U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
____________
Commission file number 1-9792
CAVALIER HOMES, INC.
(Exact name of Registrant as specified in Its Charter)
Delaware 63-0949734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 41 N. and Cavalier Road,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (256) 747-0044
Securities registered pursuant to Section 12(b) of the Act:
Name of
Each Exchange
Title of Each class on Which Registered
- ---------------------------- ------------------------
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the New
York Stock Exchange as of March 22, 1999, was $152,298,431.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 22, 1999.
17,974,137
Common, $0.10 par value
Documents Incorporated by Reference
Part III of this report incorporates by reference certain portions of the
Registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held May 19, 1999.
1
<PAGE>
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. (the "Company"), incorporated in 1984, is a Delaware
corporation with its executive offices located at Highway 41 North and Cavalier
Road, Addison, Alabama 35540. Effective December 31, 1997, the Company completed
a merger (the "Merger") involving Belmont Homes, Inc. ("Belmont"), pursuant to
which the Company issued 7,555,121 shares of its common stock in exchange for
Belmont's common stock and Belmont became a wholly owned subsidiary of the
Company. The Merger was accounted for as a pooling of interests and,
accordingly, the Company's financial statements have been restated to include
the financial position, results of operations and cash flows of Belmont for all
periods presented. The information herein is presented on a combined basis.
Unless otherwise indicated by the context, references in this report to the
"Company" or to "Cavalier" include the Company, its subsidiaries, divisions of
these subsidiaries and their respective predecessors, if any.
Cavalier is a vertically integrated manufactured housing company, serving all
phases of the home buying transaction from design and manufacturing to home
financing and insurance. The Company has chosen to build its distribution system
around exclusive independent dealers, which the Company believes gives it
virtually the same efficiencies and market presence that captive retail centers
provide to other companies. At December 31, 1998, Cavalier had a total of 237
dealer locations participating in its Exclusive Dealer Program, including five
Company-owned retail locations. In addition, the Company markets its homes
through approximately 1,000 non-exclusive independent dealer locations in 30
states.
The Company designs and manufactures a wide range of high quality homes with a
focus on serving the low- to medium-priced manufactured housing market in the
South Central and South Atlantic regions of the United States. The Company's
homes are sold under 68 brand names, are normally fully furnished, including
appliances, and are comprised of one or more floor sections. At December 31,
1998, the Company operated 23 home manufacturing facilities, one plant that
manufactures laminated wall board, and a material and supply distribution
location. Cavalier also participates in joint ventures with other manufactured
housing companies for lumber distribution and the manufacture of roof trusses
and cabinet doors.
Through its financial services segment, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through its exclusive
dealer network and sells various commissioned insurance products to exclusive
dealers and their retail customers. During 1998, the business focus of Cavalier
Acceptance Corporation, the Company's finance subsidiary ("CAC"), changed from
building, holding and servicing a portfolio of loans to purchasing loans from
its dealers that are subsequently resold to another financial institution
without CAC retaining the servicing function.
In October 1998, the Board of Directors increased the Company's cash dividend
amount 33% to an indicated annual rate of $0.16 per share.
Revenue, operating profit, identifiable assets and other financial data of the
Company's industry segments for the three years ended December 31, 1998 are
contained in Note 10 of Notes to Consolidated Financial Statements in Part II.
Home Manufacturing Operations
At December 31, 1998, the Company, through six wholly owned subsidiaries, owned
or leased twenty-three manufacturing facilities engaged in the production of
manufactured homes. See "Item 2. Properties". The management of each of the
Company's home manufacturing units typically consists of a president or general
manager, a production manager, a general sales manager, a controller, a service
manager, a purchasing manager and a quality control manager. These mid-level
management personnel manage the Company's home manufacturing operations, and
typically participate in an incentive compensation system based upon their
respective operation's profitability.
The Company has experienced significant growth in manufacturing capacity during
the past seven years, expanding from four manufactured housing production
facilities in 1992 to twenty-three facilities at the end of 1998. The Company's
facilities normally operate on a single-shift, five-day week basis with the
approximate annual capacity to produce 48,000 floors.
