<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14A-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CAVALIER HOMES, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Common Stock, par value $0.10 per share, of Cavalier
Homes, Inc. ("Cavalier Shares")
(2) Aggregate number of securities to which transaction applies:
19,944,670, being the number of Cavalier Shares issued and
outstanding as of March 23, 1998.
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
Not applicable.
(4) Proposed maximum aggregate value of transaction: Not
applicable.
(5) Total fee paid: Not applicable.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
APRIL 10, 1998
Dear Stockholder:
You are cordially invited to join us at our 1998 Annual Meeting of
Stockholders to be held on Wednesday, May 20, 1998, beginning at 10:00 A.M.,
C.D.T., at The Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901 6th Avenue
North, Birmingham, Alabama. At the meeting, we will consider the election of
directors, the selection by the Board of Directors of Deloitte & Touche LLP as
independent public accountants for the Company, and any other business as may
properly come before the Annual Meeting.
Stockholders of the Company who are unable to be present personally at
the Annual Meeting may vote by proxy. The enclosed Notice and Proxy Statement
contain important information concerning the matters to be considered, and we
urge you to review them carefully. You will also find enclosed a copy of the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1997, which we encourage you to read.
It is important that your shares be voted at the meeting. Accordingly,
whether or not you plan to attend the Annual Meeting, please complete, sign,
date and return the enclosed form of proxy promptly so that the Company may be
assured of the presence of a quorum. If you attend the meeting and wish to vote
your shares personally, you may revoke your proxy.
We look forward to seeing you on May 20th.
Sincerely yours,
CAVALIER HOMES, INC.
/s/ Barry B. Donnell
Barry B. Donnell
Chairman of the Board
/s/ David A. Roberson
David A. Roberson
President and Chief Executive Officer
<PAGE> 3
CAVALIER HOMES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
TO THE STOCKHOLDERS OF CAVALIER HOMES, INC.:
The Annual Meeting of Stockholders of Cavalier Homes, Inc., a Delaware
corporation (the "Company"), will be held at The Summit Club, Suite 3100,
AmSouth-Harbert Plaza, 1901 6th Avenue North, Birmingham, Alabama, on Wednesday,
May 20, 1998, at 10:00 A.M., C.D.T., for the following purposes:
(1) To elect nine directors;
(2) To consider the ratification and approval of the appointment
by the Board of Directors of Deloitte & Touche LLP as
independent public accountants for the Company; and
(3) To transact such other business as may properly come before
the meeting.
Details respecting these matters are set forth in the accompanying
Proxy Statement.
Holders of record of the Common Stock of the Company at the close of
business on March 23, 1998, are entitled to notice of and to vote at the Annual
Meeting. A list of the stockholders of the Company who are entitled to vote at
the Annual Meeting will be available for inspection for a period of ten days
prior to the Annual Meeting at 800 Shades Creek Parkway, Birmingham, Alabama,
and at the Annual Meeting, for any purpose germane to the meeting. The meeting
may be adjourned from time to time without notice other than such notice as may
be given at the meeting or any adjournment thereof, and any business for which
notice is hereby given may be transacted at any such adjourned meeting.
You are cordially invited to attend the Annual Meeting of the
Stockholders of your Company, and we hope you will be present at the meeting.
WHETHER YOU PLAN TO ATTEND OR NOT, PLEASE SIGN AND RETURN THE ENCLOSED
FORM OF PROXY SO THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT
THE MEETING. A postage-paid envelope is enclosed for your convenience in
returning your proxy to the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael R. Murphy
Michael R. Murphy
Secretary
Post Office Box 540
Highway 41 North and Cavalier Road
Addison, Alabama 35540
April 10, 1998
<PAGE> 4
CAVALIER HOMES, INC.
POST OFFICE BOX 540
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
The accompanying proxy is solicited on behalf of the Board of Directors
of Cavalier Homes, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders and any adjournments thereof (the "Annual
Meeting") to be held at The Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901
6th Avenue North, Birmingham, Alabama, on Wednesday, May 20, 1998, at 10:00
A.M., C.D.T. This Proxy Statement and the enclosed form of proxy are first being
mailed or given to stockholders on or about April 10, 1998.
GENERAL INFORMATION
OUTSTANDING VOTING SHARES; VOTING PROCEDURES
Holders of record of the Common Stock of the Company outstanding at the
close of business on March 23, 1998, are entitled to notice of, and to vote at,
the Annual Meeting. A total of 19,944,670 shares of Common Stock were
outstanding on such date and will be entitled to vote at the Annual Meeting.
Each holder of shares of Common Stock entitled to vote has the right to one vote
for each share held of record on the record date for each matter to be voted
upon.
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company entitled to vote, consisting of at least
9,972,336 shares, is necessary to constitute a quorum at the Annual Meeting.
Shares of Common Stock represented by a properly executed proxy will be treated
as present at the Annual Meeting for purposes of determining the presence or
absence of a quorum without regard to whether the proxy is marked as casting a
vote for or against or abstaining with respect to a particular matter. In
addition, shares of Common Stock represented by "broker non-votes" will be
treated as present for purposes of determining a quorum. In accordance with the
Amended and Restated Bylaws of the Company, as amended (the "Bylaws"), the nine
nominees receiving the highest vote totals will be elected as directors of the
Company. Accordingly, assuming the presence of a quorum, abstentions and broker
non-votes will not affect the outcome of the election of directors at the Annual
Meeting. The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the Company present in person or represented by proxy
at the Annual Meeting and entitled to vote thereon is required (i) for the
approval and ratification of the selection of the Company's independent
auditors, and (ii) for approval of all other matters. Abstentions and broker
non-votes will be included for purposes of determining whether the requisite
number of affirmative votes have been cast with respect to the ratification of
the selection of the Company's independent auditors and approval of any other
matters coming before the stockholders meeting; and, accordingly, will have the
same effect as a negative vote.
VOTING YOUR PROXY
Proxies, in the form enclosed, properly executed by a stockholder and
returned to the Board of Directors of the Company, with instructions specified
thereon, will be voted at the Annual Meeting in accordance with such
instructions. If no specification is made, a properly executed proxy will be
voted in favor of:
(i) The election to the Board of Directors of the nine nominees
named in this Proxy Statement; and
(ii) The ratification of action taken by the Board of Directors in
selecting Deloitte & Touche LLP as independent public
accountants for the Company.
