UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, DC 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 October 1, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File Number 1-9792
Cavalier Homes, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
--------------------------------- --------------------------
(State or other jurisdiction (IRS Employer
incorporation or organization Identification Number
Highway 41 North & Cavalier Road, Addison, Alabama 35540
-------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(256) 747-9800
----------------------------------------------------
(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 November 12, 1999
---------------------------- --------------------------------
Common Stock, $.10 Par Value 17,852,771 Shares
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands)
<S> <C> <C>
October 1, December 31,
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 22,337 $ 64,243
Accounts receivable, less allowance for losses of $1,559 (1999) and $1,201 (1998) 32,267 7,678
Notes and installment contracts receivable - current 974 1,577
Inventories 61,882 38,803
Deferred income taxes 10,704 9,413
Other current assets 5,221 4,077
----------- -----------
Total current assets 133,385 125,791
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Net) 74,881 61,422
----------- -----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,049 (1999) and $760 (1998) 7,105 24,512
----------- -----------
GOODWILL, less accumulated amortization of $5,093 (1999) and $4,154 (1998) 23,022 19,945
----------- -----------
OTHER ASSETS 7,604 4,282
----------- -----------
TOTAL $ 245,997 $ 235,952
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 727 $ 405
Notes payable 14,388 4,163
Accounts payable 22,831 15,944
Amounts payable under dealer incentive programs 19,393 18,752
Accrued compensation and related withholdings 9,407 7,154
Estimated warranties 13,017 12,400
Other accrued expenses 20,934 25,266
----------- -----------
Total current liabilities 100,697 84,084
----------- -----------
DEFERRED INCOME TAXES - 390
----------- -----------
LONG-TERM DEBT 6,175 3,650
----------- -----------
OTHER LONG-TERM LIABILITIES 4,778 2,917
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 20,366,571 (1999) shares and 20,282,782 (1998) shares 2,037 2,028
Additional paid-in capital 61,645 60,760
Treasury stock, at cost; 2,461,500 (1999) shares and 852,600 (1998) shares (23,221) (8,277)
Retained earnings 93,886 90,400
----------- -----------
Total stockholders' equity 134,347 144,911
----------- -----------
TOTAL $ 245,997 $ 235,952
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - dollars in thousands except per share amounts)
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- -------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 135,835 $ 157,498 $ 466,610 $ 450,690
COST OF SALES 111,087 126,864 378,023 365,772
SELLING, GENERAL AND ADMINISTRATIVE 25,827 22,536 78,157 63,512
SPECIAL CHARGE FOR ASSET WRITE-DOWN 1,453 - 1,453 -
----------- ------------ ----------- -----------
OPERATING PROFIT (LOSS) (2,532) 8,098 8,977 21,406
----------- ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (537) (107) (1,049) (661)
Other, net 388 759 1,493 1,643
----------- ------------ ----------- -----------
(149) 652 444 982
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (2,681) 8,750 9,421 22,388
INCOME TAXES (BENEFIT) (1,060) 3,530 3,721 9,057
----------- ------------ ----------- -----------
NET INCOME (LOSS) $ (1,621) $ 5,220 $ 5,700 $ 13,331
=========== ============ =========== ===========
BASIC NET INCOME (LOSS) PER SHARE $ (0.09) $ 0.26 $ 0.31 $ 0.67
=========== ============ =========== ===========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.09) $ 0.26 $ 0.31 $ 0.66
=========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 17,949,080 20,072,336 18,221,146 20,029,432
=========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING, 17,992,037 20,307,857 18,304,173 20,304,704
=========== ============ =========== ===========
ASSUMING DILUTION
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Thirty-nine Weeks Ended
-------------------------
October 1, September 25,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,700 $ 13,331
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 7,443 6,124
Change in provision for credit losses and repurchase commitments 647 (517)
Gain on sale of installment contracts (1,848) (1,517)
(Gain) loss on sale of property, plant and equipment (42) 60
Special charge for asset write-down 1,453
Other, net (7) 293
Changes in assets and liabilities provided (used) cash, net of effects of acquisitions:
Accounts receivable (24,947) (28,165)
Inventories (16,689) (6,844)
Accounts payable 5,431 11,194
Other assets and liabilities (1,811) 10,887
----------- -----------
Net cash provided by (used in) operating activities (24,670) 4,846
----------- -----------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (4,439) (2,358)
Proceeds from sale of property, plant and equipment 300 64
Capital expenditures (20,667) (8,925)
Purchases of certificates of deposit - (6,044)
Maturities of certificates of deposit - 10,044
Proceeds from sale of installment contracts 52,701 35,040
Net change in notes and installment contracts (33,854) (9,950)
Other investing activities (1,196) (793)
----------- -----------
Net cash provided by (used in) investing activities (7,155) 17,078
----------- -----------
FINANCING ACTIVITIES:
Net proceeds (payments) from notes payable 3,650 420
Payments on long-term debt (318) (14,836)
Proceeds from long-term borrowings 3,145 -
Cash dividends paid (2,214) (1,802)
Proceeds from exercise of stock options 284 171
Net proceeds from sales of common stock 316 2,814
Purchase of treasury stock (14,944) (4,663)
----------- -----------
Net cash used in financing activities (10,081) (17,896)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (41,906) 4,028
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,243 37,276
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,337 $ 41,304
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 861 $ 632
Income taxes 11,376 8,622
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited - dollars in thousands except per share data)
1. BASIS OF PRESENTATION
o The accompanying consolidated 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 October 1, 1999
and the results of its operations and its cash flows for the thirteen
and thirty-nine week periods ended October 1, 1999 and September 25,
1998, respectively. All such adjustments are of a normal, recurring
nature.
o The results of operations for the thirteen and thirty-nine weeks ended
October 1, 1999 are not necessarily indicative of the results to be
expected for the full year. The information included in this Form 10-Q
should be read in conjunction with Management's Discussion and Analysis
and financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
o In accordance with SFAS 128, Earnings per Share, the Company reports
two separate net income per share numbers, basic and diluted. Both are
computed by dividing net income by the weighted average shares
outstanding (basic) or weighted average shares outstanding assuming
dilution (diluted) as detailed below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------ ------------------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
-------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic) 17,949,080 20,072,336 18,221,146 20,029,432
Dilutive effect if stock options were exercised 42,957 235,521 83,027 275,272
-------------- ------------------ --------------- -------------------
Weighted average common shares
outstanding, assuming dilution (diluted) 17,992,037 20,307,857 18,304,173 20,304,704
============== ================== =============== ===================
</TABLE>
2. ACCOUNTING STANDARD NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
statement is effective for financial statements issued for years beginning
after June 15, 2000. Cavalier is currently evaluating SFAS No. 133 and has
not yet determined its impact on the Company's consolidated financial
statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories at October 1, 1999, and December 31, 1998, were as
follows:
October 1, December 31,
1999 1998
------------ -------------
Raw materials $ 30,410 $ 25,563
Work-in-process 4,028 3,841
Finished goods 27,444 9,399
------------- -------------
Total inventory $ 61,882 $ 38,803
============= =============
4. ASSET WRITE-DOWN
Subsequent to the end of the third quarter, as part of a cost reduction
strategy, Cavalier idled two home manufacturing plants, one in Addison,
Alabama and one in Belmont, Mississippi, to consolidate manufacturing into
other plants in those locations. The Company recorded a third quarter
pre-tax charge of $1,453 ($879 after tax, or $.05 per share) to write-down
the value of assets of the consolidated plants.
5. STOCKHOLDERS' EQUITY
o Cash dividends of $.04 per share were paid during the quarter ended October
1, 1999.
o During the third quarter of 1999, the Company repurchased 91,400 shares
of stock under its stock repurchase program. At October 1, 1999,
2,461,500 shares had been repurchased for $23,221 which is recorded as
treasury stock. Continuing authorization remains under this program for
the repurchase of approximately 1.5 million additional shares.
6. CONTINGENCIES
o The Company is contingently liable under terms of repurchase agreements
with financial institutions providing inventory financing for retailers
of its products. These arrangements, which are customary in the
industry, provide for the repurchase of products sold to retailers in
the event of default on payments by the retailer. The risk of loss
under these agreements is spread over numerous retailers. The price the
Company is obligated to pay generally declines over the period of the
agreement and is further reduced by the resale value of repurchased
homes. The estimated potential obligations under such agreements
approximated $277,000 at October 1, 1999. The Company has an allowance
for losses of $1,559 (1999) and $1,201 (1998) based on prior experience
<PAGE>
and market conditions. Management expects no material loss in excess of
the allowance.*
o The Company's product liability and general liability insurance
coverages are provided under incurred loss, retrospectively rated
premium plans. The Company's workers' compensation coverage through
February 1999 was also covered under this type of plan. 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 October 1,
1999, the Company was contingently liable for future retrospective
premium adjustments up to a maximum of $7,531 in the event that
additional losses are reported related to prior periods.
o The Company is engaged in various legal proceedings that are incidental
to and arise in the course of its business. Certain of the cases filed
against the Company and other companies engaged in businesses similar
to the Company allege, among other things, breach of contract and
warranty, product liability, personal injury and fraudulent, deceptive
or collusive practices in connection with their businesses. These kinds
of suits are typical of suits that have been filed in recent years, and
they sometimes seek certification as class actions, the imposition of
large amounts of compensatory and punitive damages and trials by jury.
In the opinion of management, the ultimate liability, if any, with
respect to the proceedings in which the Company is currently involved
is not presently expected to have a material adverse effect on the
Company. * However, the potential exists for unanticipated material
adverse judgments against the Company.
o The Company and certain of its equity partners have guaranteed
revolving notes for three companies, a term loan for one company 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 $3,339. At October 1,
1999, $9,282 was outstanding under the various guarantees, of which the
Company had guaranteed $2,684.
7. SEGMENT INFORMATION
On December 31, 1998, the Company adopted SFAS 131, Disclosure about
Segments of an Enterprise and Related Information, which established
standards for reporting information about segments in annual financial
statements and interim financial reports issued to stockholders. Segment
information relating to the thirteen and thirty-nine week periods ended
October 1, 1999 and September 25, 1998 is presented below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
----------------------------------- ---------------------------------
October 1, 1999 September 25, 1998 October 1, 1999 September 25, 1998
-------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Gross revenue:
Home manufacturing $ 130,646 $ 154,574 $ 455,530 $ 442,161
Financial services 1,470 1,121 4,951 4,562
Retail 6,748 2,761 15,230 4,615
Other 10,912 10,278 32,094 26,051
-------------- ----------------- ------------- ----------------
Gross revenue $ 149,776 $ 168,734 $ 507,805 $ 477,389
============== ================= ============= ================
Intersegment revenue:
Home manufacturing $ 4,563 $ 2,032 $ 12,878 $ 2,502
Financial services - - - -
Retail - - - -
Other 9,378 9,204 28,317 24,197
-------------- ----------------- ------------- ----------------
Intersegment revenue $ 13,941 $ 11,236 $ 41,195 $ 26,699
============== ================= ============= ================
Revenue from external customers:
Home manufacturing $ 126,083 $ 152,542 $ 442,652 $ 439,659
Financial services 1,470 1,121 4,951 4,562
Retail 6,748 2,761 15,230 4,615
Other 1,534 1,074 3,777 1,854
-------------- ----------------- ------------- ----------------
Total revenue $ 135,835 $ 157,498 $ 466,610 $ 450,690
============== ================= ============= ================
Operating profit (loss):
Home manufacturing $ (986) $ 7,186 $ 10,988 $ 18,309
Financial services (196) 210 540 1,908
Retail (621) (235) (1,233) (176)
Other 139 724 881 1,900
Elimination (195) (290) (1,175) (929)
-------------- ----------------- ------------- ----------------
Segment operating profit (loss) (1,859) 7,595 10,001 21,012
General corporate (673) 503 (1,024) 394
-------------- ----------------- ------------- ----------------
Operating profit (loss) $ (2,532) $ 8,098 $ 8,977 $ 21,406
============== ================= ============= ================
</TABLE>
* See Safe Harbor Statement on page 12.
