UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 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.
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(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
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(State or other jurisdiction IRS Employer
of incorporation organization) Identification Number)
Highway 41 North & Cavalier Road, Addison, Alabama 35540
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(Address of principal executive offices)
(Zip Code)
(256) 747-0044
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at May 14, 1999
- ------------------------------ ---------------------------=
Common Stock, $.10 Par Value 17,974,137 Shares
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands)
April 2, December 31,
<S> <C> <C>
1999 1998
------------ --------------
CURRENT ASSETS:
Cash and cash equivalents $ 22,689 $ 64,243
Accounts receivable, less allowance for losses of $1,224 (1999) and $1,201 (1998) 39,729 7,678
Notes and installment contracts receivable - current 1,591 1,577
Inventories 48,075 38,803
Deferred income taxes 10,032 9,413
Other current assets 4,301 4,077
------------ --------------
Total current assets 126,417 125,791
------------ --------------
PROPERTY, PLANT AND EQUIPMENT (Net) 68,452 61,422
------------ --------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $747 (1999) and $760 (1998) 25,044 24,512
------------ --------------
GOODWILL, less accumulated amortization of $4,429 (1999) and $4,154 (1998) 19,811 19,945
------------ --------------
OTHER ASSETS 5,118 4,282
------------ --------------
TOTAL $ 244,842 $ 235,952
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 458 $ 405
Notes payable 7,167 4,163
Accounts payable 26,593 15,944
Amounts payable under dealer incentive programs 16,987 18,752
Accrued compensation and related withholdings 10,182 7,154
Estimated warranties 12,615 12,400
Other accrued expenses 27,620 25,266
------------ --------------
Total current liabilities 101,622 84,084
------------ --------------
DEFERRED INCOME TAXES 281 390
------------ --------------
LONG-TERM DEBT 4,223 3,650
------------ --------------
OTHER LONG-TERM LIABILITIES 3,792 2,917
------------ --------------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 20,285,737 (1999) shares and 20,282,782 (1998) shares 2,029 2,028
Additional paid-in capital 61,011 60,760
Treasury stock, at cost; 2,311,600 (1999) shares and 852,600 (1998) shares (22,240) (8,277)
Retained earnings 94,124 90,400
------------ --------------
Total stockholders' equity 134,924 144,911
------------ --------------
TOTAL $ 244,842 $ 235,952
============ ==============
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - dollars in thousands except per share data)
Thirteen Weeks Ended
------------------------------
April 2, March 27,
1999 1998
------------ --------------
REVENUE $ 163,416 $ 125,579
COST OF SALES 130,819 102,755
SELLING, GENERAL AND ADMINISTRATIVE 25,634 17,722
------------ --------------
OPERATING PROFIT 6,963 5,102
------------ --------------
OTHER INCOME (EXPENSE):
Interest expense (165) (425)
Other, net 643 392
------------ --------------
478 (33)
------------ --------------
INCOME BEFORE INCOME TAXES 7,441 5,069
INCOME TAXES 2,940 2,027
------------ --------------
NET INCOME $ 4,501 $ 3,042
============ ==============
BASIC NET INCOME PER SHARE $ 0.24 $ 0.15
============ ==============
DILUTED NET INCOME PER SHARE $ 0.24 $ 0.15
============ ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 18,733,889 19,967,999
============ ==============
WEIGHTED AVERAGE SHARES OUTSTANDING, ASSUMING DILUTION 18,836,758 20,160,536
============ ==============
<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)
Thirteen Weeks Ended
------------------------------
April 2, March 27,
1999 1998
<S> <C> <C>
------------ --------------
OPERATING ACTIVITIES:
Net income $ 4,501 $ 3,042
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 2,337 1,971
Provision for credit losses and repurchase commitments 10 (142)
Gain on sale of installment contracts (494) (1,126)
Loss on sale of property, plant and equipment (17) (2)
Other, net 132 103
Changes in assets and liabilities provided (used) cash, net of effects of acquisition:
Accounts receivable (32,074) (23,864)
Inventories (8,708) (4,912)
Accounts payable 10,649 10,418
Other assets and liabilities 3,698 (1,786)
------------ --------------
Net cash used in operating activities (19,966) (16,298)
------------ --------------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisition (275) -
Proceeds from sale of property, plant and equipment 47 2
Capital expenditures (9,024) (1,557)
Purchases of certificates of deposit - (6,044)
Maturities of certificates of deposit - 2,500
Proceeds from sale of installment contracts 14,230 26,153
Net change in notes and installment contracts (14,434) (1,206)
Other investing activities (447) 106
------------ --------------
Net cash provided by (used in) investing activities (9,903) 19,954
------------ --------------
FINANCING ACTIVITIES:
Net proceeds from notes payable 2,411 -
Payments on long-term debt (154) (14,779)
Proceeds from long-term borrowings 780 -
Cash dividends paid (777) (599)
Proceeds from exercise of stock options 14 14
Net proceeds from sales of common stock 4 528
Purchase of treasury stock (13,963) -
------------ --------------
Net cash used in financing activities (11,685) (14,836)
------------ --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (41,554) (11,180)
------------ --------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,243 37,276
------------ --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,689 $ 26,096
============ ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 111 $ 445
Income taxes 2,240 356
<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 April 2, 1999,
and the results of its operations and its cash flows for the thirteen
week periods ended April 2, 1999 and March 27, 1998, respectively. All
such adjustments are of a normal, recurring nature.
o The results of operations for the thirteen weeks ended April 2, 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
---------------------------------------
April 2, March 27,
1999 1998
----------------- -----------------
<S> <C> <C>
Weighted average common shares outstanding (basic) 18,733,889 19,967,999
Dilutive effect if stock options were exercised 102,869 192,537
----------------- -----------------
Weighted average common shares
outstanding, assuming dilution (diluted) 18,836,758 20,160,536
================= =================
</TABLE>
o Inventories consist primarily of raw materials and are stated at the
lower of cost (first-in, first-out method) or market.
2. ACCOUNTING STANDARD NOT YET ADOPTED
In June 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, 1999. Cavalier is currently evaluating SFAS
No. 133 and has not yet determined its impact on the Company's
consolidated financial statements.
3. STOCKHOLDERS' EQUITY
o Cash dividends of $.04 per share were paid during the quarter ended
April 2, 1999.
o During the first quarter of 1999, the Company repurchased 1,459,000
shares of stock under its stock repurchase program. At April 2, 1999,
2,311,600 shares had been repurchased for $22,240 which is recorded as
treasury stock.
4. 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 $257,000 at April 2, 1999. The Company has an allowance
for losses of $1,224 (1999) and $1,201 (1998) based on prior
experience 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 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 April
2, 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 jointly and
severally guaranteed revolving notes for three companies and a letter
of credit for one company in which the Company owns various equity
interests. The guarantees are limited to various percentages of the
outstanding debt up to a maximum guaranty of $2,319. At April 2, 1999,
$4,660 was outstanding under the various guarantees, of which the
Company had guaranteed $1,118.
5. 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 first quarters of 1999 and 1998 is presented
below.
