes that this decline in fourth quarter shipments
represents a return to the seasonality historically present in the manufactured
housing industry. Belmont expects that this seasonality will be present in the
fourth quarter of 1997.
During the fourth quarter of 1996, although Belmont's shipment of homes
increased 5% to 2,905 homes (primarily as a result of Belmont's acquisition of
Bellcrest in October 1996 and its higher mix of multi-section homes), when
compared to sales of 2,766 homes in the fourth quarter of 1995, sales of
Belmont's single-section homes decreased 12.5% during the fourth quarter of 1996
to 2,000 homes, when compared to sales of 2,287 single-section homes in the
fourth quarter of 1995.
Management believes that industry conditions have recently become more
competitive and seasonal. Management of Belmont believes that this increased
competition is primarily the result of the increasing number of manufacturers
and plants operating in the industry, together with a related increase in the
number of independent and other retail dealers operating in Belmont's territory.
The return of seasonality is consistent with historical trends present in the
industry. Management also believes, based upon recent trends, that the
multi-section segment of the industry has become more competitive among
manufacturers and more attractive to purchasers of manufactured housing.
Management believes that this increased competition and return to seasonality
could adversely effect Belmont's future sales and results of operations.
During the fourth quarter of 1996 Belmont acquired Bellcrest, a
manufactured housing company headquartered in Millen, Georgia for $9.5 million
in cash and $3.5 million in potential incentive payments based on future
operating criteria. In the fourth quarter of 1995, Belmont acquired Spirit
Homes, Inc. a manufactured housing company in Conway, Arkansas for $9.8 million
in cash and notes.
83
<PAGE> 95
The following table sets forth information derived from Belmont's
historical financial statements.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Year Ended
September 30 September 30 December 31,
---------------------------------------------------------------------------------
1997 1996 1997 1996 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Less: dealer rebates 4.1 2.3 4.2 2.3 2.7 1.5 1.5
----- ----- ----- ----- ----- ----- -----
Net sales 95.9 97.7 95.8 97.7 97.3 98.5 98.5
Cost of sales 86.1 84.6 86.2 84.6 84.5 84.5 83.7
Gross profit 9.8 13.1 9.6 13.1 12.8 14.0 14.8
Selling, general and
administrative 6.9 4.0 6.2 4.3 4.6 4.7 4.8
Income from operations 2.9 9.1 3.4 8.8 8.2 9.3 10.0
Interest income (expense),
net .1 .3 -- .2 .2 (.2) (1.0)
Officer's life insurance -- -- .8 --
Income taxes 1.2 3.6 1.3 3.4 3.2 3.4 3.1
Net Income (1) 1.8 5.8 2.9 5.6 5.2% 5.7% 5.9%
</TABLE>
- --------------
(1) Includes nonrecurring proceeds of $1.5 million received by Belmont
pursuant to an officer's life insurance policy.
Industry conditions in Belmont's market territory remained competitive
due to an increase in the number of dealers and manufacturing plants in, or
selling to, Belmont's market territory. In response, Belmont realigned its
manufacturing operations at the end of the second quarter of 1997, idling one
plant each at its Belmont and Spirit plant clusters and closing a leased plant
at Spirit, which was rented on a month-to-month basis. There was no severance
paid as a result of this realignment and Belmont charged to expense all costs
related to this action, which consisted primarily of $299 thousand for the
write-off of leasehold improvements at the closed plant. The two idled plants
may be reopened as market conditions improve.
Gross sales for the three months ended September 30, 1997 decreased by
1% to $56.9 million from $57.5 million for the three months ended September 30,
1996 due to a $14.5 million decline in gross sales at the Belmont and Spirit
operations. These declines were offset in part by the contribution of Belmont's
Bellcrest subsidiary which was acquired during the fourth quarter of 1996. The
number of homes sold during the quarter decreased 10% to 2,477 homes from 2,741
in the third quarter of 1996. Multi-sectional homes increased to 38.2% of homes
sold during the third quarter of 1997 from 22.9% in the same quarter of 1996,
due primarily to sales at Bellcrest whose multi-sectional mix was 73% for the
quarter. The average price of a home sold increased 14.2% to $22,984 in the
third quarter of 1997 from $20,982 in 1996 due, in part, to the higher mix of
multi-sectional homes sold by Belmont during the quarter.
Dealer rebates for the three months ended September 30, 1997 increased
76% to $2.4 million from $1.3 million for the three months ended September 30,
1996 due to increases in existing dealer rebate programs and to the inclusion of
Bellcrest which was acquired during the fourth quarter of 1996. Belmont's
management believes the number of dealers and manufacturers in its market
territory has increased and expects these higher rebate allowances to continue.
Cost of sales includes costs of raw materials, direct labor, service
and warranty expense, insurance and payroll taxes. Cost of sales during the
third quarter of 1997 increased 1% to $49 million from $48.6 million for the
third quarter of 1996. Cost of raw materials and direct labor, which are two of
the largest components of cost of sales, were $34.7 million and $7.3 million,
respectively, for the third quarter of 1997 compared to $37 million and $6.7
million, respectively, for the third quarter of 1996. The $2.3 million decrease
in raw materials is due primarily to the higher mix of multi-section homes
during the quarter which as a percentage of sales value have a lower material
content. The $0.6 million increase in direct labor is due primarily to higher
labor at operations where plants were idled and closed as these operations
adjusted to new mixes of homes and shorter production runs. As a percentage of
gross sales, cost of sales for the third quarter of 1997 increased to 86.1% from
84.6% in the third quarter of 1996, due to (i) the $0.6 million increase in
direct labor, (ii) a $0.7 million increase in supervisory salaries to $1.7
million for the third quarter of 1997 from $1.0 million in the third quarter of
1996 of which $.5 million is due to increased incentive compensation including a
$.2 million payment to the estate of Belmont's former President and CEO who died
in May 1997, and (iii) a $1 million increase in service and warranty to $2.5
million in the third quarter of 1997 from $1.5 million in the third quarter of
1996, of which $0.2 million pertains to Belmont's Spirit operations which
continues to experience increasing levels of warranty service, a $0.2 million
increase in the warranty accrual in response to the continuing higher service at
Spirit and the inclusion of Bellcrest which was acquired during the fourth
quarter of 1996.
Selling, general and administrative expenses for the third quarter of
1997 increased 70% to $3.9 million in the third quarter of 1997 from $2.3
million in the third quarter of 1996.
84
<PAGE> 96
As a percentage of gross sales, selling, general and administrative expenses
increased to 6.9% for the third quarter of 1997 from 4% for the third quarter of
1996 due primarily to increases in selling and administrative salaries and
commissions and the inclusion of Bellcrest which was acquired during the fourth
quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Gross sales for the nine months ended September 30, 1997 increased 5%
to $179.6 million from $170.6 million for the nine months ended September 30,
1996 due to the acquisition of Bellcrest which was acquired during the fourth
quarter of 1996. The number of homes sold decreased 2% to 8,020 in 1997 from
8,198 in 1996. Multi-section homes increased to 34.7% of homes sold during the
nine months ended September 30, 1997 from 24% in the prior year period due to
the higher such mix of homes at Bellcrest whose multi-section mix was 68% in
1997. The average price of a home sold increased 6.7% to $22,391 in the nine
months ended September 30, 1997 from $20,815 for the comparable period in the
prior year due in part to the higher mix of multi-section homes.
Dealer rebates for the nine months ended September 30, 1997 increased
92% to $7.5 million from $3.9 million for the nine months ended September 30,
1996 due to increases in existing dealer rebate programs and to the inclusion of
Bellcrest which was acquired during the fourth quarter of 1996. Belmont's
management believes the number of dealers and manufacturers in its market
territory has increased and expects these higher rebate allowances to continue.
Cost of sales for the nine months ended September 30, 1997 increased
7.3% to $154.9 million from $144.3 million for the nine months ended September
30, 1996. Costs of raw materials and direct labor increased to $112.1 million
and $21.9 million, respectively, in 1997 from $108.6 million and $19.8 million,
respectively, in 1996 primarily as a result of increased sales volume and in
addition, for direct labor, for increases due to higher labor for Belmont's
operations which idled and closed plants at the end of the second quarter due to
reduced orders. As a percentage of gross sales, cost of sales for the nine
months ended September 30, 1997 increased to 86.2% from 84.6% due primarily to
(i) increased direct labor, (ii) a $1.5 million increase in salaries and wages
to $4.9 million during the nine months ended September 30, 1997 from $3.5
million for the comparable period of the prior year due in part to the inclusion
of Bellcrest, which was acquired during the fourth quarter of 1996, and (iii) a
$1.1 million increase in warranty costs to $6.6 million for the nine months
ended September 30, 1997 from $5.6 million in the comparable period of the prior
year due to increases in warranty as a result of the inclusion of Bellcrest in
1997 and to an approximate $.5 million increase at Belmont's Spirit operations.
These increases as a percent of gross sales were offset in part by a decrease in
raw materials to 62.4% for the nine months ended September 30, 1997 from 63.6%
for the prior year period due primarily to the higher mix of multi-sectional
homes which have a lower raw material content as a percent of gross sales value.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 increased 50% to $11.1 million from $7.4 million in the
comparable period of the prior year. As a percentage of gross sales, selling,
general and administrative expense increased to 6.2% for the nine months ended
September 30, 1997 from 4.3% for the nine months ended September 30, 1996 as a
result of a $1.3 million increase in selling and administrative salaries and
commissions to $5.8 million for the nine months ended September 30, 1997 from
$4.5 million for the comparable period of the prior year and to the inclusion of
Bellcrest, which was acquired during the fourth quarter of 1996.
Interest expense for the nine months ended September 30, 1997 was $432
thousand compared to $75 thousand for the nine months ended September 30, 1996
due primarily to additional borrowings supporting the Bellcrest acquisition
during the fourth quarter of 1996. In September 1997, the Company paid in full
all of its outstanding borrowings.
Income tax expense for the nine months ended September 30, 1997 was
$2.4 million or an effective tax rate of 31.5% compared to $5.8 million for the
nine months ended September 30, 1996 or an effective tax rate of 38%. The
differences in these effective rates is primarily attributable to the receipt
during the second quarter of 1997 of proceeds equal to $1.5 million pursuant to
an officer's life insurance policy, which amount is not taxable.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995
Gross sales increased 55.4% in 1996 to $234.1 million from $150.6
million in 1995, on a volume increase of 41.6%. Homes sold increased 3,264 units
to 11,103 in 1996 from 7,839 in 1995. The majority of this volume increase
results from Spirit Homes which opened two new plants during the second half of
1996. In addition, approximately 14% or 458 homes are from the acquisition of
Bellcrest during the fourth quarter of 1996. Multi-sectional homes increased to
25.8% of homes sold in 1996 from 17% in 1995. The average price of a
multi-section home in 1996 was $30,687
85
<PAGE> 97
compared with $30,583 in the prior year. Single-section homes increased 5.1% in
average price to $17,731 in 1996 from $16,874 in 1995 due to price and mix
changes.
Dealer rebates increased 170% to $6.2 million in 1996 from $2.3
million in the prior year due primarily to the higher level of rebates for
Spirit Homes which was acquired during the fourth quarter of 1995 and to volume
increases for existing rebate programs. Belmont's management believes the
number of dealers and manufacturers in its market territory has increased and
expects these higher rebate allowances to continue.
Cost of sales includes costs of raw materials, direct labor, service
and warranty expense, insurance and payroll taxes. Cost of sales increased 55.5%
to $197.8 million in the current year from $127.2 million in 1995. Cost of raw
materials and direct labor, which are two of the largest components of cost of
sales, increased in 1996 to $148.2 million and $26.9 million, respectively, from
$98.6 million and $16.5 million in 1995. As a percentage of gross sales, cost of
sales was 84.5% for both 1996 and 1995.
Selling, general and administrative expenses increased 52% to $10.8
million in 1996 from $7.1 million in the prior year. Selling, general and
administrative expense was 4.6% of gross sales in 1996 compared to 4.7% in the
prior year. Selling expenses include commissions, advertising expenses, salaries
for sales support personnel and sales incentives. General and administrative
expenses include administrative salaries, bonuses, insurance costs, professional
fees and goodwill amortization.
Interest expense declined to $285 thousand in 1996 from $825 thousand
in 1995 due primarily to the effect of debt reduction from the use of proceeds
of Belmont's secondary sale of stock in January 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Gross sales increased 40.2% in 1995 to $150.6 million from $107.4
million in 1994, on a volume increase of 29.2%. Homes sold increased 1,773 units
to 7,839 in 1995 from 6,066 in 1994. This volume increase results from the
opening in March 1995 of Belmont's fourth and largest plant at its Belmont
cluster, the addition of a fifth plant purchased in August 1995 in Clarksdale,
Mississippi, and the acquisition of Spirit Homes whose sales, from acquisition
in October 1995, of 650 homes represent 37% of the total 1995 volume increase.
The average price of a single-section home increased 8.3% to $16,874 in 1995
from $15,575 in the prior year while the average price of a double section home
increased 8.4% to $30,583 from $28,218 in 1994. These increases in average price
result from both price and mix changes, including the sale of higher priced
vinyl siding and wind zone homes in 1995 not available in 1994.
Dealer rebates increased 44% to $2.3 million in 1995 from $1.6 million
in the prior year due primarily to volume increases.
Cost of sales increased 41.4% to $127.2 million in 1995 from $89.9 in
1994. Cost of raw materials and direct labor, which are two of the largest
components of cost of sales, increased in 1995 to $98.6 million and $16.2
million, respectively, from $71.2 million and $10.7 million in 1994. As a
percentage of gross sales, cost of sales for 1995 increased to 84.5% from 83.7%
due primarily to the higher manufacturing costs for Spirit Homes. Additionally,
slightly higher manufacturing costs were incurred during 1995 as a result of the
start up of two plants.
Selling, general and administrative expenses increased 39% to $7.1
million in 1995 from $5.1 million in 1994, primarily as a result of higher sales
commissions from increased sales. Selling, general and administrative expense
was 4.7% of gross sales in 1995 compared to 4.8% in 1994.
Interest expense declined to $825 thousand in 1995 from $1.2 million in
1994 primarily due to the effect of debt reduction from the use of proceeds of
Belmont's initial public stock offering in June 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Belmont has financed its operations and capital
requirements through debt borrowings and internally generated funds. Capital
requirements have arisen primarily in connection with the expansion of
production capacity and the increased working capital needs that have
accompanied sales growth. In June 1995, Belmont raised approximately $15.3
million in net cash proceeds from the initial sale of stock to the public. The
net proceeds were used to repay all then existing, outstanding long-term debt
and to redeem all outstanding preferred stock including preferred stock
dividends. In October 1995, Belmont acquired all of the outstanding stock of
Spirit for $2.4 million in cash, the issuance of $7.4 million of notes to the
former shareholders and the assumption of certain indebtedness including $3
million for an Industrial Development Bond issue for the construction of two new
plants. In January 1996, Belmont raised approximately $11.7 million in net cash
proceeds from a secondary public offering of its stock and used $10.4 million to
retire the Spirit notes and bond. In October 1996, Belmont acquired all of the
stock of Bellcrest for $9.5 million in cash at closing and $3.5 million in
potential incentive payments based on future performance criteria. Belmont
86
<PAGE> 98
financed this purchase through the use of existing cash resources including the
borrowing of $5 million under its principal bank credit line.
Cash and equivalents including certificates of deposit were $13.1
million at September 30, 1997 compared to $13.3 million at year end December 31,
1996.
Net cash provided by operating activities was $11.4 million for the
nine months ended September 30, 1997 compared to $10.4 million for the nine
months ended September 30, 1996 due in part to a $1.2 million increase in
depreciation and amortization (including the write off of leasehold improvements
at the closed Spirit plant) to $2.4 million for the nine months ended September
30, 1997 from $1.2 million in the comparable period of the prior year. Accounts
receivable are funded by approved dealer floor-plan financing and usually are
collected within 15 days, except in periods when extended terms are granted to
promote sales. All homes are manufactured against orders, and currently, no
homes are produced for inventory.
Belmont utilized $1.2 million for the purchase of property, plant and
equipment during the nine months ended September 30, 1997 compared with $4.8
million during the nine months ended September 30, 1996. Expenditures during
1996 were primarily for the addition of two plants at Spirit. In addition,
during 1996 Belmont utilized $2.5 million for investment in two raw material
supply joint ventures which produce passage doors, paneling and cabinet doors.
Belmont's financing activities used $10.4 million in cash for the
repayment of all short and long-term debt during the nine months ended September
30, 1997 compared with providing $3.7 million during the comparable period of
the prior year. In January 1996, Belmont raised approximately $11.7 million in
net cash proceeds from the secondary sale of stock to the public and used $10.9
million of these proceeds to retire outstanding debt.
Net cash provided by operating activities increased to $10.7 million in
1996 from $8.5 million in 1995 and $6.2 million in 1994. Changes in working
capital accounts relate primarily to the increases in sales volume. The change
in accounts payable relates primarily to the timing of payments to vendors.
Net cash used by investing activities was $17.6 million in 1996,
compared to $13.1 million in 1995 and $1.0 million in 1994. In 1996, an
additional $1.5 million (net) was invested in certificates of deposit maturing
within one year compared to $6.7 million (net) in 1995. Net capital expenditures
were $5.9 million in 1996, $5.4 million in 1995 and $1.3 million in 1994. Net
capital expenditures relate primarily to plant expansion including two new
plants opened by Spirit Homes in 1996 and two plants added to the Belmont
cluster in 1995. In addition, during 1996 Belmont utilized $2.5 million for
investment in two raw material supply joint ventures which will produce passage
doors, paneling and cabinet doors.
Belmont's principal credit line is a $10 million facility that expires
in May 1998. Borrowings bear interest at the bank's prime rate or LIBOR plus
2.65% and are secured by substantially all the assets of Belmont. Currently,
Belmont has no outstanding debt under this credit line and does not anticipate
that any funds will be borrowed through December 31, 1997.
Belmont believes that existing cash balances, cash flow from operations
and the additional availability under its lines of credit will be adequate to
fund its operations through 1997.
Belmont's backlog at September 30, 1997 was $12.8 million for 774
floors compared to $23.5 million for 1,485 floors at September 30, 1996.
Belmont's backlog at December 31, 1996 was $8.4 million for 505 floors compared
to $14.5 million for 975 floors at December 31, 1995.
There are no new accounting pronouncements the adoption of which would
have a material effect on Belmont's financial condition or results of
operations.
DIRECTORS AND EXECUTIVE OFFICERS OF BELMONT
A. Douglas Jumper, Sr., 65, has served as a director of Belmont since
June 1993 and as Chairman of the Board since July 1993. Mr. Jumper has been the
President and co-owner of S&J Steel Builders, Inc. of Booneville, Mississippi
since 1963. Mr. Jumper is a director of BancorpSouth, Inc., a bank holding
company headquartered in Tupelo, Mississippi, and River Oaks Furniture, Inc., a
furniture manufacturer headquartered in Belden, Mississippi.
John W. Allison, 51, has served as Vice-Chairman of the Board of
Directors of Belmont since September 5,
87
<PAGE> 99
1997. Prior to such time, Mr. Allison served as Acting President and Chief
Executive Officer of Belmont from March 31, 1997 until September 5, 1997, and
served as President of Spirit Homes, Inc., a wholly-owned subsidiary of Belmont,
from January 1986 until September 5, 1997. Mr. Allison has been a director of
Belmont since October 1995, and has been a member of the Executive Committee of
the Board of Directors since March 31, 1997. Mr. Allison is a director of First
Commercial Bank of Arkansas, a bank headquartered in Little Rock, Arkansas, and
a director of First National Bank of Conway, a bank headquartered in Conway,
Arkansas.
G. Hiller Spann, 50, has served as President and Chief Executive
Officer of Belmont since September 5, 1997, and as President of Bellcrest Homes,
Inc., a wholly-owned subsidiary of Belmont, since 1987.
Thomas D. Keenum, Sr., 59, has served as Secretary/Treasurer, General
Counsel and a director of Belmont since July 1993. Mr. Keenum is a partner in
Keenum & Tutor, P.A., in Booneville, Mississippi, where he has practiced law
since 1968. Mr.-Keenum is a director of River Oaks Furniture, Inc., a furniture
manufacturer headquartered in Belden, Mississippi.
Mike Kennedy, 37, has served as Senior Vice President of Administration
of Belmont since September 5, 1997. Mr. Kennedy was elected a director of
Belmont on July 31, 1997. Prior to September 5, 1997 and since March 31, 1997,
Mr. Kennedy served as Acting Senior Vice President of Administration of Belmont.
Prior to such time and since October 1993, Mr. Kennedy served Belmont in various
capacities. From March 1990 until October 1993, Mr. Kennedy was a sales
representative for Fabwell, Inc., a metal fabricating company.
Roger D. Moore, 49, has served as Director of Sales and Marketing since
April 1995 and a director of Belmont since December 1987. From December 1987
until April 1995, Mr. Moore served as Sales Manager of Belmont.
Don D. Murphy, 54, has served as a director of Belmont since June 1993.
Mr. Murphy is general manager of WBIP, a radio station in Booneville,
Mississippi owned by Community Broadcast Services of Mississippi, Inc. From 1988
until 1995, Mr. Murphy was Vice President and co-owner of WBIP Broadcasting
Company. Mr. Murphy is a director of River Oaks Furniture, Inc., a furniture
manufacturer headquartered in Belden, Mississippi.
J. M. Page, 71, has served as a director of Belmont since 1990.
Mr. Page is the owner of Page Chevrolet, an automobile dealership in Red Bay,
Alabama, and of Page Motors, an automobile dealership in Iuka, Mississippi.
Mr. Page is also a director of Colonial Bank, Red Bay, Alabama.
Hollis D. Sparks, 62, has served as a director of Belmont since
September 1996, when he was elected to fill the vacancy created by the
resignation from the Board of Directors of Aubrey Burns Patterson. Mr. Sparks
has served as Chairman of the Board and President of Sparko Inc. ("Sparko")
since 1964. Sparko is a holding company currently engaged in real estate and
other investment activities.
William M. Kunkel, 48, has served as Belmont's Vice President and Chief
Financial Officer since March 31, 1997. Prior to such time, Mr. Kunkel served as
Vice President of Finance since January 30, 1995. From October 1994 until
joining Belmont, he served as Interim Chief Financial Officer of Concept
Technologies Group, Inc., a manufacturer of audio speakers in Knoxville,
Tennessee. From April 1994 until October 1994, he served as Chief Financial
Officer of Lansinoh Laboratories, Inc., a manufacturer of skin-care products in
Oak Ridge, Tennessee. From March 1993 until April 1994, he served as a
consultant to Concept Technologies Group. From April 1989 until August 1993, he
served as Executive Vice President and Chief Financial Officer of Knox
International Corporation, a direct marketer of horticulture products in
Knoxville, Tennessee.
Keith Kennedy, 40, has served as Senior Vice President of Manufacturing
of Belmont since September 5, 1997. Prior to such time and since March 31, 1997,
Mr. Kennedy served as Acting Senior Vice President of Manufacturing. Prior to
such time and since March 1994, Mr. Kennedy served Belmont in various
capacities. From September 1981 until March 1994, Mr. Kennedy was the Director
of Purchasing and Quality Control of Sunshine Mills, Inc., a manufacturer of pet
food.
Mr. Jumper and Mr. Keenum are first cousins. Mike Kennedy and Keith
Kennedy are brothers. There are no other family relationships between any
directors or executive officers of Belmont.
88
<PAGE> 100
OWNERSHIP OF BELMONT SHARES
The following table sets forth, as of November 1, 1997, the Belmont
Shares beneficially owned by (i) holders of more than five percent of the
outstanding Belmont Shares known to the Company, (ii) each of the directors of
Belmont, (iii) Belmont's named executive officers, individually, and (iv) all
directors and executive officers of Belmont as a group, together with the
percentage of the outstanding shares which such ownership represents.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of Class
NAME OF BENEFICIAL OWNER Owned(1) (2)
- ------------------------ ------------ ----------------
<S> <C> <C>
John W. Allison.................................................... 140,250 1.5%
A. Douglas Jumper, Sr.(3).......................................... 658,437 6.9
Mike Kennedy....................................................... 71,750 *
Keith Kennedy...................................................... 66,000 *
Thomas D. Keenum, Sr.(4)........................................... 316,500 3.3*
William M. Kunkel.................................................. 45,000 *
Roger D. Moore..................................................... 24,225 *
Don D. Murphy...................................................... 150,604 1.6
J.M. Page.......................................................... 304,171 3.2
Hollis D. Sparks................................................... 4,500 *
G. Hiller Spann.................................................... 0 *
Franklin Resources, Inc.(5)........................................ 986,150 10.4
Estate of Jerold Kennedy(3). ...................................... 883,012 9.3
FMR Corp. (6)...................................................... 769,050 8.1
Kennedy Capital Management, Inc.(7)................................ 758,275 8.0
Oppenheimer Funds, Inc.(8)......................................... 630,000 6.6
Thomson Horstmann & Bryant, Inc.(9)................................ 651,150 6.9
All directors and executive officers as a group (11 persons)....... 1,781,437 18.4
</TABLE>
- -----------------
* Represents beneficial ownership of less than 1% of the outstanding
shares of the Company's common stock.
(1) Based upon information furnished to the Company or filed with the
Securities and Exchange Commission by the listed persons and, for each
executive officer and director of Belmont, includes all shares subject
to stock options that will become fully vested for the thirty day
period beginning on the day the shareholders of Belmont vote to approve
the Merger Agreement and the Merger, if any.
(2) Computation based upon approximately 9,466,486 shares outstanding on
November 1, 1997.
(3) The address of the Estate of Jerold Kennedy and of Mr. Jumper is
Highway 25 South, Industrial Park Drive, Belmont, Mississippi 38827.
(4) Includes 39,624 shares owned by Thomas D. Keenum, Jr., of which
Mr. Keenum, Sr. has voting control. Also includes 170,719 shares owned
by a trust for the benefit of Mr. Keenum's spouse, as to which Mr.
Keenum disclaims beneficial ownership.
(5) Franklin Advisers, Inc. and Franklin Advisory Services, Inc.,
subsidiaries of Franklin Resources, Inc., have the sole voting power of
826,150 and 160,000 of these shares, respectively. The address of these
entities is 777 Mariners Island Boulevard, San Mateo, California 94404.
(6) Fidelity Management & Research Company, a wholly-owned subsidiary of
FMR Corp. and a registered investment advisor, is the beneficial owner
of 762,750 of these shares. Fidelity Management & Trust Company, a
wholly-owned subsidiary of FMR Corp. and a bank under the Securities
Exchange Act of 1934, is the beneficial owner of 6,300 of these shares.
The address of these entities is 82 Devonshire Street, Boston
Massachusetts 02109.
(7) Kennedy Capital Management, Inc. has sole voting power of 565,975 of
these shares, and sole dispositive power of all 758,275 of these
shares. The address of this entity is 10829 Olive Boulevard, St. Louis,
Missouri 63141. Kennedy Capital Management, Inc. is not related
directly or indirectly to the Estate of Jerold Kennedy or any of the
Kennedy family.
(8) The shares are owned by registered investment companies managed by
Oppenheimer Funds, Inc., a registered investment advisor. The address
of this entity is Two World Trade Center, Suite 3400, New York, New
York 10048-0203.
(9) Thomson Horstmann & Bryant, Inc., a registered investment advisor, has
sole voting power of 416,150 of these shares, shared voting power of
13,500 of these shares, and sole dispositive power of all 651,150 of
these shares. The address of this entity is Park 80 West, Plaza Two,
Saddle Brook, New Jersey 07663.
89
<PAGE> 101
LEGAL MATTERS
Certain legal matters with respect to the Cavalier Shares offered hereby
(including the validity thereof) will be passed upon for Cavalier by Bradley
Arant, counsel to Cavalier.
Certain tax matters in connection with the Merger as discussed under
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER" will also be passed upon
by Bradley Arant.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Joint Proxy Statement and Prospectus by reference from the
Cavalier Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given their authority as experts in
accounting and auditing.
It is anticipated that a representative of Deloitte & Touche, LLP will be
present at the Cavalier Special Meeting, will have an opportunity to make a
statement and will respond to appropriate questions.
The consolidated financial statements of Belmont as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996 have been included herein and in the Registration Statement in reliance on
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
It is anticipated that a representative of KPMG Peat Marwick LLP will be
present at the Belmont Special Meeting, will have an opportunity to make a
statement and will respond to appropriate questions.
The statement of income of Bellcrest Homes, Inc. for the year ended
December 31, 1995 has been included herein and in the Registration Statement in
reliance on the report of Alday, Tillman, Wright & Giles, P.C., independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
OTHER MATTERS
As of the date of this Joint Proxy Statement and Prospectus, neither the
Belmont Board nor the Cavalier Board knows of any other matters to be presented
for action by Belmont shareholders or Cavalier stockholders at the respective
Special Meetings. If, however, any other matters not now known are properly
brought before the Special Meetings, the management of Belmont or Cavalier, as
the case may be, will vote upon the same according to their discretion and best
judgment.
PROPOSALS OF CAVALIER STOCKHOLDERS AND BELMONT SHAREHOLDERS
Stockholder proposals intended to be considered for inclusion in
Cavalier's proxy statement for presentation at the 1998 annual meeting of
Cavalier must have been received by Cavalier by November 26, 1997.
Shareholder proposals intended to be considered for inclusion in
Belmont's proxy statement for presentation at the 1998 annual meeting of Belmont
must be received by Belmont by December 31, 1997. If the Merger is consummated,
no 1998 annual meeting will be held.
90
<PAGE> 102
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BELMONT HOMES, INC.:
Independent Auditor's Report................................................................F-2
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996.....................F-3
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996............................................F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996............................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996............................................F-6
Notes to Consolidated Financial Statements.......................................F-7
Interim Unaudited Financial Statements:
Condensed Consolidated Quarterly Balance Sheet as of
September 30, 1997.........................................................F-21
Condensed Consolidated Quarterly Statements of Income
for the Periods ended September 30, 1996 and 1997..........................F-22
Condensed Consolidated Quarterly Statements of Cash Flows for the
the Periods ended September 30, 1996 and 1997..............................F-23
Notes to Condensed Consolidated Quarterly Financial Statements..................F-24
BELLCREST HOMES, INC.:
Independent Auditor's Report...............................................................F-25
Statement of Income for the year ended December 31, 1995........................F-26
Statement of Income for the nine-month period ended
September 30, 1996 (unaudited).............................................F-26
Notes to Financial Statements...................................................F-27
</TABLE>
F-1
<PAGE> 103
Independent Auditors' Report
The Board of Directors and Shareholders
Belmont Homes, Inc.:
We have audited the consolidated financial statements of Belmont Homes, Inc. and
subsidiaries as of December 31, 1995 and 1996 and for each of the years in the
three year period ended December 31, 1996 as listed in the accompanying index.
These consolidated financial statements are the responsibility of the management
of the Company. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Belmont Homes, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Jackson, Mississippi KPMG Peat Marwick LLP
February 21, 1997
F-2
<PAGE> 104
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, except for share information)
<TABLE>
<CAPTION>
December 31,
----------------
Assets 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,055 $ 5,070
Certificates of deposit maturing within one year, at cost
which approximates market 6,717 8,243
Accounts receivable 7,302 7,829
Inventories (Note 4) 7,425 13,020
Prepaid expenses and other 1,355 2,661
-------- --------
Total current assets 24,854 36,823
Property, plant and equipment, net (Note 5) 14,812 22,318
Goodwill and other assets, less accumulated amortization
of $855 and $1,359, respectively (Note 3) 10,402 20,214
-------- --------
$ 50,068 $ 79,355
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes and current portion of long-term debt (Notes 7 and 14) $ 4,600 $ 9,093
Trade accounts payable 3,665 3,461
Accrued expenses and other liabilities (Note 6) 5,552 10,744
-------- --------
Total current liabilities 13,817 23,298
Long-term debt (Notes 7 and 14) 6,919 1,303
Deferred income taxes (Note 8) 284 907
-------- --------
Total liabilities 21,020 25,508
-------- --------
Shareholders' equity (Notes 10, 11 and 14):
Preferred stock of no par value -- --
Common stock of $.10 par value. Authorized 20,000,000 shares;
issued and outstanding 5,455,000 and 9,466,500 shares,
respectively 546 947
Additional paid-in capital 15,087 27,372
Retained earnings 16,908 29,021
-------- --------
32,541 57,340
Adjustment to predecessor equity (3,493) (3,493)
-------- --------
Total shareholders' equity 29,048 53,847
-------- --------
Commitments and contingencies (Note 12)
$ 50,068 $ 79,355
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 105
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Gross sales $ 107,423 $ 150,576 $ 234,050
Less: dealer rebates 1,597 2,272 6,233
----------- ----------- -----------
Net sales 105,826 148,304 227,817
Cost of sales 89,902 127,165 197,801
----------- ----------- -----------
Gross profit 15,924 21,139 30,016
Selling, general and administrative expenses 5,134 7,061 10,799
----------- ----------- -----------
Income from operations 10,790 14,078 19,217
----------- ----------- -----------
Other expenses (income):
Interest expense (Note 13) 1,185 825 285
Interest income (123) (511) (705)
----------- ----------- -----------
1,062 314 (420)
----------- ----------- -----------
Income before income taxes 9,728 13,764 19,637
Income tax expense (Note 8) 3,349 5,154 7,524
----------- ----------- -----------
Net income 6,379 8,610 12,113
Dividends on preferred stock (81) (28) --
----------- ----------- -----------
Net income applicable to common shares $ 6,298 $ 8,582 $ 12,113
=========== =========== ===========
Net income per common share $ 1.20 $ 1.23 $ 1.29
=========== =========== ===========
Weighted average common shares outstanding 5,250,000 6,963,000 9,426,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 106
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Additional Adjustment
Common paid-in Retained to predecessor
stock capital earnings equity Total
----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Balance (deficit) at December 31, 1993 $ 350 $ -- $ 2,071 $ (3,493) $ (1,072)
Net income -- -- 6,379 -- 6,379
-------- -------- -------- -------- --------
Balance at December 31, 1994 350 -- 8,450 (3,493) 5,307
Initial sale of common stock to
public (Note 14) 196 15,087 -- -- 15,283
Dividends on preferred stock -- -- (152) -- (152)
Net income -- -- 8,610 -- 8,610
-------- -------- -------- -------- --------
Balance at December 31, 1995 546 15,087 16,908 (3,493) 29,048
Sale of common stock to public
(Note 14) 80 11,645 -- -- 11,725
Exercise of stock options 6 751 -- -- 757
Tax benefit from exercise of
stock options -- 204 -- -- 204
Three for two stock split 315 (315) -- -- --
Net income -- -- 12,113 -- 12,113
-------- -------- -------- -------- --------
Balance at December 31, 1996 $ 947 $ 27,372 $ 29,021 $ (3,493) $ 53,847
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 107
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,379 $ 8,610 $ 12,113
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 892 1,248 1,899
Deferred income taxes (85) (124) (292)
Changes in operating assets and liabilities,
net of effect of
acquisitions:
Accounts receivable (207) (2,300) 334
Inventories (328) (1,560) (3,339)
Prepaid expenses and refundable
income taxes (384) 665 (79)
Other assets (147) 165 (101)
Accounts payable (954) 661 (1,680)
Accrued expenses 1,082 1,178 1,806
-------- -------- --------
Net cash provided by operating activities 6,248 8,543 10,661
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,335) (5,447) (5,915)
Purchases of certificates of deposit (2,998) (8,717) (16,114)
Maturities of certificates of deposit 3,299 2,000 14,588
Acquisitions, net of cash acquired (Note 3) -- (2,377) (8,145)
Investment in and advances to joint ventures -- -- (2,511)
Cash restricted for construction -- 1,548 521
Other 30 (100) --
-------- -------- --------
Net cash used by investing activities (1,004) (13,093) (17,576)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes and long-term debt 6,500 -- 38
Repayments of notes and long-term debt (7,127) (12,957) (11,394)
Net borrowings on line of credit agreements -- -- 8,600
Retirement of preferred stock, including dividends -- (1,052) --
Preferred and common stock -- 15,283 12,686
-------- -------- --------
Net cash provided (used) by financing activities (627) 1,274 9,930
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,617 (3,276) 3,015
Cash and cash equivalents at beginning of year 714 5,331 2,055
-------- -------- --------
Cash and cash equivalents at end of year $ 5,331 $ 2,055 $ 5,070
======== ======== ========
Supplemental disclosure - interest paid $ 726 $ 1,125 $ 344
======== ======== ========
Supplemental disclosure - income taxes paid $ 3,802 $ 4,150 $ 6,529
======== ======== ========
Supplemental disclosure - non cash financing
transactions (See note 3).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 108
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except for share information)
(1) Basis of Presentation
Belmont Homes, Inc. ("Belmont"), incorporated in Mississippi
in June 1993, is a producer of a variety of single and double section
manufactured homes which are marketed primarily in the southern United
States. Belmont and its wholly-owned subsidiaries, Spirit Homes, Inc.,
Bellcrest Homes, Inc. and Delta Homes, Inc. (collectively, the
"Company") operate five production facilities in Mississippi, four
production facilities in Arkansas and two production facilities in
Georgia.
