UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 1998
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission File Number 1-9792
Cavalier Homes, Inc.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
- ---------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or Identification Number)
organization)
Highway 41 North & Cavalier Road, Addison, Alabama 35540
--------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(256) 747-0044
-------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at August 7, 1998
- ---------------------------- -----------------------------
Common Stock, $.10 Par Value 20,105,322 Shares
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
INDEX
-----
Page No.
Part I. Financial Information (Unaudited)
--------
Consolidated Condensed Balance Sheets - 3
June 26, 1998 and December 31, 1997
Consolidated Condensed Statements of Income - 4
Thirteen and Twenty-six Weeks Ended June 26, 1998
and June 27, 1997
Consolidated Condensed Statements of Cash Flows - 5
Twenty-six Weeks Ended June 26, 1998 and
June 27, 1997
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security 14
Holders
Item 5. Other Matters 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
Certain items in the report that follows are marked with an asterisk (*),
indicating that they are subject to the "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995 found on page 16 of this
report.
-2-
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
<S> <C> <C>
June 26, December 31,
ASSETS 1998 1997
CURRENT ASSETS: _____________ ____________
Cash and cash equivalents $ 45,456 $ 37,276
Certificates of deposit, maturing within one year - 4,000
Accounts receivable, less allowance for
losses of $1,185 (1998) and $1,175 (1997) 35,254 8,449
Notes and installment contracts receivable - current 1,231 1,561
Inventories 34,820 29,697
Deferred income taxes 7,770 7,240
Other current assets 2,318 1,292
_____________ ____________
Total current assets 126,849 89,515
_____________ ____________
PROPERTY, PLANT AND EQUIPMENT (Net) 54,603 53,434
_____________ ____________
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $813 (1998)
and $1,272 (1997) 23,326 46,614
_____________ ____________
GOODWILL, less accumulated amortization of
$3,610 (1998) and $3,102 (1997) 20,003 19,551
_____________ ____________
OTHER ASSETS 2,522 2,440
_____________ ____________
TOTAL $ 227,303 $ 211,554
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 392 $ 3,271
Notes payable 2,446 -
Accounts payable 21,279 9,575
Amounts payable under dealer incentive programs 15,579 14,614
Accrued compensation and related withholdings 9,269 4,294
Estimated warranties 12,100 11,700
Accrued merger and related costs 1,871 5,178
Other accrued expenses 17,048 12,399
_____________ ____________
Total current liabilities 79,984 61,031
_____________ ____________
DEFERRED INCOME TAXES 431 297
_____________ ____________
LONG-TERM DEBT 3,881 15,808
_____________ ____________
OTHER LONG-TERM LIABILITIES 1,096 867
_____________ ____________
STOCKHOLDERS' EQUITY:
Series A Junior Participating Preferred Stock, $.01 par value;
200,000 shares authorized, none issued
Preferred stock, $.01 par value;
300,000 shares authorized, none issued
Common stock, $.10 par value; authorized
50,000,000 shares; issued 20,079,751 (1998)
and 19,941,357 (1997) shares 2,008 1,994
Additional paid-in capital 58,662 57,228
Retained earnings 81,241 74,329
_____________ ____________
Total stockholders' equity 141,911 133,551
_____________ ____________
TOTAL $ 227,303 $ 211,554
============= ============
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Twenty-six Weeks Ended
____________________________ ___________________________
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
REVENUES: ____________ ____________ ___________ ____________
Net sales $ 166,586 $ 159,629 $ 289,739 $ 285,701
Financial services 1,027 1,296 3,453 2,438
____________ ____________ ___________ ____________
167,613 160,925 293,192 288,139
____________ ____________ ___________ ____________
COST OF SALES 136,153 133,652 238,908 239,068
SELLING, GENERAL AND ADMINISTRATIVE:
Manufacturing 22,474 17,589 39,248 32,401
Financial services 780 745 1,728 1,420
____________ ____________ ___________ ____________
159,407 151,986 279,884 272,889
____________ ____________ ___________ ____________
OPERATING PROFIT 8,206 8,939 13,308 15,250
____________ ____________ ___________ ____________
OTHER INCOME(EXPENSE):
Interest expense:
Manufacturing (131) (173) (273) (423)
Financial services 2 (221) (281) (323)
Life Insurance Proceeds - 1,500 - 1,500
Other, net 492 367 884 865
____________ ____________ ___________ ____________
363 1,473 330 1,619
____________ ____________ ___________ ____________
INCOME BEFORE INCOME TAXES 8,569 10,412 13,638 16,869
____________ ____________ ___________ ____________
INCOME TAXES 3,500 3,532 5,527 6,096
____________ ____________ ___________ ____________
NET INCOME $ 5,069 $ 6,880 $ 8,111 $ 10,773
============ ============ =========== ============
BASIC NET INCOME PER SHARE $ .25 $ .35 $ .41 $ .54
============ ============ =========== ============
DILUTED NET INCOME PER SHARE $ .25 $ .34 $ .40 $ .54
============ ============ =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 20,044,585 19,807,235 20,006,292 19,785,208
============ ============ =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 20,427,558 19,999,103 20,294,047 19,989,861
============ ============ =========== ============
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<S> <C> <C>
Twenty-six Weeks Ended
______________________________
June 26, June 27,
1998 1997
OPERATING ACTIVITIES: _____________ ______________
Net income $ 8,111 $ 10,773
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 4,005 3,738
Provision for credit losses and repurchase commitments (469) 234
Gain on sale of installment contracts (1,283) -
(Gain) loss on sale of property, plant and equipment (1) 284
Equity in net income of unconsolidated affiliates (101) (187)
Minority interest in net income of consolidated subsidiaries 229 40
Compensation related to issuance of stock options 119 72
Changes in assets and liabilities provided (used) cash, net of effects
of acquisitions:
Accounts receivable (26,731) (21,095)
Inventories (2,276) (3,660)
Accounts payable 11,645 4,999
Other assets and liabilities 6,219 3,227
_____________ ______________
Net cash used in operating activities (533) (1,575)
_____________ ______________
INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and equipment 32 28
Net cash paid in connection with acquisitions (1,199) (871)
Capital expenditures (4,420) (4,956)
Purchases of certificates of deposit (6,044) -
Maturities of certificates of deposit 10,044 2,743
Distribution from equity investments 66 248
Proceeds from sale or maturity of marketable securities - 1,097
Purchases and originations of notes and installment contracts (7,245) (10,934)
Proceeds from sale of installment contracts 29,662 -
Principal collected on notes and installment contracts 2,901 2,017
_____________ ______________
Net cash provided by (used in) investing activities 23,797 (10,628)
_____________ ______________
FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 8,552
Net payments on notes payable (408) -
Payments on long-term debt (14,806) (5,213)
Cash dividends paid (1,199) (731)
Proceeds from exercise of stock options 165 4
Net proceeds from sales of common stock 1,164 956
_____________ ______________
Net cash provided by (used in) financing activities (15,084) 3,568
_____________ ______________
NET DECREASE IN CASH AND CASH EQUIVALENTS 8,180 (8,635)
_____________ ______________
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,276 29,751
_____________ ______________
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,456 $ 21,116
============= ==============
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
-5-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Twenty-six Week Periods
Ended June 26, 1998 and June 27, 1997
(Dollars in Thousands, Except Per Share Amounts)
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION
On December 31, 1997, Belmont Homes, Inc. ("Belmont") was
merged with and into a subsidiary of Cavalier Homes, Inc.
("Cavalier"), and 7,555,121 shares of Cavalier's common stock
were issued in exchange for all of the outstanding common
stock of Belmont. The merger was accounted for as a pooling of
interests, and, accordingly, the accompanying consolidated
condensed financial statements have been restated to include
the financial position, results of operations and cash flows
of Belmont for all periods presented. Previously reported
amounts for the individual companies have been adjusted for
the effect of former equity investments in unconsolidated
joint ventures which are now consolidated subsidiaries and for
reclassification of certain Belmont amounts to conform to
Cavalier's presentation.
The accompanying consolidated condensed financial statements
have been prepared in compliance with Form 10-Q instructions
and thus do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
these statements contain all adjustments necessary to present
fairly the Company's financial position as of June 26, 1998,
and the results of its operations and its cash flows for the
thirteen and twenty-six week periods ended June 26, 1998 and
June 27, 1997, respectively. All adjustments are of a normal,
recurring nature.
The results of operations for the thirteen and twenty-six
week periods ended June 26, 1998 are not necessarily
indicative of the results to be expected for the full year.
During February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, which is
effective for all financial statements issued for periods
ending after December 15, 1997, including interim periods. In
accordance with this Standard, the Company is now required to
report two separate earnings per share numbers, basic and
diluted. Both are computed by dividing net income by the
weighted average common shares outstanding (basic EPS) or
weighted average common shares outstanding assuming dilution
(diluted EPS) as detailed below:
<TABLE>
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Twenty-six Weeks Ended
--------------------------- ----------------------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
------------ ----------- ------------ ------------
BASIC & DILUTED
Net Income $ 5,069 $ 6,880 $ 8,111 $ 10,773
============ =========== ============ ============
SHARES:
Weighted average common shares
outstanding (basic) 20,044,585 19,807,235 20,006,292 19,785,208
Dilutive effect if stock options
were exercised 382,973 191,868 287,755 204,653
------------ ----------- ------------ ------------
Weighted average common shares
outstanding,assuming dilution (diluted) 20,427,558 19,999,103 20,294,047 19,989,861
============ =========== ============ ============
</TABLE>
- Inventories consist primarily of raw materials and are stated
at the lower of cost (first-in, first-out method) or market.
- Certain amounts from the prior periods have been reclassified
to conform to the 1998 presentation.
- In April 1998, the Company purchased substantially all of the
assets and assumed certain existing liabilities of The Home
Place, Inc. for a net cash payment of $1,199.
-6-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Twenty-six Week Periods
Ended June 26, 1998 and June 27, 1997
(Dollars in Thousands, Except Per Share Amounts)
2. ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This statement is effective
for financial statements issued for fiscal years beginning after
December 15, 1997. The adoption of the provisions of this Statement is
expected to result only in increased disclosures on segment information
and will not impact the amounts in the financial statements.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES Twenty-Six Weeks Ended
------------------------------
June 26, June 27,
1998 1997
---------- ----------
Cash paid for: Interest $ 553 $ 712
Income taxes $ 4,576 $ 5,146
4. CREDIT ARRANGEMENTS
In June 1998, the Company executed an amended $35,000 revolving,
warehouse and term-loan agreement (the "Credit Facility") with its
primary bank, whose president is a director of the Company. The Credit
Facility contains a revolving line of credit which provides for
borrowings (including letters of credit) of up to 80% and 50% of the
Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $10,000. Interest is payable under the
revolving line of credit at the bank's prime rate (8.50% at June 26,
1998), or, if elected by the Company, the 90-day LIBOR Rate plus 2.5%
(8.19% at June 26, 1998).
The warehouse and term-loan agreements contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as
defined) installment sale contracts, up to a maximum of $25,000.
Interest on term notes is fixed for a period of five years from
issuance at a rate based on the weekly average yield on five-year
treasury securities averaged over the preceding 13 weeks, plus 1.95%,
and floats for the remaining two years at a rate (subject to certain
limits) equal to the bank's prime rate plus .75%. The warehouse
component of the Credit Facility provides for borrowings of up to
$25,000 with interest payable at the bank's prime rate, or, if elected
by the Company, the 90-day LIBOR Rate plus 2.5%. However, in no event
may the aggregate outstanding borrowings under the warehouse and
term-loan agreement exceed $25,000.
The Credit Facility contains certain restrictive and financial
covenants, which, among other things, limit the aggregate of dividend
payments and purchases of treasury stock to 50% of consolidated net
income for the two most recent years, contain restrictions on the
Company's ability to pledge assets, incur additional indebtedness and
make capital expenditures, and require the Company to maintain certain
defined financial ratios. Amounts outstanding under the Credit Facility
are secured by the accounts receivable and inventories of the Company,
loans purchased and originated by Cavalier Acceptance Corporation
("CAC"), and the capital stock of certain of the Company's consolidated
subsidiaries. The bank's commitment under the Credit Facility expires
in April 2000.
No amounts were outstanding under the Credit Facility at June 26, 1998.
5. STOCKHOLDERS' EQUITY
Cash dividends were paid during this quarter and the previous three
quarters as follows (all amounts are per share):
Record Date Payment Date Dividend Paid
----------- ------------ -------------
April 30, 1998 May 15, 1998 $ .030
January 30, 1998 February 16, 1998 $ .030
October 31, 1997 November 14, 1997 $ .018
July 31, 1997 August 15, 1997 $ .019
-7-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Twenty-six Week Periods
Ended June 26, 1998 and June 27, 1997
(Dollars in Thousands, Except Per Share Amounts)
6. COMMITMENTS AND CONTINGENCIES
- It is customary practice for companies in the manufactured
housing industry to enter into repurchase and other recourse
agreements with lending institutions which have provided
wholesale floor plan financing to dealers. Substantially all
of the Company's sales are made to dealers located primarily
in the southeast, southwest and midwest regions of the United
States and are pursuant to repurchase agreements with lending
institutions. These agreements generally provide for
repurchase of the Company's products from the lending
institutions for the balance due them in the event of
repossession upon a dealer's default. Although the Company is
contingently liable for an amount estimated to be $193,000
under these agreements as of June 26, 1998, such contingency
is mitigated by the fact that (i) sales of manufactured homes
are spread over a relatively large number of dealers; (ii) the
price the Company is obligated to pay under such repurchase
agreements generally declines over the period of the
agreement; and (iii) the Company may be able to reduce its
losses by the resale value of the homes which may be required
to be repurchased. The Company has an allowance for losses of
$1,185 based on prior experience and current market
conditions. Management expects no material loss in excess of
the allowance.*
- The Company's workmen's compensation, product liability and
general liability insurance coverages are provided under
incurred loss, retrospectively rated premium plans. Under
these plans, the Company incurs insurance expenses based upon
various rates applied to current payroll costs and sales.
Annually, such insurance expenses are adjusted by the carrier
for loss experience factors subject to minimum and maximum
premium calculations. At June 26, 1998, the Company was
contingently liable for future retrospective premium
adjustments up to a maximum of $5,700 in the event that
additional losses are reported related to prior periods.
- The Company is engaged in various legal proceedings that are
incidental to and arise in the course of its business. Certain
of the cases filed against the Company and other companies
engaged in businesses similar to the Company 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. In the opinion of
management, the ultimate liability, if any, with respect to
the proceedings in which the Company is currently involved is
not presently expected to have a material adverse effect on
the Company. * However, the potential exists for unanticipated
material adverse judgments against the Company.
- The Company and certain of its equity partners have jointly
and severally guaranteed revolving notes for two companies and
a letter of credit for one company in which the Company owns
various equity interests. The guarantees are limited to
various percentages of the outstanding debt up to a maximum
guaranty of $1,500. At June 26, 1998, $3,000 was outstanding
under the various guarantees, of which the Company had
guaranteed $720.
-8-
- ---------------------------------------
* See Safe Harbor Statement on page 16.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 26, 1998
General
The principal business of the Company since its inception in 1984 has been the
design, production and sale of manufactured homes. In the first quarter of 1992,
the Company, through its wholly owned subsidiary, CAC, commenced retail
installment sale financing operations, and by the end of 1993, these operations
had become significant enough to require segment reporting by the Company.
Effective December 31, 1997, the Company completed a merger (the "Merger")
involving Belmont Homes, Inc. ("Belmont"), whose shares were traded on The
Nasdaq National Market under the symbol "BHIX". In the Merger, Belmont became a
wholly owned subsidiary of the Company, and each Belmont share issued and
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive 0.80 shares of the common stock of the Company. The
Company issued 7,555,121 shares of its common stock in the Merger in exchange
for the outstanding shares of Belmont common stock. The Merger was accounted for
as a pooling of interests and, accordingly, the Company's financial statements
have been restated to include the financial position, results of operations and
cash flows of Belmont for all periods presented. The information herein is
presented on a combined basis.
The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors that affect the housing market as a whole.
According to the Manufactured Housing Institute ("MHI"), the manufactured
housing industry posted gains in shipments from 1992 through 1996, with
approximate total annual shipments of 211,000 (1992) increasing to 363,000
(1996), and with the greatest gains occurring in the southeastern United States.
The Company conducts a substantial portion of its business in the southeastern
United States and attributes past years' strong shipment growth to a reduction
of alternative housing, increased availability of retail financing, increased
consumer confidence and continuing strength in the national economy. However,
the manufactured housing industry has, over the past several years, also
experienced increases in both the number of retail dealers and manufacturing
capacity, which the Company believes is currently resulting in slower retail
turnover, higher dealer inventories and increased price competition. According
to MHI, industry statistics reflected a decrease in home shipments of 2.8% in
1997 as compared to 1996, with approximate shipments of 353,000 (1997) compared
to 363,000 (1996), and with large declines occurring in Alabama, Mississippi and
South Carolina, all substantial markets for the Company. It is possible that
these developments may signal a return to seasonality in the Company's
manufacturing business, which was not a significant factor during the period
from 1992 through 1996, with sales of homes being stronger in April through
October and weaker during the first and last part of the calendar year.* As a
whole, the industry appears to have improved year-to-date through May 1998, with
MHI reporting industry shipments increased over 1997 by 3.4%. While several of
the Company's core states, including Alabama and Texas, reported increased
shipments through May 1998, North and South Carolina as well as other states in
which the Company does significant business reported declines in shipments. The
Company is uncertain at this time as to the extent and duration of these
developments and as to what effect these factors will have on the Company's
future sales and earnings. *
The Company's major marketing strategy remains focused on building distribution
through exclusive dealer relationships. In addition, the Company currently plans
to supplement the independent dealer network with franchise dealerships and
company sales centers in key markets where penetration is inadequate. In April
1998, the Company purchased one retailer with two locations in the Birmingham,
Alabama market area, and subsequent to the end of the second quarter, acquired
another retailer with one location in Panama City, Florida. These acquisitions
were in key markets where retailers wanted to grow and increase market
penetration, and the Company provided the necessary capital. The Company may,
in the future, acquire other retailers where it believes there is a strategic
fit.*
-9-
- ---------------------------------------
* See Safe Harbor Statement on page 16.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 26, 1998
Results of Operations
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of net
sales or total revenue:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME SUMMARY For the Thirteen Weeks Ended
_______________________________________________________________________________
(Dollars in Thousands) June 26, 1998 June 27, 1997 Difference
_________________________ _________________________ _______________________
Net Sales $ 166,586 100.0% $ 159,629 100.0% $ 6,957 4.4%
Cost of Sales 136,153 81.7% 133,652 83.7% 2,501 1.9%
______________ _______ ______________ _______ ______________
Gross Profit on Sales $ 30,433 18.3% $ 25,977 16.3% $ 4,456 17.2%
============== ============== ==============
Net Sales $ 166,586 $ 159,629 $ 6,957 4.4%
Financial Services 1,027 1,296 (269) -20.8%
______________ ______________ ______________
Total Revenue $ 167,613 100.0% $ 160,925 100.0% $ 6,688 4.2%
============== ============== ==============
Selling, General and Administrative $ 23,254 13.9% $ 18,334 11.4% $ 4,920 26.8%
Operating Profit $ 8,206 4.9% $ 8,939 5.6% $ (733) -8.2%
Other Income $ 363 0.2% $ 1,473 0.9% $ (1,110) -75.4%
Net Income $ 5,069 3.0% $ 6,880 4.3% $ (1,811) -26.3%
STATEMENT OF INCOME SUMMARY For the Twenty-Six Weeks Ended
_______________________________________________________________________________
(Dollars in Thousands) June 26, 1998 June 27, 1997 Difference
_________________________ _________________________ _______________________
Net Sales $ 289,739 100.0% $ 285,701 100.0% $ 4,038 1.4%
Cost of Sales 238,908 82.5% 239,068 83.7% (160) -0.1%
______________ _______ ______________ _______ ______________
Gross Profit on Sales $ 50,831 17.5% $ 46,633 16.3% $ 4,198 9.0%
============== ============== ==============
Net Sales $ 289,739 $ 285,701 $ 4,038 1.4%
Financial Services 3,453 2,438 1,015 41.6%
______________ ______________ ______________
Total Revenue $ 293,192 100.0% $ 288,139 100.0% $ 5,053 1.8%
============== ============== ==============
Selling, General and Administrative $ 40,976 14.0% $ 33,821 11.7% $ 7,155 21.2%
Operating Profit $ 13,308 4.5% $ 15,250 5.3% $ (1,942) -12.7%
Other Income $ 330 0.1% $ 1,619 0.6% $ (1,289) -79.6%
Net Income $ 8,111 2.8% $ 10,773 3.7% $ (2,662) -24.7%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
For the Thirteen Weeks For the Twenty-Six Weeks
OPERATING DATA SUMMARY Ended Ended
______________________________ ______________________________
(Dollars in Thousands) June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
_____________ _____________ _____________ _____________
Installment Loan Purchases $ 4,272 $ 4,628 $ 6,989 $ 10,491
Capital Expenditures $ 2,863 $ 3,334 $ 4,420 $ 4,956
Home Shipments 6,719 6,907 11,814 12,323
Floor Shipments 10,000 9,587 17,544 17,192
Independent Exclusive Dealer Locations 189 134 189 134
Home Manufacturing Facilities 22 22 22 22
</TABLE>
Net Sales. Net sales of manufactured homes for the thirteen week period ended
June 26, 1998 increased $6,957,000 or 4.4% as compared to the second quarter of
1997, and the Company experienced an increase in net sales of approximately
$4,038,000 or 1.4%, for the twenty-six week period ended June 26, 1998 over the
comparable period in 1997. The increase in sales for both periods over 1997 are
in part attributable to industry trends. Floor shipments increased by 413 floors
and 352 floors, respectively; however, homes sold for the second quarter and
year-to-date decreased from the comparable periods in the prior year by 188
homes and 509 homes, respectively, as the Company's product mix continued to
shift from single-section homes to multi-section homes. During the thirteen
weeks ended June 26, 1998, 49% of the Company's homes sold were multi-section
homes, compared to 39% for the previous year's comparable period, with
year-to-date multi-section home sales increasing to 49% compared to 40% for the
twenty-six week period ended June 27, 1997. As part of the Company's marketing
program, the exclusive dealer distribution system has grown to 189 independent
exclusive dealer locations, up from 134 dealer locations at the end of the
second quarter of 1997.