Thirteen Weeks Ended
-------------------------------------
April 2, 1999 March 27, 1998
--------------- ------------------
Gross revenue:
Home manufacturing $ 161,685 $ 122,843
Financial services 1,455 2,426
Retail 2,478 -
Other 9,825 6,307
--------------- ------------------
Gross revenue $ 175,443 $ 131,576
=============== ==================
Intersegment revenue:
Home manufacturing $ 3,202 $ -
Financial services - -
Retail - -
Other 8,825 5,997
--------------- ------------------
Intersegment revenue $ 12,027 $ 5,997
=============== ==================
Revenue from external customers:
Home manufacturing $ 158,483 $ 122,843
Financial services 1,455 2,426
Retail 2,478 -
Other 1,000 310
--------------- ------------------
Total revenue $ 163,416 $ 125,579
=============== ==================
Operating profit
Home manufacturing $ 7,216 $ 2,943
Financial services 179 1,471
Retail (267) -
Other 3 415
--------------- ------------------
Segment operating profit 7,131 4,829
General corporate (168) 273
--------------- ------------------
Operating profit $ 6,963 $ 5,102
=============== ==================
Identifiable assets:
Home manufacturing $ 173,832 $ 152,764
Financial services 28,639 28,645
Retail 11,607 -
Other 13,621 7,913
Elimination (3,138) (1,454)
--------------- ------------------
Segment assets 224,561 187,868
General corporate 20,281 22,203
--------------- ------------------
Total assets $ 244,842 $ 210,071
=============== ==================
* See Safe Harbor Statement on page 11.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 4)
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
---------------------------------------------------------------------------------
April 2, 1999 March 27, 1998 Difference
--------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 158,483 $ 122,843 $ 35,640
Financial services 1,455 2,426 (971)
Retail 2,478 - 2,478
Other 1,000 310 690
---------- ------------ -----------
Total revenue $ 163,416 100.0% $ 125,579 100.0% $ 37,837 30.1%
========== ========== ============ ========= =========== ==========
Total revenue $ 163,416 100.0% $ 125,579 100.0% $ 37,837 30.1%
Cost of sales 130,819 80.1% 102,755 81.8% 28,064 27.3%
---------- ---------- ------------ --------- ----------- ----------
Gross Profit $ 32,597 19.9% $ 22,824 18.2% $ 9,773 42.8%
========== ========== ============ ========= =========== ==========
Selling, general and administrative $ 25,634 15.7% $ 17,722 14.1% $ 7,912 44.6%
========== ========== ============ ========= =========== ==========
Operating profit $ 6,963 4.3% $ 5,102 4.1% $ 1,861 36.5%
========== ========== ============ ========= =========== ==========
Other income (expense), net $ 478 0.3% $ (33) 0.0% $ 511 1348.5%
========== ========== ============ ========= =========== ==========
Net Income $ 4,501 2.8% $ 3,042 2.4% $ 1,459 48.0%
========== ========== ============ ========= =========== ==========
OPERATING DATA For the Thirteen Weeks Ended
-------------------------------------------------
April 2, 1999 March 27, 1998
------------------------ ----------------------
Manufacturing sales:
Floor shipments 9,585 7,544
Home shipments
Single section 3,030 48.1% 2,646 51.9%
Multi section 3,268 51.9% 2,449 48.1%
---------- ------------ --------- ------------
Total shipments 6,298 100.0% 5,095 100.0%
Shipments to company owned stores (115) 1.8% - 0.0%
---------- ------------ --------- ------------
Shipment to independent dealers 6,183 98.2% 5,095 100.0%
========== ============ ========= ============
Retail sales:
Single section 37 53.6% - 0.0%
Multi section 32 46.4% - 0.0%
---------- ------------ --------- -----------
Total sales 69 100.0% - 0.0%
========== ============ ========= ===========
Cavalier produced homes sold 50 72.5% - 0.0%
========== ============ ========= ===========
Used homes sold 9 13.0% - 0.0%
========== ============ ========= ===========
Other Operating Data:
Installment loan purchases $ 15,362 $ 2,717
Capital expenditures $ 9,024 $ 1,557
Independent exclusive dealer locations 255 134
Home manufacturing facilities 24 22
Company owned stores 7 -
</TABLE>
Revenue
Total revenue for the first quarter of 1999 was a first quarter record of
$163,416, up 30% from 1998's first quarter revenue of $125,579, during a time of
the year that is traditionally the slowest for Cavalier and the industry.
Home manufacturing net sales for the first quarter of 1999 compared to the first
quarter of 1998 increased by 29%, or $35,640, to $158,483 net of intercompany
eliminations of $3,202. Home shipments increased 23.6%, with floor shipments
increasing by 27.1%. Multi-section home shipments continued to increase, from
48.1% of shipments in the first quarter of 1998, to 51.9% of shipments in 1999.
Actual shipments of homes for the first quarter were 6,298 versus 5,095 in 1998.
The Company attributes the increase in sales and shipments to a special
promotional program and additional production days during the quarter, 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 ever, national advertising campaign promoting a home concept called
the PowerHouse, which contributed to the 1999 sales increase. This home included
a special package of options such as a home computer, satellite dish and
entertainment center with television/VCR combination. The Company's exclusive
dealer program continues to gain acceptance, increasing by 25 locations during
the quarter, bringing the total to 262 at April 2, 1999. Sales to exclusive
dealers represented 57.2% in the first quarter of 1999 versus 34.4% in the same
period of 1998. In addition, the quarter ending April 2, 1999 included five
additional production days compared to the quarter ending March 27, 1998.
Revenue from the financial services segment decreased 40%, or $971, from 1998.
The decrease in 1999 is due to absence of the gain recorded in 1998 from the
sale of approximately $25,000 of the Company's loan portfolio and lower interest
income in 1999 from the reduced level of installment contract portfolio held.
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. During the
first quarter of 1999, CAC purchased contracts of $15,362 and resold $13,735 of
these loans. In the first quarter of 1998, CAC had purchased contracts of $2,717
and sales of installment contracts totaling $25,027.
Revenues from the retail segment were $2,478 for 1999, of which 72.5% of the
units sold were Cavalier product. During the first quarter, the Company acquired
one retail dealership and opened one retail location. Subsequent to the end of
the quarter, Cavalier acquired six retail locations, bringing the total
company-owned retail locations to 13.
Other revenue consists mainly of revenue from the wholesale supply and component
manufacturing businesses. Revenues from external customers increased 223%, or
$690, for the first quarter of 1999 compared to the first quarter of 1998. This
increase is due primarily to the addition of a supply company.
Gross Profit
Gross profit was $32,597, or 19.9% of total revenue, for the first quarter of
1999, versus $22,824, or 18.2%, in 1998. An increase in total revenue, as well
as cost savings due to increased purchasing and other efficiencies after the
Belmont merger, is responsible for a significant portion of this increase. As
discussed in the Company's Annual Report on Form 10-K, the Company is still
experiencing tightened supply from its traditional vendors of certain types of
raw materials, including sheetrock and insulation, required for production of
its homes. The Company is attempting to obtain these products from other vendors
and to purchase substitute products, which may result in higher than normal
costs. The possibility exists that the Company may be unable to recover 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 first quarter of 1999
were $25,634, or 15.7% of total revenue, versus $17,722 or 14.1% in 1998, an
increase of $7,912. Of this increase, $2,021 is related to broadened sales and
marketing efforts, including the PowerHouse promotion, and recruiting, set-up
and maintenance of the exclusive dealer network. Additionally, selling, general
and administrative expenses increased $662 due to higher costs for employee
benefits, primarily health insurance, $387 for increased warranty service
activities and $413 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 the costs of $503
associated with acquiring and operating new retail locations, as well as the
continued development of a retail infrastructure, $324 costs of opening an
additional home manufacturing facility and the costs associated with the
expansion of the supply distribution business of $238.
Operating Profit
Operating profit for the quarter was $6,963 or 4.3% of sales, versus $5,102 or
4.1% of sales in the first quarter of 1998. Home manufacturing operating profit
improved $4,473 due to the increase in sales and cost savings associated with
increased purchasing and other efficiencies after the Belmont merger, partially
offset by an increase in selling, general and administrative expense. Financial
services operating profit declined $1,292 due mainly to the absence in 1999 of a
gain on the sale of a significant portion of CAC's loan portfolio.
Other Income (Expense)
Interest expense decreased $260 due primarily to the March 1998 retirement of
the financial services debt which was paid with the proceeds from the sale of a
portion of CAC's loan portfolio. Other, net increased $251 due primarily to
increased earnings from a company in which Cavalier owns a minority interest.
Net Income
Net income improved 48% to $4,501 in 1999 from $3,042 in 1998. The increase in
total revenue and continued cost savings associated with the Belmont merger are
primarily responsible for the improved net income. Net income per share
increased to $.24 for the first quarter of 1999, compared to $.15 in 1998, a 60%
increase. Net income per share increased at a greater rate than net income due
to the lower number of weighted average shares outstanding during the first
quarter of 1999.
*See Safe Harbor Statement on page 11.
<PAGE>
Liquidity and Capital Resources (dollars in thousands)
<TABLE>
<CAPTION>
BALANCE SHEET DATA Balances as of
---------------------------------------
April 2, 1999 December 31, 1998
-------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 22,689 $ 64,243
Accounts receivable $ 39,729 $ 7,678
Working capital $ 24,795 $ 41,707
Current ratio 1.2 to 1 1.5 to 1
Long-term debt $ 4,223 $ 3,650
Ratio of long-term debt to equity 1 to 32 1 to 40
Installment loan portfolio $ 26,632 $ 26,117
</TABLE>
Operating activities during the first quarter of 1999 used net cash of $19,966.