2
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The following table sets forth certain sales information for 1998, 1997 and
1996:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------------- -------------------- -------------------
Number of homes sold:
Single-section homes 12,430 51% 13,576 58% 16,738 65%
Multi-section homes 11,957 49% 10,026 42% 8,914 35%
---------- ------- ---------- ------- ---------- -------
Total homes 24,387 100% 23,602 100% 25,652 100%
========== ======= ========== ======= ========== =======
Number of floors sold 36,517 33,646 34,581
========== ========== ==========
</TABLE>
Construction of a home begins by welding steel frame members together. The frame
is then moved through the plant, stopping at a number of work stations where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line work
stations. The completed home is usually sold furnished and is ready for
connection to customer-supplied utilities.
The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, aluminum, galvanized pipe, insulating materials, electrical supplies
and plastics. The Company purchases axles, wheels, tires, kitchen appliances,
laminated wallboard, roof trusses, plumbing fixtures, furniture, carpet, vinyl
floor covering, windows and decorator accessories. Currently, the Company
maintains approximately two to three weeks' inventory of raw materials. The
Company is not dependent on any single source of supply and believes that the
materials and parts necessary for the construction and assembly of its homes are
generally available from other sources. However, the Company is currently
experiencing tightened supply from its traditional vendors of certain types of
raw materials, including sheetrock and insulation, required for the production
of its manufactured 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.*
The Company's component manufacturing and distribution subsidiaries provide
laminated wallboards, cabinet doors and certain other supply products for some
of its home manufacturing facilities. Additionally, certain of the Company's
home manufacturing facilities currently purchase roof trusses from a joint
venture in which the Company owns an interest. The Company believes prices
obtained by the Company for these products from this joint venture are
competitive with the Company's other sources of supply.
Because the cost of transporting a manufactured home is significant, there is a
limit to the distance between a manufacturing facility and the dealers it can
service. The Company believes that the location of its manufacturing facilities
in multiple states allows it to serve more dealers in more markets. The Company
generally arranges, at the dealer's expense, for the transportation of finished
homes to dealers using independent trucking companies. One of the Company's
subsidiaries employs drivers who own their own trucks to deliver its homes.
Dealers or other independent installers are responsible for placing the home on
site, making utility connections and providing and installing certain accessory
items and appurtenances, such as decks, carports and foundations.
Products
The Company's homes include both single-section and multi-section models, with
the substantial majority of such products being "HUD Code Homes" which are
manufactured homes that meet the specifications of the National Manufactured
Home Construction and Safety Act of 1974, as amended, and administered by the
U.S. Department of Housing and Urban Development ("HUD"). Single-section homes
are 14 to 16 feet wide, vary in length from 40 to 84 feet and contain between
656 and 1,280 square feet. The multi-section models consist of two or more floor
sections that are joined at the home site, vary in length from 36 to 82 feet and
contain between 792 and 3,016 square feet.
The Company currently produces over 600 different models of manufactured homes
with a variety of decors that are marketed under 68 brand names. The homes
typically include a living room, dining area, kitchen, one to four bedrooms and
one or more bathrooms. Each home contains a cooking range and oven,
refrigerator, water heater and central heating. Depending on the customer's
preferences, most homes are sold fully furnished. Customers may also choose many
available options including fireplaces, ceiling fans, dishwashers, garbage
disposals, microwave ovens, stereos, bay windows, composition shingle roofs,
vinyl siding and sliding glass patio doors.
- --------
* See Safe Harbor Statement on page 53.
3
<PAGE>
Modular homes are homes designed to meet building codes administered by states
and local authorities, as opposed to the national HUD guidelines. Four of the
Company's manufacturing facilities currently manufacture a limited number of
modular homes meeting applicable regulatory standards.
The Company's product development and engineering personnel design homes in
consultation with operating management, sales representatives and dealers. They
also evaluate new materials and construction techniques and use computer-aided
and other design methods in a continuous program of product development, design
and enhancement. The Company's product development activities do not require
significant capital investments or expenditures.