-10-
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 26, 1998
Financial Services Revenue. Financial services revenue during the current
thirteen week period decreased $269,000 over the comparable period in the
previous year, due primarily to a reduced loan portfolio, but increased by
$1,015,000 for the twenty-six week period ended June 26, 1998 over the
comparable period in 1997, primarily due to the sale of a significant portion of
CAC's loan portfolio. The effect of these transactions on financial services
revenue has been to reduce the amount of interest income on the portion of the
portfolio sold, offset by a gain on installment contracts sold of $1,126,000
during the first quarter of 1998 and of $157,000 during the second quarter of
1998.
Selling, General and Administrative. The growth in selling, general and
administrative expense during the current thirteen and twenty-six week periods
of $4,920,000 and $7,155,000, respectively, over the previous year's comparable
periods is primarily attributable to the expenses related to the Company's
expanded marketing programs including the independent dealer program, one
additional manufacturing plant, a supply distribution company and two retail
locations. Selling, general and administrative expense as a percentage of total
revenue was 13.9% and 11.4% of sales for the thirteen week period ended June 26,
1998 and June 27, 1997, respectively. Year to date expense as a percentage of
total revenue was 14% and 11.7% of sales for the periods ending June 26, 1998
and June 27, 1997, respectively.
Other Income (Expense).
Interest Expense. Interest expense decreased by $265,000 for the thirteen week
period ended June 26, 1998, as compared to the applicable 1997 period, and by
$192,000 for the twenty-six week period ended June 26, 1998, as compared to the
1997 twenty-six week period, due to decreased borrowings relating to the
financial services debt which was paid with the proceeds from the sale of a
portion of CAC's loan portfolio.
Life Insurance Proceeds. The Company experienced a non-recurring gain on life
insurance proceeds during the thirteen weeks ended June 27, 1997 of $1,500,000
million as a result of the death of Belmont's President and Chief Executive
Officer, Jerold Kennedy.
Other, net. Other, net increased by $125,000 for the thirteen week period ended
June 26, 1998, as compared to the applicable 1997 period, and increased $19,000
for the twenty-six week period ended June 26, 1998, as compared to the
applicable 1997 period. Other, net is primarily comprised of interest income,
gains or losses on sales of investments, equity earnings in investments
accounted for on the equity basis of accounting, and applicable allocation of
minority interest. The increase in other, net is primarily due to increased
interest income on earnings of the cash proceeds from the sale of installment
contracts.
Net Income. The Company was impacted during the second quarter by the continuing
competition in the manufactured housing industry, increased selling, general and
administrative expenses as discussed above, as well as the impact of the process
of integrating Belmont and Cavalier. Diluted net income per share during the
current thirteen week period was $.25 as compared to $.34 from the previous
year's comparable period. Second quarter and year to date earnings for 1997
include $1,500,000 of life insurance proceeds, or $.07 per share. Earnings were
off slightly in the second quarter as the Company continued to integrate
Belmont's operations with its own. The Company is pleased with this acquisition
even though it was slightly dilutive to earnings per share during the first half
of 1998. However, as the Company continues during the second half of the year to
reap the benefits of the combination, the acquisition is expected to have an
accretive effect on earnings.*
Two primary assumptions in the Belmont acquisition were (i) the Company could
implement an exclusive dealer program for Belmont and (ii) material costs could
be lowered through combined purchasing volume.* As discussed above, the number
of exclusive dealer locations increased to 189 at June 26, 1998, from 132 at the
beginning of the year, 27 of which are Belmont exclusive dealers. The Company
has implemented approximately 80% of new raw material vendor contracts, many of
which will go into effect during the second half of 1998. It appears the Company
will meet its goal of one percent of revenues cost reduction in raw materials
which should also benefit earnings during 1999.*
Installment Loan Purchases. During the second quarter of 1998, installment loan
purchases were $4,272,000 compared to $4,628,000 for the comparable period in
1997; for the twenty-six week period ended June 26, 1998 installment loan
purchases were $6,989,000 compared to $10,491,000 for the twenty-six week period
ended June 27, 1997. Installment loan purchases were lower as a result of
increasingly competitive conditions, due, in part, to dealer incentives offered
by other financing sources.
-11-
- ---------------------------------------
* See Safe Harbor Statement on page 16.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 26, 1998
Liquidity and Capital Resources
The following table sets forth certain items relating to the measurement of
liquidity and capital resources from the Company's consolidated condensed
financial statements for the dates indicated:
<TABLE>
<S> <C> <C> <C> <C>
BALANCE SHEET SUMMARY Balances as of
________________________________________________
(Dollars in Thousands) June 26, 1998 December 31, 1997
_________________ _________________
Cash and Cash Equivalents $ 45,456 $ 37,276
Certificates of deposit maturing within one year $ - $ 4,000
Accounts Receivable $ 35,254 $ 8,449
Working Capital $ 46,865 $ 28,484
Current Ratio 1.6 to 1 1.5 to 1
Long-Term Debt $ 3,881 $ 15,808
Ratio of Long-Term Debt to Equity 1 to 37 1 to 8
Installment Loan Portfolio $ 24,968 $ 49,146
</TABLE>
The increase in working capital, increase in current ratio, decrease in
long-term debt, decrease in ratio of long-term debt to equity and decrease in
the installment loan portfolio is primarily due to sales during 1998 of a
portion of CAC's loans having an outstanding principal balance of $28,559,000
for cash of $29,842,000, of which approximately $14 million was used to retire
debt.
The increase in accounts receivable from December 31, 1997 to June 26, 1998, is
a normal seasonal occurrence. As is customary for the Company, most of its
manufacturing operations are idle during the final two weeks of the year for
vacations, holidays and reduced product demand, and during this time, the
Company collects the majority of its outstanding receivables.
The Company's capital expenditures were approximately $4,420,000 for the
twenty-six weeks ended June 26, 1998, as compared to $4,956,000 for the
comparable period of 1997. Capital expenditures during these periods included
normal property, plant and equipment additions and replacements, and the
continued expansion and modernization of certain of the Company's manufacturing
facilities.
The Company's primary business segment is the production and sale of
manufactured housing. In 1992, the Company began the operations of CAC to fund
the purchase of installment sale contracts originated with the retail customers
of the Company's independent exclusive dealers. As the operations of CAC
expanded, in February 1994, the Company entered into a credit facility with its
primary lender (the "Credit Facility") (see footnote 4 to the consolidated
condensed financial statements included herein) to provide additional funds for
CAC's growth.
The Credit Facility presently consists of a $35 million revolving, warehouse and
term-loan agreement. The Credit Facility contains a revolving line of credit
which provides for borrowings (including letters of credit) of up to 80% and 50%
of the Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $10 million. Interest is payable under the
revolving line of credit at the bank's prime rate, or, if elected by the
Company, the 90-day LIBOR Rate plus 2.5%.
The warehouse and term-loan agreements contained in the Credit Facility provide
for borrowings of up to 80% of the Company's eligible (as defined) installment
sales contracts, up to a maximum of $25 million. Interest on the term notes is
fixed for a period of five years from issuance at a rate based on the weekly
average yield on five-year treasury securities averaged over the preceding 13
weeks, plus 1.95%, with a floating rate for the remaining two years (subject to
certain limits) equal to the bank's prime rate plus .75%. The warehouse
component of the Credit Facility provides for borrowings of up to $25 million
with interest payable at the bank's prime rate, or, if elected by the Company,
the 90-day LIBOR Rate plus 2.5%.
The Credit Facility contains certain restrictive covenants which limit, among
other things, the Company's ability to (i) make dividend payments and purchases
of treasury stock in an aggregate amount which exceeds 50% of consolidated net
income for the two most recent years, (ii) mortgage or pledge assets which
exceed, in the aggregate, $1 million without written notice to the lender, (iii)
incur additional indebtedness, including lease obligations, which exceed in the
aggregate $10 million and (iv) make capital expenditures in excess of $14
million. In addition, the Credit Facility contains certain financial covenants
requiring the
-12-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 26, 1998
Liquidity and Capital Resources (Continued)
Company to maintain on a consolidated basis certain defined levels of net
working capital (at least $3.5 million), tangible net worth (which must increase
at least $2 million per year, subject to a carryover for increases in excess of
$2 million in the prior year), debt to equity ratio (not to exceed 2 to 1) and
cash flow to debt service ratio (not less than 1.5 to 1). The Credit Facility
also requires CAC to comply with certain specified restrictions and financial
covenants.
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on conservative underwriting standards, as well as the
availability of working capital and funds borrowed under its credit line with
its primary lender. In February 1998, CAC entered into an agreement (the "Retail
Finance Agreement"), with another lender providing for the periodic resale of a
portion of CAC's loans that meet established criteria. As of the twenty-six week
period ended June 26, 1998, CAC sold loans to this lender having an outstanding
principal amount of approximately $29 million for cash in the approximate amount
of $30 million, of which $14 million was used to retire debt. The effect of
these transactions on net income has been to reduce the amount of financial
services revenue for interest income on this portion of the portfolio, offset by
reduced interest expense on retired debt and earnings on the remaining proceeds.
The Company believes the periodic sale of installment contracts receivable under
the Retail Finance Agreement will reduce requirements for both working capital
and borrowings, increase the Company's liquidity, reduce the Company's exposure
to interest rate fluctuations and enhance the ability of CAC to increase its
volume of loan purchases. * There can be no assurance, however, that additional
sales will be made under this agreement, or that CAC and the Company will be
able to realize the expected benefits from such agreement.*
The Company's growth strategy currently includes the continued expansion of
financial services, component supply operations, and its independent dealer
network and the pursuit of additional acquisitions. Accordingly, it is likely
that the Company will incur additional debt, or other forms of financing, in
order to continue to fund the pursuit of such growth strategies. * The Company
currently believes existing cash and investment balances (which include proceeds
from the sale of a portion of its installment loan portfolio described above)
and funds available under the Credit Facility, together with cash provided by
operations, will be adequate to fund the Company's operations and plans for the
next twelve months.* In order to provide additional funds for continued pursuit
of the Company's growth strategies and for operations, the Company may incur,
from time to time, additional short and long-term bank indebtedness and may
issue, in public or private transactions, its equity and debt securities, the
availability and terms of which will depend upon market and other conditions.*
The Company may continue to engage in other transactions, such as selling or
securitizing all or portions of its installment loan portfolio, that are
designed to facilitate the ability of the Company to originate an increased
volume of loans and to reduce the Company's exposure to interest rate
fluctuations and has entered into such a transaction pursuant to the Retail
Finance Agreement, as further described above.* There can be no assurance that
such possible additional financing, or the aforementioned potential transactions
involving the Company's installment loan portfolio, will be available on terms
acceptable to the Company. It is possible that a future lack of financing or a
prolonged downturn in industry conditions could cause the Company to curtail the
expansion of financial services or otherwise alter its growth strategies. *
-13-
- ---------------------------------------
* See Safe Harbor Statement on page 16.
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
June 26, 1998
ITEM 1 LEGAL PROCEEDINGS
Reference is made to the legal proceedings previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the
heading "Item 3 - Legal Proceedings." With respect to the suit against Belmont
Homes, Inc. and certain other defendants referenced therein, on May 6, 1998, the
Circuit Court of Madison County, Alabama, upon motion of the defendants,
transferred the case to the Circuit Court of Franklin County, Alabama. The
description of legal proceedings in the Company's Form 10-K otherwise remains
unchanged.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 20, 1998. Each
person who was then serving as a member of the Board of Directors was re-elected
for another year. The votes for each nominee were cast as follows:
<TABLE>
Shares Voting
----------------------------------
For Against Withheld
----------------------------------
<S> <C> <C> <C>
Thomas A. Broughton, III 16,211,551 -0- 132,889
Barry Donnell 16,211,957 -0- 132,483
Lee Roy Jordan 16,211,957 -0- 132,483
A. Douglas Jumper, Sr. 16,211,665 -0- 132,775
Mike Kennedy 16,211,665 -0- 132,775
John W Lowe 16,211,957 -0- 132,483
Gerald W. Moore 16,211,957 -0- 132,483
Michael R. Murphy 16,211,665 -0- 132,775
David A. Roberson 16,211,665 -0- 132,775
</TABLE>
The stockholders ratified the Board of Director's appointment of Deloitte &
Touche LLP as Independent Certified Public Accountants for the Company. The
appointment was ratified by a vote of 16,292,125 shares for, 14,453 shares
against, and 37,862 abstentions.
ITEM 5 OTHER MATTERS
The Board of Directors has declared its regular quarterly cash dividend of $.03
per share payable on August 14, 1998 to stockholders of record on July 31, 1998.
Pursuant to recently adopted changes to Rule 14a-4 of the Proxy Rules under the
Securities Exchange Act of 1934, if a stockholder fails to notify the Company on
or before February 24, 1999 of a proposal which such stockholder intends to
present at the Company's May 1999 Annual Meeting by a means other than the
inclusion of such proposal in the Company's proxy materials for that meeting,
then if the proposal is presented at such annual meeting, the holders of
management's proxies at such meeting may use their discretionary voting
authority with respect to such proposal, regardless of whether the proposal was
discussed in the Company's proxy statement for such meeting. Stockholders should
also note that under the Company's By-laws, in order to be timely, with regard
to nominations of persons for election to the board of directors of the
corporation and proposals of business to be considered at the annual meeting,
notice of such nominations or other business must be delivered to the Company
between February 19, 1999 and March 21, 1999.
-14-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
June 26, 1998
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
The exhibits required to be filed with this report are listed below. The Company
will furnish upon request the exhibit listed upon the receipt of $15.00 per
exhibit, plus $.50 per page, to cover the cost to the Company of providing the
exhibit.
(a) (3) Articles of Incorporation and By-laws.
a) The Amended and Restated Certificate of Incorporation of
the Company, filed as Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
and the amendment thereto, filed as Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 27, 1997, is incorporated herein by reference.
b) The Amended and Restated By-laws of the Company, filed as
Exhibit 3(d) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 27, 1997, and the
amendment thereto filed as Exhibit 3(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 26, 1997, is incorporated herein by reference.
c) The Certificate of Designation of Series A Junior
Participating Stock of Cavalier Homes, Inc. as filed with
the Office of the Delaware Secretary of State on October
24, 1996 and filed as Exhibit A to Exhibit 4 to the
Company's Registration Statement on Form 8-A filed on
October 30, 1996, is incorporated herein by reference.
(4) Instruments Defining the Rights of Security Holders.
(a) Articles four, six, seven, eight and nine of the Company's
Amended and Restated Certificate of Incorporation, as
amended, included in Exhibit 3(a) above.
(b) Article II, Sections 2.1 through 2.18; Article III,
Sections 3.1 and 3.2; Article IV, Sections 4.1 and 4.3;
Article VI, Sections 6.1 through 6.5; Article VIII,
Sections 8.1 and 8.2; and Article IX of the Company's
Amended and Restated By-laws, included in Exhibit 3(c)
above.
(c) Rights Agreement between Cavalier Homes, Inc. and Chase
Mellon Shareholder Services, LLC, filed as Exhibit 4 to
the Company's Current Report on Form 8-K dated October 30,
1996, is incorporated herein by reference.
(10) Material Contracts.
(a) Split Dollar Agreement dated May 15, 1998, by and between
the Company and Jerry F. Wilson, Jr. as Trustee of the
David Allen Roberson Family Trust.
(b) Second Amendment to Revolving, Warehouse and Term Loan
Agreement among Cavalier Homes, Inc., and First Commercial
Bank dated June 1, 1998.
(c) Assumption Agreement among Cavalier Homes, Inc. and First
Commercial Bank dated June 1, 1998.
(d) Cavalier Homes, Inc. Deferred Compensation Plan effective
April 1, 1998.
(e) Cavalier Homes, Inc. Amended and Restated Dealership Stock
Option Plan filed as Appendix A to the Company's
Registration Statement on Form S-3, Amendment No. 2,
Registration No. 33-62487, dated June 18, 1998, is
incorporated herein by reference.
(f) Cavalier Homes, Inc. Flexible Option Plan filed as
Exhibit 4(e) to the Company's Registration Statement on
Form S-8, Registration No. 333-57743, dated June 28, 1998
is incorporated herein by reference.
(11) Statement re: Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule and Restated Financial
Data Schedule for Form 10-Q submitted as Exhibit 27 as an
EDGAR filing only.
(b) Current Report on Form 8-K.
None.
-15-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
June 26, 1998
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Annual Report on Form 10-K
(including statements regarding trends in the industry, the business and growth
and financing strategies of the Company, the Company's plans and expectations
regarding the merger with Belmont and the achievement of cost savings and
synergies, and the Company's anticipation regarding results in future periods),
as well as those statements specifically designated with an asterisk (*), or
which contain the words "estimates", "projects", "intends", "believes",
"anticipates", "expects", "may, "appears", and words of similar import,
constitute forward-looking statements, are based upon current expectations and
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements and words involve
known and unknown assumptions, risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements or words. Such
assumptions, risks, uncertainties and factors include those included in the
Company's Annual Report on Form 10-K for the period ended December 31, 1997
under the heading "Item 1. Business - Risk Factors" and those associated with
general economic and business conditions; manufactured housing and retail
consumer financing industry trends, cyclicality and seasonality; availability of
consumer and dealer financing; changes and volatility and uncertainty in
interest rates; the sufficiency of reserves established for installment contract
receivables; warranty, product liability, workers' compensation and other
litigation arising in the course of the Company's manufacturing and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel and favorable relationships with employees; demographic changes;
whether the current and emerging generations of retirees will have the same
interest in purchasing manufactured homes; competition; raw material and labor
costs and availability; import protection and regulation; relationships with and
dependence on customers, distributors and dealers; changes in the business
strategy or development plans of the Company; the availability, terms and
deployment of capital; changes in or the failure to comply with government
regulations; and the inability or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of the Company; and other assumptions, risks, uncertainties and factors
reflected from time to time in the Company's filings with the Securities and
Exchange Commission. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
-16-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
June 26, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
------------------------------------
Registrant
Date: August 10, 1998 /s/ David A. Roberson
------------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: August 10, 1998 /s/ Michael R. Murphy
------------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
-17-
<PAGE>
<TABLE>
<CAPTION>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Twenty-Six Weeks Ended
______________________________ _______________________________
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
_____________ _____________ _____________ _____________
BASIC & DILUTED
Net Income $ 5,069,000 $ 6,880,000 $ 8,111,000 $ 10,773,000
SHARES: ============= ============= ============= =============
Weighted average common shares 20,044,585 19,807,235 20,006,292 19,785,208
outstanding (basic)
============= ============= ============= =============
Dilutive effect if stock options
were exercised 382,973 191,868 287,755 204,653
____________ _____________ _____________ _____________
Weighted average common shares
outstanding, assuming dilution (diluted) 20,427,558 19,999,103 20,294,047 19,989,861
============= ============= ============= =============
Basic net income per share $ .25 $ .35 $ .41 $ .54
============= ============= ============= =============
Diluted net income per share $ .25 $ .34 $ .40 $ .54
============= ============= ============= =============
</TABLE>
-18-
SPLIT DOLLAR AGREEMENT
This Split Dollar Agreement (the "Agreement") is made this
15th day of May, 1998 by and between Cavalier Homes, Inc. (hereinafter
referred to as the "Corporation'), and Jerry F. Wilson, Jr., as Trustee of the
David Allen Roberson Family Trust dated May 15, 1998 (hereinafter referred to
as the "Owner"),
RECITALS:
WHEREAS, David Allen Roberson ("Mr. Roberson") has and
continues to perform valuable services as the Chief Executive Officer of the
Corporation; and
WHEREAS, in recognition of the past and continued valuable
services of Mr. Roberson to the Corporation, the Corporation wishes to enter
into a Split Dollar plan to provide life insurance protection for the benefit
of Mr. Roberson (hereinafter referred to as the "Insured").