The consolidated financial statements include the accounts of
Belmont Homes, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation. These financial statements have been prepared in
conformity with generally accepted accounting principles. Accordingly,
management has made estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Material estimates that are particularly susceptible to change in the
near-term relate to determination of estimated costs for warranty
claims and promotional programs. Actual results could differ
significantly from those estimates.
(2) Summary of Significant Accounting Policies
(a) Cash Equivalents
Cash and cash equivalents includes demand deposits, savings
accounts and certificates of deposit with an original maturity of three
months or less.
(b) Accounts Receivable
The Company's gross sales and related accounts receivable
arise from customers in the manufactured housing industry in the
southern United States and are subject to credit risk inherent in the
industry. Credit is extended in the normal course of business under
normal trade terms. The Company has established an allowance of $37 at
December 31, 1995 and 1996, based upon the expected collectibility of
its receivables. Homes are manufactured to dealer orders and a sale is
recognized upon delivery of the home and the transfer of title.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of plant and equipment is calculated using the straight-line method
over the estimated useful lives of the assets.
(e) Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over
twenty-five years using the straight-line method.
F-7
<PAGE> 109
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If facts and circumstances indicate that goodwill may be
impaired, an assessment will be made by the Company to determine if a
writedown is required or if its estimated useful life should be
revised. The assessment will be based primarily on forecasted operating
income, including interest expense, depreciation and amortization other
than goodwill; supplemented if necessary by an independent appraisal of
fair value. The Company believes that no impairment of goodwill has
occurred and that no revision of its estimated useful life is required.
(f) Product Warranties and Volume Incentives
The Company warrants its homes against manufacturing defects
for a period of ninety days for plumbing and electrical components and
for one year on the basic home structure, commencing at the time of
sale by a dealer, and provides an allowance for warranty claims based
on experience and accumulated statistical data. Expenses related to
such claims are accrued currently as operating expenses based on an
estimate of claims to be incurred and the cost of repairs performed.
The Company awards volume incentive rebates to dealers using a
predetermined formula applied to certain models of homes purchased
during the rebate period. Rebates are paid semi-annually. Based on
management's estimate of rebates which will be earned during the rebate
period, the Company accrues for rebates earned but not paid. Related
costs are accrued currently based on estimates of revenue and the
number of homes sold.
Management believes the liabilities established for warranty
claims and dealer rebates at December 31, 1996 are adequate to cover
the ultimate related net costs, but the liabilities are necessarily
based on estimates and, accordingly, the amounts ultimately paid will
be more or less than such estimates.
(g) Income Taxes
The Company uses the asset and liability method in accounting
for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date. Additionally, recognition is required of deferred tax liabilities
and deferred tax assets for the deferred tax consequences of
differences between the assigned values and the tax bases of the assets
and liabilities recognized in a purchase business acquisition. The
income tax benefit resulting from purchased excess tax basis is
accounted for as a reduction of goodwill in the year realized.
(h) Stock Based Compensation
The Company accounts for its stock option plans in accordance
with the provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock Based Compensation", which
provides an alternative to the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and is
effective for the year which began January 1, 1996. As permitted by
SFAS 123, the Company will continue to account for its employee stock
plans in accordance with the provisions of APB 25 and provide expanded
disclosures as required under SFAS 123. Accordingly, SFAS 123 will not
have a significant impact on the Company's financial position or
results of operations.
F-8
<PAGE> 110
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Investment in Joint Ventures
The Company accounts for its investments in joint ventures
using the equity method. Financial results from the joint ventures are
recorded as a component of cost of sales in the accompanying
consolidated financial statements.
(j) Accounting Changes
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. This statement
requires that the majority of long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. Implementation of this
statement did not have a material impact on the Company's consolidated
financial statements.
Effective January 1, 1996 the Company adopted SFAS 123 as
described in (h) above.
(k) Net Income Per Share
Net income per share calculations are based on the weighted
average number of common shares and dilutive common share equivalents
outstanding during each period. All earnings per share data have been
adjusted for the three for two stock split declared on November 1,
1996.
(l) Reclassifications
Certain prior years' amounts have been reclassified to conform
to classifications used in 1996.
(3) Acquisitions
On October 24, 1996, in a transaction accounted for using the
purchase method of accounting, the Company completed its purchase of
100% of the stock of Bellcrest Homes, Inc. ("Bellcrest") through the
cash payment of $9,500.
The effects of the acquisition at the purchase date were as
follows:
<TABLE>
<S> <C>
Decrease in cash, net $7,145
Increase in other current assets 3,422
Increase in property, plant and equipment 3,525
Increase in goodwill and other assets 6,762
Increase in current liabilities 4,756
Increase in long-term debt and deferred income taxes 1,808
</TABLE>
The following unaudited pro forma data are provided for
comparative purposes and are not necessarily indicative of actual
results that would have been achieved had the acquisition of Bellcrest
been consummated at an earlier date and are not necessarily indicative
of future results. Assuming that the acquisition was consummated on
January 1, 1995 and January 1, 1996, respectively, unaudited pro forma
gross sales, net income and net income per common share, after giving
effect to certain adjustments, including amortization of
F-9
<PAGE> 111
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
goodwill and other assets, increased interest expense on debt related
to the acquisition, increased depreciation expense, and related income
tax effects, for the years ended December 31, 1995 and 1996 follow:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Gross sales $180,093 $265,374
Net income 8,736 12,204
Net income per common share 1.25 1.29
</TABLE>
In the event Bellcrest attains certain stated levels of
earnings before income taxes for the three-month period ended December
31, 1996 and for each of the years ending December 31, 1997 and 1998,
the Company is required to pay the former Bellcrest shareholders
additional consideration in an amount not to exceed $3,500 in the
aggregate. Any such additional amounts paid will be recorded as
goodwill in the period earned. Subsequent to December 31, 1996, the
Company paid $1,000, the amount earned and accrued for 1996, to the
former shareholders.
In conjunction with this acquisition, a former Bellcrest
shareholder was issued warrants for the purchase of 75,000 shares of
Belmont common stock. The warrants, which expire in October 2001, are
exercisable at $14.66 per share and their fair value at the issue date
was estimated to be negligible. None of these warrants have been
exercised as of December 31, 1996.
In August 1995 Belmont incorporated Delta Homes, Inc., a
wholly-owned subsidiary, and purchased for $450 a production facility
in Clarksdale, Mississippi.
In October 1995 Belmont acquired, in a transaction accounted
for using the purchase method of accounting, all the outstanding common
stock of Spirit Homes, Inc. for $9,500, consisting of cash of $2,450
and debt of $7,350.
The effects of the acquisition at purchase date were as
follows:
<TABLE>
<S> <C>
Decrease in cash, net $2,377
Increase in other current assets 5,708
Increase in property, plant and equipment 4,107
Increase in restricted cash 2,069
Increase in goodwill and other assets 5,505
Increase in current liabilities 8,009
Increase in long-term debt and deferred income taxes 7,003
</TABLE>
The following unaudited pro forma data are provided for
comparative purposes and are not necessarily indicative of actual
results that would have been achieved had the acquisition of Spirit
been consummated at an earlier date and are not necessarily indicative
of future results. Assuming that the acquisition was consummated on
January 1, 1994 and January 1, 1995, respectively, unaudited pro forma
gross sales, net income and net income per common share, after giving
effect to certain adjustments, including amortization of goodwill and
other assets, increased interest expense on debt related to the
acquisition, increased depreciation expense, and related income tax
effects, for the years ended December 31, 1994 and 1995 follow:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Gross sales $143,865 $187,018
Net income 6,730 8,961
Net income per common share 1.27 1.29
</TABLE>
During 1996 the Company acquired a 50% ownership interest in
Quality Housing Supply LLC (Quality), which manufactures gypsum and
laminated wallboard and various exterior and interior home doors. The
Company is entitled to purchase products from Quality and to share in
the earnings (losses) of the operation based on the relative purchases
of Quality product during 1996 and based on a 50/50 split thereafter.
Purchases made by the Company were $2,387 during 1996.
The Company also owns a 33% ownership interest in Ridge Pointe
Manufacturing LLC (Ridge Pointe), which manufactures a variety of
cabinet doors used in the Company's manufactured houses. The Company is
entitled to purchase products from Ridge Pointe, such purchases were
not material to the Company's 1996 consolidated financial statements.
At December 31, 1996, the Company's investment in Quality and
Ridge Pointe was approximately $2,611. Equity in the entities' results
of operations for 1996 was not material.
F-10
<PAGE> 112
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Raw materials $ 4,670 $ 9,702
Work in process 580 798
Finished homes 2,175 2,520
------- -------
$ 7,425 $13,020
======= =======
</TABLE>
(5) Property, Plant and Equipment
The components of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
Estimated
useful life 1995 1996
----------- ------- -------
<S> <C> <C> <C>
Land -- $ 873 $ 1,445
Land improvements 15 years 1,211 1,948
Buildings 40 years 6,448 11,798
Machinery, equipment and tools 3 - 7 years 2,986 7,683
Furniture, fixtures and equipment 3 - 7 years 445 708
Automotive equipment 5 years 1,097 1,466
Construction in progress -- 2,710 --
Cash restricted for construction 521 --
------- -------
16,291 25,048
Less accumulated depreciation (1,479) (2,730)
------- -------
$14,812 $22,318
======= =======
</TABLE>
(6) Accrued Expenses
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Warranty $ 1,465 $ 3,566
Dealer rebates and promotion 1,377 2,916
Salaries and estimated bonuses 1,057 1,561
Payable to former Bellcrest Homes, Inc. shareholders (note 3) -- 1,000
Income taxes 609 718
Other 1,044 983
------- -------
$ 5,552 $10,744
======= =======
</TABLE>
F-11
<PAGE> 113
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Notes and Long-Term Debt
Notes and long-term debt consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
(a) 9.25% note payable to bank, due April 1997 $ 170 $ 142
(b) 9.25% note payable to bank, due in monthly
instalments through January 1999 406 367
(c) 6% shareholder note, repaid in 1996 525 --
(d) Notes liquidated in February 1996 with proceeds of
secondary stock offering:
- 6% acquisition notes to former Spirit Homes, Inc.
shareholders 7,350 --
- Variable/Fixed Rate Industrial Development
Revenue Bonds 3,000 --
(e) Note payable to bank at prime plus .25%, due in
monthly instalments through March 2006 -- 1,065
(f) Amounts due under various line of credit agreements -- 8,600
(g) Amounts due under various capital leases 68 222
------- -------
Total notes and long-term debt 11,519 10,396
Less: current portion 4,600 9,093
------- -------
Long-term debt $ 6,919 $ 1,303
======= =======
</TABLE>
The Company has various lines of credit with banks totaling
$15,000 which expire at various dates through May 10, 1998. At
December 31, 1996 the Company had outstanding letters of credit of
$275 under one credit line issued to satisfy state bonding
regulations for service warranty. The Company's principal credit
line, a $10,000 facility, for which there was $5,000 outstanding
at December 31, 1996, bears interest at the bank's prime rate or
LIBOR plus 2.65%. Borrowings under the line are secured by
substantially all of the assets of Belmont. Restrictive covenants
require the maintenance of amounts and ratios of tangible net
worth and working capital.
F-12
<PAGE> 114
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Income Taxes
A reconciliation of actual income tax expense to the computed
"expected" tax expense follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
Percentage Percentage Percentage
of pre-tax of pre-tax of pre-tax
Amount income Amount income Amount income
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
"Expected" tax expense computed
at normal U. S. Federal
corporate tax rate $ 3,308 34.0% $ 4,679 34.0% $ 6,873 35.0%
State income taxes, net of
Federal benefit 271 2.8 416 3.0 687 3.5
State job credits (341) (3.5) (344) (2.5) (471) (2.4)
Other 111 1.1 403 3.0 435 2.2
------- ---- ------- ---- ------- ----
Actual tax expense $ 3,349 34.4% $ 5,154 37.5% $ 7,524 38.3%
======= ==== ======= ==== ======= ====
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
December 31, 1994:
Federal $3,275 $ 5 $3,280
State 159 (90) 69
------ ------ ------
$3,434 $ (85) $3,349
====== ====== ======
December 31, 1995:
Federal $4,910 $ (43) $4,867
State 368 (81) 287
------ ------ ------
$5,278 $ (124) $5,154
====== ====== ======
December 31, 1996:
Federal $7,040 $ (102) $6,938
State 776 (190) 586
------ ------ ------
$7,816 $ (292) $7,524
====== ====== ======
</TABLE>
F-13
<PAGE> 115
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are
presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 14 $ 14
Inventories, due to additional costs inventoried
for tax purposes 82 212
Accrued expenses, due to the timing of deduction 546 1,274
State jobs credit carry forward 91 385
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods 100 --
------- -------
Gross deferred tax assets 833 1,885
------- -------
Deferred tax liabilities:
Goodwill, due to different amortization period (384) (534)
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods -- (401)
Other, net -- (38)
------- -------
Gross deferred tax liabilities (384) (973)
------- -------
Net deferred tax asset $ 449 $ 912
======= =======
</TABLE>
The significant components of deferred income tax expense
attributable to income from continuing operations for the years ended
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Increase in net deferred tax asset (exclusive of
the effect of other components listed below) $(319) $(463)
Effect of acquisitions:
Spirit Homes, Inc. 195 --
Bellcrest Homes, Inc. -- 171
Deferred tax expense $(124) $(292)
===== =====
</TABLE>
The state jobs credit carryforward expires on December 31, 1999.
The Company has determined, based on the Company's history of
profitable operations and expectations for the future, that the
deferred tax assets will more likely than not be fully realized and
that no valuation allowance was necessary at December 31, 1995 or 1996.
F-14
<PAGE> 116
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Employee Benefit Plans
Group Medical Plan:
The Company has a self-funded group medical plan which is
administered by a third party administrator. The Plan has reinsurance
coverage limiting its liability for any individual employee loss to
$15, with a cap of $348 in aggregate losses in any one year. Incurred
claims identified under the Company's incident reporting system and
incurred but not reported claims are accrued based on estimates that
incorporate the Company's past experience, as well as other
considerations such as the nature of each claim or incident, relevant
trend factors and advice from consulting actuaries. The Company has
established a self-insurance trust fund for payment of claims and makes
deposits to the fund in amounts determined by consulting actuaries. The
cost of this plan to the Company was $453, $688 and $1,090 for the
years ended December 31, 1994, 1995 and 1996, respectively.
401(K) Tax-Deferred Savings Plan:
Participants, full-time employees with at least six months
service, may elect to contribute up to 15% of their annual compensation
to the plan. The Company may make discretionary matching contributions,
which approximated $167, $146 and $135 for the years ended December 31,
1994, 1995 and 1996, respectively.
(10) Stock Plans
Incentive Stock Plan:
The Company has reserved 600,000 shares of Common Stock for
issuance pursuant to incentive or non-qualified stock options to be
granted under the Belmont Homes, Inc. 1994 Incentive Stock Plan (the
"Incentive Plan"). The compensation committee appointed by the board of
directors may grant to officers, directors and key employees
non-transferable options to purchase shares of common stock for terms
not longer than ten years (five years in the case of incentive stock
options granted to an individual who, at the time of the grant, owns
more than 10% of the total combined voting power of all classes of
stock of the Company), at prices to be determined by the board of
directors or the compensation committee, which may not be less than
100% of the fair market value of the common stock on the date of grant
(110% in the case of an individual who, at the time of the grant of
incentive stock options, owns more than 10% of the total combined
voting power of all classes of stock of the Company), in the case of
incentive stock options under Section 422 of the Internal Revenue Code
which may be granted only to employees, and may not be less than 50% of
the fair market value of the Common Stock on the date of grant in the
case of non-statutory stock options. Options granted under the
Incentive Plan may be exercisable in instalments. Unless terminated
earlier, the Incentive Plan will terminate in 2004. The aggregate fair
market value of stock with regard to which incentive stock options are
exercisable by an individual for the first time during any calendar
year may not exceed $100 as of the date of the most recent grant. The
Incentive Plan is administered by the compensation committee of the
board of directors. During the year ended December 31, 1995, options
were granted for 75,000 shares at an option price of $6 per share, of
which 30,000 were vested and exercised in 1996. The Company granted
options in 1996 for an additional 393,000 shares under this plan at
$10.67 per share, 54,000 of which were exercised during 1996.
Non-Employee Director Stock Option Plan:
The Company has adopted the Belmont Homes, Inc. 1994
Non-Qualified Stock Option Plan for Non-Employee Directors (the
"Director Plan"), and has reserved 75,000 shares for issuance under the
plan. The Director Plan provides for the granting of non-qualified
stock options to each director of the Company who is not also either an
employee or officer of the company ("non-employee directors"). The
Director Plan authorizes the issuance of up to 75,000 shares of common
stock pursuant to options having an exercise price equal to the fair
market value of the common stock on the date the options are granted.
F-15
<PAGE> 117
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Director Plan contains provisions providing for adjustment
of the number of shares available for option and subject to unexercised
options in the event of stock splits, dividends payable in common
stock, business combinations or certain other events. The board of
directors shall have no authority, discretion or power to select the
participants who will receive options pursuant to the Director Plan, to
set the number of shares of common stock to be covered by each option,
to set the exercise price or the period within which the options may be
exercised or to alter any other terms or conditions specified therein,
except as set forth below.
The Director Plan provides for the grant on the first trading
date each year (the "grant date") of options to purchase 1,500 shares
to each non-employee director serving the Company on such date. The
board of directors may revoke, on or prior to each January 1, the next
automatic grant of options otherwise provided for by the Director Plan
if no options have been granted to employees since the preceding
January 1 under any employee stock purchase or option plan that the
Company might adopt hereafter.
Each option shall be exercisable as to one-third of the shares
subject to option beginning two years after the grant date, as to
two-thirds of such shares beginning three years after the grant date
and in full beginning four years after the grant date, and shall expire
ten years after the grant date (the "Option Period"), unless canceled
sooner due to termination of service or death, or unless such option is
fully exercised prior to the end of the Option Period.
The Company granted 6,000 options under this plan in 1996 and
granted an additional 6,000 options subsequent to December 31, 1996.
All shares and per share amounts above for both plans are
adjusted for the 3 for 2 stock split in 1996.
F-16
<PAGE> 118
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Options under both plans are granted at the market price of
the shares on the date of the grants. Additional information follows:
<TABLE>
<CAPTION>
Incentive
stock options Directors plan
------------------------------ ------------------------------
Average Average
Number option price Number option price
of shares per share of shares per share
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 -- $ -- -- $ --
Options granted 75,000 6.00 -- --
Options exercised -- -- -- --
------- ------ ----- ------
Balance, December 31, 1995 75,000 6.00 -- --
Options granted 393,000 10.67 6,000 12.06
Options exercised (84,000) 9.00 -- --
Options forfeited (7,500) 10.67 -- --
------- ------ ----- ------
Balance, December 31, 1996 376,500 $10.11 6,000 $12.06
======= ====== ===== ======
</TABLE>
The number of shares of common stock, as well as stock option
prices, were adjusted to reflect the three for two stock split.
Under the Incentive Plan and the Director Plan, the Company
may grant options to its employees and directors for a remaining
139,500 and 69,000 shares of common stock, respectively. The exercise
price of each option equals the market price of the Company's stock on
the date of grant.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants made during the
years ended December 31, 1995 and 1996, respectively: no dividend
yield; expected volatility of 46 percent for both years, risk-free
interest rates of 5.9 and 5.3 percent, and expected option lives of 4
years for both years presented.
A summary of the status of the Company's stock option plans at
December 31, 1995 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1996
-------------------------- -----------------------------
Weighted- Weighted-
average average
Stock Options Shares exercise price Shares exercise price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year -- $ -- 75,000 $ 6.00
Granted 75,000 6.00 399,000 10.69
Exercised -- -- (84,000) 9.00
Forfeited -- -- (7,500) 10.67
------ ----- ------- ------
Outstanding at end of year 75,000 $6.00 382,500 $10.15
====== ===== ======= ======
Options exercisable at end of year -- 22,800
====== =======
Weighted-average fair value of
options granted during the year $2.58 $ 4.49
===== ======
</TABLE>
F-17
<PAGE> 119
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about fixed stock
options for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- --------------------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.00 - $12.06 382,500 4.1 years $10.15 22,800 $10.67
</TABLE>
The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been
determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS No. 123, the Company's net
income and income per common share would have been reduced to the pro
forma amounts indicated below for the year ended December 31, 1996. The
pro forma amounts for 1995 are not material.
<TABLE>
<S> <C> <C>
Net income As reported $12,113
=======
Pro forma $11,871
=======
Net income per common share As reported $ 1.29
=======
Pro forma $ 1.26
=======
</TABLE>
(11) Preferred Stock
The Company's articles of incorporation authorize 5,000,000 shares
of preferred stock. The board of directors has the authority, without
any further vote or action of the shareholders of the Company, to issue
shares of preferred stock in one or more series and to determine the
relative rights and preferences of the shares of any such series.
During the year ended December 31, 1995, 900 outstanding shares
were redeemed at par value plus dividends of $152.
(12) Commitments and Contingencies
It is customary practice for companies in the manufactured home
industry to enter into repurchase agreements with financial
institutions which provide financing to dealers. Generally the
agreements provide for the repurchase of manufactured homes from the
financial institutions in the event of repossession upon dealer's
default. The Company's contingent liability under such agreements was
approximately $86,149 at December 31, 1996. There have been no
repurchases of homes under these agreements in 1995 and 1996, and there
is no accrual for repurchase obligations.
The Company leases delivery trucks from substantially all its
drivers who deliver homes to dealers. Rentals for these trucks are
based on a rate per mile and the leases are cancelable by either party
upon thirty days notice. Rent expense under these leases was
approximately $1,982, $2,647 and $3,140 for the years ended December
31, 1994, 1995 and 1996, respectively.
F-18
<PAGE> 120
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has pending claims incurred in the normal course
of business which, in the opinion of management, can be disposed of
without material effect on the accompanying consolidated financial
statements.
(13) Related Party Transactions
The Company had several notes payable (Note 7) to shareholders
and other related parties. Interest paid and accrued to related parties
was $1,069, $776 and $120 for the years ended December 31, 1994, 1995
and 1996, respectively.
The Company paid or accrued $200, $690 and $73 in 1994, 1995
and 1996, respectively, for construction of plant facilities to a
company in which a shareholder and director of the Company is also a
shareholder.
The Company paid $10, $8 and $12 in 1994, 1995 and 1996,
respectively, for legal services to a law firm in which a shareholder
and director of the Company is a partner.
The Company paid $272, $367 and $250 for the years ended
December 31, 1994, 1995 and 1996, respectively, for the purchase of
automotive equipment from a company in which a shareholder and director
of the Company is also a shareholder.
(14) Public Offerings of Securities
In June, 1995 the Company completed an initial public offering
of 2,932,500 shares (adjusted for stock split) of common stock. The net
proceeds of approximately $15,300 were used to retire debt and
preferred stock and for working capital.
In January, 1996 the Company completed a secondary public
offering of 1,200,000 shares (adjusted for stock split) of common
stock. The net proceeds of approximately $11,725 were used to retire
debt and for working capital.
Supplemental net income per share for 1995 and 1996, based on
net earnings after adjustment for dividends on preferred stock and the
after tax effect of interest expense on debt repaid with proceeds of
the above offerings, and on the weighted average shares of common stock
outstanding for 1995 and 1996, giving effect to the number of shares
sold in the offerings, the proceeds of which were used to repay such
preferred stock and debt, is as follows assuming the transactions were
effective on January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Net income, as adjusted $ 9,052 $ 12,160
========= ==========
Net income per share $ 1.05 $ 1.28
========= ==========
Weighted average shares 8,598,000 9,512,000
========= ==========
</TABLE>
(15) Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," requires that
the Company disclose estimated fair values for its financial
instruments (as defined). The Company's financial instruments
principally consist of cash and cash equivalents, certificates of
deposit, short-term trade receivables and payables and various debt
instruments. Due to their short term nature, the fair
F-19
<PAGE> 121
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
value of certificates of deposit, trade receivables and payables
approximates their carrying value. The fair value of the various debt
instruments has been estimated using interest rates currently offered
to the Company for borrowings having similar character, collateral and
duration. The fair market value of such financial instruments
approximates the Company's carrying amounts.
(16) Quarterly Information (Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
----------------------------
Gross sales $51,445 $61,681 $57,512 $63,412 $234,050
Less: dealer rebates 1,241 1,454 1,337 2,201 6,233
------- ------- ------- ------- --------
Net sales 50,204 60,227 56,175 61,211 227,817
Gross profit 6,774 8,010 7,530 7,702 30,016
Income from operations 4,207 5,563 5,230 4,217 19,217
Net income 2,642 3,539 3,355 2,577 12,113
Net income per common share $0.29 $0.37 $0.35 $0.28 $1.29
Year ended December 31, 1995
----------------------------
Gross sales $25,275 $35,259 $36,739 $53,303 $150,576
Less: dealer rebates 410 546 503 813 2,272
------- ------- ------- ------- --------
Net sales 24,865 34,713 36,236 52,490 148,304
Gross profit 3,412 5,226 5,501 7,000 21,139
Income from operations 2,153 3,678 3,872 4,375 14,078
Net income 1,266 2,079 2,561 2,704 8,610
Net income per common share $0.24 $0.34 $0.31 $0.33 $1.23
</TABLE>
F-20
<PAGE> 122
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Balance Sheet
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 4,521
Certificates of deposit 8,588
Accounts receivable 10,940
Inventories 12,350
Prepaid and other 2,815
--------
Total Current Assets 39,214
--------
Property, plant and equipment, net 21,607
Goodwill and other assets, net 19,367
--------
$ 80,188
========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 6,084
Accrued expenses 14,168
--------
Total current liabilities 20,252
--------
Deferred income taxes 907
--------
Total liabilities 21,159
--------
Shareholders' equity:
Common stock 947
Additional paid-in capital 27,372
Retained earnings 34,203
Adjustment to predecessor basis (3,493)
Total shareholders' equity 59,029
--------
$ 80,188
========
</TABLE>
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-21
<PAGE> 123
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Statements Of Income
(Unaudited - In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Gross sales $ 179,575 $ 170,638
Less: dealer rebates 7,493 3,947
--------- ---------
Net sales 172,082 166,691
Cost of sales 154,875 144,289
--------- ---------
Gross profit 17,207 22,402
Selling, general and administrative 11,140 7,402
--------- ---------
Income from operations 6,067 15,000
Other income (expense):
Interest expense (432) (75)
Interest income 435 459
Officer's life insurance 1,500 --
--------- ---------
Income before income taxes 7,570 15,384
Income taxes 2,388 5,848
--------- ---------
Net Income $ 5,182 $ 9,536
--------- ---------
Net income per common share $ .55 $ 1.02
--------- ---------
Weighted average common shares 9,482 9,378
--------- ---------
</TABLE>
- --------------------
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-22
<PAGE> 124
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Statements Of Cash Flows
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,182 $ 9,536
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,148 1,188
Loss on leasehold improvements at closed plant 299 --
Changes in operating assets and liabilities:
Accounts receivable (3,111) (3,835)
Inventories 670 (3,831)
Prepaid and other 122 (128)
Accounts payable 2,623 3,155
Accrued expenses 3,424 4,269
-------- --------
Net cash provided by operating activities 11,357 10,354
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,165) (4,834)
Certificates of deposit, net (345) (1,421)
Investments in supply joint ventures -- (2,505)
-------- --------
Net cash provided (used) by investing activities (1,510) (8,760)
-------- --------
Cash flows from financing activities:
Proceeds from notes 2,200
Repayment of notes and long-term debt (10,396) (10,940)
Proceeds from sale of common stock net of offering costs -- 12,390
-------- --------
Net cash provided (used) by financing activities (10,396) 3,650
-------- --------
Net increase in cash and equivalents (549) 5,244
Cash and equivalents at beginning of year 5,070 2,055
-------- --------
Cash and equivalents at end of period $ 4,521 $ 7,299
======== ========
</TABLE>
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-23
<PAGE> 125
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes To Condensed Consolidated Quarterly Financial
Statements
(Unaudited)
(1) Basis of Presentation
In June 1993, Belmont Homes, Inc. ("Belmont"), which was 43% owned by
the shareholders of BHI, Inc. (Predecessor) and 57% owned by new investors,
acquired through the issuance of debt and equity securities, substantially all
of the assets and liabilities of Predecessor for a purchase price of $15,541.
This transaction was accounted for using the purchase method of accounting
including the computational guidelines contained in EITF Issue No. 88-16.
In August 1995, Belmont incorporated Delta Homes, Inc., a wholly-owned
subsidiary and purchased for $450 a production facility in Clarksdale,
Mississippi.
In October 1995, Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Spirit
Homes, Inc. ("Spirit") for $9,800 of cash and debt.
In October 1996, Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Bellcrest
Homes, Inc. ("Bellcrest") for $9,500 of cash plus future contingent payments of
$3,500 if certain earnings levels are achieved through December 31, 1998. In
March 1997, the Company paid the former shareholders of Bellcrest $1,000, the
amount of contingent payments earned and accrued for in 1996.
The Condensed Consolidated Quarterly Financial Statements include the
accounts of Belmont and its wholly-owned subsidiaries from incorporation or
acquisition date and have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with Generally Accepted Accounting Principles have been omitted. The
Condensed Consolidated Quarterly Financial Statements should be read in
conjunction with Belmont's audited financial statements and notes thereto.
In the opinion of Belmont's management, all adjustments, consisting
only of normal recurring adjustments that are necessary for a fair presentation,
have been included in the Condensed Consolidated Quarterly Financial Statements
for the interim periods ended September 30, 1997 and 1996. The results of
operations for the three-and nine-month periods ended September 30, 1997 and
1996 are not indicative of the results of operations to be expected for the full
year ending December 31, 1997 or any other interim period.
(2) Inventories
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 9,077 $ 9,702
Work-in-progress 641 798
Finished homes 2,632 2,520
------------ ------------
$ 12,350 $ 13,020
============ ============
</TABLE>
F-24
<PAGE> 126
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Bellcrest Homes, Inc.
Millen, Georgia
We have audited the accompanying statement of income of Bellcrest Homes, Inc.
for the year ended December 31, 1995. This statement of income is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this statement of income based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statement of
income. We believe that our audit of the statement of income provides a
reasonable basis for our opinion.
In our opinion, the statement of income referred to above presents fairly, in
all material respects, the results of the operations of Bellcrest Homes, Inc.
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Alday, Tillman, Wright & Giles, P.C.
- ----------------------------------------
Alday, Tillman, Wright & Giles, P.C.
Valdosta, Georgia
January 23, 1996
F-25
<PAGE> 127
BELLCREST HOMES, INC.
STATEMENTS OF INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED SEPTEMBER ENDED
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
--------------- ---------
<S> <C> <C>
GROSS SALES $ 31,392 $ 29,613
LESS: DEALER REBATES 1,509 1,353
-------- --------
NET SALES 29,883 28,260
-------- --------
COST OF SALES 26,193 24,609
-------- --------
GROSS PROFIT 3,690 3,651
SELLING, GENERAL AND ADMINISTRATIVE 2,407 2,264
-------- --------
INCOME FROM OPERATIONS 1,283 1,387
OTHER INCOME AND (EXPENSE)
Interest expense (87) (46)
Interest income 29 28
-------- --------
INCOME BEFORE INCOME TAXES 1,225 1,369
INCOME TAXES 468 508
-------- --------
NET INCOME $ 757 $ 861
======== ========
</TABLE>
See accompanying notes and independent auditors' report.
F-26
<PAGE> 128
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bellcrest Homes, Inc. was incorporated December 12, 1986, in Jenkins County,
Georgia. The Company's first assets were acquired on January 15, 1987 and
production began at that time. The Company builds manufactured homes in its
plant in Millen, Georgia for sale to retail outlets.
The condensed statement of income of Bellcrest Homes, Inc. for the nine months
ended September 30, 1996 has been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in statements of
income prepared in accordance with generally accepted accounting principles have
been omitted. The condensed statement of income should be read in conjunction
with the audited financial statements and notes thereto included elsewhere
herein.
In the opinion of management, all adjustments consisting only of normal
recurring adjustments that are necessary for a fair presentation, have been
included in the condensed statement of income for the interim period ended
September 30, 1996. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results of operations
to be expected for the full year ending December 31, 1996 or any other period.
Accounts Receivable
Trade receivables arising from sales to customers are not collateralized and as
a result management continually monitors the financial conditions of these
customers to reduce the risk of loss. All trade receivables at December 31, 1995
are considered to be collectible, and no provision has been made for losses on
uncollectible accounts.
Inventories
Inventories are stated at the lower of cost or market using the first-in first
out (FIFO) method.
Property and Equipment
Property and equipment is recorded at cost. The cost of property and equipment
is depreciated over the useful lives of the related assets. Depreciation is
computed on the straight-line method for financial reporting and on the modified
accelerated and accelerated cost recovery method for income tax purposes.
Maintenance and repairs are charged to operations when incurred. When property
or equipment is retired/disposed of, its cost and the related accumulated
depreciation are eliminated from the respective accounts, and gains or losses
arising from the disposition are included in income for that period.
The useful lives of property, plant, and equipment for purposes of computing
depreciation are:
YEARS
-----
Buildings and improvements 15 - 30
Office furniture and fixtures 5 - 7
Machinery and equipment 5 - 7
Autos and trucks 5
F-27
<PAGE> 129
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Warranty Obligations
Provisions for expected costs relating to warranty obligations are made at the
time of sale of manufactured homes.