Independent Dealer Network, Sales and Marketing
As of December 31, 1998, the Company had, under its Exclusive Dealer Program,
237 participating dealer locations selling only the Company's homes, which
included five Company-owned retail locations. In addition, the Company markets
its homes through approximately 1,000 independent dealer locations in 30 states.
Since 1991, the Company has been developing the independent exclusive dealer
network. The Company's independent exclusive dealers market and sell only homes
manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of other manufacturers in
addition to those of the Company. The growth in the Company's number of
exclusive dealers and percentage of total Company sales represented by them is
summarized in the following table:
For the Year Ended December 31, 1998 1997 1996
- ------------------------------------------------ ------ ------ ------
Number of exclusive dealers 237 132 115
Percentage of manufactured home sales 40% 30% 27%
Through its finance subsidiary, CAC, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through the Company's
exclusive dealer network and provides its exclusive dealers with other services
and support.
Approximately 89% of the Company's sales in 1998 were to dealers operating sales
centers in the Company's core states as follows: Texas - 14%, Alabama - 14%,
Georgia - 10%, North Carolina - 9%, Arkansas - 8%, South Carolina - 8%,
Mississippi - 7%, Louisiana - 7%, Oklahoma - 5%, Tennessee - 4% and
Missouri - 3%.
The Company has written agreements with most of its independent dealers. These
agreements generally may be terminated at any time by either party, with or
without cause, after a short notice period. The Company does not have any
control over the operations of, or financial interests in, any of its
independent dealers, including any of its independent exclusive dealers. The
Company is not dependent on any single dealer, and in 1998, the Company's
largest dealer accounted for approximately 3.2% of sales.
The Company believes that its independent dealer network enables the Company to
avoid the substantial investment in management, capital and overhead associated
with company owned sales centers. To enable dealers to maximize retail market
penetration and enhance customer service, typically only one dealer within a
given market area distributes a particular product line of the Company. The
Company believes its strategy of selling its homes through independent dealers
helps to ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer acceptability, product design, quality and
price. Accordingly, a component of the Company's business strategy is to
continually strengthen its dealer relations. The Company believes its relations
with its independent dealers, including its independent exclusive dealers, are
good. *
The industry has recently been experiencing a trend of increasing competition
for independent dealers, and many manufacturers, which had previously not owned
their own retail sales centers, have begun purchasing independent dealers and/or
establishing their own retail outlets. While the focus will continue to be on
exclusive independent dealers, the Company has begun the process of diversifying
its channels of distribution with Company-owned retail locations. Cavalier
purchased its first three retail locations in 1998, and opened two other sites
during the year. The Company intends to open and acquire other locations in the
future at a conservative pace, and also plans to offer a franchise program in
1999.*
- --------
* See Safe Harbor Statement on page 53.
4
<PAGE>
Each of the Company's manufacturing units typically employs a general sales
manager and its own respective sales representatives who are compensated on a
commission basis. The plant-level sales representatives are charged with the
day-to-day servicing of the needs of the Company's independent dealers,
including its exclusive dealers. The Company markets its homes through product
promotions, participation in regional manufactured housing shows, advertisements
in local media and trade publications. As of December 31, 1998, the Company
maintained a sales force of 88 full-time salesmen and 11 full-time general sales
managers.
Retail Financing Activities
A significant factor affecting sales of manufactured homes is the availability
and terms of financing. CAC purchases qualifying retail installment sales
contracts for manufactured homes sold through the Company's exclusive dealer
network.
CAC seeks to provide competitive financing terms to customers of the Company's
exclusive dealers. CAC currently offers various conventional loan programs which
require a down-payment ranging from 0% to 15% of the purchase price, in cash,
trade-in value of a previously-owned manufactured home and/or appraised value of
equity in any real property pledged as collateral. Repayment terms generally
range from 84 to 360 months, depending upon the type of home and amount
financed, the amount of the down payment and the customer's creditworthiness.