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF INSURANCE AND PAYMENT OF PREMIUMS
A. The Owner shall purchase a life insurance policy insuring
the life of the Insured (the "Policy"), which is described in Schedule A
attached hereto and by this reference is made a part hereof. The Policy shall
be issued by General American Life Insurance Company (the "Insurer") in the
amount of $2,000,000.
B. Until the termination of this Agreement pursuant to
Article IV, the Corporation shall be responsible for the remittance of the
entire premium due on the Policy on or before the date the premium is due or
within the grace period allowed by the Policy for the payment of said premium
and, if requested, shall give proof of the timely payment of each premium to
the Owner.
C. Unless and until this Agreement is modified, the
Corporation shall pay the PS-58 portion of the gross premium, with the result
that the Insured shall report as income the amount of the economic benefit
received by him as a result of the Corporation's payment of such premiums, and
the Insured shall be deemed to have made a gift to the Owner of such PS-58
cost, which shall not be entitled to the $10,000 annual exclusion under
Section 2503(b) of the Internal Revenue Code of 1986, as amended. The PS-58
portion shall be the amount equal to the cost of term insurance coverage based
on the age of the Insured, as determined by the insurance company issuing the
Policy.
<PAGE>
ARTICLE II
POLICY OWNERSHIP PROVISIONS AND RIGHTS OF PARTIES
A. The Policy shall be the exclusive property of the Owner,
who shall possess and may exercise all the rights, titles and incidents of
ownership with respect thereto, subject only to the security interest of the
Corporation as expressed in this Agreement, notwithstanding anything to the
contrary in the Policy, or endorsement and riders thereto.
B. The Owner agrees to grant the Corporation a security
interest in said Policy, and the Owner shall collaterally assign the Policy to
the Corporation whereby the Corporation shall have the following rights:
1. To receive out of any amount payable on
account of the death of the Insured an amount equal to its total premium
payments.
2. To obtain, upon surrender of the Policy by
the assignor, an amount of the cash surrender proceeds up to an amount equal to
its total premium payments.
C. The Corporation shall not exercise any rights in the Policy
in any way that might impair or defeat the rights and interest of the Owner, as
Owner or beneficiaries of the Policy, or their designees.
D. The Corporation shall have its interest first satisfied
from the cash values of the paid up additions to the Policy.
E. The Corporation shall not be entitled to any payments under
this Agreement until the earlier of (i) the death of the Insured, or (ii) the
cancellation of the Policy by the Owner.
F. The Corporation shall provide the Owner an annual
accounting detailing the liability owed to the Corporation by the Owner.
ARTICLE III
FIDUCIARY AND CLAIMS PROCEDURE
A. Michael R. Murphy, as Secretary of the Corporation, is
hereby designated as the "named fiduciary" under this plan and shall control
and manage the operation of the plan. Such responsibilities may be allocated to
other persons, named in a written instrument executed by the parties hereto
spelling out to whom and which responsibilities have been delegated.
B. The Owner and Corporation shall make claim and execute such
forms as required under the Policy for collection of the proceeds due and
payable upon the death of the Insured. The Corporation will be entitled to
receive the amount of its premiums in accordance with Section B of Article 11
hereof. The Owner shall be entitled to receive the balance of such proceeds
after payment to the Corporation.
2
<PAGE>
ARTICLE IV
TERMINATION AND AMENDMENT OF AGREEMENT
A. The Agreement may be altered, amended or modified only by
a written agreement signed by the parties hereto, This Agreement shall be
terminated upon the occurrence of any of the following events:
1. Surrender of the Policy by the Owner.
2. Termination of Mr. Roberson's employment with the
Corporation for any reason whatsoever other than Mr. Roberson's death,
disability, retirement, or termination after a change in control of the
Corporation.
3. Mutual agreement of the Owner and the Corporation.
4. The payment of death benefits under the Policy.
5. The total cessation of the business of the Corporation,
or the bankruptcy or dissolution of the Corporation.
B. Upon termination of this Agreement, the Corporation shall
not be required to make further premium payments on the Policy, and the
obligations of the Owner to pay the amounts due the Corporation under this
Agreement shall survive the termination of this Agreement.
ARTICLE V
LIABILITY OF LIFE INSURANCE CORPORATION
General American Life Insurance Company shall not (A) be deemed to be
a party of this Agreement for any purposes nor in any way be responsible for its
validity; (B) be obligated to inquire as to the distribution of any monies
payable or paid by it under the Policy; and (C) shall be fully discharged from
any and all liability under the terms of any policy or policies issued by it,
which is subject to the terms of this Agreement, upon payment or other
performance of its obligations in accordance with the terms of such policy.
ARTICLE VI
BINDING AGREEMENT
This Agreement shall be binding upon the parties hereto, and
their heirs, assigns, successors, executors and administrators.
3
<PAGE>
ARTICLE VII
GOVERNING LAW
This Agreement shall be subject to and shall be construed
under the laws of the State of Alabama.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals, or cause these presents to be duly executed by their proper
corporate officers, as of the day and year first written above,
ATTEST: CAVALIER HOMES, INC.
/s/ Wendrell W. Dye By: /s/ Michael R. Murphy
______________________________ ______________________________
Its: Vice President
_____________________________
WITNESS:
/s/ Robert F. Blake /s/ Jerry F. Wilson, Jr.
______________________________ _________________________________
Jerry F. Wilson, Jr., as Trustee
of the David Allen Roberson Family Trust
SECOND AMENDMENT TO
REVOLVING, WAREHOUSE AND TERM LOAN AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") to Revolving,
Warehouse and Term Loan Agreement made by and among Cavalier Homes, Inc., a
Delaware corporation ("Cavalier Homes"), Cavalier Manufacturing, Inc., a
Delaware corporation ("CMI"), Cavalier Industries, Inc., a Delaware corporation
("CII"), Belmont Homes, Inc., a Mississippi corporation ("Belmont"), Delta
Homes, Inc., a Mississippi corporation ("Delta"), Spirit Homes, Inc., an
Arkansas corporation ("Spirit"), Bellcrest Homes, Inc., a Georgia corporation
("Bellcrest"), and Cavalier Acceptance Corporation, an Alabama corporation
("Cavalier Acceptance") (collectively, the "Participating Subsidiaries";
Cavalier Homes and the Participating Subsidiaries, together with all entities
who hereafter become Participating Subsidiaries or Participating Partnerships,
being sometimes collectively referred to as the "Borrowers"), and First
Commercial Bank, an Alabama state banking corporation ("Lender"), is dated as of
the 1st day of June, 1998.
R E C I T A L S :
Cavalier Homes, the Initial Participating Subsidiaries (as
defined in the Agreement hereinafter defined) and Lender entered into that
certain Revolving, Warehouse and Term Loan Agreement dated as of February 17,
1994, as amended by that certain First Amendment to Revolving, Warehouse and
Term Loan Agreement dated as of March 14, 1996 (as heretofore amended the
"Agreement"), pursuant to which Lender made available, subject to the terms and
conditions thereof, to such Borrowers, a revolving loan in the maximum principal
amount of up to $5,000,000 (the "Revolving Loan"), and to Cavalier Acceptance, a
warehouse and term loan facility of up to $18,000,000 (the "Warehouse Loan" and
the "Term Loans", respectively).
Pursuant to that certain Assumption Agreement dated as of
January 2, 1997, by and among CMI, CII, Cavalier Homes (for itself and as agent
for the other Borrowers) and Lender, CMI and CII became obligated as Borrowers,
jointly and severally, with the other Participating Subsidiaries and Cavalier
Homes with respect to the Agreement, the Revolving Loan and the other
Obligations (as defined in the Agreement).
Pursuant to that certain Assumption Agreement dated as of June
1, 1998, by and among Belmont, Delta, Spirit, Bellcrest, Cavalier Homes (for
itself and as agent for the other Borrowers) and Lender, Belmont, Delta, Spirit
and Bellcrest became obligated as Borrowers, jointly and severally, with the
other Participating Subsidiaries and Cavalier Homes with respect to the
Agreement, the Revolving Loan and the other Obligations.
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The Revolving Loan is currently evidenced by that certain
Revolving Note in the original principal amount of $5,000,000 dated February 17,
1994, as amended by that certain Revolving Note Modification Agreement dated as
of March 14, 1996 (as heretofore amended, the "Revolving Note"), and the
Warehouse Loan is currently evidenced by that certain Warehouse Note in the
original principal amount of $2,000,000 dated February 17, 1994, as amended by
that certain Warehousing Note Modification Agreement dated as of March 14, 1996
(as heretofore amended, the "Warehouse Note").
Borrowers have requested that Lender agree to extend the
availability of Advances under the Revolving Loan and the Warehouse Loan to
April 15, 2000, to increase the maximum aggregate principal amount available to
the Borrowers under the Revolving Loan to $10,000,000, and to increase the
maximum aggregate principal amount available to Cavalier Acceptance under
Article III of the Agreement from $18,000,000 to $25,000,000, and Lender is
willing to do so, but only on the express condition, among others, that
Borrowers enter into this Amendment, pursuant to which the Agreement shall be
amended and modified.
NOW, THEREFORE, the parties hereto do hereby agree, each with
the other, as follows:
1. If not otherwise defined herein or the context shall not
expressly indicate otherwise, all capitalized terms which are used herein shall
have their respective meanings given to them in the Agreement.
2. Schedule I of the Agreement is hereby amended to add the
following definitions thereto:
"Banking Day" with respect to LIBOR Rate Loans means
a day on which banks are open for the general conduct of
business in London, England and the state in which Lender has
its main office, and on which dealings in Dollars are carried
on in the offshore interbank market; and with respect to the
Floating Rate Loans, means a day on which Lender is open for
the general conduct of business at its main office.
"Base LIBOR Rate" for any Interest Period means the
rate per annum equal to the quotient of (a) the rate for
deposits in U.S. Dollars for a period of the applicable
Interest Period which appears on Telerate Page 3750
("USD-LIBOR- BBA") as of 11:00 a.m. London time on the day
that is two Banking Days preceding the first day of the
applicable Interest Period, for a deposit amount corresponding
to the amount of the LIBOR Rate Loan to be outstanding during
such Interest Period, divided by (b) a number equal to 1.00
minus the aggregate of the rates (expressed as a decimal
fraction) of the Reserve Requirement current on the date two
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Banking Days prior to the beginning of such Interest Period.
If the rate described in clause (a), above, does not appear on
Telerate Page 3750, the rate under (a), above, will be the
rate (stated as an annual percentage rate rounded upward to
the nearest one-sixteenth of one percent) determined by
Lender, in its reasonable judgment, to be the rate at which
Lender would acquire Dollar deposits in the London, England
interbank eurodollar market for delivery on the first day of
such Interest Period for the number of days comprised therein
and in an amount equal to the amount of the LIBOR Rate Loan to
be outstanding during such Interest Period. The Base LIBOR
Rate calculated in this manner shall be adjusted upward to the
nearest one-hundredth of one percent. The Base LIBOR Rate
shall be adjusted automatically, upward or downward, as the
case may be, on and as of the effective date of any change in
the Reserve Requirement.
"Borrowing Date" means any date on which Borrower(s)
receive or propose to receive an Advance under the Revolving
Loan or the Warehouse Loan pursuant to this Agreement.
"Borrowing Notice" or "Request for Advance" means an
irrevocable written (including facsimile), telex or telephonic
notice, in substantially the form of Exhibit B or Exhibit B-1,
as appropriate, to the Agreement, by the appropriate
Borrower(s), to Lender specifying (A) that the notice relates
to making a new Advance under the Revolving Loan or the
Warehouse Loan, as the case may be, (B) the Borrowing Date,
(C) the amounts of Floating Rate Loans and LIBOR Rate Loans
comprising such new Advance and (D) the commencement date and
duration of the Interest Period applicable to any such LIBOR
Rate Loan.
"Dollars" and "$" each mean United States Dollars.
"Floating Rate" means (i) with respect to the
Revolving Loan, the Revolving Rate, and (ii) with respect to
the Warehouse Loan, the Warehouse Rate.
"Floating Rate Loan" means (i) with respect to the
Revolving Loan, an Advance thereon or part of the Revolving
Loan with an interest rate based on the Floating Rate, and
(ii) with respect to the Warehouse Loan, an Advance thereon or
part of the Warehouse Loan with an interest rate based on the
Floating Rate.
"Governmental Authority" means any nation or
government, any state and any political subdivision thereof,
and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, which has or asserts jurisdiction over Lender, any
Borrower, or over the property of any of them.
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"Green Tree Contract" means Chattel Paper
underwritten by Cavalier Acceptance in conformity with the
Green Tree Underwriting Guidelines.
"Green Tree Underwriting Guidelines" means those
underwriting guidelines set forth on Exhibit A to Schedule 1
to this Agreement.
"Interest Period" with respect to a LIBOR Rate Loan
means a LIBOR Rate Interest Period, as such period may be
shortened upon suspension of the LIBOR Rate option under
Sections 2.5.13, 2.5.14, 3.6(A).13 or 3.6(A).14.
"Lending Installation" means any office, branch,
subsidiary or affiliate of Lender or any Participant.
"LIBOR Rate" means the Base LIBOR Rate plus 250 basis
points (2.50%). The LIBOR Rate shall be adjusted
automatically, upward or downward, as the case may be, on and
as of the effective date of any change in the Base LIBOR Rate
resulting from a change in the Reserve Requirement.
"LIBOR Rate Interest Period" means a period of three
months (90 days), or such longer or shorter period as Cavalier
Homes, on behalf of itself and the other Borrowers, and Lender
may agree from time to time. A month means a period of thirty
(30) days. If any LIBOR Interest Period would otherwise end on
a day which is not a Banking Day, the LIBOR Rate Interest
Period shall end on the next Banking Day.
"LIBOR Rate Loan" means an Advance under the
Revolving Loan or the Warehouse Loan, as applicable, with an
interest rate based on the Base LIBOR Rate.
"Local Time" means the time of day at Lender's main
office.
"Rate Selection Notice" means an irrevocable written
(including facsimile), telex or telephonic notice, in
substantially the form of Exhibit B or Exhibit B-1, as
appropriate, to the Agreement, by the appropriate Borrower(s),
to Lender specifying (a) that the notice relates to the
selection of a rate option for the outstanding Revolving Loan
or Warehouse Loan, as the case may be, pursuant to Section
2.5.3 or 3.6(A).3, as the case may be, (b) the effective date
of such selection (c) the amounts, individual and in the
aggregate, of any Floating Rate Loans and LIBOR Rate Loans
comprising the selection and (d) the commencement date and the
duration of the Interest Period applicable to any LIBOR Rate.
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"Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System as now or from time to
time hereafter in effect, and shall include any successor or
other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Requirement of Law" for any person or entity means
the certificate of incorporation and by-laws or other
organization or governing documents of such person or entity
and any law, treaty, rule or regulation, or determination of
an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such person or entity
or any of its property or to which such person or entity or
any of its property is subject.
"Reserve Requirements" with respect to an Interest
Period means the weighted average during the Interest Period
of the maximum aggregate reserve requirement (including all
basic, supplemental, marginal, emergency and other reserves
and taking into account any transitional adjustments or other
scheduled changes in reserve requirements during the Interest
Period) which is imposed under Regulation D or by any other
Governmental Authority having jurisdiction with respect
thereto and which is applicable to the class of banks of which
Lender is a member, for LIBOR Rate Loan purposes, on
"eurocurrency liabilities", as that term is defined in
Regulation D or by any such Governmental Authority.
3. Schedule I of the Agreement is hereby further amended to
delete the definition of "$18,000,000 Loan" therefrom in its entirety and to
substitute the following definition of "$25,000,000 Loan" therefor:
"$25,000,000 Loan" means the aggregate unpaid
principal balance of all Advances made pursuant to Article III
of the Agreement, whether in the form of the Warehouse Loan or
Term Loan(s).
4. Schedule I of the Agreement is hereby further amended to
restate the definitions of "Contracts Borrowing Base" and "Eligible Contract" to
read in their entireties as follows:
"Contracts Borrowing Base" means, at any time, with
respect to the $25,000,000 Loan, the amount computed on the
Compliance Certificate for the $25,000,000 Loan most recently
delivered to, and accepted by, Lender in accordance with the
Agreement and equal to the aggregate of:
(A) Eighty percent (80%) of the aggregate outstanding
principal balance of Eligible Contracts that are rated higher
than a C-Rated Contract from a credit-quality standpoint (that
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is, that are rated "A" or "B" from a credit-quality
standpoint); plus
(B) Seventy percent (70%) of the aggregate outstanding
principal balance of Eligible Contracts that are C-Rated
Contracts; plus
(C) Seventy percent (70%) of the aggregate outstanding
principal balance of Eligible Contracts that are Green Tree
Contracts.
Provided, however, no more than fifteen percent (15%) of the
total Contracts Borrowing Base may be comprised of C-rated
Contracts.
"Eligible Contract" means, at any time, Chattel Paper
upon which lender has a property perfected security interest
and that conforms and continues to conform to each and all of
the following conditions:
(A) The representations contained in Section 6.2 and Section
6.3 of the Agreement are true and correct in all respects with
respect to the Chattel Paper;
(B) The Chattel Paper arose out of the retail sale of a new
home manufactured by one of the Borrowers or the sale of a
manufactured home repossessed by Cavalier Acceptance;
(C) The Chattel Paper evidences the obligation of a retail
customer to repay Indebtedness incurred to purchase a new home
manufactured by one of the Borrowers or the sale of a
manufactured home repossessed by Cavalier Acceptance;
(D) The Chattel Paper has been duly assigned to, and is owned
by, Cavalier Acceptance;
(E) The Chattel Paper is not more than ninety (90) days past
due in payment and the Chattel Paper has not been re-dated;
(F) The Chattel Paper evidences an amount financed not in
excess of $70,000;
(G) The portfolio index score used by Cavalier Acceptance to
underwrite such Chattel Paper was not less than 70; provided,
however, that for Chattel Paper originated after March 14,
1996, up to fifteen percent (15%) of all such Chattel Paper
may have a portfolio index score of (a) at least 56, but less
than 70 or (b) such other credit score which causes such
Chattel Paper to be rated a C-Rated Contract from a
credit-quality standpoint (or the equivalent score or rating,
as the case may be, under the Fair Isaac credit scoring
system, as such equivalence is determined by Lender in its
sole discretion); provided, further, however, that GreenTree
Contracts need only meet or exceed the Green Tree Underwriting
Guidelines to satisfy this clause (G);
(H) The Chattel Paper was funded by Cavalier Acceptance on or
after January 1, 1994; and
(I) The Chattel Paper has been reviewed and approved by Lender
in its sole discretion.
In the event of any dispute under the foregoing criteria about
whether Chattel Paper is or has ceased to be an Eligible Contract, the sole
decision and discretion of Lender shall control.
5. Schedule I of the Agreement is hereby further amended by
amending and restating the definition of "Loan Termination Date" in its entirety
to read as follows:
"Loan Termination Date" means, (i) with respect to
the Revolving Loan, the earliest of (A) April 15, 2000 or (B)
upon demand by Lender; (ii) with respect to the Warehouse
Loan, the earliest of (A) April 15, 2000 or (B) the date to
which the maturity of the Warehouse Note may be accelerated
pursuant to Section 9.2 of the Agreement; and (iii) with
respect to any Term Loan, the earlier of (A) the maturity date
of the applicable Term Note or (B) the date to which the
maturity of the applicable Term Note may be accelerated
pursuant to Section 9.2 of the Agreement.
6. Schedule I of the Agreement is hereby further amended by
deleting the term "5,000,000" from the definition of "Revolving Loan Commitment"
and substituting the term "$10,000,000" therefor.
7. Schedule I of the Agreement is hereby further amended by
amending and restating the definitions of "Revolving Rate" and "Warehouse Rate"
in their entireties to read as follows:
"Revolving Rate" means the per annum rate of interest
equal to the Prime Rate in effect from time to time until
maturity of the Revolving Note, and two percent (2.00%) above
the Prime Rate in effect from time to time after maturity of
the Revolving Note, whether by demand, acceleration or
otherwise. Each time the Prime Rate shall change, the
Revolving Rate shall change concurrently with such change in
the Prime Rate.
"Warehouse Rate" means the per annum rate of interest
equal to the Prime Rate in effect from time to time until
maturity of the Warehouse Note, and two percent (2.00%) above
the Prime Rate in effect from time to time after maturity of
the Warehouse Note, whether by demand, acceleration or
otherwise. Each time the Prime Rate shall change, the
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Warehouse Rate shall change concurrently with such change in
the Prime Rate.
