<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CAVALIER HOMES, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[CAVALIER HOMES, INC. LETTERHEAD]
Highway 41 North and Cavalier Road, P.O. Box 540, Addison, Alabama 35540
(205) 747-0044 FAX (205) 747-3044
APRIL 2, 1999
Dear Stockholder:
You are cordially invited to join us at our 1999 Annual
Meeting of Stockholders to be held on Wednesday, May 19, 1999, beginning at
10:00 A.M., C.D.T., at The Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901
6th Avenue North, Birmingham, Alabama. At the meeting, we will consider the
election of directors, the selection by the Board of Directors of Deloitte &
Touche LLP as independent public accountants for the Company, and any other
business as may properly come before the Annual Meeting.
Stockholders of the Company who are unable to be present
personally at the Annual Meeting may vote by proxy. The enclosed Notice and
Proxy Statement contain important information concerning the matters to be
considered, and we urge you to review them carefully. You will also find
enclosed a copy of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998, which we encourage you to read.
It is important that your shares be voted at the meeting.
Accordingly, whether or not you plan to attend the Annual Meeting, please
complete, sign, date and return the enclosed form of proxy promptly so that the
Company may be assured of the presence of a quorum. If you attend the meeting
and wish to vote your shares personally, you may revoke your proxy.
We look forward to seeing you on May 19th.
Sincerely yours,
CAVALIER HOMES, INC.
/s/ Barry B. Donnell
Barry B. Donnell
Chairman of the Board
/s/ David A. Roberson
David A. Roberson
President and Chief Executive Officer
<PAGE> 3
CAVALIER HOMES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
TO THE STOCKHOLDERS OF CAVALIER HOMES, INC.:
The Annual Meeting of Stockholders of Cavalier Homes, Inc.,
a Delaware corporation (the "Company"), will be held at The Summit Club, Suite
3100, AmSouth-Harbert Plaza, 1901 6th Avenue North, Birmingham, Alabama, on
Wednesday, May 19, 1999, at 10:00 A.M., C.D.T., for the following purposes:
(1) To elect nine directors;
(2) To consider the ratification and approval of
the appointment by the Board of Directors of
Deloitte & Touche LLP as independent public
accountants for the Company; and
(3) To transact such other business as may properly come
before the meeting.
Details respecting these matters are set forth in the
accompanying Proxy Statement.
Holders of record of the Common Stock of the Company at the
close of business on March 22, 1999, are entitled to notice of and to vote at
the Annual Meeting. A list of the stockholders of the Company who are entitled
to vote at the Annual Meeting will be available for inspection for a period of
ten days prior to the Annual Meeting at 800 Shades Creek Parkway, Birmingham,
Alabama, and at the Annual Meeting, for any purpose germane to the meeting. The
meeting may be adjourned from time to time without notice other than such notice
as may be given at the meeting or any adjournment thereof, and any business for
which notice is hereby given may be transacted at any such adjourned meeting.
You are cordially invited to attend the Annual Meeting of
the Stockholders of your Company, and we hope you will be present at the
meeting.
WHETHER YOU PLAN TO ATTEND OR NOT, PLEASE SIGN AND RETURN
THE ENCLOSED FORM OF PROXY SO THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF
A QUORUM AT THE MEETING. A postage-paid envelope is enclosed for your
convenience in returning your proxy to the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael R. Murphy
Michael R. Murphy
Secretary
Post Office Box 540
Highway 41 North and Cavalier Road
Addison, Alabama 35540
April 2, 1999
<PAGE> 4
CAVALIER HOMES, INC.
POST OFFICE BOX 540
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
The accompanying proxy is solicited on behalf of the Board of
Directors of Cavalier Homes, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders and any adjournments thereof (the
"Annual Meeting") to be held at The Summit Club, Suite 3100, AmSouth-Harbert
Plaza, 1901 6th Avenue North, Birmingham, Alabama, on Wednesday, May 19, 1999,
at 10:00 A.M., C.D.T. This Proxy Statement and the enclosed form of proxy are
first being mailed or given to stockholders on or about April 2, 1999.
GENERAL INFORMATION
OUTSTANDING VOTING SHARES; VOTING PROCEDURES
Holders of record of the Common Stock of the Company
outstanding at the close of business on March 22, 1999, are entitled to notice
of, and to vote at, the Annual Meeting. A total of 17,974,137 shares of Common
Stock were outstanding on such date and will be entitled to vote at the Annual
Meeting. Each holder of shares of Common Stock entitled to vote has the right to
one vote for each share held of record on the record date for each matter to be
voted upon.
The presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock of the Company entitled to vote, consisting
of at least 8,987,069 shares, is necessary to constitute a quorum at the Annual
Meeting. Shares of Common Stock represented by a properly executed proxy will be
treated as present at the Annual Meeting for purposes of determining the
presence or absence of a quorum without regard to whether the proxy is marked as
casting a vote for or against or abstaining with respect to a particular matter.
In addition, shares of Common Stock represented by "broker non-votes" will be
treated as present for purposes of determining a quorum. In accordance with the
Amended and Restated By-laws of the Company, as amended (the "By-laws"), the
nine nominees receiving the highest vote totals will be elected as directors of
the Company. Accordingly, assuming the presence of a quorum, abstentions and
broker non-votes will not affect the outcome of the election of directors at the
Annual Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Company present in person or
represented by proxy at the Annual Meeting and entitled to vote thereon is
required (i) for the approval and ratification of the selection of the Company's
independent auditors, and (ii) for approval of all other matters. Abstentions
and broker non-votes will be included for purposes of determining whether the
requisite number of affirmative votes have been cast with respect to the
ratification of the selection of the Company's independent auditors and approval
of any other matters coming before the stockholders meeting; and, accordingly,
will have the same effect as a negative vote.
VOTING YOUR PROXY
Proxies, in the form enclosed, properly executed by a
stockholder and returned to the Board of Directors of the Company, with
instructions specified thereon, will be voted at the Annual Meeting in
accordance with such instructions. If no specification is made, a properly
executed proxy will be voted in favor of:
(i) The election to the Board of Directors of the nine
nominees named in this Proxy Statement; and
(ii) The ratification of action taken by the Board of
Directors in selecting Deloitte & Touche LLP as
independent public accountants for the Company.
<PAGE> 5
As of the date of this Proxy Statement, the Board of Directors
knows of no business to be presented for consideration or action at the Annual
Meeting other than the matters stated above. If any other matters properly come
before the meeting, however, it is the intention of the persons named in the
enclosed form of proxy to vote in accordance with their best judgment on such
matters.
A stockholder may revoke a proxy by notice in writing
delivered to the Secretary of the Company, Michael R. Murphy, at any time before
it is exercised. A proxy may also be revoked by attending the Annual Meeting and
voting in person. The presence of a stockholder at the Annual Meeting will not
automatically revoke a proxy previously given to the Company.