Income Taxes
Deferred income taxes are provided on timing differences between financial
statement and income tax reporting, principally from the use of different
methods of depreciation for income tax and financial statement purposes and the
non-deductibility of certain accruals/reserves until the expense is actually
paid.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Depreciation expense on property and equipment, including that acquired under
capital lease, was $203,930 for the year ended December 31, 1995.
NOTE 3 - LINE-OF-CREDIT, BANK
The Company has a line-of-credit with First Union National Bank of Florida which
expires annually each April 30. The line-of-credit is to be used for general
short-term working capital requirements which occur in the normal course of
business. The line bears a rate of prime plus one-half percent.
NOTE 4 - INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets and various accrued liabilities. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Income tax expense for the year ended December 31, 1995, is made up of the
following components:
<TABLE>
<S> <C>
Current tax expense $ 496
Deferred income tax expense 12
-----
$ 508
=====
</TABLE>
F-28
<PAGE> 130
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 4 - INCOME TAXES, CONTINUED
The source and tax effect of the components of deferred income tax expense for
the year ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Difference in tax and book depreciation $ 4
Warranty expense deductible when paid (4)
Other reserves and accruals 12
-----
$ 12
=====
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has an incentive bonus plan for officers/shareholders and various
key employees. Payments under the plan are based on production goals, sales
goals and profitability. Bonuses paid or accrued during the year ended December
31, 1995 were $764 for the year ended December 31, 1995.
NOTE 5 - MAJOR CUSTOMERS AND GEOGRAPHIC CONCENTRATION
The majority of the Company's sales are to dealers in the Southeast.
Additionally, virtually all sales to dealers are financed by third party floor
planners. A downturn in the economy could adversely affect available financing
for dealers and the resulting sales. The Company carefully monitors the economy
and is constantly seeking out additional markets for their sales.
The Company has two major customers, each accounting for over 10% of sales for
1995.
F-29
<PAGE> 131
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CAVALIER HOMES, INC.,
CRIMSON ACQUISITION CORP.
AND
BELMONT HOMES, INC.
AUGUST 14, 1997
<PAGE> 132
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE MERGER
<S> <C> <C>
1.1 The Merger....................................................................................A-1
1.2 Effective Time................................................................................A-2
1.3 Effects of the Merger.........................................................................A-2
1.4 Articles of Incorporation and By-laws.........................................................A-2
1.5 Directors and Officers........................................................................A-2
1.6 Parent Board Seats............................................................................A-2
1.7 Additional Actions............................................................................A-2
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock...................................................................A-2
2.2 Exchange Ratio; Fractional Shares.............................................................A-3
2.3 Exchange of Certificates......................................................................A-3
2.4 Treatment of Stock Options and Warrants.......................................................A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
3.1 Organization and Standing.....................................................................A-6
3.2 Subsidiaries..................................................................................A-6
3.3 Corporate Power and Authority.................................................................A-7
3.4 Capitalization of Parent......................................................................A-7
3.5 Conflicts, Consents and Approvals.............................................................A-7
3.6 Absence of Certain Changes....................................................................A-8
3.7 Parent SEC Documents..........................................................................A-8
3.8 Taxes.........................................................................................A-8
3.9 Compliance with Law...........................................................................A-9
3.10 Registration Statement........................................................................A-9
3.11 Litigation....................................................................................A-9
3.12 Brokerage and Finder's Fees...................................................................A-9
3.13 Opinion of Financial Advisor.................................................................A-10
3.14 Accounting Matters...........................................................................A-10
3.15 Tax-Free Reorganization......................................................................A-10
3.16 Employee Benefit Plans.......................................................................A-10
3.17 Contracts....................................................................................A-11
3.18 Labor Relations..............................................................................A-12
3.19 Permits......................................................................................A-12
3.20 Environmental Matters........................................................................A-12
3.21 No Undisclosed Liabilities...................................................................A-13
3.22 Restrictions on Business Activities..........................................................A-13
3.23 Title to Property............................................................................A-13
3.24 Condition of Property........................................................................A-13
3.25 Intellectual Property........................................................................A-13
3.26 Interested Party Transactions................................................................A-14
3.27 Insurance....................................................................................A-14
3.28 Full Disclosure..............................................................................A-14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization and Standing....................................................................A-15
4.2 Subsidiaries.................................................................................A-15
4.3 Corporate Power and Authority................................................................A-15
4.4 Capitalization of the Company................................................................A-15
</TABLE>
A-i
<PAGE> 133
<TABLE>
<S> <C> <C>
4.5 Conflicts; Consents and Approvals............................................................A-16
4.6 Absence of Certain Changes...................................................................A-16
4.7 Company SEC Documents........................................................................A-16
4.8 Taxes........................................................................................A-17
4.9 Compliance with Law..........................................................................A-17
4.10 Registration Statement.......................................................................A-17
4.11 Litigation...................................................................................A-17
4.12 Brokerage and Finder's Fees..................................................................A-17
4.13 Opinion of Financial Advisor.................................................................A-18
4.14 Accounting Matters...........................................................................A-18
4.15 Tax-Free Reorganization......................................................................A-18
4.16 Employee Benefit Plans.......................................................................A-18
4.17 Contracts....................................................................................A-19
4.18 Labor Relations..............................................................................A-20
4.19 Permits......................................................................................A-20
4.20 Environmental Matters........................................................................A-20
4.21 Parent Stock Ownership.......................................................................A-20
4.22 State Takeover Laws..........................................................................A-20
4.23 No Undisclosed Liabilities...................................................................A-20
4.24 Restrictions on Business Activities..........................................................A-21
4.25 Title to Property............................................................................A-21
4.26 Condition of Property........................................................................A-21
4.27 Intellectual Property........................................................................A-21
4.28 Interested Party Transactions................................................................A-22
4.29 Insurance....................................................................................A-22
4.30 Full Disclosure..............................................................................A-22
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Mutual Covenants.............................................................................A-23
5.2 Covenants of Parent..........................................................................A-25
5.3 Covenants of the Company.....................................................................A-26
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions............................................................................A-28
6.2 Conditions to Obligations of the Company.....................................................A-29
6.3 Conditions to Obligations of Parent and Sub..................................................A-30
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination..................................................................................A-31
7.2 Effect of Termination........................................................................A-33
7.3 Amendment....................................................................................A-34
7.4 Extension; Waiver............................................................................A-34
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties...................................................A-34
8.2 Notices......................................................................................A-35
8.3 Interpretation...............................................................................A-35
8.4 Counterparts.................................................................................A-36
8.5 Entire Agreement.............................................................................A-36
8.6 Third Party Beneficiaries....................................................................A-36
8.7 Governing Law................................................................................A-36
8.8 Exclusive Remedies. .........................................................................A-36
8.9 Assignment...................................................................................A-36
</TABLE>
A-ii
<PAGE> 134
<TABLE>
<S> <C> <C>
8.10 Expenses.....................................................................................A-36
8.11 Incorporation of Disclosure Schedules........................................................A-36
8.12 Severability.................................................................................A-36
8.13 Subsidiaries.................................................................................A-36
8.14 Waiver of Jury Trial.........................................................................A-37
</TABLE>
A-iii
<PAGE> 135
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made
and entered into as of the 14th day of August, 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 desires to combine with the business and
operations of the Company through the merger (the "Merger") of Sub with and into
the Company, with the Company as the surviving corporation, pursuant to which
each share of Company Common Stock (as defined in Section 4.4) outstanding at
the Effective Time (as defined in Section 1.2) will be converted into the right
to receive shares of Parent Common Stock (as defined in Section 3.4) as more
fully provided herein; and
WHEREAS, the Company desires to combine its business and
operations with the businesses of Parent and to become a wholly owned subsidiary
of Parent and for the holders of shares of Company Common Stock ("Company
Shareholders") to have a continuing equity interest in the combined businesses
of Parent and the Company; and
WHEREAS, the parties intend that the Merger constitute a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties intend that the Merger be accounted for
as a pooling-of-interests for financial reporting purposes; and
WHEREAS, pursuant to the Merger, each outstanding share of the
Company's Common Stock, $0.10 par value per share (the "Company Common Stock"),
except shares of Company Common Stock held by persons who object to the Merger
and comply with all provisions of Mississippi law concerning the right of
holders of Company Common Stock to dissent from the Merger and obtain payment of
the fair value of their shares of Company Common Stock ("Dissenting
Shareholders"), shall be converted into the right to receive Parent Common Stock
and be exchanged for Parent Common Stock pursuant to the Exchange Ratio (as
defined in Section 2.1(b)), upon the terms and subject to the conditions set
forth herein; and
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have unanimously determined that the Merger in the manner
contemplated herein is fair to and in the best interests of their respective
stockholders and shareholders and, by duly adopted resolutions, have unanimously
approved and adopted this Agreement;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
mutual and dependent covenants and agreements hereinafter set forth, Parent, Sub
and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the provisions of Section 79-4-11.01 et seq. of
the Mississippi Business Corporation Act (the "MBCA"), Sub shall be merged with
and into the Company as soon as practicable following the satisfaction or waiver
of the conditions set forth in Article VI, but in no event later than two
business days thereafter (the date of such merger being referred to herein as
the "Closing Date"), unless otherwise mutually agreed to by the parties hereto.
Following the Merger, the separate corporate existence of Sub shall cease and
the Company shall continue its existence under the laws of the State of
Mississippi. The Company, in its capacity as the corporation surviving the
Merger, is hereinafter sometimes referred to as the "Surviving Corporation."
A-1
<PAGE> 136
1.2 EFFECTIVE TIME. The Merger shall be consummated by filing
with the Secretary of State of the State of Mississippi (the "Mississippi
Secretary of State") articles of merger (the "Articles of Merger") in such form
as is required by and executed in accordance with the MBCA. The Merger shall
become effective (the "Effective Time") when the Articles of Merger have been
filed with the Mississippi Secretary of State or at such later time as may be
agreed by Parent and the Company and specified in the Articles of Merger.
Immediately prior to the filing referred to in this Section 1.2, a closing (the
"Closing") shall be held at the offices of Waller Lansden Dortch & Davis, PLLC
at 511 Union Street, Nashville, Tennessee, or such other place as the parties
may agree.
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the MBCA.
1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Restated
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall remain the Articles of Incorporation of the Surviving
Corporation. The By-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation.
1.5 DIRECTORS AND OFFICERS. From and after the Effective Time,
the officers of the Company shall be the officers of the Surviving Corporation,
and the directors of Sub shall be the directors of the Surviving Corporation, in
each case until their respective successors are duly elected and qualified.
1.6 PARENT BOARD SEATS. Parent shall cause its Board of
Directors to be expanded by two seats as of the Effective Time, and such
directorships shall, as of such time, be filled by A. Douglas Jumper, Sr. and
Mike Kennedy for a term expiring at Parent's next annual meeting of stockholders
following the Effective Time, subject to being renominated as a director at the
discretion of Parent's Board of Directors.
1.7 ADDITIONAL ACTIONS. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances in law or any other acts are necessary or
desirable to carry out the provisions of this Agreement, the proper officers and
directors of Parent and the Company shall take all such necessary action.
ARTICLE II
CONVERSION OF SECURITIES
2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Sub or the
Company:
(a) Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted
into one share of common stock of the Surviving Corporation. Such
shares shall thereafter constitute all of the issued and outstanding
capital stock of the Surviving Corporation.
(b) Each share of Company Common Stock (other than shares
to be canceled in accordance with Section 2.1(c) and shares subject to
Section 2.1(d)) issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive 0.80 shares
of Parent Common Stock (the "Exchange Ratio"), together with the
associated Parent Rights (as defined in Section 3.4; unless the context
otherwise requires, all references herein to Parent Common Stock
include the associated Parent Rights).
(c) Each share of capital stock of the Company held in the
treasury of the Company or held by Parent or any of its subsidiaries
shall be canceled and retired and no payment shall be made in respect
thereof.
(d) Notwithstanding anything in this Agreement to the
contrary, any issued and outstanding Company Common Stock held by a
Dissenting Shareholder shall not be converted as described in Section
2.1(b) but shall become solely the right to receive payment of the fair
value of his shares in such amount as may be determined to be due to
such Dissenting Shareholder pursuant to the dissent provisions of the
MBCA; provided, however, that the Company Common Stock outstanding
immediately prior to the Effective Time of the Merger and held by a
Dissenting Shareholder who shall, after the Effective Time
A-2
<PAGE> 137
of the Merger, withdraw his demand for appraisal or lose his, her or
its right of appraisal, in either case pursuant to the MBCA, shall be
deemed to be converted as of the Effective Time of the Merger into the
right to receive the Parent Common Stock at the Exchange Ratio. The
Company shall give Parent (i) prompt notice of any written notices of
any intent to demand payment and any written demands for payment of
Company Common Stock received by the Company and (ii) the opportunity
to direct all offers of payment, negotiations and proceedings with
respect to any such demands, provided that in such event Parent agrees
to assume the settlement or payment obligations of the Company. The
Company shall not, without the prior written consent of Parent,
voluntarily make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
(e) As of the Effective Time, all shares of Company Common
Stock not canceled pursuant to Section 2.1(c) shall no longer be
outstanding and shall cease to exist, and each holder of a certificate
or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive (i)
in the case of Shares subject to Section 2.1(b), (A) certificates
representing the number of whole shares of Parent Common Stock into
which such shares have been converted pursuant to Section 2.1(b), (B)
cash in lieu of fractional shares of Parent Common Stock in accordance
with Section 2.2, without interest, and (C) certain dividends and other
distributions in accordance with Section 2.3(c), without interest; and
(ii) in the case of shares subject to Section 2.1(d), payment of the
fair value of their shares in such amount as may be determined to be
due a Dissenting Shareholder pursuant to the dissent provisions of the
MBCA.
2.2 EXCHANGE RATIO; FRACTIONAL SHARES. No certificates for
fractional shares of Parent Common Stock shall be issued as a result of the
conversion provided for in Section 2.1(b). To the extent that an outstanding
share of Company Common Stock would otherwise have become a fractional share of
Parent Common Stock, the holder thereof, upon presentation of such fractional
interest represented by an appropriate certificate for Company Common Stock to
the Exchange Agent pursuant to Section 2.3, shall be entitled to receive a cash
payment therefor in an amount equal to the value (determined with reference to
the closing price of Parent Common Stock on the New York Stock Exchange
Composite Tape ("NYSE") on the last full trading day immediately prior to the
Effective Time) of such fractional interest. Such payment with respect to
fractional shares is merely intended to provide a mechanical rounding off of,
and is not a separately bargained for, consideration. If more than one
certificate representing shares of Company Common Stock shall be surrendered for
the account of the same holder, the number of shares of Parent Common Stock for
which certificates have been surrendered shall be computed on the basis of the
aggregate number of shares represented by the certificates so surrendered. In
the event that prior to the Effective Time Parent or the Company shall declare a
stock dividend or other distribution payable in shares of its common stock or
securities convertible into shares of its common stock, or effect a stock split,
reclassification, combination or other change with respect to its common stock,
the Exchange Ratio shall be adjusted to reflect such dividend, distribution,
stock split, reclassification, combination or other change.
2.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall
make available to an exchange agent designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of
Company Stockholders, for exchange in accordance with this Section 2.3,
certificates representing shares of Parent Common Stock issuable
pursuant to Section 2.1 in exchange for outstanding shares of Company
Common Stock and shall from time-to-time deposit cash in an amount
reasonably expected to be paid pursuant to Section 2.2 (such shares of
Parent Common Stock and cash, together with any dividends or
distributions with respect thereto, being hereinafter referred to as
the "Exchange Fund").
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record
of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company
Common Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 2.1(b) hereof (i) a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as Parent and Company
agree are reasonably necessary, and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing
shares of
A-3
<PAGE> 138
Parent Common Stock. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing that number
of shares of Parent Common Stock which such holder has the right to
receive pursuant to Section 2.1 and (y) a check representing the amount
of cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive
pursuant to the provisions of this Article II, after giving effect to
any required withholding tax, and the shares represented by the
Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the cash in lieu of fractional shares, if
any, and unpaid dividends and distributions, if any, payable to holders
of shares of Company Common Stock. In the event of a transfer of
ownership of shares of Company Common Stock which is not registered on
the transfer records of the Company, a certificate representing the
proper number of shares of Parent Common Stock, together with a check
for the cash to be paid in lieu of fractional shares, if any, and
unpaid dividends and distributions, if any, may be issued to such
transferee if the Certificate representing such shares of Company
Common Stock held by such transferee is presented to the Exchange
Agent, properly endorsed or otherwise in proper form for the transfer,
accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer or other
nonincome taxes required by reason of the issuance of shares of Parent
Common Stock to a person other than the registered holder of such
Certificate have been paid. Until surrendered as contemplated by this
Section 2.3, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon surrender a
certificate representing shares of Parent Common Stock and cash in lieu
of fractional shares, if any, and unpaid dividends and distributions,
if any, or the right to receive payment of the fair value of his, her
or its shares in such amount as may be determined to be due to a
Dissenting Shareholder pursuant to the dissent provisions of the MBCA,
in each case as provided in this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared or made after the Effective Time with
respect to shares of Parent Common Stock having a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Certificate, and no cash payment in lieu of fractional shares shall be
paid to any such holder, until the holder shall surrender such
Certificate as provided in this Section 2.3. Subject to the effect of
Applicable Law (as defined in Section 3.9), following surrender of any
such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of
Parent Common Stock and not paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate
payment date subsequent to surrender, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of
any withholding taxes which may be required thereon.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.
All shares of Parent Common Stock issued upon surrender of Certificates
in accordance with the terms hereof (including any cash paid pursuant
to this Article II) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock represented thereby, and from and after the Effective Time there
shall be no further registration of transfers on the stock transfer
books of the Company of shares of Company Common Stock. If, after the
Effective Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in
this Section 2.3.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to Company Shareholders for
six months after the Effective Time shall be delivered to Parent or the
Surviving Corporation, upon demand thereby, and holders of shares of
Company Common Stock who have not theretofore complied with this
Section 2.3 shall thereafter look only to Parent for payment of any
claim to shares of Parent Common Stock, cash in lieu of fractional
shares thereof, or dividends or distributions, if any, in respect
thereof.
(f) NO LIABILITY. None of Parent, the Surviving Corporation
or the Exchange Agent shall be liable to any person in respect of any
shares of Company Common Stock (or dividends or distributions with
respect thereto) or cash from the Exchange Fund required to be
delivered to a public official pursuant to
A-4
<PAGE> 139
any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered immediately prior to such
date on which any cash, any cash in lieu of fractional shares or any
dividends or distributions with respect to whole shares of Company
Common Stock in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Authority (as defined in
Section 3.5), any such cash, dividends or distributions in respect of
such Certificate shall, to the extent permitted by Applicable Law and
without any further action on the part of any party, become the
property of Parent, free and clear of all claims or interest of any
person previously entitled thereto.
(g) INVESTMENT OF EXCHANGE FUND. The Exchange Agent
shall invest any cash included in the Exchange Fund, as directed by
Parent in a manner consistent with Parent's investment of its own
funds, on a daily basis. Any interest and other income resulting from
such investments shall be paid to Parent. In the event the Exchange
Fund shall realize a loss on any such investment, Parent shall promptly
thereafter deposit, or cause to be deposited, in such Exchange Fund on
behalf of the Surviving Corporation cash in an amount equal to such
loss.
2.4 TREATMENT OF STOCK OPTIONS AND WARRANTS.
(a) At the Effective Time, each unexpired and unexercised
option or right to purchase shares of Company Common Stock granted (or
subject to being granted on a contingent basis) under the Company's
various stock option plans in effect on the date hereof to current or
former directors, officers, employees, consultants or independent
contractors of the Company or its subsidiaries (each, a "Company
Option" and collectively, "Company Options") shall be assumed by Parent
and converted, without further action, into an option (an "Adjusted
Option") to acquire, on the same terms and conditions as were
applicable under the Company Options and the plans under which they
were issued, prior to the Effective Time (including without limitation
any provisions for acceleration), that number of shares of Parent
Common Stock equal to the number of shares of Company Common Stock
issuable immediately prior to the Effective Time upon exercise of the
Company Options (without regard to actual restrictions on
exercisability) multiplied by the Exchange Ratio, with an exercise
price equal to the exercise price which existed under the corresponding
Company Options divided by the Exchange Ratio. In addition,
notwithstanding the foregoing, each Company Option which is an
"incentive stock option" shall be adjusted as required by Section 424
of the Code, and the regulations promulgated thereunder, so as not to
constitute a modification, extension or renewal of the option, within
the meaning of Section 424(h) of the Code. As of the Effective Time,
all references to the Company in each Company Option shall be deemed to
be references to Parent, where appropriate, and Parent shall assume the
obligations of the Company under the Company's 1994 Incentive Stock
Plan, as amended, but not under the 1994 Non-qualified Stock Option
Plan for Non-Employee Directors, which plan will be terminated as of
the Effective Time (but without adversely affecting the holders of
outstanding options under such plan). On the Closing Date, Parent will
deliver to the holders of Company Options appropriate notices setting
forth such holders' rights pursuant thereto together with written
evidence of Parent's acceptance and assumption of all Company Options.
(b) At the Effective Time, that certain warrant to purchase
75,000 shares of Company Common Stock at $14.67 per share issued to The
Suddath Companies, a Florida corporation, on October 25, 1996 (the "
Suddath Warrant"), shall be assumed by Parent and shall become a
warrant (the "Adjusted Warrant") to acquire, on the same terms and
conditions as were applicable to the Suddath Warrant prior to the
Effective Time, that number of shares of Parent Common Stock equal to
the number of shares of Company Common Stock issuable immediately prior
to the Effective Time upon exercise of the Suddath Warrant (without
regard to actual restrictions on exercisability) multiplied by the
Exchange Ratio, with an exercise price per share equal to $14.67
divided by the Exchange Ratio. As of the Effective Time, all references
to the Company in the Suddath Warrant shall be deemed to be references
to Parent, where appropriate.
(c) In connection with the issuance of Adjusted Options and
the Adjusted Warrant, Parent shall (i) reserve for issuance the number
of shares of Parent Common Stock that will become subject to Adjusted
Options and the Adjusted Warrant pursuant to this Section 2.4 and (ii)
from and after the Effective Time, upon exercise of Adjusted Options
and the Adjusted Warrant, make available for issuance all shares of
Parent Common Stock covered thereby, subject to the terms and
conditions applicable thereto. Parent agrees to file with the
Securities and Exchange Commission (the "Commission") as soon as
reasonably practicable
A-5
<PAGE> 140
after the Closing Date, an amendment to a registration statement on
Form S-8, or a new registration statement on Form S-8, or other
appropriate form under the Securities Act of 1933 (together with the
rules and regulations thereunder, the "Securities Act") to register the
issuance of the shares of Parent Common Stock issuable upon exercise of
the Adjusted Options and use its reasonable efforts to cause such
registration statement to remain effective until the exercise or
expiration of such options. In addition, Parent will cause that certain
Registration Rights Agreement between the Company and The Suddath
Companies, dated October 25, 1996, to be complied with respecting
shares of Parent Company Stock issuable pursuant to the Adjusted
Warrant, and will, on or prior to or immediately after the Effective
Time, file a resale registration statement with the Commission
concerning shares of Parent Common Stock issuable upon exercise of the
Suddath Warrant.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
In order to induce the Company to enter into this Agreement,
Parent and Sub hereby represent and warrant to the Company that the statements
contained in this Article III are true, correct and complete.
3.1 ORGANIZATION AND STANDING. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation with full power and
authority to own, lease, use and operate its properties and to conduct its
business as and where now owned, leased, used, operated and conducted. Each of
Parent and its subsidiaries is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the property it owns, leases or operates makes such qualification
necessary, except where the failure to be so qualified or in good standing in
such jurisdiction would not have a material adverse effect on Parent. The copies
of the Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and the Amended and Restated By-laws (the
"Bylaws") (or similar organizational documents) of Parent and each of its
subsidiaries, which have previously been made available to the Company, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement.
3.2 SUBSIDIARIES.
(a) As of the date hereof, other than immaterial
interests, Parent does not own, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise, except as set forth in Section
3.2 to the disclosure schedule (the "Parent Disclosure Schedule")
delivered by Parent to the Company and dated the date hereof. Section
3.2 to the Parent Disclosure Schedule sets forth as to each subsidiary
of Parent: (i) its name and jurisdiction of incorporation or
organization, (ii) its authorized capital stock or share capital, and
(iii) the number of issued and outstanding shares of its capital stock
or share capital. Except as set forth in Section 3.2 to the Parent
Disclosure Schedule, each of the outstanding shares of capital stock
of each of Parent's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable, and is owned, directly or indirectly, by
Parent free and clear of all liens, pledges, security interests,
claims or other encumbrances, other than liens imposed by law which
could not reasonably be expected to have, in the aggregate, a material
adverse effect on Parent. All of the outstanding shares of the capital
stock of Sub are directly owned by Parent. Other than as set forth in
Section 3.2 to the Parent Disclosure Schedule, there are no
outstanding shares of capital stock or subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other
commitments or rights of any type relating to the issuance, sale or
transfer of any securities of any subsidiary of Parent, nor are there
outstanding any securities which are convertible into or exchangeable
for any shares of capital stock of any subsidiary of Parent; and no
subsidiary of Parent has any obligation of any kind to issue any
additional securities or to pay for securities of any subsidiary of
Parent or any predecessor thereof. As used in this Section 3.2,
"capital stock" shall include capital stock or other ownership
interests having by their terms ordinary voting power to elect
directors or others performing similar functions with respect to
such entity.
(b) Neither Parent nor any Affiliate (as defined in
Section 79-25-3(a) of the Mississippi Shareholder Protection Act) of
Parent is an Interested Shareholder (as defined in Section 79-25-3(l)
of the Mississippi Shareholder Protection Act) with respect to the
Company.
A-6
<PAGE> 141
3.3 CORPORATE POWER AND AUTHORITY.
(a) Parent has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, subject to the approval of the Share Issuance (as
defined below) by the requisite votes of the stockholders of Parent
(the "Parent Stockholders") in accordance with the rules of the NYSE
and this Agreement. The execution and delivery of this Agreement by
Parent and the consummation by Parent of the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of
Parent. The Board of Directors of Parent has directed that the issuance
of Parent Common Stock pursuant hereto (the "Share Issuance") be
submitted to the Parent Stockholders for approval at a stockholders
meeting and, except for the approval of the Share Issuance by the
Parent Stockholders in accordance with the rules of the NYSE, no other
corporate approvals on the part of Parent are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Parent
and constitutes a valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms.
(b) Sub has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by
Sub and the consummation by Sub of the transactions contemplated hereby
have been duly and validly approved by the Board of Directors of Sub
and by Parent as the sole stockholder of Sub, and no other corporate
proceedings on the part of Sub are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Sub and constitutes a valid and
binding obligation of Sub, enforceable against Sub in accordance with
its terms.
3.4 CAPITALIZATION OF PARENT. Parent's authorized capital
stock consists solely of (a) 50,000,000 shares of common stock, $0.10 par value
per share ("Parent Common Stock"), and (b) 500,000 shares of preferred stock,
$0.01 par value per share ("Parent Preferred Stock"), of which 200,000 shares
have been designated as Series A Junior Participating Preferred Stock (the
"Parent Series A Preferred Stock"). As of August 11, 1997, (i) 12,283,127 shares
of Parent Common Stock were issued and outstanding, (ii) 1,457,985 shares of
Parent Common Stock were issuable upon the exercise or conversion of options,
warrants or convertible securities granted or issuable by Parent, and (iii) no
shares of Parent Preferred Stock were issued and outstanding. Since August 11,
1997, Parent has not issued any shares of its capital stock except upon the
exercise of such options, warrants or convertible securities. Each outstanding
share of Parent capital stock is, and all shares of Parent Common Stock to be
issued in connection with the Merger will be at the time of issuance, duly
authorized and validly issued, fully paid and nonassessable and free of any
preemptive rights. As of the date hereof, other than the rights ("Parent
Rights") issued under the rights agreement, dated as of October 23, 1996,
between Parent and ChaseMellon Shareholder Services, L.L.C. (the "Parent Rights
Agreement"), and other than as set forth above, in the Parent SEC Documents (as
defined in Section 3.7) or in Section 3.4 to the Parent Disclosure Schedule,
there are no outstanding shares of capital stock or subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type relating to the issuance, sale or transfer by Parent of
any securities of Parent, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of Parent; and
Parent has no obligation of any kind to issue any additional securities or to
pay for securities of Parent or any predecessor. Parent has no outstanding
bonds, debentures, notes or other similar obligations the holders of which have
the right to vote generally with holders of Parent Common Stock.
3.5 CONFLICTS, CONSENTS AND APPROVALS. Neither the execution
and delivery of this Agreement by Parent or Sub nor the consummation of the
transactions contemplated hereby will:
(a) conflict with or violate any provision of the
Certificate of Incorporation or By-laws (or any similar organizational
document) of Parent or any subsidiary of Parent;
(b) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with the
giving of notice, the passage of time or otherwise, would constitute a
default) under, or entitle any party (with the giving of notice, the
passage of time or otherwise) to terminate, accelerate, modify or call
a default under, or result in the termination, acceleration or
cancellation of, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease or other instrument or
obligation to
A-7
<PAGE> 142
which Parent or any of its subsidiaries is a party or by which any of
their respective properties or assets may be bound;
(c) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or any of its subsidiaries or
their respective properties or assets; or
(d) require any action or consent or approval of, or
review by, or registration or filing by Parent or any of its affiliates
with, any third party or any court, arbitral tribunal, administrative
agency or commission or other governmental or regulatory body, agency,
instrumentality or authority (a "Governmental Authority"), other than
(i) approval of the Share Issuance by Parent Stockholders, (ii)
approval of the listing of the shares of Parent Common Stock to be
issued in the Merger on the NYSE, subject to official notice of
issuance, (iii) actions required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), and (iv) registrations or other
actions required under federal and state securities laws as are
contemplated by this Agreement;
except for any of the foregoing that are set forth in subsections (b), (c) or
(d) of Section 3.5 to the Parent Disclosure Schedule and, in the case of (b),
(c) and (d), for any of the foregoing that would not, in the aggregate, have a
material adverse effect on Parent or that would not prevent or delay the
consummation of the transactions contemplated hereby.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Parent SEC Documents filed with the Commission as of the date hereof, since
December 31, 1996, (i) each of Parent and its subsidiaries has conducted its
business in the ordinary course, consistent with past practice, (ii) no event
has occurred which has or which would reasonably be expected to have, in the
aggregate, a material adverse effect on Parent (but, excluding for such
purposes, events that are generally applicable in Parent's and the Company's
industry or industries and the United States economy), and (iii) neither Parent
nor any of its subsidiaries has taken any action which would be prohibited by
Section 5.2(a).
3.7 PARENT SEC DOCUMENTS. Each of Parent and its subsidiaries
has timely filed with the Commission all forms, reports, schedules, statements,
exhibits and other documents required to be filed by it since December 31, 1994
under the Securities Exchange Act of 1934 (together with the rules and
regulations thereunder, the "Exchange Act") or the Securities Act (such
documents, as supplemented and amended since the time of filing, collectively,
the "Parent SEC Documents"). The Parent SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed (and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively) (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be. The
financial statements (including the related notes) of Parent included in the
Parent SEC Documents were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), and fairly present (subject
in the case of unaudited statements to the absence of footnotes and to normal,
recurring and year-end audit adjustments) in all material respects the
consolidated financial position of Parent as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended.
3.8 TAXES. Except as set forth in the Parent SEC Documents,
and except with respect to any such matters that would not, in the aggregate,
have a material adverse effect on Parent, (i) each of Parent and its
subsidiaries has duly filed all federal and state income tax returns and all
other material tax returns (including, but not limited to, those filed on a
consolidated, combined or unitary basis) required to have been filed by Parent
or any of its subsidiaries prior to the date hereof and will file, on or before
the Effective Time, all such returns which are required to be filed after the
date hereof and on or before the Effective Time, (ii) all of the foregoing
returns and reports are true and correct in all material respects, and each of
Parent and its subsidiaries has paid or, prior to the Effective Time, will pay
all taxes required to be paid in respect of the periods covered by such returns
or reports to any federal, state, foreign, local or other taxing authority,
(iii) each of Parent and its subsidiaries has paid or made adequate provision
(in accordance with generally accepted accounting principles) in the financial
statements of Parent included in the Parent SEC Documents for all taxes payable
in respect of all periods ending on or prior to June 30, 1997, (iv) neither
Parent nor any of its subsidiaries will have any material liability for any
taxes in excess of the amounts so paid or reserves so established and neither
Parent nor any of its subsidiaries is delinquent in the payment of any material
tax, assessment or governmental charge and none of them has requested any
extension of time within which to file any returns in respect of any fiscal year
which have not since been filed, (v) no deficiencies for any tax, assessment or
governmental
A-8
<PAGE> 143
charge have been proposed, asserted or assessed in writing (tentatively or
definitely), in each case, by any taxing authority, against Parent or any of its
subsidiaries for which there are not adequate reserves in its financial
statements (in accordance with generally accepted accounting principles), (vi)
as of the date of this Agreement, there are no extensions or waivers or pending
requests for extensions or waivers of the time to assess or collect any such
tax, (vii) the federal income tax returns of Parent have not been audited, and
the federal income tax returns of its subsidiaries have not been audited, since
fiscal year ended December 31, 1991, (viii) neither Parent nor any of its
subsidiaries is or has been a party to any tax sharing agreement with any
corporation which is not currently a member of the affiliated group of which
Parent is currently a member, (ix) there are no liens for taxes on any assets of
Parent or any of its subsidiaries (other than statutory liens for taxes not yet
due or liens for which adequate reserves have been established in its financial
statements in accordance with generally accepted accounting principles), (x)
Parent and its subsidiaries have withheld and paid (and until the Effective Time
will withhold and pay) all income, social security, unemployment, and all other
material payroll taxes required to be withheld (including, without limitation,
pursuant to Sections 1441 and 1442 of the Code or similar provisions under
foreign law) and paid in connection with amounts paid to any employee,
independent contractor, stockholder, creditor or other third party, and (xi)
Parent has not filed an election under Section 341(f) of the Code to be treated
as a consenting corporation. For purposes of this Agreement, the term "tax"
shall include all federal, state, local and foreign taxes including interest and
penalties thereon and additions to tax. In addition, the term "tax return" shall
mean any return, declaration, statement, report, schedule, certificate, form
information return, or any other document (including any related or supporting
information) required to be supplied to, or filed with, a taxing authority
(foreign or domestic) in connection with taxes.
3.9 COMPLIANCE WITH LAW. Each of Parent and its subsidiaries
is in compliance with, and at all times since December 31, 1993 has been in
compliance with, all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered by
any Governmental Authority (collectively, "Applicable Law") relating to it or
its business or properties, except for any such failures to be in compliance
therewith which, in the aggregate, would not have a material adverse effect on
Parent.
3.10 REGISTRATION STATEMENT. None of the information provided
by Parent or any of its subsidiaries for inclusion in the registration statement
on Form S-4 to be filed with the Commission by Parent under the Securities Act,
including the prospectus (as amended, supplemented or modified, the
"Prospectus") relating to shares of Parent Common Stock to be issued in the
Merger and the joint proxy statement and form of proxies relating to the vote of
Company Shareholders with respect to the Merger and the Parent Stockholders with
respect to the Share Issuance (collectively and as amended, supplemented or
modified, the "Proxy Statement") contained therein (such registration statement
as amended, supplemented or modified, the "Registration Statement"), at the time
the Registration Statement becomes effective or, in the case of the Proxy
Statement, at the date of mailing, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Each of the
Registration Statement and Proxy Statement (except for such portions thereof
that relate only to or were supplied by the Company and its subsidiaries as to
which no representation is made hereby), will comply in all material respects
with the provisions of the Securities Act and the Exchange Act.