8. To increase the standard for reporting litigation and other
claims pending against Cavalier Homes and the other Borrowers, Section 6.1(I)
and Section 7.1(J)(1) are each amended and restated in their entireties to read
as follows:
Section 6.1(I): Except as disclosed in the footnotes to the
Financial Statements delivered to Lender, or in Exhibit
II.6.1(I) attached hereto and incorporated herein, and except
for matters in which an insurer has accepted the defense
without reservation of rights, there is no pending order,
notice, claim, litigation, proceeding or investigation against
or affecting Cavalier Homes or any Consolidated Entity, except
such order, notice, claim, litigation, proceeding or
investigation that, in the good-faith judgment of management
of Cavalier Homes or such Consolidated Entity, is not
reasonably likely to result in an adverse decision that would
require the payment of $1,000,000 or more;
Section 7.1(J)(1): Any litigation or proceeding (other than
matters in which an insurer has accepted the defense without
reservation of rights) in which it is a party, except any such
litigation or proceeding where in the good-faith judgment of
management of Cavalier Homes or such Consolidated Entity, such
matter is not reasonably likely to result in an adverse
decision that would require the payment of $1,000,000 or more;
and
9. The Agreement and the Schedules and Exhibits thereto are
hereby amended (i) by deleting the term "$18,000,000 Loan" therefrom in each
place such term appears and substituting the term "$25,000,000 Loan" in lieu
thereof and (ii) by deleting the term "$18,000,000" therefrom in each place such
term appears and substituting the term "$25,000,000" in lieu thereof, and (iii)
by incorporating Exhibit A to Schedule I (setting forth the Green Tree
Underwriting Guidelines).
10. Section 2.5 of the Agreement is hereby amended and
restated to read in its entirety as follows:
2.5 Revolving Loan Borrowing Procedures, Interest Rates,
Payments of Interest and Related Provisions.
2.5.1 Borrowing Notices.
(A) Cavalier Homes, on behalf of itself and the other
Borrowers, will give Lender an appropriate Borrowing
Notice not later than 10:00 a.m. Local Time three (3)
Banking Days prior to the Borrowing Date for LIBOR
Rate Loans and not later than 10:00 a.m. Local Time
on the Borrowing Date for Floating Rate Loans.
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A Borrowing Notice is deemed to be given when
actually received by Lender at its Commercial Loan
Department.
(B) Once given to Lender, except as provided in
Section 2.5.14 or unless Lender shall otherwise
consent, such Borrowing Notice shall not thereafter
be revocable by Borrowers.
(C) On the Borrowing Date, if all terms and
conditions of this Agreement have been complied with,
Lender shall make available the requested Advance of
the Revolving Loan.
(D) If requested by Lender, Cavalier, on behalf of
itself and the other Borrowers, shall deliver to
Lender, not later than 12:00 noon Local Time on the
Borrowing Date, written confirmation (substantially
in the form of Exhibit B) of any oral Borrowing
Notice. Cavalier shall certify to the accuracy of the
information set forth thereon.
2.5.2 Interest Rate. Unless Borrowers shall have elected a
LIBOR Rate for all or a portion of the Advance of the
Revolving Loan as provided in Section 2.5.3 hereof, the
aggregate unpaid principal amount of each Advance of the
Revolving Loan shall bear interest at a rate equal to the
Floating Rate with respect to the Revolving Loan.
2.5.3 Election of LIBOR Rate.
(A) Subject to the provisions of Sections 2.5.4,
2.5.13, 2.5.14 and 2.7, Cavalier Homes, on behalf of
itself and the other Borrowers, may elect to pay
interest on all or part of an Advance of the
Revolving Loan or the Revolving Loan at the LIBOR
Rate for an Interest Period by giving Lender
(1) An appropriate Borrowing Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
Banking Days prior to the Borrowing
Date (in the case of a new Advance);
or
(2) An appropriate Rate Selection Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
Banking Days prior to the first day
of the new Interest Period (in the
case of the outstanding LIBOR Rate
Loan); or
(3) An appropriate Rate Selection Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
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Banking Days prior to the first day
of the Interest Period (in the case
of the conversion of any outstanding
Floating Rate Loan to a LIBOR Rate
Loan).
(B) (1) Borrowers may obtain estimates of
the interest rates on which the Base
LIBOR Rate is calculated by
telephoning Lender's rate desk on
any day Lender is open for business.
Borrowers may obtain quotations of
the interest rates on which the Base
LIBOR Rate is calculated by
telephoning Lender's rate desk
between 9:00 a.m. and 10:00 a.m.
Local Time on any Banking Day. A
Rate Selection Notice is deemed
given when actually received by
Lender at its Commercial Loan
Department. If the Rate Selection
Notice is initially given in
writing, it shall be given in
substantially the form of Exhibit B
hereto. If the Rate Selection
Notice is given in writing, Cavalier
Homes, on behalf of itself and the
other Borrowers, shall certify to
the accuracy of the information set
forth thereon. If Borrowers fail to
select a new rate option by giving a
Rate Selection Notice by 10:00 a.m.
Local Time on the appropriate
Banking Day pursuant to the
provisions of Section 2.5.3 hereof,
the Revolving Loan or that portion
of the Revolving Loan covered by the
expiring LIBOR Rate option shall be
a Floating Rate Loan on and after
the last day of the Interest Period
until the Revolving Loan is paid or
until the effective date of a new
Rate Selection Notice pursuant to
this section, whichever is the first
to occur.
(2) If requested by Lender, Cavalier
Homes, on behalf of itself and the
other Borrowers, shall deliver to
Lender, not later than 12:00 noon
Local Time on the first day of the
Interest Period, written
confirmation (substantially in the
form of Exhibit B hereto) of any
oral Rate Selection Notice. Cavalier
Homes shall certify to the accuracy
of the information set forth
thereon.
2.5.4 Restrictions on Interest Periods and Conversion to LIBOR
Rate. Each new Advance of the Revolving Loan shall be in an
amount of at least $500,000 and in an integral multiple of
$100,000 if a LIBOR Rate Loan and that part of each Floating
Rate Loan or LIBOR Rate Loan which is converted to, or
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continued as, a LIBOR Rate Loan, shall be in an amount of at
least $500,000 and shall be in an integral multiple of
$100,000. No Interest Period may extend beyond the Loan
Termination Date of the Revolving Loan. Borrowers may not
elect a LIBOR Rate if, on the effective date of such election,
there exists an Event of Default.
2.5.5 Interest Basis and Payment Dates.
(A) Interest at the rates determined according to
Sections 2.5.2 and 2.5.3 shall be calculated on the
basis of a 360-day year and the actual number of days
elapsed. Interest shall accrue on the unpaid
principal balance of all Advances of the Revolving
Loan at the applicable rate from and including the
date the Advance is made to (but not including) the
date of any payment on the Revolving Loan if payment
is received by Lender prior to 2:00 p.m. Local Time
and if not received by such time, then through and
including the date payment is received.
(B) All interest accrued on each Floating Rate Loan
made under this Article II shall be payable monthly
on the first (1st) day of each calendar month; and
all interest accrued on each LIBOR Rate Loan made
under this Article II shall be payable on the last
day of the applicable LIBOR Rate Interest Period, and
if such LIBOR Rate Interest Period exceeds three (3)
months, interest accrued on such LIBOR Rate Loan also
shall be payable on the date which is three (3)
months after the first day of the applicable LIBOR
Rate Interest Period. If not sooner paid in
accordance with the subsection 2.5.5(B), all accrued
but unpaid interest on the Revolving Loan shall be
due and payable on the Loan Termination Date of the
Revolving Loan.
(C) If any scheduled payment is late ten (10) days or
more, Borrowers agree to pay a late charge equal to
five percent (5%) of the amount of the payment which
is late, but not more than the maximum amount allowed
by applicable Law (the "Late Charge"). This
subparagraph does not extend any payment due date
expressly stated in the Agreement or any Loan
Document and does not in any way prevent or estop
Lender from requiring that payments be made by
Borrowers strictly when due. Unless accepted by
Lender, and unless accompanied by all other amounts
then due to Lender, the tender of such payment by
Borrowers does not cure the Event of Default arising
from the payment default upon which such Late Charge
was assessed.
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(D) If, at any time, the rate of interest accruing on
any Advance of the Revolving Loan or the Late Charge
shall be deemed by any competent court of law,
governmental agency or tribunal to exceed the maximum
rate of interest permitted by any applicable Laws,
then, for such time as such interest rate or Late
Charge, as applicable, would be deemed excessive, its
application shall be suspended and there shall be
charged instead on any such Advance the maximum rate
of interest permissible under such Laws, and any
excess interest or charges actually collected by
Lender shall be credited as a partial prepayment of
principal.
(E) The Floating Rate shall change contemporaneously
with each change in the Revolving Rate.
2.5.6 Method of Payment. Each payment (including any
prepayment) of principal of and interest on the Revolving Loan
and each payment of Borrowers' reimbursement or
indemnification obligations under Sections 2.5.8, 2.5.10,
2.5.11 or 10.3 or any other provision hereunder, shall be made
to Lender without set-off or counterclaim in Dollars in
immediately available funds at Lender's main office (or, in
the case of LIBOR Rate Loans at such other Lending
Installation, if any, as may be specified in a notice to
Cavalier Homes by Lender) by 2:00 p.m. Local Time on the date
when payment is due.
2.5.7 Application of Payments. Any payment received by Lender
from Borrowers, or any of them, with respect to the Revolving
Loan or with no particular Obligation specified, will be
applied by Lender to all obligations of Borrowers to Lender
under the Revolving Note or this Agreement, with each such
payment to be applied in the following order unless Lender, at
its option, designates a different order from time to time:
first to any sums (other than principal or interest) then due,
next to interest, and the remainder (if any) to principal,
with the most recent Advances of principal under the Revolving
Loan to be paid first.
2.5.8 Optional Prepayments. Borrowers may, at any time and
from time to time, with respect to the Revolving Loan, prepay
any Floating Rate Loan, in whole or in part, without premium
or penalty. Payment of principal owing upon any LIBOR Rate
Loan, in whole or in part, is permitted only on the last day
of the applicable Interest Period. If, notwithstanding the
provisions of this section, a LIBOR Rate Loan is prepaid for
any reason other than demand by Lender for payment, Borrowers,
jointly and severally, shall indemnify Lender on demand for
any loss incurred thereby, including any loss in liquidating
or employing deposits acquired to fund or maintain the LIBOR
Rate Loan.
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2.5.9 Lending Installations. Lender and any Participant may
book LIBOR Rate Loans at any Lending Installation selected by
it, and may change the Lending Installation from time to time.
All terms of this Agreement shall apply to any such Lending
Installation.
2.5.10 Failure to Pay or Borrow on Certain Dates; Taxes.
(A) If any payment of a LIBOR Rate Loan occurs on a
date which is not the last day of an Interest Period,
or if a LIBOR Rate Loan is not made on the date
specified in the Borrowing Notice or Rate Selection
Notice for any reason other than default of Lender or
a Participant, Borrowers, jointly and severally,
shall upon demand indemnify Lender and each
Participant for any costs incurred by Lender and each
Participant resulting therefrom, including any loss
in liquidating as employing deposits acquired to fund
or maintain the LIBOR Rate Loan.
(B) If and to the extent that any deduction is
required by law to be made from any payment to Lender
under this Agreement or the Revolving Note on account
of present or future taxes of any nature whatsoever
imposed within the United States of America by any
Governmental Authority, Borrowers shall make the
deduction for the account of Lender and make timely
payment thereof to the appropriate Governmental
Authority. Borrowers shall confirm any payment of
such taxes by sending official tax receipts or
certified copies thereof to Lender promptly after
payment.
2.5.11 Increased Cost and Reduced Return.
(A) If after the date hereof the adoption of any
applicable Requirement of Law or any change therein,
or any change in the interpretation or administration
thereof by any Governmental Authority, central bank
or comparable agency charged with the interpretation
or administration thereof, or compliance by Lender or
any Participant (or any of their applicable Lending
Installations) with any request or directive (whether
or not having the force of law) of any such
Governmental Authority, central bank or comparable
agency:
(1) shall subject Lender or any
Participant (or any of their
applicable Lending Installations) to
any tax, duty or other charge with
respect to LIBOR Rate Loans, the
Revolving Note or any of their
obligation to make or maintain LIBOR
Rate Loans, or shall change the
basis of taxation of payments to
Lender or any Participant (or
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any of their applicable Lending
Installation) of the principal of or
interest on the LIBOR Rate Loans or
any other amounts due under this
Agreement in respect of LIBOR Rate
Loans or any of their obligation
to make or maintain the LIBOR Rate
Loans (except for changes in the
rate of tax on the overall net
income of Lender, any Participant or
any of their applicable Lending
Installations); or
(2) shall impose, modify or deem
applicable any reserve, special
deposit or similar requirement
(including, without limitation, any
such requirement imposed by the
Board of Governors of the Federal
Reserve System, but excluding with
respect to any LIBOR Rate Loan any
such requirement included in the
applicable Reserve Requirement in
calculating the Base LIBOR Rate for
such loan) against assets of,
deposits with or for the account of,
or credit extended by, Lender or any
Participant (or any of their
applicable Lending Installations) or
on the London, England interbank
eurodollar market, or any other
condition affecting the LIBOR Rate
Loans, the Revolving Note or
Lender's or any Participant's
obligation to make or maintain LIBOR
Rate Loans;
and the result of any of the foregoing is to increase the cost
to Lender or any Participant (or any of their applicable
Lending Installations) of making or maintaining a LIBOR Rate
Loan (except to the extent such increased costs are already
included in the determination of the applicable interest
rate), or to reduce the amount of any sum received or
receivable by Lender of any Participant (or any of their
applicable Lending Installations) under this Agreement or
under the Revolving Note with respect thereto, or otherwise to
reduce the net yield to Lender or any Participant on the Loan
by a material amount, then, within the time period specified
in Section 2.5.12 hereof and upon delivery to Cavalier Homes
of a certificate complying with Section 2.5.12 hereof,
Borrowers shall pay to Lender such additional amount or
amounts as will compensate Lender and the affected
Participants for such increased cost or reduction.
(B) If after the date hereof Lender or any
Participant shall have reasonably determined that the
adoption of any applicable Requirement of Law
regarding capital adequacy, or any change therein, or
any change in the interpretation or administration
thereof by any Governmental Authority, central bank
or comparable agency charged with the interpretation
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or administration thereof, or compliance by Lender or
any Participant (or any of their Lending
Installations) with any request or directive
regarding capital adequacy (whether or not having the
force of law) of any such Governmental Authority,
central bank or comparable agency, has reduced the
rate of return on capital of Lender (or any person or
entity controlling Lender) or any Participant as a
consequence of Lender's or such Participant's
obligations hereunder to a level below that which
Lender (or such person or entity) or such
Participant would have achieved but for such
adoption, change, compliance, request or directive by
a material amount, then from time to time, within the
time specified in Section 2.15.12 hereof, Borrowers
shall pay to Lender and such Participant such
additional amount or amounts as will compensate
Lender (or such person or entity) and such
Participant for such reduction.
(C) Lender will promptly notify Cavalier Homes of any
event of which it has knowledge, occurring after the
date hereof, which will entitle Lender or any
Participant to compensation pursuant to this Section
2.5.11 and will designate a different Lending
Installation if such designation will avoid the need
for, or reduce the amount of, such compensation and
will not, in the reasonable judgment of Lender,
expose Lender or any Participant to additional
liability, costs or reduction in rate of return.
Determinations by Lender and any Participant for
purposes of this Section 2.5.11 of the effect of the
adoption of any applicable Requirement of Law, or any
change therein, or any change in the interpretation
or administration thereof by any Governmental
Authority, central bank or comparable agency charged
with the interpretation or administration thereof, of
compliance by Lender or any Participant (or their
applicable Lending Installations) with any request or
directive (whether or not having the force of law) of
any such Governmental Authority, central bank or
comparable agency on its costs of making or
maintaining the Revolving Loan or on amounts
receivable by it in respect of the Revolving Loan,
and of the additional amounts required to compensate
Lender and any Participant in respect of any
increased costs or reduction in rate of return, shall
be conclusive, provided that such determinations are
made on a reasonable basis and are supported by a
certificate complying with Section 2.5.12 hereof.
2.5.12 Lender's Certificates; Survival of Indemnity. A
certificate of Lender, any Participant, or any Lending
Installation, as to the amounts due under Sections 2.5.8,
2.5.10 or 2.5.11 and all other determinations by any of them
pursuant thereto, shall, in the absence of manifest error and
so long as made on any reasonable basis, be presumed to be
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<PAGE>
correct. Determination of amounts payable under such sections
in connection with a LIBOR Rate Loan shall be calculated as
though Lender, the affected Participants, or the affected
Lending Installation funded the LIBOR Rate Loan through the
purchase of a deposit of the type, amount and maturity
corresponding to the deposit used as a reference in
determining the applicable Base LIBOR Rate for such loan. The
amount specified in the certificate shall be payable at the
end of the applicable Interest Period or within 15 days after
receipt by Cavalier Homes of the certificate, whichever is
later. In determining amounts owed, any reasonable averaging
and attribution methods may be used, which methods shall be
specified in the certificate or other documentation
accompanying the demand for payment. The obligations of
Borrowers under Sections 2.5.8, 2.5.10 and 2.5.11 shall
survive payment of the Revolving Loan and termination of this
Agreement, but such obligations shall terminate two years
after the date the Revolving Note is paid in full unless,
prior to the end of such two-year period, Lender or any
Participant shall have given Cavalier Homes notice that claim
is made under any of such sections and the approximate amount
of such claim.
2.5.13 Illegality Affecting LIBOR Rate Loans. If, on or after
the date of this Agreement, the adoption of any applicable
Requirement of Law, or any change therein, or any change in
the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by Lender or any Participant (or any of their
applicable Lending Installations) with any request or
directive (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency
shall make it unlawful or impossible for Lender or any
Participant (or any of their applicable Lending Installations)
to make, maintain or fund LIBOR Rate Loans, Lender shall so
notify Cavalier Homes, whereupon until Lender notifies
Cavalier Homes that the circumstances giving rise to such
suspension no longer exist, the obligation of Lender and any
Participant to make or maintain LIBOR Rate Loans shall be
suspended. As a result of such suspension, the Advances of the
Revolving Loan shall instead accrue interest at the Floating
Rate. Before giving any notice pursuant to this section,
Lender and each affected Participant shall designate a
different Lending Installation for the LIBOR Rate Loans if
such designation will avoid the need for giving such notice
and will not, in the judgment of Lender, be otherwise
disadvantageous to Lender or any Participant.
2.5.14 Availability of Interest Rate; Basis for Determining
Interest Rate Inadequate or Unfair. If on or prior to the
first day of any Interest Period for any LIBOR Rate Loan:
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(A) Lender or any Participant determines or is
advised that deposits in Dollars (in the applicable
amounts) are not being offered in the relevant market
for such Interest Period, or
(B) Lender or any Participant determines that the
LIBOR Rate will not adequately and fairly reflect the
cost to Lender or such Participant of funding the
LIBOR Rate Loan for such Interest Period,
Lender shall forthwith give notice thereof to Cavalier Homes,
whereupon until Lender notifies Cavalier Homes that the
circumstances giving rise to such suspension no longer exist,
the obligation to make or maintain LIBOR Rate Loans shall be
suspended. Unless Cavalier Homes notifies Lender at least two
Banking Days before the date of any Advance of the Revolving
Loan for which a Borrowing Notice has previously been given
that the Borrowers elect not to borrow, as a result of such
suspension, such Advances shall instead accrue interest at the
Floating Rate.
11. Section 2.10 of the Agreement is hereby amended and
restated to read in its entirety as follows:
2.10 Commitment and Non-Usage Fees for the Revolving Loan. At
Closing and upon the renewal (if applicable) of the Revolving
Loan, Borrowers shall pay the Commitment Fee (or if at
renewal, such other commitment fee as shall be mutually agreed
upon by Cavalier Homes and Lender) for the Revolving Loan. In
addition, Borrowers shall pay to Lender a non-usage fee (the
"Non-Usage Fee") equal to one-quarter of one percent (.0025)
times the Unused Line Amount (as hereinafter defined). As used
in this Section 2.10, the term "Unused Line Amount" shall mean
the amount by which the maximum Revolving Loan Commitment
(which is $10,000,000 as of June 1, 1998) exceeds the average
outstanding principal balance of the Revolving Loan for the
preceding 12-month period. The Unused Line Amount and
Non-Usage Fee shall be computed on April 15, 1999 for the
preceding 12-month period ended April 15, 1999, and again on
each subsequent April 15 for the preceding 12-month period
then ended. The Non-Usage Fee shall be payable each May 15
following the April 15 computation date. If Borrowers do not
pay any Non-Usage Fee to Lender upon written demand, Lender,
at its option may, but shall not be required to, and without
further notice or demand upon Borrowers, make an Advance on
the Revolving Loan for the purpose of paying to Lender the
amount of such Non-Usage Fee. Any such Advance so made by
Lender shall for all purposes under the Agreement be treated
as an Advance under the Revolving Loan Commitment, and the
amount of any such Advance shall be included as part of the
unpaid principal balance of the Revolving Loan. Alternatively,
Lender, at its option may, but shall not be required to, and
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<PAGE>
without further notice or demand upon any of the Borrowers,
charge against any deposit account of any of the Borrowers all
or any part of the Non-Usage Fee due hereunder.