COSTS OF SOLICITATION
The cost of soliciting proxies, including the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company. The
Company may reimburse investment bankers, brokers and other nominees for their
expenses incurred in obtaining voting instructions from beneficial owners of
Common Stock held of record by such investment bankers, brokers and other
nominees; however, the Company has not entered into any written contract or
arrangement for such repayment of expenses. In addition to the use of mails,
proxies may be solicited by personal interview, telephone or facsimile machine
by the directors, officers and employees of the Company, without additional
compensation.
ELECTION OF DIRECTORS
The By-laws of the Company provide for a Board of Directors of
not fewer than one nor more than ten members, the exact number to be determined
by resolution of the Board of Directors. The present Board of Directors has
fixed the number of directors at nine members and proposes the election of the
nine persons listed below, each of whom has consented to being named and to
serving in such capacity as directors until the next Annual Meeting of
Stockholders and until their successors are duly elected and shall have
qualified. Unless otherwise directed, it is intended that shares of Common Stock
represented by all proxies received by the Board of Directors will be voted in
favor of the nominees listed below. Should any such nominee become unable or
decline to accept election, which is not anticipated, it is intended that such
shares of Common Stock will be voted for the election of such person or persons
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE NOMINEES SET FORTH BELOW.
The following table sets forth certain information concerning
each nominee, each of whom is currently serving as a director:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
- ---- --- -------------------- --------------
<S> <C> <C> <C>
Thomas A. Broughton, III 43 President of First Commercial 1986
Bank (a state banking corporation)
Barry B. Donnell 59 Chairman of the Board 1986
of the Company
Lee Roy Jordan 57 President of Lee Roy Jordan 1993
Redwood Lumber Company
(lumber supply business) and
Southern Valve Services, Inc.
(remanufacturer and installer
of industrial valves)
A. Douglas Jumper, Sr. 67 President of S & J Steel Builders, Inc. 1997
Mike Kennedy 39 Senior Vice President 1997
of Belmont Homes, Inc.
John W Lowe 57 Partner, Lowe, Mobley 1984
& Lowe (law firm)
Gerald W. Moore 66 Certified Public Accountant 1996
Michael R. Murphy 53 Vice President, Chief Financial 1997
Officer and Secretary-Treasurer
of the Company
David A. Roberson 42 President and Chief Executive 1996
Officer of the Company
</TABLE>
2
<PAGE> 6
Messrs. Jumper and Kennedy became members of the Board of
Directors effective upon the merger involving Belmont Homes, Inc. ("Belmont"),
pursuant to which Belmont became a wholly owned subsidiary of the Company as of
December 31, 1997. The Estate of Mr. Kennedy's father, Jerold Kennedy (former
President and Chief Executive Officer of Belmont), an Alabama corporation that
originally owned the initial Belmont manufacturing facility ("BHIA"), Belmont,
certain other corporate entities (the "Other Corporations"), and certain other
named and unnamed individual officers, employees, agents and directors of BHIA,
Belmont and the Other Corporations, have been sued in the Circuit Court of
Madison County, Alabama (Case Number CV 97-2297) by three individuals who state
that they formerly owned a majority of the stock of BHIA, alleging breach of
fiduciary duties, misrepresentation, deceit, suppression and civil conspiracy in
connection with the sale of their stock in BHIA in February 1989. In addition to
certain other allegations, these plaintiffs claim that Jerold Kennedy, along
with others who allegedly conspired with him, misrepresented and omitted certain
facts to them regarding his attempts to hire a production manager, that Belmont
later hired the production manager, and that the plaintiffs would not have sold
their stock in BHIA in the absence of these alleged misrepresentations and
omissions. The plaintiffs request in their complaint an unspecified amount of
compensatory and punitive damages and/or equitable relief, including a
constructive trust, and also have filed a separate claim against the Estate of
Jerold Kennedy in the Probate Court of Franklin County, Alabama (Case Number
97-051), alleging essentially the same facts and seeking substantial
compensatory damages and punitive damages and a constructive trust over the
stock held in the estate. In May, 1998, the Circuit Court of Madison County,
Alabama, upon motion of the defendants, transferred the Madison County action to
the Circuit Court of Franklin County, Alabama, and the plaintiffs subsequently
appealed this decision to transfer to the Alabama Supreme Court. For further
information regarding these proceedings, see the Company's Annual Report on Form
10-K for the year ended December 31, 1998, under the heading "Legal
Proceedings."
Each nominee for the Board of Directors listed above has
occupied the position indicated for at least the last five years, with the
exception of Messrs. Kennedy, Jumper, Murphy and Roberson. Mr. Kennedy was a
sales representative for Fabwell, Inc., a metal fabricating company, from March
1990 until October 1993. Since October 1993, Mr. Kennedy has served Belmont in
various capacities, including as Acting Senior Vice President of Administration
from March 31, 1997 to September 5, 1997, and as Senior Vice President of
Administration of Belmont from September 5, 1997 to December 31, 1997. Mr.
Kennedy served as a director of Belmont from July 31, 1997 to December 31, 1997.
Mr. Jumper served as Chairman of the Board of Directors of Belmont from 1993 to
December 1997. Mr. Jumper is also a director of BancorpSouth, Inc., a bank
holding company headquartered in Tupelo, Mississippi. Mr. Murphy was Controller
of Peerless Coatings, Inc. for the five years prior to his joining the Company
in June 1995 as Corporate Controller. Mr. Murphy served in that capacity until
his appointment as the Company's Chief Financial Officer and Secretary-Treasurer
in October 1996. Mr. Roberson served as the Company's Chief Financial Officer
and Secretary-Treasurer prior to becoming President and Chief Executive Officer
in October 1996.
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
During 1998, the Board of Directors of the Company held four
regular meetings. In addition, the Board of Directors held five special meetings
in which the directors participated by conference telephone. Each director
3
<PAGE> 7
attended at least 75% of the aggregate of the number of meetings of the Board of
Directors and the number of meetings of all committees on which he served held
in 1998.
The Company currently pays each nonemployee director $2,500,
and each director who is employed by the Company $1,250, for each regular Board
meeting at which he is in attendance. Each director who participates in a
telephone conference Board meeting receives $250 per meeting. Directors who are
members of committees also receive $750 for attendance for each committee
meeting held on a date when no Board meeting is held and $250 for each committee
meeting held by conference telephone. Directors are also reimbursed for travel
and out-of-pocket expenses incurred in connection with attending Board and
committee meetings.
Pursuant to the Company's 1993 Amended and Restated
Nonemployee Directors Stock Option Plan (the "Nonemployee Directors Plan"),
options to purchase 20,000 shares of Common Stock are granted to each
nonemployee director upon first being elected to the Board of Directors. In
addition to such initial grants, annually on January 2, each nonemployee
director who has served as a director of the Company during the calendar year
immediately preceding such date receives an option to purchase 5,000 shares of
Common Stock; provided, however, that no director of the Company may be granted
options to purchase more than 125,000 shares of stock under the Nonemployee
Directors Plan. All such options are granted at an exercise price equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the Nonemployee Directors Plan generally have a term of ten years, and are
exercisable at any time beginning six months after the date of grant; provided,
however, that no option is exercisable unless at all times during the period
from the date of grant and ending twelve months before the date of exercise, the
optionee was a director of the Company.