<PAGE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
----------------------------------- ---------------------------------
October 1, 1999 September 25, 1998 October 1, 1999 September 25, 1998
-------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Identifiable assets:
Home manufacturing $ 162,220 $ 173,741 $ 162,220 $ 173,741
Financial services 16,951 28,325 16,951 28,325
Retail 13,862 6,400 13,862 6,400
Other 22,734 10,294 22,734 10,294
Elimination (4,910) (2,661) (4,910) (2,661)
-------------- ----------------- ------------- ----------------
Segment assets 210,857 216,099 210,857 216,099
General corporate 35,140 18,865 35,140 18,865
-------------- ----------------- ------------- ----------------
Total assets $ 245,997 $ 234,964 $ 245,997 $ 234,964
============== ================= ============= ================
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 6)
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations (dollars in thousands)
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of total
revenue:
<TABLE>
<CAPTION>
INCOME STATEMENT DATA For the Thirteen Weeks Ended
---------------------------------------------------------------
October 1, 1999 September 25, 1998 Difference
------------------ --------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 126,083 $ 152,542 $ (26,459) -17.3%
Financial services 1,470 1,121 349 31.1%
Retail 6,748 2,761 3,987 144.4%
Other 1,534 1,074 460 42.8%
-------- --------- ------- --------
Total revenue $ 135,835 100.0% $ 157,498 100.0% $ (21,663) -13.8%
======== ======== ========= ========== ======= ========
Total revenue $ 135,835 100.0% $ 157,498 100.0% $ (21,663) -13.8%
Cost of sales 111,087 81.8% 126,864 80.5% (15,777) -12.4%
-------- -------- --------- ---------- ------- --------
Gross profit $ 24,748 18.2% $ 30,634 19.5% $ (5,886) -19.2%
======== ======== ========= ========== ======= ========
Selling, general and administrative $ 25,827 19.0% $ 22,536 14.3% $ 3,291 14.6%
======== ======== ========= ========== ======= ========
Special charge for asset write-down $ 1,453 1.1% $ - 0.0% $ 1,453 -
======== ======== ========= ========== ======= ========
Operating profit (loss) $ (2,532) -1.9% $ 8,098 5.1% $ (10,630) -131.3%
======== ======== ========= ========== ======= ========
Other income (expense), net $ (149) -0.1% $ 652 0.4% $ (801) -122.9%
======== ======== ========= ========== ======= ========
Net income (loss) $ (1,621) -1.2% $ 5,220 3.3% $ (6,841) -131.1%
======== ======== ========= ========== ======= ========
For the Thirty-nine Weeks Ended
----------------------------------------------------------------
October 1, 1999 September 25, 1998 Difference
------------------ --------------------- -----------------
Revenue:
Home manufacturing net sales $ 442,652 $ 439,659 $ 2,993 0.7%
Financial services 4,951 4,562 389 8.5%
Retail 15,230 4,615 10,615 230.0%
Other 3,777 1,854 1,923 103.7%
-------- --------- ------- --------
Total revenue $ 466,610 100.0% $ 450,690 100.0% $ 15,920 3.5%
======== ======== ========= ========== ======= ========
Total revenue $ 466,610 100.0% $ 450,690 100.0% $ 15,920 3.5%
Cost of sales 378,023 81.0% 365,772 81.2% 12,251 3.3%
-------- -------- --------- ---------- ------- --------
Gross profit $ 88,587 19.0% $ 84,918 18.8% $ 3,669 4.3%
======== ======== ========= ========== ======= ========
Selling, general and administrative $ 78,157 16.7% $ 63,512 14.1% $ 14,645 23.1%
======== ======== ========= ========== ======= ========
Special charge for asset write-down $ 1,453 0.3% $ - 0.0% $ 1,453 -
======== ======== ========= ========== ======= ========
Operating profit $ 8,977 1.9% $ 21,406 4.7% $ (12,429) -58.1%
======== ======== ========= ========== ======= ========
Other income (expense), net $ 444 0.1% $ 982 0.2% $ (538) -54.8%
======== ======== ========= ========== ======= ========
Net income $ 5,700 1.2% $ 13,331 3.0% $ (7,631) -57.2%
======== ======== ========= ========== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPERATING DATA For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
----------------------------------------- ---------------------------------
October 1, 1999 September 25, 1998 October 1, 1999 September 25, 1998
------------------ --------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing sales:
Floor shipments 7,867 9,371 27,184 26,915
Home shipments
Single section 2,313 45.6% 3,199 50.9% 8,430 47.4% 9,283 51.3%
Multi section 2,764 54.4% 3,086 49.1% 9,340 52.6% 8,816 48.7%
-------- -------- --------- ---------- ------- -------- ------- ------
Total shipments 5,077 100.0% 6,285 100.0% 17,770 100.0% 18,099 100.0%
Shipments to company owned stores (169) 3.3% (70) 1.1% (463) 2.6% (87) 0.5%
-------- -------- --------- ---------- ------- -------- ------- ------
Shipment to independent dealers 4,908 96.7% 6,215 98.9% 17,307 97.4% 18,012 99.5%
======== ======== ========= ========== ======= ======== ======= ======
Retail sales:
Single section 125 59.2% 29 39.7% 272 57.9% 48 40.0%
Multi section 86 40.8% 44 60.3% 198 42.1% 72 60.0%
-------- -------- --------- ---------- ------- -------- ------- ------
Total sales 211 100.0% 73 100.0% 470 100.0% 120 100.0%
======== ======== ========= ========== ======= ======== ======= ======
Cavalier produced homes sold 163 77.3% 50 68.5% 352 74.9% 75 62.5%
======== ======== ========= ========== ======= ======== ======= ======
Used homes sold 36 17.1% 12 16.4% 84 17.9% 15 12.5%
======== ======== ========= ========== ======= ======== ======= ======
Other Operating Data:
Installment loan purchases $ 6,400 $ 6,475 $ 35,791 $ 13,464
Capital expenditures $ 5,153 $ 4,505 $ 20,667 $ 8,925
Home manufacturing facilities 22 23 22 23
Independent exclusive dealer locations 277 215 277 215
Company owned stores 14 4 14 4
</TABLE>
General
The manufactured housing industry is cyclical and seasonal and is influenced by
many of the same economic and demographic factors which affect the housing
market as a whole. The manufactured housing industry has grown significantly in
recent years, which the Company attributes to, among other things, a reduction
in alternative housing, increased availability of retail financing, increased
consumer confidence and continuing strength in the national economy. As a
result, the number of retail dealerships, manufacturing capacity and wholesale
shipments have expanded, which the Company believes is currently resulting in
slower wholesale shipments and retail turnover, higher dealer inventories and
increased price competition. In addition, financial institutions have tightened
credit standards. These factors significantly impacted the Company's financial
results during the third quarter of 1999. The Company is uncertain at this time
as to the extent and duration of these developments and as to what effect these
factors will have on the Company's future sales and earnings. * The Company
currently believes these conditions will continue to adversely affect the
Company's financial performance at least for the next several quarters. * The
Company also believes that, due to these industry conditions, the possibility
exists for some retail dealer failures, which could adversely affect the
Company. * Subsequent to the end of the third quarter, Cavalier idled two home
manufacturing facilities, one in Addison, Alabama and one in Belmont,
Mississippi, to consolidate manufacturing capacity into other plants in those
locations. The Company recorded a third quarter pre-tax charge of $1,453 ($879
after tax, or $.05 per share) to write-down the value of assets of the
consolidated plants. The Company expects to continue to monitor the need for
further plant consolidations, idlings and/or closings and to evaluate other
potential cost savings options identified through a company-wide analysis
designed to mitigate the impact of current market conditions. * The Company can
give no assurance as to which one or more of these options, if any, it may
ultimately adopt.
Thirteen weeks ended October 1, 1999 compared to September 25, 1998
Revenue
Total revenue for the third quarter of 1999 was $135,835 compared to $157,498
for the third quarter of 1998.
Home manufacturing net sales for the third quarter of 1999 compared to the third
quarter of 1998 decreased 17.3%, or $26,459, to $126,083, net of intercompany
eliminations of $4,563. Home shipments decreased 19.2%, with floor shipments
decreasing by 16%. The percentage of multi-section home shipments continued to
increase, from 49.1% in 1998 to 54.4% in 1999. Actual shipments of homes for the
third quarter were 5,077 versus 6,285 in 1998. The Company attributes the
decrease in sales and shipments to the increasingly competitive conditions in
the industry described above. Approximately 87% of the Company's shipments were
to its core market of 11 states, where shipments for the third quarter of 1999
declined 20.3% as compared to the third quarter of 1998. Through August 1999,
the Manufactured Housing Institute reported a 16.2% decline in shipments in
these 11 states. Additionally, the Company's inventory on its independent
exclusive dealers' lots increased from 151 days a year ago to 156 days. The
Company believes its exclusive dealer program continues to gain acceptance,
increasing by 72 locations since September 25, 1998, bringing the total to 291
at October 1, 1999, including 14 company-owned stores. * Sales to exclusive
dealers represented 55% in the third quarter of 1999 versus 42% in the same
period of 1998.
Revenue from the financial services segment increased 31.1%, or $349, from 1998.
The increase in the third quarter of 1999 is due to revenues from an insurance
agency acquired during 1999. During the third quarter of 1999, CAC purchased
installment loan contracts of $6,400 and sold $7,096 of installment contracts.
In the third quarter of 1998, CAC purchased contracts of $6,475 and sold
installment contracts totaling $5,144. During 1998, the focus of CAC's business
changed from building, holding and servicing a portfolio of loans to purchasing
loans from its dealers, which are then resold to another financial institution.
CAC does not retain the servicing function and does not earn the interest income
on these resold loans.
* See Safe Harbor Statement on page 12.
<PAGE>
Revenues from the retail segment were $6,748 for the third quarter of 1999, of
which 77.3% of the units sold were Cavalier product. The third quarter of 1998
produced revenue of $2,761, of which 68.5% of the units sold were Cavalier
product. During the third quarter, the Company operated 14 retail dealerships as
compared to 4 in the third quarter of 1998.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses. Revenues from external customers increased
42.8%, or $460, for the third quarter of 1999 compared to the third quarter of
1998. This increase is due primarily to the addition of a supply company.
Gross Profit
Gross profit was $24,748, or 18.2% of total revenue, for the third quarter of
1999, versus $30,634, or 19.5%, in 1998. The Company believes the decline in
gross profit is due primarily to the decline in sales and the increased
competitive conditions in the industry described above. As discussed in the
Company's Annual Report on Form 10-K, the Company has experienced tightened
supply from its traditional vendors of certain types of raw materials, including
sheetrock and insulation and, more recently, lumber, required for production of
its homes. The Company has obtained these products from other vendors and has
purchased substitute products, which has and may continue to result in higher
than normal costs. Due to the competitive industry conditions, some of these
costs have not been recoverable through price increases. The possibility exists
that the Company may continue to be unable to recover some of these additional
costs through price increases or that these and substitute products may become
scarce or unavailable.* The Company is uncertain at this time as to the extent
and duration of these developments and as to what effect these factors may have
on the Company's future sales and earnings. *
Selling, General and Administrative
Selling, general and administrative expenses during the third quarter of 1999
were $25,827 or 19.0% of total revenue, versus $22,536 or 14.3% in 1998, an
increase of $3,291. Of this increase, $1,000 is related to expanded sales and
marketing efforts, including a PowerHouse promotion, and recruiting, set-up and
maintenance of the exclusive dealer network. Additionally, selling, general and
administrative expenses increased $310 due to higher costs for employee
benefits, primarily health insurance, $104 for increased warranty service
activities and $543 for the start-up costs associated with implementing an
enterprise-wide management information system. Other factors contributing to the
increase in selling, general and administrative expenses are costs of $925
associated with operating new retail locations and the continued development of
a retail infrastructure, the costs associated with the expansion of the supply
distribution business of $462 and $451 of costs associated with repurchased
inventory. These costs were partially offset by a reduction in incentive
compensation of $1,724.
Special Charge for Asset Write-down
Subsequent to the end of the third quarter, as part of a cost reduction
strategy, Cavalier idled two home manufacturing plants, one in Addison, Alabama
and one in Belmont, Mississippi, to consolidate manufacturing into other plants
in those locations. The Company recorded a third quarter pre-tax charge of
$1,453 ($879 after tax, or $.05 per share) to write-down the value of assets of
the consolidated plants.