<PAGE> 5
As of the date of this Proxy Statement, the Board of Directors knows of
no business to be presented for consideration or action at the Annual Meeting
other than the matters stated above. If any other matters properly come before
the meeting, however, it is the intention of the persons named in the enclosed
form of proxy to vote in accordance with their best judgment on such matters.
A stockholder may revoke a proxy by notice in writing delivered to the
Secretary of the Company, Michael R. Murphy, at any time before it is exercised.
A proxy may also be revoked by attending the Annual Meeting and voting in
person. The presence of a stockholder at the Annual Meeting will not
automatically revoke a proxy previously given to the Company.
COSTS OF SOLICITATION
The cost of soliciting proxies, including the preparation, printing and
mailing of this Proxy Statement, will be borne by the Company. The Company may
reimburse investment bankers, brokers and other nominees for their expenses
incurred in obtaining voting instructions from beneficial owners of Common Stock
held of record by such investment bankers, brokers and other nominees; however,
the Company has not entered into any written contract or arrangement for such
repayment of expenses. In addition to the use of mails, proxies may be solicited
by personal interview, telephone or facsimile machine by the directors, officers
and employees of the Company, without additional compensation.
ELECTION OF DIRECTORS
The Bylaws of the Company provide for a Board of Directors of not fewer
than one nor more than ten members, the exact number to be determined by
resolution of the Board of Directors or the stockholders. The present Board of
Directors has fixed the number of directors at nine members and proposes the
election of the nine persons listed below, each of whom has consented to being
named and to serving in such capacity as directors until the next Annual Meeting
of Stockholders and until their successors are duly elected and shall have
qualified. Unless otherwise directed, it is intended that shares of Common Stock
represented by all proxies received by the Board of Directors will be voted in
favor of the nominees listed below. Should any such nominee become unable or
decline to accept election, which is not anticipated, it is intended that such
shares of Common Stock will be voted for the election of such person or persons
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
NOMINEES SET FORTH BELOW.
The following table sets forth certain information concerning each
nominee, each of whom is currently serving as a director:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
- ---- --- -------------------- --------------
<S> <C> <C> <C>
Thomas A. Broughton, III 42 President of First Commercial 1986
Bank (a state banking corporation)
Barry B. Donnell 58 Chairman of the Board 1986
of the Company
Lee Roy Jordan 56 President of Lee Roy Jordan 1993
Redwood Lumber Company
(lumber supply business) and
Southern Valve Services, Inc.
(remanufacturer and installer
of industrial valves)
A. Douglas Jumper, Sr. 66 President of S & J Steel Builders, Inc. 1997
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Mike Kennedy 38 Senior Vice President of 1997
Administration of
Belmont Homes, Inc.
John W Lowe 56 Partner, Lowe, Mobley 1984
& Lowe (law firm)
Gerald W. Moore 65 Certified Public Accountant 1996
Michael R. Murphy 52 Vice President, Chief Financial 1997
Officer and Secretary-Treasurer
of the Company
David A. Roberson 41 President and Chief Executive 1996
Officer of the Company
</TABLE>
Messrs. Jumper and Kennedy became members of the Board of Directors
effective upon the merger involving Belmont Homes, Inc. ("Belmont"), pursuant to
which Belmont became a wholly owned subsidiary of the Company as of December 31,
1997. The Estate of Mr. Kennedy's father, Jerold Kennedy (former President and
Chief Executive Officer of Belmont), an Alabama corporation that originally
owned the initial Belmont manufacturing facility ("BHIA"), certain other
corporate entities (the "Other Corporations"), and certain other individual
officers, employees, agents and directors of BHIA, Belmont and the Other
Corporations, have been sued in the Circuit Court of Madison County, Alabama
(Case Number CV 97-2297) by three individuals who state that they formerly owned
a majority of the stock of BHIA, alleging breach of fiduciary duties,
misrepresentation, deceit, suppression and civil conspiracy in connection with
the sale of their stock in BHIA in February 1989. In addition to certain other
allegations, these plaintiffs claim that Jerold Kennedy, along with others who
allegedly conspired with him, misrepresented and omitted certain facts to them
regarding his attempts to hire a production manager, that Belmont later hired
the production manager, and that the plaintiffs would not have sold their stock
in BHIA in the absence of these alleged misrepresentations and omissions. The
plaintiffs request in their complaint an unspecified amount of compensatory and
punitive damages and/or equitable relief, including a constructive trust, and
have also filed a separate claim against the Estate of Jerold Kennedy in the
Probate Court of Franklin County, Alabama (Case Number 97-051), alleging
essentially the same facts and seeking substantial compensatory damages and
punitive damages and a constructive trust over the stock held in the estate. For
further information regarding these proceedings, see the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, under the heading "Legal
Proceedings."
Each nominee for the Board of Directors listed above has occupied the
position indicated for at least the last five years, with the exception of
Messrs. Kennedy, Murphy and Roberson. Mr. Kennedy was a sales representative for
Fabwell, Inc., a metal fabricating company, from March 1990 until October 1993.
Since October 1993, Mr. Kennedy has served Belmont in various capacities,
including as Acting Senior Vice President of Administration from March 31, 1997
to September 5, 1997, and as Senior Vice President of Administration of Belmont
from September 5, 1997 to present. Mr. Kennedy served as a director of Belmont
from July 31, 1997 to December 31, 1997. Mr. Jumper served as Chairman of the
Board of Directors of Belmont from 1993 to December 31, 1997. Mr. Jumper is also
a director of BancorpSouth, Inc., a bank holding company headquartered in
Tupelo, Mississippi, and River Oaks Furniture, Inc., a furniture manufacturer
headquartered in Belden, Mississippi. Mr. Murphy was Controller of Peerless
Coatings, Inc. for the five years prior to his joining the Company in June 1995
as Corporate Controller. Mr. Murphy served in that capacity until his
appointment as the Company's Chief Financial Officer and Secretary-Treasurer in
October 1996. Mr. Roberson served as the Company's Chief Financial Officer and
Secretary-Treasurer prior to becoming President and Chief Executive Officer in
October 1996.