3.11 LITIGATION. Except as set forth in the Parent SEC
Documents or Section 3.11 of the Parent Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation (an "Action") pending or, to the
knowledge of Parent, threatened against Parent or any of its subsidiaries which
could reasonably be expected to have a material adverse effect on Parent.
Neither Parent nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree which could reasonably be expected to have a material
adverse effect on Parent.
3.12 BROKERAGE AND FINDER'S FEES. Except for Parent's
obligation to Equitable Securities Corporation ("Parent Broker") (a copy of the
agreement relating to such obligation having previously been provided to the
Company), Parent has not incurred and will not incur, directly or indirectly,
any brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement. Other than the foregoing obligation to Parent
Broker and the obligation of the Company to the Company Broker (as hereinafter
defined), Parent is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiation of this Agreement or in connection with the transactions
contemplated hereby.
A-9
<PAGE> 144
3.13 OPINION OF FINANCIAL ADVISOR. Parent has received the
opinion of Parent Broker to the effect that, as of the date hereof, the Exchange
Ratio is fair to Parent from a financial point of view.
3.14 ACCOUNTING MATTERS. To the best knowledge of Parent,
neither Parent nor any of its affiliates has taken or agreed to take any action
that (without giving effect to any actions taken or agreed to be taken by the
Company or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a pooling-of-interests for
financial reporting purposes in accordance with Accounting Principles Board
Opinion No. 16, the interpretative releases issued pursuant thereto, and the
pronouncements of the Commission thereon.
3.15 TAX-FREE REORGANIZATION. To the best knowledge of Parent,
neither Parent nor any of its subsidiaries has taken any action or failed to
take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
3.16 EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, the following terms
have the definitions given below: "Controlled Group Liability" means
any and all liabilities under (i) Title IV of ERISA, (ii) section 302
of ERISA, (iii) sections 412 and 4971 of the Code, (iv) the
continuation coverage requirements of section 601 et seq. of ERISA and
section 4980B of the Code, and (v) corresponding or similar provisions
of foreign laws or regulations, in each case other than pursuant to the
Parent Plans with respect to Parent, or Company Plans (as defined
below) with respect to the Company.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity,
trade or business, any other entity, trade or business that is a member
of a group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Parent Plans" means all employee benefit plans,
programs, policies, practices, and other arrangements providing
benefits to any employee or former employee or beneficiary or dependent
thereof, whether or not written, and whether covering one person or
more than one person, sponsored or maintained by Parent or any of its
subsidiaries or to which Parent or any of its subsidiaries contributes
or is obligated to contribute. Without limiting the generality of the
foregoing, the term. "Parent Plans" includes all employee welfare
benefit plans within the meaning of Section 3(1) of ERISA and all
employee pension benefit plans within the meaning of Section 3(2) of
ERISA.
(b) Section 3.16 to the Parent Disclosure Schedule lists
all Parent Plans. With respect to each Parent Plan, Parent has made
available to the Company a true, correct and complete copy of: (i) each
writing constituting a part of such Parent Plan, including without
limitation all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent
Annual Report (Form 5500 Series) and accompanying schedule, if any;
(iii) the current summary plan description, if any; (iv) the most
recent annual financial report, if any; and (v) the most recent
determination letter from the IRS, if any.
(c) Except as set forth in Section 3.16(c) to the Parent
Disclosure Schedule, the Internal Revenue Service has issued a
favorable determination letter or opinion letter with respect to each
Parent Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code (a "Qualified Parent Plan") and
there are no existing circumstances nor any events that have occurred
that could adversely affect the qualified status of any Qualified
Parent Plan or the related trust.
(d) All contributions required to be made to any Parent
Plan by Applicable Law or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Parent Plan, for any period through the date
hereof have been timely made or paid in full and through the Closing
Date will be timely made or paid in full or, to the extent not required
to be made or
A-10
<PAGE> 145
paid on or before the date hereof or the Closing Date, as applicable,
have been or will be fully reflected in Parent's financial statements
contained in the Parent SEC Documents.
(e) Except as set forth in Section 3.16(e) to the Parent
Disclosure Schedule, Parent and its subsidiaries have complied, and are
now in compliance, in all material respects, with all provisions of
ERISA, the Code and all laws and regulations applicable to the Parent
Plans. There is not now, and there are no existing, circumstances that
standing alone could give rise to any requirement for the posting of
security with respect to a Parent Plan or the imposition of any lien on
the assets of Parent or any of its subsidiaries under ERISA or the
Code.
(f) Except as set forth in Section 3.16(f) to the Parent
Disclosure Schedule, no Parent Plan is subject to Title IV or Section
302 of ERISA or Section 412 or 4971 of the Code. Except as set forth in
Section 3.16(f) to the Parent Disclosure Schedule, no Parent Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
(a "Multiemployer Plan") or a plan that has two or more contributing
sponsors at least two of whom are not under common control, within the
meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has
Parent or any of its subsidiaries or any of their respective ERISA
Affiliates, at any time within five years before the date hereof,
contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan.
(g) There does not now exist, and there are no existing,
circumstances that could result in, any Controlled Group Liability that
would be a liability of Parent or any of its subsidiaries following the
Closing, other than normal funding responsibilities. Without limiting
the generality of the foregoing, neither Parent nor any of its
subsidiaries nor any of their respective ERISA affiliates has engaged
in any transaction described in Section 4069 or Section 4204 of ERISA.
(h) Except as set forth in Section 3.16(h) to the Parent
Disclosure Schedule and except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA,
neither Parent nor any of its subsidiaries has any liability for life,
health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof.
(i) Except as set forth in Section 3.16(i) to the Parent
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will result in, cause the accelerated vesting or delivery of, or
increase the amount or value of, any payment or benefit to any employee
or director or former employee or former director of Parent or any of
its subsidiaries, pursuant to a "change in control" or "change of
control" or otherwise. Without limiting the generality of the foregoing
and except as set forth in Section 3.16(i) to the Parent Disclosure
Schedule, no amount paid or payable by Parent or any of its
subsidiaries in connection with the transactions contemplated hereby
either solely as a result thereof or as a result of such transactions
in conjunction with any other events will be an "excess parachute
payment" within the meaning of Section 280G of the Code.
(j) There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations
which have been asserted or instituted against the Parent Plans, any
fiduciaries thereof with respect to their duties to the Parent Plans or
the assets of any of the trusts under any of the Parent Plans which
could reasonably be expected to result in any material liability of
Parent or any of its subsidiaries to the Pension Benefit Guaranty
Corporation, the Department of Treasury, the Department of Labor or any
Multiemployer Plan.
3.17 CONTRACTS. Section 3.17 of the Parent Disclosure Schedule
lists all agreements, arrangements, guaranties, leases, contracts and
understandings, whether written or oral, to which Parent or its subsidiaries, or
any of their respective assets, business, or operations, is a party, or is bound
or affected by, or receives benefits under, but not including the following: (i)
those cancelable without penalty on notice of ninety (90) days or less and
pursuant to which aggregate annual payments do not exceed $50,000; (ii) those
with a remaining term of less than one year and pursuant to which aggregate
annual payments do not exceed $50,000; (iii) those for the purchase and sale of
raw materials and supplies and finished goods and repurchase agreements with
dealers' floor plan lenders (forms of which have been provided to the Company)
in the ordinary course of business on terms customary in the industry and
consistent with past practices; (iv) those that do not require the Company to
make aggregate annual payments of more than $25,000; and (v) as otherwise
reflected in Parent SEC Documents (the "Parent Contracts"). With respect to each
Parent Contract and each
A-11
<PAGE> 146
such agreement, arrangement, guaranty, lease, contract or understanding excluded
from the definition of Parent Contract, and except as set forth in Section 3.17
of the Parent Disclosure Schedule, none of the Parent, any of its subsidiaries,
or, to the knowledge of the Parent, any other party thereto is in violation of
or in default in respect of, nor has there occurred an event or condition which
with the passage of time or giving of notice (or both) would constitute a
default by the Parent under, any Parent Contract to which it is a party, except
such violations or defaults under such Parent Contracts which, in the aggregate,
would not have a material adverse effect on the Parent.
3.18 LABOR RELATIONS. There is no unfair labor practice
complaint against Parent or any of its subsidiaries pending before the NLRB and
there is no labor strike, dispute, slowdown or stoppage, or any union organizing
campaign, actually pending or, to the knowledge of Parent, threatened against or
involving Parent or any of its subsidiaries, except for any such proceedings
which would not have a material adverse effect on Parent. Except as disclosed in
the Parent SEC Documents or Section 3.18 to the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization. To the knowledge of Parent, there are
no organizational efforts with respect to the formation of a collective
bargaining unit presently being made or threatened involving employees of Parent
or any of its subsidiaries.
3.19 PERMITS. Each of Parent and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
(collectively, "Permits") necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted, except for any such
Permits the failure of which to possess, in the aggregate, would not reasonably
be expected to have a material adverse effect on Parent.
3.20 ENVIRONMENTAL MATTERS.
(a) As used herein, the term "Environmental Laws" means
all applicable federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances
or wastes (collectively, "Hazardous Materials") into the environment,
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all applicable authorizations, codes, decrees,
injunctions, judgments, licenses, orders, permits, plans or regulations
issued, entered, promulgated or approved thereunder to the extent
applicable to the specific operations of Parent or the Company, as
applicable.
(b) Except as set forth in the Parent SEC Documents filed
with the Commission as of the date hereof or as disclosed in the Phase
I environmental surveys conducted with respect to the facilities
operated by Parent and its subsidiaries, copies of which have been made
available to the Company, there are, with respect to Parent, its
subsidiaries or any predecessor of the foregoing, no past or present
violations of Environmental Laws, nor any releases of any materials
into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 or similar federal, state or local laws, other than those which,
in the aggregate, would not reasonably be expected to have a material
adverse effect on Parent, and none of Parent and its subsidiaries has
received any notice with respect to any of the foregoing, nor is any
action pending or threatened in connection with any of the foregoing
that, if adversely determined, could reasonably be expected to have a
material adverse effect on Parent.
(c) Except as set forth in the Parent SEC Documents filed
with the Commission as of the date hereof or as disclosed in the Phase
I environmental surveys conducted with respect to the facilities
operated by Parent and its subsidiaries, copies of which have been made
available to the Company, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by Parent or
any of its subsidiaries and no Hazardous Materials were released on or
about any real property previously owned, leased or used by Parent or
any of its subsidiaries during the period the property was so owned,
leased or used, except in the normal course of Parent's business, other
than those which, in the aggregate, would not reasonably be expected to
have a material adverse effect on Parent.
A-12
<PAGE> 147
3.21 NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 3.21 of the Parent Disclosure Schedule or the Parent SEC Documents,
neither Parent nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise), except liabilities (a) in the aggregate
adequately provided for in Parent's audited balance sheet (including any related
notes thereto) for the fiscal year ended December 31, 1996, included in Parent's
1996 Annual Report to Stockholders (the "1996 Balance Sheet"), (b) incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected on the 1996 Balance Sheet, (c) in the
aggregate adequately provided for in Parent's unaudited balance sheet (including
any notes thereto) for the period ended June 27, 1997, included in Parent's
Quarterly Report on Form 10-Q for such period or incurred since December 31,
1996 in the ordinary course of business and consistent with past practice, (d)
incurred in connection with this Agreement, or (e) which would not reasonably be
expected to have a material adverse effect on Parent.
3.22 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, or as set forth in Section 3.22 of the Parent Disclosure Schedule or
the Parent SEC Documents, to the best of Parent's knowledge, there is no
agreement, judgment, injunction, order or decree binding upon Parent or any of
its subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any business practice of Parent or any of its
subsidiaries, acquisition of property by Parent or any of its subsidiaries or
the conduct of business by Parent or any of its subsidiaries as currently
conducted or as proposed to be conducted by Parent, except for any prohibition
or impairment as would not reasonably be expected to have a material adverse
effect on Parent.
3.23 TITLE TO PROPERTY. Except as set forth in Section 3.23 of
the Parent Disclosure Schedule, Parent and each of its subsidiaries have good
and marketable title to all of their properties and assets, real and personal,
tangible and intangible, free and clear of all liens, charges and encumbrances,
except liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby or which
would not reasonably be expected to have a material adverse effect on Parent;
and, to the knowledge of Parent, all leases pursuant to which Parent or any of
its subsidiaries lease from others material amounts of real or personal property
are in good standing, valid and effective in accordance with their respective
terms, and there is not, to the knowledge of Parent, under any of such leases,
any existing material default or event of default (or event which with notice or
lapse of time, or both, would constitute a material default), except where the
lack of such good standing, validity and effectiveness or the existence of such
default or event of default would not reasonably be expected to have a material
adverse effect on Parent.
3.24 CONDITION OF PROPERTY.
(a) Except as set forth in Section 3.24 of the Parent
Disclosure Schedule, each of the buildings, improvements and structures
located upon any real property and land owned by Parent or any of its
subsidiaries ( collectively, the "Owned Property"), and each of the
buildings, structures and premises leased by the Parent or any of its
subsidiaries (the "Leased Premises"), is in reasonably good repair and
operating condition, and Parent has not received any notice of or
writing referring to any requirements by any insurance company that has
issued a policy covering any part or any Owned Property or Lease
Premises or by any board of fire underwriters or any other body
exercising similar functions, requiring any repairs or work to be done
on any part of any Owned Property or Leased Premises, except as would
not reasonably be expected to have a material adverse effect on Parent.
(b) Except as set forth in Section 3.24(b) of the Parent
Disclosure Schedule, all structural or material mechanical systems in
the buildings upon the Owned Property and Leased Properties are in good
working order and working condition, and adequate for the operation of
the business of Parent and its subsidiaries as heretofore conducted,
except as would not reasonably be expected to have a material adverse
effect on Parent.
3.25 INTELLECTUAL PROPERTY.
(a) Parent and/or each of its subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
patents, trade secrets, trademarks, trade names, service marks,
copyrights, and any applications therefor, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are used in the business of
Parent and its subsidiaries as currently conducted, except as would not
reasonably be expected to have material adverse effect on Parent.
A-13
<PAGE> 148
(b) Except as disclosed in Section 3.25(b) of the Parent
Disclosure Schedule or the Parent SEC Documents or as would not
reasonably be expected to have a material adverse effect on Parent (i)
Parent is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations hereunder, in
violation of any licenses, sublicenses and other agreements as to which
Parent is a party and pursuant to which Parent is authorized to use any
third-party patents, trademarks, service marks and copyrights
("Third-Party Intellectual Property Rights"); (ii) no claims with
respect to the patents, registered and material unregistered trademarks
and service marks, registered copyrights, trade names and any
applications therefor owned by Parent or any of its subsidiaries (the
"Parent Intellectual Property Rights"), any trade secret material to
Parent, or Third Party Intellectual Property Rights to the extent
arising out of any use, reproduction or distribution of such Third
Party Intellectual Property Rights by or through Parent or any of its
subsidiaries, are currently pending or, to the knowledge of Parent, are
overtly threatened by any person; and (iii) Parent does not know of any
valid ground for any bona fide claims (A) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by Parent or any of its
subsidiaries, infringes on any copyright, patent, trademark, service
mark or trade secret; (B) against the use by Parent or any of its
subsidiaries, of any programs and applications used in the business of
Parent or any of its subsidiaries, of any trademarks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the business of Parent or
any of its subsidiaries as currently conducted or as proposed to be
conducted; (C) challenging the ownership, validity or effectiveness of
any of the Parent Intellectual Property Rights or other trade secret
material to Parent; or (D) challenging the license or legally
enforceable right to use of the Third Party Intellectual Rights by
Parent or any of its subsidiaries.
(c) To Parent's knowledge, all material patents,
registered trademarks, service marks and copyrights held by Parent are
valid and subsisting. Except as set forth in Section 3.25(c) of the
Parent Disclosure Schedule or the Parent SEC Documents, to Parent's
knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Parent Intellectual Property by any
third party, including any employee or former employee of Parent or any
of its subsidiaries.
3.26 INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 3.26 of the Parent Disclosure Schedule or the Parent SEC Documents or
for events as to which the amounts involved do not, in the aggregate, exceed
$100,000, since the date of Parent's proxy statement dated March 31, 1997 (the
"1997 Parent Proxy Statement"), no event has occurred that would be required to
be reported as a Certain Relationship or Related Transaction, pursuant to Item
404 of Regulation S-K promulgated by the Commission.
3.27 INSURANCE. Except as set forth in Section 3.27 of the
Parent Disclosure Schedule, all material fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies maintained by Parent or any of its subsidiaries are with
reputable insurance carriers, and provide adequate coverage for all normal risks
incident to the business of Parent and its subsidiaries and their respective
properties and assets, except as would not reasonably be expected to have a
material adverse effect on Parent.
3.28 FULL DISCLOSURE. No statement contained in this Agreement
or any certificate or schedule furnished or to be furnished by Parent or Sub or
its subsidiaries to the Company in, or pursuant to the provisions of, this
Agreement when considered with all other statements made in or in connection
with this Agreement, contains or shall contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in the
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading, except where the material fact so
misstated or omitted to be stated would not reasonably be expected to have a
material adverse effect on Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Parent and Sub to enter into this
Agreement, the Company hereby represents and warrants to Parent and Sub that the
statements contained in this Article IV are true, correct and complete.
A-14
<PAGE> 149
4.1 ORGANIZATION AND STANDING. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation with full power and
authority to own, lease, use and operate its properties and to conduct its
business as and where now owned, leased, used, operated and conducted. Each of
the Company and its subsidiaries is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the property it owns, leases or operates makes such qualification
necessary, except where the failure to be so qualified or in good standing in
such jurisdiction would not have a material adverse effect on the Company. The
copies of the Restated Articles of Incorporation and Bylaws (or similar
organizational documents) of the Company and each of its subsidiaries, which
have previously been made available to Parent, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
4.2 SUBSIDIARIES. As of the date hereof, other than immaterial
interests, the Company does not own, directly or indirectly, any equity or other
ownership interest in any corporation, partnership, joint venture or other
entity or enterprise, except as set forth in Section 4.2 to the disclosure
schedule (the "Company Disclosure Schedule") delivered by the Company to Parent
and dated the date hereof. Section 4.2 to the Company Disclosure Schedule sets
forth as to each subsidiary of the Company: (i) its name and jurisdiction of
incorporation or organization, (ii) its authorized capital stock or share
capital and (iii) the number of issued and outstanding shares of its capital
stock or share capital. Except as set forth in Section 4.2 of the Company
Disclosure Schedule, each of the outstanding shares of capital stock of each of
the Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by the Company free and
clear of all liens, pledges, security interests, claims or other encumbrances,
other than liens imposed by law which could not reasonably be expected to have,
in the aggregate, a material adverse effect on the Company. Other than as set
forth in Section 4.2 to the Company Disclosure Schedule, there are no
outstanding shares of capital stock or subscriptions, options, warrants, puts,
calls, agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale or transfer of any securities of any
subsidiary of the Company, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of any
subsidiary of the Company; and no subsidiary of the Company has any obligation
of any kind to issue any additional securities or to pay for securities of any
subsidiary of the Company or any predecessor thereof. As used in this Section
4.2, "capital stock" shall include capital stock or other ownership interests
having by their terms ordinary voting power to elect directors or others
performing similar functions with respect to such entity.
4.3 CORPORATE POWER AND AUTHORITY. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, subject to the approval of the
Merger and the adoption and authorization of this Agreement by the Company
Shareholders in accordance with the MBCA and this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company. The Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Company Shareholders for adoption at a shareholders meeting
and, except for the adoption of this Agreement by the affirmative vote of the
holders of a majority of shares of Company Common Stock in accordance with the
Applicable Law, no other corporate approvals on the part of the Company are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4.4 CAPITALIZATION OF THE COMPANY. The Company's authorized
capital stock consists solely of (a) 20,000,000 shares of common stock, $0.10
par value per share ("Company Common Stock") and (b) 5,000,000 shares of
preferred stock, no par value per share ("Company Preferred Stock"). As of June
30, 1997, (i) 9,466,486 shares of Company Common Stock were issued and
outstanding, (ii) 450,000 shares of Company Common Stock were issuable upon the
exercise or conversion of outstanding options, warrants or convertible
securities granted or issuable (on a contingent basis or otherwise) by the
Company, and (iii) no shares of Company Preferred Stock were issued and
outstanding. Since June 30, 1997, the Company has not issued any shares of its
capital stock except upon the exercise of such options, warrants or convertible
securities. Each outstanding share of Company capital stock is duly authorized
and validly issued, fully paid and nonassessable and free of any preemptive
rights. As of the date hereof, other than as set forth above, in the Company SEC
Documents (as defined in Section 4.7) or in Section 4.4 to the Company
Disclosure Schedule, there are no outstanding shares of capital stock or
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type relating to the issuance, sale
or transfer by the Company of any securities of the Company, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of capital stock of the Company; and the Company has no obligation of any
kind to issue
A-15
<PAGE> 150
any additional securities or to pay for securities of the Company or any
predecessor. The Company has no outstanding bonds, debentures, notes or other
similar obligations the holders of which have the right to vote generally with
holders of Company Common Stock.
4.5 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution
and delivery of this Agreement by the Company, nor the consummation of the
transactions contemplated hereby will:
(a) conflict with or violate any provision of the Restated
Articles of Incorporation or Bylaws (or any similar organizational
document) of the Company or any subsidiary of the Company;
(b) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with the
giving of notice, the passage of time or otherwise, would constitute a
default) under, or entitle any party (with the giving of notice, the
passage of time or otherwise) to terminate, accelerate, modify or call
a default under, or result in the termination, acceleration or
cancellation of, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
the Company or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, contract, undertaking, agreement, lease or other
instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of their respective properties
or assets may be bound;
(c) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of its subsidiaries
or any of their respective properties or assets; or
(d) require any action or consent or approval of, or
review by, or registration or filing by the Company or any of its
affiliates with any third party or any Governmental Authority, other
than (i) authorization of the Merger and the transactions contemplated
hereby by Company Shareholders, (ii) actions required by the HSR Act
and (iii) registrations or other actions required under federal and
state securities laws as are contemplated by this Agreement;
except for any of the foregoing that are set forth in subsections (b), (c) or
(d) of Section 4.5 of the Company Disclosure Schedule and, in the case of (b),
(c) and (d), for any of the foregoing that would not, in the aggregate, have a
material adverse effect on the Company or that would not prevent or delay the
consummation of the transactions contemplated hereby.
4.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Company SEC Documents filed with the Commission as of the date hereof, since
December 31, 1996, (i) each of the Company and its subsidiaries has conducted
its business in the ordinary course, consistent with past practice, (ii) no
event has occurred which has or which would reasonably be expected to have, in
the aggregate, a material adverse effect on the Company (but, excluding for such
purposes, events that are generally applicable in Parent's and the Company's
industry or industries and the United States economy), and (iii) except as
listed on Section 4.6 of the Company Disclosure Schedule neither the Company nor
any of its subsidiaries has taken any action which would be prohibited by
Section 5.3(a).
4.7 COMPANY SEC DOCUMENTS. Each of the Company and its
subsidiaries has timely filed with the Commission all forms, reports,
schedules, statements, exhibits and other documents required to be filed by it
since December 21, 1994 under the Exchange Act or the Securities Act (such
documents, as supplemented and amended since the time of filing, collectively,
the "Company SEC Documents"). The Company SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed (and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively) (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be.
The financial statements (including the related notes) of the Company included
in the Company SEC Documents were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), and fairly present
(subject in the case of unaudited statements to the absence of footnotes and to
normal, recurring and year-end audit adjustments) in all material respects
A-16
<PAGE> 151
the consolidated financial position of the Company as of the dates thereof and
the consolidated results of its operations and cash flows for the periods then
ended.
4.8 TAXES. Except as set forth in the Company SEC Documents
and except with respect to any such matters that would not, in the aggregate,
have a material adverse effect on the Company or as listed in Section 4.8 to the
Company Disclosure Schedule, (i) each of the Company and its subsidiaries has
duly filed all federal and state income tax returns and all other material tax
returns (including, but not limited to, those filed on a consolidated, combined
or unitary basis) required to have been filed by the Company or any of its
subsidiaries prior to the date hereof and will file, on or before the Effective
Time, all such returns which are required to be filed after the date hereof and
on or before the Effective Time, (ii) all of the foregoing returns and reports
are true and correct in all material respects, and each of the Company and its
subsidiaries has paid or, prior to the Effective Time, will pay all taxes
required to be paid in respect of the periods covered by such returns or reports
to any federal, state, foreign, local or other taxing authority, (iii) each of
the Company and its subsidiaries has paid or made adequate provision (in
accordance with generally accepted accounting principles) in the financial
statements of the Company included in the Company SEC Documents for all taxes
payable in respect of all periods ending on or prior to June 30, 1997, (iv)
neither the Company nor any of its subsidiaries will have any material liability
for any taxes in excess of the amounts so paid or reserves so established and
neither the Company nor any of its subsidiaries is delinquent in the payment of
any material tax, assessment or governmental charge and none of them has
requested any extension of time within which to file any returns in respect of
any fiscal year which have not since been filed, (v) no deficiencies for any
tax, assessment or governmental charge have been proposed, asserted or assessed
in writing (tentatively or definitely), in each case, by any taxing authority,
against the Company or any of its subsidiaries for which there are not adequate
reserves in its financial statements (in accordance with generally accepted
accounting principles), (vi) as of the date of this Agreement, there are no
extensions or waivers or pending requests for extensions or waivers of the time
to assess or collect any such tax, (vii) the federal income tax returns of the
Company have not been audited and the federal income tax returns of its
subsidiaries have not been audited, since December 31, 1994, (viii) neither the
Company nor any of its subsidiaries is or has been a party to any tax sharing
agreement with any corporation which is not currently a member of the affiliated
group of which the Company is currently a member, (ix) there are no liens for
taxes on any assets of the Company or any of its subsidiaries (other than
statutory liens for taxes not yet due or liens for which adequate reserves have
been established in its financial statements in accordance with generally
accepted accounting principles), (x) the Company and its subsidiaries have
withheld and paid (and until the Effective Time will withhold and pay) all
income, social security, unemployment, and all other material payroll taxes
required to be withheld (including, without limitation, pursuant to Sections
1441 and 1442 of the Code or similar provisions under foreign law) and paid in
connection with amounts paid to any employee, independent contractor,
stockholder, creditor or other third party, and (xi) the Company has not filed
an election under Section 341(f) of the Code to be treated as a consenting
corporation.
4.9 COMPLIANCE WITH LAW. Each of the Company and its
subsidiaries is in compliance with, and at all times since December 31, 1993 has
been in compliance with, all Applicable Laws relating to it or its business or
properties, except for any such failures to be in compliance therewith which, in
the aggregate, would not have a material adverse effect on the Company.
4.10 REGISTRATION STATEMENT. None of the information provided
by the Company or any of its subsidiaries for inclusion in the Registration
Statement at the time it becomes effective or, in the case of the Proxy
Statement, at the date of mailing, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Each of the
Registration Statement and Proxy Statement (except for such portions thereof
that relate only to or were supplied by Parent and its subsidiaries as to which
no representation is made hereby), will comply in all material respects with the
provisions of the Securities Act and the Exchange Act.
4.11 LITIGATION. Except as set forth in the Company SEC
Documents or Section 4.11 of the Company Disclosure Schedule, there is no action
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries which could reasonably be expected to have a material
adverse effect on the Company. Neither the Company nor any of its subsidiaries
is subject to any outstanding order, writ, injunction or decree which could
reasonably be expected to have a material adverse effect on the Company.
4.12 BROKERAGE AND FINDER'S FEES. Except for the Company's
obligation to Rauscher Pierce Refsnes, Inc. ("Company Broker') (a copy of the
written agreement relating to such obligation having previously been
A-17
<PAGE> 152
provided to Parent), the Company has not incurred and will not incur, directly
or indirectly, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement. Other than the foregoing obligation
to Company Broker and the obligation of Parent to the Parent Broker, the Company
is not aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiation of this
Agreement or in connection with the transactions contemplated hereby.
4.13 OPINION OF FINANCIAL ADVISOR. The Company has received
the opinion of Company Broker to the effect that, as of the date hereof, the
Exchange Ratio is fair to the Company Shareholders from a financial point of
view.
4.14 ACCOUNTING MATTERS. To the best knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed to take any
action that (without giving effect to any actions taken or agreed to be taken by
Parent or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a pooling-of-interests for
financial reporting purposes in accordance with Accounting Principles Board
Opinion No. 16, the interpretative releases issued pursuant thereto, and the
pronouncements of the Commission thereon.
4.15 TAX-FREE REORGANIZATION. To the best knowledge of the
Company, neither the Company nor any of its subsidiaries has taken any action or
failed to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
4.16 EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, "Company Plans" means
all employee benefit plans, programs, policies, practices, and other
arrangements providing benefits to any employee or former employee or
beneficiary or dependent thereof, whether or not written, and whether
covering one person or more than one person, sponsored or maintained by
the Company or any of its subsidiaries or to which the Company or any
of its subsidiaries contributes or is obligated to contribute. Without
limiting the generality of the foregoing, the term "Company Plans"
includes all employee welfare benefit plans within the meaning of
Section 3(1) of ERISA and all employee pension benefit plans within the
meaning of Section 3(2) of ERISA.
(b) Section 4.16 to the Company Disclosure Schedule lists
all Company Plans. With respect to each Company Plan, the Company has
made available to Parent a true, correct and complete copy of: (i) each
writing constituting a part of such Company Plan, including without
limitation all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent
Annual Report (Form 5500 Series) and accompanying schedule, if any;
(iii) the current summary plan description, if any; (iv) the most
recent annual financial report, if any; and (v) the most recent
determination letter from the IRS, if any.
(c) Except as set forth in Section 4.16(c) to the Company
Disclosure Schedule, the Internal Revenue Service has issued a
favorable determination letter or opinion letter with respect to each
Company Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code (a "Qualified Company Plan") and
there are no existing circumstances nor any events that have occurred
that could adversely affect the qualified status of any Qualified
Company Plan or the related trust.
(d) All contributions required to be made to any Company
Plan by Applicable Law or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Company Plan, for any period through the date
hereof have been timely made or paid in full and through the Closing
Date will be timely made or paid in full or, to the extent not required
to be made or paid on or before the date hereof or the Closing Date, as
applicable, have been or will be fully reflected in the Company's
financial statements contained in the Company SEC Documents.
(e) Except as set forth in Section 4.16(e) to the Company
Disclosure Schedule, the Company and its subsidiaries have complied,
and are now in compliance, in all material respects, with all
provisions of ERISA, the Code and all laws and regulations applicable
to the Company Plans. There is not now, and there are no existing,
circumstances that standing alone could give rise to, any requirement
for the posting
A-18
<PAGE> 153
of security with respect to a Company Plan or the imposition of any
lien on the assets of the Company or any of its subsidiaries under
ERISA or the Code.
(f) Except as set forth in Section 4.16(f) to the Company
Disclosure Schedule, no Company Plan is subject to Title IV or Section
302 of ERISA or Section 412 or 4971 of the Code. No Company Plan is a
Multiemployer Plan (as defined in Section 3.16) or a Multiple Employer
Plan (as defined in Section 3.16), nor has the Company or any of its
subsidiaries or any of their respective ERISA Affiliates, at any time
within five years before the date hereof, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer
Plan.
(g) There does not now exist, and there are no existing,
circumstances that could result in, any Controlled Group Liability that
would be a liability of the Company or any of its subsidiaries
following the Closing, other than normal funding responsibilities.
Without limiting the generality of the foregoing, neither the Company
nor any of its subsidiaries nor any of their respective ERISA
Affiliates has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA.
(h) Except as set forth in Section 4.16(h) to the Company
Disclosure Schedule and except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA,
neither the Company nor any of its subsidiaries has any liability for
life, health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof.
(i) Except as set forth in Section 4.16(i) to the Company
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will result in, cause the accelerated vesting or delivery of, or
increase the amount or value of, any payment or benefit to any employee
or director or former employee or former director of the Company or any
of its subsidiaries, pursuant to a "change in control" or "change of
control" or otherwise. Without limiting the generality of the foregoing
and except as set forth in Section 4.16(i) to the Company Disclosure
Schedule, no amount paid or payable by the Company or any of its
subsidiaries in connection with the transactions contemplated hereby
either solely as a result thereof or as a result of such transactions
in conjunction with any other events will be an "excess parachute
payment" within the meaning of Section 280G of the Code.
(j) There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations
which have been asserted or instituted against the Company Plans, any
fiduciaries thereof with respect to their duties to the Company Plans
or the assets of any of the trusts under any of the Company Plans which
could reasonably be expected to result in any material liability of the
Company or any of its subsidiaries to the Pension Benefit Guaranty
Corporation, the Department of Treasury, the Department of Labor or any
Multiemployer Plan.
4.17 CONTRACTS. Section 4.17 of the Company Disclosure
Schedule lists all agreements, arrangements, guaranties, leases, contracts and
understandings, whether written or oral, to which the Company or its
subsidiaries, or any of their respective assets, business, or operations, is a
party, or is bound or affected by, or receives benefits under, but not including
the following: (i) those cancelable without penalty on notice of ninety days or
less and pursuant to which aggregate annual payments do not exceed $50,000; (ii)
those with a remaining term of less than one year and pursuant to which
aggregate annual payments do not exceed $50,000; (iii) those for the purchase
and sale of raw materials and supplies and finished goods and repurchase
agreements with dealers' floor plan lenders (forms of which have been provided
to Parent) in the ordinary course of business on terms customary in the industry
and consistent with past practices; (iv) those that do not require the Company
to make aggregate annual payments of more than $25,000; and (v) except as
otherwise reflected in the Company SEC Documents (the "Company Contracts"). With
respect to each Company Contract and each such agreement, arrangement, guaranty,
lease, contract or understanding excluded from the definition of Company
Contract, and except as set forth in Section 4.17 of the Company Disclosure
Schedule, none of the Company, any of its subsidiaries, or, to the knowledge of
the Company, any other party thereto is in violation of or in default in respect
of, nor has there occurred an event or condition which with the passage of time
or giving of notice (or both) would constitute a default by the Company under,
any Company Contract to which it is a party, except such violations or defaults
under such Company Contracts which, in the aggregate, would not have a material
adverse effect on the Company.
A-19
<PAGE> 154
4.18 LABOR RELATIONS. There is no unfair labor practice
complaint against the Company or any of its subsidiaries pending before the NLRB
and there is no labor strike, dispute, slowdown or stoppage, or any union
organizing campaign, actually pending or, to the knowledge of the Company,
threatened against or involving the Company or any of its subsidiaries, except
for any such proceedings which would not have a material adverse effect on the
Company. Except as disclosed in the Company SEC Documents or Section 4.18 to the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. To the
knowledge of the Company, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or threatened
involving employees of the Company or any of its subsidiaries.
4.19 PERMITS. Each of the Company and its subsidiaries is in
possession of all Permits necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted, except for any such
Permits the failure of which to possess, in the aggregate, would not reasonably
be expected to have a material adverse effect on the Company.
