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 March 27, 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 (IRS Employer
jurisdiction of Identification Number)
incorporation or
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 May 8, 1998
- ---------------------------- --------------------------
Common Stock, $.10 Par Value 20,018,542 Shares
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
INDEX
-----
Page No.
Part I. Financial Information (Unaudited) --------
Consolidated Condensed Balance Sheets - 3
March 27, 1998 and December 31, 1997
Consolidated Condensed Statements of Income - 4
Thirteen Weeks Ended March 27, 1998 and March 28, 1997
Consolidated Condensed Statements of Cash Flows - 5
Thirteen Weeks Ended March 27, 1998 and
March 28, 1997
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. Other Information
Item 3. Legal Proceedings 13
Item 5. Other Matters 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
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 14 of this
report.
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
March 27, December 31,
<S> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS: ---------- -----------
Cash and cash equivalents $ 26,096 $ 37,276
Certificates of deposit, maturing within one year 7,544 4,000
Accounts receivable, less allowance for
losses of $1,175 32,313 8,449
Notes and installment contracts receivable - current 1,185 1,561
Inventories 34,609 29,697
Deferred income taxes 7,505 7,240
Other current assets 2,444 1,292
--------- ---------
Total current assets 111,696 89,515
--------- ---------
PROPERTY, PLANT AND EQUIPMENT (Net) 53,287 53,434
--------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,130 (1998)
and $1,272 (1997) 23,265 46,614
--------- ---------
GOODWILL, less accumulated amortization of
$3,349 (1998) and $3,102 (1997) 19,303 19,551
--------- ---------
OTHER ASSETS 2,520 2,440
--------- ---------
TOTAL $ 210,071 $ 211,554
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 385 $ 3,271
Accounts payable 19,993 9,575
Amounts payable under dealer incentive programs 12,391 14,614
Accrued compensation and related withholdings 6,886 4,294
Estimated warranties 11,801 11,700
Accrued merger and related costs 2,390 5,178
Other accrued expenses 14,410 12,399
--------- ---------
Total current liabilities 68,256 61,031
--------- ---------
DEFERRED INCOME TAXES 364 297
--------- ---------
LONG-TERM DEBT 3,915 15,808
--------- ---------
OTHER LONG-TERM LIABILITIES 956 867
--------- ---------
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 19,995,497 (1998)
and 19,941,357 (1997) shares 2,000 1,994
Additional paid-in capital 57,808 57,228
Retained earnings 76,772 74,329
--------- ---------
Total stockholders' equity 136,580 133,551
--------- ---------
TOTAL $ 210,071 $ 211,554
========= =========
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
Thirteen Weeks Ended
----------------------
March 27, March 28,
<S> <C> <C>
REVENUES: 1998 1997
--------- ---------
Net sales $ 123,153 $ 126,072
Financial services 2,426 1,142
--------- ---------
125,579 127,214
--------- ---------
COST OF SALES 102,783 106,020
SELLING, GENERAL AND ADMINISTRATIVE:
Manufacturing 16,774 14,237
Financial services 920 646
--------- ---------
120,477 120,903
--------- ---------
OPERATING PROFIT 5,102 6,311
--------- ---------
OTHER INCOME(EXPENSE):
Interest expense:
Manufacturing (142) (250)
Financial services (283) (102)
Other, net 392 498
--------- ---------
(33) 146
--------- ---------
INCOME BEFORE INCOME TAXES 5,069 6,457
--------- ---------
INCOME TAXES 2,027 2,564
--------- ---------
NET INCOME $ 3,042 $ 3,893
========= =========
BASIC NET INCOME PER SHARE $ .15 $ .20
========= =========
DILUTED NET INCOME PER SHARE $ .15 $ .19
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 19,967,999 19,763,181
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 20,160,536 19,980,618
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
Thirteen Weeks Ended
----------------------
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,042 $ 3,893
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,971 1,844
Provision for credit losses and repurchase commitments (142) 111
Revenue from sale of installment contracts (1,126) -
(Gain) loss on sale of property, plant and equipment (2) (14)
Equity in net (income) loss of unconsolidated affiliates (30) 14
Minority interest in net income of
consolidated subsidiaries 89 17
Compensation related to issuance of stock options 44 37
Changes in assets and liabilities provided (used) cash:
Accounts receivable (23,864) (23,270)
Inventories (4,912) (4,297)
Accounts payable 10,418 10,299
Other assets and liabilities (1,786) (627)
--------- ---------
Net cash used in operating activities (16,298) (11,993)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and equipment 2 18
Capital expenditures (1,557) (1,622)
Purchases of certificates of deposit (6,044) -
Maturities of certificates of deposit 2,500 6,199
Distribution from equity investments 106 248
Purchases and originations of notes and
installment contracts (2,920) (6,163)
Proceeds from sale of installment contracts 26,153 -
Principal collected on notes and installment contracts 1,714 978
--------- ---------
Net cash provided by (used in) investing activities 19,954 (342)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 300
Payments on long-term debt (14,779) (2,005)
Cash dividends paid (599) (365)
Proceeds from exercise of stock options 14 4
Proceeds from sales of common stock 528 471
--------- ---------
Net cash used in financing activities (14,836) (1,595)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,180) (13,930)
--------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,276 29,751
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,096 $ 15,821
========= =========
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen Week Periods Ended March 27, 1998 and March 28, 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 March 27, 1998,
and the results of its operations and its cash flows for the
thirteen week periods ended March 27, 1998 and March 28, 1997,
respectively. All adjustments are of a normal, recurring
nature.
The results of operations for the thirteen weeks ended March
27, 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>
<CAPTION>
March 27, 1998 March 28, 1997
-------------- --------------
<S> <C> <C>
Weighted average common shares outstanding 19,967,999 19,763,181
Dilutive effect of stock options and warrants 192,537 217,437
-------------- --------------
Weighted average common shares outstanding,
assuming dilution 20,160,536 19,980,618
-------------- --------------
</TABLE>
Inventories consist primarily of raw materials and are stated
at the lower of cost (first-in, first-out method) or market.
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
Thirteen Weeks Ended
--------------------------
March 27, March 28,
1998 1997
--------------------------
Cash paid for: Interest $445 $ 360
Income taxes $356 $1,003
4. CREDIT ARRANGEMENTS
In March 1996, the Company executed an amended $23,000 revolving,
warehouse and term-loan agreement (the "Credit Facility") with its
primary bank, whose president is a director of the Company. The Credit
Facility contains a revolving line of credit which provides for
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen Week Periods Ended March 27, 1998 and March 28, 1997
(Dollars in Thousands, Except Per Share Amounts)
4. CREDIT ARRANGEMENTS (continued)
borrowings (including letters of credit) of up to 80% and 50% of the
Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $5,000. Interest is payable under
the revolving line of credit at the bank's prime rate (8.50% at March
27, 1998).
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as
defined) installment sale contracts, up to a maximum of $18,000.
Interest on term notes is fixed for a period of five years from
issuance at a rate based on the weekly average yield on five-year
treasury securities averaged over the preceding 13 weeks, plus 2%, and
floats for the remaining two years at a rate (subject to certain
limits) equal to the bank's prime rate plus .75%. The warehouse
component of the Credit Facility provides for borrowings of up to
$2,000 with interest payable at the bank's prime rate plus 1%. However,
in no event may the aggregate outstanding borrowings under the
warehouse and term-loan agreement exceed $18,000.
The Credit Facility contains certain restrictive and financial
covenants, which, among other things, limit the aggregate of dividend
payments and purchases of treasury stock to 50% of consolidated net
income for the two most recent years, contain restrictions on the
Company's ability to pledge assets, incur additional indebtedness and
make capital expenditures, and require the Company to maintain certain
defined financial ratios. Amounts outstanding under the Credit Facility
are secured by the accounts receivable and inventories of the Company,
loans purchased and originated by Cavalier Acceptance Corporation
("CAC"), and the capital stock of certain of the Company's consolidated
subsidiaries. The bank's commitment under the Credit Facility expired
in April 1998.
The Company has received a commitment from its primary lender for a
two-year renewal amendment to the Credit Facility providing for
borrowings of up to $35,000. The renewal provides for a revolving line
of credit with a maximum of $10,000 (an increase from $5,000) and a
warehouse line of $25,000 (an increase from $18,000) which includes a
fixed rate term-loan feature. The Company currently does not expect a
material change to the restrictive and financial covenants included in
the Credit Facility.
No amounts were outstanding under the Credit Facility at March 27,
1998.
5. STOCKHOLDERS' EQUITY
Cash dividends were paid during this quarter and the previous three
quarters as follows (all amounts are per share):
<TABLE>
<S> <C> <C> <C>
Split Adjusted
Record Date Payment Date Dividend Paid
----------- ------------ -------------
January 30, 1998 February 16, 1998 $ .030
October 31, 1997 November 14, 1997 $ .018
July 31, 1997 August 15, 1997 $ .019
April 30, 1997 May 15, 1997 $ .019
</TABLE>
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 $166,000
under these agreements as of March 27, 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
$1,175 based on prior experience and current market
conditions. Management expects no material loss in excess of
the allowance.*
- ----------------------------------------
* See Safe Harbor Statement on page 14.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen Week Periods Ended March 27, 1998 and March 28, 1997
(Dollars in Thousands, Except Per Share Amounts)
6. COMMITMENTS AND CONTINGENCIES (continued)
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 March 27, 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. Courts have certified
several of these types of cases as class actions recently, and
many of these types of cases have resulted in large damage
awards, especially large punitive damage awards. 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 March 27, 1998, $3,000 was outstanding
under the various guarantees, of which the Company had
guaranteed $720.
- ---------------------------------------
* See Safe Harbor Statement on page 14.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 27, 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 Cavalier. 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, lower order backlogs 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 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.*
It is also possible that these developments could mean that the industry is
entering a downturn in its cycle. * As a whole, the industry appears to have
improved year-to-date through February 1998, with MHI reporting industry
shipments increased over 1997 by 3.2%. While several of the Company's core
states, including Alabama and Texas, reported increased shipments through
February 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. *
Results of Operations
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of net
sales or total revenue:
<TABLE>
<CAPTION>
STATEMENT OF INCOME SUMMARY For the Thirteen Weeks Ended
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands) March 27, 1998 March 28, 1997 Difference
--------------------- --------------------- ---------------------
Net Sales $ 123,153 100.0% $ 126,072 100.0% $ (2,919) -2.3%
Cost of Sales 102,783 83.5% 106,020 84.1% (3,237) -3.1%
--------- ------ --------- ------ --------- ------
Gross Profit on Sales $ 20,370 16.5% $ 20,052 15.9% $ 318 1.6%
========= ========= =========
Net Sales $ 123,153 $ 126,072 $ (2,919) -2.3%
Financial Services 2,426 1,142 1,284 112.4%
--------- --------- ---------
Total Revenue $ 125,579 100.0% $ 127,214 100.0% $ (1,635) -1.3%
========= ========= =========
Selling, General and Administrative $ 17,694 14.1% $ 14,883 11.7% $ 2,811 18.9%
Operating Profit $ 5,102 4.1% $ 6,311 5.0% $ (1,209) -19.2%
Other Income (Expense) $ (33) 0.0% $ 146 0.1% $ (179) -122.6%
Net Income $ 3,042 2.4% $ 3,893 3.1% $ (851) -21.9%
</TABLE>
- ----------------------------------------
* See Safe Harbor Statement on page 14.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 27, 1998
<TABLE>
<CAPTION>
OPERATING DATA SUMMARY For the Thirteen Weeks Ended
-----------------------------------
<S> <C> <C>
(Dollars in Thousands) March 27, 1998 March 28, 1997
-------------- --------------
Installment Loan Purchases $ 2,717 $ 5,863
Capital Expenditures $ 1,557 $ 1,622
Home Shipments 5,095 5,416
Floor Shipments 7,544 7,605
Independent Exclusive Dealer Locations 134 122
Home Manufacturing Facilities 22 24
</TABLE>
Net Sales. The Company experienced a decline in net sales for the thirteen week
period ended March 27, 1998 over the comparable 1997 period of $2,919,000
(2.3%). The Company believes the decline in net sales for the first quarter is
attributable to continuing competition in the industry in certain markets served
by the company related to an increase in manufacturing capacity, higher dealer
inventories and slower retail turnover, combined with the impact of the process
of integrating Belmont and Cavalier and the absence of a one-time sales order
($579,000) from an emergency services agency the Company experienced in the
first quarter of 1997. Homes sold for the first quarter decreased from the
comparable period in the prior year by 321 homes (5.9%); however, floor
shipments declined only slightly by 61 floors, less than 1%, as the Company's
product mix continued to shift from single-section homes to multi-section homes.
During the thirteen weeks ended March 27, 1998, 48% of the Company's homes sold
were multi-section homes, compared to 40% for the previous year's comparable
period. As part of the Company's marketing program, the exclusive dealer
distribution system has grown to 134 independent exclusive dealer locations, up
from 122 dealer locations at the end of the first quarter of 1997.
Financial Services Revenue. Financial services revenue during the current
thirteen week period increased $1,284,000 or 112.4% over the comparable period
in the previous year, primarily due to the sale of a portion of CAC's loan
portfolio in March of 1998, resulting in increased financial services revenue of
$1,126,000.
Selling, General and Administrative. Selling, general and administrative expense
increased $2,811,000 during the current thirteen week period over the previous
year's comparable period. This increase is primarily attributable to a $274,000
increase in CAC's administrative costs, consistent with its growth, and expenses
related to the Company's expanded marketing programs of $1,074,000. Selling,
general and administrative expense as a percentage of total revenue was 14.1%
and 11.7% of sales for the thirteen week period ended March 27, 1998 and March
28, 1997, respectively.
Other Income (Expense).
Interest Expense. Interest expense increased by $73,000 for the thirteen week
period ended March 27, 1998, as compared to the applicable 1997 period, due to
increased borrowings, incurred primarily to fund the Company's financial
services segment, until March 1998 when the related financial services debt was
paid with the proceeds from the sale of a portion of CAC's loan portfolio.
Other, net. Other, net, declined by $106,000 for the thirteen week period ended
March 27, 1998, as compared to the applicable 1997 period. Other, net, is
primarily comprised of interest income, gains or losses on sales of investments,
and equity earnings in investments accounted for on the equity basis of
accounting. The decrease in other, net, is primarily due to a $120,000 reduction
in income on stock funds which were sold during the first quarter of 1997.