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
During 1997, the Board of Directors of the Company held four regular
and two special meetings and two meetings in which the directors participated by
conference telephone. Each director attended at least 75% of the aggregate of
the number of meetings of the Board of Directors and the number of meetings of
all committees on which he served held in 1997.
3
<PAGE> 7
The Company currently pays each nonemployee director $2,500, and each
director who is employed by the Company $1,250, for each regular Board meeting
at which he is in attendance. Each director who participates in a telephone
conference Board meeting receives $250 per meeting. Directors who are members of
committees also receive $750 for attendance for each committee meeting held on a
date when no Board meeting is held and $250 for each committee meeting held by
conference telephone. Directors are also reimbursed for travel and out-of-pocket
expenses incurred in connection with attending Board and committee meetings.
Pursuant to the Company's 1993 Amended and Restated Nonemployee
Directors Stock Option Plan (the "Nonemployee Directors Plan"), options to
purchase 20,000 shares of Common Stock are granted to each nonemployee director
upon first being elected to the Board of Directors. In addition to such initial
grants, annually on January 15, each nonemployee director who has served as a
director of the Company during the calendar year immediately preceding such date
receives an option to purchase 5,000 shares of Common Stock; provided, however,
that no director of the Company may be granted options to purchase more than
125,000 shares of stock under the Nonemployee Directors Plan. In January 1998,
the Board of Directors amended the Nonemployee Directors Plan to provide that
the annual grant in subsequent years would be made as of the second business day
in January rather than as of January 15. All such options are granted at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Options granted under the Nonemployee Directors Plan generally have a
term of ten years, and are exercisable at any time beginning six months after
the date of grant; provided, however, that no option is exercisable unless at
all times during the period from the date of grant and ending twelve months
before the date of exercise, the optionee was a director of the Company.
The Board of Directors has two standing committees: the Compensation
Committee and the Audit Committee. The Compensation Committee, which held seven
meetings during 1997, is currently composed of Thomas A. Broughton, III, Lee Roy
Jordan, John W Lowe and Gerald W. Moore. The Compensation Committee administers
the Company's stock option plans (other than the Nonemployee Directors Plan) and
sets the compensation of the executive officers of the Company. In certain
instances when the Compensation Committee needs to take actions that are
designed to meet exemptions provided for stock awards under Section 16(b) and
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or to permit the deductibility by the Company of executive compensation
in excess of $1,000,000 under Section 162(m) of the Internal Revenue Code of
1986, as amended, and all members of the Compensation Committee do not meet the
definition of "Non-employee Directors" or "Outside Directors" under Rule 16b-3
and Section 162(m), respectively, these actions may be taken by separate
committees or sub-committees of the Board of Directors or the Compensation
Committee or may otherwise be structured to meet the requirements of these
rules. During 1997, Messrs. Jordan and Moore functioned as the Non-employee
Director Sub-committee for purposes of Rule 16b-3 and held one meeting. Messrs.
Jordan and Broughton functioned as the Outside Directors Sub-committee for
purposes of Section 162(m) and held one meeting. These directors received no
additional compensation for serving in these capacities.
The Audit Committee held two meetings during 1997. The Audit Committee
is currently composed of Thomas A. Broughton, III, Lee Roy Jordan, John W Lowe
and Gerald W. Moore. The Audit Committee, among other things, recommends the
selection each year of the Company's independent public accountants, reviews and
evaluates the Company's financial statements for reliability and
informativeness, reviews the external and internal audit procedures, scope and
controls practiced by the Company's independent public accountants and its
internal accounting personnel, and evaluates the services performed and fees
charged by the Company's independent public accountants to determine, among
other things, that the non-audit services performed by such auditors do not
compromise their independence.
4
<PAGE> 8
RATIFICATION AND APPROVAL OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has unanimously selected, subject
to ratification by the stockholders, the accounting firm of Deloitte & Touche
LLP as the independent public accountants for the Company for fiscal year 1998.
Deloitte & Touche LLP has served as the Company's auditors since 1984.
Ratification of the selection of auditors is being submitted to the stockholders
of the Company because the Board of Directors believes it is an important
corporate decision in which stockholders should participate. If the stockholders
do not ratify the selection of Deloitte & Touche LLP or if Deloitte & Touche LLP
shall decline to act, resign or otherwise become incapable of acting, or if its
engagement is otherwise discontinued, the Board of Directors will select other
auditors for the period remaining until the 1999 Annual Meeting of Stockholders
when engagement of auditors is expected to again be subject to ratification by
the stockholders at such meeting.
Representatives of Deloitte & Touche LLP will be in attendance at the
Annual Meeting and will be provided an opportunity to address the meeting and to
respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION AND APPROVAL OF DELOITTE & TOUCHE LLP.
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of the Company, who are elected annually by the Board of
Directors:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
David A. Roberson 41 President and Chief Executive Officer
Barry B. Donnell 58 Chairman of the Board
Michael R. Murphy 52 Vice President, Chief Financial Officer
and Secretary-Treasurer
</TABLE>
Messrs. Roberson's, Donnell's and Murphy's business experience is set
forth above under the heading "Election of Directors."
5
<PAGE> 9
OWNERSHIP OF EQUITY SECURITIES
Set forth below is information as of March 23, 1998, with respect to
the beneficial ownership of the Common Stock of the Company by (a) each of the
directors of the Company (which directors also constitute the nominees for
election as directors at the Annual Meeting), (b) the Company's President and
Chief Executive Officer and the two other executive officers of the Company
during the fiscal year ended December 31, 1997, and (c) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
---------------- -------------------- -----------------
<S> <C> <C>
Thomas A. Broughton, III 143,224(2) *%
Barry B. Donnell 828,595(3) 4.1%
Lee Roy Jordan 53,514(4) *%
A. Douglas Jumper, Sr 518,749(5) 2.6%
Mike Kennedy 28,600(6) *%
John W Lowe 175,001(7) *%
Gerald W. Moore 23,500(8) *%
Michael R. Murphy 63,956(9) *%
David A. Roberson 173,550(10) *%
Directors and Executive Officers
as a Group (nine persons) 2,008,689(11) 9.8%
</TABLE>
The following entity has reported ownership in the Company at a level of
greater than 5%, according to statements on Form 13G as filed by such entity
with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
<S> <C> <C>
Thomson Horstmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663 1,517,451(12) 7.6%
</TABLE>
- ------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.