4.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Company SEC Documents
filed with the Commission as of the date hereof or as disclosed in the
Phase I environmental surveys with respect to the facilities operated
by the Company and its subsidiaries, copies of which have been provided
to Parent, there are, with respect to the Company, its subsidiaries or
any predecessor of the foregoing, no past or present violations of
Environmental Laws, nor any releases of any materials into the
environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common
law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws, other than those which,
in the aggregate, would not reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, taken as a whole,
and none of the Company and its subsidiaries has received any notice
with respect to any of the foregoing, nor is any action pending or
threatened in connection with any of the foregoing that, if adversely
determined, could reasonably be expected to have a material adverse
effect on the Company.
(b) Except as set forth in Section 4.20 to the Company
Disclosure Schedule or set forth in the Company SEC Documents filed
with the Commission as of the date hereof or as disclosed in the Phase
I environmental surveys conducted in connection with the transactions
contemplated by this Agreement with respect to the facilities operated
by the Company and its subsidiaries, copies of which have been provided
to Parent, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
subsidiaries and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or any of
its subsidiaries during the period the property was so owned, leased or
used, except in the normal course of the Company's business, other than
those which, in the aggregate, would not reasonably be expected to have
a material adverse effect on the Company.
4.21 PARENT STOCK OWNERSHIP. Except as set forth in Section
4.21 to the Company Disclosure Schedule, neither the Company nor any of its
"affiliates" or "associates" "owns" (as each of such terms is defined in Section
203 of the Delaware General Corporation Law) any shares of Parent Common Stock
or other securities convertible into Parent Common Stock.
4.22 STATE TAKEOVER LAWS. Prior to the date hereof, the Board
of Directors of the Company has taken all action necessary to exempt under or
make not subject to any applicable takeover laws: (i) the execution of this
Agreement, (ii) the Merger and (iii) the transactions contemplated hereby. As
used herein, "takeover laws" means any "moratorium," "control share," "fair
price," "business combination" or similar anti-takeover statutes or regulations
of the State of Mississippi or any other law, or any provision of the Company's
Restated Articles of Incorporation or Bylaws, that purports to limit or restrict
business combinations or the ability to acquire or vote shares that would
otherwise be applicable to this Agreement and the transactions contemplated
hereby.
4.23 NO UNDISCLOSED LIABILITIES. Except as is disclosed in
Section 4.23 of the Company Disclosure Schedule and the Company SEC Documents,
neither the Company nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise), except liabilities (a) in the aggregate
adequately provided for in
A-20
<PAGE> 155
the Company's balance sheet (including any related notes thereto) as of
December 31, 1996 included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "1996 Balance Sheet"), (b) incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected on the 1996 Balance Sheet, (c) in the
aggregate adequately provided for in the Company's unaudited balance sheet
(including any notes thereto) for the period ended June 30, 1997, included in
the Company's Quarterly Report on Form 10-Q for such period or incurred since
December 31, 1996 in the ordinary course of business and consistent with past
practice, (d) incurred in connection with this Agreement, or (e) which would not
reasonably be expected to have a material adverse effect on the Company.
4.24 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, or as set forth in Section 4.24 of the Company Disclosure Schedule or
the Company SEC Documents, to the best of the Company's knowledge, there is no
agreement, judgment, injunction, order or decree binding upon the Company or any
of its subsidiaries which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of the Company or
any of its subsidiaries, any acquisition of property by the Company or any of
its subsidiaries or the conduct of business by the Company or any of its
subsidiaries as currently conducted or as proposed to be conducted by the
Company, except for any prohibition or impairment as would not reasonably be
expected to have a material adverse effect on the Company.
4.25 TITLE TO PROPERTY. Except as set forth in Section 4.25 of
the Company Disclosure Schedule, the Company and each of its subsidiaries have
good and marketable title to all of their owned properties and assets, real and
personal, tangible and intangible, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which would not reasonably be expected to have a material adverse effect on the
Company; and, to the Company's knowledge, all leases pursuant to which the
Company or any of its subsidiaries lease from other material amounts of real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, to the knowledge of the Company, under
any of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default) except where the lack of such good standing, validity and
effectiveness, or the existence of such default or event of default would not
reasonably be expected to have a material adverse effect on the Company.
4.26 CONDITION OF PROPERTY.
(a) Except as set forth in Section 4.26(a) of the Company
Disclosure Schedule, each of the buildings, improvements and structures
located upon any real property and land owned by Company or any of its
subsidiaries (collectively, the "Owned Property"), and each of the
buildings, structures and premises leased by the Company or any of its
subsidiaries (the "Leased Premises"), is in reasonably good repair and
operating condition, and the Company has not received any notice of or
writing referring to any requirements by any insurance company that has
issued a policy covering any part of any Owned Property or Leased
Premises or by any board of fire underwriters or other body exercising
similar functions, requiring any repairs or work to be done on any part
of any Owned Property or Leased Premises, except as would not
reasonably be expected to have a material adverse effect on the
Company.
(b) Except as set forth in Section 4.26(b) of the Company
Disclosure Schedule, all structural or material mechanical systems in
the buildings upon the Owned Property and Leased Properties are in good
working order and working condition, and are adequate for the operation
of the business of the Company and its subsidiaries as heretofore
conducted, except as would not reasonably be expected to have a
material adverse effect on the Company.
4.27 INTELLECTUAL PROPERTY.
(a) The Company and/or each of its subsidiaries owns, or
is licensed or otherwise possesses legally enforceable rights to use,
all patents, trade secrets, trademarks, trade names, service marks,
copyrights, and any applications therefor, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are used in the business of
the Company and its subsidiaries as currently conducted, except as
would not reasonably be expected to have a material adverse effect on
the Company.
A-21
<PAGE> 156
(b) Except as disclosed in Section 4.27(b) of the Company
Disclosure Schedule or the Company SEC Documents or as would not
reasonably be expected to have a material adverse effect on the
Company: (i) the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to
which the Company is authorized to use any third-party patents,
trademarks, service marks and copyrights ("Third-Party Intellectual
Property Rights"); (ii) no claims with respect to the patents,
registered and material unregistered trademarks and service marks,
registered copyrights, trade names and any applications therefor owned
by the Company or any of its subsidiaries (the "Company Intellectual
Property Rights"), any trade secret material to the Company, or Third
Party Intellectual Property Rights to the extent arising out of any
use, reproduction or distribution of such Third Party Intellectual
Property Rights by or through the Company or any of its subsidiaries,
are currently pending or, to the knowledge of the Company, are overtly
threatened by any person; and (iii) the Company does not know of any
valid grounds for any bona fide claims (A) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by the Company or any of
its subsidiaries infringes on any copyright, patent, trademark, service
marks or trade secret; (B) against the use by the Company or any of its
subsidiaries of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and
applications used in the business of the Company or any of its
subsidiaries as currently conducted or as proposed to be conducted; (C)
challenging the ownership, validity or effectiveness of any part of the
Company Intellectual Property Rights or other trade secret material to
the Company; or (D) challenging the license or legally enforceable
right to use of the Third Party Intellectual Rights by the Company or
any of its subsidiaries.
(c) To the Company's knowledge, all material patents,
registered trademarks and copyrights held by the Company are valid and
subsisting. Except as set forth in Section 4.27(c) of the Company
Disclosure Schedule or the Company SEC Documents, to the Company's
knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any
third party, including any employee or former employee of the Company
or any of its subsidiaries.
4.28 INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 4.28 of the Company Disclosure Schedule or the Company SEC Documents or
for events as to which the amounts involved do not, in the aggregate, exceed
$100,000, since the date of the Company's proxy statement dated May 6, 1997, no
event has occurred that would be required to be reported as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the Commission.
4.29 INSURANCE. Except as disclosed in Section 4.29 of the
Company Disclosure Schedule, all material fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies maintained by the Company or any of its subsidiaries are with
reputable insurance carriers, and provide adequate coverage for all normal risks
incident to the business of the Company and its subsidiaries and their
respective properties and assets, except as would not reasonably be expected to
have a material adverse effect on the Company.
4.30 FULL DISCLOSURE. No statement contained in this Agreement
or in any certificate or schedule furnished or to be furnished by the Company to
Parent in, or pursuant to the provisions of, this Agreement, when considered
with all other statements made in or in connection with this Agreement, contains
or will contain any untrue statement of a material fact or omits or shall omit
to state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not misleading,
except where the material fact so misstated or omitted to be stated would not
reasonably be expected to have a material adverse effect on the Company.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period
from and after the execution of this Agreement.
A-22
<PAGE> 157
5.1 MUTUAL COVENANTS.
(a) GENERAL. Each of the parties shall use its reasonable
efforts to take all action and to do all things necessary, proper or
advisable to consummate the Merger and the transactions contemplated by
this Agreement as promptly as possible (including, without limitation,
using its reasonable efforts to cause the conditions set forth in
Article VI for which they are responsible to be satisfied as soon as
reasonably practicable and to prepare, execute and deliver such further
instruments and take or cause to be taken such other and further action
as any other party hereto shall reasonably request).
(b) HSR ACT. As soon as practicable, and in any event no
later than ten business days after the date hereof, each of the parties
hereto will file any Notification and Report Forms and related material
required to be filed by it with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
HSR Act with respect to the Merger, will use its reasonable efforts to
obtain an early termination of the applicable waiting period, and shall
promptly make any further filings pursuant thereto that may be
necessary, proper or advisable.
(c) OTHER GOVERNMENTAL MATTERS AND CONSENTS. Each of the
parties shall use its reasonable efforts to take any additional action
that may be necessary, proper or advisable in connection with any other
notices to, filings with, and authorizations, consents and approvals of
any Governmental Authority or other person or entity that it may be
required to give, make or obtain.
(d) POOLING-OF-INTERESTS. Each of the parties shall use
its reasonable efforts to cause the Merger to qualify for
pooling-of-interests accounting treatment for financial reporting
purposes.
(e) TAX-FREE TREATMENT. Each of the parties shall use its
reasonable efforts to cause the Merger to constitute a tax-free
"reorganization" under Section 368(a) of the Code and to permit Bradley
Arant Rose & White LLP to issue its opinion provided for in Section
6.2(d).
(f) PUBLIC ANNOUNCEMENTS. Unless otherwise required by
Applicable Law or requirements of the NYSE or The Nasdaq Stock Market,
at all times prior to the earlier of the Effective Time or termination
of this Agreement pursuant to Section 7.1, Parent and the Company shall
consult with each other before issuing any press release with respect
to the Merger and shall not issue any such press release prior to such
consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange
or the National Association of Securities Dealers, Inc.
(g) ACCESS. Subject to Applicable Law, from and after the
date of this Agreement until the Effective Time (or the termination of
this Agreement), Parent and the Company shall permit representatives of
the other to have reasonable access to the other's officers, employees,
premises, properties, books, records, contracts, tax records and
documents. Information obtained by Parent and the Company pursuant to
this Section 5.1(g) shall be subject to the provisions of the
confidentiality agreement between them dated July 11, 1997 (the
"Confidentiality Agreement"), which agreement remains in full force and
effect.
(h) STOCKHOLDERS AND SHAREHOLDERS MEETINGS. Each of
Parent and the Company shall duly call, give notice of, convene and
hold a meeting of its respective stockholders and shareholders, to be
held as promptly as practicable following the date hereof for the
purpose of obtaining the requisite stockholder and shareholder
approvals and adoptions in connection with this Agreement, the Share
Issuance and the Merger, and each shall use reasonable efforts to cause
such meetings to occur on the same date. Subject to compliance with
their respective fiduciary duties to their shareholders and
stockholders under Mississippi and Delaware law, respectively, the
Board of Directors of each of Parent and the Company will (i) recommend
that its respective stockholders and shareholders approve such matters
and (ii) use reasonable efforts to obtain any necessary approvals by
its respective stockholders and shareholders.
(i) PREPARATION OF PROXY STATEMENT AND REGISTRATION
STATEMENT. Each of Parent and the Company shall cooperate to, and
shall, as soon as is reasonably practicable, prepare and file the Proxy
Statement with the Commission on a confidential basis. Each of Parent
and the Company shall cooperate to prepare and file, and Parent shall
prepare and file, the Registration Statement with the Commission as
soon as
A-23
<PAGE> 158
is reasonably practicable following clearance of the Proxy Statement by
the Commission and each of Parent and the Company shall cooperate to,
and shall, use all reasonable efforts to have the Registration
Statement declared effective by the Commission as promptly as
practicable and to maintain the effectiveness of the Registration
Statement through the Effective Time. Parent shall advise the Company
promptly after it receives notice of (i) the Registration Statement
being declared effective or any supplement or amendment thereto being
filed with the Commission, (ii) the issuance of any stop order in
respect of the Registration Statement, and (iii) the receipt of any
correspondence, comments or requests from the Commission in respect of
the Registration Statement. If at any time prior to the Effective Time,
any information pertaining to the Company contained in or omitted from
the Registration Statement makes statements contained in the
Registration Statement false or misleading, the Company shall promptly
so inform Parent and provide Parent with the information necessary to
make such statements contained therein not false and misleading. Each
of Parent and Company shall also cooperate to, and shall, take such
other reasonable actions (other than qualifying to do business in any
jurisdiction in which it is not so qualified) required to be taken
under any applicable state securities laws in connection with the Share
Issuance.
(j) NOTIFICATION OF CERTAIN MATTERS. Each of Parent and
the Company shall give prompt notice to the other party of (i) the
occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty
contained in this Agreement made by such party to be untrue or
inaccurate at or prior to the Effective Time and (ii) any material
failure of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this
Section 5.1(j) shall not limit or otherwise affect the remedies
available hereunder to any party, nor will it override the provisions
of Sections 6.2 and 6.3, as applicable.
(k) AFFILIATES. Each of Parent and the Company shall use
its reasonable efforts to cause each such person who may be at the
Effective Time or was on the date hereof an "affiliate" of such party
within the meaning of Rule 145 under the Securities Act, to execute and
deliver to Parent no less than 35 days prior to the date of the meeting
of such party's respective stockholders and shareholders written
undertakings in the form attached hereto as Exhibit 5.1(k).
(l) INJUNCTIONS. Each of Parent and the Company shall
cooperate with one another in order to lift any injunctions or remove
any other impediment to the consummation of the transactions
contemplated by this Agreement.
(m) TAX REPRESENTATION LETTERS. Each of Parent and the
Company shall cooperate with one another in obtaining the opinion of
Bradley Arant Rose & White LLP, counsel to Parent, dated as of the
Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and no
gain or loss will be recognized by Company Shareholders with respect
to shares of Parent Company Stock received in the Merger in exchange
for shares of Company Common Stock, except with respect to cash
received in lieu of fractional shares of Parent Common Stock. In
connection therewith, each of Parent and the Company shall deliver to
Bradley Arant Rose & White LLP representation letters substantially in
the form attached hereto as Exhibit 5.1(m).
(n) ADDITIONAL REPORTS. Parent and the Company shall each
furnish to the other copies of any reports of the type referred to in
Sections 3.7 and 4.7 which it files with the SEC on or after the date
hereof, and Parent and the Company, as the case may be, represents and
warrants that, as of the respective dates thereof, such reports will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading. Any unaudited consolidated interim
financial statements included in such reports (including any related
notes and schedules) will fairly present in all material respects the
financial position of Parent and its consolidated subsidiaries or the
Company and its consolidated subsidiaries, as the case may be, as of
the dates thereof and the results of operations and changes in
financial position or other information included therein for the
periods or as of the dates then ended (subject, where appropriate, to
normal year-end adjustments), in each case in accordance with past
practice and generally accepted accounting principles consistently
applied during the periods involved (except as otherwise disclosed
in the notes thereto).
A-24
<PAGE> 159
5.2 COVENANTS OF PARENT.
(a) CONDUCT OF PARENT'S OPERATIONS. From the date of this
Agreement until the earlier of the Effective Time or the termination of
this Agreement, Parent covenants and agrees that it shall (x) continue
to conduct its business and the business of its subsidiaries in a
manner designed in its reasonable judgment to enhance the long-term
value of the Parent Common Stock and the business prospects of the
Parent and its subsidiaries and (y) take no action which would (i)
materially adversely affect the ability to obtain any consents required
for the transactions contemplated hereby, or (ii) materially adversely
affect the ability of any party hereto to perform its covenants and
agreements under this Agreement; provided, that the foregoing shall not
prevent the Parent or any of its subsidiaries from discontinuing or
disposing of any of their respective properties or business if such
action is, in the judgment of Parent, desirable in the conduct of the
business of Parent and its subsidiaries.
(b) INDEMNIFICATION. Parent and Sub agree that all rights
to exculpation and indemnification for acts or omissions occurring
prior to the Effective Time now existing in favor of the current or
former directors or officers (the "Indemnified Parties") of the Company
as provided by law or in its Restated Articles of Incorporation, Bylaws
or in any agreement shall survive the Merger and shall continue in full
force and effect in accordance with their terms. For six years from the
Effective Time, Parent shall not amend, repeal, or otherwise modify the
Restated Articles of Incorporation, Bylaws or any such agreement as any
of them relate to indemnification in any manner that would adversely
affect the rights thereunder of the Indemnified Parties, unless such
modification is required by law, and Parent further shall indemnify the
Indemnified Parties to the same extent as such Indemnified Parties are
entitled to indemnification pursuant to the preceding sentence. In
addition, from and after the Effective Time, Parent and the Surviving
Corporation shall indemnify and hold harmless each officer and director
of the Company to the extent such person would be entitled to
indemnification pursuant to the first sentence of this Section 5.2(b)
against any costs or expenses (including attorneys' fees), losses,
damages or amounts paid in settlement in connection with any claim,
action, suit or proceeding arising out of or pertaining to the
transactions contemplated by this Agreement, provided that the
Indemnified Party agrees that, in the event that it is ultimately
determined that such Indemnified Party is not entitled to the payment
of such expenses, for any reason, such Indemnified Party shall
reimburse Parent or the Surviving Corporation for such expenses paid in
advance. The Surviving Corporation or Parent, as the case may be, shall
only be required to pay for one law firm for all Indemnified Parties
(unless the use of one law firm for all Indemnified Parties would
present such law firm with a conflict of interest). Neither the
Surviving Corporation nor Parent shall be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld or delayed). Parent will maintain in effect the
Company's directors' and officers' liability policy for the current
term of such policy.
(c) LISTING APPLICATION. Parent shall, as soon as
practicable following the date hereof, prepare and submit to the NYSE a
subsequent listing application covering the shares of Parent Common
Stock issuable in the Merger, and shall use its reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such
shares of Parent Common Stock, subject to official notice of issuance.
(d) EMPLOYEE BENEFITS. Following the Effective Time,
except as otherwise provided in this Section 5.2, Parent shall provide
generally to officers and employees of the Company and its subsidiaries
employee benefits under employee benefit plans (other than stock option
or other plans involving the potential issuance of Parent Common
Stock), on terms and conditions which are not materially less favorable
than those currently provided by the Company and its subsidiaries to
their similarly situated officers and employees. Company officers and
employees shall be entitled to receive credit for time of service to
the Company or any of its subsidiaries for such purposes. Parent and
Company further agree that the Belmont Homes, Inc. 401(k) Profit
Sharing Plan (the "BH 401(k)") will either be (i) merged into the
Cavalier Homes, Inc. Employees 401(k) Retirement Plan (the "CH
401(k)"), (ii) terminated as of such date prior to, on or after the
Effective Time or (iii) continued (with such changes as Parent from
time to time shall determine), all as Parent shall determine and
specify consistent with the requirements of the Code and ERISA. In the
event of the merger or termination of the BH 401(k) as contemplated by
clauses (i) and (ii) above, then from and after (i) January 1 following
the termination of the BH 401(k) or (ii) the merger of the BH 401(k)
into the CH 401(k), for purposes of determining eligibility to
participate in, and vesting in accrued benefits under the CH 401(k),
employment by the Company or its subsidiaries shall be credited as if
it were employment by Parent, except to the extent
A-25
<PAGE> 160
otherwise required by applicable law, but such service shall not be
credited for purposes of determining benefit accrual under the CH
401(k).
(e) ACCOUNTANT'S "COMFORT" LETTER. Parent shall use its
reasonable efforts to cause to be delivered to the Company "comfort"
letters of Deloitte & Touche LLP, its independent public accountants,
dated the date on which the Registration Statement shall become
effective and as of the Effective Time, respectively, and addressed to
the Company, in form and substance reasonably satisfactory to the
Company and reasonably customary in scope and substance for letters
delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and
transactions such as those contemplated by this Agreement.
5.3 COVENANTS OF THE COMPANY.
(a) CONDUCT OF THE COMPANY'S OPERATIONS. During the
period from the date of this Agreement to the Effective Time, the
Company shall, and shall cause its subsidiaries to, conduct its
operations in the ordinary course except as expressly contemplated by
this Agreement and the transactions contemplated hereby and shall use
its reasonable efforts to maintain and preserve its business
organization and its material rights and franchises and to retain the
services of its officers and key employees and maintain relationships
with customers, suppliers and other third parties to the end that their
goodwill and ongoing business shall not be impaired in any material
respect. The Company shall confer at such times as Parent may
reasonably request with one or more representatives of Parent to report
material operational matters and the general status of on-going
operations (to the extent Parent reasonably requires such information).
Furthermore, the Company shall notify Parent of any emergency or other
change in the normal course of its or its subsidiaries respective
businesses or in the operation of its or its subsidiaries respective
properties and of any complaints, investigations or hearings (or
communications that threaten the same) of any governmental body or
authority if such emergency, charge, complaint, investigation or
hearing would have a material adverse effect on the Company. Without
limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time or the earlier termination
of this Agreement pursuant to Section 7.1, the Company shall not, and
shall cause its subsidiaries to not, except as otherwise expressly
contemplated by this Agreement and the transactions contemplated
hereby, without the prior written consent of Parent:
(i) do or effect any of the following actions with
respect to its securities or the securities of any of its
subsidiaries: (A) adjust, split, combine or reclassify its
capital stock, (B) make, declare or pay any dividend or
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire any of its securities, (C) grant any person
any right or option to acquire any of its securities, (D)
issue, deliver or sell or agree to issue, deliver or sell any
additional securities (except pursuant to the exercise of
outstanding options to purchase Company Common Stock or the
Suddath Warrant) or amend the terms of any of its securities,
or (E) enter into any agreement, understanding or arrangement
with respect to the sale or voting of its capital stock;
(ii) sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its property or assets
which are material, in the aggregate, other than in the
ordinary course of business consistent with past practice;
(iii) make or propose any changes in its Restated
Articles of Incorporation, as amended, or Bylaws, or other
organizational documents;
(iv) merge or consolidate with any other person or
acquire a material amount of assets or capital stock of any
other person or enter into any confidentiality agreement with
any person except in the circumstances permitted in Section
5.3(b) below, other than in connection with this Agreement and
the transactions contemplated hereby;
(v) incur, create, assume or otherwise become
liable for indebtedness for borrowed money, other than in the
ordinary course of business consistent with past practice, or
assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for
A-26
<PAGE> 161
obligations of any other individual, corporation or other
entity, other than in the ordinary course of business
consistent with past practice;
(vi) enter into or modify any employment,
severance, termination or similar agreements or arrangements
with, or grant any bonuses, salary increases, severance or
termination pay to, any officer, director, consultant or
employee other than salary increases and bonuses granted to
employees who are not officers or directors in the ordinary
course of business consistent with past practice, or otherwise
increase the compensation or benefits provided to any officer,
director, consultant or employee except as may be required by
Applicable Law, this Agreement, any applicable collective
bargaining agreement or a binding written contract in effect
on the date of this Agreement, or adopt any new employee
benefit plan (or grant any options or awards thereunder);
(vii) change its method of doing business or change
any method or principle of accounting in a manner that is
inconsistent with past practice;
(viii) settle any actions or claims, whether now
pending or hereafter made or brought, involving an amount in
excess of $25,000;
(ix) modify, amend or terminate, or waive, release
or assign any material rights or claims with respect to, any
Company Contract to which the Company is a party or any
confidentiality agreement to which the Company is a party
(except in the case of a confidentiality agreement to the
extent permitted by Section 5.3(b) below), or enter into any
new Company Contract;
(x) incur or commit to any capital expenditures,
obligations or liabilities in respect thereof or any
acquisitions of any other business or any material portion
thereof, other than in the ordinary course of business
consistent with past practice;
(xi) subject to the terms of Section 5.3(b) of this
Agreement, conduct its business in a manner or take, or cause
to be taken, any other action that could reasonably be
expected to prevent or materially delay the Company from
consummating the transactions contemplated by this Agreement
(regardless of whether such action would otherwise be
permitted or not prohibited hereunder), including without
limitation, any action that may materially limit or delay the
ability of the Company to consummate the transactions
contemplated by this Agreement as a result of antitrust or
securities laws or other regulatory concerns;
(xii) make any material tax election or settle or
compromise any material tax liability, other than in
connection with currently pending proceedings or other than in
the ordinary course of business;
(xiii) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities reflected or
reserved against in the financial statements contained in the
Company SEC Reports filed prior to the date of this Agreement
or incurred in the ordinary course of business and consistent
with past practice; or
(xiv) agree to take any action prohibited by the
foregoing.
(b) NO SOLICITATION. The Company agrees that, during the
term of this Agreement, it shall not, and shall not authorize or permit
any of its subsidiaries or any of its or its subsidiaries' directors,
officers, employees, agents, financial advisors, investment bankers,
attorneys, accountants or other representatives, directly or
indirectly, to (i) solicit, initiate or encourage (including by way of
furnishing non-public information) any inquiries or the making of any
proposal with respect to any recapitalization, merger, tender offer or
exchange offer, consolidation or other business combination involving
the Company, or acquisition or disposition of any capital stock
(whether or not then outstanding except in connection with the exercise
of options or warrants, as permitted in Section 5.3(a)) or any material
portion of the assets of the Company (except for acquisitions or
dispositions of assets in the ordinary course of business consistent
with
A-27
<PAGE> 162
past practice), or any combination of the foregoing or other similar
transaction (a "Company Competing Transaction"), (ii) negotiate or
otherwise engage in discussions with any person (other than Parent, Sub
or their respective directors, officers, employees, agents, financial
advisors, investment bankers, attorneys, accountants and other
representatives) with respect to any Company Competing Transaction or
(iii) enter into any agreement, arrangement or understanding with
respect to a Company Competing Transaction, or that requires it to
abandon, terminate or fail to consummate the Merger, or that directly
results in impeding, interfering with or frustrating the Merger.
Notwithstanding anything in this Agreement to the contrary, the Company
may (x) furnish non-public or other information to (subject to a
confidentiality agreement in reasonably customary form, but in no event
on terms materially less favorable to the Company than the
Confidentiality Agreement), and negotiate or otherwise engage in
discussions with, any party who delivers an unsolicited bona fide
proposal for a Company Competing Transaction (as further defined in the
last sentence of Section 7.1 below) if and so long as the Board of
Directors of the Company determines in good faith, after consultation
with its outside legal counsel, that not taking such action would
reasonably be expected to result in the violation by the Board of
Directors of the Company of its fiduciary duties to its shareholders
under Mississippi law, and (y) take a position with respect to a
Company Competing Transaction, or amend or withdraw such position, in
compliance with Rule 14e-2 promulgated under the Exchange Act with
regard to a Company Competing Transaction; provided, however, that the
Company shall take a position recommending against such Company
Competing Transaction unless it determines in good faith, after
consultation with its outside legal counsel, that to take such a
position would reasonably be expected to constitute a violation of the
fiduciary duties of the Board of Directors of the Company to its
shareholders under Mississippi law. The Company will immediately cease
all existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any Company Competing Transaction.
From and after the execution of this Agreement, the Company shall
immediately advise Parent orally, to be followed by a confirmation in
writing, of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations, or proposals relating to a Company Competing
Transaction (including, unless prohibited by law from doing so, the
status of the negotiations and the transaction and reasonable details
with respect thereto), and shall, unless prohibited by law from doing
so keep Parent advised on a current basis of the status and the
reasonable details with respect to any such proposals or inquiries and
any discussions or negotiations. Unless prohibited by law the Company
shall also promptly furnish to Parent a copy of any such proposal or
inquiry in addition to any information provided to or by any third
party relating thereto.
(c) ACCOUNTANT'S "COMFORT" LETTERS. The Company shall use
its reasonable efforts to cause to be delivered to Parent "comfort"
letters of KPMG Peat Marwick LLP, its independent public accountants,
dated the date on which the Registration Statement shall become
effective and as of the Effective Time, respectively, and addressed to
Parent, in form and substance reasonably satisfactory to Parent and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with registration
statements similar to the Registration Statement and transactions such
as those contemplated by this Agreement.
ARTICLE VI
CONDITIONS
6.1 MUTUAL CONDITIONS. The obligations of the parties hereto
to consummate the Merger shall be subject to fulfillment of the following
conditions:
(a) No temporary restraining order, preliminary or
permanent injunction or other order or decree which prevents the
consummation of the Merger shall have been issued and remain in effect,
and no statute, rule, regulation or executive order shall have been
enacted, entered or promulgated by any Governmental Authority which
prohibits the consummation of the Merger substantially on the terms
contemplated hereby.
(b) All waiting periods applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and
all other material consents, approvals, permits or authorizations
required to be obtained prior to the Effective Time from any
Governmental Authority in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby shall have been obtained.
A-28
<PAGE> 163
(c) This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the affirmative vote of
a majority of the outstanding shares of Company Common Stock entitled
to vote thereon, in accordance with Applicable Law, at the Company's
shareholder meeting, and the Share Issuance shall have been approved by
the Parent Stockholders in accordance with the rules of NYSE.
(d) The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or, to the
knowledge of Parent or the Company, threatened by the SEC or any other
Governmental Entity.
(e) No action shall be instituted by any Governmental
Authority which seeks to prevent consummation of the Merger or which
seeks material damages in connection with the transactions contemplated
hereby which continues to be outstanding.
(f) The shares of Parent Common Stock to be issued in the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(g) All consents, waivers and approvals of third parties
required in connection with the transactions contemplated hereby shall
have been obtained, except where the failure to obtain such consents,
waivers or approvals, in the aggregate, would not reasonably be
expected to result in a material adverse effect on Parent or the
Company, as the case may be, provided that a party which has not used
all reasonable efforts to obtain a consent, approval or waiver may not
assert this condition with respect to such consent, approval or waiver.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
the Company:
(a) The representations and warranties of each of Parent
and Sub shall be true and correct on the date hereof and on and as of
the Closing Date as though made on and as of the Closing Date (except
for representations and warranties made as of a specified date, which
need be true and correct only as of the specified date), other than
such breaches of representations and warranties which would not have or
which would not be reasonably expected to have, in the aggregate, a
material adverse effect on Parent.
(b) Each of Parent and Sub shall have performed in all
material respects each obligation and agreement and shall have complied
in all material respects with each covenant to be performed and
complied with by it hereunder at or prior to the Effective Time.
(c) Parent and Sub shall have delivered to the Company a
certificate, dated as of the Closing Date and signed by its Chairman,
Chief Executive Officer and President or a Senior Vice President,
certifying as to the satisfaction of the matters described in (a) and
(b) above.
(d) The Company shall have received an opinion dated as
of the date of the mailing of the Proxy Statement of Bradley Arant Rose
& White LLP, which opinion has not been withdrawn or modified in any
material way, substantially in the form of Exhibit 6.2(d), to the
effect that (1) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and (2) no gain or loss will be
recognized by Company Shareholders with respect to shares of Parent
Common Stock received in the Merger in exchange for shares of Company
Common Stock, except with respect to cash received in lieu of
fractional shares of Parent Common Stock; and the Company shall further
have received an opinion of Bradley Arant Rose & White LLP dated as of
the Closing Date, in form reasonably satisfactory to the Company, to
the effect that, (A) each of Parent and Sub are corporations duly
organized, existing and in good standing under the laws of their
respective states of incorporation, (B) this Agreement was duly
authorized by Parent and Sub and constitutes a valid and binding
agreement enforceable against each of Parent and Sub in accordance with
its terms, and (C) the shares of Parent Common Stock to be issued in
the Merger have been duly authorized and are validly issued, fully paid
and nonassessable, have been registered under the Securities Act
pursuant to a registration statement that has been declared effective
and as to which, to the best of its knowledge, no stop order has been
issued or is threatened. In rendering the tax opinions referenced in
(1) and (2) above, Bradley Arant Rose &
A-29
<PAGE> 164
White LLP, may require and rely on representations contained in
certificates of Parent, the Company, Sub and others and in the tax
representation letters provided for in Section 5.1(m) above, as they
deem reasonably appropriate. In the corporate opinions referred to in
(A), (B) and (C) above, Bradley Arant Rose & White LLP may rely on
representations contained in certificates of Parent, the Company, Sub
and others, on certificates of public officials, and on opinions of
local legal counsel, as it deems appropriate, and shall be entitled to
render the opinion in such form and with such qualifications as is
customary for such firm in rendering similar opinions in transactions
of this nature.
(e) The Company shall have received a letter, in form and
substance reasonably satisfactory to the Company, from KPMG Peat
Marwick LLP, dated the date of the Proxy Statement and confirmed in
writing at the Effective Time, stating that the Merger will qualify as
a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board.
(f) The Company shall have received from Parent the
"comfort" letters of Deloitte & Touche LLP described in Section 5.2(e).
(g) The Company shall have received an opinion from the
Company Broker dated as of the date of mailing of the Proxy Statement
to the effect that, as of the date thereof, the Exchange Ratio is fair
to the Company Shareholders from a financial point of view.
6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to consummate the Merger and the other
transactions contemplated hereby shall be subject to the fulfillment of the
following conditions unless waived by each of Parent and Sub:
(a) The representations and warranties of the Company
shall be true and correct on the date hereof and on and as of the
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need
be true and correct only as of the specified date), other than such
breaches of representations and warranties which would not have or
which would not be reasonably expect to have, in the aggregate, a
material adverse effect on the Company.
(b) The Company shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with
by it hereunder at or prior to the Effective Time.
(c) The Company shall have delivered to Parent a
certificate, dated as of the Closing Date and signed by its Chairman,
Chief Executive Officer and President or a Senior Vice President
certifying as to the satisfaction of the matters described in (a) and
(b) above.
(d) Each person who may be at the Effective Time or was
on the date of this Agreement an "affiliate" of the Company within the
meaning of Rule 145 under the Securities Act, shall have executed and
delivered to Parent a written undertaking in the form attached hereto
as Exhibit 5.1(k).
(e) Parent shall have received a letter, in form and
substance reasonably satisfactory to Parent, from Deloitte & Touche
LLP, dated the date of the Proxy Statement and confirmed in writing at
the Effective Time, stating that the Merger will qualify as a pooling
of interests transaction under Opinion 16 of the Accounting Principles
Board.
(f) Parent shall have received from the Company the
"comfort" letters of KPMG Peat Marwick LLP described in Section 5.3(c).
(g) Each of Glinn H. Spann, John W. Allison and Keith
Kennedy who, contemporaneously with the execution of this Agreement,
entered into Non-Competition and Non- Solicitation Agreements by and
between Parent, Company and certain subsidiaries of the Company (the
"Non-Compete Agreements") shall have remained employees of the Company
and/or its subsidiaries, as the case may be, and there shall have been
no breach or repudiation of the Non-Compete Agreements by the Company
or the employees and the Non-Compete Agreements shall be in full force
and effect.