The Board of Directors has three standing committees: the
Executive Committee, the Compensation Committee and the Audit Committee. The
Executive Committee is composed of David A. Roberson, Michael R. Murphy and John
W Lowe and is authorized to act in place of the full Board of Directors in
certain circumstances. The Compensation Committee, which held seven meetings
during 1998, is currently composed of Thomas A. Broughton, III, Lee Roy Jordan,
John W Lowe, Gerald W. Moore and A. Douglas Jumper, Sr. The Compensation
Committee administers the Company's stock option plans (other than the
Nonemployee Directors Plan) and sets the compensation of the executive officers
of the Company. In certain instances when the Compensation Committee needs to
take actions that are designed to meet exemptions provided for stock awards
under Section 16(b) and Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or to permit the deductibility by the
Company of executive compensation in excess of $1,000,000 under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended, and all
members of the Compensation Committee do not meet the definition of
"Non-employee Directors" or "Outside Directors" under Rule 16b-3 and Section
162(m), respectively, these actions may be taken by separate committees or
sub-committees of the Board of Directors or the Compensation Committee or may
otherwise be structured to meet the requirements of these rules. During 1998,
Messrs. Jumper and Moore functioned as the Non-employee Director Sub-committee
for purposes of Rule 16b-3 and held two meetings. Messrs. Broughton and Moore
functioned as the Outside Directors Sub-committee for purposes of Section 162(m)
and held two meetings. These directors received no additional compensation for
serving in these capacities.
The Audit Committee held one meeting during 1998. The Audit
Committee is currently composed of Thomas A. Broughton, III, Lee Roy Jordan,
John W Lowe, Gerald W. Moore and A. Douglas Jumper, Sr. The Audit Committee,
among other things, recommends the selection each year of the Company's
independent public accountants, reviews and evaluates the Company's financial
statements for reliability and informativeness, reviews the external and
internal audit procedures, scope and controls practiced by the Company's
independent public accountants and its internal accounting personnel, and
evaluates the services performed and fees charged by the Company's independent
public accountants to determine, among other things, that the non-audit services
performed by such auditors do not compromise their independence.
4
<PAGE> 8
RATIFICATION AND APPROVAL OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has unanimously
selected, subject to ratification by the stockholders, the accounting firm of
Deloitte & Touche LLP as the independent public accountants for the Company for
fiscal year 1999. Deloitte & Touche LLP has served as the Company's auditors
since 1984. Ratification of the selection of auditors is being submitted to the
stockholders of the Company because the Board of Directors believes it is an
important corporate decision in which stockholders should participate. If the
stockholders do not ratify the selection of Deloitte & Touche LLP or if Deloitte
& Touche LLP shall decline to act, resign or otherwise become incapable of
acting, or if its engagement is otherwise discontinued, the Board of Directors
will select other auditors for the period remaining until the 2000 Annual
Meeting of Stockholders when engagement of auditors is expected to again be
subject to ratification by the stockholders at such meeting.
Representatives of Deloitte & Touche LLP will be in attendance
at the Annual Meeting and will be provided an opportunity to address the meeting
and to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION AND APPROVAL OF DELOITTE & TOUCHE LLP.
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
EXECUTIVE OFFICERS
The following table sets forth certain information concerning
the executive officers of the Company, who are elected annually by the Board of
Directors:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
David A. Roberson 42 President and Chief Executive Officer
Barry B. Donnell 59 Chairman of the Board
Michael R. Murphy 53 Vice President, Chief Financial Officer
and Secretary-Treasurer
</TABLE>
Messrs. Roberson's, Donnell's and Murphy's business experience
is set forth above under the heading "Election of Directors."
5
<PAGE> 9
OWNERSHIP OF EQUITY SECURITIES
Set forth below is information as of March 22, 1999, with
respect to the beneficial ownership of the Common Stock of the Company by (a)
each of the directors of the Company (which directors also constitute the
nominees for election as directors at the Annual Meeting), (b) the Company's
President and Chief Executive Officer and the two other executive officers of
the Company, and (c) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
---------------- -------------------- ----------------
<S> <C> <C>
Thomas A. Broughton, III 148,224(2) *%
Barry B. Donnell 871,123(3) 4.8%
Lee Roy Jordan 58,514(4) *%
A. Douglas Jumper, Sr. 565,766(5) 3.1%
Mike Kennedy 58,200(6) *%
John W Lowe 180,001(7) 1.0%
Gerald W. Moore 29,250(8) *%
Michael R. Murphy 95,768(9) *%
David A. Roberson 219,596(10) 1.2%
Directors and Executive Officers
as a Group (nine persons) 2,226,442(11) 11.8%
</TABLE>
The following persons have reported ownership in the Company at a level
greater than 5%, according to statements on Schedule 13G as filed by such
persons with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
<S> <C> <C>
Thomson Horstmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663 1,632,226(12) 9.1%
Private Capital Management, Inc.
3003 Tamiami Trail North
Naples, Florida 33940 2,042,540(13) 11.4%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.
(1) Beneficial ownership in the foregoing table is based upon information
furnished by the persons listed. For purposes of this table, a person or group
of persons is deemed to have "beneficial ownership" of any shares as of March
22, 1999, that such person or group has the right to acquire within sixty days
after such date, or with respect to which such person otherwise has or shares
voting or investment power. For purposes of computing beneficial ownership and
the percentages of outstanding shares held by each person or group of persons on
a given date, shares which such person or group has the right to acquire within
sixty days after such date are shares for which such person has beneficial
ownership and are deemed to be outstanding for purposes of computing the
percentage for such person, but are not
6
<PAGE> 10
deemed to be outstanding for the purpose of computing the percentage of any
other person. Except as otherwise indicated in these notes to the foregoing
table, the beneficial owners named in the table have sole voting and investment
power with respect to the shares of Common Stock reflected.
(2) Includes 16,477 shares beneficially owned in an Individual Retirement
Account and 85,857 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(3) Includes 290,000 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter, 15,000 shares
held by the Donnell Foundation, of which Mr. Donnell is co-trustee, and 80
shares held by T&C Investments Club, in which Mr. Donnell is a member.
(4) Includes 58,514 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(5) Includes 26,200 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(6) Includes 39,200 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(7) Includes 51,484 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(8) Includes 27,250 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter.
(9) Includes 87,500 shares issuable pursuant to stock options presently
exercisable as of March 22, 1999, or within 60 days thereafter, 2,700 shares
held in Mr. Murphy's Individual Retirement Account and 1,700 shares held in his
wife's Individual Retirement Account. Mr. Murphy disclaims beneficial ownership
of the shares held in his wife's Individual Retirement Account.
(10) Includes 4,218 shares beneficially owned in an Individual Retirement
Account and 13,927 shares owned by the minor children of Mr. Roberson. Includes
165,000 shares issuable pursuant to stock options presently exercisable as of
March 22, 1999, or within 60 days thereafter.