(1) Beneficial ownership in the foregoing table is based upon
information furnished by the persons listed. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of March 23, 1998, that such person or group has the right to acquire
within sixty days after such date, or with respect to which such person
otherwise has or shares voting or investment power. For purposes of computing
beneficial ownership and the percentages of outstanding shares held by each
person or group of persons on a given date, shares which such person or group
has the right to acquire within sixty days after such date are shares for which
such person has beneficial ownership and are deemed to be outstanding for
purposes of computing the percentage for such person, but are not deemed to be
outstanding for the purpose of computing the percentage of any other person.
Except as otherwise indicated in these notes to the foregoing table, the
beneficial owners named in the table have sole voting and investment power with
respect to the shares of Common Stock reflected.
6
<PAGE> 10
(2)Includes 16,477 shares beneficially owned in an Individual
Retirement Account and 80,857 shares issuable pursuant to stock options
presently exercisable as of March 23, 1998, or within 60 days thereafter.
(3)Includes 250,000 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter, 15,000 shares
held by the Donnell Foundation, of which Mr. Donnell is co-trustee, and 80
shares held by T&C Investments Club, in which Mr. Donnell is a member.
(4)Includes 53,514 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(5)Includes 400 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(6)Includes 9,600 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(7)Includes 46,484 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(8)Includes 22,250 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(9)Includes 62,500 shares issuable pursuant to stock options presently
exercisable as of March 23, 1998, or within 60 days thereafter.
(10)Includes 4,218 shares beneficially owned in an Individual
Retirement Account and 7,876 shares owned by the minor children of Mr. Roberson.
Includes 125,000 shares issuable pursuant to stock options presently exercisable
as of March 23, 1998, or within 60 days thereafter.
(11)See notes 1-10 above.
(12)As of March 30, 1998, Thomson Horstmann & Bryant, Inc., a
registered investment advisor, reported having sole voting power of 967,359 of
such shares, shared voting power of 28,103 of such shares and sole dispositive
power of all 1,517,451 of such shares.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following tables, graphs and other information provide details
concerning executive compensation.
PERFORMANCE GRAPH
The following indexed graph compares the yearly percentage change in
the Company's cumulative total stockholder return on its Common Stock with the
cumulative total return of (i) the Standard and Poor's 500 Stock Index and (ii)
a group of public companies, each of which is engaged in the business of
designing, producing and selling manufactured homes. The industry group
companies included in the index are Champion Enterprises, Inc., Clayton Homes,
Inc., Fleetwood Enterprises, Inc., Kit Manufacturing Company, Liberty Homes,
Inc., Nobility Homes, Inc., Oakwood Homes Corporation, Schult Homes Corporation
and Skyline Corporation.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cavalier Homes, Inc. 100.00 134.63 96.59 232.62 243.38 208.88
S & P 500 100.00 110.08 111.53 153.45 188.68 251.63
Peer Group 100.00 112.38 98.48 155.36 157.29 210.01
</TABLE>
8
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
GENERAL. The Compensation Committee of the Board of Directors currently
consists of four directors, Thomas A. Broughton, III, Lee Roy Jordan, John W
Lowe and Gerald W. Moore. The Compensation Committee is responsible for
establishing the base salary and annual bonus of the Company's executive
officers. The Compensation Committee also administers the terms, conditions and
policies of, and the benefits granted under, the Company's 1988 Nonqualified
Stock Option Plan, the 1986 Long Term Incentive Compensation Plan, the 1993
Amended and Restated Nonqualified Stock Option Plan, the Employee Stock Purchase
Plan (the "ESPP"), the 1996 Key Employee Incentive Stock Option Plan (the "1996
Plan") and the Executive Incentive Compensation Plan (the "EICP"). The
Compensation Committee is also responsible for administering options granted
under the Belmont Homes, Inc. 1994 Incentive Stock Plan that were converted in
the merger involving Belmont into options to purchase shares of the Company's
Common Stock.
COMPENSATION POLICIES. The Compensation Committee believes that the
most effective executive compensation program is one which provides incentives
to achieve both increased current profitability and longer term stockholder
value. In this regard, the Compensation Committee believes executive
compensation should be comprised of a reasonable annual base salary and an
annual cash bonus program that rewards the executive officers in a manner
directly related to the annual profitability of the Company. The Compensation
Committee further believes that annual base salary and bonus arrangements should
be supplemented with equity-based programs, pursuant to which the Company
affords the ownership and retention of the Company's Common Stock by its
executive officers and other key employees. The Compensation Committee endorses
the proposition that equity ownership by management is beneficial because it
aligns management's and stockholders' interest in the enhancement of stockholder
value. In general, considering the cyclical nature of the manufactured housing
industry and the Company's business, the philosophy of the Compensation
Committee has been to design a compensation system comprised of a cash component
that is conservative when the Company's operations are marginal and rewarding
when its operations are good, and an equity component that provides the
executive officers with a strong incentive to manage the Company's operations
with a view towards maintaining and increasing stockholder value. The
Compensation Committee feels that the combination of these programs helps to
assure that the Company's executive officers and other key employees have a
meaningful stake in the Company, its value, and its long-term and short-term
performance.
The Compensation Committee determines base salary, bonus and other
components of executive compensation upon the basis of corporate performance,
judged by revenues, earnings, stock trading prices, and strategies, and on the
basis of the Compensation Committee's subjective perception of a particular
executive's performance and worth to the Company, the Company's past
compensation practices and a comparison of the Company's executive compensation
with the compensation paid by other companies in the same industry (which
generally are the companies included in the industry group included in the index
for the performance graph set forth above) and, to a lesser extent, a random
selection of other companies. In making executive compensation decisions, the
Compensation Committee considers the views of Mr. Roberson and Mr. Donnell and
information provided by them. The Compensation Committee has established target
levels of incentive net income as defined under the EICP to be used in judging
corporate performance for purposes of its annual bonus arrangements.
Generally, base salaries for executive officers have been fixed at
levels which are comparable to the base salaries for persons in similar
positions in other companies in the manufactured housing industry. Bonuses are
payable under the EICP based on performance in comparison to targets previously
set by the Compensation Committee. Stock options are the component of executive
compensation that is designed to motivate executives to improve the long-term
performance of the Company and the Common Stock in the market, to encourage the
Company's executives to achieve superior results over the longer term and to
align executive officers' and stockholders' interests. The Compensation
Committee's decisions respecting stock option grants generally are made using
the same criteria discussed above, and take into consideration the number of
unexercised options held by the executive officers, exercise prices and market
prices of the Company's Common Stock.