A-30
<PAGE> 165
(h) The tax opinion of Bradley Arant Rose & White LLP
referenced in 6.2(d)(1) and (2) shall have been delivered to the
Company and shall not have been withdrawn by such firm.
(i) Parent shall have received an opinion of Waller
Lansden Dortch & Davis, a Professional Limited Liability Company, dated
as of the Closing Date, in form reasonably satisfactory to Parent, to
the effect that (1) the Company and its subsidiaries are corporations
existing and in good standing under the laws of their respective states
of incorporation, and (2) this Agreement was duly authorized by the
Company and constitutes a valid and binding agreement enforceable
against the Company in accordance with its terms, and an opinion of
Keenum & Tutor, P.A. dated as of the Closing Date, in form reasonably
satisfactory to Parent, to the effect that the Company is a corporation
duly organized under the laws of the State of Mississippi. In rendering
these opinions, Waller Lansden Dortch & Davis, a Professional Limited
Liability Company, and Keenum & Tutor, P.A., may rely on
representations contained in certificates of Parent, the Company, Sub
and others, on certificates of public officials, and on opinions of
local legal counsel, as it deems appropriate, and shall be entitled to
render the opinion in such form and with such qualifications as is
customary for such firm in rendering similar opinions in transactions
of this nature.
(j) The holders of not more than 7% of the outstanding
Company Common Stock shall have elected to exercise their right to
dissent from the Merger in accordance with the MBCA.
(k) Parent shall have received the opinion of Parent
Broker to the effect that, as of the date of mailing of the Proxy
Statement, the Exchange Ratio is fair to Parent from a financial point
of view.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger by
the shareholders of the Company or the Share Issuance by the stockholders of
Parent:
(a) by mutual written consent duly authorized by the
Boards of Directors of Parent and the Company;
(b) by either Parent or the Company if (i) a statute,
rule, regulation or executive order shall have been enacted, entered or
promulgated prohibiting the consummation of the Merger substantially on
the terms contemplated hereby, or (ii) any permanent injunction or
other ruling, order or decree of a court or other competent
Governmental Authority preventing the consummation of the Merger shall
have become final and nonappealable; provided, that the party seeking
to terminate this Agreement pursuant to this clause 7.1(b)(ii) shall
have used all reasonable efforts to resist and to remove such
injunction, ruling, order or decree;
(c) by either Parent or the Company if the Merger shall
not have been consummated before December 31, 1997, unless extended by
mutual written consent duly authorized by the Boards of Directors of
both Parent and the Company (provided that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to any party
whose failure to perform any material covenant or obligation or whose
breach of a representation or warranty under this Agreement has been
the cause of or resulted in the failure of the Merger to occur on or
before such date);
(d) by Parent or the Company if at the meeting of Company
Shareholders held for such purpose (including any adjournment or
postponement thereof) the requisite vote of the Company Shareholders to
approve the Merger and the transactions contemplated hereby shall not
have been obtained;
(e) by Parent or the Company if at the meeting of Parent
Stockholders held for such purpose (including any adjournment or
postponement thereof) the requisite vote of the Parent Stockholders to
approve the Share Issuance shall not have been obtained;
A-31
<PAGE> 166
(f) by Parent or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a material breach of any of the covenants or agreements or
any of the representations or warranties set forth in this Agreement on
the part of the other party, which breach is not cured within 30 days
following written notice given by the terminating party to the party
committing such breach, or which breach, by its nature, cannot be cured
prior to the Closing, but only if such breach would constitute a
failure of a condition contained in Section 6.2 or Section 6.3, as
applicable; provided, however, that any right of termination under this
Section 7.1(f) with respect to any breach of a representation or
warranty occurring as a result of a notification delivered pursuant to
Section 5.1(j), excluding any such breach related to pending or
threatened litigation or governmental investigations or proceedings
involving the Company or one or more of its subsidiaries, shall be
waived unless the terminating party gives written notice of termination
to the breaching party within 10 days (subject to extension by mutual
written agreement of Parent, Sub and the Company) after each of the
following has occurred: (i) the breaching party has given written
notice of such breach to the terminating party, (ii) the cure period
with respect to such breach has expired, and (iii) the terminating
party has had a reasonable opportunity and amount of time to
investigate the facts and circumstances surrounding, and the effect on
the Company and (following the Merger) Parent as a result of, such
breach;
(g) by Parent or the Company if the Board of Directors of
the Company shall determine that the failure to engage in a Company
Competing Transaction would result in a breach of the fiduciary duties
of the Board of Directors of the Company and shall further determine to
engage in a Company Competing Transaction; provided, however, that the
Company may not terminate this Agreement pursuant to this clause (g)
unless (i) the Company shall have delivered to Parent a written notice
of the determination by the Company Board of Directors to terminate
this Agreement pursuant to this Section 7.1(g), setting forth (unless
the Company is prohibited by law from doing so) the status of and the
reasonable details related to the Company Competing Transaction and the
identity of the other parties involved therein, (ii) five business days
shall have elapsed after delivery to Parent of the notice referred to
above, during which time the Company cooperates with Parent in good
faith with the intent of enabling Parent to agree to a modification of
the terms and conditions of this Agreement, (iii) at the end of such
five business-day period the Company Board of Directors shall continue
to believe that the failure to engage in such Company Competing
Transaction would result in a breach of the fiduciary duties of the
Board of Directors of the Company (after giving effect to any
adjustment to the terms and conditions of the transactions contemplated
by this Agreement proposed by Parent in response to such Company
Competing Transaction), and (iv) as soon as reasonably practical
thereafter the Company shall enter into a definitive acquisition,
merger or similar agreement to effect, or shall effect, such Company
Competing Transaction;
(h) by Parent if the Board of Directors of the Company
shall not have recommended the Merger to the Company Stockholders, or
shall have resolved not to make such recommendation, or shall have
materially modified or rescinded its recommendation of the Merger to
the Company Stockholders, or shall have modified or rescinded its
approval of this Agreement, or shall have resolved to do any of the
foregoing;
(i) by Parent if a tender offer or exchange offer for 25%
or more of the outstanding shares of capital stock of the Company is
commenced by any person (including the Company or any of its
subsidiaries or affiliates), and the Board of Directors of the Company
fails to recommend against acceptance of such tender offer or exchange
offer by its shareholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its
stockholders) within the time period presented by Rule 14e-2 under the
Exchange Act, or if the Board of Directors of the Company shall have
recommended to the shareholders of the Company any Company Competing
Transaction or shall have resolved to do so; or
(j) by the Company if the Average Closing Price (as
hereinafter defined) on the seventh business day before the date of the
Company Shareholders meeting held to approve the Merger, and on the
last trading day before such meeting, shall be less than 75% of the
Average Closing Price of Parent Common Stock on the date of this
Agreement (the "Floor Value"), subject, however, to the following:
1) If the Company elects to terminate this Agreement
pursuant to this Section 7.1(j), it shall give prompt (but in no event
longer than the close of business on the sixth business day before the
date of such meeting) written notice thereof to Parent.
A-32
<PAGE> 167
2) During the five business day period commencing
with its receipt of such notice, the Company and Parent shall cooperate
with each other to enable Parent to propose a modification to the terms
of this Agreement that are acceptable to the Company.
3) If the Company and Parent agree to a modification
to the terms of this Agreement, no termination shall have occurred
pursuant to this Section 7.1(j), and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall
have been so modified), and any references in this Agreement to
"Exchange Ratio" shall thereafter be deemed to refer to the Exchange
Ratio as adjusted pursuant to this Section 7.1(j).
4) In the event the Average Closing Price is not less
than the Floor Value on the last trading day before the Company's
Shareholders meeting, no termination of this Agreement shall have
occurred pursuant to this Section 7.1(j), and this Agreement shall
remain in effect in accordance with its original terms, including the
original Exchange Ratio.
For purposes of this Section 7.1(j), "Average Closing Price" shall mean the
average per share closing price of the Parent Common Stock as reported by the
NYSE for the ten consecutive trading days ending at the close of trading on the
applicable date. For purposes of this calculation, all share prices shall be
rounded to three decimals.
For purposes of this Section 7.1 and Section 7.2 below, the terms
"Company Competing Transaction" and "Parent Competing Transaction" shall mean
any such transaction or series of related transactions involving, or
constituting any purchase of, more than 50% of the assets, voting power or then
outstanding Common Stock of the Company or Parent, as the case may be.
7.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement
pursuant to Section 7.1, this Agreement, except for the provisions of
the last sentence of Section 5.1(g) and the provisions of Sections 7.2,
8.8, and 8.10, shall become void and have no effect, without any
liability on the part of any party or its directors, officers,
employees, shareholders or stockholders.
(b) If this Agreement is terminated
(i) (A) by Parent or the Company pursuant to Section
7.1(d) or 7.1(g), (B) by Parent pursuant to Section 7.1(f),
7.1(h) or 7.1(i), (C) by Parent pursuant to Section 7.1(c), or
otherwise, as a result of the failure of the conditions set
forth in Section 6.3(j), in a circumstance where a termination
fee would otherwise be payable under Section 7.2(c) below, or
(D) by Parent or the Company pursuant to Section 7.2(c), or
otherwise, as a result of a failure of the conditions set
forth in Section 6.2(g) in a circumstance where the conditions
set forth in Section 6.3(k) would be met and a termination fee
would otherwise be payable under Section 7.2(c) below, then
the Company will pay to Parent in cash by wire transfer in
immediately available funds to an account designated by Parent
the reasonable documented out-of-pocket expenses, up to
$600,000, incurred by Parent in connection with the
transactions contemplated hereby, including the negotiation
and execution of this Agreement; provided, however, that if
such termination is by Parent pursuant to Section 7.1(f) as a
result of a breach of the representation and warranty of the
Company set forth in Section 4.25, then the maximum amount of
such reimburseable out-of-pocket expenses of Parent shall be
$300,000 rather than $600,000; or
(ii) by Parent or the Company pursuant to Section
7.1(e), or by the Company pursuant to Section 7.1(f), then
Parent will pay to the Company in cash by wire transfer in
immediately available funds to an account designated by the
Company the reasonable documented out-of-pocket expenses, up
to $600,000, incurred by the Company in connection with the
transactions contemplated hereby, including the negotiation
and execution of this Agreement.
(c) If this Agreement is terminated by Parent pursuant to
Section 7.1(f), 7.1(h) or 7.1(i), or by Parent or the Company pursuant
to Section 7.1(d) or 7.1(g), or pursuant to the circumstances described
in Section 7.2(b)(i)(C) or (D) above, and if in each case either (A)
the Company shall enter into a definitive
A-33
<PAGE> 168
agreement with respect to a Company Competing Transaction prior to
termination or within twelve months following such termination and such
Company Competing Transaction is thereafter consummated, or (B) a
Company Competing Transaction is consummated prior to termination or
within twelve months following such termination, then, in any such
case, the Company will pay to Parent in cash by wire transfer in
immediately available funds to an account designated by Parent a
termination fee in an amount equal to two million dollars ($2,000,000),
less any amounts paid or payable pursuant to Section 7.2(b) hereof (the
"Termination Fee"). Such payment shall be made within one business day
following the consummation of such Company Competing Transaction.
(d) If this Agreement is terminated by (i) the Company
pursuant to Section 7.1(f), or (ii) by Parent or the Company pursuant
to Section 7.1(e), and if in each case either (A) Parent shall enter
into a definitive agreement with respect to a Parent Competing
Transaction (as defined below) prior to termination or within twelve
months following such termination and such Parent Competing Transaction
(as it may be amended) is thereafter consummated, or (B) a Parent
Competing Transaction is consummated prior to termination or within
twelve months following such termination, then, in any such case,
Parent will pay to the Company in cash by wire transfer in immediately
available funds to an account designated by the Company a Termination
Fee in an amount equal to two million dollars ($2,000,000), less any
amounts paid or payable pursuant to Section 7.2(b) of this Agreement.
Such payment shall be made within one business day following the
consummation of the Parent Competing Transaction.
(e) As used herein, the term "Parent Competing
Transaction" shall have the same meaning with respect to Parent as the
term "Company Competing Transaction" has with respect to the Company,
with such changes in the definition thereof as are appropriate to
contemplate Parent in lieu of the Company.
(f) As used herein, "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(g) The Company and Parent agree that the Termination Fee
and expenses provided in Section 7.2(b), (c) and (d) are fair and
reasonable in the circumstances. If a court of competent jurisdiction
shall nonetheless, by a final, nonappealable judgment, determine that
the amount of any such Termination Fee and expenses exceeds the maximum
amount permitted by law, then the amount of such Termination Fee and
expenses shall be reduced to the maximum amount permitted by law in the
circumstances, as determined by such court of competent jurisdiction.
7.3 AMENDMENT. This Agreement may be amended by the parties
hereto, at any time before or after adoption of this Agreement by Company
Stockholders or authorization of the Share Issuance by Parent Stockholders, but
after such approval or authorization, no amendment shall be made which by law or
its terms requires further approval or authorization by the Company Shareholders
or Parent Stockholders, as the case may be, without such further approval or
authorization. Notwithstanding the foregoing, this Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 EXTENSION; WAIVER. At any time prior to the Effective
Time, Parent (with respect to the Company) and the Company (with respect to
Parent and Sub) may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of such party, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties, covenants or agreements made or incorporated herein
(or in any instrument or documents delivered pursuant to this Agreement) by the
parties hereto shall survive the Effective Time, except for those covenants and
agreements contained
A-34
<PAGE> 169
herein or therein which by their terms contemplate performance after the
Effective Time, and provided that the parties acknowledge and agree that any
rights or remedies otherwise available to a party hereunder shall not be
affected by any investigation conducted with respect to or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Effective Time, with respect to
the accuracy or inaccuracy of or compliance with any such representation,
warranty, covenant or agreement. Notwithstanding the foregoing, it is understood
that factual matters set forth in a party's disclosure schedule to this
Agreement shall be exceptions to such party's representations and warranties
under this Agreement.
8.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt if delivered
personally, telecopied (which is confirmed) or dispatched by a nationally
recognized overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub:
Cavalier Homes, Inc.
Highway 41 North and Cavalier Road
Addison, Alabama 35540
Attention: Mr. David A. Roberson
Facsimile No.: (205) 747-1605
with a copy to
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203
Attention: John B. Grenier, Esq.
Facsimile No.: (205) 521-8800
(b) if to the Company:
Belmont Homes, Inc.
Highway 25 South
Industrial Park Drive
Belmont, Mississippi 38827
Attention: Mr. John W. Allison
Facsimile No.: (501) 329-9139
with a copy to
Waller Lansden Dortch & Davis, PLLC
Nashville City Center
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: J. Chase Cole, Esq.
Facsimile No.: (615) 244-6804
8.3 INTERPRETATION. When a reference is made in this Agreement
to an Article or Section, such reference shall be to an Article or Section of
this Agreement unless otherwise indicated. The headings and the table of
contents contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. For the
purposes of this Agreement, a "material adverse effect" shall mean, as to any
party, any change, effect or circumstance that, individually or when taken
together with all other such changes, effects or circumstances that have
occurred prior to the date of determination of the occurrence of the material
adverse effect, is or is reasonably likely to be materially adverse to the
business, assets (including intangible assets), liabilities, results
A-35
<PAGE> 170
of operations, or financial condition of such party and its subsidiaries, taken
as a whole, or on such party's ability to consummate the transactions
contemplated hereby.
8.4 COUNTERPARTS. This Agreement may be executed in
counterparts, which together shall constitute one and the same Agreement. The
parties may execute more than one copy of the Agreement, each of which shall
constitute an original.
8.5 ENTIRE AGREEMENT. This Agreement (including the documents,
agreements and the instruments referred to herein) and the Confidentiality
Agreement constitute the entire agreement among the parties and supersede all
prior agreements and understandings, agreements or representations by or among
the parties, written and oral, with respect to the subject matter hereof and
thereof.
8.6 THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, is intended or shall be construed to create any third party
beneficiaries, except for the provisions of Sections 1.6, 2.1, 2.3, 2.4, 5.2(b),
and 5.2(d), which may be enforced by the beneficiaries thereof.
8.7 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, except that
Mississippi law shall govern the Merger, without regard to principles of
conflicts of law.
8.8 EXCLUSIVE REMEDIES. PARENT, SUB AND THE COMPANY HEREBY
EXPRESSLY AGREE THAT, AS BETWEEN SUCH PARTIES TO THIS AGREEMENT (BUT NOT AS TO
THE THIRD PARTY BENEFICIARIES OF THIS AGREEMENT), THE REMEDIES PROVIDED IN
SECTION 7.2 OF THIS AGREEMENT CONSTITUTE LIQUIDATED DAMAGES AND DO NOT
CONSTITUTE A PENALTY. PARENT, SUB AND THE COMPANY HEREBY EXPRESSLY AGREE THAT
SUCH LIQUIDATED DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM
ARISING OUT OF OR RELATING TO THIS NEGOTIATION, EXECUTION, DELIVERY OR
PERFORMANCE OF THIS AGREEMENT OR THE MERGER. NOTWITHSTANDING THE FOREGOING,
NOTHING IN THIS SECTION 8.8 SHALL RELIEVE ANY PARTY TO THIS AGREEMENT OF
LIABILITY FOR A WILLFUL AND INTENTIONAL BREACH OF ANY PROVISION OF THIS
AGREEMENT.
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.10 EXPENSES. Subject to the provisions of Section 7.2,
Parent and the Company shall pay their own costs and expenses associated with
the transactions contemplated by this Agreement; provided, that the costs of
environmental audits (whether Phase I or Phase II environmental audits)
conducted by Parent of the facilities, operations, business or properties of the
Company or its subsidiaries shall be borne by the Company, if, in the case of
Phase II environmental audits, such audits were approved in advance by the
Company in writing.
8.11 INCORPORATION OF DISCLOSURE SCHEDULES. The Company
Disclosure Schedule and the Parent Disclosure Schedule are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
8.12 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
8.13 SUBSIDIARIES. As used in this Agreement, the word
"subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
A-36
<PAGE> 171
8.14 WAIVER OF JURY TRIAL. EACH OF PARENT, SUB AND THE COMPANY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY.
A-37
<PAGE> 172
IN WITNESS WHEREOF, Parent, Sub and the Company have executed
and delivered this Agreement on the date first written above.
CAVALIER HOMES, INC.
By /s/ David A. Roberson
------------------------------
Its President
------------------------
CRIMSON ACQUISITION CORP.
By /s/ Michael R. Murphy
------------------------------
Its Vice President
------------------------
BELMONT HOMES, INC.
By John W. Allison
------------------------------
Its President
------------------------
A-38
<PAGE> 173
EXHIBIT 5.1(k)
FORM OF AFFILIATE LETTER
Cavalier Homes, Inc.
Highway 41 North and Cavalier Road
Addison, Alabama 35540
Gentlemen:
This letter agreement (this "Agreement") is being delivered in
accordance with Section 6.3(d) of the Agreement and Plan of Merger, dated as of
August ____, 1997 (the "Merger Agreement"), 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 Delaware corporation (the "Company"). The Merger Agreement provides,
among other things, for the merger of Sub with and into the Company (the
"Merger"), pursuant to which each share of the common stock of the Company, par
value $0.10 per share ("Company Common Stock"), will be converted into shares of
common stock of Parent, par value $0.10 per share ("Parent Common Stock"), on
the basis described in the Merger Agreement.
1. The undersigned ("Shareholder") hereby represents, warrants,
covenants and agrees as follows:
(a) Shareholder has full power to execute this Agreement and
to make the representations, warranties, covenants and agreements
herein and to perform its obligations hereunder.
(b) Shareholder understands that as of the date of this letter
it may be deemed to be an "affiliate" of the Company as such term is
(i) used in Rule 145 of the General Rules and Regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933 (the "Securities Act"), or (ii) used
in and for purposes of Accounting Series, Releases 130 and 135 of the
SEC (an"Affiliate").
(c) Shareholder is the beneficial or record owner of shares of
Company Common Stock and/or options, warrants or other rights
exercisable for or convertible into shares of Company Common Stock
(collectively, the "Rights"), (all such shares and Rights, including
any hereafter acquired, the "Shares").
(d) Shareholder will not sell, transfer or otherwise dispose
of or offer or agree to sell, transfer or dispose of or in any other
way reduce Shareholder's risk of ownership or investment in (any of the
foregoing, a "Disposition") any of the shares of Parent Common Stock
issued to the undersigned in the Merger pursuant to the terms of the
Merger Agreement (the "Parent Shares") in violation of the Securities
Act or the Rules and Regulations.
(e) Shareholder understands that the issuance of Parent Common
Stock pursuant to the Merger will be registered with the SEC under the
Securities Act on a Registration Statement on Form S-4 and that,
because at the time the Merger Agreement is submitted to a vote of the
shareholders of the Company, Shareholder may be deemed to be an
Affiliate of the Company and the distribution by Shareholder of any
shares of Parent Common Stock has not been registered under the
Securities Act, Shareholder may not make any Disposition of the Parent
Shares unless (i) such Disposition has been registered under the
Securities Act, (ii) such Disposition is made in conformity with Rule
145 promulgated by the SEC under the Securities Act, including (a) the
filing of reports by Parent under the Securities Exchange Act of 1934,
as amended, (b) compliance with certain limitations on the volume of
Parent Common Stock sold for Shareholder's account during a three-month
period, and (c) the sale of the Parent Common Stock in "brokers'
transactions" as that term is defined by Section 4(4) of the Securities
Act, or (iii) Parent has received an opinion of counsel, which opinion
and counsel shall be reasonably acceptable to Parent, to the effect
that such Disposition is otherwise exempt from registration under the
Securities Act. Shareholder understands that Parent is under no
obligation to register the sale, transfer or other disposition of the
Parent Common Stock by Shareholder, or on Shareholder's behalf, under
the Securities Act or to take any other action necessary in order to
make compliance with an exemption from such registration available.
A-39
<PAGE> 174
(f) Shareholder understands that stop transfer instructions
will be given to all transfer agents for the Parent Common Stock (with
respect to Parent Shares) and that there will be placed on the
certificates evidencing the Parent Shares, or any replacements or
substitutions therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED AUGUST , 1997, BETWEEN THE
REGISTERED HOLDER HEREOF AND CAVALIER HOMES, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
CAVALIER HOMES, INC.
(g) Shareholder also understands that unless a Disposition of
the Parent Shares has been registered under the Securities Act or is
made in conformity with the provisions of Rule 145, Parent reserves the
right to put the following legend on the certificates evidencing any of
the Parent Shares issued to any transferee of Shareholder:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.
(h) It is understood and agreed that the legends set forth in
Sections 1(f) and 1(g) above shall be removed by delivery of substitute
certificates without such legend if Shareholder has delivered to Parent
(i) an opinion of counsel (or other evidence), which opinion and
counsel (or such other evidence) shall be reasonably satisfactory to
Parent, or a letter from the staff of the SEC, to the effect that such
legend is not required for purposes of the Rules and Regulations or the
Securities Act or (ii) evidence or representations satisfactory to
Parent that the Parent Shares represented by such certificates are
being or have been sold in a transaction made in conformity with Rule
145.
2. Shareholder understands that the Merger will be accounted for using
the "pooling-of-interests" method and that such treatment for financial
accounting purposes is dependent upon the accuracy of certain of the
representations and warranties, and the compliance by Shareholder with certain
of the covenants and agreements, set forth herein. Accordingly, Shareholder
further hereby covenants and agrees (in addition to the other covenants and
agreements in this Agreement) that it will not make any Disposition: (i) of the
Shares in the 30-day period immediately preceding the Effective Time or (ii) of
the Parent Shares after the Effective Time until Parent shall have publicly
released a report including the combined financial results of Parent and the
Company for a period of at least 30 days of combined operations of Parent and
the Company. Shareholder understands that stop transfer instructions will be
given to the transfer agents of Parent and the Company in order to prevent any
breach of the covenants and agreements made by Shareholder in this Section 2,
although such stop transfer instructions will be promptly rescinded upon the
publication of the financial report referred to in clause (ii) of the
immediately preceding sentence.
3. Shareholder further understands and agrees that the representations,
warranties, covenants and agreements of Shareholder set forth herein are for the
benefit of Parent, the Company and the Surviving Corporation (as defined in the
Merger Agreement) in the Merger and will be relied upon by such entities and
their respective counsel and accountants.
4. This Agreement will be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees and devisees of
Shareholder and any pledgees holding the Shares as collateral. If the Merger
Agreement is terminated in accordance with its terms prior to the Effective
Time, this Agreement will thereupon automatically terminate.
A-40
<PAGE> 175
Very truly yours,
Name:
-------------------------------------
Address:
------------------------------------------
------------------------------------------
Agreed to and accepted:
CAVALIER HOMES, INC.
By:
--------------------------------------
Name:
Title:
A-41
<PAGE> 176
EXHIBIT 5.1(m)(i)
_________, 1997
Bradley Arant Rose & White LLP
2001 Park Place
Suite 1400
Birmingham, Alabama 35203
Ladies and Gentlemen:
In connection with the proposed merger of Crimson Acquisition
Corp., a Mississippi corporation ("Subsidiary"), with and into Belmont Homes,
Inc., a Mississippi corporation ("Belmont"), pursuant to the terms of that
certain Agreement and Plan of Merger dated August ____, 1997 (the "Merger
Agreement") by and among Belmont, Cavalier Homes, Inc., a Delaware corporation
("Cavalier"), Subsidiary and Belmont, as described in more detail in the Merger
Agreement and the Registration Statement on Form S-4 filed by Cavalier with the
Securities and Exchange Commission on , 1997, (the "Registration Statement"), as
counsel to Cavalier you have been asked to render certain opinions pursuant to
the requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended, and pursuant to Section 6.2(c) of the Merger Agreement, with respect to
the federal income tax treatment of the Merger under the Internal Revenue Code
of 1986, as amended (the "Code"). Capitalized terms used herein and not
otherwise defined herein have the meanings given to them in the Merger
Agreement.
Pursuant to the Merger Agreement, Subsidiary will be merged
with and into Belmont in accordance with Section 79-4-11.01 et seq. of the
Mississippi Business Corporation Act and Belmont will be the surviving
corporation, and all Belmont shares other than those held as treasury stock by
Belmont, or held by Cavalier or any of its subsidiaries, which will be canceled
and retired, and other than those Belmont shares for which the holders have
dissented from the Merger, demanded and perfected demand for payment of the
"fair value" in accordance with the Mississippi Business Corporation Act, shall
be converted into the right to receive eight tenths (0.8) shares of common stock
of Cavalier. The Merger Agreement and the Registration Statement describe other
transactions that will be effected or undertaken in connection with the
transactions contemplated by the Merger Agreement, including, without
limitation, the treatment of Belmont's employee benefit plans and the treatment
of certain options issued by Belmont, and other matters relating to the
employees of Belmont. In connection with the opinions which you have been asked
to render, you are entitled to rely upon the descriptions in the Merger
Agreement and the Registration Statement as being a complete and accurate
description of all the transactions to be effected and undertaken pursuant to
the Merger Agreement.
In connection with the opinions which you have been asked to
render, and recognizing that you will rely on this letter in rendering said
opinions, the undersigned, a duly authorized officer of Belmont and acting in
such capacity, hereby certifies that, to the best knowledge of the management of
Belmont, the following statements are correct and complete in all material
respects as of the date hereof, and further certifies that the following
statements will be correct and complete in all material respects as of the date
on which the Proxy Statement/Prospectus which is part of the Registration
Statement is mailed to the shareholders of the Company. Insofar as such
certification pertains to any person (including Cavalier or any of its
subsidiaries) other than Belmont and any of its subsidiaries, such certification
is only as to the knowledge of the undersigned without specific inquiry.
(i) The Merger will be consummated in
compliance with the material terms of the Agreement
and, except as described in the attached schedule,
none of the material terms and conditions therein
have been waived or modified and Belmont has no
plan or intention to waive or modify further any
such material condition.
A-42
<PAGE> 177
Bradly Arant Rose, White LLP
__________,1997
Page 2
(ii) The ratio for the exchange of shares of
Belmont Common Stock for shares of Cavalier Common
Stock was negotiated through arm's length bargaining.
Accordingly, the fair market value of the Cavalier
Common Stock to be received by Belmont shareholders
in the Merger will be approximately equal to the fair
market value of the Belmont Common Stock surrendered
by such shareholders in exchange therefor.
(iii) There is no plan or intention by any of the
shareholders of Belmont who own one percent (1%) or
more of the Belmont Common Stock, and to the best of
the knowledge of the management of Belmont, there is
no plan or intention on the part of the remaining
shareholders of Belmont to sell, exchange, or
otherwise dispose of a number of shares of Cavalier
Common Stock to be received by them in the Merger
that would reduce the Belmont shareholders' ownership
of Cavalier Common Stock to a number of shares having
a value, as of the Effective Time of the Merger, of
less than fifty percent (50%) of the value of all of
the formerly outstanding shares of Belmont Common
Stock as of the same date. For purposes of the
foregoing statement, shares of Belmont Common Stock
exchanged for cash or other property by Dissenting
Shareholders, if any, or exchanged for cash in lieu
of fractional shares of Cavalier Common Stock have
been considered as outstanding Belmont Common Stock
as of the Effective Time of the Merger. In addition,
the management of Belmont is not aware of any
transfers of Belmont Common Stock by any holders
thereof (including any sales, redemptions or other
dispositions) prior to the Effective Time which were
made in contemplation of the Merger.
(iv) Immediately after the Merger, Belmont will
hold no less than ninety percent (90%) of the fair
market value of the net assets and no less than
seventy percent (70%) of the fair market value of the
gross assets of Belmont held by Belmont immediately
prior to the Merger, and no less than ninety percent
(90%) of the fair market value of the net assets and
no less than seventy percent (70%) of the fair market
value of the gross assets of Subsidiary held by
Subsidiary immediately prior to the Merger. For
purposes of this certification, amounts used by
Belmont or by Subsidiary to pay Dissenting
Shareholders or to pay reorganization expenses, and
all redemptions and distributions (except for
regular, normal and recurring dividends) made by
Belmont or by Subsidiary immediately prior to the
Merger will be considered as assets held by Belmont
or Subsidiary, respectively, immediately prior to the
Merger. Belmont has not redeemed any of the Belmont
Common Stock, made any distribution with respect to
any of the Belmont Common Stock, or disposed of any
of its assets in anticipation of or as part of a plan
for the acquisition of Belmont by Cavalier.
(v) The liabilities of Belmont and the
liabilities to which the assets of Belmont are
subject were incurred by Belmont in the ordinary
course of Belmont's business. None of the shares of
Belmont to be surrendered in exchange for Cavalier
Common Stock in the Merger will be subject to any
liabilities following such exchange.
(vi) Cavalier, Subsidiary and Belmont each will
pay their respective expenses, if any, incurred in
connection with the Merger. None of Cavalier,
Subsidiary or Belmont will pay any of the expenses of
the shareholders of Belmont, if any, incurred in
connection with the Merger.
(vii) There is no intercorporate indebtedness
existing between Cavalier and Belmont or between
Subsidiary and Belmont that was issued, acquired, or
which will be settled at a discount.
A-43
<PAGE> 178
Bradly Arant Rose, White LLP
__________,1997
Page 3
(viii) Belmont is not an investment company as
such term is defined in Section 368(a)(2)(F)(iii)
and (iv) of the Code.
(ix) Belmont is not under the jurisdiction of a
court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(x) As of the Effective Time of the Merger, the
fair market value of the assets of Belmont will
exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are
subject).
(xi) The payment of cash in lieu of fractional
shares of Cavalier Common Stock is not separately
bargained-for consideration and is being made solely
for the purpose of saving Cavalier the expense and
inconvenience of issuing fractional shares.
Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares
of Cavalier pursuant to the Merger Agreement will not
exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in
exchange for their shares of Belmont Common Stock,
and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or
greater than the value of one full share of Cavalier
Common Stock.
(xii) None of the compensation received by any
shareholder-employee of Belmont pursuant to any
employment, consulting or similar arrangement
(including a covenant not to compete) is or will be
separate consideration for, or allocable to, any of
such shareholder-employee's shares of Belmont Common
Stock. None of the shares of Cavalier Common Stock
received by any shareholder-employee of Belmont
pursuant to the Merger are, or will be, separate
consideration for, or allocable to, any such
employment, consulting or similar arrangement. The
compensation paid to any shareholder-employees of
Belmont pursuant to any such employment, consulting
or similar arrangement (including a covenant not to
compete) is or will be for services actually rendered
and performed, and will be commensurate with amounts
paid to third parties bargaining at arms' length for
similar services.
This letter is being furnished to you solely for your benefit
and for use in rendering your opinions, and is not to be used, circulated,
quoted or otherwise referred to for any other purpose (other than inclusion or
use in your opinions) without the express written consent of Belmont.
Sincerely,
BELMONT HOMES, INC.
By:
--------------------------
Its:
--------------------------
A-44
<PAGE> 179
EXHIBIT 5.1(m)(ii)
_______________ ____, 1997
Bradley Arant Rose & White LLP
2001 Park Place
Suite 1400
Birmingham, Alabama 35203
Ladies and Gentlemen:
In connection with the proposed merger of Crimson Acquisition
Corp., a Mississippi corporation ("Subsidiary"), with and into Belmont Homes,
Inc., a Mississippi corporation ("Belmont"), pursuant to the terms of that
certain Agreement and Plan of Merger dated August , 1997 (the "Merger
Agreement") by and among Cavalier Homes, Inc., a Delaware corporation
("Cavalier"), Subsidiary and Belmont, as described in more detail in the Merger
Agreement and the Registration Statement on Form S-4 filed by Cavalier with the
Securities and Exchange Commission on__________ , 1997, (the "Registration
Statement"), as counsel to Cavalier you have been asked to render certain
opinions pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended, and pursuant to Section 6.2(c) of the Merger
Agreement, with respect to the federal income tax treatment of the Merger under
the Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms
used herein and not otherwise defined herein have the meanings given to them in
the Merger Agreement.
Pursuant to the Merger Agreement, Subsidiary will be merged
with and into Belmont in accordance with Section 79-4-11.01 et seq. of the
Mississippi Business Corporation Act and Belmont will be the surviving
corporation, and all Belmont shares other than those held as treasury stock by
Belmont, or held by Cavalier or any of its subsidiaries, which will be canceled
and retired, and other than those Belmont shares for which the holders have
dissented from the Merger, demanded and perfected demand for payment of the
"fair value" in accordance with the Mississippi Business Corporation Act, shall
be converted into the right to receive eight tenths (0.8) shares of common stock
of Cavalier. The Merger Agreement and the Registration Statement describe other
transactions that will be effected or undertaken in connection with the
transactions contemplated by the Merger Agreement, including, without
limitation, the treatment of Belmont's employee benefit plans and the treatment
of certain options issued by Belmont, and other matters relating to the
employees of Belmont. In connection with the opinions which you have been asked
to render, you are entitled to rely upon the descriptions in the Merger
Agreement and the Registration Statement as being a complete and accurate
description of all the transactions to be effected and undertaken pursuant to
the Merger Agreement.