Net Income. As discussed above, the Company was impacted during the first
quarter by the continuing competition in the manufactured housing industry in
certain markets served by the Company as well as the impact of the process of
integrating Belmont and Cavalier. Basic net income per share during the current
thirteen week period was $.15 as compared to $.20 from the previous year's
comparable period. Net income per share has been adjusted for all previous
stock splits effected by the Company.
Installment Loan Purchases. During the first quarter of 1998, installment loan
purchases were $2,717,000 compared to $5,863,000 for the comparable period in
1997. Installment loan purchases were lower as a result of increasingly
competitive conditions in the financial services in the industry.
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 27, 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>
<CAPTION>
BALANCE SHEET SUMMARY Balances as of
--------------------------------------
<S> <C> <C>
(Dollars in Thousands) March 27, 1998 December 31, 1997
-------------- -----------------
Cash and Cash Equivalents $ 26,096 $ 37,276
Certificates of deposit maturing within one year $ 7,544 $ 4,000
Accounts Receivable $ 32,313 $ 8,449
Working Capital $ 43,440 $ 28,484
Current Ratio 1.6 to 1 1.5 to 1
Long-Term Debt $ 3,915 $ 15,808
Ratio of Long-Term Debt to Equity 1 to 35 1 to 8
Installment Loan Portfolio $ 25,210 $ 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 the sale of a portion of CAC's
loans having an outstanding principal balance of $25,027,000 for cash of
$26,153,000, of which approximately $14 million was used to retire debt in March
1998.
The increase in accounts receivable from December 31, 1997 to March 27, 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 $1,557,000 for the
thirteen weeks ended March 27, 1998, as compared to $1,622,000 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 $23 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 $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 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 2%, 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 $2 million with interest payable at the bank's
prime rate plus 1%. 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 $2.5 million and (iv) make capital expenditures in
excess of $6 million. In addition, the Credit Facility contains certain
financial covenants requiring the Company to maintain on a consolidated basis
certain defined levels of net working capital (at least $3.5 million), tangible
net worth (which must increase at least $2 million per year, subject to a
carryover for increases in excess of $2 million in the prior year), debt to
equity ratio (not to exceed 2 to 1) and cash flow to debt service ratio (not
less than 1.5 to 1). The Credit Facility also requires CAC to comply with
certain specified restrictions and financial covenants.
The Company has received a commitment from its primary lender for a two-year
renewal amendment to the Credit Facility, which expired 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 $25 million (an increase from $18 million) and includes a
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 27, 1998
fixed rate term-loan feature. The Company currently does not expect a material
change to the restrictive and financial covenants included in the Credit
Facility. *
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on restricted 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. On March 13,
1998, CAC sold loans to this lender having an outstanding principal amount of
approximately $25 million for cash in the approximate amount of $26 million, of
which $14 million was used to retire debt. The effect of this transaction on net
income would be 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. The Company may also utilize
funds in the acquisition or establishment of retail sales centers as well as
manufactured housing community development. 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
recently 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. *
- ----------------------------------------
* See Safe Harbor Statement on page 14.
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
March 27, 1998
ITEM 3 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 5 OTHER MATTERS
The Board of Directors has declared its regular quarterly cash dividend of $.03
per share payable on May 15, 1998 to stockholders of record on April 30, 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 Certificate of Designation of Series A Junior
Participating Preferred Stock of Cavalier Homes,
Inc. as filed with the Office of the Delaware
Secretary of State on October 24, 1996 and filed
as Exhibit A to Exhibit 4 to the Company's
Registration Statement on Form 8-A filed on
October 30, 1996, is incorporated herein by
reference.
(c) 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.
(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
ChaseMellon Shareholder Services, LLC, filed as
Exhibit 4 to the Company's Current Report on Form
8-K dated October 30, 1996, is incorporated
herein by reference.
(10) Material Contracts.
(a) Amended and Restated Finance Agreement among
Cavalier Manufacturing, Inc., Cavalier Acceptance
Corporation and certain related entities and
Green Tree Financial Corp. and certian related
entities.
(b) Lease Agreement with Option to Purchase dated
November 29, 1995 between Winfield Industrial
Properties, Inc. and Superior Door Company, Inc.,
predecessor to Quality Housing Supply, LLC.
(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.
(i) The Company filed a Current Report on Form 8-K on
January 15, 1998, with respect to the completion
of the Merger with Belmont Homes, Inc.
(ii) The Company filed a Current Report on Form 8-K/A
on March 16, 1998, with respect to the completion
of the Merger with Belmont Homes, Inc., to
include as additional items and exhibits certain
financial statements regarding the Company and
Belmont, and related consents of independent
auditors.
(iii) The Company filed a Current Report on Form
8-K/A on March 17, 1998, to include the Restated
Financial Data Schedule for Form 8-K/A filed on
March 16, 1998.
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
March 27, 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 Quarterly Report on Form
10-Q (including statements regarding trends in the industry and the business and
growth and financing strategies of the Company), as well as those statements
specifically designated with an asterisk (*), or which contain the words
"estimates," "projects," "intends," "believes," "anticipates," "expects," 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 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.
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
March 27, 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: May 11, 1998 /s/ David A. Roberson
---------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: May 11, 1998 /s/ Michael R. Murphy
---------------------------------
Michael R. Murphy - Chief
Financial Officer (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(10) (a) Amended and Restated Finance Agreement among
Cavalier Manufacturing, Inc., Cavalier Acceptance
Corporation and certain related entities and
Green Tree Financial Corp. and certian related
entities.
(10) (b) Lease Agreement with Option to Purchase dated
November 29, 1995 between Winfield Industrial
Properties, Inc. and Superior Door Company, Inc.,
predecessor to Quality Housing Supply, LLC.
(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.
EXHIBIT 10a
AMENDED AND RESTATED FINANCE AGREEMENT
This AMENDED AND RESTATED FINANCE AGREEMENT, dated as
of February 17, 1998 (this "Agreement"), is made by and among Cavalier
Manufacturing, Inc., a Delaware corporation ("CMfg"), Cavalier Industries, Inc.,
a Delaware corporation ("CInd"), Belmont Homes, Inc., a Mississippi corporation
("BHom"), Delta Homes, Inc., a Mississippi corporation ("DHom"), Spirit Homes,
Inc., an Arkansas corporation ("SHom"), and Bellcrest Homes, Inc., a Georgia
corporation ("XHom", and together with CMfg, CInd, BHom, DHom and SHom,
collectively "CMI"), Quality Certified Insurance Services, Inc., an Alabama
corporation ("QCI"), Cavalier Acceptance Corporation, an Alabama corporation
("CAC", and together with CMI and QCI, "Cavalier"), on the one hand, and
Green Tree Financial Servicing Corporation, a Delaware corporation ("GTFSC"),
Green Tree Financial Corporation, a Delaware corporation ("GTC"), Green Tree
Credit Corp., a New York corporation ("GTCC"), Green Tree Consumer Discount
Company, a Pennsylvania corporation ("GTCDC"), and Green Tree Financial Corp.-
Alabama, an Alabama corporation ("GTFCA", and together with GTFSC, GTC, GTCC and
GTCDC, collectively "Green Tree"), on the other hand. It is understood and
agreed that, upon mutual agreement of the parties, Cavalier may, from time to
time, add one or more of its affiliates to this Agreement, which affiliate
manufactures and sells new manufactured homes, and in such event, the term "CMI"
shall be deemed to also refer to such affiliates.
R E C I T A L S:
CMI is a manufacturer of manufactured homes with sales
throughout a substantial portion of the United States. CMI markets its homes and
other services through independent dealers, some of whom sell only Cavalier
Product. CMI enters into agreements with each of its Dealers and provides
certain incentives to exclusive dealers and certain preferred dealers. The
incentives provided by CMI to its Dealers include, without limitation, floor
plan finance charge subsidies. CAC, an affiliate of Cavalier, is engaged in the
purchase of retail installment sales contracts. CAC acquires these contracts
with corporate funds and through borrowings from commercial banks. Green Tree is
a major purchaser of retail installment sales contracts secured by manufactured
homes. Green Tree also provides floor plan financing for manufactured home
dealers. Green Tree presently does business throughout the United States and
purchases retail installment sale contracts.
The parties hereto originally entered into this Agreement
as of February 17, 1998, and wish to amend in certain respects and restate the
Agreement as of May 1, 1998.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual promises contained herein, and for other good and valuable
consideration, the parties hereto, intending to be legally bound, do hereby
agree as follows:
ARTICLE I
DEFINED TERMS
Whenever used in this Agreement, the following words and
phrases, unless the context clearly requires otherwise, shall have the meanings
specified in this article.
"Acceptance Tolerance" shall have the meaning set forth in
Section 3.3.
"Acquisition Premium" shall have the meaning set forth in
Section 3.2.
"Ancillary Product" shall have the meaning set forth in
Section 3.6.
"Available CAC Loans" shall have the meaning set forth in
Section 3.9(a).
"Borrower" means the obligor or obligors under a Consumer
Loan.
"Cavalier Product" means new manufactured homes, together with
fixtures, equipment and options related thereto, manufactured and sold by CMI.
"CAC Loan" means a Consumer Loan made or acquired by CAC.
"Carved-Out CAC Loans" shall have the meaning set forth in
Section 5.1.
"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 or affiliate as of the date hereof 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 or partnership 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 or trustees of a
person, (b) a majority of the board of directors, managers 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;
(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.
"Chattel Paper Forms" shall have the meaning set forth in
Section 3.9(b).
"Chattel Paper Purchase Agreement" shall have the meaning set
forth in Section 3.10(a).
"Conforming Manufactured Housing Retail Finance Contract"
means (i) a Manufactured Housing Retail Finance Contract relating to a
conventional manufactured home - only (no real estate involved) which is
believed in good faith by CAC to comply with the general criteria for Conforming
Manufactured Housing Retail Finance Contracts set forth on the Underwriting
Guidelines, and (ii) any Special Contracts.
"Consumer Loan" means an extension of credit made under a
Manufactured Housing Retail Finance Contract.
"Conversion Date" shall have the meaning set forth in
Section 3.3.
"Credit Scoring" shall have the meaning set forth in
Section 3.3.
"Dealers" mean persons or entities engaged in the ordinary
course of business in the sale of manufactured homes, including Cavalier
Product.
"Effective Date" means February 28, 1998, or such later date
that all the conditions precedent to this Agreement are satisfied.
"Electronic Pipeline" shall have the meaning set forth in
Section 3.5.
"Exclusive Dealers" means those Dealers of Cavalier Product
which are listed on Exhibit B hereto, as such may be hereafter supplemented or
revised by CMI in writing.
"Existing Floor Plan Receivables" shall have the meaning set
forth in Section 2.2.
"First Loss Guaranty" shall have the meaning set forth in
Section 2.5.
"Floor Plan Agreement" shall have the meaning set forth in
Exhibit X hereto (item 16).
"Floor Plan Customers" shall have the meaning set forth in
Section 2.4.
"Floor Plan Loan" shall have the meaning ascribed to it in
Exhibit X hereto (item 16), and includes Existing Floor Plan Receivables, New
Inventory Floor Plan Financing and Used Inventory Floor Plan Financing.
"Floor Plan Program Terms" shall have the meaning set forth in
Exhibit X (item 1).
"FPL Seller" shall have the meaning set forth in Section 2.2.
"Green Tree Floor Plan Loans" means Existing Floor Plan
Receivables acquired by Green Tree and new commercial loans secured by Inventory
made by Green Tree to Exclusive Dealers and Preferred Dealers.
"Green Tree Loan" means a Consumer Loan made or acquired by
Green Tree, except Consumer Loans acquired from CAC.
"Guaranty" shall have the meaning set forth in Section 2.5.
"Initial Underwriting Guidelines" shall have the meaning set
forth in Section 3.3.
"Inventory" means manufactured homes, together with fixtures,
equipment and options related thereto, held by a Dealer for sale in the ordinary
course of business.
"Losses" shall be limited as provided in Section 2.2(c) and as
otherwise defined and limited in this Agreement with respect to the context in
which it is used.
"Manufactured Housing Retail Finance Contract" means an
agreement evidencing a retail installment sale to a consumer purchaser
principally relating to a manufactured home.
"MLPA" shall have the meaning set forth in Section 5.1.
"New Inventory Floor Plan Financing" shall have the meaning
set forth in Section 2.5.
"Non-Conforming Manufactured Housing Retail Finance Contracts"
means a Manufactured Housing Retail Finance Contract other than a Conforming
Manufactured Housing Retail Finance Contract.
"Origination Fee" shall have the meaning set forth
in Section 3.2.
"Par Rate" shall have the meaning set forth in Section 3.4.
"Pass Rate" shall have the meaning set forth in Section 3.3.
"Pre-Sold Financing" shall have the meaning set forth in
Section 2.4(b).
"Preferred Dealer" means the Dealers of Cavalier Product which
are listed on Exhibit B-1 hereto, as such may be hereafter supplemented or
revised by CMI in writing.
"Preferred Floor Plan Financing" means the Inventory finance
program for Exclusive Dealers and Preferred Dealers contemplated under Article
II of this Agreement.
"Prime Rate" means the prime rate published from time to time
in the Money Rates section of The Wall Street Journal (or its generally
recognized successor).
"Qualified Insurer" shall have the meaning set forth in
Section 3.6.
"Remittance Statement" shall have the meaning set forth in
Section 3.9(a).
"Repurchase Agreement" shall have the meaning set forth in
Section 2.2(d).
"Repurchase Price" shall have the meaning set forth in
Section 3.13.
"Special Contracts" shall have the meaning set forth in
Section 4.3 and shall consist of the Consumer Loans meeting the requirements
referenced therein.
"Trade-in Loans" shall have the meaning set forth in
Section 4.10.
"Transferred CAC Loan" shall have the meaning set forth in
Section 4.10.
"Underwriting Guidelines" mean the Initial Underwriting
Guidelines and, after the Conversion Date, the requisite elements necessary to
achieve a "pass" under the Credit Scoring, subject to Section 3.5.
"Yield Differential" shall have the meaning set forth in
Section 3.2.