(11) See notes 1-10 above.
(12) In a Schedule 13G/A filed by Thomson Horstmann & Bryant, Inc. ("TH&B"),
dated January 22, 1999, TH&B, a registered investment advisor, reported having
sole voting power of 1,006,959 of such shares, shared voting power of 29,204 of
such shares and sole dispositive power of all 1,632,226 of such shares.
(13) In a Schedule 13G/A filed by Private Capital Management, Inc. ("PCM"),
Mr. Bruce S. Sherman, SPS Partners, LP ("SPS") and Mr. Michael J. Seaman, dated
February 17, 1999, PCM, a registered investment advisor, reported having sole
voting power and sole dispositive power of 16,000 shares, and shared dispositive
power of 2,026,540 shares beneficially owned by PCM on behalf of its clients.
SPS acts as the Investment Advisor for the Entrepreneurial Value Fund, L.P.
("EVF"), and exercises shared dispositive power of 100,000 shares. As president
of PCM and the Managing General Partner of SPS, Mr. Sherman shares dispositive
power with respect to shares for which either PCM or SPS has sole or shared
dispositive power (2,142,540 shares), and Mr. Sherman has sole voting and
dispositive power over an additional 14,100 shares. Mr. Seaman is an employee of
PCM and has sole voting and dispositive power of 32,000 shares. Mr. Seaman (i)
does not exercise sole or shared voting or dispositive power with respect to
shares for which PCM, SPS, or Mr. Sherman exercises voting or dispositive power,
(ii) disclaims beneficial ownership of shares for which PCM, SPS, or Mr. Sherman
exercises voting or dispositive power, and (iii) disclaims, along with Mr.
Sherman, the existence of a group.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following tables, graphs and other information provide
details concerning executive compensation.
PERFORMANCE GRAPH
The following indexed graph compares the yearly percentage
change in the Company's cumulative total stockholder return on its Common Stock
with the cumulative total return of (i) the Standard and Poor's 500 Stock Index
and (ii) a group of public companies, each of which is engaged in the business
of designing, producing and selling manufactured homes. The industry group
companies included in the index are Champion Enterprises, Inc., Clayton Homes,
Inc., Fleetwood Enterprises, Inc., Kit Manufacturing Company, Liberty Homes,
Inc., Nobility Homes, Inc., Oakwood Homes Corporation and Skyline Corporation.
[GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cavalier Homes, Inc. 100.00 71.75 172.79 180.78 155.16 183.22
S&P 500 100.00 101.32 139.40 171.40 228.59 293.91
Peer Group 100.00 87.75 138.66 139.74 187.24 164.73
</TABLE>
8
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
GENERAL. The Compensation Committee of the Board of Directors
currently consists of five directors, Thomas A. Broughton, III, Lee Roy Jordan,
John W Lowe, Gerald W. Moore and A. Douglas Jumper, Sr. The Compensation
Committee is responsible for establishing the base salary and annual bonus of
the Company's executive officers. The Compensation Committee also reviews other
matters relating to compensation of the Company's executive officers and
administers the terms, conditions and policies of, and the benefits granted
under, the Company's 1988 Nonqualified Stock Option Plan, the 1986 Long Term
Incentive Compensation Plan, the 1993 Amended and Restated Nonqualified Stock
Option Plan, the Employee Stock Purchase Plan (the "ESPP"), the 1996 Key
Employee Incentive Stock Option Plan (the "1996 Plan") and the Executive
Incentive Compensation Plan (the "EICP"). In addition, the Compensation
Committee is responsible for administering options granted under the Belmont
Homes, Inc. 1994 Incentive Stock Plan that were converted in the merger
involving Belmont into options to purchase shares of the Company's Common Stock.
For a further description of the functioning of the Compensation Committee, and
the use of the Non-Employee Director and the Outside Director sub-committees,
see above under the heading "Information Regarding Board of Directors and
Committees." For purposes of this report, references to actions of the
Compensation Committee include actions that are taken by these sub-committees or
otherwise structured to comply with Rule 16b-3 and Section 162(m).
COMPENSATION POLICIES. The Compensation Committee believes
that the most effective executive compensation program is one which provides
incentives to achieve both increased current profitability and longer term
stockholder value. In this regard, the Compensation Committee believes executive
compensation should be comprised of a reasonable annual base salary and an
annual cash bonus program that rewards the executive officers in a manner
directly related to the annual profitability of the Company. Annual bonuses are
payable under the EICP based on corporate performance in comparison to targets
previously set by the Compensation Committee. The Compensation Committee further
believes that annual base salary and bonus arrangements should be supplemented
with equity-based programs, pursuant to which the Company affords the ownership
and retention of the Company's Common Stock by its executive officers and other
key employees. The Compensation Committee endorses the proposition that equity
ownership by management is beneficial because it aligns management's and
stockholders' interest in the enhancement of stockholder value. The Compensation
Committee feels that the combination of these programs helps to assure that the
Company's executive officers and other key employees have a meaningful stake in
the Company, its value, and its long-term and short-term performance.
The Compensation Committee determines base salary, bonus and
other components of executive compensation upon the basis of corporate
performance, judged by revenues, earnings, stock trading prices, and strategies,
and on the basis of the Compensation Committee's subjective perception of a
particular executive's performance and worth to the Company, the Company's past
compensation practices and a comparison of the Company's executive compensation
with the compensation paid by other companies in the same industry (which
generally are the companies included in the industry group included in the index
for the performance graph set forth above) and, to a lesser extent, a random
selection of other companies. The Compensation Committee's decisions respecting
stock option grants generally are made using the same criteria discussed above,
and take into consideration the number of unexercised options held by the
executive officers, exercise prices and market prices of the Company's Common
Stock. In making executive compensation decisions, the Compensation Committee
considers the views of Mr. Roberson and Mr. Donnell and information provided by
them.
In late 1997 and early 1998, the Compensation Committee, with
the assistance of an executive compensation consultant, undertook a review of
its executive compensation policies and implemented certain changes that took
effect in 1998. Based upon the recommendations of the consultant and its finding
that Cavalier's executive officer base salaries were generally below market, the
Compensation Committee decided to raise the base salaries of its executive
officers, but to lower the amount of cash bonuses that could be earned by the
executives under the EICP and to revise the formula for earning bonuses under
the EICP in a manner that is designed to increase the risk to the executives in
earning the bonus payments. Under the revised annual incentive program, the
bonus is still calculated as a percentage of incentive net income (as defined in
the EICP), but uses a lower percentage at a defined targeted level of incentive
net income and provides that the percentage of incentive net income paid into
the bonus pool varies based on the degree of achievement of the defined
incentive net income target. Other changes include the addition of a minimum
level of performance, below which no incentive would be paid, and a maximum
payment or "cap" on the amount of bonus which can be received. Subsequent to the
implementation of these new bonus arrangements, the Company adopted a deferred
compensation plan for its executive officers and employee directors which
permits them
9
<PAGE> 13
to defer some or all of their bonuses, to elect to have these amounts deemed
invested in one or more investment options established under the plan, and to
receive the amounts in their deferral account upon the occurrence of a
distributable event, which includes attainment of a certain age (i.e., between
65 and 70), death, disability (as defined in the plan), termination of
employment and a change in control of the Company (as defined in the plan).