12. Section 3.1 of the Agreement is hereby amended and
restated in its entirety to read as follows:
3.1 General Terms of the Warehouse Loan and Term Loans.
(A) Subject to the terms hereof, Lender will lend to
Cavalier Acceptance, from time to time until the Loan
Termination Date for the Warehouse Loan, such sums in
integral multiples of $500,000 as Cavalier Acceptance
may request, but which shall not exceed, in aggregate
principal amount at any one time outstanding, the
lesser of:
(1) (a) $25,000,000 minus (b) the
aggregate outstanding principal
balance of all Terms Loans, or
(2) the Contracts Borrowing Base.
The above-described revolving line of credit made available to
Cavalier Acceptance is referred to in this Agreement as the
"Warehouse Loan." Subject to the provisions of subsection (C)
below, indebtedness outstanding under the Warehouse Loan may
be converted to a Term Loan; provided, however, that the
maximum principal amount outstanding under the Warehouse Loan
and all Term Loans shall not exceed $25,000,000 (the
outstanding principal balance of the Warehouse Loan and all
Term Loans is herein referred to, in the aggregate, as the
"$25,000,000 Loan").
(B) Subject to the terms hereof, Cavalier Acceptance
may borrow, repay without penalty or premium, and
reborrow under the Warehouse Loan, from the date of
this Agreement until the Loan Termination Date for
the Warehouse Loan. If at any time the unpaid
principal balance of the Warehouse Loan exceeds the
amount Cavalier Acceptance could borrow at such time
under the formula set forth in (A) above, Cavalier
Acceptance shall immediately and without demand pay
such sums to Lender, in multiples of $10,000 to the
extent necessary to reduce the Warehouse Loan to an
amount which Cavalier Acceptance could borrow at that
time under such formula.
(C) Until the Loan Termination Date for the Warehouse
Loan, and so long as no Event of Default shall have
occurred and be continuing, and subject to the
satisfaction of all conditions precedent contained in
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Article IV, indebtedness owing under the Warehouse
Loan may, in a minimum principal amount of
$2,000,000, be converted to a Term Loan. The Eligible
Contracts delivered by Cavalier Acceptance to Lender
with respect to each Term Loan shall for certain
purposes hereunder be allocated to such Term Loan
(the "Allocated Eligible Contracts"); provided,
however, that no more than fifteen percent (15%) of
the Eligible Contracts allocated to any applicable
Term Loan shall be C-Rated Contracts.
(D) If at any time the unpaid principal balance of
any Term Loan shall exceed eighty percent (80%) of
the aggregate outstanding principal balance of the
Allocated Eligible Contracts for such Term Loan, then
Cavalier Acceptance shall have thirty (30) days
within which to (i) substitute a replacement Eligible
Contract to increase the aggregate outstanding
balance of the Allocated Eligible Contracts for such
Term Loan, and/or (2) pay such sums to Lender, in
multiples of $10,000, all as necessary to assure that
the outstanding principal balance of such Term Loan
is not more than eighty percent (80%) of the
aggregate outstanding principal balance of the
Allocated Eligible Contracts for such Term Loan;
provided, however, that with respect to any such
Allocated Eligible Contracts which are Green Tree
Contracts, Cavalier Acceptance agrees that the
loan-to-value threshold (at which Cavalier Acceptance
must either substitute a new Eligible Contract or
repay principal owing on the Term Loan) shall be
seventy percent (70%) rather than eighty percent
(80%).
13. Section 3.5 of the Agreement is hereby amended and
restated to read in its entirety as follows:
3.5 Prepayment. The Term Loan(s) may be prepaid, in full or in
part, upon not less than thirty (30) days notice if such
prepayment is voluntary; provided, however, that a prepayment
premium (the "Premium") shall be payable on the Excess Amount
(as hereinafter defined) if such prepayment(s) (whether
voluntary or mandatory) should occur within three (3) years
from the date of the applicable Term Note(s) which evidences
the Term Loan(s) upon which such prepayment has been made, as
follows: (1) until the first anniversary date of the Term
Note, the Premium shall be equal to one and one-half percent
(1.50%) times the Excess Amount; (2) from the first
anniversary date of the Term Note until the third anniversary
date thereof, the premium shall be equal to one percent
(1.00%) times the Excess Amount; and (3) from and after the
third anniversary date of each Term Note, there shall be no
Premium payable upon any prepayment of such Term Loan. As used
herein, the "Excess Amount" means the amount by which the
principal prepayments made on any Term Note, measured on an
annual basis for the applicable Prepayment Period (as
hereinafter defined), shall exceed (A) the
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outstanding principal balance on the first day of the
Prepayment Period times (B) ten percent (10%). As used herein,
the "Prepayment Period" (x) means the period beginning on the
date of the applicable Term Note and continuing until (but not
including) the first anniversary date of such Term Note and
(y) on and after the first such anniversary date, means the
period commencing on such anniversary date and continuing
until (but not including) the next anniversary date. For
example, if the outstanding principal balance of a Term Note
on the first day of the Year-One Prepayment Period is
$5,000,000, then ten percent (10%) of such amount would be
equal to $500,000, which would be the amount of principal that
could be prepaid during the Year-One Prepayment Period without
payment of any Premium. If the amount prepaid during the
Year-One Prepayment Period for such loan was $750,000, then
the Excess Amount would be $250,000 ($750,000 - 500,000), and
the applicable Premium would be equal to$3,750.00 (1.5% times
$250,000).
For partial prepayments, Lender on each April 15 shall
calculate the amount of Premium due on each Term Note for the
most recently-ended Prepayment Period occurring on or before
said April 15, and the amount of such premium shall be payable
by Cavalier Acceptance each May 15, following the April 15
computation date. For prepayments in full, the premiums shall
be computed and payable on the date of prepayment. In addition
to the prepayments specified under Section 3.1(D), the
$25,000,000 Loan shall be subject to certain mandatory
prepayments in the event that Cavalier Acceptance shall have
received prepayments to it of Chattel Paper which constitutes
Collateral under this Agreement (regardless of whether such
Chattel Paper is classified as an Eligible Contract), as
follows: (1) In the event that Cavalier Acceptance shall
receive a principal prepayment upon an Allocated Eligible
Contract, then 80% of the amount of such prepayment shall be
due to Lender as a prepayment to Lender of the Term Loan to
which such Allocated Eligible Contract was allocated; and (2)
in the event that Cavalier Acceptance should receive a
prepayment of any other Chattel Paper constituting Collateral
under this Agreement, then the full amount of such prepayment
shall be due to Lender as a prepayment to be applied by Lender
to such Indebtedness outstanding upon the $25,000,000 Loan as
Lender may elect.
14. Section 3.6(A) of the Agreement is hereby amended and
restated to read in its entirety as follows:
3.6(A) Warehouse Loan Borrowing Procedures, Interest Rates,
Payments of Interest and Related Provisions.
3.6(A).1 Borrowing Notices.
(A) Cavalier Acceptance will give Lender an
appropriate Borrowing Notice not later than 10:00
a.m. Local Time three (3) Banking Days prior to the
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the Borrowing Date for LIBOR Rate Loans and not later
than 10:00 a.m. Local Time on the Borrowing Date for
Floating Rate Loans. A Borrowing Notice is deemed to
be given when actually received by Lender at its
Commercial Loan Department.
(B) Once given to Lender, except as provided in
Section 3.6(A).14 or unless Lender shall otherwise
consent, such Borrowing Notice shall not thereafter
be revocable by Cavalier Acceptance.
(C) On the Borrowing Date, if all terms and
conditions of this Agreement have been complied with,
Lender shall make available the requested Advance of
the Warehouse Loan.
(D) If requested by Lender, Cavalier Acceptance shall
deliver to Lender, not later than 12:00 noon Local
Time on the Borrowing Date, written confirmation
(substantially in the form of Exhibit B- 1) of any
oral Borrowing Notice. Cavalier Acceptance shall
certify to the accuracy of the information set forth
thereon.
3.6(A).2 Interest Rate. Unless Cavalier Acceptance shall have
elected a LIBOR Rate for all or a portion of the Advance of
the Warehouse Loan as provided in Section 3.6(A).3 hereof, the
aggregate unpaid principal amount of each Advance of the
Warehouse Loan shall bear interest at a rate equal to the
Floating Rate with respect to the Warehouse Loan.
3.6(A).3 Election of LIBOR Rate.
(A) Subject to the provisions of Sections 3.6(A).4,
3.6(A).13, 3.6(A).14 and 3.8, Cavalier Acceptance may
elect to pay interest on all or part of an Advance of
the Warehouse Loan or the Warehouse Loan at the LIBOR
Rate for an Interest Period by giving Lender
(1) An appropriate Borrowing Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
Banking Days prior to the Borrowing
Date (in the case of a new Advance);
or
(2) An appropriate Rate Selection Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
Banking Days prior to the first day
of the new Interest Period (in the
case of the outstanding LIBOR Rate
Loan); or
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(3) An appropriate Rate Selection Notice
specifying a LIBOR Rate not later
than 10:00 a.m. Local Time three (3)
Banking Days prior to the first day
of the Interest Period (in the case
of the conversion of any outstanding
Floating Rate Loan to a LIBOR Rate
Loan).
(B) (1) Cavalier Acceptance may obtain
estimates of the interest rates on
which the Base LIBOR Rate is
calculated by telephoning Lender's
rate desk on any day Lender is open
for business. Cavalier Acceptance
may obtain quotations of the
interest rates on which the Base
LIBOR Rate is calculated by
telephoning Lender's rate desk
between 9:00 a.m. and 10:00 a.m.
Local Time on any Banking Day. A
Rate Selection Notice is deemed
given when actually received by
Lender at its Commercial Loan
Department. If the Rate Selection
Notice is initially given in
writing, it shal be given in
substantially the form of Exhibit
B-1 hereto. If the Rate Selection
Notice is given in writing, Cavalier
Acceptance shall certify to the
accuracy of the information set
forth thereon. If Cavalier
Acceptance fails to select a new
rate option by giving a Rate
Selection Notice by 10:00 a.m. Local
Time on the appropriate Banking Day
Day pursuant to the provisions of
Section 3.6 (A).3 hereof, the
Warehouse Loan or that portion of
the Warehouse Loan covered by the
expiring LIBOR Rate option shall be
a Floating Rate Loan on and after
the last day of the Interest Period
until the Warehouse Loan is paid or
until the effective date of a new
Rate Selection Notice pursuant to
this section, whichever is the first
to occur.
(2) If requested by Lender, Cavalier
Acceptance shall deliver to Lender,
not later than 12:00 noon Local Time
on the first day of the Interest
Period, written confirmation
(substantially in the form of
Exhibit B- 1 hereto) of any oral
Rate Selection Notice. Cavalier
Acceptance shall certify to the
accuracy of the information set
forth thereon.
3.6(A).4 Restrictions on Interest Periods and Conversion to
LIBOR Rate. Each new Advance of the Warehouse Loan shall be in
an amount of at least $500,000 and in an integral multiple of
$100,000 if a LIBOR Rate Loan and that part of each Floating
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Rate Loan or LIBOR Rate Loan which is converted to, or
continued as, a LIBOR Rate Loan, shall be in an amount of at
least $500,000 and shall be in an integral multiple of
$100,000. No Interest Period may extend beyond the Loan
Termination Date of the Warehouse Loan. Cavalier Acceptance
may not elect a LIBOR Rate if, on the effective date of such
election, there exists an Event of Default.
3.6(A).5 Interest Basis and Payment Dates.
(A) Interest at the rates determined according to
Sections 3.6(A).2 and 3.6(A).3 shall be calculated on
the basis of a 360-day year and the actual number of
days elapsed. Interest shall accrue on the unpaid
principal balance of all Advances of the Warehouse
Loan at the applicable rate from and including the
date the Advance is made to (but not including) the
date of any payment on the Warehouse Loan if payment
is received by Lender prior to 2:00 p.m. Local Time
and if not received by such time, then through and
including the date payment is received.
(B) All interest accrued on each Floating Rate Loan
made under this Article III shall be payable monthly
on the first (1st) day of each calendar month; and
all interest accrued on each LIBOR Rate Loan made
under this Article III shall be payable on the last
day of the applicable LIBOR Rate Interest Period, and
if such LIBOR Rate Interest Period exceeds three (3)
months, interest accrued on such LIBOR Rate Loan also
shall be payable on the date which is three (3)
months after the first day of the applicable LIBOR
Rate Interest Period. If not sooner paid in
accordance with the subsection 3.6(A).5(B), all
accrued but unpaid interest on the Warehouse Loan
shall be due and payable on the Loan Termination Date
of the Warehouse Loan.
(C) If any scheduled payment is late ten (10) days or
more, Cavalier Acceptance agrees to pay a late charge
equal to five percent (5%) of the amount of the
payment which is late, but not more than the maximum
amount allowed by applicable Law (the "Late Charge").
This subparagraph does not extend any payment due
date expressly stated in the Agreement or any Loan
Document and does not in any way prevent or estop
Lender from requiring that payments be made by
Cavalier Acceptance strictly when due. Unless
accepted by Lender, and unless accompanied by all
other amounts then due to Lender, the tender of such
payment by Cavalier Acceptance does not cure the
Event of Default arising from the payment default
upon which such Late Charge was assessed.
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(D) If, at any time, the rate of interest accruing on
any Advance of the Warehouse Loan or the Late Charge
shall be deemed by any competent court of law,
governmental agency or tribunal to exceed the maximum
rate of interest permitted by any applicable Laws,
then, for such time as such interest rate or Late
Charge, as applicable, would be deemed excessive, its
application shall be suspended and there shall be
charged instead on any such Advance the maximum rate
of interest permissible under such Laws, and any
excess interest or charges actually collected by
Lender shall be credited as a partial prepayment of
principal.
(E) The Floating Rate shall change contemporaneously
with each change in the Warehouse Rate.
3.6(A).6 Method of Payment. Each payment (including any
prepayment) of principal of and interest on the Warehouse Loan
and each payment of Cavalier Acceptance's reimbursement or
indemnification obligations under Sections 3.6(A).8,
3.6(A).10, 3.6(A).11 or 10.3 or any other provision hereunder,
shall be made to Lender without set-off or counterclaim in
Dollars in immediately available funds at Lender's main office
(or, in the case of LIBOR Rate Loans at such other Lending
Installation, if any, as may be specified in a notice to
Cavalier Acceptance by Lender) by 2:00 p.m. Local Time on the
date when payment is due.
3.6(A).7 Application of Payments. Any payment received by
Lender from Cavalier Acceptance with respect to the Warehouse
Loan or with no particular Obligation specified, will be
applied by Lender to all obligations of Cavalier Acceptance to
Lender under the Warehouse Note or this Agreement, with each
such payment to be applied in the following order unless
Lender, at its option, designates a different order from time
to time: first to any sums (other than principal or interest)
then due, next to interest, and the remainder (if any) to
principal, with the most recent Advances under the Warehouse
Note of principal to be paid first.
3.6(A).8 Optional Prepayments. Cavalier Acceptance
--------------------
may, at anytime and from time to time, with respect to the
Warehouse Loan, prepay any Floating Rate Loan, in whole or in
part, without premium or penalty. Payment of principal owing
upon any LIBOR Rate Loan, in whole or in part, is permitted
only on the last day of the applicable Interest Period. If,
notwithstanding the provisions of this section, a LIBOR Rate
Loan is prepaid for any reason other than demand by Lender for
payment, Cavalier Acceptance shall indemnify Lender on demand
for any loss incurred thereby, including any loss in
liquidating or employing deposits acquired to fund or maintain
the LIBOR Rate Loan.
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3.6(A).9 Lending Installations. Lender and any Participant may
book LIBOR Rate Loans at any Lending Installation selected by
it, and may change the Lending Installation from time to time.
All terms of this Agreement shall apply to any such Lending
Installation.
3.6(A).10 Failure to Pay or Borrow on Certain Dates;
Taxes.
(A) If any payment of a LIBOR Rate Loan occurs on a
date which is not the last day of an Interest Period,
or if a LIBOR Rate Loan is not made on the date
specified in the applicable Borrowing Notice or Rate
Selection Notice for any reason other than default of
Lender or a Participant, Cavalier Acceptance shall
upon demand indemnify Lender and each Participant for
any costs incurred by Lender and each Participant
resulting therefrom, including any loss in
liquidating as employing deposits acquired to fund or
maintain the LIBOR Rate Loan.
(B) If and to the extent that any deduction is
required by law to be made from any payment to Lender
under this Agreement or the Warehouse Note on account
of present or future taxes of any nature whatsoever
imposed within the United States of America by any
Governmental Authority, Cavalier Acceptance shall
make the deduction for the account of Lender and make
timely payment thereof to the appropriate
Governmental Authority. Cavalier Acceptance shall
confirm any payment of such taxes by sending official
tax receipts or certified copies thereof to Lender
promptly after payment.
3.6(A).11 Increased Cost and Reduced Return.
(A) If after the date hereof the adoption of any
applicable Requirement of Law or any change therein,
or any change in the interpretation or administration
thereof by any Governmental Authority, central bank
or comparable agency charged with the interpretation
or administration thereof, or compliance by Lender or
any Participant (or any of their applicable Lending
Installations) with any request or directive (whether
or not having the force of law) of any such
Governmental Authority, central bank or comparable
agency:
(1) shall subject Lender or any
Participant (or any of their
applicable Lending Installations) to
any tax, duty or other charge with
respect to LIBOR Rate Loans, the
Revolving Note or any of their
obligation to make or maintain LIBOR
Rate Loans, or shall
24
<PAGE>
change the basis of taxation of
payments to Lender or any
Participant (or any of their
applicable Lending Installation) of
the principal of or interest on the
LIBOR Rate Loans or any other
amounts due under this Agreement in
respect of LIBOR Rate Loans or any
of their obligation to make or
maintain the LIBOR Rate Loans
(except for changes in the rate of
tax on the overall net income of
Lender, any Participant or any of
their applicable Lending
Installations); or
(2) shall impose, modify or deem
applicable any reserve, special
deposit or similar requirement
(including, without limitation, any
such requirement imposed by the
Board of Governors of the Federal
Reserve System, but excluding with
respect to any LIBOR Rate Loan any
such requirement included in the
applicable Reserve Requirement in
calculating the Base LIBOR Rate for
such loan) against assets of,
deposits with or for the account of,
or credit extended by, Lender or any
Participant (or any of their
applicable Lending Installations) or
on the London, England interbank
eurodollar market, or any other
condition affecting the LIBOR Rate
Loans, the Revolving Note or
Lender's or any Participant's
obligation to make or maintain LIBOR
Rate Loans;
and the result of any of the foregoing is to increase
the cost to Lender or any Participant (or any of
their applicable Lending Installations) of making or
maintaining a LIBOR Rate Loan (except to the extent
such increased costs are already included in the
determination of the applicable interest rate), or to
reduce the amount of any sum received or receivable
by Lender of any Participant (or any of their
applicable Lending Installations) under this
Agreement or under the Warehouse Note with respect
thereto, or otherwise to reduce the net yield to
Lender or any Participant on the Loan by a material
amount, then, within the time period specified in
Section 3.6(A).12 hereof and upon delivery to
Cavalier Acceptance of a certificate complying with
Section 3.6(A).12 hereof, Cavalier Acceptance shall
pay to Lender such additional amount or amounts as
will compensate Lender and the affected Participants
for such increased cost or reduction.
(B) If after the date hereof Lender or any
Participant shall have reasonably determined that the
adoption of any applicable Requirement of
25
<PAGE>
Law regarding capital adequacy, or any
change therein, or any change in the interpretation
or administration thereof by any Governmental
Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or
compliance by Lender or any Participant (or any of
their Lending Installations) with any request or
directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental
Authority, central bank or comparable agency, has
reduced the rate of return on capital of Lender (or
any person or entity controlling Lender) or any
Participant as a consequence of Lender's or such
Participant's obligations hereunder to a level below
that which Lender (or such person or entity) or such
Participant would have achieved but for such
adoption, change, compliance, request or directive by
a material amount, then from time to time, within the
time specified in Section 3.6(A).12 hereof, Cavalier
Acceptance shall pay to Lender and such Participant
such additional amount or amounts as will compensate
Lender (or such person or entity) and such
Participant for such reduction.