"Used Inventory Floor Plan Financing" shall have the meaning
set forth in Section 2.4(a).
ARTICLE II
FLOOR PLAN FINANCE PROGRAM
Section 2.1. Attached as Exhibit F hereto is a description of
CMI's current and presently anticipated floor plan interest subsidy program for
Exclusive Dealers and Preferred Dealers. CMI and Green Tree agree to establish a
cooperative floor plan finance program on the terms set forth in Exhibit X (item
16).
Section 2.2. (a) As a condition precedent to the effectiveness
of this Agreement, (i) Green Tree shall have acquired not later than March
12, 1998, the existing Exclusive Dealer and Preferred Dealer Floor Plan Loans
related to new Cavalier Product Inventory (the "Existing Floor Plan
Receivables"), from the "FPL Seller" who is the party identified on Exhibit X
(item 10), on such terms and conditions as may be mutually acceptable to Green
Tree and FPL Seller; and (ii) FPL Seller shall have executed a consent and
release of Cavalier and Green Tree in a form mutually acceptable; provided that
any Existing Floor Plan Receivables acquired by Green Tree from FPL Seller shall
not be amended or refinanced, at least for a period of 90 days from the original
invoice date for the related Cavalier Product Inventory, to provide for a higher
rate of interest with respect to financing for new Cavalier Product Inventory.
Any new advances by Green Tree after the Effective Date to Dealers whose
Existing Floor Plan Receivables are acquired shall be subject to such terms as
Green Tree and the Dealer may agree. If such terms meet the requirements of this
Agreement (including consistency with the Floor Plan Program Terms), the new
advances shall be treated as a Floor Plan Loan under Section 2.1 and shall be
subject to the related provisions of this Agreement, including Section 2.6. CMI
hereby agrees to indemnify and hold Green Tree harmless from and against all
"losses" incurred by Green Tree relating to credit losses on the Existing Floor
Plan Receivables commencing on the date of acquisition by Green Tree from FPL
Seller and continuing for claims made by Green Tree in writing for
indemnification hereunder until the earlier of (i) the date of substantial
completion of the floor plan check of such related Dealer, or (ii) 60 calendar
days from the date of the first acquisition by Green Tree of an Existing Floor
Plan Receivable. In the event that any indemnification claims are made by Green
Tree, CMI may, at its sole option, in full and complete satisfaction of such
claim (i) acquire the related Floor Plan Loan (and collateral therefor) on a
servicing released basis, at a price equal to the par amount thereof plus
accrued but unpaid interest, (ii) reimburse Green Tree for reasonably expected
losses with respect thereto, or (iii) acquire the entire portfolio of Existing
Floor Plan Receivables, on a servicing released basis, at the par amount thereof
plus accrued but unpaid interest.
(b) For purposes of this Section, a "loss" shall be deemed
to occur only if and to the extent that (i) there exists and is continuing a
material event of default under the related floor plan agreement as of the date
of acquisition by Green Tree of the related Existing Floor Plan Receivables, and
(ii) it is reasonably anticipated by Green Tree, as certified to CMI, that as a
result of such default Green Tree is not likely to make recovery of principal
and all accrued but unpaid interest with respect thereto.
(c) The amount of a "loss" shall be strictly limited to the
reasonably anticipated amount of uncollected principal and uncollected accrued
but unpaid interest, after realization upon the collateral (taking into account
any applicable repurchase agreement), and shall not include costs of collection
or any other expenses or liabilities with respect thereto (except as otherwise
agreed in writing), and shall be net of any set-off or recoupment available to
Green Tree, including those in connection with amounts owed to Dealers for Green
Tree Loans purchased from such Dealers. To the extent of losses paid by CMI, CMI
shall be subrogated to any and all of the rights of Green Tree under its
agreement providing for the acquisition by Green Tree of the Existing Floor Plan
Receivables from FPL Seller and Green Tree shall not waive or relinquish any
rights it may have against FPL Seller under any such agreement relating to the
Existing Floor Plan Receivables.
(d) CMI agrees that Existing Floor Plan Receivables that
are secured by collateral that consists of Cavalier Product shall be subject to
the Inventory Repurchase Agreement, attached hereto as Exhibit E, between Green
Tree and Cavalier Homes, Inc., dated September 20, 1996, as amended June 18,
1997 (the "Repurchase Agreement"), with the invoice date being the original
invoice date with respect to the sale of such collateral; provided that in the
case of Cavalier Product Inventory which is more than 360 days old, such
Cavalier Product Inventory shall be treated, commencing on the date of
acquisition of the Existing Floor Plan Receivables by Green Tree, as being 360
days old on such date.
(e) It is understood and agreed that the provisions
contained herein and in the instruments and agreements referenced herein shall
constitute the sole and exclusive obligations of Cavalier with respect to Floor
Plan Loans and that Cavalier makes no representation or warranty whatsoever
regarding the collectibility of such loans, the enforceability or legality of
the documents relating thereto or the sufficiency of collateral therefor. Green
Tree acknowledges and agrees that Cavalier has no responsibility whatsoever with
respect to formulating any conclusions regarding the creditworthiness of any
Dealer under a Floor Plan Loan. Except as expressly provided herein, Cavalier
shall have no liability or obligation whatsoever with respect to Existing Floor
Plan Receivables after 60 days from the date of acquisition of Existing Floor
Plan Receivables by Green Tree, except as set out in Section , the Guaranty or
as is otherwise set forth herein or in instruments referenced herein.
Section 2.3 Cavalier agrees to use its reasonable efforts to
notify Exclusive Dealers and Preferred Dealers of the Preferred Floor Plan
Financing.
Section 2.4 As part of the Preferred Floor Plan Financing,
Green Tree agrees to offer each Exclusive Dealer and each Preferred Dealer who
obtains a Floor Plan Loan from Green Tree ("Floor Plan Customers"):
(a) A line of credit on commercially reasonable and market
competitive terms in an amount equal to that prescribed on Exhibit X (item 17)
for use in carrying used Inventory (the "Used Inventory Floor Plan Financing");
provided, however, that Green Tree shall not be required to finance any used
Inventory unless Green Tree has, in Green Tree's sole opinion, a first priority
perfected security interest in such used Inventory and Green Tree shall not be
required to finance any used Inventory that does not meet the requirements that
Green Tree may set out from time to time in its sole discretion. Green Tree
agrees that the Used Inventory Floor Plan financing shall not be subject to the
First Loss Guaranty, shall be billed by Green Tree directly to the Exclusive
Dealer or Preferred Dealer, as the case may be, and shall be treated as a
separate line of credit from the financing by Green Tree of new Cavalier Product
Inventory. The terms of the Used Inventory Floor Plan Financing shall initially
be at least as advantageous to the Dealer as those set forth on Exhibit G
hereto; provided that such terms may be revised from time to time by Green Tree
in its sole discretion upon sixty (60) days prior notice to Cavalier.
(b) No interest will be charged for the period set forth in
Exhibit X (Item 2) on new Cavalier Product Inventory that has been identified to
Green Tree as either "Green Tree Pre-Sold Inventory or "Cavalier Acceptance
Pre-Sold Inventory" (i.e., Cavalier Product sold by a Dealer and financed
pursuant to a CAC Loan or a Green Tree Loan) (such financing being referred to
as the "Pre-Sold Financing"); provided that in the case of Pre-Sold Financing
for Exclusive Dealers, the parties agree as set forth in Exhibit X (Item 3). The
amount of any Pre-Sold Financing will not be counted against the Floor Plan
Customer's Floor Plan Loan credit limits. After the Pre-Sold Financing expires,
the related Cavalier Product Inventory shall become subject to the terms of the
New Inventory Floor Plan Financing; provided that the applicable rate of
interest shall be that set forth in Exhibit X (item 4).
Section 2.5 CMI agrees that for each non-contiguous (separate
lot) location of an Exclusive Dealer or Preferred Dealer which is stocked with
new Inventory consisting exclusively of Cavalier Product and who is a Floor Plan
Customer, that CMI hereby guarantees up to the amount set forth on Exhibit X
(item 19). This First Loss Guaranty specifically excludes the matters set forth
on Exhibit X (item 20). The First Loss Guaranty applies solely with respect to
that portion of Floor Plan Loans advanced with respect to new Cavalier Product
Inventory (the "New Inventory Floor Plan Financing"). The Guaranty when
effective with respect to a Dealer will be given in amendment and substitution
to that certain First Amendment to Inventory Repurchase Agreement, dated June
18, 1997, with respect to such Dealer and is not in addition thereto. CMI shall
execute a Limited Guaranty in the form of Exhibit L attached hereto (the
"Guaranty").
Section 2.6 CMI agrees to act as paying agent for Floor Plan
Customers who are Exclusive Dealers or Preferred Dealers solely with respect to
interest due under the New Inventory Floor Plan Financing unless and until CMI
provides prior written notice to Green Tree that CMI elects to cease acting as
paying agent for one or more Floor Plan Customers. For each such Dealer for whom
CMI acts as paying agent, for so long as CMI acts as paying agent, CMI shall
remit to Green Tree 100% of the interest due with respect to New Inventory Floor
Plan Financing. CMI agrees that it will accept billing statements from Green
Tree with respect to interest (provided that the Dealer has authorized Green
Tree and CMI to do so) under the New Inventory Floor Plan Financing and timely
remit the same to Green Tree. Attached as Exhibit F hereto is a description of
CMI's current and anticipated floor plan interest subsidy programs for Exclusive
Dealers and Preferred Dealers. CMI may change the terms of its interest subsidy
program from time to time in its sole discretion, but will provide Green Tree
with 60 days prior notice of such change if such change materially alters
benefits provided to the Exclusive Dealers and Preferred Dealers. Green Tree
acknowledges that the payments remitted by CMI to Green Tree pursuant to this
provision are an administrative convenience to Green Tree's collection efforts
and are in lieu of CMI remitting such payments directly to the Dealer who would
then make direct payment to Green Tree. Accordingly, it is understood and agreed
by Green Tree that CMI has no obligation with respect to any New Inventory Floor
Plan Financing except as otherwise expressly provided in Section and pursuant to
the Repurchase Agreement and the Guaranty. If CMI shall pay any amount under
this Section to Green Tree in error, then Green Tree will promptly on demand by
CMI return such amount remitted by CMI to CMI; provided that Green Tree shall
have no obligation to return amounts that relate to shortfalls in actual
interest subsidies earned by Dealers that are subsequently discovered by CMI. If
and to the extent that CMI makes payments to Green Tree on behalf of a Dealer as
paying agent that exceed the amount of the interest subsidy owed to such Dealer
(i.e., there is a "shortfall"), CMI shall be subrogated to the rights of Green
Tree with respect to such payment but only after all Dealer obligations to Green
Tree have been paid in full and Green Tree has no effective Floor Plan Loan
arrangement with respect to such Dealer. Green Tree agrees that if Green Tree
shall have notice of the continuing existence of any 2.10. material monetary
default, 2.11. default relating to transfer or disposition of collateral under a
Floor Plan Agreement (i.e., sales out of trust), or 2.12. acceleration of the
maturity of any Floor Plan Loan, then in each case Green Tree shall notify CMI
promptly (not to exceed 5 business days) thereof, including the nature of such
event, condition or change, and the identity of the Floor Plan Customer;
provided that Green Tree's failure to give such notice shall not diminish any
rights Green Tree has against Cavalier under the Guaranty except to the extent
that Cavalier has suffered a loss as a direct consequence of Green Tree's
failure to give such notice. Notwithstanding anything else in this Agreement to
the contrary, it is understood and agreed that CMI shall have no obligation to
assist Green Tree in collecting, or attempting to collect, any payments from
Floor Plan Customers and its role under provisions of this section is purely
ministerial and is effected as an accommodation to Green Tree and the Floor Plan
Customers. CMI shall not, in the absence of bad faith, gross negligence,
recklessness or willful misconduct, be liable to Green Tree for any actions
under this provision.
ARTICLE III
RETAIL FINANCE PROGRAM
Section 3.1 Subject to the terms and conditions hereof,
including Section 5.4, CAC shall sell to Green Tree and Green Tree shall
purchase from CAC all Conforming Manufactured Housing Retail Finance Contracts
purchased or originated by CAC from and after the Effective Date at a price
equal to the outstanding principal balance thereof plus accrued but unpaid
interest thereon through the date of conveyance, plus the Acquisition Premium.
Nothing in this Agreement shall preclude CAC from selling Non-Conforming
Manufactured Housing Retail Finance Contracts to any other person.
Section 3.2 Green Tree agrees to pay an acquisition premium
(the "Acquisition Premium") to CAC in an amount equal to that set forth on
Exhibit X (item 5) hereto. Such amount shall be fully earned by CAC upon
conveyance of the related Manufactured Housing Retail Finance Contract by CAC to
Green Tree except as provided in Section 3.15. The amount of Acquisition Premium
shall be adjusted as provided in Exhibit X (item 11) (such adjustment being
referred to as the "Yield Differential"). Green Tree also agrees that a CAC loan
will constitute a conforming Manufactured Housing Retail Finance Contract not
withstanding that CAC may charge additional fees, including interest surcharge,
points or origination fees, in connection with the Available CAC Loan (the
"Origination Fee"), provided such fees do not exceed the amount set forth in
Exhibit X (item 12), subject to any limitations imposed by law, and CAC may
retain such additional fees upon sale of the Available CAC Loan to Green Tree.
In the event a Transferred CAC Loan is prepaid and, as a result, Green Tree
is liable under applicable law to rebate or refund any unearned prepaid finance
charges collected by CAC to the consumer, then CAC agrees to reimburse Green
Tree for such rebate. The aggregate net amount of the Yield Differential and
the Origination Fee paid to CAC shall not exceed the amount set forth in Exhibit
X (item 13).
Section 3.3 Green Tree and CAC agree that from the Effective
Date until the Electronic Pipeline contemplated by Section 3.5 is established
and fully functional (the "Conversion Date") and thereafter as provided by
Section 3.5, the underwriting guidelines applicable to CAC Loans shall be those
attached hereto as Exhibit A or such other guidelines as the parties hereto may
agree in writing (the "Initial Underwriting Guidelines"). From and after the
Conversion Date, Green Tree may establish such other underwriting guidelines
as it deems necessary or appropriate; provided that (i) such underwriting
guidelines shall be generally consistent with prevailing market terms; and (ii)
under the proprietary credit scoring systems ("Credit Scoring") contemplated to
be used by Green Tree, the minimum required score, i.e., "Pass Rate", for CAC
Loans shall not be more than the "Pass Rate" established for comparable Green
Tree Loans in the relevant geographic region (the "Acceptance Tolerance").