In connection with the opinions which you have been asked to
render, and recognizing that you will rely on this letter in rendering said
opinions, the undersigned, a duly authorized officer of Cavalier and acting in
such capacity, hereby certifies that, to the best knowledge of the management of
Cavalier, the following statements are correct and complete in all material
respects as of the date hereof, and further certifies that the following
statements will be correct and complete in all material respects as of the
Effective Time of the Merger. Insofar as such certification pertains to any
person (including Belmont or any of its subsidiaries) other than Cavalier and
any of its subsidiaries, such certification is only as to the knowledge of the
undersigned without specific inquiry.
i. The Merger will be consummated in compliance
with the material terms of the Agreement and, except
as described in the attached schedule, none of the
material terms
A-45
<PAGE> 180
Bradley Arant Rose & White LLP
________, 1997
Page 2
and conditions therein have been waived or modified
and Cavalier has no plan or intention to waive or
modify further any such material condition.
ii. The ratio for the exchange of shares of
Belmont Common Stock for Cavalier Common Stock was
negotiated through arm's length bargaining.
Accordingly, the fair market value of the Cavalier
Common Stock to be received by Belmont shareholders
in the Merger will be approximately equal to the
fair market value of the Belmont Common Stock
surrendered by such shareholders in exchange
therefor.
iii. Immediately after the Merger, Belmont will
hold no less than ninety percent (90%) of the fair
market value of the net assets and no less than
seventy percent (70%) of the fair market value of the
gross assets of Belmont held by Belmont immediately
prior to the Merger, and no less than ninety percent
(90%) of the fair market value of the net assets and
no less than seventy percent (70%) of the fair market
value of the gross assets of Subsidiary held by
Subsidiary immediately prior to the Merger. For
purposes of this certification, amounts used by
Belmont or by Subsidiary to pay Dissenting
Shareholders or to pay reorganization expenses, and
all redemptions and distributions (except for
regular, normal and recurring dividends) made by
Belmont or by Subsidiary immediately prior to the
Merger will be considered as assets held by Belmont
or Subsidiary, respectively, immediately prior to the
Merger. The management of Cavalier is not aware of
Belmont having redeemed any of the Belmont Common
Stock, having made any distribution with respect to
any of the Belmont Common Stock, or having disposed
of any of its assets in anticipation of or as part of
a plan for the acquisition of Belmont by Cavalier.
iv. Prior to the Merger, Cavalier will be in
control of Subsidiary within the meaning of Section
368(c) of the Code.
v. Cavalier has no plan or intention to cause
Belmont after the Merger to issue additional shares
of Belmont capital stock which would result in
Cavalier losing control of Belmont within the meaning
of Section 368(c) of the Code.
vi. Cavalier has no plan or intention to
reacquire any of its stock issued in the Merger.
vii. Cavalier is the owner of all of the outstanding
capital stock of Subsidiary, and Cavalier has no plan
or intention after the Merger to liquidate Belmont,
to merge Belmont into another corporation, to make
any extraordinary distribution in respect of its
stock in Belmont, to sell or otherwise dispose of the
capital stock of Belmont or to cause Belmont to sell
or otherwise dispose of any of the assets of Belmont
held by Belmont immediately prior to the Merger,
except for dispositions in the ordinary course of
business or transfers described in Section
368(a)(2)(C) of the Code.
viii. Following the Merger, Belmont will continue
its historic business or will use a significant
portion of its historic assets in a business.
ix. Cavalier, Subsidiary, Belmont and the
shareholders of Belmont each will pay their
respective expenses, if any, incurred in connection
with the Merger. None of
A-46
<PAGE> 181
Bradley Arant Rose & White LLP
________, 1997
Page 3
Cavalier, Subsidiary or Belmont will pay any of the
expenses of the shareholders of Belmont, if any,
incurred in connection with the Merger.
x. There is no intercorporate indebtedness
existing between Cavalier and Belmont or between
Subsidiary and Belmont that was issued, acquired,
or which will be settled at a discount.
xi. Neither Cavalier nor Subsidiary is an
investment company as such term is defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
xii. Neither Cavalier nor Subsidiary is under the
jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the
Code.
xiii. Other than the approximately ______ shares
of common stock of Belmont currently owned by
Cavalier, Cavalier does not own, and Cavalier has not
owned at any time during the past five years, any
shares of the capital stock of Belmont.
xiv. As of the Effective Time of the Merger, the
fair market value of the assets of Belmont will
exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are
subject).
xv. No stock of Subsidiary will be issued in
the Merger.
xvi. The payment of cash in lieu of fractional
shares of Cavalier Common Stock is not separately
bargained-for consideration and is being made solely
for the purpose of saving Cavalier the expense and
inconvenience of issuing fractional shares.
Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares
of Cavalier pursuant to the Merger Agreement will not
exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in
exchange for their shares of Belmont Common Stock,
and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or
greater than the value of one full share of Cavalier
Common Stock.
xvii. None of the compensation received by any
shareholder-employee of Belmont pursuant to any
employment, consulting or similar arrangement with
Cavalier (including a covenant not to compete) is or
will be separate consideration for, or allocable to,
any of such shareholder-employees' shares of Belmont
Common Stock. None of the shares of Cavalier Common
Stock received by any shareholder-employee of Belmont
pursuant to the Merger are, or will be, separate
consideration for, or allocable to, any such
employment, consulting or similar arrangement. The
compensation paid to any shareholder-employees of
Belmont pursuant to any such employment, consulting
or similar arrangement (including a covenant not to
compete) is or will be for services actually rendered
and performed, and will be commensurate with amounts
paid to third parties bargaining at arms' length for
similar services.
This letter is being furnished to you solely for your benefit
and for use in rendering your opinions, and is not to be used, circulated,
quoted or otherwise referred to for any other purpose (other than inclusion or
use in your opinions) without the express written consent of Belmont.
A-47
<PAGE> 182
Bradley Arant Rose & White LLP
________, 1997
Page 4
Sincerely,
CAVALIER HOMES, INC.
By
----------------------------------
Its
---------------------------------
A-48
<PAGE> 183
EXHIBIT 6.2(d)
______________, 1997
Belmont Homes, Inc.
Highway 25 South
Industrial Park Drive
Belmont, Mississippi 38827
Re: Agreement and Plan of Merger by and among Cavalier Homes,
Inc., Crimson Acquisition Corp. and Belmont Homes, Inc.
Ladies and Gentlemen:
We have been requested to render certain opinions with respect
to the transactions contemplated by that certain Agreement and Plan of Merger
dated as of August , 1997 (the "Merger Agreement"), by and among Belmont Homes,
Inc., a Mississippi corporation ("Belmont"), Cavalier Homes, Inc., a Delaware
corporation ("Cavalier"), and Crimson Acquisition Corp., a Mississippi
corporation and a direct, wholly-owned subsidiary of Cavalier ("Subsidiary").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given them in the Merger Agreement.
In rendering the opinions set forth below, we have examined
and relied upon the originals or copies of the Merger Agreement and the
representations given to us by letter of even date with this opinion by Belmont,
and by letter of even date with this opinion by Cavalier, each as contained and
described in the representations section of this letter, and such other
documents and materials as we have deemed necessary as a basis for such
opinions. In connection with such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents, agreements and instruments
submitted to us as originals, the conformity to original documents, agreements
and instruments of all documents, agreements and instruments submitted to us as
copies or specimens and the authenticity of the originals of such documents,
agreements and instruments submitted to us as copies or specimens, and, as to
factual matters, the veracity of written statements made by officers and other
representatives of Belmont and Cavalier.
In rendering this opinion, we have made such investigation of
law and facts as we have deemed necessary, including examination of the relevant
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated pursuant thereto by the Department of the Treasury and
the IRS, and applicable judicial decisions, all of which are subject to change.
Neither Cavalier, Subsidiary, nor Belmont has requested or will receive an
advance ruling from the Internal Revenue Service ("IRS") as to any of the
federal income tax effects of the Merger to holders of Belmont Common Stock (as
hereinafter defined), or of any of the federal income tax effects to Cavalier,
Subsidiary or Belmont of the Merger. Our opinion is not binding on the IRS and
there can be no assurance, and none is hereby given, that the IRS will not take
a position contrary to one or more positions reflected herein or that the
opinion will be upheld by the courts if challenged by the IRS.
The Proposed Transaction
Immediately prior to the Merger, Cavalier will own 100% of the
capital stock of Subsidiary. Pursuant to the Merger Agreement, among other
things, (i) Subsidiary will be merged with and into Belmont (the
A-49
<PAGE> 184
Belmont Homes, Inc.
________, 1997
Page 2
"Merger") in accordance with applicable provisions of the Mississippi Business
Corporation Act (the "Corporation Law"), and (ii) except for those shares for
which the holder exercises the right of dissent afforded under the Corporation
Law (such holders being hereinafter referred to as the "Dissenting
Shareholders"), each outstanding share of common stock, par value $0.10 per
share, of Belmont (the "Belmont Common Stock") will be converted into eight
tenths (0.8) shares of common stock of Cavalier, par value $0.10 per share (the
"Cavalier Common Stock") (the "Exchange Ratio"). No fractional shares will be
issued; Cavalier will pay cash in lieu of issuing fractional shares. No stock of
Subsidiary will be issued in the Merger.
All options and warrants to acquire shares of Belmont Common
Stock granted by Belmont (the "Belmont Options") which are outstanding and
unexercised at the time of the Merger will be assumed by Cavalier, and will be
converted into options to acquire shares of Cavalier Common Stock subject to the
same terms and conditions applicable to the Belmont options immediately prior to
the Merger, except that the number of shares subject to each option and the
exercise price thereof will be appropriately adjusted to give effect to the
Exchange Ratio.
Representations
Belmont has made the following representations:
(a) The Merger will be consummated in compliance with the
material terms of the Agreement and, except as described in the attached
schedule, none of the material terms and conditions therein have been waived or
modified and Belmont has no plan or intention to waive or modify further any
such material condition.
(b) The ratio for the exchange of shares of Belmont Common
Stock for shares of Cavalier Common Stock was negotiated through arm's length
bargaining. Accordingly, the fair market value of the Cavalier Common Stock to
be received by Belmont shareholders in the Merger will be approximately equal to
the fair market value of the Belmont Common Stock surrendered by such
shareholders in exchange therefor.
(c) There is no plan or intention by any of the shareholders
of Belmont who own one percent (1%) or more of the Belmont Common Stock, and to
the best of the knowledge of the management of Belmont, there is no plan or
intention on the part of the remaining shareholders of Belmont to sell,
exchange, or otherwise dispose of a number of shares of Cavalier Common Stock to
be received by them in the Merger that would reduce the Belmont shareholders'
ownership of Cavalier Common Stock to a number of shares having a value, as of
the Effective Time of the Merger, of less than fifty percent (50%) of the value
of all of the formerly outstanding shares of Belmont Common Stock as of the same
date. For purposes of the foregoing statement, shares of Belmont Common Stock
exchanged for cash or other property by Dissenting Shareholders, if any, or
exchanged for cash in lieu of fractional shares of Cavalier Common Stock have
been considered as outstanding Belmont Common Stock as of the Effective Time of
the Merger. In addition, the management of Belmont is not aware of any transfers
of Belmont Common Stock by any holders thereof (including any sales, redemptions
or other dispositions) prior to the Effective Time which were made in
contemplation of the Merger.
(d) Immediately after the Merger, Belmont will hold no less
than ninety percent (90%) of the fair market value of the net assets and no less
than seventy percent (70%) of the fair market value of the gross assets of
Belmont held by Belmont immediately prior to the Merger, and no less than ninety
percent (90%) of the fair market value of the net assets and no less than
seventy percent (70%) of the fair market value of the gross assets of Subsidiary
held by Subsidiary immediately prior to the Merger. For purposes of this
certification, amounts used
A-50
<PAGE> 185
Belmont Homes, Inc.
________, 1997
Page 3
by Belmont or by Subsidiary to pay Dissenting Shareholders or to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal and recurring dividends) made by Belmont or by Subsidiary
immediately prior to the Merger will be considered as assets held by Belmont or
Subsidiary, respectively, immediately prior to the Merger. Belmont has not
redeemed any of the Belmont Common Stock, made any distribution with respect to
any of the Belmont Common Stock, or disposed of any of its assets in
anticipation of or as part of a plan for the acquisition of Belmont by Cavalier.
(e) The liabilities of Belmont and the liabilities to which
the assets of Belmont are subject were incurred by Belmont in the ordinary
course of Belmont's business. None of the shares of Belmont to be surrendered in
exchange for Cavalier Common Stock in the Merger will be subject to any
liabilities following such exchange.
(f) Cavalier, Subsidiary and Belmont each will pay their
respective expenses, if any, incurred in connection with the Merger. None of
Cavalier, Subsidiary or Belmont will pay any of the expenses of the share
holders of Belmont, if any, incurred in connection with the Merger.
(g) There is no intercorporate indebtedness existing between
Cavalier and Belmont or between Subsidiary and Belmont that was issued,
acquired, or which will be settled at a discount.
(h) Belmont is not an investment company as such term is
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) Belmont is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(j) As of the Effective Time of the Merger, the fair market
value of the assets of Belmont will exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are subject).
(k) The payment of cash in lieu of fractional shares of
Cavalier Common Stock is not separately bargained-for consideration and is being
made solely for the purpose of saving Cavalier the expense and inconvenience of
issuing fractional shares. Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares of Cavalier pursuant to the
Merger Agreement will not exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in exchange for their shares of
Belmont Common Stock, and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or greater than the value of
one full share of Cavalier Common Stock.
(l) None of the compensation received by any
shareholder-employee of Belmont pursuant to any employment, consulting or
similar arrangement (including a covenant not to compete) is or will be separate
consideration for, or allocable to, any of such shareholder-employee's shares of
Belmont Common Stock. None of the shares of Cavalier Common Stock received by
any shareholder-employee of Belmont pursuant to the Merger are, or will be,
separate consideration for, or allocable to, any such employment, consulting or
similar arrangement. The compensation paid to any shareholder-employees of
Belmont pursuant to any such employment, consulting or similar arrangement
(including a covenant not to compete) is or will be for services actually
rendered and performed, and will be commensurate with amounts paid to third
parties bargaining at arms' length for similar services.
Cavalier has made the following representations:
A-51
<PAGE> 186
Belmont Homes, Inc.
________, 1997
Page 4
(i) The Merger will be consummated in compliance with the
material terms of the Agreement and, except as described in the attached
schedule, none of the material terms and conditions therein have been waived or
modified and Cavalier has no plan or intention to waive or modify further any
such material condition.
(ii) The ratio for the exchange of shares Belmont Common
Stock for Cavalier Common Stock was negotiated through arm's length bargaining.
Accordingly, the fair market value of the Cavalier Common Stock to be received
by Belmont shareholders in the Merger will be approximately equal to the fair
market value of the Belmont Common Stock surrendered by such shareholders in
exchange therefor.
(iii) Immediately after the Merger Belmont will hold no less
than ninety percent (90%) of the fair market value of the net assets and no less
than seventy percent (70%) of the fair market value of the gross assets of
Belmont held by Belmont immediately prior to the Merger, and no less than ninety
percent (90%) of the fair market value of the net assets and no less than
seventy percent (70%) of the fair market value of the gross assets of Subsidiary
held by Subsidiary immediately prior to the Merger. For purposes of this
certification, amounts used by Belmont or by Subsidiary to pay Dissenting
Shareholders or to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal and recurring dividends) made by
Belmont or by Subsidiary immediately prior to the Merger will be considered as
assets held by Belmont or Subsidiary, respectively, immediately prior to the
Merger. The management of Cavalier is not aware of Belmont having redeemed any
of the Belmont Common Stock, having made any distribution with respect to any of
the Belmont Common Stock, or having disposed of any of its assets in
anticipation of or as part of a plan for the acquisition of Belmont by Cavalier.
(iv) Prior to the Merger, Cavalier will be in control of
Subsidiary within the meaning of Section 368(c) of the Code.
(v) Cavalier has no plan or intention to cause Belmont
after the Merger to issue additional shares of Belmont capital stock which would
result in Cavalier losing control of Belmont within the meaning of Section
368(c) of the Code.
(vi) Cavalier has no plan or intention to reacquire any of
its stock issued in the Merger.
(vii) Cavalier is the owner of all of the outstanding capital
stock of Subsidiary, and Cavalier has no plan or intention after the Merger to
liquidate Belmont, to merge Belmont into another corporation, to make any
extraordinary distribution in respect of its stock in Belmont, to sell or
otherwise dispose of the capital stock of Belmont or to cause Belmont to sell or
otherwise dispose of any of the assets of Belmont held by Belmont immediately
prior to the Merger, except for dispositions in the ordinary course of business
or transfers described in Section 368(a)(2)(C) of the Code.
(viii) Following the Merger, Belmont will continue its
historic business or will use a significant portion of its historic assets in a
business.
(ix) Cavalier, Subsidiary, Belmont and the shareholders of
Belmont each will pay their respec tive expenses, if any, incurred in connection
with the Merger. None of Cavalier, Subsidiary or Belmont will pay any of the
expenses of the shareholders of Belmont, if any, incurred in connection with the
Merger.
(x) There is no intercorporate indebtedness existing
between Cavalier and Belmont or between Subsidiary and Belmont that was issued,
acquired, or which will be settled at a discount.
A-52
<PAGE> 187
Belmont Homes, Inc.
________, 1997
Page 5
(xi) Neither Cavalier nor Subsidiary is an investment
company as such term is defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(xii) Neither Cavalier nor Subsidiary is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(xiii) Other than the approximately ______ shares of the
common stock of Belmont currently owned by Cavalier, Cavalier does not own, and
Cavalier has not owned at any time during the past five years, any shares of the
capital stock of Belmont.
(xiv) As of the Effective Time of the Merger, the fair market
value of the assets of Belmont will exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are subject).
(xv) No stock of Subsidiary will be issued in the Merger.
(xvi) The payment of cash in lieu of fractional shares of
Cavalier Common Stock is not separately bargained-for consideration and is being
made solely for the purpose of saving Cavalier the expense and inconvenience of
issuing fractional shares. Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares of Cavalier pursuant to the
Merger Agreement will not exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in exchange for their shares of
Belmont Common Stock, and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or greater than the value of
one full share of Cavalier Common Stock.
(xvii) None of the compensation received by any
shareholder-employee of Belmont pursuant to any employment, consulting or
similar arrangement with Cavalier (including a covenant not to compete) is or
will be separate consideration for, or allocable to, any of such
shareholder-employees' shares of Belmont Common Stock. None of the shares of
Cavalier Common Stock received by any shareholder-employee of Belmont pursuant
to the Merger are, or will be, separate consideration for, or allocable to, any
such employment, consulting or similar arrangement. The compensation paid to any
shareholder-employees of Belmont pursuant to any such employment, consulting or
similar arrangement (including a covenant not to compete) is or will be for
services actually rendered and performed, and will be commensurate with amounts
paid to third parties bargaining at arms' length for similar services.
Opinion
Upon the basis of the foregoing facts, representations and
assumptions, and solely for purposes of the Code, we are of the opinion that:
(1) Provided that pursuant to the Merger Belmont shareholders
exchange solely for Cavalier Common Stock an amount of Belmont Common Stock
constituting "control" of Belmont within the meaning of section 368(c) of the
Code, the proposed transaction will constitute a reorganization within the
meaning of section 368(a)(1)(A). The reorganization is not disqualified by
reason of the fact that Cavalier Common Stock is used in the transaction
(section 368(a)(2)(E)). Cavalier, Subsidiary, and Belmont each will be "a party
to a reorganization" within the meaning of section 368(b).
A-53
<PAGE> 188
Belmont Homes, Inc.
___________, 1997
Page 6
(2) No gain or loss will be recognized by the shareholders of
Belmont upon the exchange of Belmont Common Stock (including fractional share
interests, if any) solely for Cavalier Common Stock.
(3) The basis of the Cavalier Common Stock (including
fractional share interests, if any) to be received by Belmont shareholders will,
in each case, be the same as the basis of the Belmont Common Stock surrendered
in exchanged therefor.
(4) The holding period of Cavalier Common Stock (including
fractional share interests, if any) to be received by the shareholders of
Belmont will include the period during which the Belmont Common Stock exchanged
therefor was held by them, provided that such Belmont Common Stock was held as a
capital asset on the date of the exchange.
(5) Where solely cash is received by Dissenting Shareholders
in exchange for their Belmont Common Stock, the cash payment will be treated as
received by the shareholder as a distribution in redemption of such Belmont
Common Stock subject to the provisions and limitations of section 302 of the
Code.
(6) The payment of cash in lieu of fractional share interests
of Cavalier Common Stock will be treated as if the fractional share was
distributed as part of the exchange and then redeemed by Cavalier. These
payments will be treated as having been received as distributions in full
payment in exchange for stock redeemed as provided in section 302(a) of the
Code.
This opinion is rendered solely with respect to certain
federal income tax consequences of the Merger under the Code, and does not
extend to the income or other tax consequences of the Merger under the laws of
any state or any political subdivision of any state. Furthermore, no opinion is
expressed as to the federal or state tax treatment of the transaction under any
other provisions of the Code and regulations, or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that are not specifically covered by the above opinions. We express no opinion
as to the federal or state income tax consequences to the holders of Belmont
Options or to the issuing corporations of the proposed assumption and conversion
of such Options into the equivalent options to acquire shares of Cavalier Common
Stock.
We hereby consent to the inclusion of this opinion as an
exhibit to the Registration Statement on Form S-4 filed by Cavalier with the
Securities and Exchange Commission relating to the Merger, as amended (the
"Registration Statement"), and we further consent to the references to this
opinion in the Registration Statement. This opinion is being provided solely for
the use of the Belmont and the shareholders of Belmont. No other party or person
shall be entitled to rely on this opinion without our express written consent.
Sincerely yours,
A-54
<PAGE> 189
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
A-55
<PAGE> 190
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
A-56
<PAGE> 191
ANNEX B
December 2, 1997
Board of Directors
Cavalier Homes, Inc.
719 Scott Avenue, Suite 600
Wichita Falls, TX 76307
Gentlemen:
We understand that Cavalier Homes, Inc. (the "Company") has entered
into an Agreement and Plan of Merger, dated August 14, 1997, as amended (the
"Agreement"), with Belmont Homes, Inc. ("Belmont"). The Agreement provides that,
at the effective time of the merger (the "Merger") of Belmont into the Company
(the "Effective Time"), each outstanding share of Belmont common stock will be
converted into the right to receive 0.8 shares of the Company's common stock
(the "Exchange Ratio"). Assuming today's date is the closing date and the
Effective Time of the Merger, the outstanding shares of Belmont common stock
would be converted into an aggregate of 7,609,189 shares of the Company's common
stock (the "Merger Consideration"). The terms and conditions of the Merger are
more fully set forth in the Agreement.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the stockholders of the Company
(the "Stockholders") of the Merger Consideration and the Exchange Ratio.
Equitable Securities Corporation ("Equitable"), as part of its
investment banking business, is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
will receive a fee for rendering this opinion. In the past, Equitable has
performed investment banking and financial advisory services for the Company
from time to time for which we have received compensation, including serving as
lead managing underwriter for the Company's offering of common stock in June
1994 for which Equitable received customary underwriter's compensation.
Equitable has also provided investment banking and financial advisory services
to Belmont, including serving as a managing underwriter for the initial public
offering of common stock of Belmont in June 1995 and for an offering of common
stock in January 1996, in both cases receiving customary underwriter's
compensation. In the ordinary course of business, we trade the equity securities
of the Company and Belmont for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in these
securities.
In connection with our opinion, we have reviewed, among other things,
the Agreement, certain publicly-available information regarding the Company and
Belmont and certain other financial reports, internal forward-looking
information and other information which were provided to us. We held discussions
with the managements and representatives of the Company and Belmont concerning
the historical and current operations of the Company and Belmont, their
respective financial condition and prospects, as well as the strategic and
operating benefits anticipated from the Merger. In addition, we (i) considered,
to the extent available, the financial terms of certain other similar
transactions recently effected which we considered comparable to the Merger,
(ii) compared certain financial positions and operating results of the Company
and Belmont to other companies in the manufactured housing industry, (iii)
reviewed the pro forma financial effects of the Merger to the Company and (iv)
conducted such other financial studies, analyses and investigations and reviewed
such other factors as we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
certain financial and other information reviewed by us that was publicly
available or furnished to us by or on behalf of the Company and Belmont. We have
assumed that the
B-1
<PAGE> 192
internal forward-looking information and discussions regarding the future
prospects of the Company and Belmont were reasonable and reflected good faith
judgments of the respective managements of the Company and Belmont at the time
such information was prepared or discussions were held. We have also assumed,
with your consent, that: (i) the Merger will be accounted for under the
pooling-of-interests method of accounting, (ii) the Merger will be a tax-free
reorganization and (iii) all material liabilities (contingent or otherwise) of
Belmont are as set forth in the financial statements of Belmont or as otherwise
disclosed to us in connection with this engagement. We have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Belmont, nor were we furnished with any such evaluations or
appraisals. Equitable was not requested to, and did not participate in, the
structuring of the Merger. Our opinion is based upon economic, market and other
conditions existing as of the date hereof and does not address the fairness of
the Merger Consideration to the Stockholders as of any other date, or any other
aspect of the Merger. Our opinion does not constitute a recommendation to any
Stockholder of the Company as to whether or not that Stockholder should vote to
approve the Merger. Furthermore, we express no opinion as to the price or
trading range at which shares of common stock of the Company will trade
following the Merger.
It is understood that this letter is for the information of the Board
of Directors of the Company and may be disclosed in the Proxy Statement relating
to the Merger to be distributed by the Company to its Stockholders, so long as
each inclusion and reference is in form and substance satisfactory to Equitable.
This letter may not be used for any other purpose without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that the
Merger Consideration to be paid by the Company and the Exchange Ratio are fair,
from a financial point of view, to the Stockholders of the Company.
Very truly yours,
/s/ Equitable Securities Corporation
EQUITABLE SECURITIES CORPORATION
B-2
<PAGE> 193
ANNEX C
December 2, 1997
Board of Directors
Belmont Homes, Inc.
Highway 25 South
Industrial Park Drive
Belmont, Mississippi 38827
Gentlemen:
You have asked our opinion as to the fairness from a financial point of view to
the holders of Belmont Homes, Inc. (the "Company") outstanding common stock of
the exchange ratio of 0.80 shares of Cavalier Homes, Inc. ("Cavalier") common
stock per share of the Company's common stock (the "Exchange Ratio") to be
received by such shareholders pursuant to the proposed merger of the Company
with Crimson Acquisition Corp. ("Subsidiary"), a wholly-owned subsidiary of
Cavalier. Such terms are set forth in the Agreement and Plan of Merger among the
Company, Subsidiary and Cavalier (the "Merger Agreement") dated August 14, 1997.
Pursuant to the terms of the Merger Agreement and subject to the approval of the
shareholders of the Company and the stockholders of Cavalier and the
satisfaction of certain other conditions, the Company will be merged with
Subsidiary with the Company being the surviving corporation (the "Merger").
In connection with the opinion described below, we have reviewed publicly
available business and financial information relating to the Company and
Cavalier. We also have, among other things: (i) reviewed the Merger Agreement
(and certain related exhibits); (ii) discussed with certain members of senior
management of both the Company and Cavalier the past and current business
operations, financial condition and future prospects of the Company and
Cavalier, respectively; (iii) reviewed certain other financial and operating
data for both the Company and Cavalier provided by the management of the Company
and Cavalier, respectively; (iv) reviewed historical market prices and trading
volumes for the common stock of both the Company and Cavalier; (v) analyzed the
pro forma financial impact of the Merger on the Company and Cavalier; (vi)
compared certain financial information for the Company with similar information
for certain other companies the securities of which are publicly traded; and
(vii) reviewed the financial terms of other recent business combinations that we
considered relevant.
In addition, we have considered such other information and have conducted such
other analysis as we deemed appropriate under the circumstances. In connection
with our review, we have relied upon and assumed the accuracy and completeness
of the financial and other information publicly available or furnished to us by
the Company and Cavalier or their representatives. We have not independently
verified the accuracy or completeness of such information. We have also assumed
that the Merger will be accounted for under the pooling-of-interests method of
accounting and that the Merger will qualify as a tax-free reorganization. In
connection with our engagement, we were not requested to,
C-1
<PAGE> 194
Board of Directors
August 13, 1997
Page 2
and did not, solicit third party indications of interest in a possible
acquisition of the Company. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
We will receive a fee upon the delivery of this opinion. In the ordinary course
of business, we and our affiliates may actively trade or hold the securities of
the Company and Cavalier for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities. We have in the past provided investment banking services to the
Company, for which services we have received compensation.
Our opinion is provided for the information of the Board of Directors of the
Company in its evaluation of the proposed Merger, and our opinion is not
intended to be and does not constitute a recommendation to any shareholder as to
how such shareholder should vote on the proposed Merger. We express no opinion
as to the price at which the Company common stock or Cavalier common stock may
trade at any time.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of the Company's common
stock from a financial point of view.
Very truly yours,
RAUSCHER PIERCE REFSNES, INC.
/s/ Rauscher Pierce Refsnes, Inc.
C-2
<PAGE> 195
ANNEX D
ARTICLE 13
DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
79-4-13.01 DEFINITIONS - In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 79-4- 13.02 and who exercises that right when and
in the manner required by Sections 79-4-13.20 through 79-4-13.28.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
79-4-13.02 RIGHT TO DISSENT. - (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
79-4-11.03 or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under Section 79-4-11.04;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares;
D-1
<PAGE> 196
(ii) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fraction share so created is to be acquired for cash
under Section 79-4-6.04; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) Nothing in subsection (a)(4) shall entitle a shareholder of a
corporation to dissent and obtain payment for his shares as a result of an
amendment of the articles of incorporation exclusively for the purpose of either
(i) making such corporation subject to application of the Mississippi Control
Share Act, or (ii) making such act inapplicable to a control share acquisition
of such corporation.
(c) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
79-4-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. - (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
79-4-13.20 NOTICE OF DISSENTERS' RIGHTS. - (a) If proposed corporate
action creating dissenters' rights under Section 79-4-13.02 is submitted to a
vote at a shareholders' meeting, the meeting notice must state that shareholders
are or may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section
79-4-13.02 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
79-4-13.22.
79-4-13.21 NOTICE OF INTENT TO DEMAND PAYMENT. - (a) If proposed
corporate action creating dissenters' rights under Section 79-4-13.02 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (1) must deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated, and (2) must not vote his shares in favor of the
proposed action.
D-2
<PAGE> 197
(b) A shareholder who does not satisfy the requirement of subsection
(a) is not entitled to payment for his shares under this article.
79-4-13.22 DISSENTERS' NOTICE. - (a) If proposed corporate action
creating dissenters' rights under Section 79-4-13.02 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Section 79-4-13.21.
(b) The dissenters' notice must be sent no later than ten (10) days
after the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more that sixty (60)
days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
79-4-13.23 DUTY TO DEMAND PAYMENT. - (a) A shareholder sent a
dissenters' notice described in Section 79-4-13.22 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenter's notice pursuant to Section 79-4-13.22(b)(3),
and deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his shares under
subsection (a) retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
79.4-13.24 SHARE RESTRICTIONS. - (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under Section 79-4-13.26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
79-4-13.25 PAYMENT.-(a) Except as provided in Section 79-4-13.27, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with Section
79-4-13.23 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
D-3
<PAGE> 198
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under
Section 79-4-13.28; and
(5) A copy of this article.
79-4-13.26 FAILURE TO TAKE ACTION. - (a) If the corporation does not
take the proposed action within sixty (60) days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 79-4-13.22 and repeat the payment demand
procedure.
79-4-13.27 AFTER-ACQUIRED SHARES. - (a) A corporation may elect to
withhold payment required by Section 79-4-13.25 from a dissenter unless he was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated and
a statement of the dissenter's right to demand payment under Section 79-4-13.28.
79-4-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
- - (a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under Section 79-4-13.25), or reject the
corporation's offer under Section 79-4-13.27 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section
79-4-13.25 or offered under Section 79-4- 13.27 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 79-4-13.25
within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
within thirty (30) days after the corporation made or offered payment for his
shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
79-4-13.30 COURT ACTION. - (a) If a demand for payment under Section
79-4-13.28 remains unsettled, the corporation shall commence a proceeding within
sixty (60) days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the chancery court
of the county where a corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign
D-4
<PAGE> 199
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 79-4-13.27.
79-4-13.31 COURT COSTS AND COUNSEL FEES. - (a) The court in an
appraisal proceeding commenced under Section 79-4-13.30 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall asses the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under Section 79-4-13.28.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 79-4-13.20 through 79-4-13.28; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
D-5
<PAGE> 200
BELMONT HOMES, INC.
HIGHWAY 25 SOUTH, INDUSTRIAL PARK DRIVE
BELMONT, MISSISSIPPI 38827
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 31, 1997
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF BELMONT HOMES, INC.)
The undersigned holder of shares of Common Stock, par value $0.10 per share
(the "Belmont Shares"), of Belmont Homes, Inc., a Mississippi corporation
("Belmont"), hereby appoints G. Hiller Spann and Thomas D. Keenum, Sr. or
either of them, as attorneys and proxies for the undersigned, each with full
power of substitution, to attend, vote and act for and in the name of the
undersigned and to vote, as designated below, all the Belmont Shares that the
undersigned is entitled to vote at the special meeting of shareholders of
Belmont to be held at 9:00 a.m., local time, on Wednesday, December 31, 1997,
at the Executive Inn, 1011 North Gloster, Tupelo, Mississippi 38801, and at any
adjournments thereof.
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 14, 1997, as
amended (the "Merger Agreement"), by and among Belmont, Cavalier
Homes, Inc. a Delaware corporation ("Cavalier"), and Crimson
Acquisition Corp., a Mississippi corporation and a wholly owned
subsidiary of Cavalier ("Sub"), and the Merger (as hereinafter
defined), pursuant to which Sub will be merged with and into Belmont
and Belmont will become a wholly owned subsidiary of Cavalier (the
"Merger"), and in connection with the Merger, and as more fully
described in the accompanying Joint Proxy Statement and Prospectus
and the Merger Agreement included as Annex A thereto, each share of
common stock, par value $0.10 per share, of Belmont issued and
outstanding immediately prior to the effective time of the Merger
will be converted into the right to receive 0.80 shares of common
stock, par value $0.10 per share, of Cavalier.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Other Matters:
[ ] In their discretion, upon such other matters as are incident
to the conduct of the Special Meeting or any adjournment
thereof.
[ ] Authority withheld to vote upon such matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEM 1.
<PAGE> 201
The undersigned hereby revokes any other proxy or proxies heretofore given
to vote or act with respect to such Belmont Shares, and hereby ratifies and
confirms all action that said attorneys and proxies, their substitutes, or any
of them, may lawfully take by virture thereof.
Dated: , 1997
-------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Signature of Shareholder
-------------------------------------------------
Signature if held jointly
This proxy should be signed as your name appears
thereon. Joint owners should both sign. If
signed by an attorney, executor, guardian or in
some other capacity or as officer of a
corporation, please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 202
CAVALIER HOMES, INC.
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
PROXY FOR A SPECIAL MEETING OF STOCKHOLDERS -- DECEMBER 31, 1997
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CAVALIER HOMES, INC.)
The undersigned holder of shares of Common Stock, par value
$0.10 per share ("Cavalier Shares"), of Cavalier Homes, Inc., a Delaware
corporation ("Cavalier"), hereby appoints David A. Roberson and Michael R.
Murphy, or either of them, as attorneys and proxies for the undersigned, each
with full power of substitution, to attend, vote and act for and in the name of
the undersigned and to vote, as designated below, all of the Cavalier Shares
that the undersigned is entitled to vote at the special meeting of stockholders
of Cavalier to be held at 9:00 a.m., local time, on Wednesday, December 31,
1997, at the offices of Cavalier, Highway 41 North and Cavalier Road, Addison,
Alabama 35540, and at any adjournments thereof.