As part of the restructuring of executive compensation, the
Compensation Committee revised its approach to granting stock-based compensation
and implemented the long-term incentive feature provided for under the EICP. The
Compensation Committee adopted the approach of providing annual grants of stock
options in more conservative amounts to the Company's executive officers,
whereas in the past the Compensation Committee had granted options less
frequently but in greater amounts. The Compensation Committee believes this
approach enables it to monitor more closely this component of compensation and
to create more incentive for the executive to remain with the Company. In
addition, in January 1998, the Company's Board of Directors adopted a policy
that, in the event of any cancellation and repricing of options under the
Company's 1996 Plan, the Company's Board of Directors will use all reasonable
efforts to insure that the committee administering the Company's 1996 Plan
requires that such cancellation and repricing be approved or ratified by the
stockholders of the Company. With respect to implementing the long-term
incentive feature of the EICP, the Compensation Committee established two
long-term performance periods, one for the period 1998-1999 and the other for
the period 1998-2000. Long-term incentive compensation would be payable based on
the Company's performance during these periods for average return on equity and
average growth in earnings per share (as such terms are defined in the EICP) as
compared to the performance of a defined industry peer group with respect to
these criteria. The Company currently anticipates establishing a new similar
three-year performance period at the beginning of each year in the future. The
program provides for a targeted incentive amount and a maximum potential
payment, and also provides that a reduced payment will be made in the event a
threshold level of incentive net income for the Company is not achieved. The
long-term incentive compensation is generally payable following the end of a
performance period in the form set forth in the EICP, which provides that the
Compensation Committee will determine at the time it certifies performance
following the end of a long-term performance period the percentage of the
payment, if any (but not to exceed 40%), that will be paid in the form of
restricted stock under the terms of the EICP and the 1996 Plan, with the balance
being paid in cash. The number of shares of restricted stock equals the amount
which could be purchased with such percentage of long-term incentive
compensation applying a 20% or 30% discount from fair market value (as defined
in the EICP), as elected by the executive, with a two-year restriction period on
the 20% discount and a three-year restriction period on the 30% discount.
The Compensation Committee believes these changes are
beneficial because they are designed to lower the cash component of executive
compensation, to adjust the previous program's emphasis on the bonus component
of cash compensation, to enhance the executive's incentive by increasing the
risk associated with the non-salary component of cash compensation, and to
increase the executive's focus on the Company's long-term performance.
The Compensation Committee during 1998 also retained the
executive compensation consultant to consider and make a recommendation
regarding the advisability of providing the Company's executive officers and
other key employees with certain retention and severance agreements that would
become applicable in the event of a change in control of the Company. The
consultant recommended that these agreements be implemented due to the
increasing consolidation in the industry and among corporations generally, the
need for executives in these circumstances to consider the best interests of the
Company's stockholders without concern for their own personal situation, and the
need to retain experienced executives, both generally and during a transaction
in the event a change in control should occur. Based on this recommendation, the
compensation committee implemented change in control agreements with the
executive officers and certain other key employees of the Company. These
agreements are described in more detail elsewhere in this Proxy Statement under
the heading "Retention and Severance Agreements."
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Roberson's
compensation for 1998 was established according to the policies, bases,
relationships to corporate performance and restructuring of executive
compensation that are discussed above as being applicable to the Company's
executive officers generally. In accordance with the recommendations of the
executive compensation consultant, Mr. Roberson's base salary was increased from
$200,000 per annum in 1997 to $375,000 per annum in 1998. Mr. Roberson's 1998
bonus of $496,898 was based on the Company's financial performance in 1998,
which improved over 1997 and which exceeded the target levels previously set by
the Compensation Committee. Mr. Roberson was also granted an option to purchase
40,000 shares of the Company's common stock at $10.22 per share, which was equal
to the fair market value of the common stock on the
10
<PAGE> 14
date of grant, and which was significantly less than the amount of the grant in
the previous year. Mr. Roberson also became eligible to receive long-term
compensation for the two long-term compensation periods described above.
During 1998, Mr. Roberson became a participant in the
Company's deferred compensation plan described above and entered into a
Retention and Severance Agreement with the Company, the terms of which are
described in more detail elsewhere in this Proxy Statement under the heading
"Retention and Severance Agreements." In keeping with similar agreements the
Company has with Mr. Donnell and had with Mr. Roberson's predecessor, the
Company and Mr. Roberson also entered into a Split Dollar Agreement, pursuant to
which the Company pays the premiums on a life insurance policy for Mr.
Roberson's benefit, with the Company being entitled to be reimbursed for the
premiums paid out of the cash surrender value on cancellation of the policy or
when the death benefits are paid.
Members of the Compensation Committee: Thomas A. Broughton, III, Chairman
Lee Roy Jordan
A. Douglas Jumper, Sr.
John W Lowe
Gerald W. Moore
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<PAGE> 15
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth
information concerning compensation for services in all capacities, including
cash and non-cash compensation, awarded to, earned by or paid to the Company's
Chief Executive Officer and the other executive officers of the Company in each
of the last three fiscal years, unless otherwise noted.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------
ANNUAL COMPENSATION SECURITIES
-------------------
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
David A. Roberson........................ 1998 $375,000(1) $ 496,898(6) 40,000(7) $ 7,687(10)
President and Chief Executive Officer 1997 $200,000(2) $ 486,482 125,000(7)(8) $ 9,688
1996 $180,000 $ 623,060 62,500 $ 3,438
Barry B. Donnell......................... 1998 $375,000(3) $ 496,898(6) 40,000(7) $ 7,818(10)
Chairman of the Board 1997 $200,000 $ 486,482 125,000(7) $ 9,862
1996 $200,000 $ 855,417 125,000 $ 9,084
Michael R. Murphy........................ 1998 $175,000(4) $ 238,511(6) 25,000(7) $ 7,525(10)
Vice President, Chief Financial 1997 $120,000(5) $ 114,356 62,500(7)(9) $ 8,438
Officer and Secretary-Treasurer 1996 $ 60,000 $ 19,750 12,500 $ 787
</TABLE>
- ------------------------
(1) Includes $21,250 that Mr. Roberson directed the Company to withhold and
use to purchase 2,388 shares of the Company's Common Stock at a weighted average
price of $8.90 per share pursuant to the terms of the Company's Employee Stock
Purchase Plan (the "ESPP"). Under the ESPP, employees may elect to have a
portion of their compensation withheld, subject to certain limits, to purchase
shares of the Company's Common Stock. The purchase price for shares purchased
under the ESPP is the lesser of 85% of the market price of the stock as of the
first or last day of the applicable payment period. The payment periods under
the ESPP are the six month periods beginning on each January 1 and July 1.