Operating Profit (Loss)
The Company incurred an operating loss for the quarter of $2,532, or $.09 per
share, including the special charge for asset write-down discussed above. Home
manufacturing operating profit declined $8,172, before intercompany
eliminations, due primarily to lower sales, increased raw material prices,
increased selling, general and administrative expenses and the special charge
for asset write-down. Financial services operating profit decreased $406 due
principally to increased selling, general and administrative expenses,
consisting primarily of prepayment and repossession costs and payroll costs due
to the addition of area sales personnel. The retail segment's operating loss
increased $386 due to the operation of start-up retail locations, the continued
development of a retail infrastructure and the competitive conditions currently
prevailing in the industry. Other operating profit declined $585, before
intercompany eliminations, due mainly to the costs associated with the start-up
of a new supply company.
Other Income (Expense)
Interest expense increased $430 primarily due to increased floor plan notes
payable. Other, net decreased $371 due primarily to decreased earnings from a
company in which Cavalier owns a minority interest.
Net Income (Loss)
The Company recorded a net loss in the third quarter of 1999 of $1,621 compared
to net income of $5,220 during 1998,which the Company attributes to lower sales,
increased raw materials prices and selling, general and administrative expenses,
the asset write-down charge and the other industry factors discussed above. Net
loss per share was $.09 for the third quarter of 1999, compared to $.26 net
income per share in 1998.
Thirty-nine weeks ended October 1, 1999 compared to September 25, 1998
Revenue
Total revenue for the thirty-nine weeks ending October 1, 1999 was $466,610, up
3.5% from 1998's year-to-date revenue of $450,690.
Home manufacturing net sales for 1999 year-to-date compared to 1998 increased
0.7%, or $2,993, to $442,652 net of intercompany eliminations of $12,878. Home
shipments decreased 1.8%, with floor shipments increasing by 0.1%. The
percentage of multi-section home shipments continued to increase, from 48.7% in
1998 to 52.6% in 1999. Actual shipments of homes for 1999 were 17,770 versus
* See Safe Harbor Statement on page 12.
<PAGE>
18,099 in 1998. The Company attributes the slight increase in sales to strong
shipments during the beginning of the year, a special promotional program and
additional production days, as well as to the success of the Company's sales and
marketing efforts, including its exclusive dealer program. During the first
quarter of 1999, Cavalier launched its first national advertising campaign
promoting a home concept called the PowerHouse. However, during the second and
third quarters, home manufacturing revenue declined due to increased competitive
conditions as further discussed above. The Company believes that its exclusive
dealer program continues to gain acceptance, increasing by 72 locations since
September 25, 1998, bringing the total to 291, including 14 company-owned stores
at October 1, 1999. * Sales to exclusive dealers represented 56% year-to-date in
1999 versus 37% in 1998. In addition, the year-to-date period ending October 1,
1999 included five additional production days compared to the year-to-date
period ending September 25, 1998.
Revenue from the financial services segment in 1999 increased 8.5%, or $389,
from 1998. During 1999, CAC purchased contracts of $35,791 and sold $50,853 of
loans. In 1998, CAC had purchased contracts of $13,464 and sold installment
contracts totaling $33,523.
Revenues from the retail segment were $15,230 for 1999, and $4,615 for 1998. The
increase in sales is due to an increased number of company-owned stores, from
four in 1998 to 14 at October 1, 1999. In 1999, Cavalier product constituted
74.9% of year-to-date sales, while in 1998, 62.5% of the product sold was
Cavalier product.
Other revenue increased 103.7%, or $1,921, during 1999 compared to 1998, due
primarily to the addition of a supply company.
Gross Profit
Gross profit was $88,587, or 19.0% of total revenue, for year-to-date 1999,
versus $84,918, or 18.8%, in 1998. The Company believes the increase in gross
profit is due primarily to the increase in shipments at the beginning of the
year, offset by the decline in shipments and deteriorating market conditions
during the second and third quarters. As discussed in the Company's Annual
Report on Form 10-K, the Company has experienced tightened supply from its
traditional vendors of certain types of raw materials, including sheetrock and
insulation and, more recently, lumber, required for production of its homes. The
Company has obtained these products from other vendors and has purchased
substitute products, which has and may continue to result in higher than normal
costs. During the third quarter of 1999, the Company was unable to pass through
some of these costs in the form of increased sales prices to customers. The
possibility exists that the Company may continue to be unable to recover some of
these additional costs through price increases or that these and substitute
products may become scarce or unavailable.* The Company is uncertain at this
time as to the extent and duration of these developments and as to what effect
these factors may have on the Company's future sales and earnings. *
Selling, General and Administrative
Selling, general and administrative expenses during the thirty-nine weeks ended
October 1,1999 were $78,157, or 16.7% of total revenue, versus $63,512 or 14.1%
for the same period in 1998, an increase of $14,645. Of this increase, $1,988 is
related to broadened sales and marketing efforts, including the PowerHouse
promotions, and recruiting, set-up and maintenance of the exclusive dealer
network. Additionally, selling, general and administrative expenses increased
$1,245 due to higher costs for employee benefits, primarily health insurance,
$828 for increased warranty service activities and $1,705 for the start-up costs
associated with implementing an enterprise-wide management information system.
Other factors contributing to the increase in selling, general and
administrative expenses are (1) the costs of $2,499 associated with acquiring
and operating new retail locations, as well as the continued development of a
retail infrastructure, (2) $324 in costs of opening an additional home
manufacturing facility and (3) the costs associated with the expansion of the
supply distribution business of $1,017 and (4) $1,279 of costs associated with
repurchased inventory. These costs were partially offset by a reduction in
incentive compensation of $2,067.
Special Charge for Asset Write-down
Subsequent to the end of the third quarter, as part of a cost reduction
strategy, Cavalier idled two home manufacturing plants, one in Addison, Alabama
and one in Belmont, Mississippi, to consolidate manufacturing into other plants
in those locations. The Company recorded a third quarter pre-tax charge of
$1,453 ($879 after tax, or $.05 per share) to write-down the value of assets of
the consolidated plants.
Operating Profit
Operating profit year-to-date 1999 was $8,977 or 1.9% of sales, versus $21,406
or 4.7% of sales in 1998. Home manufacturing operating profit decreased $7,321,
before intercompany eliminations, due primarily to lower sales, increased raw
materials prices, increased selling, general and administrative expenses and the
special charge for asset write-down. Financial services operating profit
decreased $1,368 due primarily to increased selling, general and administrative
expenses, consisting primarily of prepayment and repossession costs and payroll
costs due to the addition of area sales personnel. The retail segment's
operating loss increased $1,057 due to the acquisition and operation of new
retail locations, the continued development of a retail infrastructure and the
competitive conditions currently prevailing in the industry. Other operating
profit declined $1,019, before intercompany eliminations, due mainly to the
costs associated with the start-up of a new supply company.
Other Income (Expense)
Interest expense increased $388 primarily due to increased floor plan notes
payable. Other, net decreased $150 due primarily to decreased earnings from a
company in which Cavalier owns a minority interest.
Net Income
Net income declined 57.2% to $5,700 in 1999 from $13,331 in 1998 due to a
combination of increased industry competition and increased raw materials prices
and selling, general and administrative expenses, as further discussed above.
Net income per share declined 60.6% to $.26 for 1999 compared to $.66 in 1998.
* See Safe Harbor Statement on page 12.
<PAGE>
<TABLE>
<CAPTION>
Liquidity and Capital Resources (dollars in thousands)
BALANCE SHEET DATA Balances as of
----------------------------------
October 1, 1999 December 31, 1998
------------------ -------------------
<S> <C> <C>
Cash and cash equivalents $ 22,337 $ 64,243
Accounts receivable $ 32,267 $ 7,678
Working capital $ 32,688 $ 41,707
Current ratio 1.3 to 1 1.5 to 1
Long-term debt $ 6,175 $ 3,650
Ratio of long-term debt to equity 1 to 22 1 to 40
$ 8,296 $ 26,117
</TABLE>
Operating activities during the first nine months of 1999 used net cash of
$24,670. The increase in accounts receivable and the corresponding reduction in
cash and cash equivalents from December 31, 1998 to October 1, 1999, 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, during which time the Company collects the
majority of its outstanding receivables. Inventory at October 1, 1999 increased
from year-end primarily due to the expansion of the retail segment from five
company-owned stores at the end of 1998 to 14 at the end of the third quarter
1999.
Net cash totaling approximately $4,439 was paid during the first nine months of
1999 in connection with acquisitions of six retail dealerships, an insurance
agency, a premium finance company and a supply company.
The Company's total capital expenditures were approximately $20,667 for the
thirty-nine weeks ended October 1, 1999, as compared to $8,925 for the
comparable period of 1998. 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. Additionally, during 1999, the Company purchased, for a total of
$3,400, two Alabama manufacturing facilities that were previously leased, and
renovated a Georgia manufacturing facility at a cost of $1,693 that was placed
in operation at the end of the first quarter. Approximately $2,523 of the cost
of implementing a new enterprise-wide management information system has been
capitalized. Due to current market conditions, construction of an additional
manufacturing facility in Georgia has been temporarily halted.
In addition to the periodic resale of loans, the Company's finance subsidiary,
CAC, sold approximately $16 million of its existing installment contract
portfolio to another financial institution.
The increase in long-term debt of $2,847 is primarily due to the assumption of
an industrial development revenue bond in the amount of $728 related to the
Alabama facilities acquired and proceeds from another industrial development
bond of approximately $2,500. Notes payable increased $10,225 due to the
increase in retail floor plan financing as a result of the acquisition of retail
locations.
The Company has purchased 1,608,900 shares of treasury stock during 1999 for
$14,944.
Year 2000 Compliance
Many of the Company's computer systems and software products, as well as the
systems and products of third parties doing business with the Company, are
subject to the "Year 2000" issue, which is the inability of a computer to
correctly process dates after December 31, 1999. This inability could
potentially cause affected computers to shut down or perform incorrect
calculations, ultimately resulting in a system failure, disruption of
operations, and the inability to engage in normal business activities. This
issue also affects products or systems which contain embedded computer chips
with date sensitive programming such as security systems, telephone equipment
and office equipment. As a result, many companies' software and computer systems
need to be upgraded or replaced in order to address the Year 2000 issue.
The Company has implemented a program to evaluate and address the risks and
problems associated with the Year 2000 issue and the results are as follows:
1) The Company has completed assessment and testing of all computer
systems and microprocessors for Year 2000 compliance and has replaced
or upgraded all systems that were determined to be non-compliant. As
a result of this assessment, testing and replacement, which
included the replacement of certain microprocessors and the
implementation of new accounting software at two of the Company's
subsidiaries, the Company believes that all significant systems
and microprocessors are currently Year 2000 compliant. * For
purposes of this discussion, "Year 2000 compliant" means that the
computer hardware, software or device in question will not be subject
to material disruption or interruption in operation due to the
inability to process dates after December 31, 1999.
2) The process of inquiring into Year 2000 compliance by significant or
critical third parties has been completed. Based on the responses it
has received, the Company has not identified any such third parties
which need to be replaced due to non-compliance.
3) Contingency plans have been developed and will be continually monitored
during the fourth quarter of 1999. The contingency plans consist
primarily of performing additional training and testing activities,
scheduling the availability of key personnel in the event problems are
encountered and the implementation of alternative procedures and
* See Safe Harbor Statement on page 12.
<PAGE>
processes for the performance of essential business functions, including
the return to manual processes and spreadsheet and word processing
software systems in a stand-alone personal computer environment.
The Company originally expected to incur between $800 and $1,200 as an expense,
in addition to between $300 and $400 of capital expenditures, during 1999 in
order to complete the assessment and implementation, and to fund such cost from
operations. Based on actual expenditures through the third quarter of 1999, the
Company expects the total cost of the project to remain below the original
estimate. * Costs incurred to date include internal costs required to assess and
test systems for compliance, costs required to replace non-compliant
microprocessors, and costs to purchase and implement accounting software for two
of the Company's subsidiaries. These activities are being performed in
conjunction with a larger multi-year migration from the Company's current
systems to an enterprise-wide management information system. This estimate
assumes that third parties have correctly assessed and communicated to the
Company the status of their Year 2000 compliance. * Because of this reliance and
the subjective nature of the Year 2000 compliance issue, the actual costs to
address and resolve any non-compliance issues may differ materially from those
anticipated.