Green Tree agrees to promptly advise CAC of any change in the applicable Pass
Rate or composition thereof (including any changes in the system maximums and
minimums and a detailed description of the changes in components underlying such
change, even if the net effect of changes in such components do not affect the
aggregate "Pass Rate"); provided that Green Tree need not give notice of the
rotation of its existing scoring cards to the extent that such rotated scoring
card applies alike to Green Tree Loans in the relevant region. Green Tree shall
promptly advise CAC of the primary reasons for the rejection of any proposed
Consumer Loan under the Credit Scoring in such detail as to permit CAC to
fulfill its obligations under applicable law to provide credit denial notices to
a prospective borrower. CAC or Green Tree or both parties, as required by
applicable law, shall be responsible for completing and sending any credit
approval letters, conditional approval letters, credit denial letters and any
other consumer notices relating to the underwriting of a CAC Consumer Loan, to
the applicable consumer.
Section 3.4 Green Tree and Cavalier agree that for purposes
of this Agreement the "Par Rate" shall be determined in accordance with Exhibit
X (item 6).
Section 3.5 Green Tree agrees to use its reasonable efforts
to establish, prior to August 1, 1998, an electronic system by which prospective
CAC Loans submitted to Green Tree for approval shall be scored through the Green
Tree credit scoring system (the "Electronic Pipeline"). CAC agrees to cooperate
with Green Tree in developing mutually acceptable underwriting criteria relating
to use of credit scores in marginal situations, including credit approval as a
Conforming Manufactured Housing Retail Finance Contract of certain applicants
that receive a credit score of "fail," and credit denial as a Non-Conforming
Manufactured Housing Retail Finance Contract for certain applicants who
otherwise receive a credit score of "pass", and treatment of unscorable
applicants. Green Tree agrees to bear the out-of-pocket costs of establishing
such system and the necessary interface with the existing data processing system
of CAC. Green Tree warrants and covenants that the interface 3.8. will provide a
"pass" or "fail" credit score within ten (10) minutes of transmission by CAC to
Green Tree and, in each case where it does not, CAC shall be authorized to
approve such Consumer Loans as a Conforming Manufactured Housing Retail Finance
Contracts under the Initial Underwriting Guidelines, and 3.9. will accept data
as formatted by CAC's data processing system and return data to CAC in a form
fully compatible with CAC's data processing system.
Section 3.6 Green Tree agrees that a CAC Loan will constitute
a Conforming Manufactured Housing Retail Finance contract notwithstanding that
such a loan may include in its principal balance the financed premiums for
various Ancillary Products offered to borrowers by CAC or its affiliates,
including QCI; provided that the amount of such financed premiums do not exceed
the lesser of (i) ten percent (10%) of the entire principal balance of the
loan, or (ii) Three Thousand Five Hundred Dollars ($3,500.00). Green Tree and
Cavalier agree that the insurance underwriters for such products shall be
limited to those companies listed on Exhibit I hereto or which have an A.M.
Best's quality rating of A and size rating of V3, or such additional companies
as may otherwise be agreed by the parties (collectively, "Qualified Insurers").
Green Tree agrees that Cavalier and its affiliates shall have the exclusive
right to solicit Borrowers under Consumer Loans which were or are CAC Loans with
respect to insurance products, service contracts, extended warranty protection,
service contracts or other tangible or intangible products which relate to
manufactured home ownership (the "Ancillary Products") and Green Tree agrees
that it will not solicit, or permit others to utilize information contained in
the related Borrower loans files or Manufactured Housing Retail Finance
Contracts to solicit, such Borrowers with respect to Ancillary Products for the
duration of such Consumer Loan, notwithstanding any prior termination of this
Agreement; provided that the foregoing shall not restrict or impair the ability
or right of Green Tree to force-place collateral protection insurance in the
event that any Borrower fails to meet such Borrower's requirements under the
related Manufactured Housing Retail Finance Contract and applicable law; and
provided further that Green Tree may from time to time solicit any Borrower on
whom insurance was previously force-placed (and not later flat-canceled) for
other insurance products notwithstanding any provision in this section to the
contrary. If and to the extent that QCI does not have a relationship with a
Qualified Insurer with respect to a particular CAC Loan or Transferred CAC
Loan which permits QCI to place an insurance product with respect to such
Consumer Loan but Green Tree does, Green Tree agrees to appoint QCI as a sub-
agent or subproducer, to the extent QCI is licensed to act as such, and Green
Tree shall share any related commissions received by Green Tree from placement
of such insurance product with QCI in accordance with the commission schedule
set forth on Exhibit M hereto (in no event to exceed the compensation received
by Green Tree); provided that CAC may not, as a sub-agent or a subproducer,
write a greater amount of premiums in areas designated on Exhibit M (which
locations may be revised by Green Tree from time to time by written notice to
reflect changes in the requirements of insurers) as a percentage of all premiums
written by CAC as a sub-agent or subproducer than that which is permitted by the
relevant insurer to be written by Green Tree. Green Tree agrees that Cavalier
will own the book of business Cavalier generates with respect to Ancillary
Products, including renewal commissions, to that book of business, subject to
the terms of Exhibit M if applicable.
Section 3.7 [Reserved].
Section 3.8 Green Tree covenants and agrees that it will not
enter into or permit the continued operation of any agreement or understanding
with any Exclusive Dealer whereby Green Tree shall (i) be granted any exclusive
right to purchase, (ii) be granted any "first look" or similar right with
respect to, or (iii) be the beneficiary of any covenant or condition requiring
the offer or delivery (including any right of first refusal) to Green Tree or
its affiliates of, in each case, any Consumer Loans originated or held by the
Dealer.
Section 3.9 (a) Green Tree agrees to purchase each
Conforming Manufactured Housing Retail Finance Contract which constitutes a CAC
Loan purchased or originated by CAC from and after the Effective Date hereof,
subject to Section 5.4 (the "Available CAC Loans") pursuant to the terms set
forth herein. Green Tree agrees to purchase the Available CAC Loans from CAC on
a weekly basis. CAC agrees to package the Available CAC Loans for delivery to
the address specified by Green Tree, in writing by a reputable overnight courier
each Friday (or if not a business day, the next succeeding business day)
together with a remittance computation reflecting the outstanding principal
balance of such Available CAC Loans and the amount, including Acquisition
Premium, insurance commission, Origination Fee, Yield Differential and any other
relevant fees, to be remitted to CAC. Green Tree agrees to remit to CAC the
specified remittance amount by wire or ACH transfer in immediately available
funds to the account designated by CAC within one business day of receipt of the
package of Available CAC Loans and related "remittance statement" and any late
payment shall bear interest at the interest rates provided for in the respective
related Manufactured Housing Retail Installment Contracts. The "Remittance
Statement" shall set forth the outstanding principal balance of each loan, its
origination date, accrued but unpaid interest with respect thereto, any charges
or premiums relating to Ancillary Products and the related Acquisition Premium,
including as separate components thereof any Yield Differential and any
Origination Fee, and subtotals for each of the foregoing and a total amount to
be remitted by Green Tree to CAC. Each of CAC and Green Tree shall have a period
of sixty (60) days to confirm the accuracy of the remittance computations.
Thereafter, such remittance computations as provided by CAC and accepted without
written protest by Green Tree shall be presumed accurate in the absence of clear
and convincing evidence otherwise. To the extent that adjustments are necessary
in remittances, such adjustments, if made more than thirty (30) days after the
original transmission of funds shall bear interest from such date of
transmission of funds at the Prime Rate.
(b) Green Tree and CAC hereby agree that the Available CAC
Loans shall be evidenced by such documentation as may be specified by Green Tree
in its sole discretion in writing from time to time, which documentation shall
be generally consistent with the documentation used by Green Tree with respect
to Green Tree Loans (the "Chattel Paper Forms"). Green Tree and CAC further
agree that the security interest in collateral for Available CAC Loans shall be
timely perfected by CAC in its name pursuant to CAC's standard lien perfection
procedures relating to manufactured homes and shall be done in compliance with
applicable state law (including, without limitation, certificate of title law
and/or Uniform Commercial Code).
Section 3.10 CAC represents and warrants with respect to each
Available CAC Loan that, as of the date of transfer to Green Tree that:
(a) Such available CAC Loan was purchased by CAC pursuant to
the terms of a Qualifying Non-Recourse Manufactured Home Time Sales Agreement
("Chattel Paper Purchase Agreement"), attached hereto as Exhibit E, which within
a reasonable time upon the request of Green Tree shall contain substantially the
same terms as Green Tree's Manufactured Home Dealer Agreement, and in connection
therewith, CAC agrees to assign to Green Tree all of its rights and remedies
contained in the Chattel Paper Purchase Agreement with respect to such Available
CAC Loan;
(b) CAC purchased the Available CAC loan in the ordinary
course of business and is selling, transferring and otherwise assigning without
recourse all right, title and interest it has in such CAC Loan and in the
underlying manufactured home, including all Chattel Paper Forms and lien
perfection instruments (certificate of title or UCC-1), to Green Tree free and
clear of any lien, encumbrance or prior assignment, and CAC has good title to,
and full right, power and authority to transfer and assign the Available CAC
Loan and all relevant loan documents to Green Tree;
(c) The Chattel Paper Purchase Agreement, pursuant to
which CAC acquired the Available CAC Loan, has been duly executed and delivered
by the related Dealer and is in full force and effect and, subject to applicable
limitations on creditors rights generally and principles of equity and public
policy, is enforceable in accordance with its terms;
(d) CAC has not received any payment on the Available CAC
Loan except payments disclosed to Green Tree in writing at the time the
Available CAC Loan is transferred to Green Tree and any such payments are
accurately reflected in the remittance statement relating thereto;
(e) Up to the Conversion Date, to the knowledge of CAC,
the Available CAC Loan and the Borrower thereunder meet the Initial Underwriting
Guidelines or any alternative requirements for Special Contracts, as the case
may be, in effect on the date such Available CAC Loan was approved for purchase
by CAC from a Dealer;
(f) The Transferred CAC Loan is not and shall not in the
future be subject to all of the following: (i) a lien avoidance claim (based
upon a preferential transfer) by a bankruptcy trustee, (ii) bankruptcy petition
filed by the related Borrower within ninety (90) days after the origination of
such Transferred CAC Loan; and (iii) failure by CAC to timely perfect its
security interest pursuant to applicable bankruptcy law and state law in the
manufactured home serving as collateral for such Transferred CAC Loan;
(g) The Transferred CAC Loan (i) prior to the Conversion
Date, satisfies in all material respects the Initial Underwriting Guidelines, or
(ii) from and after the Conversion Date was not purchased based on information
input by CAC into the Credit Scoring profile which proves to be materially false
or misleading when made; provided that CAC shall have no liability or obligation
with respect to the foregoing representation and warranty to the extent that the
breach thereof is caused by any negligence, lack of due care, fraud, reckless
act or omission or intentional misconduct of the related Dealer, if CAC did not
have actual knowledge thereof; and provided further that this paragraph (g)
shall have no force or effect with respect to a particular Transferred CAC Loan
unless Green Tree provides CAC with notice in reasonable detail of a breach
under this paragraph (g) within a period of sixty (60) days from the date of
transfer of such Transferred CAC Loan;
(h) CAC has not been negligent such that (i) prior to the
Conversion Date, such Transferred CAC Loan fails to satisfy in all material
respects the Initial Underwriting Guidelines, or (ii) from and after the
Conversion Date such Transferred CAC Loan was purchased based on information
input by CAC into the Credit Scoring profile which proves to be materially false
or misleading when made; provided that CAC shall have no liability or obligation
with respect to the foregoing representation and warranty to the extent that the
breach thereof is caused by any negligence, lack of due care, fraud, reckless
act or omission or intentional misconduct of the related Dealer, if CAC did not
have actual knowledge thereof; and provided further that this paragraph (h)
shall have no force or effect with respect to a particular Transferred CAC Loan
unless Green Tree provides CAC with notice in reasonable detail of a breach
under this paragraph (h) within a period of one hundred eighty (180) days from
the date of transfer of such Transferred CAC Loan;
(i) CAC has not engaged in any fraud, grossly negligent
or reckless act or omission or intentional misconduct which materially and
adversely effects the value of an Available CAC Loan;
(j) No Conforming Manufactured Housing Retail Finance
Contract shall have a principal balance which exceeds $60,000 unless otherwise
approved by Green Tree in writing;
(k) All Available CAC Loans were originated and/or
purchased by CAC in compliance with applicable federal, state and local laws and
regulations;
(l) The Chattel Paper Forms utilized by CAC (to the
extent not provided in substance by Green Tree) comply with applicable federal,
state and local laws and regulations;
(m) In the event any Transferred CAC Loans include in
their principal balance the financed premiums for various Ancillary Products
offered by CAC or QCI to Borrowers, CAC or QCI shall notify the applicable
insurance carrier of the assignment of the Transferred CAC Loan to Green Tree
and shall request that Green Tree be named as beneficiary or loss payee, as
applicable; and
(n) CAC holds a valid and enforceable first priority lien
in the manufactured home and, further, CAC has properly perfected its security
interest in the home (in CAC's name) in compliance with applicable state law.
Section 3.11 Except as expressly set forth herein or in any
other agreement contemplated hereby, CAC makes no representations or warranties
whatsoever with respect to the Available CAC Loans and, upon purchase by Green
Tree, Green Tree shall bear all risk of loss with respect thereto.
Section 3.12 The transfer of the Available CAC Loans by CAC
to Green Tree shall be on a "servicing released" basis and CAC shall have no
further interest therein or obligation thereunder except as expressly provided
herein. CAC covenants and agrees that it shall direct any Borrower under a CAC
Loan acquired by Green Tree to make payment to Green Tree or such servicer as
may be designated by Green Tree at its address specified by Green Tree. CAC
hereby appoints Green Tree as attorney in fact to endorse payments made to CAC
which are payments under a CAC Loan transferred to Green Tree. CAC agrees to
promptly convey to Green Tree or its designated servicer any monies received by
CAC relative to any CAC Loan transferred to Green Tree.