Working capital decreased $16,912, primarily as a result of the purchase of
1,459,000 shares of treasury stock during the first quarter of 1999 for $13,963.
The increase in accounts receivable and reduction in cash and cash equivalents
from December 31, 1998 to April 2, 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.
The Company's capital expenditures were approximately $9,024 for the thirteen
weeks ended April 2, 1999, as compared to $1,557 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 the first quarter of 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 quarter.
The increase in long-term debt of $573 is primarily due to the assumption of an
industrial development revenue bond in the amount of $728 related to the Alabama
facilities acquired.
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. This program identifies four
stages as follows:
1) The preliminary assessment of each computer system and microprocessor
the Company utilizes for Year 2000 compliance is complete, and the
testing of these systems and microprocessors is approximately 80%
complete. As a result of this assessment, the Company believes most
of the significant systems and microprocessors it utilizes are
currently Year 2000 compliant or will be with the installation of
available upgrades, except for an accounting system used by two of
the Company's subsidiaries.*
2) The identification of Year 2000 compliance by significant or critical
third parties has been completed, and the scheduled completion date to
replace all non-compliant third parties is October 1999.
3) The completion of any Company system conversions and verification that
all Company systems are Year 2000 compliant are expected to be
completed by December 1999. *
4) The development of a contingency plan is the last phase and is expected
to be completed by October 1999. The Company currently expects its
contingency plan to include installation of certain Year 2000 compliant
software, currently in use at most of its operations, for the two
subsidiaries with non-compliant accounting software. *
The costs incurred to date to address the Year 2000 issue have not been
material; however, the Company expects 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. * This anticipated cost is required to replace
non-compliant microprocessors and 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, and that material Year 2000
compliance issues with respect to third parties who have not communicated with
the Company will not arise in the future. * 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 $2,094 at April 2, 1999. Due to the long-term nature
of the benefit liabilities that these assets fund, the Company's exposure to
market risk is low. A decline in market value of these investments would not
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 generally ranging from 8.0% to 13.0%
and an average original term of 218 months at April 2, 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 April 2, 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 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. The Company has the
ability to retire this debt if interest rates were to increase significantly.
Additionally, the Company has three Industrial Development Revenue Bond issues
at fixed interest rates. The estimated fair value of outstanding borrowings
approximated carrying value at April 2, 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 3: Legal Proceedings
Reference is made to the legal proceedings previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 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 recently upheld the transfer upon motion of the defendant
of the Madison County action to the Circuit Court of Franklin County, Alabama.
Item 5: Other Matters
The Board of Directors has declared its regular quarterly cash dividend of $.04
per share payable on May 14, 1999 to stockholders of record on April 30, 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, included in Exhibit 3(a) above.
(b) Article II, Sections 2.1 through 2.18; Article III,
Sections 3.1 and 3.2; Article IV, Sections 4.1 and 4.3;
Article VI, Sections 6.1 through 6.5; Article VIII,
Sections 8.1 and 8.2; and Article IX of the Company's
Amended and Restated By-laws, included in Exhibit 3(c)
above.
(c) Rights Agreement between Cavalier Homes, Inc. and
ChaseMellon Shareholder Services, LLC, filed as Exhibit 4
to the Company's Current Report on Form 8-K dated October
30, 1996, is incorporated herein by reference.
(10) Material Contracts.
(a) Amended and Restated Guaranty Agreement, executed as of
March 24, 1999, by Cavalier Homes, Inc. in favor of First
Commercial Bank (relating to the Loan Agreement, dated
March 24, 1999, between Lamraft, L. P. and First
Commercial Bank and the Amended and Restated Promissory
Note, dated March 24, 1999, between Lamraft, L. P. and
First Commercial Bank). The original guaranty is
referenced in Exhibit 10(oo) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
(b) Amendment to the Limited Credit Guaranty Agreement,
executed as of March 24, 1999, by Cavalier Homes, Inc. and
First Commercial Bank (relating to the Credit Agreement
(Letter of Credit), dated July 15, 1997, from Lamraft, L.
P. to First Commercial Bank). The original guaranty is
referenced in Exhibit 10(ll) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
(c) Amendment to the Limited Credit Guaranty Agreement,
executed as of March 24, 1999, by and between Cavalier
Homes, Inc. and First Commercial Bank (relating to the
Credit and Security Agreement, dated July 15, 1997, as
amended, between Hillsboro Manufacturing, L. P. and First
Commercial Bank). The original guaranty is referenced in
Exhibit 10(mm) of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
(d) Amendment to the Limited Credit Guaranty Agreement,
executed as of March 24, 1999, by and between Cavalier
Homes, Inc. and First Commercial Bank (relating to the
Credit and Security Agreement, dated July 15, 1997, as
amended, between WoodPerfect of Texas, L. P. and First
Commercial Bank). The original guaranty is referenced in
Exhibit 10(nn) of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
(11) Statement re: Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule and Restated Financial Data
Schedule for Form 10-Q submitted as Exhibit 27 as an EDGAR filing
only.
(b) Current Report on Form 8-K.
None
*See Safe Harbor Statement on page 11.
<PAGE>
"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;
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; 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: May 17, 1999 /s/ David A. Roberson
--------------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: May 17, 1999 /s/ Michael R. Murphy
--------------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
- --------------------------------------------------------------------------------
THIS AGREEMENT AMENDS AND RESTATES IN ITS ENTIRETY THAT CERTAIN
GUARANTY AGREEMENT DATED DECEMBER 18.1998 EXECUTED AND DELIVERED TO THE BANK BY
THE GUARANTOR
- --------------------------------------------------------------------------------
AMENDED AND RESTATED GUARANTY AGREEMENT
THIS AGREEMENT is executed as of March 24, 1999, by Cavalier
Homes, Inc., a Delaware corporation (the "Guarantor"), in favor of First
Commercial Bank, a banking corporation organized and existing under the laws of
the State of Alabama (the "Bank").
Recitals
A. Pursuant to that certain Credit Agreement (Letter of
Credit) (the "Credit Agreement") dated July 15, 1997 from Lamraft, L.P. (the
"Borrower") to the Bank, the Bank issued its Irrevocable Letter of Credit (the
"Letter of Credit") No. 921 dated July 22, 1997 to secure $3,000,000 Adjustable
Rate Industrial Development Revenue Bonds, Series 1997 (Lamraft, L.P. Project)
(the "Bonds") issued by the Hillsboro Industrial Development Corporation to
finance an industrial manufacturing project (the "Project") for use by the
Borrower.
B. The Borrower requested the Bank to lend it an additional
$2, 000,000 (the "Additional Construction Loan") to pay increased costs of the
Project. The Bank approved the request and pursuant to the Borrower's Promissory
Note (the "December Note") dated December 18, 1998 in the principal amount of
$2,000,000, the Bank made a 90-day loan to the Borrower in the amount of
$2,000,000. The Guarantor executed and delivered to the Bank its Guaranty
Agreement (the "December Guaranty") dated December 18, 1998 pursuant to which it
guaranteed, subject to the limitations contained therein, the repayment of the
indebtedness evidenced by the December Note. The Borrower has requested the Bank
to renew, and extend the repayment terms of, the Additional Construction Loan
and the Bank has agreed to do so if the Guarantor executes and delivers this
Amended and Restated Guaranty Agreement of even date herewith. The renewal and
extension of the Additional Construction Loan will be evidenced by that certain
Loan Agreement (the "Loan Agreement") and that certain Amended and Restated Note
(the "Restated Note"), both of even date herewith and both executed and
delivered by the Borrower to the Bank.