The Company could be affected if the Year 2000 issue affects suppliers'
abilities to provide raw materials needed in the manufacturing process. The
Company is also dependent on third parties or government agencies to 1) supply
sufficient electrical power, utilities, transportation and other services to
sustain the manufacturing process and CAC's operations, 2) process, pay and
maintain records of certain employee benefits, 3) supply funds in a timely
fashion for its dealers and retail customers to purchase homes, and 4) fund
sales of portions of CAC's loan portfolio. Any failure on the part of these
third parties could have a material adverse effect on the business operations
and financial performance of the Company. *
If the Company's efforts to resolve the Year 2000 issue are not adequate or
implemented in a timely manner, the Company could experience a disruption in its
normal business activities.* Management of the Company believes the most
reasonably likely worst case scenario would be the delay in collections from
third party financing agents which could result in liquidity issues for the
Company, as well as the delay of financial reporting due to any accounting
processes which may need to be performed manually until all Year 2000 issues are
resolved.* However, the potential consequences of the Year 2000 issue are
inherently uncertain, and consequently, no assurance can be given that this will
be the reasonably likely worst case scenario.
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial instruments, but is not currently subject to foreign currency or
commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company is exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
These investments totaled $2,842 at October 1, 1999. Due to the long-term nature
of the benefit liabilities that these assets fund, the Company believes its
exposure to market risk is low. The Company does not believe that a decline in
market value of these investments would result in a material near term funding
of the trust or exposure to the benefit liabilities funded. *
The Company purchases retail installment contracts from its exclusive dealers,
at fixed interest rates, in the ordinary course of business, and periodically
resells certain of these loans to a financial institution under the terms of a
retail finance agreement. The periodic resale of installment contracts reduces
the Company's exposure to interest rate fluctuations, as the majority of
contracts are held for a short period of time. The Company's portfolio consists
of fixed rate contracts with interest rates ranging from 8.29% to 15.8% and an
average original term of 260 months at October 1, 1999. The Company estimated
the fair value of its installment contracts receivable, which approximated
carrying value, using discounted cash flows and interest rates offered by CAC on
similar contracts at October 1, 1999.
The Company has notes payable under retail floor plan agreements and an
Industrial Development Revenue Bond issue that are exposed to changes in
interest rates. Although these borrowings are floating rate debt, the Company
believes the interest rate risk posed by these borrowings currently is low
because the amount of debt has historically been small in relation to annual
cash flow. * Additionally, the Company has four Industrial Development Revenue
Bond issues at fixed interest rates. The estimated fair value of outstanding
borrowings approximated carrying value at October 1, 1999, using rates at which
the Company believes it could have obtained similar borrowings at that time. The
Company also has the ability to incur debt under its credit facility which
provides for interest at the bank's prime rate for the revolving and warehouse
line of credit and at fixed rates for a certain period of time for the term
notes.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to the legal proceedings previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 under the
heading "Item 3 - Legal Proceedings." The description of legal proceedings in
the Company's Form 10-K remains unchanged, except that with respect to the suit
against Belmont Homes, Inc. and certain other defendants referenced therein, the
Alabama Supreme Court has upheld the transfer upon motion of the defendant of
the Madison County action to the Circuit Court of Franklin County, Alabama. In
addition, during the second quarter of 1999, the Commonwealth of Kentucky
Pendleton Circuit Court granted the defendants' motion to dismiss the case
referred to in the last paragraph of the legal proceedings section in the
Company's 10-K, and the plaintiffs have appealed that decision to the Kentucky
Court of Appeals.
* See Safe Harbor Statement on page 12.
<PAGE>
Item 5: Other Matters
The Board of Directors has declared its regular quarterly cash dividend of $.04
per share payable on November 15, 1999 to stockholders of record on October 29,
1999.
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 exhibits 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 Composite 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, 1998, 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
amendments thereto filed as Exhibit 3(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 26, 1997, and as Exhibit 3(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998, are 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, referenced 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, referenced 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) Guaranty agreement between Cavalier Homes, Inc. and First
Commercial Bank dated as of September 1, 1999, relating to
guaranty of payments by Lamraft, L. P.
(b) Guaranty agreement between Cavalier Homes, Inc. and
Southtrust Bank dated as of July 27, 1998, relating to
guaranty of payments by Woodperfect, Ltd.
(11) Statement re: Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule for Form 10-Q submitted as Exhibit
27 as an EDGAR filing only.
(b) Current Report on Form 8-K.
None
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Our disclosure and analysis in this Quarterly Report on Form 10-Q contain some
forward-looking statements. Forward looking statements give our current
expectations or forecasts of future events, including statements regarding
trends in the industry and the business and growth and financing strategies of
Cavalier. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They generally are designated with an
asterisk (*) and use words such as "estimates," "projects," "intends,"
"believes," "anticipates," "expects," "plans," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. From time to time, we may also provide oral or written
forward-looking statements in other materials we release to the public. These
forward-looking statements include statements involving known and unknown
assumptions, risks, uncertainties and other factors which may cause our actual
results, performance or achievements to differ from any future results,
performance, or achievements expressed or implied by such forward-looking
statements or words. In particular, such assumptions, risks, uncertainties and
factors include those associated with the following:
o integrating the business operations and achieving the benefits of the
Belmont merger and other acquisitions;
o the cyclical and seasonal nature of the manufactured housing industry
and the economy generally;
o litigation;
o competition;
o regulatory constraints;
o changes and volatility in interest rates and the availability of
capital and consumer and dealer financing;
o changes in demographic trends, consumer preferences and Cavalier's
business strategy;
<PAGE>
o the ability to attract and retain quality independent dealers,
executive officers and other personnel;
o the potential unavailability and price increases for raw materials;
o contingent repurchase and guaranty obligations;
o unanticipated delays or difficulties in implementing the new
enterprise-wide management information system; and
o unanticipated delays or difficulties in implementing our Year 2000
plans.
Any or all of our forward-looking statements in this report, in the 1998 Annual
Report to Stockholders and in any other public statements we make may turn out
to be wrong. These statements may be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many factors listed above
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the Securities and Exchange Commission or in any of
our press releases. Also note that, in our Annual Report on Form 10-K for the
period ending December 31, 1998, under the heading "Risk Factors," we have
provided a discussion of factors that we think could cause our actual results to
differ materially from expected and historical results. Other factors besides
those listed could also adversely affect Cavalier. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
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: November 12, 1999 /s/ David A. Roberson
--------------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: November 12, 1999 /s/ Michael R. Murphy
--------------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
LIMITED CREDIT GUARANTY AGREEMENT
THIS AGREEMENT is executed as of September 1, 1999 by CAVALIER HOMES,
INC., a Delaware corporation (the "Guarantor"), and FIRST COMMERCIAL BANK, a
state banking corporation (the "Credit Obligor"), as lender and secured party.
Recitals
The Guarantor has an interest in Lamraft, L.P., a Texas
limited partnership (the "Borrower").
The Borrower has applied to the Credit Obligor for the issuance of an
irrevocable, direct pay, letter of credit to secure $2,500,000 Adjustable Rate
Industrial Development Revenue Bonds, Series 1999 (Lamraft, L.P. Project), dated
September 1, 1999, to be issued by the Hillsboro Industrial Development
Corporation to finance an industrial manufacturing project for use by the
Borrower and certain other persons (as defined herein) related to the Borrower.
The Credit Obligor has agreed to issue the letter of credit (the
"Letter of Credit") for the benefit of the Borrower, for such purposes, upon the
terms and conditions and subject to the conditions precedent set forth in that
certain Credit Agreement of even date between the Borrower and the Credit
Obligor (the "Credit Agreement").
Agreement
NOW THEREFORE, in consideration of the foregoing Recitals, and to
induce the Credit Obligor to enter into the Credit Agreement and to issue the
Letter of Credit the Guarantor hereby covenants and agrees as follows:
ARTICLE I
Provisions of General Application
SECTION 1.01 Definitions
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Assignment" shall mean the Absolute Assignment of Rents and Leases
dated as of September 1, 1999 executed by the Borrower to the Credit Obligor
"Bond Documents" shall mean collectively each of the following
documents as any of the same may at any time be amended, supplemented or
restated:
(a) the Indenture,
(b) the Loan Agreement,
(c) Remarketing Agreement with respect to the Bonds among
the Issuer, Borrower, Trustee, and First Commercial
Bank, as remarketing agent.
Borrower shall have the meaning assigned in the Recitals hereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean all properties and interests in properties of
the Borrower which secure the Credit Obligor Indebtedness or are variously
defined, referenced or described as "Collateral" in any of the Credit Obligor
Financing Documents.
"Credit Agreement" shall have the meaning assigned in the recitals
hereto.
"Credit Guaranty" shall mean collectively the Limited Credit Guaranty
Agreements dated as of September 1, 1999 from the Guarantors to the Credit
Obligor.
"Credit Obligor Financing Documents" shall mean collectively the Credit
Agreement, the Credit Guaranty, the Deed of Trust, the Assignment and any and
all amendments or supplements to any thereof.
"Credit Obligor Indebtedness" shall mean all indebtedness and other
amounts at any time to be paid to Credit Obligor by the Borrower or any Obligor
(as defined in the Credit Agreement) or any affiliate of any thereof under the
Credit Obligor Financing Documents.
"Deed of Trust" shall mean the Deed of Trust, Security Agreement and
Fixture Filing dated as of September 1, 1999, by the Borrower to the Credit
Obligor.
"Default" shall mean an event or condition the occurrence of which
would, with or without the lapse of time or the giving of notice or both, be an
Event of Default.
"Event of Default" shall mean an event as defined in Article VI.
"Financing Documents" shall mean collectively the Bond Documents and
the Credit Documents.
"Financing Participants" shall mean the parties to the Financing
Documents.
"Guarantor" means Cavalier Homes, Inc., and the successors and assigns
thereof.
"Guarantor Indebtedness" shall mean all indebtedness and other amounts
at any time to be paid by the Borrower or any Obligor (as defined in the Credit
Agreement) or any affiliate of any thereof to the Guarantor.
"Guarantors" means collectively the following and the respective heirs,
executors, administrators and assigns thereof:
(i) Lee Roy Jordan,
(ii) Cavalier Homes, Inc.,
(iii) Patriot Homes, Inc.,
(iv) Oakwood Homes Corporation, and
(v) Southern Energy Homes, Inc.
"Indenture" shall mean the Trust Indenture dated as of September 1,
1999 between the Issuer and the Trustee with respect to the Bonds.
"Issuer" shall mean the Hillsboro Industrial Development Corporation,
and any successor to its functions.
"Letter of Credit" means the Irrevocable Letter of Credit No. ___ dated
the date of delivery thereof, issued by the Credit Obligor for the benefit of
the Borrower pursuant to the Credit Agreement.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease assignment or bailment for
security purposes. For the purposes of this Agreement, the Guarantor shall be
deemed to be the owner of any Property which it has acquired or holds or hold
subject to a conditional sale agreement, financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other person for security purposes.
"Loan Agreement" shall mean the Loan Agreement dated as of September 1,
1999 between the Issuer and the Borrower with respect to the Project.
"Material Adverse Effect" shall mean any act or circumstance or event
which (i) causes an Event of Default or Default, (ii) otherwise might be
material and adverse to the financial condition or business operations of the
Guarantor or (iii) would adversely affect the validity or enforceability of any
of the Financing Documents or any of the papers executed in connection
therewith.
"Maximum Guaranteed Percentage" shall mean twenty-four percent (24%).
"1997 Credit Agreement" shall mean the Credit Agreement between the
Borrower and the Credit Obligor dated July 15, 1997.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, an association, a trust, an unincorporated organization
and a government or any department, agency or political subdivision thereof.
"Project" shall mean the real and personal property described in the
Deed of Trust, Loan Agreement and Indenture as the "Project".
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
district, territorial, or other court or governmental department, board, bureau,
agency or instrumentality having jurisdiction over Guarantor.
SECTION 1.02 Accounting Principles
The Guarantor shall maintain books and records in accordance with
generally accepted accounting principles ("GAAP" as defined in the Credit
Agreement) consistently applied.
SECTION 1.03 Action Taken Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
SECTION 1.04 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
SECTION 1.05 General Provisions of Construction
(1) Capitalized terms used herein without definition shall have the
meaning assigned to them in the Indenture or the Credit Agreement.