In late 1997 and early 1998, the Compensation Committee, with the
assistance of an executive compensation consultant, undertook a review of its
execution compensation policies and implemented certain changes that will take
effect in 1998. The Compensation Committee decided to raise the base salaries of
its executive officers, but to lower significantly the amount of cash bonuses
that could be earned by the executives under the EICP and to revise the formula
for earning bonuses under the EICP in a manner that is designed to increase the
risk to
9
<PAGE> 13
the executives in earning the bonus payments. In addition, the Compensation
Committee implemented the long-term incentive feature provided for under the
EICP. The Compensation Committee believes these changes are beneficial because
they are designed to lower the cash component of executive compensation, to
enhance the executive's incentive by increasing the risk associated with the
non-salary component of cash compensation, and to increase the executive's focus
on the Company's long-term performance.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Roberson's compensation for
1997 was established according to the policies, bases and relationships to
corporate performance that are discussed above as being applicable to the
Company's executive officers generally. Mr. Roberson's base salary of $200,000
per annum was fixed in 1997. In addition, Mr. Roberson earned an annual
incentive bonus in accordance with the provisions of the EICP and was granted an
option to purchase 62,500 shares of the Company's Common Stock at its then fair
market value (in addition to the repricing of another option as further
described below).
STOCK OPTION REPRICINGS. In January 1997, the Compensation Committee
effected a repricing of certain options granted in 1996 to Mr. Roberson and Mr.
Murphy under the Company's 1996 Plan. During the latter part of 1996, many of
the stocks of publicly traded companies in the Company's industry had
experienced significant declines in market value, which declines also affected
the Company's stock, notwithstanding record financial performance by the
Company. The Company's stock price may also have been adversely affected by the
death of the Company's President and Chief Executive Officer, Mr. Jerry F.
Wilson, in October of 1996. The Compensation Committee believed, in light of the
death of Mr. Wilson, that management of the Company was facing new challenges
during the transition period, that Mr. Roberson and Mr. Murphy in particular
would be taking on substantial new duties, and that it was in the best interest
of the Company and its stockholders that the key employees of the Company,
including Mr. Roberson and Mr. Murphy, be properly compensated and highly
incentivized during this period. The Compensation Committee was concerned that
the decline in the Company's stock price was substantial and that the
outstanding stock options held by key employees of the Company did not further
these goals, particularly in light of the Company's recent performance and the
performance of management. The Compensation Committee also took into account
that the aggregate cash compensation to the Company's executive officers was
expected to be less in 1997 as compared to 1996, primarily because of a change
in certain factors used in calculating the available pool for bonuses payable
under the EICP following the death of Mr. Wilson. In light of all these factors,
the Compensation Committee believed that canceling these outstanding options and
granting replacement options at the current fair market value would help restore
the compensation and incentive purposes of the options. In January 1998, the
Company's Board of Directors adopted a policy that, in the event of any
cancellation and repricing of options under the Company's 1996 Plan, the
Company's Board of Directors will use all reasonable efforts to insure that the
committee administering the Company's 1996 Plan requires that such cancellation
and repricing be approved or ratified by the stockholders of the Company. See
"Information Concerning Stock Options-Option Grants in Last Fiscal Year" and
"Summary of Options Granted and Repriced During the Last Fiscal Year" below.
Members of the Compensation Committee: Thomas A. Broughton, III, Chairman
Lee Roy Jordan
John W Lowe
Gerald W. Moore
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth information
concerning compensation for services in all capacities, including cash and
non-cash compensation, awarded to, earned by or paid to the Company's Chief
Executive Officer and the other executive officers of the Company in each of the
last three fiscal years, unless otherwise noted.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
David A. Roberson.......................... 1997 $200,000(1) $486,482 125,000(3, 4) $ 9,688(6)
President and Chief Executive Officer 1996 $180,000 $623,060 62,500 $ 3,438
1995 $ 67,500 $336,404 None $ 1,688
Barry B. Donnell........................... 1997 $200,000 $486,482 125,000(3) $ 9,862(6)
Chairman of the Board 1996 $200,000 $855,417 125,000 $ 9,084
1995 $ 84,000 $672,806 None $ 8,571
Michael R. Murphy.......................... 1997 $120,000(2) $114,356 62,500(3, 5) $ 8,438(6)
Vice President, Chief Financial 1996 $ 60,000 $ 19,750 12,500 $ 787
Officer and Secretary-Treasurer 1995 -- -- None --
</TABLE>
(1) Includes $21,250 that Mr. Roberson directed the Company to withhold
and use to purchase 2,500 shares of the Company's Common Stock at a weighted
average price of $8.50 per share pursuant to the terms of the ESPP.
(2) Includes $11,440 that Mr. Murphy directed the Company to withhold
and use to purchase 1,365 shares of the Company's Common Stock at a weighted
average price of $8.38 per share pursuant to the terms of the ESPP.
(3) Options granted to executive officers during 1997 were granted
pursuant to the 1996 Plan.
(4) Includes shares of Common Stock underlying an option to purchase
62,500 shares granted on January 17, 1997, which option replaced an option to
purchase 62,500 shares originally granted on May 15, 1996.
(5) Includes shares of Common Stock underlying an option to purchase
12,500 shares granted on January 17, 1997, which option replaced an option to
purchase 12,500 shares originally granted on July 25, 1996.
(6) Includes the following for 1997: (i) matching contributions made by
the Company to its 401(k) plan during 1997 on behalf of each executive officer
as follows: Messrs. Roberson, Donnell and Murphy in the amount of $1,688; (ii)
directors' fees paid by the Company in 1997 to Mr. Roberson in the amount of
$8,000, to Mr. Donnell in the amount of $8,000, and to Mr. Murphy in the amount
of $6,750; and (iii) amounts paid in connection with certain split dollar
agreements between Mr. Donnell, certain associates of Mr. Donnell, and the
Company, which provide for the Company to be reimbursed for premiums paid for
life insurance, less the amounts attributable to term insurance, upon the
earlier of the cancellation of the policy or when the death benefits are paid.