CAC's loans are secured by a purchase money security interest in the
manufactured home and, in certain instances, a mortgage on real property pledged
as additional collateral. As of December 31, 1998, all of CAC's outstanding
loans were secured. Loans purchased by CAC normally provide a fixed rate of
interest with equal monthly payments and are non-recourse to the dealer. The
interest rates applicable to CAC's loans as of such date generally ranged from
8% to 13%, and the approximate weighted average annual percentage interest rate
was 10.9%. Currently, CAC operates in most of the 23 states in which the
Company has independent exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC provides prompt
credit approvals and funding of loans. CAC has established a standardized credit
scoring system to facilitate such prompt decision-making on loan applications.
The most important criteria in the scoring system are the income, employment
stability and creditworthiness of the borrower. The system requires a minimum
score before CAC will consider funding the installment sale contract.
In the event an installment sale contract becomes delinquent, CAC normally
contacts the customer within 10 to 25 days thereafter in an effort to cure the
delinquency. CAC generally repossesses the home after payments have become 60 to
90 days delinquent. After repossession, CAC normally has the home delivered to a
dealer's sales center where CAC attempts to resell the home or contracts with an
independent party to resell the home. To a limited extent, CAC sells repossessed
homes at wholesale.
The Company maintains a reserve for estimated credit losses on installment sale
contracts owned by CAC to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance. Amounts credited to the reserve were $1.0, $1.3 and $0.8 million in
1998, 1997 and 1996, respectively. Additionally, as a result of defaults and
repossessions the reserve was charged $1.6, $1.0 and $0.4 million in 1998, 1997
and 1996, respectively. The reserve for credit losses at December 31, 1998 was
$0.8 million as compared to $1.3 million at December 31, 1997, and $0.9 million
at December 31, 1996.
In 1998, 1997 and 1996, CAC repossessed 77, 92 and 41 homes, respectively. The
Company's inventory of repossessed homes was 30 homes at December 31, 1998, as
compared to 50 homes at December 31, 1997, and 6 homes at December 31, 1996. The
Company's net losses resulting from repossessions on CAC purchased loans as a
percentage of the average principal amount of such loans outstanding for fiscal
1998, 1997 and 1996 was 5.95%, 2.24% and 1.40%, respectively.
At December 31, 1998 and December 31, 1997, delinquencies expressed as a
percentage of the total number of installment sale contracts which CAC owned
were as follows:
<TABLE>
<CAPTION>
Delinquency Percentage
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Number
December 31, of Contracts 30 Days 60 Days 90 Days Total
--------------- ------------ ------------ ----------- -----------
1998 986 1.62% 0.41% 0.10% 2.13%
1997 1,712 1.46% 0.93% 0.12% 2.51%
</TABLE>
At December 31, 1998 and December 31, 1997, delinquencies expressed as a
percentage of the total outstanding principal balance of installment sale
contracts which CAC owned were as follows:
<TABLE>
<CAPTION>
Delinquency Percentage
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Value
December 31, of Contracts 30 Days 60 Days 90 Days Total
--------------- ------------ ------------ ----------- -----------
1998 $ 26,117,000 1.89% 0.58% 0.19% 2.66%
1997 $ 49,146,000 1.59% 0.95% 0.05% 2.59%
</TABLE>
5
<PAGE>
There can be no assurance that the Company's future results with respect to
delinquencies and repossessions will be consistent with its past experience as
reflected above.
Certain operating data relating to CAC are set forth in the following table:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------------- --------------- --------------
Total loans receivable $ 26,117,000 $ 49,146,000 $ 36,425,000
Allowance for credit losses $ 760,000 $ 1,272,000 $ 941,000
Number of loans outstanding 986 1,712 1,292
Number of delinquencies 21 43 16
Net loss ratio on average
outstanding principal balance 5.95% 2.24% 1.40%
Weighted average annual
percentage rate 10.9% 10.9% 10.9%
</TABLE>
During 1998, the business focus of CAC changed from building, holding and
servicing a portfolio of loans to purchasing loans from its dealers that are
subsequently resold to another financial institution without CAC retaining the
servicing function. Although the level of CAC's future activities cannot
presently be determined, the Company expects to utilize internally generated
working capital and amounts generated from sales of loans under the retail
finance agreement discussed in the following paragraph to fund the purchase of
retail installment sale contracts on homes sold by the Company's exclusive
dealers and may use borrowings under the Company's revolving, warehouse and term
loan agreement with its primary lender (described below under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources") to develop a portfolio of such
installment sale contracts. * The Company believes that its relationships with
its exclusive dealers will assist the development of this business strategy.*
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CAC entered into an agreement with another lender providing for
the periodic resale of a portion of CAC's loans that meet established criteria.