(2) Singular terms shall include the plural as well as the singular,
and vice versa.
(3) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
subdivisions of this instrument as originally executed.
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
SECTION 1.06 Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
ARTICLE II
Guaranty
SECTION 2.01Guaranty of Obligations
(a) Subject to and limited by the provisions of subsection 2.01(d)
hereof, the Guarantor hereby absolutely and unconditionally guarantees the
punctual payment when due (whether at stated maturity, by acceleration or call
for redemption or otherwise), in lawful money of the United States of America,
of all of the following (collectively the "Obligations"):
(1) all letter of credit commissions, fees, charges and costs
becoming due and payable under the Credit Agreement in accordance with
the terms thereof;
(2) all amounts becoming due and payable under the Credit
Agreement in accordance with the terms thereof as reimbursement of
amounts paid by the Credit Obligor under the Letter of Credit;
(3) all late charges and all interest on late payments
becoming due and payable under the Credit Agreement in accordance with
the terms thereof;
(4) all amounts becoming due and payable under the Credit
Agreement in accordance with the terms thereof upon the occurrence and
continuance of an Event of Default under the Credit Agreement;
(5) all amounts becoming due and payable under the Credit
Agreement as reimbursement of increased costs to the Credit Obligor
caused by changes in laws or regulations or in the interpretation
thereof;
(6) all other amounts becoming due and payable by the Borrower
under the Credit Agreement;
(7) all amounts becoming due and payable by the Borrower under
the terms of the Deed of Trust (including but not limited to
reimbursement for advancements made by the Credit Obligor under the
Deed of Trust), the Assignment and any other security agreements,
guarantees, mortgages or other documents now or hereafter evidencing or
securing the Borrower's performance of its obligations under the Credit
Agreement; and
(8) all renewals and extensions of any or all the obligations
of the Borrower described in paragraphs (1) through (7) above
(including without limitation any renewal or extension of, and any
substitute for, the Letter of Credit), whether or not any renewal or
extension agreement is executed in connection therewith.
(b) The guaranty set forth in this Section is an absolute and
irrevocable guaranty of payment and not of collectibility or performance and is
in no way conditioned or contingent upon any attempt to collect from the
Borrower or any other Person, or to realize upon any Property subject to the
Lien of the Indenture, the Deed of Trust or the Assignment, or upon any other
direct or indirect security for the Bonds or the Obligations, or resort to any
other remedies.
(c) Each default in payment of any amount of the Obligations shall give
rise to a separate cause of action hereunder and separate suits may be brought
hereunder as each cause of action arises.
(d) By acceptance hereof, the Credit Obligor covenants and agrees that,
anything herein or in the Financing Documents to the contrary notwithstanding,
the obligations of, and recourse against, the Guarantor for payment of any
amounts pursuant to this Agreement shall be limited to and shall not exceed the
Maximum Guaranteed Percentage of such amounts, as determined on the basis of the
aggregate amounts described in Section 2.01(a) or otherwise due hereunder which
are outstanding at the time demand for payment thereof is made in accordance
herewith, without regard to or taking into account any demand upon, or payment
or contribution by, any other Financing Participant (except as otherwise
provided herein) with respect to such amounts.
SECTION 2.02 Character of Obligations Hereunder
(a) All obligations of the Guarantor under this Agreement are
unconditional, primary, absolute and irrevocable under any and all
circumstances. Without limiting the generality of the foregoing, to the fullest
extent permitted under applicable law, the obligations of the Guarantor
hereunder shall not be subject to or impaired by:
(i) any inability or failure on the part of any party
thereto to perform or comply with the Financing Documents or the Bonds;
(ii) any invalidity or irregularity in any statutory or other
proceedings relating to the formation or existence of any of the
Financing Participants, to the issuance of the Bonds or to the
execution and delivery of any Financing Document;
(iii) any invalidity or unenforceability of, or any
impairment, modification or release of liability of any party under, or
any impossibility, impracticability, illegality or frustration of
performance by any party of, any of the Financing Documents or the
Bonds, for any reason whatsoever, including, without limitation, any
decision by any court invalidating or otherwise affecting the
obligations of any party under or in connection with any of the
Financing Documents or the Bonds;
(iv) any inability or failure on the part of any of the
Financing Participants to perform or comply with any of the Financing
Documents;
(v) any invalidity or unenforceability of, or any impairment,
modification or release of liability of the Guarantor under, or any
impossibility, impracticability, illegality or frustration of
performance by the Guarantor of this Agreement;
(vi) the voluntary or involuntary liquidation, dissolution,
merger, consolidation, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, moratorium, arrangement, composition with
creditors or readjustment of debt of, or other similar proceedings
affecting, any of the Financing Participants;
(vii) any waiver, consent, extension, indulgence or other
action or inaction in respect of any Financing Document or the Bonds,
including any modification, amendment or supplement to any of the
foregoing, the renewal or extension of the Bonds, the release of any
Property subject to the Lien of the Indenture or the Deed of Trust, or
the Loan Agreement or any other similar act;
(viii) any right of setoff, counterclaim or defense, or any
act, omission or breach on the part of the Borrower, the Credit Obligor
or the Guarantor or any of the other Financing Participants;
(ix) any claim whatsoever against the Borrower or the Issuer
or any of the other Financing Participants;
(x) any defect in the title, compliance with specifications,
value, condition, design, operation, merchantability, quality,
durability or suitability of, consequences of use or misuse of, or
unfitness for use of, the Project or any part thereof, any abandonment,
destruction, noncompletion, requisition, condemnation, foreclosure of
or damage to the Project or any part thereof, or any event of force
majeure relating to the Project or any part thereof;
(xi) any breach of any representation or warranty relating
to the Bonds or the Project;
(xii) any release, extinguishment or satisfaction of the
Borrower's obligations to make payments of Obligations until there have
been paid to the Credit Obligor in lawful currency of the United States
an amount sufficient to pay all Obligations (including interest on
overdue amounts of Obligations including, to the extent permitted by
applicable law, interest) that would have been due and owing to the
Credit Obligor by the Borrower had the Borrower's obligations not been
so released, extinguished or satisfied;
(xiii) the failure to give notice to the Guarantor of the
occurrence of any default or event of default under the Bonds or any of
the Financing Documents;
(xiv) the compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of any of the
parties to any of the Financing Documents under the Bonds or the
Financing Documents;
(xv) any assignment, pledge or mortgage of all or any part of
the interest of any of the Financing Participants in the Project or the
Collateral;
(xvi) any waiver of the payment, performance or observance by
any of the Financing Participants of any obligation, agreement or
covenant of any of them contained in the Bonds or the Financing
Documents;
(xvii) the extension of the time for payment of any amount of
the Obligations or any part thereof or of the time for performance of
any other obligations, agreements or covenants of any of the Financing
Participants under the Bonds or the Financing Documents;
(xviii) the modification or amendment (whether material or
otherwise) of any obligation, agreement or covenant contained in the
Bonds or the Financing Documents;
(xix) any failure, omission, or delay on the part of any of
the Financing Participants to enforce, assert or exercise any right,
power or remedy conferred upon any of them by the Bonds or the
Financing Documents;
(xx) the bankruptcy, insolvency, reorganization, appointment
of a receiver for, or dissolution of any of the Financing Participants,
or the entering by any or all of them into an agreement of composition
with creditors, or the making by any or all of them of an assignment
for the benefit of creditors;
(xxi) any rights of set-off, recoupment, counterclaim or other
defense, whether similar or dissimilar to the foregoing, which the
Guarantor might otherwise have against any of the Financing
Participants or any other person;
(xxii) the default or failure of any one or more of the
Financing Participants to perform fully any obligation, covenant or
agreement contained in the Bonds or the Financing Documents;
(xxiii) the release or discharge of any one or more of the
Financing Participants by operation of law, to the extent that such
release or discharge may be lawfully avoided, from the performance or
observance of any agreement or covenant contained in the Bonds or the
Financing Documents;
(xxiv) the invalidity or unenforceability of the Bonds or the
Financing Documents or of any provision of such instruments; or
(xxv) any other matter that might otherwise be raised in
avoidance of, or in defense against, an action to enforce the
obligations of the Guarantor under this Agreement.
(b) The Guarantor acknowledges that this Agreement is executed for the
benefit of the Credit Obligor and that the Credit Agreement and the Letter of
Credit will be executed and delivered in reliance on this Agreement. No act of
commission or omission of any kind at any time on the part of the Credit Obligor
in respect of any matter whatsoever shall in any way affect or impair any right,
power or benefit of the Credit Obligor under this Agreement and, to the extent
permitted by applicable law, no setoff, claim, reduction, diminution of any
obligation, or any defense of any kind or nature which the Guarantor may have
against the Credit Obligor shall be available against the Credit Obligor in any
suit or action brought by the Credit Obligor to enforce any right, power or
benefit under this Agreement.
ARTICLE III
Waivers; Termination; No Subrogation
SECTION 3.01 Waivers
(a) The Guarantor hereby waives all of the following and all defenses,
counterclaims, or offsets which the Guarantor may have by reason thereof: (1)
notice of acceptance hereof, notice of any action taken or omitted in reliance
hereon, notice of any defaults by the Borrower in the payment of any such sums,
and notice of the creation, renewal, or accrual of any liability of the
Borrower, (2) any presentment, demand, notice or protest of any kind, (3) any
right (i) to have joined any of the other Financing Participants with the
Guarantor in any suit brought against the Guarantor on this Agreement, (ii) to
require the Credit Obligor to forthwith bring suit against any of the other
Financing Participants, and (iii) to require that the Credit Obligor obtain any
judgment against any of the other Financing Participants in connection with the
enforcement of any rights against the Guarantor hereunder, and (4) any other act
or thing (including without limitation alteration of the Bonds or the Financing
Documents or debt evidenced thereby or security therefor), or omission or delay
to do any other act or thing which may, by operation of law or otherwise, in any
manner or to any extent vary the risk of the Guarantor or which might otherwise
operate as a discharge of the Guarantor.
(b) The Guarantor hereby waives, as to the enforcement of this
Agreement, (1) all rights of exemption that the Guarantor may have under the
constitution and laws of any state as to any levy on and sale of property and
(2) presentation and demand for payment (or protest of nonpayment) of
Obligations or any part thereof.
SECTION 3.02 Termination
(a) The guaranties set forth in this Agreement shall remain in full
force and effect without reference to future changes in conditions, including,
to the extent permitted by applicable law, changes in law, until the Credit
Obligor shall have been indefeasibly paid in full any and all sums due under the
terms and provisions of the Obligations and the Financing Documents, and until
such sums are not subject to rescission or repayment upon any bankruptcy,
insolvency, arrangement, reorganization, moratorium, receivership or similar
proceeding affecting the Issuer, the Borrower, the Guarantor, or any of the
other Financing Participants.
(b) In the event any payment on the Obligations (whether such payment
is remitted by the Issuer, the Borrower, any Guarantor or any other person, from
realization on collateral, through setoff or otherwise) must be refunded, paid
over or otherwise released by the Credit Obligor as a result of such payment
being (1) a preference or fraudulent transfer under the Bankruptcy Code of 1978,
as amended, or other state or federal law or (2) disallowed as a permanent and
irrevocable payment on the Obligations for any other reason, then in each such
event this Agreement shall thereupon, ipso facto, be reinstated and revived to
the full extent of such refunded, paid over or released payment.
SECTION 3.03 No Right of Subrogation.
The Guarantor will not exercise any rights of subrogation which the
Guarantor may have unless and until this Agreement shall have been terminated as
provided in Section 3.02. If any payment is made to the Guarantor with respect
to any payments due by the Guarantor under this Agreement at any time prior to
such termination of this Agreement, it will be paid forthwith to the Credit
Obligor to be applied to installments due or coming due under the Obligations in
the order and the manner provided in the Credit Agreement or otherwise
determined by the Credit Obligor.
ARTICLE IV
Business Covenants
SECTION 4.01 Affirmative Covenants
The Guarantor covenants that so long as this Agreement is in effect,
the Guarantor shall
(a) Payment of Indebtedness, Taxes, etc. (i) Pay all indebtedness and
obligations of the Guarantor promptly and in accordance with normal terms where
failure to pay would have a Material Adverse Effect, and (ii) pay and discharge
or cause to be paid or discharged promptly all taxes, assessments and
governmental charges or levies imposed upon the Guarantor or upon his income and
profits, or upon any of his Property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies or otherwise, which, if unpaid, might become a
lien upon such properties or any part thereof where failure to pay would have a
Material Adverse Effect; provided, however, that the Guarantor shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings.