(2) Includes $21,250 that Mr. Roberson directed the Company to withhold and
use to purchase 2,500 shares of the Company's Common Stock at a weighted average
price of $8.50 per share pursuant to the terms of the ESPP.
(3) Includes $21,250 that Mr. Donnell directed the Company to withhold and
use to purchase 2,500 shares of the Company's Common Stock at a weighted average
price of $8.50 per share pursuant to the terms of the ESPP.
(4) Includes $21,250 that Mr. Murphy directed the Company to withhold and
use to purchase 2,367 shares of the Company's Common Stock at a weighted average
price of $8.98 per share pursuant to the terms of the ESPP.
(5) Includes $11,440 that Mr. Murphy directed the Company to withhold and
use to purchase 1,365 shares of the Company's Common Stock at a weighted average
price of $8.38 per share pursuant to the terms of the ESPP.
(6) Includes amounts that the executive officers directed to be withheld and
paid into the Company's Deferred Compensation Plan in the amount of $18,372 for
Messrs. Roberson and Donnell and $8,815 for Mr. Murphy. The Deferred
Compensation Plan permits the executive officers and employee directors of the
Company and certain of its affiliates to defer a portion of their compensation
and have it deemed invested in one of several investment options selected by the
employee. Upon the first to occur of the employee's 70th birthday (or other date
between the employee's 65th and 70th birthday), disability, death, termination
of employment, a change in control of the Company, or some other event
designated by the employee and approved by the committee administering the plan,
the employee will be entitled to receive the balance of the amounts deferred by
the employee and any investment returns on such amounts.
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<PAGE> 16
(7) Options granted to executive officers during 1998 and 1997 were granted
pursuant to the Company's Key Employee Stock Incentive Plan (the "1996 Plan").
The 1996 Plan provides for, among other things, the granting of both incentive
and non-qualified stock options. Options granted under the 1996 Plan are
generally exercisable six months after the grant date and expire ten years from
the date of grant.
(8) Includes shares of Common Stock underlying an option to purchase 62,500
shares granted on January 17, 1997, which option replaced an option to purchase
62,500 shares originally granted on May 15, 1996.
(9) Includes shares of Common Stock underlying an option to purchase 12,500
shares granted on January 17, 1997, which option replaced an option to purchase
12,500 shares originally granted on July 25, 1996.
(10) Includes the following for 1998: (i) matching contributions made by the
Company to its 401(k) plan during 1998 on behalf of Messrs. Roberson and Donnell
in the amount of $1,687 and on behalf of Mr. Murphy in the amount of $1,525;
(ii) directors' fees paid by the Company in 1998 to Messrs. Roberson, Donnell
and Murphy in the amount of $6,000 each; and (iii) amounts paid in connection
with a split dollar insurance agreement between the Company and an irrevocable
insurance trust established by Mr. Donnell, which provides for the Company to be
reimbursed for premiums paid for life insurance, less the amounts attributable
to term insurance, upon the earlier of the cancellation of the policy or the
death benefits are paid. The amount reflected in the column includes a portion
of the premium payment that is attributable to term insurance coverage for Mr.
Donnell, which is $130.86, as determined by tables supplied by the Internal
Revenue Service.
INFORMATION CONCERNING STOCK OPTIONS
1998 STOCK OPTION GRANTS
During 1998, the Company granted options to purchase 105,000
shares of its Common Stock to its executive officers, as summarized in the
following tables.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENTAGE OF POTENTIAL REALIZABLE VALUE
NUMBER TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
OF SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE PRICE FOR OPTION TERM*
OPTIONS IN FISCAL PER SHARE EXPIRATION ----------------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ----------------- ------------- ------------- -------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
David A. Roberson 40,000 5.5 % 10.21875 1/23/08 255,025 648,200
Barry B. Donnell 40,000 5.5 % 10.21875 1/23/08 255,025 648,200
Michael R. Murphy 25,000 3.5 % 10.21875 1/23/08 159,390 405,125
</TABLE>
- ---------------------
* The dollar gains under these columns result from calculations assuming
5% and 10% growth rates as set by the Securities and Exchange Commission and are
not intended to forecast future price appreciation of the Company's Common
Stock. The gains reflect future value based upon growth at these prescribed
rates. Stock options have value to recipients, including the listed executives,
only if the market price of the Company's Common Stock increases above the
option exercise price reflected in the table during the period the option
remains exercisable.
13
<PAGE> 17
During 1998, no options to purchase shares of Common Stock
were exercised by the named executive officers. Stock options to purchase
105,000 shares were granted to these persons during 1998, and an aggregate of
542,500 shares were subject to stock options that were unexercised at the end of
the year. The following table summarizes the foregoing:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
David A. Roberson...................... -- $ -- 165,000/0 $140,000/$0
Barry B. Donnell....................... -- $ -- 290,000/0 $140,000/$0
Michael R. Murphy...................... -- $ -- 87,500/0 $ 75,781/$0
</TABLE>
(1) A fair market value of $11.375 per share is used to calculate the
value of unexercised options, which is based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on December 31, 1998, the
final trading day of 1998. The actual value, if any, a person may realize as a
result of an option will depend on the excess of the stock price over the
exercise price on the date the option is exercised.
RETENTION AND SEVERANCE AGREEMENTS
In August, 1998, the Company entered into Retention and
Severance Agreements (the "Retention Agreements") with Messrs. Roberson, Donnell
and Murphy. The Retention Agreements provide that in the event the executive
officer's employment with the Company is involuntarily terminated (including a
constructive termination, as defined in the agreement) within two years
following a change in control for reasons other than cause, disability, or
retirement (as such terms are defined in the agreement) or death (an
"Involuntary Termination"), the executive officer will be entitled to a lump sum
payment equal to his base salary through the date of termination plus certain
bonus and incentive amounts earned but not yet paid to, and prorated amounts for
bonuses and incentive compensation not yet earned by, the executive officer
under the Company's bonus and incentive plans. In addition, upon an Involuntary
Termination, Messrs. Roberson and Donnell will be entitled to severance pay
equal to 2.99 times the sum of, and Mr. Murphy will be entitled to severance pay
equal to 2.00 times the sum of, such executive officer's annual base salary, the
average annual bonus received by the executive officer for the three years
immediately preceding the date of termination, and the amount most recently paid
under the Company's performance based long-term incentive program (or deemed
paid under the terms of the agreement if no amounts have yet become due under
the program).
Each Retention Agreement also provides that in the event the
executive officer voluntarily terminates his employment within two years
following a change in control for reasons other than disability, retirement or
death or in connection with an event of constructive termination, as such terms
are defined in the Retention Agreement (a "Voluntary Termination"), the
executive officer will be entitled to a lump sum payment equal to his full base
salary through the date of termination plus certain bonus and incentive amounts
earned but not yet paid to, and prorated amounts for bonuses and incentive
compensation not yet earned by, the executive officer under the Company's bonus
and incentive plans. In addition, upon a Voluntary Termination, the executives
will be entitled to severance pay equal to the sum of such executive officer's
annual base salary, the average annual bonus received by the executive officer
for the three years immediately preceding the date of termination, and the
amount most recently paid under the Company's performance based long-term
incentive program (or deemed paid under the terms of the agreement if no amounts
have yet become due under the program).