Section 3.13 CAC agrees to repurchase any Transferred CAC
Loan which is in breach of any representation or warranty made by CAC under
Section 3.10 at a price equal to the sum of the outstanding principal balance,
Acquisition Premium (including Origination Fee and Yield Differential), accrued
but unpaid interest, and any other relevant fee, of such Transferred Loan (the
"Repurchase Price"); provided that CAC shall have thirty (30) days during which
it may cure such breach, if possible under the law, and to the reasonable
satisfaction of Green Tree. Green Tree and CAC agree that the sole remedy of
Green Tree with respect to a breach of any representation or warranty by CAC
under Section 3.10 is the repurchase of the related Consumer Loan by CAC at the
Repurchase Price; provided that if CAC does not repurchase a Transferred CAC
Loan within ten (10) business days of a written request from Green Tree to do so
that states in reasonable detail the basis for such request, CAC shall be liable
for any reasonable attorneys fees and related costs incurred by Green Tree in
connection with the related Transferred CAC Loan from and after the date of the
related repurchase request by Green Tree.
Section 3.14 [Reserved].
Section 3.15 CAC agrees that if a Transferred CAC Loan is
prepaid as a result of a refinancing by a lender other than Green Tree within
the period set forth in Exhibit X (item 14), CAC shall refund to Green Tree the
amount specified in Exhibit X (item 15).
ARTICLE IV
COVENANTS AND AGREEMENTS
Section 4.1 It is understood and agreed that the obligations
of Cavalier under the Repurchase Agreement relate solely to the Dealer to whom
the Cavalier Product was originally invoiced and shall cease and be of no
further force and effect with respect to such Cavalier Product upon any sale or
other conveyance of the Cavalier Product, whether in the ordinary course of
business or in connection with any sale of all or substantially all of the
assets of such Dealer, the sole exception being the acquisition of such
collateral by Green Tree pursuant to foreclosure or other acquisition in
satisfaction of debts previously contracted.
Section 4.2 Green Tree and Cavalier agree to work and
negotiate in good faith for the development of a program for refurbishing by CMI
of repossessed manufactured homes held by Green Tree. This program shall only
apply to those repossessed homes in which Green Tree has completed its
foreclosure of the Borrower's rights.
Section 4.3 Green Tree agrees to work and negotiate in good
faith with CAC to develop products and programs pursuant to which CAC will
promote, and Green Tree will purchase, otherwise Non-Conforming Manufactured
Housing Retail Finance Contracts which in the good faith judgment of CAC meet,
or likely meet, the criteria mutually agreed to by Green Tree and CAC ("Special
Contracts"). Programs to be considered shall include, but not be limited to,
manufacturer rebate transactions and first time home buyer programs.
Section 4.4 Green Tree agrees to work and negotiate in good
faith with Cavalier to develop a private label, customized financing proposal
which will be made available only to Exclusive Dealers and Preferred Dealers
which meet Green Tree's standards of creditworthiness and upon terms
satisfactory to Green Tree in its sole discretion regarding the matters set
forth on Exhibit X (item 18). The terms of such financing must be satisfactory
to Green Tree in its sole discretion.
Section 4.5 The parties hereto covenant and agree not to
disclose any proprietary and/or confidential information contained in Exhibit X
to any person except (i) on an internal need to know basis where such person is
bound by this provision (including appropriate internal safeguards) or other
appropriate confidentiality agreements or ethical obligations, it being
understood that such disclosure may be made to certain relevant professionals,
persons purchasing or considering purchase of loan participations related to
Transferred CAC Loans, Green Tree Floor Plan Loans, or securities backed by such
loans, or to rating agencies or as otherwise required in connection with
securitization transactions or similar funding transactions, or (ii) as required
by law or pursuant to court order. Each party agrees to give the other prompt
written notice in the event that it is presented with a legal requirement to
disclose Exhibit X; provided that such notification is not prohibited by law.
Section 4.6 Green Tree hereby represents and warrants to
Cavalier, as of the date hereof, and as of all times up to and through the
termination of this Agreement, as follows:
(a) Green Tree has been duly organized and is validly
existing and in good standing under the laws of the jurisdiction of its
organization with the power and authority to own its properties and engage in
the transactions contemplated by this Agreement;
(b) The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly authorized by each of them and, at the time of execution, performance
or consummation, shall not constitute or result in any breach or violation of
any of the terms or provisions or conditions of or constitute default under, any
statute, law, regulation or ordinance of the United States, any state or
political subdivision thereof or any material contract, agreement, indenture or
trust to which such person is a party or by which it is bound or any order,
arbitration award, judgment, decree or ruling of any court or governmental
agency or body having jurisdiction over such party;
(c) There is not pending or, to the knowledge of Green
Tree, threatened, any action, suit or proceeding before or by any court,
governmental agency, arbitral authority, body or administrator to which Green
Tree is a party, or by which any of its property is subject, which might result
in a material adverse change in the condition, financial or otherwise, or
business prospects of Green Tree;
(d) This Agreement and each of the agreements referenced by
exhibit herein, constitutes the legal, valid and binding agreement of Green Tree
enforceable in accordance with its terms;
(e) The Credit Scoring performed shall comply in all
material respects with applicable federal, state and local law and regulation.
Section 4.7 Cavalier hereby represents and warrants to Green
Tree, as of the date hereof, and as of all times up to and through the
termination of this Agreement, as follows:
(a) Cavalier has been duly organized and is validly
existing and in good standing under the laws of the jurisdiction of its
organization with the power and authority to own its properties and engage in
the transactions contemplated by this Agreement;
(b) The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly authorized by each of them and, at the time of execution, performance
or consummation, shall not constitute or result in any breach or violation of
any of the terms or provisions or conditions of or constitute default under, any
statute, law, regulation or ordinance of the United States, any state or
political subdivision thereof or any material contract, agreement, indenture or
trust to which such person is a party or by which it is bound or any order,
arbitration award, judgment, decree or ruling of any court or governmental
agency or body having jurisdiction over such party;
(c) There is not pending or, to the knowledge of Cavalier,
threatened, any action, suit or proceeding before or by any court, governmental
agency, arbitral authority, body or administrator to which Cavalier is a party,
or by which any of its property is subject, which might result in a material
adverse change in the condition, financial or otherwise, or business prospects
of Cavalier;
(d) This Agreement and each of the agreements referenced by
exhibit herein, constitutes the legal, valid and binding agreement of Cavalier
enforceable in accordance with its terms.
Section 4.8 Green Tree agrees to indemnify and hold harmless
Cavalier from and against any and all losses, claims, damages, liabilities,
costs and expenses (including reasonable attorneys' and experts' fee and
expenses) to which CAC or any of its employees, directors, officers, accountants
and affiliates may become subject arising from any act or omission of Green Tree
in connection with its servicing of Transferred CAC Loans from and after the
date of the transfer of such CAC Loan.
Section 4.9 Green Tree agrees to offer the Preferred Floor
Plan Financing to all of the Exclusive Dealers and Preferred Dealers, whether
now or hereafter identified by CMI, provided that such Exclusive Dealer or
Preferred Dealer, as the case may be, meets the creditworthiness standards
established by Green Tree in its sole discretion.
Section 4.10 CAC agrees that it will not refinance any
Borrower under any CAC Loan transferred to Green Tree hereunder (a "Transferred
CAC Loan"); provided that the foregoing restrictions shall not be deemed to
apply with respect to the origination or purchase of a Consumer Loan by CAC from
a Borrower under a Transferred CAC Loan if the new Consumer Loan is secured by
different collateral (i.e., CAC may freely finance Borrowers trading in homes
for new Cavalier Product) ("Trade-in Loans"). Except with respect to Trade-in
Loans, CAC agrees that, notwithstanding anything else to the contrary contained
herein, the Acquisition Premium on any Available CAC Loan which results from the
refinancing of any Green Tree Loan shall be a zero percent (0%) of the
outstanding principal balance of the new CAC Loan related thereto.
Section 4.11 Green Tree and Cavalier agree to provide the
other with such reports and information most conveniently at the disposal of the
other, on a timely basis, as each shall reasonably request regarding Transferred
CAC Loans, including the amount and aging of Pre-Sold Financing, the Pass Rate,
the number and amount of Green Tree Loans acquired from Exclusive Dealers and
Preferred Dealers and the performance of Transferred CAC Loans, and the average
outstanding daily balance of Green Tree Floor Plan Loans to each of Exclusive
Dealers and Preferred Dealers. Each party shall obtain the consent from all
necessary parties in order to provide such information.
ARTICLE V
SALE OF PORTFOLIO LOANS
Section 5.1 Green Tree agrees to purchase, and CAC agrees to
sell, the amount set forth in Exhibit X (item 8) in Manufactured Housing Retail
Finance Contracts held by CAC, excluding (i) CAC Loans that are ninety (90) days
or more delinquent, (ii) CAC Loans which are presently the subject of a
bankruptcy proceeding or other legal action (including where the collateral has
been repossessed), or (iii) CAC Loans that are in process of repossession or for
which specific loss reserves have been established (items (i) through (iii)
being referred to as the "Carved-Out CAC Loans"), at a price equal to the amount
set forth in Exhibit X (item 9), plus accrued but unpaid interest, on customary
terms and conditions for the sale of consumer loans without recourse (but
recognizing repurchase remedies for certain warranty breaches will exist) on a
servicing-released basis, not inconsistent with the provisions of the
Manufactured Home Loan Purchase Agreement attached hereto as Exhibit K (the
"MLPA"), providing for an "all or none" sale except with respect to Carved-Out
CAC Loans, and providing for a payment to CAC and conveyance and delivery to
Green Tree not later than March 1, 1998, or such later date that Green Tree
using its reasonable efforts may assume the servicing of such. The CAC Loans
purchased by Green Tree shall be CAC Loans purchased and made in 1996, 1997 and
1998 (prior to the Effective Date) subject to the foregoing exclusions. The
parties acknowledge that the MLPA is subject to completion upon terms mutually
acceptable to the parties and expresses only the preliminary intent of the
parties, particularly with respect to administrative and transition provisions,
but shall not impose on CAC obligations for representations and warranties
beyond its direct control (i.e., actions taken by Dealers originating such
Consumer Loans) or provide remedies that are materially different than those set
forth in Section 3.13 of this Agreement.
Section 5.2 On a date to be selected by CAC and consented to
by Green Tree, which consent shall not be unreasonably withheld, within eighteen
(18) months of the date of this Agreement, Green Tree agrees to purchase the
balance of the CAC Loan portfolio acquired by CAC prior to 1996 on the same
terms and conditions set forth in the MLPA, excluding Carved-Out CAC Loans.
Section 5.3 [Reserved]
Section 5.4 Green Tree agrees that, notwithstanding anything
else to the contrary contained in this Agreement, CAC shall be permitted, at its
option, to keep and retain for its own account such amount of Conforming
Manufactured Housing Retail Finance Contracts, whether now existing or hereafter
arising, as it determines in its discretion; provided that, to the extent that
CAC retains CAC Loans arising after the Effective Date, such retained loans
shall be a representative sampling of all CAC Loans arising after the Effective
Date, where such sampling shall be determined by stratifying CAC Loans into 4
groups according to quality and ensuring that the percentage of CAC Loans
retained by CAC under this Section from each group is approximately the same
percentage as such group bears to the whole. CAC agrees that, for a period of
one year following any termination of this Agreement (other than pursuant to
Sections 6.2 (a) through (d), 6.2 (f) through (j) and 6.2 (l)), it will not sell
Conforming Manufactured Retail Finance contracts purchsed or originated by CAC
during the term of this Agreement in an aggregate amount in excess of $250,000
to any third party unless CAC shall have first given Green Tree the option to
purchase such loans on the same terms and conditions as Green Tree purchased
loans under Article III of this Agreement. Green Tree shall be required to
exercise such option within fifteen (15) days after receiving written notice
from CAC of its desire to sell such loans to a third party, and the sale to
Green Tree shall be consummated within thirty (30) days after Green Tree gives
written notice that it exercises such option. The option shall be inapplicable
and of no further force or effect following the expiration of one year after the
termination of this Agreement or in the event such termination occurs pursuant
to Sections 6.2 (a) through (d), 6.2 (f) through (j), or 6.2 (l).
ARTICLE VI
TERM AND TERMINATION
Section 6.1 Unless earlier terminated pursuant to the
provisions set forth below, the term of this Agreement shall commence on the
Effective Date hereof and shall expire three (3) years from the date thereof;
provided that this Agreement shall be automatically extended for successive one
(1) year periods unless either party hereto gives written notice to the other
parties at least ninety (90) days prior to the end of the then current term of
its intention not to extend this Agreement.
Section 6.2. This Agreement may be terminated by Cavalier upon
sixty (60) days prior written notice to Green Tree, except immediately in the
case of items (c), (d), (i) and (j), in the event that any of the following
shall occur:
(a) Green Tree ceases to be the servicer or subservicer, as
the case may be, of any material portion of the Transferred CAC Loans or any
Preferred Floor Plan Financing (except in the case where a special servicer may
be appointed under terms of a securitization document);
(b) Green Tree or any of its affiliates shall acquire, other
than in satisfaction of debts previously contracted, any Dealer;
(c) Green Tree shall undergo a Change in Control;
(d) Green Tree or any of its affiliates shall become the
subject of any voluntary or involuntary bankruptcy proceeding;
(e) The transaction contemplated by Section shall not have
been consummated by April 17, 1998;
(f) Green Tree acquires any material manufactured home
manufacturing operation;
(g) The financial condition of Green Tree or market
conditions reasonably appear likely to restrict the sale of CAC Loans to Green
Tree to less than $250,000,000.00 per annum;
(h) Green Tree's "Pass Rate" for Available CAC Loans which
are Conforming Manufactured Housing Retail Finance Contracts exceeds the
"Acceptance Tolerance";
(i) Green Tree fails to remit when due any of the payments
required under this Agreement or contemplated hereby or under any other
agreement with or for the benefit of Cavalier, after notice and ten (10) days
grace;
(j) Green Tree is in breach, default or violation of any of
its representations, warranties, covenants or agreements contained in this
Agreement or contemplated hereby or under any other agreement with or for the
benefit of Cavalier and such continues for thirty (30) days or more after notice
by Cavalier;
(k) CMI determines, in its reasonable and good faith
judgment, that continuation of this Agreement is materially adverse to the
continued development, maintenance or administration of its exclusive dealer
program or the sale of Cavalier Product to Dealers; or
(l) Green Tree, without the prior written consent of
Cavalier, modifies any of the Floor Plan Agreement, the Used Inventory Floor
Plan Financing terms or the Chattel Paper Forms in a manner which, in the
reasonable judgment of Cavalier, is adverse to the interests of Cavalier.