Agreement
NOW, THEREFORE, in order to induce the Bank to renew and
extend the repayment of the Additional Construction Loan to the Borrower
pursuant to the Restated Note and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the December Guaranty
is hereby amended and restated in its entirety, and the Guarantor covenants and
agrees with the Bank, as follows:
1. Guaranteed Payments. Subject to and limited by the
provisions of Section 1A hereof, the Guarantor hereby guarantees the due and
punctual payment to the Bank when and as the same shall become due and payable
(whether by acceleration or otherwise) of the following amounts (the "Guaranteed
Payments"):
(a) all amounts of principal becoming due and payable on the
Restated Note in accordance with the terms thereof, whether at stated
maturity or as an installment or by required prepayment or notice of
optional prepayment or declaration of acceleration or otherwise;
(b) all amounts of interest becoming due and payable on the
Restated Note in accordance with the terms thereof, including interest
on any overdue principal and (to the extent permitted by applicable
law) on any overdue interest;
(c) all other amounts payable by the Borrower under the
Restated Note;
(d) all amounts payable by the Borrower under the terms of the
Loan Agreement and any mortgages, security agreements, pledge
agreements or other documents evidencing or securing the Additional
Construction Loan (the "Security Documents");
(e) all renewals and extensions of any or all the obligations
of the Borrower described in paragraphs (a) through (d) above
(including without limitation any renewal or extension of, and any
substitute for, the Restated Note), whether or not any renewal or
extension agreement is executed in connection therewith; and
(f) all Recovered Payments (as hereinafter defined in Section
14).
The guaranty provided for in this Section 1 is an absolute,
unconditional, present and continuing guaranty of payment and not of
collectibility and is in no way conditioned upon or limited by any attempt to
collect from the Borrower or the exercise of any other remedies the Bank may
have against any other person, firm or corporation (including, without
limitation, any other guarantors and any other maker, endorser, surety of, or
other party to, any of the Loan Documents, as hereinafter defined, the Borrower
and such other persons, firms and corporations being hereinafter collectively
referred to as the "Obligors" and individually as an "Obligor") or the resort to
any other security, guaranty or collateral held by the Bank, or any other
action, occurrence or circumstance whatsoever. If any Guaranteed Payment is not
made when and as the same shall become due and payable, the Guarantor shall on
demand forthwith make such Guaranteed Payment, in immediately available funds in
lawful money of the United States, directly to the Bank at its address specified
in or pursuant to Section 13 of this Agreement. The Guarantor further agrees to
be bound by all of the terms and provisions appearing on the face of any
instrument or agreement now or hereafter evidencing, guaranteeing, securing or
in any other way relating to any of the Guaranteed Payments, including, without
limitation, the Loan Agreement, the Restated Note, and the Security Documents
(all such instruments and agreements being hereinafter collectively called the
"Loan Documents"), and of any instrument or agreement extending or renewing any
such instrument or agreement (including any terms waiving notice and agreeing to
pay costs and expenses of collection in the event of default) just as though the
Guarantor had signed such instrument or agreement; and that the Bank will not be
required first to proceed against the Borrower or resort to the security,
guaranty or collateral, pledged or granted to it by any instrument or agreement
(including, without limitation, the Loan Documents), or otherwise assigned or
conveyed to it, but in case of default in the payment of any of the Guaranteed
Payments, the Bank may forthwith look to the Guarantor for payment under the
provisions hereof.
1A. Limitation of Obligations. Notwithstanding anything herein
to the contrary, the obligations of the Guarantor for the Guaranteed Payments
shall be limited to 24% of the Guaranteed Payments that are outstanding at the
time demand for payment thereof is made, without regard to or taking into
account any demand upon, or payment or contribution by, any other Obligor with
respect to such Guaranteed Payments.
2. Nature of Obligations. The obligations and liabilities of
the Guarantor under this Agreement are primary obligations of the Guarantor, are
continuing, absolute and unconditional, shall not be subject to any
counterclaim, recoupment, set-off, reduction or defense based upon any claim
that the Guarantor may have against the Borrower, the Bank, any of the Obligors
or any of their respective affiliates, and shall remain in full force and effect
until all of the Guaranteed Payments have been paid in full, without regard to,
and without being released, discharged, impaired, modified or in any way
affected by, the occurrence from time to time of any event, circumstance or
condition (whether or not the Guarantor shall have any knowledge or notice
thereof), including, without limitation, any one or more of the following,
whether or not with notice to, or consent of, the Guarantor:
(a) any term or provision of any instrument or agreement
(including, without limitation, the Loan Documents) applicable to the
Borrower or any of the Obligors;
(b) the invalidity or unenforceability of any such instrument
or agreement (including, without limitation, the Loan Documents);
(c) the failure or refusal to give notice to the Guarantor of
the occurrence of any event of default under any such instrument or
agreement (including, without limitation, the Loan Documents);
(d) any modification, amendment or supplement (whether
material or otherwise) of any obligation, covenant or agreement
contained in any such instrument or agreement (including, without
limitation, the Loan Documents); provided, however, that if any such
modification, amendment or supplement increases the principal amount of
the Additional Construction Loan, the interest rate borne by the
Additional Construction Loan , or any other charges payable under the
Loan Documents without the consent of the Guarantor, the Guarantor
shall not be liable for any portion of such increased principal amount
or charges or any amounts due because of such increased interest rate;
(e) any assignment or transfer of any such instrument or
agreement (including, without limitation, the Loan Documents) or of any
interest thereunder;
(f) the compromise, settlement, release or termination of any
or all of the obligations, covenants or agreements of the Borrower, any
of the Obligors or any other party under any such instrument or
agreement (including, without limitation, the Loan Documents);
(g) any waiver of payment, performance or observance by the
Borrower, any of the Obligors or any other party of any of their
respective obligations, covenants or agreements under any such
instrument or agreement (including, without limitation, the Loan
Documents);
(h) any consent, extension, indulgence or other action or
inaction (including, without limitation, any lack of diligence or
failure to mitigate damages) under or in respect of any such instrument
or agreement (including, without limitation, the Loan Documents), or
any exercise or non-exercise of any right, remedy, power or privilege
under or in respect of any such instrument or agreement (including,
without limitation, the Loan Documents);
(i) the failure, omission, delay or lack of diligence on the
part of the Bank, or any assignee or successor thereto, to enforce,
assert or exercise any right, power, privilege or remedy conferred upon
the Bank by any such instrument or agreement (including, without
limitation, the Loan Documents);
(j) the extension of time for payment of the principal of, or
interest on, any of the Guaranteed Payments, or the extension of the
time for performance of any other obligations, covenants or agreements
under any such instrument or agreement (including, without limitation,
the Loan Documents) or under any renewals or extensions thereof or
successor agreements thereto;
(k) the furnishing or accepting of additional collateral,
guaranties or other security for any of the Guaranteed Payments or the
release, modification, substitution, nonexistence or invalidity of any
collateral, guaranties or other security for any of the Guaranteed
Payments;
(l) the death of, voluntary or involuntary liquidation or
dissolution of, sale or other disposition of all or substantially all
of the assets of, or the marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of,
or other similar proceeding affecting, the Borrower or any of the
Obligors or any of their respective assets, or any action taken by any
trustee or receiver or by any court in any such proceeding, or the
disaffirmance, rejection or postponement in any such proceeding of any
of the Borrower's, any Obligor's or any other party's obligations or
undertakings set forth in any such instrument or agreement (including,
without limitation, the Loan Documents);
(m) the failure of the Bank, in the event of the occurrence of
any of the events specified in subsection (l) above, to file a claim or
proof of claim or otherwise pursue any of its remedies in any
proceeding resulting from such event;
(n) the release or discharge (by operation of law or
otherwise) of the Borrower, any of the Obligors or any other party from
the performance or observance of any obligation, covenant, agreement,
undertaking or condition to be performed by the same under any such
instrument or agreement (including, without limitation, the Loan
Documents);
(o) any limitation on the liabilities or obligations of the
Borrower, any of the Obligors or any other party under any such
instrument or agreement (including, without limitation, the Loan
Documents), or any termination, cancellation, frustration, invalidity
or unenforceability, in whole or in part, of any such instrument or
agreement (including, without limitation, the Loan Documents) or any
limitation on the method or terms of payment thereunder that may now or
hereafter be caused or imposed in any manner whatsoever;
(p) any failure on the part of the Borrower, any of the
Obligors or any other party for any reason fully to perform or to
comply with any term of any such instrument or agreement (including,
without limitation, the Loan Documents);
(q) any claim whatsoever of the Guarantor against the
Borrower or any of the Obligors;
(r) any understanding or agreement that any other person, firm
or organization was or is to execute this Agreement, any of the Loan
Documents, or any other instrument or agreement evidencing or securing
any of the Guaranteed Payments; or
(s) 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.