14
<PAGE> 18
Each Retention Agreement also provides that, in the event of
an Involuntary Termination or a Voluntary Termination, the Company will maintain
certain health insurance and other employment benefits for the executive officer
until the earlier of (a) three years in the case of an Involuntary Termination
or one year in the case of a Voluntary Termination, and (b) such time as the
executive officer obtains substantially the same coverage from a new employer.
The Retention Agreements further provide that additional "gross up" amounts are
payable to the extent necessary for the net amount received by the executive
under the Retention Agreements and other benefit agreements applicable to the
executive to be the same as they otherwise would be in the absence of any
"golden parachute" excise taxes payable under Section 280G of the Code. The
Retention Agreements will terminate upon the earliest of the following: (1)
termination of the executive officer's employment with the Company prior to a
change in control; (2) the performance by the Company of all its obligations
following a Voluntary Termination or an Involuntary Termination; or (3) August
26, 2003. At the time of entering into the Retention Agreements with Messrs.
Roberson, Donnell and Murphy, the Company entered into similar agreements with
certain other key employees of the Company on terms comparable to Mr. Murphy's
agreement.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The following directors of the Company currently serve as
members of the Compensation Committee: Thomas A. Broughton, III, Lee Roy Jordan,
John W Lowe, Gerald W. Moore and A. Douglas Jumper, Sr.
Mr. Lowe is a partner in the law firm of Lowe, Mobley & Lowe,
which rendered legal services to the Company and its subsidiaries during 1998
and which the Company expects to continue to render legal services during 1999.
Mr. Lowe also has an ownership interest in certain entities that lease certain
facilities to the Company, as described below. During 1998, the Company and its
subsidiaries paid Lowe, Mobley & Lowe legal fees in the aggregate amount of
$323,286.
Until January, 1999, Cavalier Homes of Alabama ("Cavalier -
Alabama"), a division of one of the Company's subsidiaries, leased a
manufacturing facility, office premises and certain equipment from a
partnership, the partners of which include the estate of the former President
and Chief Executive Officer of the Company, Jerry F. Wilson, and John W Lowe,
each of whom owns a one-third interest in such partnership. Mr. Lowe
beneficially owns 180,001 shares (1%) of the Common Stock of the Company. During
1998, Cavalier - Alabama made rental payments to such partnership in the
aggregate amount of $195,000. Cavalier - Alabama exercised its option under the
lease to purchase the leased property for $1,900,000 in January, 1999. The
Company believes that the payments made under this lease and the price paid for
the property are reasonable compared to amounts that would have been paid to an
unaffiliated entity for similar property.
Until January, 1999, Cavalier - Alabama leased another
manufacturing facility from a partnership, the partners of which include David
A. Roberson, who owns a 10% interest in such partnership, and Jonathan B. Lowe
and Michael P. Lowe, each of whom owns a 5% interest in such partnership and
each of whom is a son of John W Lowe. The above-referenced partners of such
partnership beneficially own, in the aggregate, 223,596 shares (1.2%) of the
outstanding Common Stock of the Company, not including the shares of Common
Stock beneficially owned by John W Lowe. During 1998, Cavalier - Alabama made
rental payments to such partnership in the aggregate amount of $264,000.
Cavalier - Alabama exercised its option under the lease to purchase the leased
property for $1,500,000 in January, 1999. The Company believes that the payments
made under this lease and the price paid for the property are reasonable
compared to amounts that would have been paid to an unaffiliated entity for
similar property.
Quality Housing Supply, LLC ("Quality"), a wholly owned
subsidiary of the Company, leases a manufacturing facility from a corporation
whose shareholders include Mike Kennedy, a director of the Company, Jonathan B.
Lowe and Michael P. Lowe, each of whom owns 10% of the outstanding common stock
of such corporation. These individuals beneficially own, in the aggregate,
62,200 shares (less than 1%) of the outstanding Common Stock of the Company. The
lease expires in July, 2004 and provides for rental payments to be made by
Quality in the amount of $150,000 per year until July, 2000, at which time
annual rental payments will be increased to $180,000 per year. Quality made
rental payments under the lease in the amount of $150,000 in 1998 and expects to
make rental payments in the amount of $150,000 in 1999. The lease further
provides that Quality has the option to purchase the leased property at any time
during the term of the lease for $1,125,000, subject to adjustment based on
changes in the consumer price
15
<PAGE> 19
index if such purchase is made on or after July 1, 2000. The Company believes
that the payments made and to be made under the lease are reasonable compared to
amounts that would be paid to an unaffiliated entity for similar property.
Quality also leases a warehouse from a corporation in which
John W Lowe owns a 25% interest. This lease expires in April, 1999, but may be
renewed for an additional five years at the option of Quality. The lease
provides for rental payments to be made by Quality in the amount of $72,000 per
year during the initial lease term. If Quality exercises its right to renew this
lease, the rent payable under the lease will be adjusted based on the consumer
price index, but in no event will the annual rent be less than $90,000. Quality
made rental payments under the lease in the amount of $72,000 in 1998 and
expects to make rental payments in the amount of $84,000 in 1999. The lease
further provides that Quality has the option to purchase the leased property for
$850,000, subject to adjustment based on changes in the consumer price index if
such purchase occurs following the initial lease term. The Company believes that
the payments made and to be made under the lease are reasonable compared to
amounts that would be paid to an unaffiliated entity for similar property.
In June 1998, the Company entered into a $35 million
revolving, warehouse and term loan agreement (the "Credit Facility") with First
Commercial Bank which amended the previous Credit Facility entered into in
February 1994 and the amendment thereto entered into in March 1996. The Credit
Facility contains a revolving line of credit which provides for borrowings
(including letters of credit) of up to 80% and 50% of the Company's eligible (as
defined) accounts receivable and inventories, respectively, up to a maximum of
$10 million. Interest is payable under the revolving line of credit at the
bank's prime rate or, if elected by the Company, the 90-day LIBOR rate plus
2.5%. The warehouse and term loan agreements contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as defined)
installment sales contracts, up to a maximum of $25 million. Interest on term
notes is fixed for a period of five years from issuance at a rate based on the
weekly average yield on five-year treasury securities averaged over the
preceding 13 weeks, plus 1.95%, and floats for the remaining two years at a rate
(subject to certain limits) equal to the bank's prime rate plus .75%. The
warehouse component of the Credit Facility provides for borrowings of up to $25
million with interest payable at the bank's prime rate or, if elected by the
Company, the 90-day LIBOR rate plus 2.5%. Amounts outstanding under the Credit
Facility are secured by accounts receivable and inventory, loans purchased and
originated by Cavalier Acceptance Corporation, a subsidiary of the Company, and
the capital stock of certain Company subsidiaries. No amounts were outstanding
under the Credit Facility at December 31, 1998. During 1998, the Company made
payments to First Commercial Bank in the amounts of $267,877 for interest and
$113,892 for commitment, letter of credit and trustee fees arising from
industrial bond financing involving Cavalier - Alabama and Buccaneer Homes, both
divisions of one of the Company's manufacturing subsidiaries. First Commercial
Bank also provides financing to certain Texas joint ventures in which the
Company is a limited partner, as further described below. Mr. Broughton, a
director of the Company, is the President of First Commercial Bank. The Company
believes that the terms of the Credit Facility and other financing arrangements
are reasonable compared to terms that would be present in a similar credit
facility entered into with an unaffiliated entity.