Section 6.3 This Agreement may be terminated by Green Tree
upon one hundred eighty (180) days prior written notice to Cavalier, except
immediately for items (b), (c), (d) and (h), in the event that any of the
following shall occur:
(a) After Green Tree determines that the loss ratio on CAC
Loans exceeds the loss ratio both on 6.5. Consumer Loans acquired directly by
Green Tree from Exclusive Dealers and Preferred Dealers, and 6.6. Consumer Loans
of a comparable type acquired by Green Tree from all sellers, in each case by
25% or more (e.g., the loss ratio for CAC Loans is 1.8% and the loss ratio for
Green Tree Loans is 1.5%, or a 0.3% difference, or 20%);
(b) Cavalier shall undergo a Change in Control;
(c) Cavalier or any of its affiliates shall become the
subject of any voluntary or involuntary bankruptcy proceeding;
(d) Cavalier breaches the Repurchase Agreement or the
Guaranty, after at least 15 days written notice and opportunity to cure;
(e) Fewer than 50% of the Exclusive Dealers and Preferred
Dealers to whom Preferred Floor Plan Financing is offered become Floor Plan
Customers;
(f) CMI has fewer than 75 Dealers who exclusively deal in new
Cavalier Product;
(g) The New Inventory Floor Plan Financing, taken as a
whole, has a loss ratio, determined on a rolling annual basis in accordance with
prudent and customary banking practices, equal to or greater than 1%;
(h) Cavalier is in breach, default or violation of any of
its representations, warranties, covenants or agreements contained in this
Agreement or contemplated hereby or under any other agreement with or for the
benefit of Green Tree and such continues for thirty (30) days or more after
notice by Green Tree; or
(i) Green Tree determines, in its good faith and reasonable
judgment, that (1) continued performance of this Agreement is materially adverse
to the financial and business interests of Green Tree, (2) Green Tree is not
obtaining the expected financial and business benefits reasonably expected to be
achieved under this Agreement, and (3) Green Tree is unlikely to obtain such
benefits in the foreseeable future.
Section 6.4 No party under this Agreement shall be entitled
to consequential, punitive or exemplary damages or damages for profits expected
to be obtained in connection with the performance of this Agreement. Each party
to this Agreement shall be entitled to the remedies of injunction and specific
performance to enforce the obligations of any other party with respect to this
Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Assignment. This Agreement or any interest
herein shall not be assigned by any party hereto without the prior written
consent of the other parties; provided that the foregoing shall not prohibit or
impair the ability of Green Tree to assign its rights and benefits (but Green
Tree may not delegate its obligations) hereunder with respect to Transferred CAC
Loans or Floor Plan Loans, in connection with a securitization transaction,
i.e., the conveyance of such Transferred CAC Loans or Floor Plan Loans the grant
of a participation interest therein or in connection with conveyance to a
special purpose vehicle which shall hold such Transferred CAC Loans for the
benefit of, or as collateral for, security holders of such special purpose
vehicle (a "Securitization") or a similar funding arrangement whereby
Transferred CAC Loans or Floor Plan Loans are pledged, transferred or assigned.
Section 7.2 Notices. Any notice or other communication
required or permitted hereunder will be in writing and will be deemed
sufficiently given only if delivered in person, by reputable overnight courier,
or by first class or certified mail, postage prepaid, or sent by facsimile or
telex and confirmed by mail, postage prepaid, addressed as follows:
If to CMfg, CInd, SHom, DHom, BHom or XHom:
Cavalier Manufacturing, Inc.
Highway 41 North and Cavalier Road
P.O. Box 300
Addison, Alabama 35540
Attn: Mike Murphy
Fax (256) 747-3044
Telephone (256) 747-0044
If to QCI:
Quality Certified Insurance Services, Inc.
P.O. Box 898
Hamilton, Alabama 35570
Attn: Robert F. Blake, Jr.
Fax: (800) 844-4965
Telephone (205) 921-4814
If to CAC:
Cavalier Acceptance Corporation
P.O. Box 898
Hamilton, Alabama 35570
Attn: Jerry F. Wilson, Jr.
Fax: (800) 844-4965
Telephone (205) 921-4814
If to Green Tree:
Green Tree Financial Servicing Corporation
100 Northpoint Center East, Suite 200
Alpharetta, GA 30202
Attn: Robert Byrne
and to:
Green Tree Financial Servicing Corporation
1100 Landmark Towers
345 St. Peter St.
St. Paul, MN 55102
Attn: General Counsel
or to such other address as the party may have specified in a notice duly given
to the other party as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered, so faxed, telexed or, if
mailed, on the date received.
Section 7.3 Waivers. No waiver by any party of any default
with respect to any provision, condition or requirement hereof shall be deemed
to be a waiver of any other provision, condition or requirement hereof; nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it thereafter.
Section 7.4 Preservation of Intent. Should any provision of
this Agreement be determined by a court or arbitral authority having
jurisdiction over the subject matter hereof to be illegal or in conflict with
any applicable laws of any state or jurisdiction, the parties hereto agree that
such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out.
Section 7.5 Relationship of Parties. Nothing herein contained
shall constitute the parties members of any partnership,association, syndicate
or other entity. Nothing herein contained shall be deemed to confer on either of
them any express, implied or apparent authority to incur any obligation or
liability on behalf of the other except as expressly provided herein.
Section 7.6 Third Party Beneficiaries. The terms and
provisions of this Agreement are not intended to confer upon any person other
than the parties hereto and their respective permitted successors and assigns
any rights or remedies, and such terms and provisions will be enforceable only
by the parties hereto and their respective permitted successors and assigns.
Section 7.7 Entire Agreement. This Agreement and the other
written agreements referenced herein set forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, commitments and
representations in respect thereof between them, and no party shall be bound by
any conditions, warranties, or representations with respect to the specific
subject matter of this Agreement except as provided in this Agreement.
Section 7.8 Amendment. This Agreement may not be amended in
any respect except by an instrument in writing signed by the parties hereto.
Section 7.9 Further Actions. At any time and from time to
time, each party shall, at its expense, take such actions and execute and
deliver such documents as may be reasonably necessary in the opinion of counsel
(which may be internal counsel) to the parties to effectuate the purposes of
this Agreement. Without limiting the generality of the foregoing, the parties
shall cooperate and use their reasonable efforts to obtain as promptly as
practicable any governmental approvals and to make promptly any filings which
are necessary for the consummation of any of the transactions contemplated by
this Agreement.
Section 7.10 Headings. The headings in this Agreement are
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement. Whenever used in this
Agreement, the singular number shall include the plural and the plural the
singular. Pronouns of one gender shall include all genders. The words "hereof",
"herein", and terms of similar import shall refer to this entire Agreement.
Unless the context clearly requires otherwise, the use of the terms "including",
"included", "such as", or terms of similar meaning, shall not be construed to
imply the exclusion of any other particular elements. The term "person" shall
mean all natural persons, entities, corporations, partnerships, companies and
governmental units of every nature whatsoever.
Section 7.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile transmission of an executed counterpart.
Section 7.12 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Georgia.
Section 7.13 Arbitration. The parties hereto, by entering
into this Agreement, hereby waive their right to trial by jury of disputes,
claims or controversies between themselves arising out of or relating to this
Agreement or any agreements or instruments relating to this Agreement or the
transactions and services contemplated hereby and the parties agree that all
such disputes, claims or controversies shall be settled exclusively by binding
arbitration in accordance with the Federal Arbitration Act and the Commercial
Financial Disputes Arbitration Rules of the American Arbitration Association.
Such arbitration shall be conducted in Atlanta, Georgia.
Section 7.14 Joint and Several. The obligations of CMI
specified herein shall be the joint and several obligations of CMfg, CInd, BHom,
SHom and XHom and any other Cavalier affiliates which are added by written
agreement of all the parties hereto, unless otherwise expressly provided. The
obligations of Cavalier specified herein shall be the joint and several
obligations of CMfg, CInd, BHom, DHom, SHom, XHom, QCI and CAC and any other
Cavalier affiliates which are added by written agreement of all the parties
hereto, unless otherwise expressly provided. The obligations of Green Tree
specified herein shall be the joint and several obligations of GTFCA, GTFSC,
GTC, GTCC and GTCDC and any other GTC affiliates which are added by written
agreement of all the parties hereto, unless otherwise expressly provided. If not
prohibited by law of the jurisdiction in which enforcement is sought, the losing
party shall pay court costs and reasonable attorney's fees of the prevailing
party in the event a party is required to enforce its rights hereunder through
legal proceedings.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their
respective duly authorized representatives to sign below as of the date first
above written.
CAVALIER MANUFACTURING, INC.
By: /s/ Michael R. Murphy
_______________________________
Its: Secretary
_______________________________
Name: Michael R. Murphy
_______________________________
CAVALIER ACCEPTANCE CORPORATION
By: /s/ Jerry F. Wilson, Jr.
_______________________________
Its: President
_______________________________
Name: Jerry F. Wilson, Jr.
_______________________________
CAVALIER INDUSTRIES, INC.
By: /s/ Michael R. Murphy
_______________________________
Its: Secretary
_______________________________
Name: Michael R. Murphy
_______________________________
QUALITY CERTIFIED INSURANCE
SERVICES, INC.
By: /s/ Robert F. Blake, Jr.
_______________________________
Its: President
_______________________________
Name: Robert F. Blake, Jr.
_______________________________
DELTA HOMES, INC.
By: /s/ Michael R. Murphy
_______________________________
Its: Secretary
_______________________________
Name: Michael R. Murphy
_______________________________
BELMONT HOMES, INC.
By: /s/ Michael R. Murphy
________________________________
Its: Secretary
________________________________
Name: Michael R. Murphy
________________________________
BELLCREST HOMES, INC.
By: /s/ Michael R. Murphy
________________________________
Its: Secretary
________________________________
Name: Michael R. Murphy
________________________________
SPIRIT HOMES,INC.
By: /s/ Michael R. Murphy
_______________________________
Its: Secretary
_______________________________
Name: Michael R. Murphy
_______________________________
GREEN TREE FINANCIAL
SERVICING CORPORATION
By: /s/ Joel H. Gottesman
_______________________________
Its: Senior Vice President
and Secretary
_______________________________
Name: Joel H. Gottesman
_______________________________
GREEN TREE FINANCIAL
CORPORATION
By: /s/ Joel H. Gottesman
________________________________
Its: Sr. Vice President, General
Counsel and Secretary
________________________________
Name: Joel H. Gottesman
________________________________
GREEN TREE CREDIT CORP.
By: /s/ Joel H. Gottesman
________________________________
Its: Senior Vice President
and Secretary
________________________________
Name: Joel H. Gottesman
________________________________
GREEN TREE CONSUMER DISCOUNT
COMPANY
By: /s/ Joel H. Gottesman
________________________________
Its: Senior Vice President
and Secretary
________________________________
Name: Joel H. Gottesman
________________________________
GREEN TREE FINANCIAL CORP.-
ALABAMA
By: /s/ Joel H. Gottesman
________________________________
Its: Senior Vice President
and Secretary
________________________________
Name: Joel H. Gottesman
________________________________
EXHIBIT 10b
LEASE AGREEMENT
WITH OPTION TO PURCHASE
THE STATE OF ALABAMA )
)
COUNTY OF MARION )
Recitals
A. Winfield Industrial Properties, Inc. ("Landlord"), An Alabama
corporation, owns that certain real property in the city of Winfield, Marion
County, Alabama more fully described as follows:
A tract of land containing 3.62 acres, situated in the Northwest 1/4 of
Northwest 1/4 of Section 14, Township 13 South, Rage [sic] 12 West,
Marion County, Alabama and being more particularly described as
follows: Commence at the Southwest corner of Northwest 1/4 of Northwest
1/4 of said Section 14, thence run N. 88 degrees 52 E. along the South
boundary of said NW 1/4-NW 1/4 and along the centerline of First Avenue
South, a distance of 25.00 feet to a point; thence run N. 04 degrees 15
W., a distance of 25.00 feet to an old angle iron pin situated at the
intersection of the Northerly right-of-way of First Avenue South with
the Easterly right-of-way of a second Paved city of Winfield Street,
said iron and intersection point being the point of beginning for the
tract herein described to-wit: thence continue N. 04 degrees 15 W.
along the Easterly right-of-way of said second Paved City of Winfield
Street to an old fence post (cut off); thence run N. 88 degrees 52 E.
and parallel with the South boundary of above said NW 1/4-NW 1/4 a
distance of 631.00 feet to a steel fence post situated in the center of
a 20.0 foot wide alley (abandoned); thence run S. 04 degrees 15 E.
along the center abandoned alley, a distance of 250.0 feet to a 1/2
inch rebar situated on the Northerly right-of-way of the above said
First Avenue South; thence run S. 88 degrees 52' W. along the Northerly
right-of-way of said avenue, a distance of 631.00 feet to the point of
beginning.
Description furnished by Jack W. Loden & Associates, Land Surveyors,
Hamilton, Al. reg. No 10681.
Building on said Property consist of 30,000 square feet less 5,000
square feet and a yard which is leased to Roadway Services, Inc. for
their exclusive use. (See Exhibit A)
Said real property plus the improvements thereon shall hereinafter be referred
to as the "Leased Premises."
B. Superior Door Company, Inc.("tenant"), an Alabama corporation, desires
to lease the Lease Premises from Landlord upon the terms and conditions
hereinafter set forth.