3. Waiver by Guarantor. The Guarantor unconditionally waives,
insofar as such Guarantor's obligations hereunder are concerned:
(a) notic of the execution and delivery of the Loan
Documents;
(b) notice of the Bank's acceptance of and reliance on this
Agreement or the making of the Additional Construction Loan to the
Borrower;
(c) notice of any of the matters referred to in Section 2
of this Agreement;
(d) all notices required by statute, rule of law or otherwise
to preserve any rights against the Guarantor hereunder, including,
without limitation, any demand, proof or notice of non-payment of any
Guaranteed Payment by the Borrower or any of the Obligors and notice of
any failure on the part of the Borrower or any of the Obligors to
perform or comply with any term of any instrument or agreement
(including, without limitation, the Loan Documents) to which the
Borrower or any of the Obligors is a party;
(e) any right to the enforcement, assertion or exercise of any
right, power or remedy under or in respect of any such instrument or
agreement (including, without limitation, the Loan Documents); and
(f) any requirement that the Borrower, any of the Obligors or
any other person be joined as a party to any proceeding for the
enforcement of any term of any such instrument or agreement (including,
without limitation, the Loan Documents), any requirement of diligence
on the part of the Bank and any requirement on the part of the Bank to
mitigate any damages resulting from any non-payment of any Guaranteed
Payment or any default or event of default under any such agreement or
instrument (including, without limitation, the Loan Documents).
All waivers granted by the Guarantor hereunder, including, without limitation,
the waiver by the Guarantor of the rights of subrogation to any Lender's rights
against the Borrower and others as provided herein, shall be unconditional and
irrevocable irrespective of whether the Guaranteed Payments have been paid in
full by the Guarantor or any other party.
4. Subordination, Assignment, Agreement not to Enforce
Subrogation Rights.
(a) Subordination. Any interest of the Guarantor in any
collateral assigned to the Bank as security for the Guaranteed Payments
or any portion of them, whether now owned or hereafter acquired by the
Guarantor, is hereby subordinated to the interest of the Bank therein.
Any indebtedness of the Borrower to the Guarantor, whether presently
existing or hereafter incurred, is hereby subordinated to all
indebtedness of the Borrower to the Bank; provided, however, that so
long as no default or Event of Default has occurred and is continuing
with respect to either the Additional Construction Loan, the Borrower
may pay the Guarantor such subordinated indebtedness when due and
payable (but not in advance of originally scheduled due dates). Any
notes now or hereafter evidencing indebtedness of the Borrower to the
Guarantor shall, upon request of the Bank, be marked with a legend that
the same are subject to this Agreement, and/or endorsed and delivered
to the Bank.
(b) Assignment. Any indebtedness of the Borrower to the
Guarantor is hereby assigned to the Bank as security for the
performance of the Guarantor's obligations hereunder and for the
performance of the obligations of the Borrower to the Bank under the
Loan Documents. If the Bank so requests, any indebtedness of the
Borrower to the Guarantor shall be collected, enforced and received by
the Guarantor as trustee for the Bank, to be paid over to the Bank
on account of the indebtedness and obligations of the Borrower
guaranteed hereunder, but without reducing or affecting in any manner
the liability of the Guarantor under the provisions of this Agreement.
The Guarantor agrees to and the Bank is hereby authorized, in the name
of the Guarantor from time to time, to execute and file financing
statements, security instruments and other documents, and to take
such other action as the Bank deems necessary or appropriate to
effect, preserve and enforce its rights hereunder.
(c) Agreement Not to Enforce Subrogation Rights. So long as
any Guaranteed Payment remains unpaid and the possibility exists that
the Guarantor could be liable to the Bank for a Recovered Payment, the
Guarantor hereby agrees not to assert, enforce or attempt to enforce
any right (individually, a "Subrogation Right" and collectively the
"Subrogation Rights"), whether at law, in equity, or otherwise, that
the Guarantor now or hereafter may have (including without limitation
any right of indemnity, contribution, reimbursement, exoneration or
subrogation) to recover from the Borrower, or from any person, firm or
corporation that may now or hereafter have such a right to recover from
the Borrower, any amounts paid by the Guarantor to satisfy, in whole or
in part, the Guaranteed Payments or any Recovered Payment. If any
amount shall be paid to the Guarantor on account of the Subrogation
Rights at any time when all of the Guaranteed Payments shall not have
been paid in full, such amount shall be held by the Guarantor in trust
for the Bank, segregated from other funds of the Guarantor, and shall,
forthwith upon receipt by the Guarantor, be turned over to the Bank in
the exact form received by the Guarantor (duly endorsed by the
Guarantor to the Bank, if required by the Bank) to be applied against
the Guaranteed Payments, whether matured or unmatured, in such order as
the Bank may determine.
5. Enforcement Expenses. The Guarantor shall indemnify and
hold harmless the Bank against (a) 24% of the amount of any loss, liability or
expense, including reasonable attorneys' fees and disbursements and any other
fees and disbursements, that may result from any failure of the Borrower to make
any Guaranteed Payment when and as due and payable or that may be incurred by or
on behalf of the Bank in enforcing any obligation of the Borrower or any of the
Obligors (other than the Guarantor) to make any such Guaranteed Payment, and (b)
any loss, liability or expense, including reasonable attorneys' fees and
disbursements and any other fees and disbursements, that may be incurred by or
on behalf of the Bank in enforcing any obligation of the Guarantor hereunder;
provided however, that if this Agreement is subject to sec. 5-19-10 of the
Minicode, sec. 5-19-1 et seq., Code of Alabama 1975, attorneys' fees shall be
limited to 15% of the unpaid balance of the debt after default and referral to
an attorney not a salaried employee of the Bank.
6. Delay and Waiver by the Bank. No delay in the exercise of
or failure to exercise any right, remedy or power accruing upon any default or
failure of the Guarantor in the performance of any obligation under this
Agreement shall impair any such right, remedy or power or shall be construed to
be a waiver thereof, but any such right, remedy or power may be exercised from
time to time and as often as may be deemed by the Bank expedient. In order to
entitle the Bank to exercise any right, remedy or power reserved to it in this
Agreement, it shall not be necessary to give any notice to the Guarantor. If the
Guarantor should default in the performance of any obligation hereunder, and
such default should thereafter be waived by the Bank, such waiver shall be
limited to the particular default so waived. No waiver, amendment, release or
modification of this Agreement shall be established by conduct, custom or course
of dealing, but solely by an instrument in writing duly executed by an executive
officer of the Bank.
7. Consent to Jurisdiction, Waiver of Jury Trial. The
Guarantor irrevocably (a) waives the Guarantor's right to a jury trial for any
controversy arising out of this Agreement or any transaction described herein;
(b) submits to the jurisdiction of any state or federal court sitting in
Birmingham, Alabama over any suit, action or proceeding arising out of or
relating to this Agreement; and (c) waives, to the fullest extent permitted by
law, any objection that the Guarantor may now or hereafter have to the laying of
the venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon the
Guarantor and may be enforced in any court to the jurisdiction of which the
Guarantor is subject, by a suit upon such judgment, provided that service of
process is effected upon the Guarantor in one of the manners specified in this
Section 7 or as otherwise permitted by law and provided, further that the
enforcement of such judgment has not been stayed by a court of competent
jurisdiction. The Guarantor hereby irrevocably designates and appoints
Michael R. Murphy of Cavalier Homes, Inc., Addison, Alabama, as such
Guarantor's authorized agent to accept and acknowledge on such Guarantor's
behalf service of any and all process that may be served in any suit, action or
proceeding of the nature referred to in this Section 7 in any state or federal
court sitting in the State of Alabama. If such agent shall cease so to act, the
Guarantor shall irrevocably designate and appoint without delay another such
agent in the State of Alabama satisfactory to the Bank and shall promptly
deliver to the Bank evidence in writing of such other agent's acceptance of such
appointment and its agreement that such appointment shall be irrevocable. The
Guarantor hereby consents to process being served in any suit, action or
proceeding of the nature referred to in this Section 7 by (a) the mailing of a
copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to such Guarantor at the Guarantor's address designated in or
pursuant to Section 13 hereof and (b) serving a copy thereof upon the agent, if
any, designated and appointed by such Guarantor as the Guarantor's agent for
service of process by or pursuant to this Section 7. The Guarantor irrevocably
agrees that such service (i) shall be deemed in every respect effective service
of process upon such Guarantor in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon such Guarantor. Nothing in this Section 7 shall affect the
right of the Bank to serve process in any manner otherwise permitted by law or
limit the right of the Bank otherwise to bring proceedings against the Guarantor
in the courts of any jurisdiction or jurisdictions.