(b) Accounts, Financial Information. The Guarantor will maintain proper
books of record and account, in which full and correct entries will be made, in
accordance with generally accepted accounting principles, of all business and
affairs of the Guarantor. The Guarantor shall furnish to the Credit Obligor with
reasonable promptness (1) annual financial statements of the Guarantor prepared
and audited by certified public accountants in accordance with generally
accepted accounting principles, and (2) such other information regarding the
operations, business affairs and financial condition of the Guarantor as the
Credit Obligor may reasonably request.
(c) Legal Existence. The Guarantor will maintain and preserve its legal
existence and will not voluntarily dissolve without first discharging its
obligations under this Agreement.
(d) Further Assurances. On request of the Credit Obligor, promptly
correct any defect, error or omission which may be discovered in any of the
Financing Documents or in the contents of any of the papers executed in
connection therewith or in the execution or acknowledgment thereof, and execute,
acknowledge and deliver such further instruments and do such further acts as may
be necessary or as may be requested by the Credit Obligor to carry out more
effectively the purposes of this Agreement and the Financing Documents.
SECTION 4.02 Information as to Guarantor
Financial and Business Information. The Guarantor shall deliver to the
Credit Obligor:
(a) Notice of Default or Event of Default. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a default or an event of default under any Financing
Document, a written notice specifying the nature and period of
existence thereof and what action the Guarantor is taking or proposes
to take with respect thereto;
(b) Notice of Claimed Default. Immediately upon becoming aware
that the holder of any evidence of indebtedness or security of the
Guarantor has given notice or taken any other action with respect to a
claimed default or event of default thereunder which would cause a
default or event of default which would have a Material Adverse Effect,
a written notice specifying the notice given or action taken by such
holder and the nature of the claimed default or event of default and
what action the Guarantor are taking or proposes to take with respect
thereto;
(c) Requested Information. With reasonable promptness,
such data and information as from time to time may be reasonably
requested;
(d) Notice of Litigation. Immediately upon becoming aware of
the existence of any proceedings before any Tribunal involving the
Guarantor which involves the probability of any final judgment or
liability against such Guarantor in an amount which would have a
Material Adverse Effect, a written notice specifying the nature thereof
and what action such Guarantor is taking and proposes to take with
respect thereto; and
(e) Notice from Regulatory Agencies. Promptly upon receipt
thereof, information with respect to and copies of any notices received
from federal or state regulatory agencies or any Tribunal relating to
an order, ruling, statute or other law or information which might have
a Material Adverse Effect on the franchises, permits, licenses, or
rights, or the condition, financial or otherwise, of the Guarantor.
ARTICLE V
Representations, Warranties and Agreements
The Guarantor represents, warrants and agrees that:
SECTION 5.01 Financial Condition
Since the date of application to the Credit Obligor for the Letter of
Credit, (i) there has been no change in the business, prospects, profits,
Properties or condition (financial or otherwise) of the Guarantor, except
changes in the ordinary course of business, none of which individually or in the
aggregate has a Material Adverse Effect, (ii) the Guarantor has not incurred any
material liability which has a Material Adverse Effect, and (iii) there exists
no default under the provisions of any instrument evidencing any such
liabilities or under any agreement relating thereto which would have a Material
Adverse Effect.
<PAGE>
SECTION 5.02 Full Disclosure
No written statement furnished by the Guarantor to the Credit Obligor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact which the Guarantor has not disclosed to the Credit
Obligor in writing which has a Material Adverse Effect or, so far as the
Guarantor can now foresee, will have a Material Adverse Effect.
SECTION 5.03 Pending Litigation; No Defaults
There are no proceedings pending, or, to the knowledge of the
Guarantor, threatened, against or affecting the Guarantor in any court or before
any governmental authority or arbitration board or Tribunal which involve the
possibility of a Material Adverse Effect or the ability of the Guarantor to
perform this Agreement. The Guarantor is not in default with respect to any
order of any court, governmental authority, arbitration board or Tribunal which
would have a Material Adverse Effect.
SECTION 5.04 Title to Properties
The Guarantor has good and marketable title to the Properties thereof.
SECTION 5.05 No Defaults
No event has occurred and no conditions exist which would, in any
material respect, upon the issuance of the Letter of Credit, constitute (i) a
default under any note or other evidence of indebtedness or under any agreement
of the Guarantor if the effect of such default would have a Material Adverse
Effect or (ii) a default or event of default under the Financing Documents or
any of them, and the Guarantor is not in violation in any material respect of
any term of any agreement or other instrument to which he is a party or by which
he may be bound that would have a Material Adverse Effect.
SECTION 5.06 Governmental Consent
No consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Guarantor is
required in connection with the execution and delivery of the Financing
Documents to which the Guarantor is a party.
SECTION 5.07 Compliance with Law
The Guarantor:
(a) is not in violation of any laws, ordinances, governmental
rules or regulations to which Guarantor is subject, or
<PAGE>
(b) has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of the
Property, or to the conduct of the business, of Guarantor,
which violation or failure to obtain would have a Material Adverse Effect.
SECTION 5.08 Restrictions on Guarantor
The Guarantor is not a party to any contract or agreement which
requires consent of any creditor of the Guarantor other than the Credit Obligor
or other party thereto to the right or ability of the Guarantor to incur debt or
guarantee indebtedness hereunder.
SECTION 5.09 Maintenance of Tax Exemption
The Guarantor represents that he has not taken any action, and he knows
of no action that any other Person has taken, which would cause interest on the
Bonds to be includible in the gross income of the holder thereof for federal
income tax purposes, and covenant that he will not take any action or omit to
take any action at any time, which action or omission would result in the loss
of the exemption from federal income taxation of the interest on the Bonds;
provided that no such representation or covenant is made with respect to any
Bonds for any period during which they are held by a "substantial user" or a
"related person" as those terms are used in Section 147 of the Code. The
Guarantor further represents that he will not take or omit to take any action,
or permit any Person to take any action or omit to take any action, which action
or omission will in any way cause the proceeds from the sale of the Bonds to be
applied, or result in such proceeds being applied, in any manner other than as
provided in the Financing Documents
SECTION 5.10 Indemnification
(a) The Guarantor will indemnify and hold harmless the Credit Obligor
and each Person, if any, who controls the Credit Obligor within the meaning of
Section 15 of the Securities Act of 1933, as amended, (the Credit Obligor and
any such person being in this Section collectively called a "Holder") against
any and all losses, claims, damages or liabilities, joint and several, or
actions in respect thereof, to which any Holder may become subject under any
statute or common law or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
this Agreement, including the financial statements referred to herein, or any
omission or alleged omission to state herein a material fact necessary in order
to make the statements herein not misleading; and will reimburse any Holder for
all legal or other expenses reasonably incurred by such Holder in connection
with defending any such action or claim.
(b) If any such action or claim shall be brought or asserted against
any Holder and in respect of which indemnity may be sought from the Guarantor,
such Holder shall promptly notify the Guarantor in writing and the Guarantor
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Any Holder shall have the right to employ
<PAGE>
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Holder
unless (a) the employment thereof at the expense of Guarantor has been
specifically authorized by the Guarantor in writing, (b) the Guarantor have
failed to assume the defense and to employ counsel, or (c) the named parties to
any such action (including any impleaded parties) include both such Holder and
the Guarantor, and such Holder shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Guarantor (in which case, if such Holder
notifies the Guarantor in writing that it elects to employ separate counsel at
the Guarantor' expense, the Guarantor shall not have the right to assume the
defense of such action on behalf of such Holder, it being understood, however,
that the Guarantor shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
such Holders, which firm shall be designated in writing by such Holders). Each
Holder, as a condition of such indemnity, shall use its best efforts to
cooperate with the Guarantor in the defense of any such action or claim. The
Guarantor shall not be liable for any settlement of any such action effected
without their written consent, but if settled with the written consent of the
Guarantor, or if there be a final judgment for the plaintiff in any such action,
the Guarantor agrees to indemnify and hold harmless any such Holder from and
against any loss or liability by reason of such settlement or judgment.
SECTION 5.11 Survival of Representations, Warranties and Covenants
The representations, warranties and covenants of the Guarantor
contained in this Agreement, and any other document, instrument and agreement
referred to or contemplated by this Agreement, shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Borrower, any Holder or any other Person, or (ii) delivery of, and
payment for, the Bonds.
ARTICLE VI
Events of Default and Remedies
SECTION 6.01 Events of Default
An "Event of Default" shall exist under this Agreement if any of the
following occurs and is continuing (whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) Particular Covenant Defaults. The Guarantor fails to
perform or observe any covenant or agreement contained in Section 2.01
for a period of five Business Days after notification by the Credit
Obligor of such failure;
<PAGE>
(b) Other Defaults. The Guarantor fails to comply with any
other provision of this Agreement, and such failure continues for a
period of thirty days after written notification by the Credit Obligor
of such failure;
(c) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of the Guarantor
contained in this Agreement, or in any instrument furnished in
compliance with or in reference to this Agreement, is false or
misleading in any material respect and action which eliminates such
falsity or misleading character is not completed for a period of thirty
days after written notification by the Credit Obligor of such false or
misleading statement;
(d) Default on Other Indebtedness. Default by the Guarantor in
any payment of any obligation for money received as an advance (or any
obligation under any conditional sale or other title retention
agreement or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money lien or
any obligation under notes payable or drafts accepted representing
extensions of credit) beyond any grace period provided with respect
thereto, or default in the performance of any other agreement, term or
condition contained in any agreement under which such obligation is
created (or any other default under any such agreement which shall
occur and be continuing beyond any period of grace provided with
respect thereto), if the effect of such default would have a Material
Adverse Effect, and such default shall remain uncured for a period of
ten days after the Guarantor has notice thereof;
(e) Involuntary Bankruptcy Proceedings. A receiver, liquidator
or trustee of the Guarantor, or of any of his Property, is appointed by
court order and such order remains in effect for more than sixty days,
or an order or decree for relief in an involuntary bankruptcy case is
entered with respect to the Guarantor, or any of his Property is
sequestered by court order and such order remains in effect for more
than sixty days, or a petition is filed against the Guarantor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, and is not dismissed within sixty days after
such filing;
(f) Voluntary Petitions. The Guarantor files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against him under any such law;
(g) General Assignment for Benefit of Creditors, etc. The
Guarantor makes a general assignment for the benefit of his creditors,
or is unable to pay his debts generally as they become due, or consents
to the appointment of a receiver, trustee or liquidator of the
Guarantor, or of all or any part of his Property;
<PAGE>
(h) Undischarged Final Judgments or Settlements. One or more
final judgments shall be entered against the Guarantor, or the
Guarantor shall enter into settlement of any litigation, which
judgments and settlements are not covered by insurance, and which
judgments and settlements will have a Material Adverse Effect on the
Guarantor; or
(i) Other Defaults. The occurrence of an event of default
under any of the other Financing Documents, the 1997 Credit Agreement
or any Financing Document as defined therein and the expiration of the
applicable grace period, if any, specified therein.
SECTION 6.02 Remedies
If an Event of Default exists, the Credit Obligor may proceed to
protect its rights by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any covenant or agreement
of the Guarantor herein contained or in aid of the exercise of any power or
remedy granted to the Credit Obligor under any of the other Financing Documents.
The Credit Obligor may proceed directly against the Guarantor hereunder without
resorting to any other remedies which it may have and without proceeding against
any other security held by the Credit Obligor.
SECTION 6.03 Rights and Remedies of Credit Obligor in the Event of
Bankruptcy, Etc. of Guarantor
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
proceeding, or any general assignment for the benefit of creditors, relative to
the Guarantor, the Credit Obligor (irrespective of whether there has been a
default under this Agreement or any of the other Financing Documents) shall be
entitled and empowered to intervene in such proceedings, to file and prove a
claim or claims for the whole amount owing and unpaid and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Credit Obligor (including any claim for reasonable compensation to the
Credit Obligor, its agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities reasonably incurred, and all advances made, by the
Credit Obligor except as a result of its negligence or bad faith) allowed in
such judicial proceedings, to collect and receive any moneys or other property
payable or deliverable on any such claims, and to take such other action therein
as the Credit Obligor may deem necessary or appropriate to protect its
interests.