<PAGE>
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:
That, for value received, Landlord and Tenant have agreed:
1. Leased Premises.
1.1. Lease. Pursuant to the terms of this Lease Agreement
("Lease"), and subject to the provisions of Section 1.2 below, Landlord hereby
leases and lets unto Tenant and Tenant does hereby take from Landlord the Leased
Premises. Tenant acknowledges that it has fully inspected the Leased Premises
and accepts the Leased Premises as suitable for the purposes for which the same
are hereby leased. Subject to the provisions of Section 11.2, Tenant accepts the
Lease Premises in their current condition AS IS, WHERE IS and WITH ALL FAULTS.
2. Term.
2.1. Initial Term. The initial term of this Lease is for a
period of 5 years commencing as of December 1, 1995 ("Commencement Date") and
ending on November 30, 2000. Notwithstanding the foregoing, if the Lease
Premises are occupied by Tenant prior to the Commencement Date, the initial term
of this Lease shall be deemed to have commenced on the date of Tenant's
occupancy of the termination date of the initial term shall remain the same as
stated above.
2.2. Renewal Term. Tenant shall have the option to renew this
Lease for an additional term of five (5) years, by written notice of such
renewal delivered to Landlord as hereinafter provided, under the same terms,
conditions and covenants set forth herein, except that the rents payable
hereunder shall be adjusted as set forth in Section 3.2 and Tenant shall have no
additional options to renew this Lease.
2.3. Notice Requirements. Not more than 180 days prior to the
expiration of the initial term, Landlord shall give Tenant written notice
requesting that Tenant notify Landlord whether or not Tenant intends to exercise
its right of renewal pursuant to Section or its option to purchase pursuant to
Section 19. Within 60 days after Tenant's receipt of such notice, Tenant shall
notify Landlord in writing if Tenant desires to renew this Lease or exercise its
option to purchase the Lease Premises. If Tenant fails to respond to such
written notice from Landlord, Tenant shall deemed to have elected to not renew
this Lease and not exercise its option to Purchase the Leased Premises. If
Landlord fails to give such written notice to Tenant, Tenant may nevertheless
exercise its right to renew this Lease or its option to purchase the Leased
Premises by giving Landlord written notice of the intention to do so at any time
prior to the expiration of the initial term of this Lease. If Tenant exercises
its right to renew this Lease (and therefore does not exercise its option to
purchase the Leased Premises at that time), not more than 180 days prior to the
expiration of the renewal term, the notice requirements set forth herein shall
be applicable and shall be utilized by Landlord and Tenant in connection with
the exercise (or not) of Tenant's option to purchase the Lease Premises.
3. Rents.
3.1. Initial Term. As rents for the Lease Premises during the
initial term, Tenant shall pay Landlord at Landlord' suffices [sic] in Winfield,
Marion County, Alabama the aggregate sum of $180,000 payable in 60 equal monthly
installments of $3,000 each; the first of such installments shall be due and
payable on or before the Commencement Date, and a similar payment shall be due
and payable on or before the first day of each successive calendar month
thereafter until all of such monthly installments have been so paid. In the
event that the Lease Premises are occupied by Tenant on a day other than the
first day of a month, rent for such partial month shall be calculated and paid
on a prorated basis according to the number of days in such month the Lease
Premises are occupied by Tenant.
3.2. Renewal Term. In the event Tenant exercises its right to
renew this lease for an additional five (5) year term, as set forth above, the
rent payable hereunder shall be adjusted effective as of the first day of the
renewal term in accordance with Section 3.2. Effective December 1, 2000, the
monthly rent payment due pursuant to this Lease shall be adjusted to an amount
equal to the product obtained by multiplying $3,000 by a fraction, the numerator
of which is the Consumer Price Index for All Urban Consumers, U.S. City Average,
For All Items, as published by the U.S. Bureau of Labor Statistics (the "CPI
Index") for November 30, 2000. and the denominator of which is the CPI Index for
December 31, 1995; provided, however, the monthly rent payment shall not be less
than $4,000. The monthly rent payment calculated pursuant to the preceding
sentence shall then remain constant during the remainder of the renewal term.
4. Insurance.
4.1. Required Coverage. Tenant, at its sole cost and expense,
will obtain and maintain, with insurance carriers duly licensed to do business
in Alabama, the following insurance coverage with respect to the Lease Premises:
(a) Fire and extended coverage insurance in an
amount not less than $530,000 or the full replacement cost of the Leased
Premises, whichever is greater.
(b) At Tenant's option, fire and extended coverage
insurance in an amount to be determined by Tenant insuring Tenant's contents in
the Leased Premises.
(c) General liability insurance in an amount not
less than $1,000,000 per person and $1,000,000 per occurrence for bodily injury
and $1,000,000 for property damage.
Each such insurance policy shall name Landlord and Tenant as insured
parties and shall include Landlord's mortgage lender, if any, as a loss payee as
its interest may appear. Tenant shall furnish to Landlord certificates or other
evidence of the required insurance coverage prior to Tenant's occupancy of the
Leased Premises. Prior to the expiration of any such coverage, Tenant shall
furnish Landlord evidence of the continuation of such coverage.
4.2. Waiver of Subrogation Rights. Landlord and Tenant hereby
waive their respective rights of subrogation against the other for all claims
and causes whatsoever arising out of any injury upon or loss or damage to the
Leased Premises or any part thereof resulting from a risk or peril included
within the insurance policies herein required and/or purchased by either party.
Each party will promptly notify their respective insurers of this waiver.
5. Taxes. Tenant shall pay before they become delinquent all ad valorem
taxes and special assessments lawfully levied or assessed against the Leased
Premises during the term of this Lease. Landlord shall be responsible for the
payment of all such taxes and assessments for any period prior to the
Commencement Date. Tenant shall pay such taxes and assessments directly to the
taxing authority entitled to receive such payment; provided, however, Tenant
reserves the right to contest any such tax or assessment at Tenant's sole risk
and expense. In the event of any such contest, Tenant does not have to pay the
contested tax or assessment so long as Tenant diligently pursues such contest in
accordance with the applicable administrative procedures and applicable law.
Notwithstanding the foregoing, however, during the course of any such contest,
Tenant shall at all times protect and preserve Landlord's title to the Leased
Premises, and, if necessary to protect and preserve Landlord's title thereto,
Tenant shall pay the contested tax or posted appropriate bond therefor prior to
allowing the taxing authority to take any action to enforce its tax lien against
the Leased Premises.
6. Maintenance. Tenant, at its sole risk and expense, shall through the
term of this Lease and any renewal thereof maintain the Leased Premises in good
repair and condition. Subject to the provisions of Section and hereof, at the
end of the term of the Lease, Tenant shall surrender and deliver up the Leased
Premises to Landlord in good repair and condition (damage by fire, tornado or
other casualty and reasonable wear and use excepted). In the event Tenant should
fail to maintain the Leased Premises, and such failure should continue for a
period of 30 days after Landlord's written notice to Tenant thereof, or if such
failure cannot be reasonably cured within the said 30 days and Tenant shall not
have commenced to cure such failure within said 30 days and shall not thereafter
with reasonable diligence and good faith proceed to cure such failure, Landlord
shall have the right (but not the obligation) to cause repairs or corrections to
be made, and the costs thereof shall be payable to Tenant to Landlord on the
next rental installment date.
7. Inspection. Landlord and Landlord's authorized agents shall have the
right to enter the Leased Premises during Tenant's normal business hours of
operation for the purpose of inspecting the general condition and state of
repair of the Leased Premises or for any other reasonable purpose.
8. Use. Tenant may occupy and use the Leased Premises for the
manufacture and sale of doors and general office and/or supply and warehouse
facilities in connection therewith and/or for any other lawful purpose. At all
times, Tenant shall occupy the Leased Premises, conduct its business and control
its agents, employees, invities [sic] and visitors in a way as is lawful and
reputable and will not create a nuisance or otherwise interfere with, annoy or
inconvenience Landlord or the occupants of surrounding real property. Tenant
shall be solely responsible to obtain at its sole cost any and all
authorizations from applicable governing authorities for the conduct of such
business, including waivers and certificates of permissive use and exemption, if
necessary, from applicable zoning ordinances.
9. Utilities. As of the Commencement Date, Landlord shall provide the
normal and customary utility connections that are currently in use into the
Leased Premises. Tenant shall pay the cost of all utility services, including
but not limited to, all charges for gas, water and electricity used on the
Leased Premises and all costs of garbage and trash removal and sewer services.
10. Fire and Casualty Damage.
10.1. Total. If the Leased Premises should be totally
destroyed by fire, tornado or other casualty, or if they should be so damaged
that rebuilding or repairs cannot reasonably be completed within 180 working
days from the date of the occurrence of the damage, this Lease shall terminate
at the option of the Landlord, otherwise, repairs will be completed and the
Lease continue without abatement of rent.
10.2. Partial.
(a) If the Leased Premises should be damaged by
fire, tornado or other casualty but not to such an extent that rebuilding or
repairs cannot reasonably be completed within 180 working days from the date
of the occurrence of the damage, this Lease shall not terminate, but Landlord
shall, if the casualty has occurred prior to the final 180 days of the lease
term, at its sole cost and risk, proceed forthwith to rebuild or repair the
Leased Premises to substantially the condition existing prior to such damage. If
the casualty occurs during the final 180 days of the Lease term, Landlord shall
not be required to rebuild or repair such damage unless Tenant notifies Landlord
in writing within 60 days following the date of such damage that Tenant is
exercising its right to renew this lease or its option to purchase the Leased
Premises, as the case may be. If Tenant does not exercise its right to renew
this Lease or its option to purchase the Leased Premises and if Landlord does
not elect to rebuild or repair such damage, then this lease shall terminate,
effective as of the date of said damage. If the Leased Premises are to be
rebuilt or repaired and are untenantable in whole or in part following such
damage, the rents payable hereunder during the period in which it is
untenantable shall be adjusted equitably.
(b) Notwithstanding anything in this Section
which might be deemed to be the contrary, except as hereinafter provided,
Landlord shall not be required to spend any amount in excess of the insurance
proceeds made available to Landlord in connection with the rebuilding or repair
of the Leased Premises. In the event the insurance proceeds available to
Landlord are insufficient for such purpose, Landlord shall so notify Tenant in
writing. In such event Landlord may elect not to rebuild or repair the Leased
Premises and to terminate the lease effective as of the date of such damage
unless, Tenant notifies Landlord in writing, within 30 days after Tenant's
receipt of the notice from Landlord as to the insufficient insurance proceeds,
that Tenant will pay all of the repair costs in excess of such insurance
proceeds. If Tenant so notifies Landlord, Landlord shall proceed with due
diligence to rebuild and/or repair the Leased Premises to substantially the
condition existing prior to such damage.
11. Hold Harmless.
11.1. By Tenant. Tenant shall indemnify, defend and save and
hold Landlord harmless from and against any and all liabilities, losses,
damages, claims, fines, causes of action, attorney's fees and court costs due to
death, personal injury, property damage or financial loss arising out of or
attributable to:
(a) Tenant's operations and the conduct of its
business upon the Leased Premises; or
(b) Any liability to any taxing authority resulting
from or in any way relating to any tax abatements, deductions or exemptions
relating to the Leased Premises which are attributable to Tenant's occupancy of
the Leased Premises.
(c) Tenant shall indemnify, defend and save and
hold Landlord harmless from and against any and all liabilities, losses,
damages, claims, fines, causes of action, attorney's fees and court costs, due
to death, personal injury, property injury, property damage or financial loss
arising out of or attributable to the presence on the Leased Premises of any
hazardous or regulated substance or product, including but not limited to crude
oil products and asbestos, under any applicable federal or state law in effect
as of the date of execution of this Lease.
If Landlord is made a party to any suit or action for damages arising
from the negligence or actions of Tenant, its employees, invities and/or agents,
Tenant shall assume all of the burden, cost and expense of the defense re [sic]
settlement of any such cause or action, including reasonable attorney's fees in
connection therewith, and Tenant shall promptly pay any judgement which may be
obtained therein against Landlord.
12. Condemnation.
12.1. Total. If, during the term of the Lease, all or a
substantial part of the Leased Premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or should be sold to the condemning authority under threat of
condemnation, this Lease shall terminate and the rents payable hereunder shall
be abated during the unexpired portion of this lease effective as of the date of
taking by the condemning authority.
12.2. Partial. If less than a substantial part of the Leased
Premises shall be so taken or sold, this Lease shall not terminate but Landlord
shall forthwith, at its sole expense, restore and reconstruct the Leased
Premises, providing such restoration and reconstruction shall make the same
reasonably tenantable and suitable for the uses for which the same are hereby
leased. If the use of the Leased Premises shall be impaired by such taking or
sale, the rents payable hereunder during the unexpired portion of this lease
shall be adjusted equitably. If, in the option of Landlord and Tenant, such
restoration and reconstruction cannot be completed within 180 days following the
date of such taking or sale, Landlord or Tenant may elect to terminate this
lease by giving prior written notice thereof to the other party.
12.3. Condemnation Awards. Landlord and Tenant shall each be
entitled to pursue, receive and retain separate condemnation awards, and
portions of the lump sum awards, as may be allocated to their respective
interests in any condemnation proceedings. The termination of this lease shall
not affect the rights of Landlord and Tenant to such awards.
13. Holding Over. Should Tenant hold over the Leased Premises, or any
part thereof, after the expiration of the term of this Lease, unless otherwise
agreed in writing, such holding over shall constitute and be construed as
tenancy from month to month only, at a monthly rental equal to the rents paid
for the last month of the term of this Lease. Nothing herein shall be deemed to
be Landlord's consent to such holding over.
14. Default by Tenant.
14.1. Events. The following events shall be deemed to be
events of default by Tenant under this Lease:
(a) If Tenant shall fail to make any of the payments
required hereunder and such failure shall continue for a period of 15 days after
written notice thereof to Tenant;
(b) If Tenant shall fail to comply with any term,
condition or covenant of this Lease, other than the payments set forth above,
and shall not cure such failure within 30 days after written notice thereof to
Tenant, or if such failure cannot reasonably be cured within the said 30 days
and tenant shall not have commenced to cure such failure within said 30 days and
thereafter proceeded with reasonable diligence and good faith to cure such
failure.