(C) Lender will promptly notify Cavalier Acceptance
of any event of which it has knowledge, occurring
after the date hereof, which will entitle Lender or
any Participant to compensation pursuant to this
Section 3.6(A).11 and will designate a different
Lending Installation if such designation will avoid
the need for, or reduce the amount of, such
compensation and will not, in the reasonable judgment
of Lender, expose Lender or any Participant to
additional liability, costs or reduction in rate of
return. Determinations by Lender and any Participant
for purposes of this Section 3.6(A).11 of the effect
of the adoption of any applicable Requirement of Law,
or any change therein, or any change in the
interpretation or administration thereof by any
Governmental Authority, central bank or comparable
agency charged with the interpretation or
administration thereof, of compliance by Lender or
any Participant (or their applicable Lending
Installations) with any request or directive (whether
or not having the force of law) of any such
Governmental Authority, central bank or comparable
agency on its costs of making or maintaining the
Warehouse Loan or on amounts receivable by it in
respect of the Warehouse Loan, and of the additional
amounts required to compensate Lender and any
Participant in respect of any increased costs or
reduction in rate of return, shall be conclusive,
provided that such determinations are made on a
reasonable basis and are supported by a certificate
complying with Section 3.6(A).12 hereof.
26
<PAGE>
3.6(A).12 Lender's Certificates; Survival of Indemnity. A
certificate of Lender, any Participant, or any Lending
Installation, as to the amounts due under Sections 3.6(A).8,
3.6(A).10 or 3.6(A).11 and all other determinations by any of
them pursuant thereto, shall, in the absence of manifest error
and so long as made on any reasonable basis, be presumed to be
correct. Determination of amounts payable under such sections
in connection with a LIBOR Rate Loan shall be calculated as
though Lender, the affected Participants, or the affected
Lending Installation funded the LIBOR Rate Loan through the
purchase of a deposit of the type, amount and maturity
corresponding to the deposit used as a reference in
determining the applicable Base LIBOR Rate for such loan. The
amount specified in the certificate shall be payable at the
end of the applicable Interest Period or within 15 days after
receipt by Cavalier Acceptance of the certificate, whichever
is later. In determining amounts owed, any reasonable
averaging and attribution methods may be used, which methods
shall be specified in the certificate or other documentation
accompanying the demand for payment. The obligations of
Cavalier Acceptance under Sections 3.6(A).8, 3.6(A).10 and
3.6(A).11 shall survive payment of the Warehouse Loan and
termination of this Agreement, but such obligations shall
terminate two years after the date the Warehouse Note is paid
in full unless, prior to the end of such two-year period,
Lender or any Participant shall have given Cavalier Acceptance
notice that claim is made under any of such sections and the
approximate amount of such claim.
3.6(A).13 Illegality Affecting LIBOR Rate Loans. If, on or
after the date of this Agreement, the adoption of any
applicable Requirement of Law, or any change therein, or any
change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by Lender or any Participant (or any of their
applicable Lending Installations) with any request or
directive (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency
shall make it unlawful or impossible for Lender or any
Participant (or any of their applicable Lending Installations)
to make, maintain or fund LIBOR Rate Loans, Lender shall so
notify the Cavalier Acceptance, whereupon until Lender
notifies Cavalier Acceptance that the circumstances giving
rise to such suspension no longer exist, the obligation of
Lender and any Participant to make or maintain LIBOR Rate
Loans shall be suspended. As a result of such suspension, the
Advances of the Warehouse Loan shall instead accrue interest
at the Floating Rate. Before giving any notice pursuant to
this section, Lender and each affected Participant shall
designate a different Lending Installation for the LIBOR Rate
Loans if such designation will avoid the need for giving such
notice and will not, in the judgment of Lender, be otherwise
disadvantageous to Lender or any Participant.
27
<PAGE>
3.6(A).14 Availability of Interest Rate; Basis for Determining
Interest Rate Inadequate or Unfair. If on or prior to the
first day of any Interest Period for any LIBOR Rate Loan:
(A) Lender or any Participant determines or is
advised that deposits in Dollars (in the applicable
amounts) are not being offered in the relevant market
for such Interest Period, or
(B) Lender or any Participant determines that the
LIBOR Rate will not adequately and fairly reflect the
cost to Lender or such Participant of funding the
LIBOR Rate Loan for such Interest Period,
Lender shall forthwith give notice thereof to Cavalier
Acceptance, whereupon until Lender notifies Cavalier
Acceptance that the circumstances giving rise to such
suspension no longer exist, the obligation to make or maintain
LIBOR Rate Loans shall be suspended. Unless Cavalier
Acceptance notifies Lender at least two Banking Days before
the date of any Advance of the Warehouse Loan for which a
Borrowing Notice has previously been given that Cavalier
Acceptance elects not to borrow, as a result of such
suspension, such Advances shall instead accrue interest at the
Floating Rate.
15. Section 3.6(B)(1) of the Agreement is hereby amended by
deleting the first sentence thereof in its entirety and substituting the
following sentences in lieu thereof:
Interest on the principal balance of each Term Loan,
from time to time outstanding, will be payable at a rate (the
"Term Rate") that will be fixed for five years at the per
annum rate of interest equal to (x) 240 basis points (2.40%)
above the Five Year Treasury in the case of Term Loans
converted from the Warehouse Loan prior to March 14, 1996, (y)
200 basis points (2.00%) above the Five Year Treasury in the
case of Term Loans converted from the Warehouse Loan on or
after March 14, 1996, but prior to June 1, 1998, or (z) 195
basis points (1.95%) above the Five Year Treasury in the case
of Term Loans converted from the Warehouse Loan on or after
June 1, 1998.
16. Section 3.10 of the Agreement (which was added by the
First Amendment to the Agreement) is hereby amended and restated to read in its
entirety as follows:
3.10 Non-Usage Fees for $25,000,000 Loan. Cavalier Acceptance
shall pay to Lender a non-usage fee (the "Non-Usage Fee")
equal to one-quarter of one percent (.0025) of the Unused
Commitment Amount (as hereinafter defined). As used in this
Section 3.10, the term "Unused Commitment Amount"
28
<PAGE>
shall mean the amount by which the maximum Warehouse
and Term Loan Commitment (which is $25,000,000 as of June 1,
1998) exceeds the average outstanding principal balance of the
$25,000,000 Loan for the preceding 12-month period. The Unused
Commitment Amount and the Non-Usage Fee shall be computed on
April 15, 1999 for the 12-month period ended April 15, 1999
and again on each subsequent April 15 for the preceding
12-month period then ended. If Cavalier Acceptance does not
pay any Non-Usage Fee when due, Lender at its option may, but
shall not be required to, and without further notice or demand
upon Cavalier Acceptance, make an Advance on the Warehouse
Loan for the purpose of paying to Lender the amount of such
Non-Usage Fee, any such Advance so made by Lender shall for
all purposes under the Agreement be treated as an Advance
under the Warehouse and Term Loan Commitment, and the amount
of any such Advance shall be included as part of the unpaid
balance of the Warehouse Loan. Alternatively, Lender, at its
option may, but shall not be required to, and without further
notice or demand upon Cavalier Acceptance charge against any
deposit account of Cavalier Acceptance all or any part of the
Non-Usage Fee due hereunder.
17. Sections 4.3(B) and (C) of the Agreement are hereby
amended and restated in their entireties to read as follows:
(B) The original principal amount of any Term Note
shall not be less than $2,000,000;
(C) The original principal amount of any Term Note
shall not exceed the Contracts Borrowing Base for the
Allocated Eligible Contracts furnished to and
accepted as collateral for such Term Note by Lender;
18. Section 7.2(L) of the Agreement is hereby amended to
delete the term "$2,000,000" therefrom and to substitute the term "$3,000,000"
in lieu thereof, with the intended effect of such change being to increase the
maximum "lease" (as defined therein) obligations from $2,000,000 to $3,000,000
in any fiscal year of Cavalier Homes.
19. Section 7.2(U) is hereby amended and restated in its
entirety to read as follows:
Neither Cavalier Homes, nor the Consolidated
Entities, will make capital expenditures for any fiscal year
in excess of $14,000,000 in the aggregate.
20. Section 7.2(H) of the Agreement is hereby to delete the
term "$2,500,000" from subsection (6) thereof and to substitute the term
"$10,000,000" in lieu thereof;
29
<PAGE>
21. Exhibits B, B-1, C, and C-1 of the Agreement are hereby
amended and restated in their entireties to read in the form of Annex B, Annex
B-1, Annex C and Annex C-1 attached hereto.
22. Prior to the execution of this Amendment, Borrowers have
paid to Lender all Usage Fees and Non-Usage Fees due to be paid under the
Agreement prior to this Amendment. In connection with this Amendment, Lender
acknowledges its receipt of (i) a Commitment Fee from Cavalier Homes equal to
one-quarter of one percent (.0025) of the Revolving Loan Commitment ($25,000.00)
and (ii) a Commitment Fee from Cavalier Acceptance equal to three- sixteenths of
one percent (.001875) of the aggregate Warehouse and Term Loan Commitment
($46,875.00). Each of the Borrowers acknowledges that such Commitment Fees have
been fully- earned by Lender and are non-refundable.
23. As conditions to the effectiveness of this Amendment,
Borrowers shall have delivered to Lender: (a) a Second Revolving Note
Modification Agreement in the form of Exhibit A hereto, duly executed (the
"Revolving Note Modification") (b) a Second Warehouse Note Modification
Agreement in the form of Exhibit B hereto, duly executed (the "Warehouse Note
Modification") (the Revolving Note Modification and the Warehouse Note
Modification are sometimes hereinafter referred to collectively as the "Note
Modifications"); (c) a written opinion of legal counsel for Borrowers, dated as
of the date of this Amendment and addressed to Lender, in the form of Exhibit C
hereto; (d) such UCC-1 financing statements and amendments to existing UCC-1
financing statements as Lender may request; and (e) such additional
documentation (including, but not limited to, a certificate of the corporate
secretary or assistant secretary of each Borrower in the form of Exhibit D
hereto, certifying as to incumbency and signatures of the officers of such
Borrower signing this Amendment and the Note Modifications and each other
document delivered pursuant hereto, together with a copy of resolutions of such
Borrower's board of directors and/or shareholders authorizing the execution,
delivery and performance of this Amendment and the Note Modifications and the
Agreement and the Notes as amended thereby) as may be requested by Lender, or
its counsel, to satisfy Lender that this Amendment and the Note Modifications
have been duly authorized, executed and delivered on behalf of each Borrower
that is a party thereto, constitute the valid and binding obligations thereof,
and that the Notes as amended are entitled to the security of the Agreement and
the Security Documents.
24. Notwithstanding the execution of this Amendment, all of
the indebtedness evidenced by each of the Notes (as amended and increased by the
Note Modifications) shall remain in full force and effect, and any Collateral
described in any agreement providing security for any Obligation of the
Borrowers or any of them so defined to include the Notes, or any of them, shall
remain subject to the liens, pledges, security interests and assignments of any
such agreements as security for the indebtedness evidenced by each of the Notes,
the Obligations, and all other indebtedness described therein; nothing contained
in this Amendment or in the Note Modifications shall be construed to constitute
a novation of any of the indebtedness evidenced by the Notes or to release,
satisfy, discharge or otherwise affect or impair in any manner whatsoever (a)
the validity or enforceability of any of the indebtedness evidenced by the
Notes; (b) the liens, pledges, security interests, assignments and conveyances
effected by the Agreement, the Security Documents and any other agreement
securing any of the Notes, or the priority thereof; (c) the
30
<PAGE>
liability of any maker, endorser, surety, guarantor or other Person that may now
or hereafter be liable under or on account of any of the Notes or any agreement
securing any or all of the Notes; or (d) any other security or instrument now or
hereafter held by Lender as security for or as evidence of any of the
above-described indebtedness. Without in any way limiting the foregoing, (i)
each Borrower acknowledges and agrees that the indebtedness evidenced by each of
the Notes as amended and/or increased pursuant to the Note Modifications is and
shall remain secured by the Collateral described in the Agreement, each
Assumption Agreement and in the Security Documents and (ii) Cavalier Homes
specifically, in its capacity as guarantor under that certain Continuing
Guaranty Agreements dated February 17, 1994 and March 14, 1996 by Cavalier Homes
in favor of Lender (the "Guaranty Agreements"), acknowledges and agrees that the
"Liabilities" (as defined in the Guaranty Agreements) of Cavalier Acceptance
which are unconditionally guaranteed by Cavalier Homes include the $25,000,000
Loan.
25. Borrowers, jointly and severally, agree to pay directly or
reimburse Lender, on demand, for all of Lender's expenses, including the
reasonable fees and expenses of its legal counsel and UCC filing fees and
expenses, incurred in connection with the preparation, amendment, modification
or enforcement of this Amendment or the Agreement, and the collection or
attempted collection of the Notes.
26. Borrowers, jointly and severally, hereby represent and
warrant to Lender that (a) the officers of each Borrower executing this
Amendment and the Note Modifications have been duly authorized to do so and such
amendments and the Agreement and the Notes, as amended thereby, are valid and
binding upon each Borrower which is a party thereto in every respect,
enforceable in accordance with their terms, (b) each and every representation
and warranty set forth in Article VI of the Agreement is true and correct as of
the date hereof except as set forth on Exhibit E attached hereto, and (c) no
Event of Default, nor any event that, upon notice or lapse of time or both,
would constitute an Event of Default, has occurred and is continuing.
27. Unless otherwise expressly modified or amended hereby, all
terms and conditions of the Agreement shall remain in full force and effect, and
the same, as amended hereby, are hereby ratified and confirmed in all respects.
28. This Amendment shall inure to and be binding upon and
enforceable by Borrowers and Lender and their respective successors and assigns.
29. This Amendment may be executed in one or more
counterparts, each of which when executed and delivered shall constitute an
original. All such counterparts shall together be deemed to be one and the same
instrument.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, by and through their respective duly authorized officers as of the
day and year first above written.
BORROWERS:
CAVALIER HOMES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
CAVALIER MANUFACTURING, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
CAVALIER INDUSTRIES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
BELMONT HOMES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
DELTA HOMES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
32
<PAGE>
SPIRIT HOMES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
BELLCREST HOMES, INC.
By:/s/ MICHAEL R. MURPHY [L.S.]
_______________________________________
Its: VP
_______________________________________
CAVALIER ACCEPTANCE CORPORATION
By: /s/ JERRY F. WILSON, JR. [L.S.]
_______________________________________
Its: President
_______________________________________
LENDER:
FIRST COMMERCIAL BANK
By: /s/ JIM WILLIAMS [L.S.]
_______________________________________
Its Vice President
_______________________________________
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (this "Agreement") dated as of June
1, 1998 is made by and among First Commercial Bank, an Alabama state banking
corporation (the "Lender"), Cavalier Homes, Inc., a Delaware corporation
("Cavalier Homes"), and the other entities who are presently Borrowers under
that certain Revolving, Warehouse and Term Loan Agreement dated as of February
17, 1994, as heretofore amended (Cavalier Homes and such other Borrowers being
herein referred to as the "Borrowers"), and Belmont Homes, Inc., a Mississippi
corporation ("Belmont"), Delta Homes, Inc., a Mississippi corporation ("Delta"),
Spirit Homes, Inc., an Arkansas corporation ("Spirit") and Bellcrest Homes,
Inc., a Georgia corporation ("Bellcrest") (each an "Assuming Entity" and
collectively, the "Assuming Entities").
R E C I T A L S :
Lender and Cavalier Homes, Cavalier Manufacturing, Inc., a
Delaware corporation, Cavalier Industries, Inc., a Delaware corporation and
Cavalier Acceptance Corporation, an Alabama corporation ("Cavalier Acceptance"),
as Borrowers, are parties to that certain Revolving, Warehouse and Term Loan
Agreement dated as of February 17, 1994, as amended by that certain First
Amendment to Revolving, Warehouse and Term Loan Agreement dated March 14, 1996
(as the same has been amended to and including the date hereof, the "Loan
Agreement"). Capitalized terms used in this Agreement, unless otherwise defined
herein, will have the meanings given to them in the Loan Agreement.
Under the terms of the Loan Agreement, as heretofore amended,
Lender has agreed to lend to Borrowers up to $5,000,000 on a revolving basis
(the "Revolving Loan Commitment") and to Cavalier Acceptance, one of the
Borrowers, up to $18,000,000 pursuant to a warehouse and term loan facility, but
solely on the terms and conditions specified in the Loan Agreement.
Each of the Assuming Entities desires to become obligated as a
Borrower, jointly and severally, with Cavalier Homes and the other Borrowers,
with respect to the Loan Agreement, the Revolving Loan and the other Obligations
and to take all other action necessary to become a Borrower and a Participating
Subsidiary (as such term is hereinafter defined) under the Loan Agreement, and
to cause all of Assuming Entity's Accounts, Inventory and other specified
assets, whether now owned or hereafter acquired, to be included in the
Collateral, as defined in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual agreements herein set forth, and to induce Lender to make Advances
under the Loan Agreement, and in further consideration of the substantial
material benefit to accrue to each of the Assuming Entities from Advances made
and to be made by Lender under the Revolving Loan, the parties hereto agree as
follows:
<PAGE>
1. Each of the Assuming Entities hereby assumes and agrees
that it is and shall be fully liable, jointly and severally with the other
Borrowers, for the Obligations, and all covenants, agreements, warranties and
representations with respect to the Revolving Loan set forth in the Loan
Agreement and the Revolving Note, and hereby agrees that it is and shall be a
party to, and a Borrower under the terms of, the Loan Agreement, the Revolving
Note, and the other Loan Documents, with the same force and effect as would be
the case if Assuming Entity had been named as a Borrower in and had executed and
delivered the Loan Agreement, the Revolving Note, and the other Loan Documents
to Lender at Closing; provided, however, that its liability with respect to the
Obligations shall be limited to an amount equal to the greater of (i) 95% of
Assuming Entity's Net Worth (as hereinafter defined) from time to time; or (ii)
the amount that in a legal proceeding brought within the applicable limitations
period is determined by the final, non-appealable order of a court having
jurisdiction over the issue and the applicable parties to be the amount of value
given by Lender, or received by Assuming Entity, in exchange for the obligations
of Assuming Entity under this Agreement and the Loan Agreement. As used in this
Section 1, "Net Worth" shall mean (x) the fair value of the property of the
Assuming Entity from time to time (taking into consideration the value, if any,
of rights of subrogation, contribution and indemnity), minus (y) the total
liabilities of Assuming Entity (including contingent liabilities [discounted in
appropriate instances], but excluding liabilities of the Assuming Entity under
this Agreement and the Loan Agreement) from time to time.
2. As security for the prompt satisfaction of all Obligations,
each of the Assuming Entities hereby assigns, transfers and conveys to Lender
all of such Assuming Entity's right, title and interest in and to, and grants
Lender a lien on and a security interest in, all amounts that may be owing from
time to time by Lender to Assuming Entity in any capacity, including, without
limitation, any balance or share belonging to Assuming Entity, of any deposit or
other account with Lender, which lien and security interest shall be independent
of any right of set-off which Lender may have.
3. As further security for the prompt satisfaction of all
Obligations, in addition to any other or further security provided under the
Loan Agreement or any of the Security Documents, each of the Assuming Entities
hereby assigns to Lender all of such Assuming Entity's right, title and interest
in and to, and grants Lender a lien upon and security interest in, all of the
following, wherever located, whether now owned or hereafter acquired, together
with all replacements therefor and proceeds (including, without limitation,
insurance proceeds) thereof (all of which shall constitute original Collateral
under this Agreement and the Loan Agreement):
a. Accounts;
b. Chattel Paper;
c. Contracts;
d. Contract Rights;
e. Documents;
<PAGE>
f. Eligible Contracts;
g. General Intangibles;
h. Instruments;
i. Inventory;
j. Rights as seller of Goods and rights to
returned, repossessed or reclaimed Goods;
and
k. All Records pertaining to any of the
Collateral.
4. The foregoing liens shall be first and prior liens except
for Permitted Liens. The Collateral and all of each Assuming Entity's other
property of any kind held by Lender shall stand as one general, continuing
collateral security for all Obligations and may be retained by Lender until all
Obligations have been satisfied in full and Lender's commitment to lend under
the Loan Agreement has been terminated.
5. Each of the Assuming Entities acknowledges that it has had
full and complete access to the underlying papers relating to the Obligations
and all other papers executed by any person in connection with the Obligations,
has reviewed them and is fully aware of the meaning and effect of their
contents. Each of the Assuming Entities is fully informed of all circumstances
that bear upon the risks of executing this Agreement and which a diligent
inquiry would reveal. Each of the Assuming Entities has adequate means to obtain
from the Borrowers on a continuing basis information concerning the financial
condition of any or all of the Borrowers and is not depending on Lender to
provide such information, now or in the future. Each of the Assuming Entities
agrees that Lender shall have no obligation to advise or notify it or to provide
it with any data or information. The execution and delivery of this Agreement is
not a condition precedent (and Lender has not in any way implied that the
execution of this agreement is a condition precedent) to Lender's making,
extending or modifying any loan or any other financial accommodation to or for
such Assuming Entity otherwise than under the Loan Agreement.