In July 1997, the Company, along with three other manufactured
housing producers, became a limited partner in three separate limited
partnerships formed to do business in the State of Texas. One of the limited
partnerships was formed to own real estate (the "Real Estate Partnership") that
will be leased to the other limited partnerships, one of which is expected to
engage in the business of producing roof trusses (the "WoodPerfect Partnership")
and the other of which is expected to engage in the business of laminating wall
panels (the "Hillsboro Partnership"). Each of the operating partnerships is
expected to sell its products to manufactured housing producers, including those
producers that are partners in such partnership. Financing for these businesses
was provided through industrial bond financing, and the lease payments from the
WoodPerfect Partnership and the Hillsboro Partnership to the Real Estate
Partnership are designed to service this indebtedness. In addition, First
Commercial Bank provides a line of credit and equipment loan to the WoodPerfect
Partnership and the Hillsboro Partnership and a loan to the Real Estate
Partnership to fund construction of the project, and has also issued a letter of
credit as security for the industrial bond financing for the project, for which
First Commercial Bank receives customary fees. The Company owns an approximate
20% interest in the Real Estate Partnership and the WoodPerfect Partnership, and
an approximate 25% interest in the Hillsboro Partnership. Lee Roy Jordan is also
an approximate 20% limited partner in the Real Estate Partnership and the
WoodPerfect Partnership. Mr. Jordan is a director of the Company and a
beneficial owner of 58,514 shares (less than 1%) of the Common Stock of the
Company. Mr. Jordan is also the sole member in the two limited liability
companies that serve as the general partners to the Real Estate Partnership and
the WoodPerfect Partnership. One of the limited liability companies owns a 0.01%
interest in the Real Estate Partnership and the other limited liability company
owns a 0.01% interest in the WoodPerfect Partnership. The WoodPerfect
Partnership and the Hillsboro Partnership had not commenced manufacturing
operations as of the date of this Proxy Statement.
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<PAGE> 20
Belmont, a wholly owned subsidiary of the Company, paid
approximately $388,000 in 1998 for the construction of plant facilities to a
corporation in which A. Douglas Jumper, Sr. owns a 50% interest. Mr. Jumper also
serves as the president of this corporation. Mr. Jumper beneficially owns
approximately 3.1% of the Common Stock of the Company. The Company believes that
the payments made to this corporation are reasonable compared to amounts that
would have been paid to an unaffiliated entity for similar services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until December 31,1998, Quality leased a manufacturing
facility from a corporation whose shareholders include Mike Kennedy, a director
of the Company, who owns 12.5% of the shares of common stock of such
corporation. Quality made rental payments under the lease in the amount of
$48,000 in 1998. This lease had an initial term ending on November 30, 2000, but
Quality elected to terminate the lease effective December 31, 1998. Quality paid
a $25,000 cancellation fee for this early termination. The Company believes that
the payments made under the lease and the cancellation fee are reasonable
compared to amounts that would have been paid to an unaffiliated entity for
similar property.
For a discussion of certain other relationships and
transactions involving directors or executive officers of the Company, see
"Compensation Committee Interlocks and Insider Participation" above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers, directors and beneficial
owners of more than 10% of the Company's Common Stock are required under the
Exchange Act to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the New York Stock Exchange. Copies of
these reports must also be furnished to the Company. Based solely on a review of
copies of such reports furnished to the Company, the Company believes that
during 1998 all applicable filing requirements were complied with in a timely
manner, except that A. Douglas Jumper, Sr. filed a late Form 4 Statement of
Changes in Beneficial Ownership with respect to purchases of 5,000 shares of the
Company's Common Stock in late November and early December 1998.
OTHER MATTERS
The Board of Directors does not know of any other business to
be presented for consideration at the Annual Meeting. If other matters properly
come before the Annual Meeting, the persons named in the accompanying form of
proxy will vote thereon in their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals submitted for consideration at the 2000
Annual Meeting of Stockholders must be received by the Company no later than
December 6, 1999, to be considered for inclusion in the 2000 proxy materials.
According to the Company's By-laws, for a stockholder proposal to be properly
brought before the 2000 Annual Meeting of Stockholders (other than a proposal to
be considered for inclusion in the 2000 proxy materials), it must be a proper
matter for stockholder action and must be delivered to the secretary of the
Company no earlier than January 3, 2000 but no later than February 17, 2000.
CAVALIER HOMES, INC.
/s/ Michael R. Murphy
Michael R. Murphy
Secretary
Addison, Alabama
April 2, 1999
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<PAGE> 21
Appendix A
CAVALIER HOMES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints David
A. Roberson and Michael R. Murphy, or either of them, proxies of the
undersigned, with full power of substitution, to represent and to vote all
shares of Common Stock of Cavalier Homes, Inc. which the undersigned would be
entitled to vote at the Annual Meeting of Stockholders of Cavalier Homes, Inc.,
to be held on Wednesday, May 19, 1999, beginning at 10:00 A.M., C.D.T., at The
Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901 6th Avenue North,
Birmingham, Alabama and at any adjournment or postponement thereof, in the
following manner:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
(except as otherwise instructed below)
[ ] AUTHORITY WITHHELD
to vote for all nominees listed below
Thomas A. Broughton, III, Barry B. Donnell, Lee Roy Jordan, A. Douglas
Jumper, Sr., Mike Kennedy, John W Lowe, Gerald W. Moore, Michael R.
Murphy and David A. Roberson
- --------------------------------------------------------------------------------
To withhold authority to vote for any nominee, write that nominee's name in the
space provided below.
- --------------------------------------------------------------------------------
2.PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
3. OTHER MATTERS
[ ] In their discretion, upon such other matters as may properly come
before the meeting
[ ] AUTHORITY WITHHELD
to vote upon such matters
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED ON THE REVERSE
SIDE, FOR ITEM 2, AND IN THE DISCRETION OF THE PERSONS APPOINTED HEREIN UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
OR POSTPONEMENTS THEREOF.
Dated: , 1999
----------------------------
-------------------------------
Signature
-------------------------------
Signature
Please sign this proxy exactly
as your name appears hereon.
When signing as executor,
administrator, trustee,
corporate officer, etc., please
give full title. In case of
joint owners, each joint owner
should sign.
Please Date, Sign and Return TODAY in the enclosed envelope. No Postage Required
if Mailed in the United States.