The amount reflected in the column includes the portion of the premium payment
that is attributable to term insurance coverage for Mr. Donnell, which is $174,
as determined by tables supplied by the Internal Revenue Service.
11
<PAGE> 15
INFORMATION CONCERNING STOCK OPTIONS
1997 STOCK OPTION GRANTS
During 1997, the Company granted options to purchase 312,500 shares of
its Common Stock to its executive officers, of which options to purchase 75,000
shares resulted from the repricing of options previously granted, as summarized
in the following tables. For a discussion of the repricing of options, see
"Report of the Compensation Committee -- Stock Option Repricings."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENTAGE OF POTENTIAL REALIZABLE VALUE
NUMBER TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
OF SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE PRICE FOR OPTION TERM*
OPTIONS IN FISCAL PER SHARE EXPIRATION ----------------------------
NAME GRANTED YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------- -------------- ------------- -------------- ---------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
David A. Roberson 125,000(1) 14.6% 10.625 January 17, 2007 835,251 2,116,689
Barry B. Donnell 125,000 14.6% 10.625 January 17, 2007 835,251 2,116,689
Michael R. Murphy 62,500(2) 7.3% 10.625 January 17, 2007 417,625 1,058,345
</TABLE>
* The dollar gains under these columns result from calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission and are not intended to forecast future price appreciation of the
Company's Common Stock. The gains reflect future value based upon growth at
these prescribed rates. Stock options have value to recipients, including the
listed executives, only if the market price of the Company's Common Stock
increases above the option exercise price reflected in the table during the
period the option remains exercisable.
(1) Includes shares of Common Stock underlying an option to purchase
62,500 shares granted on January 17, 1997, which option replaced an option to
purchase 62,500 shares originally granted on May 15, 1996.
(2) Includes shares of Common Stock underlying an option to purchase
12,500 shares granted on January 17, 1997, which option replaced an option to
purchase 12,500 shares originally granted on July 25, 1996.
SUMMARY OF OPTIONS GRANTED AND REPRICED
DURING THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
NUMBER OF MARKET PRICE OF EXERCISE PRICE NEW REMAINING
DATE OF OPTIONS STOCK AT TIME OF AT THE TIME EXERCISE AT DATE OF
NAME ADJUSTMENT REPRICED REPRICING ($) OF REPRICING ($) PRICE ($)
---- ---------------- -------- --------------- ---------------- ---------------- -------------
REPRICING
---------
<S> <C> <C> <C> <C> <C> <C>
David A. Roberson January 17, 1997 62,500 10.625 16.600 10.625 9 years and
4 months
Michael R. Murphy January 17, 1997 12,500 10.625 13.600 10.625 9 years and
6 months
</TABLE>
12
<PAGE> 16
In addition to the above, the Company has repriced options to
the following executive officers during the last ten years as summarized by the
following table:
SUMMARY OF OPTION REPRICINGS FOR THE PAST TEN YEARS1
<TABLE>
<CAPTION>
LENGTH OF
NUMBER ORIGINAL
OF SECURITIES MARKET OPTION TERM
UNDERLYING PRICE OF EXERCISE PRICE NEW REMAINING
DATE OF OPTIONS STOCK AT TIME AT TIME EXERCISE AT DATE OF
NAME ADJUSTMENT REPRICED OF REPRICING ($) OF REPRICING ($) PRICE ($) REPRICING
---- ---------- ------------- ---------------- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
David A. Roberson November 26, 1990 73,242 0.682 1.246 0.682 7 Years and
5 Months
Jerry F. Wilson July 25, 1996 125,000 13.600 16.600 13.600 9 Years and
Former President and 10 Months
Chief Executive Officer
(Deceased)
November 26, 1990 73,242 0.682 1.331 0.682 7 Years and
5 Months
Barry B. Donnell November 26, 1990 54,932 0.682 1.331 0.682 7 Years and
5 Months
Michael R. Murphy July 25, 1996 12,500 13.600 16.600 13.600 9 Years and
10 Months
</TABLE>
- --------------
(1) The share and exercise price numbers have been retroactively
adjusted to reflect all stock splits of the Company's Common Stock that have
been effected since 1990.
During 1997, no options to purchase shares of Common Stock were
exercised by the named executive officers. Stock options to purchase 312,500
shares were granted to these persons during 1997, and an aggregate of 437,500
shares were subject to stock options that were unexercised at the end of the
year. The following table summarizes the foregoing:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE1
- ---- --------------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
David A. Roberson............... -- $ -- 125,000/0 $ 0 / $ 0
Barry B. Donnell................ -- $ -- 250,000/0 $ 0 / $ 0
Michael R. Murphy............... -- $ -- 62,500/0 $ 0 / $ 0
</TABLE>
(1) A fair market value of $9.75 per share is used to calculate the
value of unexercised options, which is based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on December 31, 1997, the
final trading day of 1997. The actual value, if any, a person may realize as a
result of an option will depend on the excess of the stock price over the
exercise price on the date the option is exercised.
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The following directors of the Company currently serve as members of
the Compensation Committee: Thomas A. Broughton, III, Lee Roy Jordan, John W
Lowe and Gerald W. Moore.
Mr. Lowe is a partner in the law firm of Lowe, Mobley & Lowe, which
rendered legal services to the Company and its subsidiaries during 1997 and
which the Company expects to continue to render legal services during 1998. Mr.
Lowe also has an ownership interest in certain entities that lease certain
facilities to the Company, as described below. During 1997, the Company and its
subsidiaries paid Lowe, Mobley & Lowe legal fees in the aggregate amount of
$147,460.
Cavalier Homes of Alabama ("Cavalier - Alabama"), a division of one of
the Company's subsidiaries, leases a manufacturing facility, office premises and
certain equipment from a partnership, the partners of which include the estate
of the former President and Chief Executive Officer of the Company, Jerry F.
Wilson, and John W Lowe, each of whom owns a one-third interest in such
partnership. Mr. Lowe beneficially owns 175,001 shares (less than 1%) of the
Common Stock of the Company. The lease was entered into in September 1984, and,
after renewals, had an expiration date in August 1996. In 1996, Cavalier
renegotiated the lease for a two-year term which expires in July 1998 and may be
renewed for an additional three years at the option of Cavalier - Alabama.