In March 1998, CAC sold, under the retail finance agreement, a substantial
portion of its then existing portfolio of loans. The effect of this transaction
on net income was to reduce the amount of financial services revenue from
interest income on this portion of the portfolio, offset by reduced interest
expense on retired debt and earnings on the remaining proceeds. Pursuant to the
retail finance agreement, the Company may sell a substantial portion of its
existing installment loan portfolio in fiscal year 1999, in addition to the
periodic sale of installment contracts purchased by CAC in the future. The
Company believes the periodic sale of installment contracts under the retail
finance agreement will reduce requirements for both working capital and
borrowings, increase the Company's liquidity, reduce the Company's exposure to
interest rate fluctuations and enhance the ability of CAC to increase its volume
of loan purchases. * There can be no assurance, however, that additional sales
will be made under this agreement, or that CAC and the Company will be able to
realize the expected benefits from such agreement.
Retail Insurance Activities
Through its wholly-owned insurance agencies, the Company sells commissioned
insurance products to retail purchasers of the Company's homes, including
physical damage and extended home warranties. The Company also sells commercial
lines of insurance products, including general liability and property insurance,
to the Company's exclusive dealers and others.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice, substantially all of
the Company's dealers finance their purchases of manufactured homes through
wholesale "floor plan" financing arrangements. Under a typical floor plan
financing arrangement, a financial institution provides the dealer with a loan
for the purchase price of the home and maintains a security interest in the home
as collateral. The financial institution which provides financing to the dealer
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase the financed homes at a declining price
based upon the Company's original invoice price plus, in specific cases, certain
administrative expenses. A portion of purchases by dealers are pre-sold to
retail customers and are paid through retail financing commitments.
- --------
* See Safe Harbor Statement on page 53.
6
<PAGE>
The risk of loss under such repurchase agreements is mitigated by the fact that
(i) sales of the Company's manufactured homes are spread over a relatively large
number of independent dealers, the largest of which accounted for approximately
3.2% of sales in 1998, (ii) the repurchase obligation expires on individual
homes after a reasonable period of time (generally 12 to 18 months from invoice
date) and also declines during such period based on predetermined amounts and
(iii) the Company is in many cases able to sell homes repurchased from credit
sources in the ordinary course of business without incurring significant losses.
As of December 31, 1998, the Company's contingent liability under these
repurchase and other similar recourse agreements was an amount estimated to be
approximately $242 million. The Company has provided an allowance for possible
repurchase losses of $1.2 million as of December 3l, 1998, based on prior
experience and current market conditions. Management currently expects no
material loss in excess of the allowance. *
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, continuous
refinement in design and production procedures as well as price and other market
factors, are important elements in the market acceptance of manufactured homes.
The Company maintains a quality control inspection program at all production
stages. The Company's manufacturing facilities and the plans and specifications
of its manufactured homes have been approved by a HUD-designated inspection
agency. An independent, HUD-approved third-party inspector regularly checks the
Company's manufactured homes for compliance during construction.
The Company provides the initial home buyer with a one-year limited warranty
against manufacturing defects in the home's construction. Warranty services
after sale are performed, at the expense of the Company, by plant personnel,
dealers or local independent contractors. Additionally, direct warranties often
are provided by the manufacturers of specific components and appliances.
The Company employs a full-time service manager at each of its home
manufacturing units and 197 full-time service personnel to provide
administrative and on-site service and to correct production deficiencies that
are attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
repairs. The Company also has focused on reducing response time to customer
service requests. At December 31, 1998, the Company had established a reserve
for future warranty claims of $12.4 million relating to homes sold, based upon
management's assessment of historical experience factors and current industry
trends.