6. Each of the Assuming Entities hereby unconditionally agrees
to pay and perform all of the Obligations, whether now existing or hereafter
incurred or arising (subject to the proviso of Section 1 above).
7. Each of the Assuming Entities hereby specifically
acknowledges and agrees, without limiting the generality of the other provisions
of this Agreement, to be bound by the terms and conditions specified in the Loan
Agreement, as the same may be amended, including, without limitation, agreements
whereby such Assuming Entity appoints Cavalier Homes as its agent and
attorney-in-fact to act on its behalf for all purposes of the Loan Agreement and
the other Loan Documents.
8. Each of the Assuming Entities hereby agrees that the
obligations and liabilities of such Assuming Entity with respect to the
Obligations are joint and several,
<PAGE>
continuing, absolute and unconditional (subject to the proviso of Section 1
above). Without limiting the generality of the foregoing, the obligations and
liabilities of each of the Assuming Entities with respect to the Revolving Loan
and the Revolving Note or under the Security Documents executed by such Assuming
Entity shall not be released, discharged, impaired, modified or in any way
affected by (a) the invalidity or unenforceability of any Loan Document, (b) the
failure of the Lender to give Assuming Entity a copy of any notice given to the
Borrowers or any of them, (c) any modification, amendment or supplement of any
obligation, covenant or agreement contained in any Loan Document, (d) any
compromise, settlement, release or termination of any obligation, covenant or
agreement in any loan document, (e) any waiver of payment, performance or
observance by or in favor of the Borrowers or any of them of any obligation,
covenant or agreement under any Loan Document, (f) any consent, extension,
indulgence or other action or inaction, or any exercise or non-exercise of any
right, remedy or privilege with respect to any Loan Document, (g) the extension
of time for payment or performance of any of the Obligations, (h) the release or
discharge of Lender's claims against any collateral now or at any time hereafter
securing any of the Obligations, the other Borrowers, or any of them, by
operation of law or otherwise or (i) any other matter that might otherwise be
raised in avoidance of, or in defense against an action to enforce, the
obligations of each such Assuming Entity under this Agreement, the Loan
Agreement, the Revolving Note or any other Loan Document.
9. Each of the Assuming Entities covenants and agrees with
Lender as follows:
(a) Such Assuming Entity will not without Lender's
consent (i) sell, lease, transfer or otherwise dispose of, in a single
transaction or a series of related transactions, the whole of its
business or assets or such part thereof as in the opinion of Lender
constitutes a substantial portion thereof; or (ii) liquidate, wind up
or dissolve, or enter into any consolidation, merger, syndication or
other combination or engage in any other reorganization or
recapitalization; provided, however, that Assuming Entity may sell,
lease, transfer or dispose of all or any portion of its business or
assets to any other Consolidated Entity or Consolidated Entities or to
any Borrower or merge into or consolidate with any other Borrower or
one or more of the Consolidated Entities, so long as the entity to
which such business or assets are sold, leased, transferred or disposed
of or which survives or results from any such merger or consolidation
is a Borrower under the Loan Agreement.
(b) Such Assuming Entity will not incur, create,
assume or permit to exist any lien upon any of its properties or assets
of any character, real, personal or mixed, whether now owned or
hereafter acquired, other than liens that constitute Permitted Liens.
(c) Any action taken or attempted to be taken by
Assuming Entity in violation of the provisions of clause (a) above and
any lien incurred, created, assumed or permitted to exist in violation
of the provisions of clause (b) above shall be null, void and of no
force or effect whatsoever.
(d) Such Assuming Entity will execute such financing
statements (including amendments thereto and continuation statements
thereof), in form satisfactory
<PAGE>
to Lender as Lender may from time to time specify; pay, or reimburse
Lender for paying, all costs and taxes of filing or recording the same
in such public offices as Lender may designate; deliver such of the
Collateral which in the sole judgment of Lender is best perfected by
possession, to Lender or its designated agent or bailee; and take such
other steps as Lender may from time to time direct, including, without
limitation, the noting of Lender's lien on the Collateral and on any
certificates of title therefor, all to perfect Lender's security
interest in the Collateral.
(e) Such Assuming Entity will deliver immediately to
Lender any Chattel Paper or Instruments arising out of the Collateral
usually, but not exclusively, as proceeds. Further, Assuming Entity
hereby agrees that such Chattel Paper or Instruments constitute
original Collateral rather than proceeds; but if proceeds, then
Lender's security interest created by this Agreement in the Chattel
Paper or Instruments shall not be claimed merely as proceeds.
(f) Such Assuming Entity will comply with all of the
obligations, requirements and restrictions in the covenants contained
in Article VII of the Loan Agreement, to the extent they are now
applicable, or may hereafter be amended to be applicable, to a Borrower
that is a Participating Subsidiary.
(g) Such Assuming Entity shall, promptly upon demand
by Lender therefor upon the occurrence and during the continuance of an
Event of Default, execute and deliver to Lender from time to time such
security agreements and other collateral documents, together with any
related financing statements and other instruments, as Lender may
request granting to Lender a lien on any or all real property,
Accounts, Chattel Paper, Contracts, Contract Rights, Documents, General
Intangibles, Instruments, Inventory, rights as seller of Goods and
rights to returned, repossessed or reclaimed Goods, and all Records
pertaining to any of the Collateral of Assuming Entity, all as
collateral security for the Obligations, it being understood and agreed
that the rights of Lender under this clause (g) shall be in addition
to, and cumulative of, all other rights of the Lender under the terms
of the Loan Agreement to require collateral as security for the
Obligations. Any lien granted under this Agreement or under Article V
of the Loan Agreement by Assuming Entity shall secure the Obligations
only to the extent that Assuming Entity is liable therefor under the
terms of this Agreement and the Loan Agreement.
(h) Such Assuming Entity will not exercise any rights
that it may acquire by way of subrogation under this Agreement or any
Subrogation and Contribution Agreement or by any payment made hereunder
or under any of the other Loan Documents or otherwise, until all the
Obligations have been paid in full and the Loan Agreement has been
terminated. If any amount shall be paid to Assuming Entity on account
of any such subrogation rights at any time when all of the Obligations
shall not have been paid in full and the Loan Agreement terminated,
such amount shall be held in trust for the benefit of the Lender and
shall be paid forthwith to the Lender to be credited and applied upon
the Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Documents.
<PAGE>
(i) Such Assuming Entity will not amend or waive any
provision of the Subrogation and Contribution Agreement entered into by
Assuming Entities and Borrowers nor consent to any departure by
Borrowers or any other Participating Subsidiary or Participating
Partnership from such Subrogation and Contribution Agreement or from
any similar Subrogation and Contribution Agreements executed by other
Participating Subsidiaries and Participating Partnerships, without
having obtained the prior written consent of Lender to such amendment,
waiver or consent.
10. Each of the Assuming Entities agrees that it is, and for
all purposes of the Loan Agreement, the Revolving Note and the other Loan
Documents shall be, a Borrower and a Participating Subsidiary.
11. Assuming Entities, Borrowers and Lender hereby agree that
Exhibits II.6.1(B), II.6.1(D), II.6.1(I), II.7.2(G), F, G, H, I, J, and K to the
Loan Agreement are hereby supplemented by the respective Supplements attached
hereto which relate to the Assuming Entities.
12. This Agreement shall bind each Assuming Entity's
successors and assigns and shall inure to the benefit of, and be enforceable by,
Lender and its successors and assigns. This Agreement may only be waived,
modified or amended by a written instrument signed by the party against which
the enforcement thereof is sought. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of Alabama,
without regard to such state's rules regarding conflicts of law. If any term of
this Agreement shall be invalid or unenforceable, the remainder of this
Agreement shall remain in full force and effect. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
shall constitute one agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede any inconsistent agreement with respects to the
subject matter hereof and thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
________________________ ________________________ ________________________
Initial (Cavalier Homes, Initial (Lender) Initial (Belmont)
for itself and as agent
for the other Borrowers) ________________________
Initial (Delta)
________________________
Initial (Spirit)
________________________
Initial (Bellcrest)
13. JURY WAIVER. EACH OF THE ASSUMING ENTITIES, BORROWERS
AND LENDER HEREBY:
(1) IRREVOCABLY AND UNCONDITIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OR
COUNTERCLAIM OF ANY TYPE AS TO ANY MATTER ARISING DIRECTLY OR
INDIRECTLY OUT OF OR WITH RESPECT TO THIS AGREEMENT, THE LOAN
AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH; AND
(2) AGREES THAT ANY OF THEM MAY FILE A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT BETWEEN THE PARTIES
IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY
OF ANY KIND WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
14. Each of the Assuming Entities and the other Borrowers, jointly and
severally, agree to pay directly or reimburse Lender, on demand, for all of
Lender's expenses, including the reasonable fees and expenses of its legal
counsel, UCC filing fees and similar expenses, incurred in connection with the
preparation, amendment, modification or enforcement of this Agreement or the
Loan Agreement, and the collection or attempted collection of the Notes.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
ASSUMING ENTITIES:
BELMONT HOMES, INC.
By: /s/ MICHAEL R. MURPHY [L.S.]
___________________________________
Name: Michael R. Murphy
_________________________________
Its: VP
__________________________________
Address: 160 Industrial Park Drive
Belmont, Mississippi 38827
Taxpayer Identification #: 64-0834574
DELTA HOMES, INC.
By: /s/ MICHAEL R. MURPHY [L.S.]
___________________________________
Name: Michael R. Murphy
_________________________________
Its: VP
__________________________________
Address: 1322 Industrial Park Drive
Clarksdale, Mississippi 38614
Taxpayer Identification #: 64-0865110
SPIRIT HOMES, INC.
By: /s/ MICHAEL R. MURPHY [L.S.]
___________________________________
Name: Michael R. Murphy
_________________________________
Its: VP
__________________________________
Address: 550 Ammity Road
Conway, Arkansas 72033
Taxpayer Identification #: 71-0625242
<PAGE>
BELLCREST HOMES, INC.
By: /s/ MICHAEL R. MURPHY [L.S.]
___________________________________
Name: Michael R. Murphy
_________________________________
Its: VP
__________________________________
Address: 206 Magnolia Street
Millen, Georgia 30442
Taxpayer Identification #: 58-1708374
BORROWERS:
CAVALIER HOMES, INC.
for itself and as agent for the other
Borrowers
By: /s/ MICHAEL R. MURPHY [L.S.]
___________________________________
Name: Michael R. Murphy
_________________________________
Its: VP
__________________________________
LENDER:
FIRST COMMERCIAL BANK
By: /s/ JIM WILLIAMS [L.S.]
___________________________________
Its: Vice President
__________________________________
CAVALIER HOMES, INC.
DEFERRED COMPENSATION PLAN
Cavalier Homes, Inc., a Delaware corporation, hereby establishes the
Cavalier Homes, Inc. Deferred Compensation Plan, effective as of April 1, 1998,
in order to assist Cavalier Homes, Inc. and those of its affiliates which adopt
this Plan in attracting and retaining key employees by offering them an
opportunity to defer compensation and participate in the success of Cavalier
Homes, Inc.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. When used in this document with initial
capital letters, the following terms have the meanings indicated unless a
different meaning is plainly required by the context:
(a) "Board" shall mean the Board of Directors of
the Company.
(b) "Change in Control" means, with respect to a
person, (a) any other person, entity or "group" (within the meaning of
Rules--13d-1 through 13d-6 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (other than any subsidiary of the person undergoing
the change in control or any employee benefit plan of such person or of a
subsidiary of such person) (i) has acquired or agreed to acquire beneficial
ownership of 20% or more of the voting and/or economic interest in the capital
stock, membership, partnership or other equity interests of such person, as
the case may be, or (ii) has obtained or agreed to obtain the power (whether or
not exercised) to elect a majority of the board of directors, general partners,
managers, trustees or other governing body of a person, (b) a majority of the
board of directors, general partners, managers, trustees or other governing
body of the person shall consist at such time of individuals other than (x)
members of the board of directors or other governing body of such person on the
date hereof and (y) other members of such board of directors or other governing
body nominated, recommended, elected, or approved to succeed or become a
director or member of the governing body of such person by a majority of such
members referred to in clause (x) or a nominating committee elected or appointed
by such members referred to in clause (x) or by members so nominated,
recommended, elected, or approved; (c) the board of directors or other governing
body or, if applicable, the shareholders or equity owners of the person, shall
have approved the sale of all or substantially all the assets of such person;
or (d) any transaction or event relating to the person occurs which is (or
which would be if the person had a class of equity securities registered under
Section 12 of the Exchange Act) required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Exchange Act.
(c) "Code" means the Internal Revenue Code of
1986, as amended.
(d) "Committee" shall mean the committee
provided for in Section 8.2 of the Plan.
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<PAGE>
(e) "Company" means Cavalier Homes, Inc., a
Delaware corporation, and its successors and assigns.
(f) "Deferral" shall mean the portion of a
Participant's Qualifying Bonus that the Participant has elected to defer.
(g) "Deferral Account" shall mean the account
maintained for a Participant pursuant to Section 3.3 (a) hereof to reflect the
hypothetical value of the Participant's Deferrals.
(h) "Deferral Election Form" means such form or
forms as may be approved by the Committee from time to time for use by a
Participant to elect to defer compensation under the Plan.
(i) "Disability" means the disability of a
Participant which entitles the Participant to a disability benefit under a
disability program sponsored or maintained by the Participant's Participating
Employer; provided, that if no such program is applicable to the Participant,
then "Disability" with respect to such Participant means that, based on medical
evidence reasonably satisfactory to the Committee, the Participant is totally
and permanently unable to engage in any occupation or gainful employment for
which the Participant is reasonably suited by background, training, education or
experience.
(j) "Distributable Event" means an event
identified as such in Section 5.1.
(k) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(l) "Executive Officer" shall mean an "executive
officer" as that term is defined in Rule 3b-7 of the Securities Exchange Act of
1934, as amended, or an "officer" as defined under the rules of the New York
Stock Exchange.
(m) "Participant" means an individual identified
as such under Article III of the Plan.
(n) "Participant's Share" means the product of
the percentage that would be used to determine the amount of a Participant's
Qualifying Bonus for a calendar quarter and the amount of the loss for the
calendar quarter of the Participating Employer or division or other economic
unit thereof, the profits of which would have been used to determine such
Qualifying Bonus.
(o) "Participating Employer" means any person
participating in the Plan pursuant to Article XII of the Plan.
(p) "Plan" means the Cavalier Homes, Inc.
Deferred Compensation Plan, as set forth herein and as the same may be from time
to time amended.
(q) "Qualifying Bonus" means a quarterly bonus
payable by a Participating Employer which first becomes payable in a calendar
year subsequent to the calendar year of the applicable deferral election for
2
<PAGE>
services to be performed during a calendar year subsequent to the calendar year
in which the election is made.
The foregoing notwithstanding, with respect to an election made within 96 days
of the effective date of the Plan or within 30 days after a Participant first
becomes a Participant, "Qualifying Bonus" means a quarterly bonus payment which
first becomes payable subsequent to the date of the applicable election for
services to be performed subsequent to the date of such election.
(r) "Trust" means the trust described in
Section 9.4. The Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plan as an unfunded plan. Participants and their
beneficiaries shall have no beneficial ownership interest in any assets of any
such Trust.
(s) "Trustee" means one or more corporations,
entities or persons selected by the Company to serve as a Trustee for the Trust.
ARTICLE II.
ELIGIBILITY AND PARTICIPATION
Section 2.1 Eligibility. The Committee shall from time to time
designate such Executive Officers or members of the Board who are also employees
of a Participating Employer as it deems appropriate as eligible to participate
in the Plan and shall inform each such Executive Officer or member of the Board
in writing of such designation and the date on which the employee shall become a
Participant in the Plan.
Section 2.2 Participation. An individual eligible to participate in the
Plan shall become a Participant upon filing a completed Deferral Election Form
with the Committee and acceptance of such form by the Committee. Once an
individual becomes a Participant in the Plan, the individual shall remain a
Participant until the benefits which may be payable to the individual under the
Plan have been distributed to or on behalf of the individual.
Section 2.3 Suspension of Eligibility. The Committee may in its
discretion determine that a Participant will no longer be eligible to
participate in the Plan, and in such event, the Participant's Section 3.1
compensation deferral election will immediately terminate and no additional
amounts shall be credited to his or her Accounts under Section 3.3(a), until
such time, if any, as the individual is again determined to be eligible to
participate in the Plan by the Committee and makes a new Section 3.1 election.
However, the Deferred Account of such Participant shall continue to be adjusted
by the other provisions of Section 3.3 until fully distributed.
3
<PAGE>
ARTICLE III.
DEFERRAL ELECTIONS AND ACCOUNTS
Section 3.1 Deferral Elections.
(a) A Participant may elect to defer receipt of
all or every portion of each Qualifying Bonus, and the amount of Qualifying
Bonus so deferred shall be a Deferral.
(b) Upon election to defer compensation pursuant
to the Plan, a Participant will have no further right to such deferred
compensation other than as provided under the Plan.
Section 3.2 Form and Effectiveness of Deferral Election. Elections to
defer compensation under the Plan shall be made in writing on a Deferral
Election Form. A Participant who has elected to defer all or part of Qualifying
Bonuses may terminate such election with respect to Qualifying Bonuses for
services rendered in calendar quarters commencing after the Participant's
execution and delivery to the Committee of a notice of termination in such form
as the Committee may prescribe or approve. A Participant who has so elected to
terminate Deferrals may not again commence Deferrals until the first calendar
quarter of the first calendar year following such termination. An election to
defer may be revised or terminated with respect to Qualifying Bonuses
attributable to services performed in subsequent calendar years by the making of
a new deferral election on a Deferral Election Form. Notwithstanding the other
provisions of this Plan, a Participant's Deferral Election Form and the various
elections and selections made thereon shall not become effective until accepted
by the Committee.
Section 3.3 Participant Accounts and Adjustments Thereto.
(a) Deferral Account shall be maintained for each Participant
who elects Deferrals. As of the date each Qualifying Bonus is paid (or would be
paid but for the Participant's election to have the entire amount deferred as a
Deferral), the Participant's Deferral Account shall be credited with the amount
of the Deferral referable to such Qualifying Bonus. A Participant's Deferral
Account shall also be adjusted at least monthly and as of the date preceding the
date any payment is to be made to the Participant of a benefit, or an
installment thereof, hereunder to reflect any deemed gain or loss from the
deemed investment of amounts credited to the Participant's Deferral Account
pursuant to Section 4.2 hereof; provided that a Participant's Deferral Account
shall be credited or debited for only sixty-two percent (62%) of any such deemed
gain or loss which, if recognized by the Company, would affect the Company's
taxable income or loss.
(b) As of the close of each calendar year, if a Participant
had a Participant's Share with respect to any calendar quarter during such
calendar year, a Participant's Deferral Account shall be reduced by the lesser
of the amount of Excess Deferrals credited to such Excess Deferral Account for
the calendar year or that portion of the Participant's Share for any calendar
quarter of such calendar year that was not taken into account in determining the
amount of the Participant's Qualifying Bonus for any subsequent calendar quarter
in such calendar year.
(c) It is contemplated that Qualifying Bonuses will be paid on
or about the 20th day of the month following the end of the calendar quarter
except for Qualifying Bonuses for the fourth
4
<PAGE>
calendar quarter, which Qualifying Bonuses are expected to be paid on or about
the 30th day of the month following the end of such quarter.
ARTICLE IV.
DEEMED INVESTMENT OF DEFERRALS
Section 4.1 Investment Options. The Committee shall establish a list of
investment options, which shall be mutual funds, investment options under a type
of variable insurance products, or comparable investments and may from time to
time add investment options to, or delete existing investment options from, such
list.
Section 4.2 Deemed Investment. A Participant may elect in such form and
manner as the Committee may from time to time prescribe or approve to have
amounts credited to his or her Deferral Account treated as if such amounts were
invested in one or more of the investment options established by the Committee.
In the event a Participant fails to make such an election, the amount credited
to such Participant's Deferral Account shall be deemed invested in such
investment option as the Committee shall from time to time designate as the
default investment option. Amounts deemed invested in an investment fund or
investment funds pursuant to the election of a Participant or as a result of a
failure to make an election shall be valued as if so invested, reflecting all
earnings, losses, and other distributions or charges and changes in value which
would have been incurred through such investment. Appropriate adjustments to the
Excess Deferral Accounts of the Participants shall be made as provided in
Section 3.3(a) and 3.3(b) hereof.
ARTICLE V.
DISTRIBUTIONS.
Section 5.1 Distributable Events. Subject to Section 5.5 below, a
Participant's Distributable Event shall be the first to occur of the following
events, provided, that events (b) - (f) shall be Distributable Events only if so
elected by the Participant in the Deferral Election Form:
(a) the Participant's 70th birthday (i.e., the 70th
anniversary of the Participant's birth) or such earlier birthday, not prior to
the Participant's 65th birthday, as the Participant may specify in the Deferral
Election Form;
(b) the Participant's Disability (as defined in
Section 1.1);
(c) the Participant's death;
(d) the first date on which the Participant is no longer an
employee of the Company or any affiliate of the Company;
(e) such other event as the Participant may specify in
the Deferral Election Form (subject to approval of the Committee);
5
<PAGE>
(f) the date of a Change in Control of the Company
occurring after May 20, 2000, or
(g) termination for Cause subject to and in accordance
with Section 5.5.