During 1997, Cavalier - Alabama made rental payments to such partnership in the
aggregate amount of $180,000 and expects to make rental payments during 1998 in
the aggregate amount of $198,000. Cavalier - Alabama has the option to purchase
the leased property at any time during the term of the lease for $1,900,000. In
August, 1997, Cavalier - Alabama purchased ten acres of the land subject to this
lease for $200,000, and an additional adjacent parcel that was also owned by
this partnership for $10,000. The Company believes that the payments made under
the previous lease terms, the payments to be made under the renegotiated lease
terms and the price paid for the property purchased from this partnership are
reasonable compared to amounts that would be paid to an unaffiliated entity for
similar properties.
Cavalier - Alabama leases another manufacturing facility from a
partnership, the partners of which include David A. Roberson, who owns a 10%
interest in such partnership, and Jonathan B. Lowe and Michael P. Lowe, each of
whom owns a 5% interest in such partnership and each of whom is a son of John W
Lowe. The above-referenced partners of such partnership beneficially own, in the
aggregate, 177,500 shares (less than 1%) of the outstanding Common Stock of the
Company, not including the shares of Common Stock beneficially owned by John W
Lowe. The lease, which was entered into effective in May 1993, expired in May
1997, at which time the lease automatically renewed for an additional four
years. The lease provides for a base rent of $264,000 per year plus additional
amounts that are based on certain market interest rates. During 1997, Cavalier
- -Alabama made rental payments to such partnership in the aggregate amount of
$264,000 and expects to make rental payments in 1998 in the aggregate amount of
$264,000. Cavalier - Alabama has the option to purchase the leased property at
any time during the term of the lease for $1,500,000. The Company believes that
the payments made and to be made under the lease are reasonable compared to
amounts that would be paid to an unaffiliated entity for similar property.
Quality Housing Supply, LLC ("Quality"), a wholly owned subsidiary of
the Company, leases a manufacturing facility from a corporation whose
shareholders include Mike Kennedy, Jonathan B. Lowe and Michael P. Lowe, each of
whom owns 10% of the outstanding common stock of such corporation. These
individuals beneficially own, in the aggregate, 32,600 shares (less than 1%) of
the outstanding Common Stock of the Company. The lease expires in July, 2004 and
provides for rental payments to be made by Quality in the amount of $150,000 per
year until July, 2000, at which time annual rental payments will be increased to
$180,000 per year. Quality made rental payments under the lease in the amount of
$150,000 in 1997 and expects to make rental payments in the amount of $150,000
in 1998. The lease further provides that Quality has the option to purchase the
leased property at any time during the term of the lease. If Quality exercises
this right prior to July 1, 2000, the purchase price will be $1,125,000. This
purchase price is subject to adjustment based on changes in the consumer price
index if such purchase is made on July 1, 2000 or thereafter. The Company
believes that the payments made and to be made under the lease are reasonable
compared to amounts that would be paid to an unaffiliated entity for similar
property.
Quality also leases a warehouse from a corporation in which John W Lowe
owns a 25% interest. This lease expires in April, 1999, but may be renewed for
an additional five years at the option of Quality. The lease provides for rental
payments to be made by Quality in the amount of $72,000 per year during the
initial lease term. If Quality
14
<PAGE> 18
exercises its right to renew this lease, the rent payable under the lease will
be adjusted based on the consumer price index, but in no event will the annual
rent be less than $90,000. Quality made rental payments under the lease in the
amount of $72,000 in 1997 and expects to make rental payments in the amount of
$72,000 in 1998. The lease further provides that Quality has the option to
purchase the leased property for $850,000 if such purchase is made during the
initial lease term. If such purchase occurs following the initial lease term,
the $850,000 purchase price is subject to adjustment based on changes in the
consumer price index. The Company believes that the payments made and to be made
under the lease are reasonable compared to amounts that would be paid to an
unaffiliated entity for similar property.
In March 1996, the Company entered into a $23 million revolving,
warehouse and term loan agreement (the "Credit Facility") with First Commercial
Bank which amended the previous Credit Facility entered into in February 1994.
The Credit Facility contains a revolving line of credit which provides for
borrowings (including letters of credit) of up to 80% and 50% of the Company's
eligible (as defined) accounts receivable and inventories, respectively, up to a
maximum of $5 million. Interest is payable under the revolving line of credit at
the bank's prime rate. 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 $18 million.
Interest on term notes is fixed for a period of five years from issuance at a
rate based on the weekly average yield on five-year treasury securities averaged
over the preceding 13 weeks, plus 2%, and floats for the remaining two years at
a rate (subject to certain limits) equal to the bank's prime rate plus .75%. The
warehouse component of the Credit Facility provides for borrowings of up to $2
million with interest payable at the bank's prime rate plus 1%. Amounts
outstanding under the Credit Facility are secured by accounts receivable and
inventory, loans purchased and originated by Cavalier Acceptance Corporation, a
subsidiary of the Company, and the capital stock of certain Company
subsidiaries. Under the Credit Facility, $12.8 million was outstanding at
December 31, 1997. During 1997, the Company made payments to First Commercial
Bank in the amounts of $712,375 for interest and $70,286 for letter of credit
and placement fees arising from industrial bond financing involving Cavalier
- -Alabama and Buccaneer Homes, both divisions of one of the Company's
manufacturing subsidiaries. The Company has received a commitment from First
Commercial Bank for a two-year renewal amendment to the Credit Facility, which
currently expires in April 1998, providing for borrowings of up to $35 million.
The renewal provides for a revolving line of credit with a maximum of $10
million (an increase from $5 million) and a warehouse line of $35 million (an
increase from $18 million) which includes a fixed rate term-loan feature. The
renewal commitment also provides for interest payable under both the revolving
and warehouse lines of credit, at the Company's option, of either the bank's
prime rate or 90 Day LIBOR plus 2.5%, while 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 thirteen
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 Company does not
expect a material change to the restrictive and financial covenants included in
the Credit Facility. Mr. Broughton, a director of the Company, is the President
of First Commercial Bank. The Company believes that the terms of the Credit
Facility are reasonable compared to terms that would be present in a similar
credit facility entered into with an unaffiliated entity.