14.2. Remedies. Upon the occurrence of any such event of
default, Landlord shall have the option to pursue any one or more of the
following remedies:
(a) Terminate this Lease, in which event Tenant
shall immediately surrender the Leased Premises to Landlord, and if Tenant fails
so to do, Landlord may, without prejudice to any other remedy which landlord may
have for possession or arrearages in rents, enter upon and take possession of
the Leased Premises and expel or remove any agent, representative or employees
of Tenant or any other person who may be occupying the Leased Premises or any
part thereof, by force if necessary, without being liable for persecution [sic]
or any claim for damages thereof;
(b) Enter upon and take possession of the Leased
Premises and expel or remove any agent, representative or employees of Tenant
and any other person who may be occupying the same or any part thereof, by
force if necessary, without being liable for persecution or any claim for
damages thereof, and relet the Leased Premises and receive the rents therefor;
and Tenant agrees to pay to Landlord on demand any deficiency that may arise
by reason of such reletting and the reasonable expenses incurred by Landlord in
connection with such reletting; or
(c) Enter upon the Leased Premises by force if
necessary without being liable for prosecution or any claim for damages thereof,
and do whatever Tenant is obligated to do under the terms of this lease, and
Tenant shall reimburse Landlord on demand for expenses which Landlord may incur
in thus effecting compliance with Tenant's obligations under this Lease.
14.3. No Waiver. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies herein provided or any
other remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of the terms,
conditions and covenants herein contained.
15. Assignment and Subleasing.
15.1. By Tenant. Tenant may not assign this Lease or sublet
the Leased Premises or any portion thereof, without obtaining the prior written
consent of Landlord which consent will not be withheld unreasonably; provided,
however, no consent shall be required for an assignment or sublease to a
corporation or other business entity owned or controlled by, or under common
control with, Tenant; provided further, however, no such permitted assignment or
sublease shall relieve Tenant of its obligations hereunder unless Landlord
otherwise consents in writing.
15.2. By Landlord. Subject to the provisions of Section
hereof, Landlord may assign or transfer all or any part of its interest in this
Lease.
16. Alterations, Additions and Improvements.
16.1. In General. Except as otherwise set forth in this Lease,
Tenant shall not make any alterations, additions or improvements (collectively
hereinafter referred to as "Improvements") to the Leased Premises without the
prior written consent of Landlord. Consent for nonstructural Improvements shall
not be reasonably [sic] withheld by Landlord. All Improvements so made shall
become the property of Landlord at the termination of this Lease.
16.2. Manufacturing and Warehousing Housing. Notwithstanding
the foregoing, Landlord acknowledges that Tenant is occupying the Leased
Premises initially for the purpose of the manufacture and sale of doors and
general office and/or supply and warehouse facilities relating thereto, and
Tenant intends to make substantial improvements to the Leased Premises to
accommodate its intended use thereof. Landlord hereby consents to the remodeling
and construction of improvements contemplated by Tenant to prepare the Leased
Premises for the Tenant's intended use thereof; provided, however, that all such
remodeling and construction be accomplished in a good and workmanlike manner, in
compliance with all applicable construction and local codes and ordinances, and
that the value of the Leased Premises shall not be depreciated thereby.
16.3. Machinery and Equipment. Tenant may, at any time and at
its sole expense, erect or install machinery and equipment in or on the Leased
Premises. Provided that Tenant is not then in default of any material term or
condition in this Lease, Tenant shall have the right to remove all such
machinery and equipment upon termination of this Lease; provided, however,
Tenant shall repair any damage done to the Leased Premises by such removal.
Tenant shall have a period of up to 30 days after the termination of this Lease
to remove all such items, and Tenant shall continue to pay rent at the monthly
rental rate then in effect until Tenant has completed such removal process or
notified Landlord that Tenant has abandoned any remaining items. All such items
remaining on the Leased premises after the expiration of such 30 day period
shall become the property of Landlord. All fixtures and permanent improvements
erected or installed on the Leased Premises shall become the property of
Landlord and shall not be removed.
16.4. Signs. Tenant may erect and install such signs on or
attached to the Leased Premises as Tenant desires, provided that Tenant shall at
all times comply with all applicable laws, ordinances and regulations relating
thereto, and Tenant shall remove all such signs at the termination of this lease
and repair any damage resulting from such removal.
16.5. Mechanics' Lien. Notwithstanding anything herein which
might be deemed to be to the contrary, Tenant shall at all times protect and
preserve the Leased Premises from and against any mechanics' lien created in
connection with, or resulting from, any improvements to the Leased Premises by
Tenant. Tenant reserves the right to contest any claim by any person who might
be entitled to a mechanics' lien against the Leased Premises, at Tenant's sole
rick [sic] and expense. In the event of any such contest, Tenant does not have
to pay the contested amount so long as Tenant diligently pursues such contest in
accordance with applicable law; provided, however, in the event any mechanics'
lien is filed against the Leased Premises, Tenant shall file a bond to indemnify
Landlord and the Leased Premises against the lien in accordance with the
applicable provision of the Alabama Property Code prior to the time that any
action to enforce the mechanics' lien may be taken by the claimant.
17. Compliance with Law. During the term hereof, Tenant shall comply
with all governmental laws, ordinances and regulations applicable to the use of
the Leased Premises and shall promptly comply with all governmental orders and
directives for the correction, prevention and abatement of nuisances in or upon,
or connected with the Leased Premises, all at Tenant's sole expense.
18. Quiet Enjoyment.
18.1. Landlord's Warranty. Landlord warrants that it owns the
Leased Premises, that it has full right and power to execute and preform this
Lease and that Tenant, on payment of the rents and performance of the covenants
herein contained, shall peaceably and quietly have, hold and enjoy the Leased
Premises during the full term of this Lease.
19. Option to Purchase. At any time during the term of this Lease,
Tenant shall have the option to purchase the Leased Premises and the property
leased by Roadway Express on the terms and conditions set forth herein. Tenant
may exercise this option by giving Landlord written notice of its election to do
so in accordance with the notice requirements set forth in Section 2.3. In such
event, the purchase price for the Leased Premises shall be $530,000. Within 15
days after receipt of Tenant's notice exercising this option, Landlord shall
cause Lawyers Title Insurance Corporation (or other title insurance approved by
Tenant) to furnish a commitment for title insurance reflecting the status of
title to the leased Premises. If Tenant objects to any of the matters affecting
title to the Leased Premises, Tenant shall notify Landlord in writing within 15
days after Tenant's receipt of the title insurance commitment, and Landlord
shall attempt to cure such objections. If Landlord is unable to cure any such
objections within 15 days after receipt of Tenant's objections, Tenant may
terminate its election to purchase the Leased Premises (in which event, Tenant
may then exercise its right to renew this Lease pursuant to Section ) or Tenant
may waive such uncured objections and proceed to purchase the Leased Premises.
Unless Landlord and Tenant otherwise agree, the closing of the sale of the
Leased Premises shall occur at the title company within 30 days after the
termination of this Lease. At the closing: (i) Tenant shall pay the full
purchase price in cash or by certified cashiers check, and (ii) Landlord shall
execute and deliver a general warranty deed conveying title to the Leased
Premises to Tenant free and clear of any liens created or caused by Landlord and
shall cause the title company to deliver to Tenant, at Landlord's sole cost and
expense, a title insurance policy issued by Lawyers Title Insurance Corporation
(or another title insurance company approved by Tenant) insuring title to such
property subject only to the matters reflected on the title insurance commitment
which remain in effect after the title curative process described above. Tenant
shall pay rent at the rate then in effect with respect to the Leased Premises
through the closing date. Each party shall be responsible for the normal and
customary closing costs paid by a buyer and seller at a closing of this type;
provided, however, Tenant shall be responsible for all ad valorem taxes and
insurance provided in this Lease. If Tenant does not exercise this option to
purchase the Leased Premises during the initial term of this Lease, but does
renew this Lease for the renewal term, Tenant shall have the option to purchase
the Leased Premises at any time during the renewal term on the same terms and
conditions as set forth above, except that the purchase price shall be equal to
the product obtained by multiplying $530,000 by a fraction, the numerator of
which is the CPI Index for November 2000 and the denominator is the CPI Index
for December 1995, provided that the purchase price shall not be less than
$630,000.
20. Rights of First Refusal. If at any time during the term of this
Lease, Landlord intends to sell the Leased Premises pursuant to the terms of a
bona fide offer ("Offer") from a third party, Landlord shall notify Tenant in
writing of such intent and such notice shall include terms and conditions of the
Offer. Thereafter, Tenant shall have a right of first refusal to purchase the
Leased Premises on the same terms and conditions as set forth in the offer,
provided however, that if Tenant fails to exercise such right of first refusal
by notifying Landlord in writing of its election to do so within 30 days after
Tenant's receipt of Landlord's notice of the offer, as aforesaid, this right of
first refusal shall terminate and be of no further force or effect. If Tenant
exercises its right of first refusal pursuant hereto, the sale of the Leased
Premises on the terms and conditions set forth in the offer shall be closed
within 45 days of the date Landlord receives Tenant's notice to exercise
pursuant hereto. In the event that Tenant does not exercise its right of first
refusal in accordance with the terms of this Section 20, if the Leased Premises
are not sold pursuant to the terms of the Offer within 90 days after the date of
expiration of the Tenant's right of first refusal as foresaid, the Leased
Premises may not thereafter be sold pursuant to that Offer or any other offer
without first offering the Leased Premises to the Tenant pursuant to this
Section 20. In the event that the Leased Premises are sold to any third party
pursuant to the terms of any offer, the Leased Premises shall be transformed
subject to the terms and conditions of this Lease, including but not limited to
Sections and hereof.
21. Environmental Remediation. Tenant agrees it is satisfied with the
environmental condition of the Leased Premises at the commencement of this Lease
and that it shall not use any hazardous materials in violation of any laws in
its operation on the Leased Premises and will keep the Leased Premises at all
times free of any hazardous materials. Upon vacation of the Leased Premises,
Tenant, at its sole cost, shall provide an exit Phase I Audit and such
additional environmental work as required by Landlord to show the building and
Leased Premises to be in substantially the same environmental condition as
provided to Tenant based on the Environmental Laws at the time of the expiration
of this Lease.
Tenant, at its sole expense, shall be responsible for any environmental
remediation attributable to Tenant's operation that is necessary to deliver the
building and Leased Premises back to Landlord in substantially the same
environmental condition as when occupied by Tenant.
22. Waiver of Default. No waiver by the parties hereto of any default
or breach of any term, condition or covenant of this Lease shall be deemed to be
a waiver of any subsequent default or breach of the same or any other term,
condition or covenant contained herein.
23. Successors. The terms, conditions and covenants contained in this
Lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective successors in interest.
24. Notices. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when delivered personally or
(whether actually received or not) when deposited in the United States mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed to the parties hereto at the respective addresses set out opposite
their names below, or at such other address as they have theretofore specified
by written notice delivered in accordance herewith:
(a) If to Landlord:
Winfield Industrial Properties, Inc.
Rt. 1 Box 420
Winfield, Alabama 35594
(b) If to Tenant:
Superior Door Company, Inc.
P.O. Box 97
Winfield, Alabama 35594
25. Amendment. This Lease may not be amended except in a writing
executed by both Landlord and Tenant.
26. Entire Agreement. This Lease constitutes the sole agreement of
Landlord and Tenant and supersedes any prior understanding or written or oral
agreements respecting the subject matter.
27. Attorney Fees. Tenant agrees to pay all costs of collection,
including a twenty-five (25%) percent attorney's fees, if all or any part of the
rent reserved herein is collected after maturity with the aid of any attorney;
also to pay reasonable attorney's fees in the event it becomes necessary for the
Landlord to employ an attorney to force Tenant to comply with any of the
covenants, obligations or conditions imposed by this Lease or any renewal
thereof.
28. Memorandum of Lease Agreement. Due to the length of this Lease, a
duplicate original copy hereof will not be recorded in the appropriate records
of Marion County, Alabama, but instead Landlord or Tenant is authorized to
execute, record and/or file a memorandum of Lease Agreement which may by
reference incorporate all of the terms hereof.
THUS EXECUTED on the dates set forth below, and EFFECTIVE for
all purposes as of the last such date.
LANDLORD:
WINFIELD INDUSTRIAL PROPERTIES
Date: November 29 , 1995 By /s/ Paul B. Wilson
------ ------------------------
Its President
TENANT:
SUPERIOR DOOR COMPANY, INC.
Date: November 29 , 1995 By /s/ Jay G. Godsey
------ ------------------------
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
Thirteen Weeks Ended
-----------------------
March 27, March 28,
1998 1997
--------- ---------
BASIC & PRIMARY
Net Income $ 3,042,000 $ 3,893,000
========== ==========
SHARES:
Weighted average common shares 19,967,999 19,763,181
outstanding (basic)
Dilutive effect if stock options
were exercised 192,537 217,437
---------- ----------
Weighted average common shares
outstanding, assuming dilution (diluted) 20,160,536 19,980,618
========== ==========
Basic net income per share $ .15 $ .20
========== ==========
Diluted net income per share $ .15 $ .19
========== ==========
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 March 27, 1998, and the
Consolidated Condensed Statements of Income and Cash Flows for the Thirteen
Weeks ended March 27, 1998, and March 28, 1997, in each case unaudited, and is
qualified in its entirety by reference to such financial statements.
<S> <C> <C>
<PERIOD-TYPE> 3-mos 3-mos
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1997
<PERIOD-END> Mar-27-1998 Mar-28-1997
<CASH> 33640 17865
<SECURITIES> 0 0
<RECEIVABLES> 32313 33783
<ALLOWANCES> 1175 843
<INVENTORY> 34609 32468
<CURRENT-ASSETS> 111696 95092
<PP&E> 72912 63472
<DEPRECIATION> 19625 13580
<TOTAL-ASSETS> 210071 206076
<CURRENT-LIABILITIES> 68256 70756
<BONDS> 0 0
0 0
0 0
<COMMON> 2000 1979
<OTHER-SE> 134580 124713
<TOTAL-LIABILITY-AND-EQUITY> 210071 206076
<SALES> 123153 126072
<TOTAL-REVENUES> 125579 127214
<CGS> 102783 106020
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (142) 111
<INTEREST-EXPENSE> 425 352
<INCOME-PRETAX> 5069 6457
<INCOME-TAX> 2027 2564
<INCOME-CONTINUING> 3042 3893
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3042 3893
<EPS-PRIMARY> 0.15 0.20
<EPS-DILUTED> 0.15 0.19
</TABLE>