A Participant's Distributable Event elections must be made on the
Participant's initial Deferral Election Form and are irrevocable.
Section 5.2 Distribution of Benefits.
(a) Distribution Commencement Date. Distribution of a
Participant's Plan benefit shall be made or commenced as promptly as practicable
after the Participant's Distributable Event but not more than fifteen (15) days
after such Distributable Event. Notwithstanding the foregoing, if a
Participant's Distributable Event occurs pursuant to Section 5.1(d) or would
otherwise occur after the date described in Section 5.1(d) above, the Committee
may, in its sole discretion, accelerate the date payment of such benefit is made
or commenced to any date after the date described in Section 5.1(d) above.
(b) Amount of Benefit. A Participant shall be entitled to
receive as his or her benefit hereunder, a payment of the value of his or her
Excess Deferral Account.
(c) Payment Options. In the event a Participant becomes
eligible to receive a payment of benefits under the Plan, the benefits payable
to the Participant or, in the event of the Participant's death, to the
Participant's designated beneficiary, shall be paid in accordance with one of
the payment options available under the Plan as elected by the Participant on
the Participant's initial Deferral Election Form. The payment options include
installment payments over a period certain, a lump sum payment, and such other
payment method as may be specified by the Participant and accepted by the
Committee. The Committee may, in its sole discretion, reduce the payment period
over which payments would have been made pursuant to an installment payment
option elected by a Participant (including consolidation into a lump sum);
provided, that in the event of a Change in Control, no reduction of a payment
period may be made prior to the fifth anniversary of such Change in Control.
Absent a payment option election, the Committee shall direct the payment of any
benefits payable under the Plan to or on behalf of the Participant in a lump sum
payment to the Participant, or in the event of the Participant's death, to the
Participant's designated beneficiary under the Plan.
Section 5.3 Distributions as a Result of a Tax Determination.
Notwithstanding any provision in this Plan to the contrary, if, at any time, a
court or the Internal Revenue Service determines that any amounts credited to a
Participant's Deferral Account under the Plan or Trust are includable in the
gross income of the Participant and subject to tax, the Committee may, in its
sole discretion, permit a lump sum distribution of an amount equal to the
amounts determined to be includable in the Participant's gross income.
Section 5.4 Parachute Payments. In the event that any payments made to
a Participant under the Plan alone, or together with payments made to the
Participant under any other contract, plan, or program, result in subjecting the
Participant to the excise tax imposed by Section 4999 of
6
<PAGE>
the Code, then the Participant's Participating Employer shall pay the
Participant an additional amount such that the net amount retained by the
Participant after deduction of any excise tax on such payments and any federal,
state, and local income tax and excise tax on the additional payments provided
for by this paragraph shall be equal to the benefits otherwise payable under
this Plan. For purposes of determining the additional payment to be made, the
Participant shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the additional
payment is to be made and state and local income taxes at the highest marginal
rates of taxation in the state and locality of the Participant's residence in
the calendar year the additional payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local income taxes. In the event that the excise tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of payment, the Participant shall repay to his or her Participating Employer, at
the time that the amount of such reduction in excise tax is finally determined,
the portion of the additional payment attributable to such reduction, plus
interest on such amount at the rates provided in Section 1274(b)(2)(B) of the
Code. In the event that the excise tax is determined to exceed the amount taken
into account hereunder at the time of the payment (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
additional payment), the Participant's Participating Employer shall make an
additional payment in respect of such excess (plus any interest payable with
respect to such excess) at the time the amount of such excess is finally
determined.
Section 5.5 Distribution Upon Termination for Cause. In the event that
a Participant is terminated for Cause (as defined below), the Committee may, in
its discretion, treat such termination or any date subsequent thereto as a
Distributable Event. For purposes of this Plan, termination for Cause means
termination based on any of the following:
(i) dishonesty or fraud in connection with his or
her employment;
(ii) failure to adhere (in any material respect) to
any policy of a Participating Employer to which the Participant is subject and
that is known or reasonably should be known to the Participant;
(iii) appropriation (or attempted appropriation) of a
material business opportunity of the Company or any subsidiary thereof,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of any of the Participating
Employers;
(iv) misappropriation (or attempted misappropriation)
of any of a Participating Employer's funds or property;
(v) conviction of, or indictment for (or its
procedural equivalent) or entering of a guilty plea or plea of no contest with
respect to, a felony or any other criminal offense involving moral turpitude
(other than traffic offenses); or
(vi) insubordination or willful misconduct in the
performance of, or gross neglect of, the Participant's duties with his or her
Participating Employer, as determined by the good faith judgment of the
Committee.
7
<PAGE>
ARTICLE VI.
NONTRANSFERABILITY
Section 6.1 Anti-Alienation of Benefits. Any amounts which may be
credited to a Participant's Deferral Accounts under the Plan, and any rights or
privileges pertaining thereto, may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, or subjected to any charge or legal
process; and no interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 6.2 Incompetent Participants. If any person who may be eligible
to receive a payment under the Plan has been legally declared incompetent and a
conservator or other person legally charged with the care of such person or of
his or her estate has been appointed, any payment under the Plan to which the
person is eligible to receive shall be paid to such conservator or other person
legally charged with the care of the person or his or her estate. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Participating Employers and the Plan therefor.
Section 6.3 Designated Beneficiary. In the event of a Participant's
death prior to the payment of all or a portion of any benefits which may be
payable with respect to the Participant under the Plan, payment of any benefits
payable on behalf of the Participant under the Plan shall be made to such
beneficiary as the Participant may designate in such manner as the Committee may
prescribe or approve. If no such beneficiary has been designated, payment shall
be made to the Participant's estate.
ARTICLE VII.
WITHHOLDING
Section 7.1 Withholding. The amounts payable pursuant to the Plan may
be reduced by the amount of any federal, state or local taxes required by law to
be withheld with respect to such payments unless other arrangements satisfactory
to the Company are made for discharging any and all withholding obligations with
respect to the payment of benefits under the Plan.
ARTICLE VIII.
ADMINISTRATION OF THE PLAN
Section 8.1 Administrator. The administrator of the Plan shall be the
Committee, which may delegate authority with respect to the administration of
the Plan to one or more of its members, or to any other person or persons, as it
deems necessary or appropriate for the administration and operation of the Plan.
Section 8.2 Committee. (a) The Committee shall consist of not less
than one nor more than five members who shall be appointed by and serve at the
pleasure of the Board. The Board shall have the right to remove any member of
the Committee at any time. A member of the Committee
8
<PAGE>
may resign at any time by written resignation to the Board. Should a vacancy on
the Committee occur, a successor shall be appointed by the Board, but the
Committee may act notwithstanding the existence of a vacancy so long as there is
at least one member of the Committee.
(b) The Committee shall act unanimously unless the Committee
consists of at least three members, in which event it shall act by or through a
majority of its members. Any decision or determination to be made by the
Committee may be made by the vote taken at a duly called meeting or by unanimous
written consent without a meeting. The Board shall appoint a Chairman and
Secretary of the Committee if it consists of more than one member, but if the
Committee consists of a single member, such member shall act as both Chairman
and Secretary. All acts and determinations of the Committee shall be duly
recorded by the Secretary thereof, or under his or her supervision, and all
records, together with such other documents as may be necessary for
administration of the Plan, shall be preserved in the custody of such Secretary.
The member or members of the Committee shall serve as such without compensation
but shall be reimbursed for all expenses reasonably incurred.
Section 8.3 Authority of Committee. The Committee shall have the
authority, duty and power to interpret and construe the provisions of the Plan
as it deems appropriate, to adopt, establish and revise rules, procedures and
regulations relating to the Plan, to determine the conditions subject to which
any benefits may be payable, to resolve all questions concerning the status and
rights of Participants and others under the Plan, including, but not limited to,
eligibility for benefits, and to make any other determinations which it believes
necessary or advisable for the administration of the Plan. The Committee shall
have the duty and responsibility of maintaining records, making the requisite
calculations and disbursing payments hereunder. The determinations,
interpretations, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned. The Chairman of the Committee
shall be the agent of the Plan for the service of legal process in accordance
with Section 502 of ERISA.
Section 8.4 Operation of Plan and Claims Procedures. The Committee
shall be responsible for the general operation and administration of the Plan
and for carrying out the provisions thereof. The Company shall be responsible
for the expenses incurred in the administration of the Plan. The Committee shall
also be responsible for determining eligibility for payments and the amounts
payable pursuant to the Plan. The Committee shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Committee or the Company with respect to the Plan.
The procedures for filing claims for payments under the Plan are described
below.
(a) It is not necessary for a Participant to file a claim for
benefits to commence receiving his or her benefit. However, a Participant who
believes he or she is entitled to a payment under the Plan may submit a claim
for payments in writing to the Committee. Any claim for payments under the Plan
must be made by the Participant or his or her beneficiary in writing and state
the claimant's name and the nature of benefits payable under the Plan. If for
any reason a claim for payments under the Plan is denied by the Committee, the
Committee shall deliver to the claimant a written explanation setting forth the
specific reasons for the denial, specific references to the pertinent provisions
of the Plan on which the denial is based, a description of any additional
material or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary, and information on
the procedures to be followed by the claimant in obtaining a review of his or
9
<PAGE>
her claim, all written in a manner calculated to be understood by the claimant.
For this purpose:
(i) The claimant's claim shall be deemed to be
filed when presented in writing to the Committee.
(ii) The Committee's explanation shall be in writing
delivered to the claimant within 90 days of the date the claim is filed.
(b) The claimant shall have 60 days following his or her
receipt of the denial of the claim to file with the Committee a written request
for review of the denial. For such review, the claimant or the claimant's
representative may review pertinent documents and submit written issues and
comments.
(c) The Committee shall decide the issue on review and furnish
the claimant with a copy within 60 days of receipt of the claimant's request for
review of the claimant's claim. The decision on review shall be in writing and
shall include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent provisions in the Plan on which the decision is based. If a copy of
the decision is not so furnished to the claimant within such 60 days, the claim
shall be deemed denied on review. In no event may a claimant commence legal
action for benefits the claimant believes are due the claimant until the
claimant has exhausted all of the remedies and procedures afforded the claimant
by this Section 8.4.
Section 8.5 Participant's Address. Each Participant shall keep the
Committee informed of his or her current address and the current address of his
or her beneficiary. The Committee shall not be obligated to search for any
person. If the location of a Participant is not made known to the Committee
within three (3) years after the date on which payment of the Participant's
benefits may be made, payment may be made as though the Participant had died at
the end of the three-year period. If, within one (1) additional year after such
three-year period has elapsed, or, within three (3) years after the actual death
of a Participant, the Committee is unable to locate any designated beneficiary
of the Participant, then the Committee shall have no further obligation to pay
any benefit hereunder to or on behalf of such Participant or designated
beneficiary and such benefits shall be irrevocably forfeited.
Section 8.6 Indemnification. The Company shall, and does hereby agree
to, indemnify and hold harmless the Committee and each member thereof, from all
liability, joint or several, for their acts, omissions, and conduct in the
administration of the Plan except for those acts, omissions, and conduct
resulting from their own willful misconduct or lack of good faith; provided,
however, that if any party would otherwise be entitled to indemnification
hereunder with respect to any liability and such party is insured against losses
resulting from such liability by any insurance contract or contracts, such party
shall be entitled to indemnification hereunder only to the extent that the
amount of such liability exceeds the amount thereof payable under such insurance
contract or contracts.
10
<PAGE>
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.1 No Employment Rights. Neither the Plan nor any action taken
hereunder shall be construed as giving any Participant any right to be retained
in the service or employ of the Company.
Section 9.2 Participants Should Consult Advisors. Neither the Company,
the other Participating Employers, nor their respective directors, officers,
employees or agents makes any representation or warranty with respect to the
state, federal or other tax, financial, estate planning, or the securities or
other legal implications of participation in the Plan. Participants should
consult with their own tax, financial and legal advisors with respect to their
participation in the Plan.
Section 9.3 Unfunded and Unsecured. The Plan shall at all times be
considered entirely unfunded both for tax purposes and for purposes of Title I
of ERISA, and no provision shall at any time be made with respect to segregating
assets of any Participating Employer for payment of any amounts hereunder. The
Plan is intended as an unfunded deferred compensation plan maintained for a
select group of "management or highly compensated employees," as that term is
used in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. Any funds invested
under the Trust shall continue for all purposes to be available to the general
creditors of the Company in the event of a bankruptcy (involvement in a pending
proceeding under the Federal Bankruptcy Code) or insolvency (inability to pay
debts as they mature) of the Company. The Company shall promptly notify the
Trustee and the applicable Participants of such bankruptcy or insolvency of the
Company. No Participant or any other person shall have any interests in any
particular assets of any Participating Employer by reason of the right to
receive a benefit under the Plan and to the extent the Participant or any other
person acquires a right to receive benefits under the Plan, such right shall be
no greater than the right of any general unsecured creditor of any Participating
Employer. The Plan constitutes a mere promise by the Participating Employers to
make payments to the Participants in the future. Nothing contained in the Plan
shall constitute a guaranty by any Participating Employer or any other person or
entity that any funds in any trust, or, except as otherwise provided in Section
12.2, the assets of any Participating Employer will be sufficient to pay any
benefit hereunder. Furthermore, no Participant shall have any right to a benefit
under the Plan except in accordance with the terms of the Plan.
Section 9.4 The Trust. In order to provide assets from which to fulfill
its obligations to the Participants and their beneficiaries under the Plan, the
Company may establish a Trust by a trust agreement with a third party, the
Trustee, to which the Company may, in its discretion, contribute cash or other
property to provide for the benefit payments under the Plan. The Trustee will
have the duty to invest the Trust assets and funds in accordance with the terms
of the Trust. The Company shall be entitled at any time, and from time to time,
in its sole discretion, to substitute assets of at least equal fair market value
for any assets held in the Trust. All rights associated with the assets of the
Trust will be exercised by the Trustee or the person designated by the Trustee,
and will in no event be exercisable by or rest with Participants or their
beneficiaries. The Trust shall provide that in the event of the insolvency of
the Company, the Trustee shall hold the assets for the benefit of the general
creditors of the Company. The Trust shall be based on the model trust contained
in Internal Revenue Service Revenue Procedure 92-64 with such changes and
modifications as may be approved by the Board.
11
<PAGE>
Section 9.5 Plan Provisions. Except when otherwise required by the
context, any singular term shall include the plural.
Section 9.6 Severability; Compliance with Law. If a provision of the
Plan shall be held to be illegal or invalid, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included. The
obligations of the Company under the Plan shall be subject to compliance with
any and all applicable federal, state, and local laws, rules, and regulations.
Section 9.7 Applicable Law. To the extent not preempted by the laws of
the United States, the laws of the State of Alabama, without regarding to
provisions governing conflicts of laws, shall apply with respect to the Plan.
ARTICLE X.
AMENDMENTS
Section 10.1 Amendment of the Plan. The Company reserves the power to
alter, amend or wholly revise the Plan at any time and from time to time by the
action of the Board, and the interest of each Participant is subject to the
powers so reserved; provided, however, that no amendment made subsequent to a
Change in Control shall be effective to the extent that it would have a
materially adverse impact on a Participant's reasonably expected economic
benefit attributable to compensation deferred by the Participant prior to the
Change in Control. An amendment shall be authorized by the Board and shall be
stated in an instrument in writing signed in the name of the Company by a person
or persons authorized by the Board. After the instrument has been so executed,
the Plan shall be deemed to have been amended in the manner therein set forth,
and all parties interested herein shall be bound thereby. No amendment to the
Plan may alter, impair, or reduce the vested benefits credited to any Accounts
prior to the effective date of such amendment without the written consent of any
affected Participant.
ARTICLE XI.
TERM OF PLAN
Section 11.1 Term of the Plan. The Company may at any time terminate
the Plan by action of the Board, with such termination being effective as of the
date that all benefits payable to Participants have been distributed to
Participants in accordance with and subject to the provisions of Article V of
the Plan. Effective as of the date of such Board action (or such later date as
may be specified therein), all Section 3.1 compensation deferral elections will
terminate and no further amounts shall be credited to any Accounts of any
Participant under Section 3.3 (a) after such date. However, the Participants'
Accounts shall continue to be adjusted by the other provisions of Section 3.3
until all benefits are distributed to the Participants or to the Participants'
beneficiaries.
12
<PAGE>
ARTICLE XII.
PARTICIPATING EMPLOYERS
Section 12.1 Eligibility. The Participating Employers that have adopted
the Plan effective as of April 1, 1998 are the Company and Belmont Homes, Inc.
Any other business entity, more than 50% of which is owned directly or
indirectly by the Company, may, with the consent of the Committee, adopt the
Plan by executing and delivering to the Company a written instrument in such
form and containing such provisions as the Committee may prescribe or approve.
Section 12.2 Participation Reimbursements. Each of the Participating
Employers agrees to make payments of the benefits provided under the Plan to its
respective employee Participants. The Company hereby guarantees the performance
by each of the other Participating Employers of its respective obligations under
the Plan. Neither the respective benefit payment obligations of the
Participating Employers nor the Company's guarantee of performance is secured in
any way. Such obligations and guarantee constitute no more than unfunded and
unsecured promises of payment and performance. Each Participating Employer,
other than the Company, shall reimburse the Company for its allocable share of
costs and expenses paid by the Company in connection with the operation and
administration of the Plan and shall reimburse the Company for any benefits paid
by the Company under the Plan to Participants to the extent allocable to such
Participating Employer and its Participants. Payments made to Participants by
the Trust shall constitute payments by the Company and the Company shall be
reimbursed for such payments by the appropriate Participating Employers.
Section 12.3 Recordkeeping and Reporting. Each Participating Employer
shall furnish to the Committee the information with respect to each of its
Participants as may be necessary to enable the Committee to maintain records
sufficient to determine the benefits (and the compensation sources of such
benefits) which may become payable to or with respect to such Participants and
to give those Participants any reports which may be required under the terms of
the Plan or by law.
Section 12.4 Termination of Participation. A Participating Employer,
other than the Company, may withdraw from participation in the Plan at any time
by providing the Company with 30 days advance written notice of such withdrawal
from participation and the effective date of such Participating Employer's
withdrawal, which 30-day notice period may be waived by the Company. In
addition, the Company may terminate a Participating Employer's participation in
the Plan by providing such Participating Employer with 30 days advance written
notice, which 30-day notice period may be waived by the Participating Employer.
A Participating Employer which terminates its participation in the Plan shall
remain obligated under the Plan with respect to deferrals (and matches referable
thereto) made prior to such termination by its Participants, including
subsequent investment performance adjustments, unless otherwise expressly agreed
by the Company with the Company fully assuming such obligations.
13
<PAGE>
IN WITNESS WHEREOF, the Company and Belmont Homes, Inc. as of the date
hereof have caused this Plan to be executed by their respective duly authorized
officers.
CAVALIER HOMES, INC.
By: /s/ MICHAEL R. MURPHY
________________________________________
Its: Vice President
_______________________________________
BELMONT HOMES, INC.
By: /s/ MICHAEL R. MURPHY
________________________________________
Its: Vice President
_______________________________________
14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
This schedule contains summary financial information extracted from the Cavalier
Homes, Inc. Consolidated Condensed Balance Sheets as of June 26, 1998, and the
Consolidated Condensed Statements of Income and Cash Flows for the Thirteen
Weeks ended June 26, 1998 and June 27, 1997, in each case unaudited, and is
qualified in its entirety by reference to such financial statements.
<S> <C> <C>
<PERIOD-TYPE> 6-mos 6-mos
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1997
<PERIOD-END> Jun-26-1998 Jun-27-1997
<CASH> 45456 26616
<SECURITIES> 0 0
<RECEIVABLES> 35254 31788
<ALLOWANCES> 1185 854
<INVENTORY> 34820 32870
<CURRENT-ASSETS> 126849 100769
<PP&E> 75934 66423
<DEPRECIATION> 21331 14826
<TOTAL-ASSETS> 227303 217073
<CURRENT-LIABILITIES> 79984 69369
<BONDS> 0 0
0 0
0 0
<COMMON> 2008 1982
<OTHER-SE> 139903 131744
<TOTAL-LIABILITY-AND-EQUITY> 227303 217073
<SALES> 289739 285701
<TOTAL-REVENUES> 293192 288139
<CGS> 238908 239068
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (469) 234
<INTEREST-EXPENSE> 554 746
<INCOME-PRETAX> 13638 16869
<INCOME-TAX> 5527 6096
<INCOME-CONTINUING> 8111 10773
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8111 10773
<EPS-PRIMARY> 0.41 0.54
<EPS-DILUTED> 0.40 0.54
</TABLE>