In July 1997, the Company, along with three other manufactured housing
producers, became a limited partner in three separate limited partnerships
formed to do business in the State of Texas. One of the limited partnerships was
formed to own real estate (the "Real Estate Partnership") that will be leased to
the other limited partnerships, one of which is expected to engage in the
business of producing roof trusses (the "WoodPerfect Partnership") and the other
of which is expected to engage in the business of laminating wall panels (the
"Hillsboro Partnership"). Each of the operating partnerships is expected to sell
its products to manufactured housing producers, including those producers that
are partners in such partnership. Financing for these businesses was provided
through industrial bond financing, and the lease payments from the WoodPerfect
Partnership and the Hillsboro Partnership to the Real Estate Partnership are
designed to service this indebtedness. In addition, First Commercial Bank
provides a line of credit to the WoodPerfect Partnership and the Hillsboro
Partnership, and has also issued a letter of credit as security for the
industrial bond financing, for which First Commercial Bank receives customary
fees. The Company owns an approximate 20% interest in the Real Estate
Partnership and the WoodPerfect Partnership, and an approximate 25% interest in
the Hillsboro Partnership. Lee Roy Jordan is also an approximate 20% limited
partner in the Real Estate Partnership and the WoodPerfect Partnership. Mr.
Jordan is a director of the Company and a beneficial owner of 53,514 shares of
the Common Stock of the Company. Mr. Jordan is also the sole member in the two
limited liability companies that serve as the general partners to the Real
Estate Partnership, and the WoodPerfect Partnership. One of the limited
liability companies owns a 0.01% interest in the Real Estate Partnership, and
the other limited liability company owns a 0.01% interest in the WoodPerfect
Partnership. The WoodPerfect Partnership and the Hillsboro Partnership had not
commenced manufacturing operations as of the date of this Proxy Statement.
15
<PAGE> 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Quality leases a manufacturing facility from a corporation whose
shareholders include Mike Kennedy, who owns 12.5% of the shares of common stock
of such corporation. This lease has an initial term ending on November 30, 2000,
and Quality has the option to renew the lease for an additional term of five
years. Quality made rental payments under the lease in the amount of $48,000 in
1997 and expects to make rental payments in the amount of $48,000 in 1998. The
lease further provides that Quality has the option to purchase the leased
property for $530,000 if such purchase is made during the initial lease term. If
such purchase occurs following the initial lease term, the $530,000 purchase
price is subject to adjustment based on changes in the consumer price index. The
Company believes that the payments made and to be made under the lease are
reasonable compared to amounts that would be paid to an unaffiliated entity for
similar property.
Belmont, a wholly owned subsidiary of the Company, paid approximately
$270,000 in 1997 for the construction of plant facilities to a corporation in
which A. Douglas Jumper, Sr. owns a 50% interest. Mr. Jumper also serves as the
president of this corporation. Mr. Jumper beneficially owns approximately 2.6%
of the outstanding Common Stock of the Company. The Company believes that the
payments made to this corporation are reasonable compared to amounts that would
have been paid to an unaffiliated entity for similar services.
For a discussion of certain other relationships and transactions
involving directors or executive officers of the Company, see "Compensation
Committee Interlocks and Insider Participation" above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers, directors and beneficial owners of
more than 10% of the Company's Common Stock are required under the Exchange Act
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Copies of these reports
must also be furnished to the Company. Based solely on a review of copies of
such reports furnished to the Company, the Company believes that during 1997 all
applicable filing requirements were complied with in a timely manner.
OTHER MATTERS
The Board of Directors does not know of any other business to be
presented for consideration at the Annual Meeting. If other matters properly
come before the Annual Meeting, the persons named in the accompanying form of
proxy will vote thereon in their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals submitted for consideration at the 1999 Annual
Meeting of Stockholders must be received by the Company no later than December
11, 1998, to be included in the 1999 proxy materials.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, IN FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
MAY BE OBTAINED WITHOUT CHARGE FROM MICHAEL R. MURPHY, SECRETARY OF THE COMPANY,
POST OFFICE BOX 540, HIGHWAY 41 NORTH AND CAVALIER ROAD, ADDISON, ALABAMA 35540,
ON THE WRITTEN REQUEST OF PERSONS WHO WERE STOCKHOLDERS BENEFICIALLY OR OF
RECORD AS OF MARCH 23, 1998.
CAVALIER HOMES, INC.
/s/ Michael R. Murphy
Michael R. Murphy
Secretary
Addison, Alabama
April 10, 1998
<PAGE> 20
APPENDIX
CAVALIER HOMES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints David A.
Roberson and Michael R. Murphy, or either of them, proxies of the undersigned,
with full power of substitution, to represent and to vote all shares of Common
Stock of Cavalier Homes, Inc. which the undersigned would be entitled to vote at
the Annual Meeting of Stockholders of Cavalier Homes, Inc., to be held on
Wednesday, May 20, 1998, beginning at 10:00 A.M., C.D.T., at The Summit Club,
Suite 3100, AmSouth-Harbert Plaza, 1901 6th Avenue North, Birmingham, Alabama
and at any adjournment or postponement thereof, in the following manner:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] AUTHORITY WITHHELD
(except as otherwise instructed below) to vote for all nominees
listed below
Thomas A. Broughton, III, Barry B. Donnell, Lee Roy Jordan, A. Douglas
Jumper, Sr., Mike Kennedy, John W Lowe, Gerald W. Moore, Michael R.
Murphy and David A. Roberson
- -------------------------------------------------------------------------------
To withhold authority to vote for any nominee, write that nominee's name in the
space provided below.
- -------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE> 21
3. OTHER MATTERS
[ ] In their discretion, upon such other [ ] AUTHORITY WITHHELD
matters as may properly come before to vote upon such matters
the meeting
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEMS 1 AND 2 AND IN THE DISCRETION OF THE PERSONS APPOINTED HEREIN UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
OR POSTPONEMENTS THEREOF.
Dated: , 1998
-------------------------------
-------------------------------------------
Signature
-------------------------------------------
Signature
Please sign this proxy exactly as your name
appears hereon. When signing as executor,
administrator, trustee, corporate officer,
etc., please give full title. In case of
joint owners, each joint owner should sign.
Please Date, Sign and Return TODAY in the
Enclosed Envelope.
No Postage Required if Mailed in the United
States.