8. Financial Condition. The Guarantor hereby agrees to provide
to the Bank the following:
(a) (i) if the Guarantor is a publicly held corporation, its
annual report to shareholders and its Form 10K each year as soon as the
same are available; or (ii) if the Guarantor is not a publicly held
corporation, within 90 days after the end of the Borrower's fiscal
year, the balance sheet of the Borrower as of the end of such year and
the related statements of income and changes in financial position of
the Borrower for such fiscal year, together with supporting schedules,
all on a comparative basis with the prior fiscal year, in reasonable
detail prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, and
audited and certified by independent certified public accountants of
recognized standing selected by the Borrower and satisfactory to the
Lender (the form and substance of such audit and certification also to
be satisfactory to the Lender), showing the financial condition,
assets, liabilities and stockholders' equity of the Borrower at the
close of such year and the results of the operations of the Borrower
during such year; and
(b) as soon as practical, from time to time, such other
information regarding the financial condition of the Guarantor as the
Bank may reasonably request.
9. Intent. The purpose of this Agreement is to memorialize the
parties' understanding that, if the Borrower does not pay or otherwise fully
perform its obligations in a timely manner as provided in the Loan Documents,
the Guarantor will promptly pay the amount due and payable by the Borrower to
the Bank upon demand.
10. Consideration. In order to induce the Bank to make the
Additional Construction Loan, the Guarantor, who acknowledges that the Guarantor
will benefit from such Loans to the Borrower, has agreed to execute and deliver
this Agreement on the understanding that doing so is a condition precedent to
the Bank's making such Loans.
11. Guarantor's Warranty; Related Parties. The Guarantor
confirms and warrants that the Guarantor is limited partner of the Borrower, has
personal knowledge of and is familiar with the Borrower's business affairs,
books and records, has the ability to influence the Borrower's decision-making
process, and warrants that the Borrower is in sound financial condition and will
perform in accordance with the terms and conditions of the Loan Documents.
12. Reliance. The Guarantor acknowledges that in making the
Additional Construction Loan the Bank is relying primarily upon the covenants of
the Guarantor contained in this Agreement and the Limited Credit Guaranty
Agreement dated July 15, 1997 and upon the guaranties of other guarantors, and
undertakes to perform the Guarantor's obligations hereunder promptly and in good
faith. The Guarantor also acknowledges that because of the primary reliance that
the Bank places upon the Guarantor's covenants contained herein and the
guaranties of other Guarantors, the Bank has not monitored, and does not intend
to monitor in the future, the progress of construction of the Project being
financed with the proceeds of the Additional Construction Loan, and the Bank
does not intend to conduct any physical inspections of the Project. Any rights
that the Bank has under the Loan Documents with respect to the Borrower and/or
the Project shall inure only to the benefit of the Bank and not to the benefit
of the Guarantor, any other guarantor or any other third parties.
13. Notices and Communications. All notices and other
communications hereunder shall be in writing and shall be effective when sent by
certified or registered mail, return receipt requested, by courier service or by
hand delivery: (a) if to the Guarantor, at Highway 41 North and Cavalier Road,
Addison, Alabama 35540 or at such other address as the Guarantor shall have
furnished to the Bank, or (b) if to the Bank, addressed to it at 800 Shades
Creek Parkway, Birmingham, Alabama 35288, Attention: Paul M. Schabacker, or at
such other address as the Bank shall have furnished to the Guarantor.
14.Termination of Agreement . This Guaranty shall remain in
full force and effect until the Bank shall have terminated this Guaranty in a
writing signed by a duly authorized officer of the Bank; provided, however, that
regardless of whether this Guaranty shall have been terminated, this Guaranty
and the obligations of the Guarantor hereunder shall continue to be effective or
be automatically reinstated, as the case may be, any time payment of all or any
part of the Guaranteed Payments is recovered (individually, a "Recovered
Payment" and collectively, the "Recovered Payments") from the Bank as a result
of a preference or other claim made under any bankruptcy, insolvency,
dissolution, liquidation, reorganization, receivership or similar law or
otherwise.
15. Survival of Agreements, etc. All agreements,
representations and warranties of the Guarantor hereunder shall survive the
execution and delivery of this Agreement, any investigation at any time made by
or on behalf of the Bank, the acceptance of the Restated Note by the Bank and
any disposition and payment of the Restated Note.
16. Successors and Assigns. All covenants and agreements of
the Guarantor set forth in this Agreement shall bind the Guarantor and the
Guarantor's personal representatives, heirs, successors and assigns and shall
inure to the benefit of, and be enforceable by, the Bank and its successors and
assigns including, without limitation, any holder of the Restated Note or any
part thereof.
17. No Oral Agreements. This written Agreement is the final
expression of the agreement between the parties hereto with respect to the
subject matter hereof, and this Agreement may not be contradicted by evidence of
any prior agreement between such parties. All previous oral agreements between
the parties hereto have been incorporated into this Agreement, and there is no
unwritten oral agreement in existence between the parties hereto.
18. Miscellaneous. Neither this Agreement nor any term hereof
may be terminated, amended, supplemented, waived, released or modified orally,
but only by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver, release or
modification is sought. This Agreement shall in all respects be governed by, and
construed and enforced in accordance with, the laws of the State of Alabama. If
any term of this Agreement or any obligation hereunder shall be held to be
invalid, illegal or unenforceable, the remainder of this Agreement and any other
application of such term shall not be affected thereby. The section headings of
this Agreement have been inserted for convenience only, and shall not modify,
define, limit or expand the express provisions hereof.
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to
be executed by its duly authorized officer as of the date first above written.
CAVALIER HOMES, INC.
By /s/ Michael R. Murphy
_________________________________
Name: Michael R. Murphy
_______________________________
Title: Vice President
______________________________
AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT
THIS AGREEMENT is executed as of March 24, 1999, by CAVALIER HOMES,
INC., a Delaware corporation (the "Guarantor"), and FIRST COMMERCIAL BANK, a
state banking corporation (the "Bank").
Recital
Pursuant to that certain Credit Agreement (Letter of Credit)
(the "Credit Agreement") dated July 15, 1997 from Lamraft, L.P. (the "Borrower")
to the Bank, the Bank issued its Irrevocable Letter of Credit (the "Letter of
Credit") No. 921 dated July 22, 1997 to secure $3,000,000 Adjustable Rate
Industrial Development Revenue Bonds, Series 1997 (Lamraft, L.P. Project) (the
"Bonds") issued by the Hillsboro Industrial Development Corporation to finance
an industrial manufacturing project (the "Project") for use by the Borrower. The
Guarantor executed and delivered to the Credit Obligor that certain Limited
Credit Guaranty Agreement (the "Limited Credit Guaranty Agreement") dated July
15, 1997 guaranteeing a portion of the Borrower's obligations under the Credit
Agreement, as well as all other indebtedness of the Borrower to the Credit
Obligor. The Borrower has requested the Credit Obligor to amend the Limited
Credit Guaranty Agreement to delete the provision thereof that guarantees such
other indebtedness, so that pursuant to the Limited Credit Guaranty Agreement,
and after the amendment, the Guarantor will guarantee only a portion of the
Credit Agreement obligations and certain other obligations related thereto
specifically enumerated in the Limited Credit Guaranty Agreement. The Bank has
agreed to do so pursuant to the terms of this Agreement.
Agreement
NOW THEREFORE, in consideration of the foregoing Recitals and of other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Bank and the Guarantor hereby agree as follows:
1. Amendment to Limited Credit Guaranty Agreement. The Limited
Credit Guaranty Agreement is hereby amended as follows:
(a) to amend the definition of Credit
Guaranty to read as follows: "`Credit Guaranty' shall
mean collectively the Limited Guaranty Agreements
dated as of July 15, 1997 by the Guarantors other
than the Oakwood Homes Corporation, as amended by
Amendment to Limited Guaranty Agreements dated as of
March 24, 1999 and the Limited Credit Guaranty
Agreement dated as of March 24, 1999 by Oakwood Homes
Corporation in favor of the Credit Obligor."