1. To consider and vote upon a proposal for the issuance (the
"Share Issuance") of shares of common stock, par value $0.10
per share (the "Cavalier Shares"), of Cavalier, pursuant to an
Agreement and Plan of Merger, dated as of August 14, 1997, as
amended (the "Merger Agreement"), by and among Cavalier,
Belmont Homes, Inc., a Mississippi corporation ("Belmont"),
and Crimson Acquisition Corp., a Mississippi corporation and a
wholly owned subsidiary of Cavalier ("Sub"), pursuant to which
Sub will be merged with and into Belmont and Belmont will
become a wholly owned subsidiary of Cavalier (the "Merger"),
and in connection with the Merger, and as more fully described
in the accompanying Joint Proxy Statement and Prospectus and
in the Merger Agreement included as Annex A thereto, (i) each
share of common stock, par value $0.10 per share, of Belmont
(the "Belmont Shares") issued and outstanding immediately
prior to the effective time of the Merger (the "Effective
Time") will be converted into the right to receive 0.80
Cavalier Shares (the "Exchange Ratio"), (ii) stock options and
warrants to purchase Belmont Shares outstanding at the
Effective Time will be converted into options and warrants to
purchase an equal number of Cavalier Shares multiplied by the
Exchange Ratio, with the exercise price of such outstanding
options and warrants being divided by the Exchange Ratio, and
(iii) by means of an amendment to the Cavalier 1996 Key
Employee Stock Incentive Plan (the "Cavalier Stock Plan"),
Cavalier Shares equal to the number of Belmont Shares reserved
at the Effective Time for issuance pursuant to ungranted
options under the Belmont 1994 Incentive Stock Plan (the
"Belmont Stock Plan"), plus the number of Belmont Shares
subject to outstanding options under the Belmont Stock Plan
which lapse, terminate, expire or are cancelled following 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.
FOR [] AGAINST [] ABSTAIN []
2. Other Matters:
[] In their discretion, upon such other matters as are
incident to the conduct of the Special Meeting or any
adjournment thereof.
[] Authority withheld to vote upon such matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR ITEM 1.
<PAGE> 203
The undersigned hereby revokes any other proxy or proxies heretofore
given to vote or act with respect to such Cavalier Shares, and hereby ratifies
and confirms all action that said attorneys and proxies, their substitutes, or
any of them, may lawfully take by virtue thereof.
Dated: , 1997
--------------------------
--------------------------------------
--------------------------------------
Signature of Stockholder
--------------------------------------
Signature if held jointly
This proxy should be signed exactly as
your name appears thereon. Joint owners
should both sign. If signed by an
attorney, executor, guardian or in some
other capacity or as officer of a
corporation, please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
<PAGE> 204
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated By-laws of Registrant provide that Registrant
will indemnify its directors and officers in actions, suits or proceedings
(other than derivative actions) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such director or officer if such director or officer acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The By-laws give the
Registrant the power in its discretion to indemnify any employee or agent of the
Registrant in the same manner as the Registrant is required to indemnify its
officers and directors pursuant to the foregoing sentence. The By-laws provide
that the Registrant shall indemnify any director or officer of the Registrant
who is a party to any derivative action on behalf of the Registrant against
expenses (including attorneys' fees) actually and reasonably incurred by such
director or officer if such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
Registrant, and except that no indemnification shall be made in respect of any
claim as to which such person shall have been judged to be liable to Registrant
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine that such person is
fairly and reasonably entitled to indemnity. The By-laws give the Registrant the
power in its discretion to indemnify any employee or agent of Registrant in the
same manner as the Registrant is required to indemnify its officers and
directors pursuant to the foregoing sentence. The By-laws further provide that
the Registrant may purchase and maintain insurance on behalf of its respective
directors, officers, employees or agents.
Section 145 of the Delaware General Corporation Law contains provisions
governing the indemnification of directors and officers by Delaware
corporations. The statute provides that a corporation has the power to indemnify
a person who was or is a party or is threatened to be made a party to a
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding, if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
a criminal action or proceeding, if the person had no reasonable cause to
believe his or her conduct was unlawful. The termination of an action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, does not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to a criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
Indemnification of expenses (including attorneys' fees) and amounts
paid in settlement is permitted in derivative actions, except that
indemnification is not allowed for any claim, issue or matter in which such
person has been found liable to the corporation unless and to the extent that
the Delaware Court of Chancery or the court in which such action was brought
decides indemnification is proper. To the extent that any such person has been
successful on the merits or otherwise in defense of an action, suit or
proceeding, or in defense of a claim, issue or matter in the action, suit or
proceeding, he or she shall be indemnified against actual and reasonable
expenses (including attorneys' fees) incurred by him or her in connection with
the action, suit or proceeding, and any action, suit or proceeding brought to
enforce the mandatory indemnification provided under the Delaware General
Corporation Law.
A determination that the person to be indemnified meets the applicable
standard of conduct and an evaluation of the reasonableness of the expenses
incurred and amounts paid in settlement must be made by a majority vote of a
quorum of the board of directors who are not parties or threatened to be made
parties to the action, suit or proceeding, even though less than a quorum, or by
a committee of such directors designated by majority vote of such directors,
even though less than a quorum, or if there are no such directors, or such
directors so direct, by independent legal counsel in a written opinion, or by
the stockholders.
Under the Delaware General Corporation Law, a corporation may pay or
reimburse the reasonable expenses incurred by a director or officer who is a
party or threatened to be made a party to an action, suit or proceeding in
advance of final disposition of the proceeding if the person furnishes the
corporation a written undertaking to repay the advance if it is ultimately
determined that he or she was not entitled to be indemnified.
II-1
<PAGE> 205
The indemnification provisions of the Delaware General Corporation Law
are not exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. The indemnification
provided for under the Delaware General Corporation Law continues as to a person
who ceases to be a director or officer.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended, provides that a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or may be hereafter amended, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law permits the Registrant to purchase
insurance on behalf of its directors and officers against liabilities arising
out of their positions with the Registrant, whether or not such liabilities
would be within the above indemnification provisions. Pursuant to this authority
and as authorized by its By-laws, the Registrant maintains such insurance on
behalf of its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration
Statement:
2(a) Agreement and Plan of Merger between Cavalier Homes, Inc.,
Crimson Acquisition Corp. and Belmont Homes, Inc. (included as
Annex A to the Joint Proxy Statement and Prospectus filed as
part of this Registration Statement).
2(b) Amendment No. 1 to Agreement and Plan of Merger between
Cavalier Homes, Inc., Crimson Acquisition Corp. And Belmont
Homes, Inc. (included as Annex A to the Joint Proxy Statement
and Prospectus filed as part of this Registration Statement).
*3(a) The Amended and Restated Certificate of Incorporation of
Cavalier Homes, Inc. filed as Exhibit 3(a) to Cavalier Homes,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1993, and the amendment thereto, filed as Exhibit 3(b) to
Cavalier Homes, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 27, 1997.
*3(b) 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 Cavalier
Homes, Inc.'s Registration Statement on Form 8-A filed on
October 30, 1996.
*3(c) The Amended and Restated By-laws of Cavalier Homes, Inc. filed
as Exhibit 3(d) to Cavalier Homes, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 27, 1997.
II-2
<PAGE> 206
*4(a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon
Shareholder Services, LLC, filed as Exhibit 4 to Cavalier
Homes, Inc.'s Current Report on Form 8-K dated October 30,
1996.
*4(b) Articles four, six, seven, eight and nine of Cavalier Homes,
Inc.'s Amended and Restated Certificate of Incorporation, as
amended, included in Exhibit 3(a) above.
*4(c) 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,
included in Exhibit 3(c) above.
5 Opinion of Bradley Arant Rose & White LLP as to the legality
of the securities being registered.
8 Opinion of Bradley Arant Rose & White LLP regarding certain
tax matters.
23(a) Consent of Bradley Arant Rose & White LLP (included in Exhibit
5 and Exhibit 8).
23(b) Consent of Deloitte & Touche LLP.
23(c) Consent of Equitable Securities Corporation.
23(d) Consent of Rauscher Pierce Refsnes, Inc.
23(e) Consent of KPMG Peat Marwick LLP.
23(f) Consent of Alday, Tillman, Wright & Giles, P.C.
24 Powers of Attorney.
--------------------
* Incorporated by reference.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
II-3
<PAGE> 207
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar
value of securities offered would not exceed
that which was registered) and any deviation
from the low or high end of the estimated
maximum offering range may be reflected in
the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and
price represent no more than a 20 percent
change in the maximum aggregate offering
price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the
securities registered hereunder through use of a
prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not
be used until such amendment is effective, and that,
for purposes of determining any liability under the
Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is
II-4
<PAGE> 208
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 209
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Addison,
State of Alabama, on December 1, 1997.
CAVALIER HOMES, INC.
By: /s/ David A. Roberson
------------------------------------------
David A. Roberson
President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> /s/ David A. Roberson <C> <C>
------------------------------------- Director and December 1, 1997
David A. Roberson Principal Executive Officer
/s/ Michael R. Murphy
------------------------------------- Director and Principal December 1, 1997
Michael R. Murphy Financial and Accounting Officer
/s/ Barry B. Donnell
------------------------------------- Chairman of the Board and Director December 1, 1997
Barry B. Donnell
/s/ Thomas A. Broughton, III
------------------------------------- Director December 1, 1997
Thomas A. Broughton, III
/s/ John W Lowe
------------------------------------- Director December 1, 1997
John W Lowe
/s/ Lee Roy Jordan
------------------------------------- Director December 1, 1997
Lee Roy Jordan
/s/ Gerald W. Moore
------------------------------------- Director December 1, 1997
Gerald W. Moore
</TABLE>
II-6
<PAGE> 210
INDEX TO EXHIBITS
2(a) Agreement and Plan of Merger between Cavalier Homes, Inc., Crimson
Acquisition Corp. and Belmont Homes, Inc. (included as Annex A to the
Joint Proxy Statement and Prospectus filed as part of this Registration
Statement).
2(b) Amendment No. 1 to Agreement and Plan of Merger between Cavalier Homes,
Inc., Crimson Acquisition Corp. And Belmont Homes, Inc. (included as
Annex A to the Joint Proxy Statement and Prospectus filed as part of
this Registration Statement).
*3(a) The Amended and Restated Certificate of Incorporation of Cavalier
Homes, Inc. filed as Exhibit 3(a) to Cavalier Homes, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1993, and the
amendment thereto, filed as Exhibit 3(b) to Cavalier Homes, Inc.'s
Quarterly Report on Form 10- Q for the quarter ended June 27, 1997.
*3(b) 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 Cavalier Homes, Inc.'s Registration Statement on Form
8-A filed on October 30, 1996.
*3(c) The Amended and Restated By-laws of Cavalier Homes, Inc. filed as
Exhibit 3(d) to Cavalier Homes, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 27, 1997.
*4(a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon
Shareholder Services, LLC, filed as Exhibit 4 to Cavalier Homes, Inc.'s
Current Report on Form 8-K dated October 30, 1996.
*4(b) Articles four, six, seven, eight and nine of Cavalier Homes, Inc.'s
Amended and Restated Certificate of Incorporation, as amended, included
in Exhibit 3(a) above.
*4(c) 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, included in Exhibit 3(c) above.
5 Opinion of Bradley Arant Rose & White LLP as to the legality of the
securities being registered.
8 Opinion of Bradley Arant Rose & White LLP regarding certain tax
matters.
23(a) Consent of Bradley Arant Rose & White LLP (included in Exhibit 5 and
Exhibit 8).
23(b) Consent of Deloitte & Touche LLP.
23(c) Consent of Equitable Securities Corporation.
23(d) Consent of Rauscher Pierce Refsnes, Inc.
23(e) Consent of KPMG Peat Marwick LLP.
23(f) Consent of Alday, Tillman, Wright & Giles, P.C.
24 Powers of Attorney.
- ------------
* Incorporated by reference.
II-7
<PAGE> 1
EXHIBIT 5
BRADLEY ARANT ROSE & WHITE LLP
December 2, 1997
Cavalier Homes, Inc.
Highway 41 North and Cavalier Road
Addison, AL 35540
Gentlemen:
In our capacity as counsel for Cavalier Homes, Inc., a Delaware
corporation ("Cavalier"), we have examined the Registration Statement on Form
S-4 (the "Registration Statement"), in form as proposed to be filed by Cavalier
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, relating to the proposed merger (the "Merger") of
Belmont Homes, Inc., a Mississippi corporation ("Belmont") with and into Crimson
Acquisition Corp., a Mississippi corporation and a wholly-owned subsidiary of
Cavalier, and the issuance of up to 7,609,189 shares of common stock, par value
$0.10 per share (the "Shares"), of Cavalier, and associated preferred share
purchase rights (the "Rights") in connection with the Merger. Pursuant to the
Merger, each holder of shares of common stock of Belmont will receive shares of
Cavalier common stock. In this connection, we have examined such records,
documents and proceedings as we have deemed relevant and necessary as a basis
for the opinions expressed herein.
Upon the basis of the foregoing, we are of the opinion that:
(i) the Shares and Rights to be offered under the Registration
Statement, to the extent actually issued pursuant to the Merger, will have been
duly and validly authorized and issued and will be fully paid and nonassessable;
and
(ii) under the laws of the State of Delaware, no personal liability
will attach to the ownership of the Shares and Rights.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition, we
hereby consent to the inclusion of the statements made in reference to our firm
under the caption "LEGAL MATTERS" in the Joint Proxy Statement and Prospectus
which is a part of the Registration Statement.
Very truly yours,
/s/ Bradley Arant Rose & White LLP
<PAGE> 1
EXHIBIT 8
BRADLEY ARANT ROSE & WHITE LLP
December 2, 1997
Belmont Homes, Inc.
Highway 25 South
Industrial Park Drive
Belmont, MS 38827
Re: Agreement and Plan of Merger by and among Cavalier Homes, Inc.,
Crimson Acquisition Corp. and Belmont Homes, Inc.
Ladies and Gentlemen:
We have been requested to render certain opinions with respect to the
transactions contemplated by that certain Agreement and Plan of Merger dated as
of August 14, 1997, as amended by Amendment No. 1 dated as of September 19, 1997
(as amended, the "Merger Agreement"), by and among Belmont Homes, Inc., a
Mississippi corporation ("Belmont"), Cavalier Homes, Inc., a Delaware
corporation ("Cavalier"), and Crimson Acquisition Corp., a Mississippi
corporation and a direct, wholly-owned subsidiary of Cavalier ("Subsidiary"), as
described in more detail in the Merger Agreement and the Joint Proxy Statement
and Prospectus filed by Cavalier with the Securities Exchange Commission on
September 23, 1997 (the "Proxy Statement"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings given them in the Merger
Agreement.
In rendering the opinions set forth below, we have examined and relied
upon the originals or copies of the Merger Agreement, the Proxy Statement, and
the representations given to us by letter of even date with this opinion by
Belmont, and by letter of even date with this opinion by Cavalier, each as
contained and described in the representations section of this letter, and such
other documents and materials as we have deemed necessary as a basis for such
opinions. In connection with such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents, agreements and instruments
submitted to us as originals, the conformity to original documents, agreements
and instruments of all documents, agreements and instruments submitted to us as
copies or specimens and the authenticity of the originals of such documents,
agreements and instruments submitted to us as copies or specimens, and, as to
factual matters, the veracity of written statements made by officers and other
representatives of Belmont and Cavalier.
In rendering this opinion, we have made such investigation of law and
facts as we have deemed necessary, including examination of the relevant
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated pursuant thereto by the Department of the Treasury and
the IRS, and applicable judicial decisions, all of which are subject to change.
Neither Cavalier, Subsidiary, nor Belmont has requested or will receive an
advance ruling from the Internal Revenue Service ("IRS") as to any of the
federal income tax effects of the Merger to holders of Belmont Common Stock (as
hereinafter defined), or of any of the federal income tax effects to Cavalier,
Subsidiary or Belmont of the Merger. Our opinion is not binding on the IRS and
there can be no assurance, and none is hereby given, that the IRS will not take
a position contrary to one or more positions reflected herein or that the
opinion will be upheld by the courts if challenged by the IRS.
The Proposed Transaction
Immediately prior to the Merger, Cavalier will own 100% of the capital
stock of Subsidiary. Pursuant to the Merger Agreement, among other things, (i)
Subsidiary will be merged with and into Belmont (the "Merger") in
<PAGE> 2
Belmont Homes, Inc.
December 2, 1997
Page 2
- -------------------
accordance with applicable provisions of the Mississippi Business Corporation
Act (the "Corporation Law"), and (ii) except for those shares for which the
holder exercises the right of dissent afforded under the Corporation Law (such
holders being hereinafter referred to as the "Dissenting Shareholders"), each
outstanding share of common stock, par value $0.10 per share, of Belmont (the
"Belmont Common Stock") will be converted into eight tenths (0.8) shares of
common stock of Cavalier, par value $0.10 per share (the "Cavalier Common
Stock") (the "Exchange Ratio"). No fractional shares will be issued; Cavalier
will pay cash in lieu of issuing fractional shares. No stock of Subsidiary will
be issued in the Merger.
All options and warrants to acquire shares of Belmont Common Stock
granted by Belmont (the "Belmont Options") which are outstanding and unexercised
at the time of the Merger will be assumed by Cavalier, and will be converted
into options to acquire shares of Cavalier Common Stock subject to the same
terms and conditions applicable to the Belmont options immediately prior to the
Merger, except that the number of shares subject to each option and the exercise
price thereof will be appropriately adjusted to give effect to the Exchange
Ratio.
Representations
Belmont has made the following representations:
(a) The Merger will be consummated in compliance with the material
terms of the Agreement and, except as described in the attached schedule, none
of the material terms and conditions therein have been waived or modified and
Belmont has no plan or intention to waive or modify further any such material
condition.
(b) The ratio for the exchange of shares of Belmont Common Stock for
shares of Cavalier Common Stock was negotiated through arm's length bargaining.
Accordingly, the fair market value of the Cavalier Common Stock to be received
by Belmont shareholders in the Merger will be approximately equal to the fair
market value of the Belmont Common Stock surrendered by such shareholders in
exchange therefor.
(c) There is no plan or intention by any of the shareholders of Belmont
who own five percent (5%) or more of the Belmont Common Stock, and to the best
of the knowledge of the management of Belmont, there is no plan or intention on
the part of the remaining shareholders of Belmont to sell, exchange, or
otherwise dispose of a number of shares of Cavalier Common Stock to be received
by them in the Merger that would reduce the Belmont shareholders' ownership of
Cavalier Common Stock to a number of shares having a value, as of the Effective
Time of the Merger, of less than fifty percent (50%) of the value of all of the
formerly outstanding shares of Belmont Common Stock as of the same date. For
purposes of the foregoing statement, shares of Belmont Common Stock exchanged
for cash or other property by Dissenting Shareholders, if any, or exchanged for
cash in lieu of fractional shares of Cavalier Common Stock have been considered
as outstanding Belmont Common Stock as of the Effective Time of the Merger. In
addition, the management of Belmont is not aware of any transfers of Belmont
Common Stock by any holders thereof (including any sales, redemptions or other
dispositions) prior to the Effective Time which were made in contemplation of
the Merger.
(d) Immediately after the Merger, Belmont will hold no less than ninety
percent (90%) of the fair market value of the net assets and no less than
seventy percent (70%) of the fair market value of the gross assets of Belmont
held by Belmont immediately prior to the Merger, and no less than ninety percent
(90%) of the fair market value of the net assets and no less than seventy
percent (70%) of the fair market value of the gross assets of Subsidiary held by
Subsidiary immediately prior to the Merger. For purposes of this certification,
amounts used by Belmont or by Subsidiary to pay Dissenting Shareholders or to
pay reorganization expenses, and all redemptions and distributions (except for
regular, normal and recurring dividends) made by Belmont or by Subsidiary
immediately prior to the Merger will be considered as assets held by Belmont or
Subsidiary, respectively, immediately prior to the Merger. Belmont has not
redeemed any of the Belmont Common Stock, made any distribution with respect to
any of the Belmont Common Stock, or disposed of any of its assets in
anticipation of or as part of a plan for the acquisition of Belmont by Cavalier.
<PAGE> 3
Belmont Homes, Inc.
December 2, 1997
Page 3
- -------------------
(e) The liabilities of Belmont and the liabilities to which the assets
of Belmont are subject were incurred by Belmont in the ordinary course of
Belmont's business. None of the shares of Belmont to be surrendered in exchange
for Cavalier Common Stock in the Merger will be subject to any liabilities
following such exchange.
(f) Cavalier, Subsidiary and Belmont each will pay their respective
expenses, if any, incurred in connection with the Merger. None of Cavalier,
Subsidiary or Belmont will pay any of the expenses of the share holders of
Belmont, if any, incurred in connection with the Merger.
(g) There is no intercorporate indebtedness existing between Cavalier
and Belmont or between Subsidiary and Belmont that was issued, acquired, or
which will be settled at a discount.
(h) Belmont is not an investment company as such term is defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) Belmont is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(j) As of the Effective Time of the Merger, the fair market value of
the assets of Belmont will exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are subject).
(k) The payment of cash in lieu of fractional shares of Cavalier Common
Stock is not separately bargained-for consideration and is being made solely for
the purpose of saving Cavalier the expense and inconvenience of issuing
fractional shares. Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares of Cavalier pursuant to the
Merger Agreement will not exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in exchange for their shares of
Belmont Common Stock, and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or greater than the value of
one full share of Cavalier Common Stock.
(l) None of the compensation received by any shareholder-employee of
Belmont pursuant to any employment, consulting or similar arrangement (including
a covenant not to compete) is or will be separate consideration for, or
allocable to, any of such shareholder-employee's shares of Belmont Common Stock.
None of the shares of Cavalier Common Stock received by any shareholder-employee
of Belmont pursuant to the Merger are, or will be, separate consideration for,
or allocable to, any such employment, consulting or similar arrangement. The
compensa tion paid to any shareholder-employees of Belmont pursuant to any such
employment, consulting or similar arrangement (including a covenant not to
compete) is or will be for services actually rendered and performed, and will be
commensurate with amounts paid to third parties bargaining at arms' length for
similar services.
Cavalier has made the following representations:
(i) The Merger will be consummated in compliance with the material
terms of the Agreement and, except as described in the attached schedule, none
of the material terms and conditions therein have been waived or modified and
Cavalier has no plan or intention to waive or modify further any such material
condition.
(ii) The ratio for the exchange of shares Belmont Common Stock for
Cavalier Common Stock was negotiated through arm's length bargaining.
Accordingly, the fair market value of the Cavalier Common Stock to be received
by Belmont shareholders in the Merger will be approximately equal to the fair
market value of the Belmont Common Stock surrendered by such shareholders in
exchange therefor.
(iii) Immediately after the Merger Belmont will hold no less than
ninety percent (90%) of the fair market value of the net assets and no less than
seventy percent (70%) of the fair market value of the gross assets of Belmont
held by Belmont immediately prior to the Merger, and no less than ninety percent
(90%) of the fair market value of the net assets and no less than seventy
percent (70%) of the fair market value of the gross assets of Subsidiary held by
Subsidiary immediately prior to the Merger. For purposes of this certification,
amounts used by Belmont or by Subsidiary to pay Dissenting Shareholders or to
pay reorganization expenses, and all redemptions and distributions
<PAGE> 4
Belmont Homes, Inc.
December 2, 1997
Page 4
- -------------------
(except for regular, normal and recurring dividends) made by Belmont or by
Subsidiary immediately prior to the Merger will be considered as assets held by
Belmont or Subsidiary, respectively, immediately prior to the Merger. The
management of Cavalier is not aware of Belmont having redeemed any of the
Belmont Common Stock, having made any distribution with respect to any of the
Belmont Common Stock, or having disposed of any of its assets in anticipation of
or as part of a plan for the acquisition of Belmont by Cavalier.
(iv) Prior to the Merger, Cavalier will be in control of Subsidiary
within the meaning of Section 368(c) of the Code.
(v) Cavalier has no plan or intention to cause Belmont after the
Merger to issue additional shares of Belmont capital stock which would result in
Cavalier losing control of Belmont within the meaning of Section 368(c) of the
Code.
(vi) Cavalier has no plan or intention to reacquire any of its stock
issued in the Merger.
(vii) Cavalier is the owner of all of the outstanding capital stock of
Subsidiary, and Cavalier has no plan or intention after the Merger to liquidate
Belmont, to merge Belmont into another corporation, to make any extraordinary
distribution in respect of its stock in Belmont, to sell or otherwise dispose of
the capital stock of Belmont or to cause Belmont to sell or otherwise dispose of
any of the assets of Belmont held by Belmont immediately prior to the Merger,
except for dispositions in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
(viii) Following the Merger, Belmont will continue its historic
business or will use a significant portion of its historic assets in a business.
(ix) Cavalier, Subsidiary, Belmont and the shareholders of Belmont
each will pay their respective expenses, if any, incurred in connection with the
Merger. None of Cavalier, Subsidiary or Belmont will pay any of the expenses of
the shareholders of Belmont, if any, incurred in connection with the Merger.
(x) There is no intercorporate indebtedness existing between
Cavalier and Belmont or between Subsidiary and Belmont that was issued,
acquired, or which will be settled at a discount.
(xi) Neither Cavalier nor Subsidiary is an investment company as such
term is defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(xii) Neither Cavalier nor Subsidiary is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(xiii) Other than the approximately 23,000 shares of the common stock
of Belmont currently owned by Cavalier, Cavalier does not own, and Cavalier has
not owned at any time during the past five years, any shares of the capital
stock of Belmont.
(xiv) As of the Effective Time of the Merger, the fair market value of
the assets of Belmont will exceed the sum of the liabilities of Belmont
(including any liabilities to which its assets are subject).
(xv) No stock of Subsidiary will be issued in the Merger.
(xvi) The payment of cash in lieu of fractional shares of Cavalier
Common Stock is not separately bargained-for consideration and is being made
solely for the purpose of saving Cavalier the expense and inconvenience of
issuing fractional shares. Furthermore, the total cash consideration paid to
shareholders of Belmont in lieu of fractional shares of Cavalier pursuant to the
Merger Agreement will not exceed one percent (1%) of the total consideration
issued in the Merger to the Belmont shareholders in exchange for their shares of
Belmont Common Stock, and no Belmont shareholder will receive cash for
fractional share interests in an amount equal to or greater than the value of
one full share of Cavalier Common Stock.
<PAGE> 5
Belmont Homes, Inc.
December 2, 1997
Page 5
- -------------------
(xvii) None of the compensation received by any shareholder-employee of
Belmont pursuant to any employment, consulting or similar arrangement with
Cavalier (including a covenant not to compete) is or will be separate
consideration for, or allocable to, any of such shareholder-employees' shares of
Belmont Common Stock. None of the shares of Cavalier Common Stock received by
any shareholder-employee of Belmont pursuant to the Merger are, or will be,
separate consideration for, or allocable to, any such employment, consulting or
similar arrangement. The compensation paid to any shareholder-employees of
Belmont pursuant to any such employment, consulting or similar arrangement
(including a covenant not to compete) is or will be for services actually
rendered and performed, and will be commensurate with amounts paid to third
parties bargaining at arms' length for similar services.
Opinion
Upon the basis of the foregoing facts, representations and assumptions, and
solely for purposes of the Code, we are of the opinion that:
(1) The proposed transaction will constitute a reorganization within
the meaning of section 368(a)(1)(A). The reorganization is not disqualified by
reason of the fact that Cavalier Common Stock is used in the transaction
(section 368(a)(2)(E)). Cavalier, Subsidiary, and Belmont each will be "a party
to a reorganization" within the meaning of section 368(b).
(2) No gain or loss will be recognized by the shareholders of Belmont
upon the exchange of Belmont Common Stock (including fractional share interests,
if any) solely for Cavalier Common Stock.
(3) The basis of the Cavalier Common Stock (including fractional share
interests, if any) to be received by Belmont shareholders will, in each case, be
the same as the basis of the Belmont Common Stock surrendered in exchanged
therefor.
(4) The holding period of Cavalier Common Stock (including fractional
share interests, if any) to be received by the shareholders of Belmont will
include the period during which the Belmont Common Stock exchanged therefor was
held by them, provided that such Belmont Common Stock was held as a capital
asset on the date of the exchange.
(5) Where solely cash is received by Dissenting Shareholders in
exchange for their Belmont Common Stock, the cash payment will be treated as
received by the shareholder as a distribution in redemption of such Belmont
Common Stock subject to the provisions and limitations of section 302 of the
Code.
(6) The payment of cash in lieu of fractional share interests of
Cavalier Common Stock will be treated as if the fractional share was distributed
as part of the exchange and then redeemed by Cavalier. These payments will be
treated as having been received as distributions in full payment in exchange for
stock redeemed as provided in section 302(a) of the Code.
This opinion is rendered solely with respect to certain federal income tax
consequences of the Merger under the Code, and does not extend to the income or
other tax consequences of the Merger under the laws of any state or any
political subdivision of any state. Furthermore, no opinion is expressed as to
the federal or state tax treatment of the transaction under any other provisions
of the Code and regulations, or about the tax treatment of any conditions
existing at the time of, or effects resulting from, the transaction that are not
specifically covered by the above opinions. We
<PAGE> 6
Belmont Homes, Inc.
December 2, 1997
Page 6
- -------------------
express no opinion as to the federal or state income tax consequences to the
holders of Belmont Options or to the issuing corporations of the proposed
assumption and conversion of such Options into the equivalent options to acquire
shares of Cavalier Common Stock.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by Cavalier with the Securities and
Exchange Commission relating to the Merger, as amended (the "Registration
Statement"), and we further consent to the references to this opinion in the
Registration Statement. This opinion is being provided solely for the use of the
Belmont and the shareholders of Belmont. No other party or person shall be
entitled to rely on this opinion without our express written consent.
Sincerely yours,
/s/ Bradley Arant Rose & White LLP
<PAGE> 1
EXHIBIT 23(B)
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Joint Proxy Statement and
Prospectus in this Registration Statement of Cavalier Homes, Inc. on Form S-4 of
our report dated February 28, 1997, appearing in the Annual Report on Form 10-K
of Cavalier Homes, Inc. for the year ended December 31, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
November 28, 1997
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF EQUITABLE SECURITIES CORPORATION
We hereby consent to the reference to the opinion of our firm under the
captions "SUMMARY-- The Proposed Merger -- Recommendation of the Board of
Directors of Cavalier and Cavalier's Reasons for the Merger," "THE PROPOSED
MERGER -- Recommendation of the Board of Directors of Cavalier and Cavalier's
Reasons for the Merger -- Opinion of Financial Advisor to Cavalier" and other
references to our firm and to the inclusion of a copy of our opinion letter as
Annex B to the Joint Proxy Statement/Prospectus which is a part of the
Registration Statement filed by Cavalier Homes, Inc. on Form S-4 under the
Securities Act of 1933, as amended. By giving this consent, we do not admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
EQUITABLE SECURITIES CORPORATION
By: /s/ Philip D. Krebs
------------------------------------
Managing Director
Nashville, Tennessee
November 24, 1997
<PAGE> 1
EXHIBIT 23(D)
RAUSCHER PIERCE REFSNES, INC.
CONSENT OF RAUSCHER PIERCE REFSNES, INC.
We hereby consent to the inclusion in the Prospectus and Joint Proxy Statement
forming part of this Registration Statement on Form S-4 of Belmont Homes, Inc.
of our opinion as Annex C thereto and to the reference to such opinion and to
our firm therein. We also confirm the accuracy in all material respects of the
description and summary of our analyses, observations, beliefs and conclusions
relating thereto set forth under the heading "THE PROPOSED MERGER -- Opinion of
Financial Advisor to Belmont" therein. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 and the rules and regulations of the
Securities and Exchange Commission issued thereunder.
Very truly yours,
RAUSCHER PIERCE REFSNES, INC.
December 1, 1997
/s/ Rauscher Pierce Refsnes, Inc.
<PAGE> 1
EXHIBIT 23(E)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of our report included in the joint proxy statement and
prospectus of Cavalier Homes, Inc. and Belmont Homes, Inc. and to the reference
to our firm under the heading "Experts" in the joint proxy statement and
prospectus.
/s/ KPMG Peat Marwick LLP
November 26, 1997 KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 23(F)
ALDAY, TILLMAN, WRIGHT & GILES, P.C.
Certified Public Accountants
We consent to the use of our report included in the joint proxy statement and
prospectus of Cavalier Homes, Inc. and Belmont Homes, Inc. and to the reference
to our firm under the heading "experts" in the joint proxy statement and
prospectus.
/s/ Alday, Tillman, Wright & Giles, P.C.
- ----------------------------------------
Alday, Tillman, Wright & Giles, P.C.
Valdosta, Georgia
November 26, 1997
<PAGE> 1
EXHIBIT 24
STATE OF ALABAMA )
:
COUNTY OF WINSTON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer of Cavalier
Homes, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints David A. Roberson his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ Michael R. Murphy
-----------------------------------------
Michael R. Murphy
Principal Financial and
Accounting Officer and Director
<PAGE> 2
STATE OF ALABAMA )
:
COUNTY OF WINSTON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and
director of Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby
constitutes and appoints Michael R. Murphy his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign a registration
statement of the Company on Form S-4 relating to the acquisition of Belmont
Homes, Inc. and relating to the registration of shares of the Common Stock, $.10
par value, of the Company, including all amendments to such registration
statement, with all exhibits thereto, and other documents in connection
therewith, and to file the same with the Securities and Exchange Commission and
with any state securities commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ David A. Roberson
------------------------------------------
David A. Roberson
President, Chief Executive Officer
and Director
<PAGE> 3
STATE OF TEXAS )
:
COUNTY OF WICHITA )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and
director of Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby
constitutes and appoints David A. Roberson and Michael R. Murphy, and each of
them, or either of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their respective substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ Barry B. Donnell
------------------------------------
Barry B. Donnell
Chairman of the Board
and Director
<PAGE> 4
STATE OF ALABAMA )
:
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints David A. Roberson and Michael R. Murphy, and each of them, or
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their respective substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ Thomas A. Broughton, III
-----------------------------------------
Thomas A. Broughton, III
Director
<PAGE> 5
STATE OF ALABAMA )
:
COUNTY OF WINSTON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints David A. Roberson and Michael R. Murphy, and each of them, or
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their respective substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ John W Lowe
--------------------------
John W Lowe
Director
<PAGE> 6
STATE OF TEXAS )
:
COUNTY OF DALLAS )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints David A. Roberson and Michael R. Murphy, and each of them, or
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their respective substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ Lee Roy Jordan
-------------------------------
Lee Roy Jordan
Director
<PAGE> 7
STATE OF ALABAMA )
:
COUNTY OF WINSTON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
Cavalier Homes, Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints David A. Roberson and Michael R. Murphy, and each of them, or
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign a registration statement of the
Company on Form S-4 relating to the acquisition of Belmont Homes, Inc. and
relating to the registration of shares of the Common Stock, $.10 par value, of
the Company, including all amendments to such registration statement, with all
exhibits thereto, and other documents in connection therewith, and to file the
same with the Securities and Exchange Commission and with any state securities
commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their respective substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
DATED this 1st day of December, 1997.
/s/ Gerald W. Moore
----------------------------
Gerald W. Moore
Director