SECTION 6.04 Agreement to Pay Attorneys' Fees
In the event the Guarantor should default under any of the provisions
of this Agreement and the Credit Obligor should employ attorneys or incur other
expenses for the collection of any payments due hereunder or the enforcement of
performance or observance of any agreement or covenant on the part of the
Guarantor herein contained, the Guarantor will on demand therefor pay to the
Credit Obligor the reasonable fees of such attorneys and such other reasonable
expenses so incurred.
<PAGE>
SECTION 6.05 Waiver of Past Defaults
The Credit Obligor may waive any past default hereunder and its
consequences. Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Agreement but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 6.06 No Additional Waiver Implied by One Waiver
If any agreement contained in this Agreement should be breached by the
Guarantor and thereafter waived by the Credit Obligor, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
SECTION 6.07 Remedies Subject to Applicable Law
All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Agreement invalid or unenforceable.
ARTICLE VII
Subordination Agreement
The Guarantor does hereby covenant and agree:
(a) That payment of the Guarantor Indebtedness when due and
payable in each month shall be and hereby is fully subordinated in
priority to the prior payment to Credit Obligor of the Credit Obligor
Indebtedness when due and payable in each month, provided, however,
that so long as no event of default exists under the Credit Obligor
Financing Documents the Guarantor may receive payment of the Guarantor
Indebtedness when due and payable (but not in advance of originally
scheduled due dates).
(b) That anything in any other contract, agreement or
instrument to the contrary notwithstanding, (a) all right, title and
interest of the Guarantor in and to the Collateral shall be and hereby
are fully subordinated in priority to the right, title and interest of
Credit Obligor in and to the Collateral as provided in the Credit
Obligor Financing Documents without regard to the respective dates on
which any of such interests were created and (b) that the claim of
Credit Obligor upon all the Collateral shall be and hereby is prior and
superior for all purposes to that of the Guarantor therein.
<PAGE>
(c) Upon the occurrence of a default under any agreement or
document evidencing, providing for, or securing the Guarantor
Indebtedness or if the Guarantor Indebtedness shall become or be
declared immediately due and payable, then an event of default shall be
deemed to have simultaneously occurred under the Credit Obligor
Indebtedness and the Credit Obligor Financing Documents and the same
shall also become immediately due and payable, notwithstanding any
inconsistent terms in any document or instrument relating to any of the
foregoing. The Guarantor shall not, without the prior written consent
of Credit Obligor, accelerate the maturity of, or institute any
proceedings to enforce, any of the Guarantor Indebtedness.
(d) Upon the occurrence and continuation of an event of
default under any agreement or document evidencing, providing for, or
securing the Guarantor Indebtedness or the Credit Obligor Financing
Indebtedness, Credit Obligor shall first be entitled to receive all
proceeds and revenues from the Collateral when and as the same become
available, in payment in full of all Credit Obligor Indebtedness prior
to any of such proceeds or revenues being distributed to the Guarantor.
If, before the conditions for defeasance and termination of the Credit
Obligor Financing Documents shall have been satisfied in full, the
Guarantor should receive any payment or amount in violation of this
Agreement, or in the event that any payment or distribution of any
assets of the Borrower of any kind or character (whether in cash,
property or securities), shall be received by the Guarantor in
violation of this Agreement, such payment, amount or distribution shall
be held in trust for the benefit of, and shall be paid over upon demand
to, Credit Obligor or its representative for application to the payment
of the Credit Obligor Indebtedness until the Credit Obligor Financing
Documents shall have been defeased and terminated as provided therein.
(e) Upon any payment or distribution of any of the assets of
the Borrower of any kind or character upon any dissolution, winding up,
total or partial liquidation, or reorganization of the Borrower,
whether in voluntary or involuntary bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of assets and
liabilities of the Borrower or otherwise, or upon the acceleration or
maturity of the Credit Obligor Indebtedness and/or the Guarantor
Indebtedness: (a) Credit Obligor shall first be entitled to receive all
such assets in payment in full of the Credit Obligor Indebtedness
before the Guarantor is entitled to receive any amount of such assets;
and (b) any payment or distribution of any of the assets of the
Borrower of any kind or character (whether in cash, property or
securities) to which the Guarantor would be entitled except for the
provisions of this Agreement shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
receiver, liquidating trustee, other custodian, agent or other person,
directly to Credit Obligor or its representative, to the extent
necessary to pay in full all indebtedness owed thereto, before any
payment or distribution of such assets is made to the Guarantor.
(f) No right of Credit Obligor to enforce the subordination
provided herein shall at any time or in any way be prejudiced or
impaired by (a) any act or failure to act on the part of Credit
Obligor, or (b) any noncompliance by Credit Obligor with the terms of
any
<PAGE>
documents or instruments executed in connection with the Credit Obligor
Financing Documents (regardless of any knowledge thereof that Credit
Obligor may have or be charged with), or (c) any action Credit Obligor
may take or refrain from taking with respect to the Credit Obligor
Indebtedness or any security therefor, including without limitation any
modification of the terms of the Credit Obligor Financing Documents or
the granting or effecting of any release or settlement with respect to
the Credit Obligor Indebtedness or any security therefor. Any waiver by
Credit Obligor of any breach hereof by the Guarantor or any indulgence
by Credit Obligor to the Guarantor shall apply only to the separate
occasion thereof and shall not affect the continuing obligation of the
Guarantor hereunder.
(g) The Guarantor hereby agrees to execute and deliver to
Credit Obligor at its request such other, further or additional
agreements, requests, demands, notices, powers of attorney or other
writings as, in the sole discretion or opinion of Credit Obligor, may
be necessary or convenient in order to carry out the intent and purpose
hereof, or to effectuate this Agreement.
ARTICLE VIII
Provisions of General Application
SECTION 8.01 Jurisdiction
The Guarantor irrevocably (a) agrees that any suit, action or other
legal proceeding arising out of this Agreement may be brought in the courts of
record of the State of Alabama or the courts of the United States located in the
State of Alabama; (b) consents to the jurisdiction of each such court in any
such suit, action or proceeding, and (c) waives any objection which the
Guarantor may have to the laying of venue of any such suit, action or proceeding
in any of such courts.
SECTION 8.02 Benefit of the Agreement
This Agreement is entered into by the Guarantor for the benefit of the
Credit Obligor. The Guarantor agrees to pay all reasonable and necessary costs,
expenses and fees, including all reasonable attorneys' fees, which may be
incurred by the Credit Obligor in enforcing or attempting to enforce this
Agreement pursuant to the provisions hereof, whether the same shall be enforced
by suit or otherwise.
SECTION 8.03 Notices
(a) Any request, demand, authorization, direction, notice, consent, or
other document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with, the Guarantor or the Credit Obligor shall be
sufficient for every purpose hereunder if in writing and (except as otherwise
provided in this Agreement) either (i) delivered personally to the party or, if
such party is not an individual, to an officer, or other legal representative of
the party to whom the
<PAGE>
same is directed (provided that any document delivered personally to the Credit
Obligor must be delivered at its Principal Office during normal business hours)
at the addresses specified below, or (ii) mailed by first-class, registered or
certified mail, postage prepaid to the addresses specified below, or (iii) sent
by nationally recognized overnight courier service to the addresses specified
below; provided either party may change the address for receiving any such
notice or document by giving notice of the change to the other party as provided
in this Section:
Cavalier Homes, Inc.
Highway 41 North Cavalier Road
Addison, AL 35540
Attention: Chief Executive Officer
First Commercial Bank
2000 SouthBridge Parkway
Birmingham, Alabama 35209
Attention: Commercial Lending
(b) Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not an
individual, to an officer, or other legal representative of the party) at the
address specified pursuant to this Section, or, if sent by mail, 3 days after
such notice or document is deposited in the United States mail, proper postage
prepaid, addressed as provided above.
SECTION 8.04 Reproduction of Documents
The Guarantor hereby agrees that any Financing Document and all
documents relating thereto, including, without limitation, (a) supplements,
consents, waivers and modifications which may hereafter be executed, (b)
documents received by the Credit Obligor at any closing of any purchase of the
Bonds and (c) financial statements, certificates and other information
previously or hereafter furnished to the Credit Obligor, may be reproduced by
the Credit Obligor by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and they may destroy any
original document so reproduced. To the extent permitted by law, the Guarantor
agrees and stipulates that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by them in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 8.05 Survival
All warranties, representations and covenants made by the Guarantor
herein or on any certificate or other instrument delivered by or on behalf of
the Guarantor under this Agreement shall
<PAGE>
be considered to have been relied upon by the Credit Obligor regardless of any
investigation made by it or on its behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Guarantor hereunder.
SECTION 8.06 Successors and Assigns
The terms of this Agreement shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors and assigns of
each of the parties.
SECTION 8.07 Effective Date of Agreement
The obligations of the Guarantor hereunder shall arise absolutely and
unconditionally when the Credit Agreement shall have been executed and
delivered.
SECTION 8.08 Entire Agreement; Counterparts
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and may be executed simultaneously in
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
SECTION 8.09 Severability
The invalidity or unenforceability of any one or more phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
validity or enforceability of the remaining portions of this Agreement, or any
part thereof.
SECTION 8.10 Date For Identification Purposes Only
The date of this Agreement is for identification purposes only and is
not intended to indicate that this Agreement was executed on such date.
SECTION 8.11 Exceptions to Covenants
The Guarantor shall not be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
<PAGE>
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
executed under seal in its name and on its behalf by officers thereof duly
authorized thereunto, and the Credit Obligor has executed this Agreement by
causing its name to be hereunto subscribed by one of its duly authorized
officers, all as of the day and year first above written.
CAVALIER HOMES, INC.
By: /s/ Michael R. Murphy
---------------------------------------
Name: Michael R. Murphy
-------------------------------------
Title: Secretary
------------------------------------
Accepted:
FIRST COMMERCIAL BANK
By:
---------------------------------------
Name:
-------------------------------------
Title:
-----------------------------------
<PAGE>
STATE OF ALABAMA )
Winston COUNTY )
The undersigned, a Notary Public in and for said County in said State,
hereby certify that Michael R. Murphy, whose name as Secretary of Cavalier
Homes, Inc., a corporation, is signed to the foregoing instrument and who is
known to me, acknowledged before me on this day that, being informed of the
contents of said Limited Credit Guaranty Agreement, he/she, as such officer and
with full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal this the 21st day of September,
1999.
/s/ Shirley Ann Barnett
---------------------------
Notary Public
AFFIX SEAL
My commission expires: 2-4-2001
GUARANTY AGREEMENT
THIS AGREEMENT, (this "Agreement") made as of the 27th day of July, 1998, by
CAVALIER HOMES, INC., a Delaware corporation (the "Guarantor"), in favor of
SOUTHTRUST BANK, NATIONAL ASSOCIATION, a national banking association (the
"Bank"). As used in this Agreement, except as otherwise defined herein or unless
the context may clearly require to the contrary, all capitalized word and
phrases shall have the meaning attributed to them in that certain amended and
Restated Credit Agreement dated of even date herewith between WoodPerfect, Ltd.
an Alabama limited partnership (the "Borrower"), and the Bank (as the same may
be amended or modified from time to time (the "Credit Agreement").
In consideration of One Dollar ($1.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Guarantor agrees, covenants and represents as follows;
1. A. The Guarantor hereby absolutely and unconditionally guarantees
to the Bank the due, regular and punctual payment and prompt
performance of the Guaranteed Obligations including without
limitation payment of any sum or sums of money which Borrower
now owes the Bank or from time to time hereafter shall owe the
Bank in connection with the Term Loan No. 2, whether evidenced
by notes or other instruments, or by open account or
otherwise, and whether it represents an original balance, a
balance reduced by part payment, or a deficiency after sale
of collateral, an extension or renewal of an original debt, or
otherwise. Further, the Guarantor guarantees the payment of
all costs, attorney fees or expenses which may be incurred
by the Bank by reason of a Default arising on account of the
failure to pay any principal or interest under the Term Note
No. 2 when due.