(b) to amend the definition of Guarantors to
read as follows: "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, Inc.; and
(v) Southern Energy Homes, Inc.
(c) to delete therefrom subdivision (8)
of subsection 2.01(a).
2. No Events of Default; No Claims; Continuing Effect of Limited Credit
Guaranty Agreement. The Borrower hereby represents and warrants that no Events
of Default, and no events that with the passage of time or the giving of notice
or both would constitute an Event of Default, have occurred under the Limited
Credit Guaranty Agreement. The Guarantor represents and warrants that it has no
claims against the Credit Obligor and no defenses, counterclaims, or setoffs to
or against its or his obligations under the Limited Credit Guaranty Agreement.
To the extent that such claims, defenses, counterclaims or setoffs exist, the
same are hereby released and relinquished. Except as expressly amended hereby,
the Limited Credit Guaranty Agreement remains and shall remain in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the Credit Obligor and the Guarantor have caused
this Agreement to be executed by its duly authorized officer as of the day and
year first written above.
FIRST COMMERCIAL BANK
By /s/ Paul M. Schabacker
______________________________________
Name: Paul M. Schabacker
____________________________________
Title: Vice President
___________________________________
CAVALIER HOMES, INC.
By /s/ Michael R. Murphy
______________________________________
Name: Michael R. Murphy
____________________________________
Title: Vice President
___________________________________
AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT
THIS AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT (this "Amendment")
is entered into as of March 24, 1999 by and between Cavalier Homes, Inc. (the
"Guarantor")and First Commercial Bank, an Alabama banking corporation (the
"Credit Obligor").
Recitals
A. Hillsboro Manufacturing, L.P. (the "Borrower") and the Credit
Obligor entered into that certain Credit and Security Agreement (as amended by
Amendment of even date herewith and as the same may from time to time hereafter
be amended or restated, the "Credit Agreement") dated as of July 15, 1997.
Pursuant to the Credit Agreement, the Credit Obligor extended a revolving loan
facility to the Borrower which terminated on July 15, 1998.
B. The Guarantor entered into a Limited Credit Guaranty Agreement (the
"Guaranty") dated July 15, 1997 guaranteeing, subject to the limitations
contained therein, the Borrower's obligations under the Credit Agreement. Unless
otherwise defined herein, all terms used herein with their initial letters
capitalized shall have the meanings assigned to them in the Credit Agreement.
C. The Borrower and the Guarantor have requested the Credit Obligor to
extend the Revolving Loan Commitment Termination Date (as defined in the Credit
Agreement) to April 15, 2000, thereby extending the date through which the
Credit Obligor is obligated to make revolving loans under the Credit Agreement
to April 15, 2000. The Credit Obligor has agreed to do so if, among other
things, the Guarantor continues to guarantee the Borrower's obligations under
the Credit Agreement.
D. The Borrower and the Guarantor have requested the Credit Obligor to
make a loan (the "Equipment Loan") to the Borrower in the maximum principal
amount of $450,000 for the purposes of purchasing equipment for the Project (as
defined in the Credit Agreement). The Credit Obligor has agreed to do so on the
terms and conditions set out herein if, but only if, the Guarantor consents
thereto and guarantees the Equipment Loan. The Guarantors has a direct ownership
interest in the Borrower and the Equipment Loan will result in a material
financial benefit to the Guarantor.
E. The Guarantor has requested the Credit Obligor to amend the
Guaranty to delete therefrom Section 2.01(a)(7) and the Credit Obligor has
agreed to do so.
Agreement
NOW, THEREFORE, to induce the Credit Obligor to extend the Revolving
Loan Commitment Termination Date and to make the Equipment Loan, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees as follows:
1. Guarantor's Request for Equipment Loan and Extension of Revolving
Loan Commitment Termination Date. The Guarantor hereby requests the Credit
Obligor to extend the Revolving Loan Commitment Termination Date on the terms
set out in the Amendment to Credit and Security Agreement of even date herewith
between the Borrower and the Credit Obligor. The Guarantor hereby requests the
Credit Obligor to make the Equipment Loan on the terms and conditions set out in
the Credit Agreement. It is the Guarantor's intention that, subject to the
limitations set out in the Guaranty, the Equipment Loan be guaranteed, and all
Revolving Loans (as defined in the Credit Agreement) continue to be guaranteed,
under and in accordance with the terms of the Guaranty.
2. Amendments to Section 1.01 of the Guaranty. Section 1.01 of the
Guaranty is hereby amended by amending and restating the definition of "Credit
Agreement," "Credit Guaranty," "Credit Obligor Financing Documents," and
"Guarantors" and adding the definition of "Equipment Note", as follows:
"Credit Agreement" shall mean that certain Credit and Security
Agreement dated July 15, 1997 between the Borrower and the Credit
Obligor as amended by that certain First Amendment to Credit and
Security Agreement dated as of March 24, 1999 and as the same may be
modified, amended and restated from time to time hereafter.
"Credit Guaranty" shall mean collectively the Limited Credit
Guaranty Agreements dated as of July 15, 1997 from Southern Energy
Homes, Inc., Patriot Homes, Inc. and the Guarantor to the Credit
Obligor, as amended by Amendment to Limited Credit Guaranty Agreement
dated as of March 24, 1999 and the Limited Credit Guaranty Agreement
dated as of March 24, 1999 from Oakwood Homes Corporation to the Credit
Obligor.
"Credit Obligor Financing Documents" shall mean collectively
the Credit Agreement, the Revolving Note, the Equipment Note and the
Credit Guaranty, and any and all amendments or supplements to any
thereof.
"Equipment Note" shall mean that certain Promissory Note dated
as of March 24, 1999 executed and delivered by the Borrower in favor of
the Credit Obligor in the principal amount of $450,000.
"Guarantors" shall mean collectively the following Persons and
the respective heirs, executors, administrators and assigns thereof:
(i) Patriot Homes, Inc.,
(ii) Southern Energy Homes, Inc.,
(iii) Oakwood Homes Corporation, and
(iv) Cavalier Homes,Inc.
3. Amendment to Section 2.01 of the Guaranty. Section 2.01 (a)
of the Guaranty is hereby amended and restated to read as follows:
(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 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
Revolving Note and the Equipment Note (including without
limitation principal, interest, late charges, and interest on
overdue amounts);
(3) all amounts becoming due and payable under the
Credit Agreement and all future advances and amounts becoming
due and payable under the Revolving Note and the Equipment
Note;
(4) all late charges and all interest on late
payments becoming due and payable under the Credit Agreement,
the Revolving Note and the Equipment Note;
(5) all amounts becoming due and payable under the
Credit Agreement, the Revolving Note and the Equipment Note
upon the occurrence and continuance of an event of default
under the Credit Agreement;
(6) all other amounts becoming due and payable by the
Borrower under the Credit Agreement, the Revolving Note and
the Equipment Note;
(7) all renewals and extensions of any or all the
obligations of the Borrower described in paragraphs (1)
through (6) above (including without limitation any renewal or
extension of, and any substitute for, the Revolving Note
and/or the Equipment Note), whether or not any renewal or
extension agreement is executed in connection therewith.
4. Representations and Warranties; No Defaults; No Claims; Continuing
Effect; Collateral. The representations and warranties set forth in the Guaranty
shall be true and correct on and as of the date of this Amendment with the same
effect as though such representations and warranties had been made on and as of
such date, except to the extent that such representations and warranties
expressly relate to an earlier date. The Guarantor hereby represents and
warrants that no Events of Default, and no events that with the passage of time
or the giving of notice or both would constitute an Event of Default, have
occurred. The Guarantor represents and warrants that it has no claims against
the Credit Obligor and no defenses, counterclaims, or setoffs to or against the
Obligations for which it is liable under the Guaranty. To the extent that such
claims, defenses, counterclaims or setoffs exist, the same are hereby released
and relinquished. Except as expressly amended hereby, the Guaranty shall remain
in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first written above.
CAVALIER HOMES, INC.
By /s/ Michael R. Murphy
________________________________________
Name: Michael R. Murphy
_____________________________________
Title: Vice President
____________________________________
AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT
THIS AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT (this "Amendment")
is entered into as of March 24, 1999 by and between Cavalier Homes, Inc. (the
"Guarantor")and First Commercial Bank, an Alabama banking corporation (the
"Credit Obligor").
Recitals
A. WoodPerfect of Texas, L.P. (the "Borrower") and the Credit Obligor
entered into that certain Credit and Security Agreement (as amended by Amendment
of even date herewith and as the same may from time to time hereafter be amended
or restated, the "Credit Agreement") dated as of July 15, 1997. Pursuant to the
Credit Agreement, the Credit Obligor extended a revolving loan facility to the
Borrower which terminated on July 15, 1998.
B. The Guarantor entered into a Limited Credit Guaranty Agreement (the
"Guaranty") dated July 15, 1997 guaranteeing, subject to the limitations
contained therein, the Borrower's obligations under the Credit Agreement. Unless
otherwise defined herein, all terms used herein with their initial letters
capitalized shall have the meanings assigned to them in the Credit Agreement.
C. The Borrower and the Guarantor have requested the Credit Obligor to
extend the Revolving Loan Commitment Termination Date (as defined in the Credit
Agreement) to April 15, 2000, thereby extending the date through which the
Credit Obligor is obligated to make revolving loans under the Credit Agreement
to April 15, 2000. The Credit Obligor has agreed to do so if, among other
things, the Guarantor continues to guarantee the Borrower's obligations under
the Credit Agreement.
D. The Borrower and the Guarantor have requested the Credit Obligor to
make a loan (the "Equipment Loan") to the Borrower in the maximum principal
amount of $850,000 for the purposes of purchasing equipment for the Project (as
defined in the Credit Agreement). The Credit Obligor has agreed to do so on the
terms and conditions set out herein if, but only if, the Guarantor consents
thereto and guarantees the Equipment Loan. The Guarantor has a direct ownership
interest in the Borrower and the Equipment Loan will result in a material
financial benefit to the Guarantor.
E. The Guarantor has requested the Credit Obligor to amend the Guaranty
to delete therefrom Section 2.01(a)(7) and the Credit Obligor has agreed to do
so.
Agreement
NOW, THEREFORE, to induce the Credit Obligor to extend the Revolving
Loan Commitment Termination Date and to make the Equipment Loan, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees as follows:
1. Guarantor's Request for Equipment Loan and Extension of Revolving
Loan Commitment Termination Date. The Guarantor hereby requests the Credit
Obligor to extend the Revolving Loan Commitment Termination Date on the terms
set out in the Amendment to Credit and Security Agreement of even date herewith
between the Borrower and the Credit Obligor. The Guarantor hereby requests the
Credit Obligor to make the Equipment Loan on the terms and conditions set out in
the Credit Agreement. It is the Guarantor's intention that, subject to the
limitations set out in the Guaranty, the Equipment Loan be guaranteed, and all
Revolving Loans (as defined in the Credit Agreement) continue to be guaranteed,
under and in accordance with the terms of the Guaranty.
2. Amendments to Section 1.01 of the Guaranty. Section 1.01 of the
Guaranty is hereby amended by amending and restating the definition of "Credit
Agreement," "Credit Guaranty," "Credit Obligor Financing Documents," and
"Guarantors" and adding the definition of "Equipment Note", as follows:
"Credit Agreement" shall mean that certain Credit and Security
Agreement dated July 15, 1997 between the Borrower and the Credit
Obligor as amended by that certain First Amendment to Credit and
Security Agreement dated as of March 24, 1999 and as the same may be
modified, amended and restated from time to time hereafter.
"Credit Guaranty" shall mean collectively the Limited Credit
Guaranty Agreements dated as of July 15, 1997 from Southern Energy
Homes, Inc., Patriot Homes, Inc., Lee Roy Jordan, and the Guarantor to
the Credit Obligor, as amended by Amendment to Limited Credit Guaranty
Agreement dated as of March 24, 1999 and the Limited Credit Guaranty
Agreement dated as of March 24, 1999 from Oakwood Homes Corporation to
the Credit Obligor.
"Credit Obligor Financing Documents" shall mean collectively
the Credit Agreement, the Revolving Note, the Equipment Note and the
Credit Guaranty, and any and all amendments or supplements to any
thereof.
"Equipment Note" shall mean that certain Promissory Note dated
as of March 24, 1999 executed and delivered by the Borrower in favor of
the Credit Obligor in the principal amount of $850,000.
"Guarantors" shall mean collectively the following Persons and
the respective heirs, executors, administrators and assigns thereof:
(i) Patriot Homes, Inc.,
(ii) Southern Energy Homes, Inc.,
(iii) Oakwood Homes Corporation,
(iv) Cavalier Homes, Inc., and
(v) Lee Roy Jordan.
3. Amendment to Section 2.01 of the Guaranty. Section 2.01(a)
of the Guaranty is hereby amended and restated to read as follows:
(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 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
Revolving Note and the Equipment Note (including without
limitation principal, interest, late charges, and interest on
overdue amounts);
(3) all amounts becoming due and payable under the
Credit Agreement and all future advances and amounts becoming
due and payable under the Revolving Note and the Equipment
Note;
(4) all late charges and all interest on late
payments becoming due and payable under the Credit Agreement,
the Revolving Note and the Equipment Note;
(5) all amounts becoming due and payable under the
Credit Agreement, the Revolving Note and the Equipment Note
upon the occurrence and continuance of an event of default
under the Credit Agreement;
(6) all other amounts becoming due and payable by the
Borrower under the Credit Agreement, the Revolving Note and
the Equipment Note;
(7) all renewals and extensions of any or all the
obligations of the Borrower described in paragraphs (1)
through (6) above (including without limitation any renewal or
extension of, and any substitute for, the Revolving Note
and/or the Equipment Note), whether or not any renewal or
extension agreement is executed in connection therewith.
4. Representations and Warranties; No Defaults; No Claims; Continuing
Effect; Collateral. The representations and warranties set forth in the Guaranty
shall be true and correct on and as of the date of this Amendment with the same
effect as though such representations and warranties had been made on and as of
such date, except to the extent that such representations and warranties
expressly relate to an earlier date. The Guarantor hereby represents and
warrants that no Events of Default, and no events that with the passage of time
or the giving of notice or both would constitute an Event of Default, have
occurred. The Guarantor represents and warrants that it has no claims against
the Credit Obligor and no defenses, counterclaims, or setoffs to or against the
Obligations for which it is liable under the Guaranty. To the extent that such
claims, defenses, counterclaims or setoffs exist, the same are hereby released
and relinquished. Except as expressly amended hereby, the Guaranty shall remain
in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first written above.
CAVALIER HOMES, INC.
By /s/ Michael R. Murphy
_______________________________________
Name: Michael R. Murphy
_____________________________________
Title: Vice President
____________________________________
<PAGE>
STATE OF ALABAMA )
)
Winston COUNTY )
I, the undersigned authority, 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 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 instrument , 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 29th day of March , 1999.
/s/ Shirley Ann Barnett
____________________________________
Notary Public
[AFFIX SEAL]
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
---------------------------------------
April 2, March 27,
1999 1998
----------------- -----------------
<S> <C> <C>
Net Income $ 4,501,000 $ 3,042,000
================= =================
SHARES:
Weighted average shares outstanding (basic) 18,733,889 19,967,999
Dilutive effect if stock options were exercised 102,869 192,537
----------------- -----------------
Weighted average common shares
outstanding, assuming dilution (diluted) 18,836,758 20,160,536
================= =================
Basic net income per share $ .24 $ .15
================= =================
Diluted net income per share $ .24 $ .15
================= =================
</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> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Apr-2-1999
<CASH> 22,689
<SECURITIES> 0
<RECEIVABLES> 39,729
<ALLOWANCES> 1,224
<INVENTORY> 48,075
<CURRENT-ASSETS> 126,417
<PP&E> 94,933
<DEPRECIATION> 26,481
<TOTAL-ASSETS> 244,842
<CURRENT-LIABILITIES> 101,622
<BONDS> 0
0
0
<COMMON> 2,029
<OTHER-SE> 132,895
<TOTAL-LIABILITY-AND-EQUITY> 244,842
<SALES> 163,416
<TOTAL-REVENUES> 163,416
<CGS> 130,819
<TOTAL-COSTS> 130,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 7,441
<INCOME-TAX> 2,940
<INCOME-CONTINUING> 4,501
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,501
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