B. In the event of any Default by the Borrower in the payment of
the Guaranteed Obligations, the Guarantor absolutely and
unconditionally promises to pay to the Bank such amounts as
are necessary to cure the Default, or at the option of the
Bank, the Guarantor agrees to pay to Bank the entire amount
of the Guaranteed Obligations.
C. This Guaranty is an unconditional guaranty, and the Guarantor
agrees that the Bank, upon the occurrence of an Event of
Default by Borrower with respect to the Guaranteed Obligations
shall not be required to assert any claim or cause of action
against Borrower or any other party before asserting any claim
or cause of action against the Guarantor under this Agreement.
Furthermore, the Guarantor agrees that the Bank shall not be
required to pursue or foreclose on any collateral that it may
receive from Borrower, the Guarantor or others as security for
any Guaranteed Obligations before making a claim or asserting
a cause of action against the Guarantor under this Agreement.
D. The failure of the Bank to perfect any portion of its security
interest in any Collateral as set forth in the Loan Documents
or any other collateral now or hereafter securing all or any
part of the Guaranteed Obligations, shall not release the
Guarantor from the Guarantor's liabilities and obligations
hereunder.
E. To the extent permitted by law; notice of acceptance of this
Agreement and of any default by the Borrower is hereby waived
by the Guarantor presentment, protest, demand, and notice of
protest and demand of any and all collateral, and of the
exercise of possessory remedies or foreclosure on any and all
collateral received by the Bank from the Borrower or the
Guarantor are hereby waived; and all settlements, compromises,
compositions, accounts stated, and agreed balances in good
faith between primary and secondary obligors on any accounts
received as collateral shall be binding upon the Guarantor.
F. This Agreement shall not be affected, modified, or impaired by
the voluntary or involuntary liquidation, dissolution, sale
or other disposition of all or substantially all of the assets
marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangements, composition with
creditors or readjustment of or other similar proceedings
affecting the Borrower, the Guarantor or any other guarantor,
or any of the assets belonging to one or more of them, nor
shall this Agreement be affected, modified or impaired by the
invalidity of any note, the Credit Agreement, any of the
other Loan Documents or any other document executed by the
Borrower or the Guarantor in connection with the Loans.
G. Without notice to the Guarantor, without the consent of the
Guarantor, and without affecting or limiting the Guarantor's
liability hereunder, the Bank may:
(a) grant the Borrower extensions of time for payment of the
Obligations or any part thereof;
(b) renew any of the Obligations;
(c) grant the Borrower extensions of time for performance
of agreements or other indulgences;
(d) at any time release any or all of the collateral held
by the Bank as security for the Obligations;
(e) at any time release any other guarantor from such
guarantor's guarantee of any of the Obligations;
(f) compromise, settle, release, or terminate any or all of
the obligations, covenants, or agreement of Borrower under
any Note, the Credit Agreement, and /or any one or more of
the other Loan Documents; and
(g) with Borrower's written consent, modify or amend any
obligation, covenant or agreement of Borrower set forth
in any one or more of the Notes, the Credit Agreement,
and/or the other Loan Documents.
H. This Agreement may not be terminated by the Guarantor until
such time as all guaranteed Obligations, including any
renewals or extensions thereof, have been paid and performed
in full and such payments and performance of the Guaranteed
Obligations have become final and are not subject to being
refunded as a preference or fraudulent transfer under the
Bankruptcy Law or other applicable Law.
2. The Guarantor represents and warrants to the Bank and covenants that
the Guarantor has full power and unrestricted right to enter into this
Agreement, to incur the obligations provided for herein, and to execute
and deliver the same to Bank, and that when executed and delivered,
this Agreement will institute a valid and legally binding obligation of
the Guarantor, enforceable in accordance with its terms. The Guarantor
acknowledges that the Bank is relying upon the Guarantor's covenants
herein in making the loans to Borrower, and the Guarantor undertakes to
perform the Guarantor's obligations hereunder promptly and in good
faith.
3. The Guarantor covenants and agrees that so long as the Guaranteed
Obligations are outstanding, the Guarantor will from time to time upon
request, furnish to the Bank such information regarding the business
affairs, finances, and conditions of the Guarantor and the Guarantor's
properties as may reasonably be required of the Guarantor (in whatever
capacity) under the Credit Agreement.
4. If Borrower is or shall hereafter be indebted to Bank for any
obligations, liability or indebtedness other than the Guaranteed
Obligations, and Bank should collect or receive any payments, funds or
distributions which are not specifically required, by law or agreement,
to be applied to the Guaranteed Obligations, Bank may in its sole
discretion, apply such payments, funds or distributions to indebtedness
of the Borrower other than the Guaranteed Obligations.
5. The Guarantor hereby waives any right to indemnification and
subrogation or other rights of reimbursement that the Guarantor might
have against Borrower or Borrower's estate.
6. This Agreement shall be binding upon, and insure to the benefit of, the
Guarantor, the Bank and their respective legal representatives,
successors and assigns.
7. The validity, interpretation, enforcement and effect of this Agreement
shall be governed by, and construed according to the laws of, the State
of Alabama. The Guarantor consents that any legal action or proceeding
arising hereunder may be brought, at the election of the Bank, in the
Circuit Court of Jefferson County, of the State of Alabama, or in the
United States District Court for the Northern District of Alabama,
Southern Division, and assents and submits to the personal jurisdiction
of any such courts in any such action or proceeding.
8. GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF
OR IN ANY WAY PERTAINING OR RELATING TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR IN CONNECTION WITH THE TRANSACTIONS RELATED HERETO OR
THERETO OR CONTEMPLATED HEREBY OR THEREBY OR THE EXERCISE OF ANY RIGHTS
AND REMEDIES HEREUNDER OR THEREUNDER, IN ALL OF THE FOREGOING CASES
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE. GUARANTOR AGREES THAT BANK MAY FILE A
COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF GUARANTOR WITH BANK
IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY
WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
9. In the event that any provision hereof is deemed to be invalid by
reason of the operation of any law or by reason of the interpretation
placed thereon by any court, this Agreement shall be construed as not
containing such provisions and the invalidity of such provisions shall
not affect other provisions hereof which are otherwise lawful and valid
and shall remain in full force and effect.
10. Any notice or payment required hereunder or by reason of the
application of any law shall be given and deemed delivered as provided
in the Credit Agreement, except no payment shall be deemed received
until the actual receipt thereof.
11. The failure at any time or times hereafter to require strict
performance by the Guarantor of any of the provisions, warranties,
terms and conditions contained herein or in any other agreement,
document or instrument now or hereafter executed by the Guarantor and
delivered to the Bank shall not waive, affect or diminish any right of
the Bank hereafter to demand strict compliance or performance therewith
and with respect to any other provisions, warranties, terms and
conditions contained in such agreements, documents and instruments, and
any waiver of any default shall not waive or affect any other
default, whether prior or subsequent thereto and whether of the same
or a different type. None of the warranties, conditions, provisions
and terms contained in this Agreement or in any agreement, document
or instrument now or hereafter executed by the Guarantor and delivered
to the Bank shall be deemed to have been waived by any act or
knowledge of the Bank, its agents, officers or employees, but only be
an instrument in writing, signed by an officer of the Bank, and
directed to Guarantor specifying such waiver.
12. The obligations of the Guarantor under this Agreement will continue to
be effective or be reinstated, as the case might be, if at any time any
payment from Borrower to the Bank of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned by the Bank on the
insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or as a result of the appointment of a custodian, conservator,
receiver, trustee or other officer with similar powers with respect to
Borrower or any part of Borrower's property or otherwise. If an event
permitting the acceleration of the maturity of the Term Loan No.
2 has occurred and is continuing and such acceleration is at such time
prevented by reason of the pendency against Borrower of a proceeding
under any bankruptcy or insolvency law, the Guarantor agrees that,
for the purposes of this Agreement and the obligations of the
Guarantor under this Agreement, the maturity of the Term Loan No. 2
will be deemed to have been accelerated with the same effect
as if the Bank had accelerated the same in accordance with the
terms of the Credit Agreement, the Term Note No. 2 any of the other
Loan Documents or any other document executed in connection with
the Loans, and the Guarantor will immediately pay the unpaid balance
of the Term Loan No.2.
13. The Guarantor will, on demand, reimburse the Bank for all expenses
incurred by the Bank in connection with the preparation,
administration, amendment, modification or enforcement of this
Agreement, and if at any time hereafter the Bank employs counsel to
advise or provide other representation with respect to this agreement
or any other agreement, document or instrument heretofore now or
hereafter executed by the Guarantor and delivered to the Bank with
respect to the Borrower or the Guaranteed Obligations, or to commence,
defend or intervene, file a petition, complaint, answer, motion or
other pleadings or to take any other action in or with respect to any
suit or proceeding relating to this Agreement or any other agreement,
instrument or document heretofore, now or hereafter executed by the
Guarantor and delivered to the Bank with respect to the Borrower or
the Guaranted Obligaitons, or to represent the Bank in any
litigation with respect to the affairs of the Guarantor, or to enforce
any rights of the Bank or obigations of the Guarantor or any other
person, firm or coporation which may be obligated to the Bank by
virtue of this Agreement or any other agreement, document or instrument
heretofore, now or hereafter delivered to the Bank by or for the
benefit of the Guarantor with respect to the Borrower or the Guaranteed
Obligation, or to collect from Guarantor any amounts owing hereunder,
then in any such event, all of the reasonable attorneys' fees incurred
by the Bank arising from such services and any expenses, costs and
charges relating thereto shall constitute additional obligations of the
Guarantor payable on demand.
14. The Guarantor does hereby waive any rights of exemption of property
from levy or sale under execution or other process for the
collection of debts under the Constitution or laws of the United States
or any state thereof as to any of the obligations created hereunder.
15. This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both oral and written, between the
Guarantor and the Bank with respect to the subject matter hereof.
IN WITNESS WHEREOF, this instrument has been executed by the Guarantor
as of the day and year first above written.
CAVALIER HOMES, INC.
By:/s/ Michael R. Murphy
--------------------------------
Its: Vice President
STATE OF Alabama
COUNTY OF WINSTON
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Michael R. Murphy, whose name as Vice
President of Cavalier Homes, Inc., a Delaware corporation, is signed to
the foregoing instrument, and who is known to me, acknowledged before
me that, being informed of the contents of such instrument, he, as such
officer and with full authority, executed the same voluntary for and as
the act of said corporation.
Given under my hand and official seal, this the 24th day of July, 1998.
/s/ Shirley Ann Barnett (seal)
--------------------------------
Notary Public
AFFIX SEAL
My commission expires: My commission expires 2-4-2001
<TABLE>
<CAPTION>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------- --------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Income (loss) $(1,621,000) $ 5,220,000 $ 5,700,000 $ 13,331,000
========== =========== ============ ===========
SHARES:
Weighted average common shares (17,949,080) 20,072,336 18,221,146 20,029,432
outstanding (basic)
Dilutive effect if stock options were 42,957 235,521 83,027 275,272
exercised ------------ ----------- ------------ -----------
Weighted average common shares
outstanding, assuming dilution 17,992,037 20,307,857 18,304,173 20,304,704
(diluted) ========== =========== ============ ===========
Basic net income (loss) per share $ (.09) $ .26 $ .31 $ .67
========== =========== ============ ===========
Diluted net income (loss) per share $ (.09) $ .26 $ .31 $ .66
========== =========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income of Cavalier
Homes, Inc. and subsidiaries appearing in this Quarterly Report on Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Oct-1-1999
<CASH> 22,337
<SECURITIES> 0
<RECEIVABLES> 32,267
<ALLOWANCES> 1,559
<INVENTORY> 61,882
<CURRENT-ASSETS> 133,385
<PP&E> 105,531
<DEPRECIATION> 30,650
<TOTAL-ASSETS> 245,997
<CURRENT-LIABILITIES> 100,697
<BONDS> 0
0
0
<COMMON> 2,037
<OTHER-SE> 132,310
<TOTAL-LIABILITY-AND-EQUITY> 245,997
<SALES> 466,610
<TOTAL-REVENUES> 466,610
<CGS> 378,023
<TOTAL-COSTS> 378,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 647
<INTEREST-EXPENSE> 1,049
<INCOME-PRETAX> 9,421
<INCOME-TAX> 3,721
<INCOME-CONTINUING> 5,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,700
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
</TABLE>