Competition
The manufactured housing industry is highly competitive, characterized by low
barriers to entry and severe price competition. Competition is based on price,
product features and quality, reputation for service quality, depth of field
inventory, delivery capabilities, warranty repair service, dealer promotions,
merchandising and terms of dealer and retail consumer financing. The Company
also competes with other manufacturers, some of which maintain their own retail
sales centers, for quality independent dealers. In addition, the Company's
manufactured homes compete with other forms of low-cost housing, including
site-built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly affected by
their ability to obtain satisfactory financing. The Company faces direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources.
The Company's growth strategy currently includes the continued expansion of
financial services provided through CAC.* The Company believes that operations
of CAC will have a positive impact on the Company's efforts to sell its products
and enhance its competitive ability within the industry. * However, due to
strong competition in the retail finance segment of the industry from companies
much larger than CAC, combined with the limited operating history of CAC, there
can be no assurance that CAC will be able to expand its operations or that it
will have a positive impact on the Company's ability to compete.
Regulation
The Company's businesses are subject to a number of federal, state and local
laws, regulations and codes. Construction of manufactured housing is governed by
the National Manufactured Home Construction and Safety Standards Act of 1974, as
amended, and regulations issued thereunder by HUD, which have established
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state and local regulations on such matters. The Company cannot presently
determine what, if any, legislation may be adopted by Congress or the effect any
such legislation may have on the Company or the manufactured housing industry as
a whole.
The Company's manufacturing facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated inspection agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose the Company to a wide variety of
sanctions, including closing the Company's manufacturing facilities. The Company
believes its manufactured homes meet or surpass all present HUD requirements. *
- --------
* See Safe Harbor Statement on page 53.
7
<PAGE>
HUD has promulgated regulations with respect to structural design, wind loads
and energy conservation. The Company's operations were not materially affected
by the regulations; however, HUD has these matters under continuous review and
the Company cannot predict what effect (if any) additional regulations
promulgated by HUD would have on the Company or the manufactured industry as a
whole.
Certain components of manufactured and modular homes are subject to regulation
by the U.S. Consumer Product Safety Commission ("CPSC"), which is empowered to
ban the use of component materials believed to be hazardous to health and to
require the repair of defective components. The CPSC, the Environmental
Protection Agency and other governmental agencies are evaluating the effects of
formaldehyde. Regulations of the Federal Trade Commission also require
disclosure of a manufactured home's insulation specifications. Manufactured,
modular and site-built homes may be built with compressed board, wood paneling
and other products that contain formaldehyde resins. Since February 1985, HUD
has regulated the allowable concentration of formaldehyde in certain products
used in manufactured homes and required manufacturers to warn purchasers
concerning formaldehyde associated risks. The Company currently uses materials
in its manufactured homes that it believes meet HUD standards for formaldehyde
emissions and otherwise comply with HUD regulations in this regard.
The transportation of manufactured homes on highways is subject to regulation by
various federal, state and local authorities. Such regulation may prescribe size
and road use limitations and impose lower than normal speed limits and various
other requirements.
The Company's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description and substance of the Company's warranties are also subject to a
variety of state laws and regulations.
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company
currently does not believe it will be required under existing environmental laws
and enforcement policies to expend amounts which will have a material adverse
effect on its results of operations or financial condition. * However, the
requirements of such laws and enforcement policies have generally become more
strict in recent years. Accordingly, the Company is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
A variety of federal laws affect the financing of manufactured homes, including
the financing activities conducted by CAC. The Consumer Credit Protection Act
(Truth-in-Lending) and Regulation Z promulgated thereunder require substantial
disclosures to be made in writing to a consumer with regard to various aspects
of the particular transaction, including the amount financed, the annual
percentage rate, the total finance charge, itemization of the amount financed
and other matters. The Equal Credit Opportunity Act and Regulation B promulgated
thereunder prohibit discrimination against any credit applicant based on certain
prohibited bases, and also require that certain specified notices be sent to
credit applicants whose applications are denied. The Federal Trade Commission
has adopted or proposed various trade regulation rules to specify and prohibit
certain unfair credit and collection practices and also to preserve consumers'
claims and defenses. The Government National Mortgage Association ("GNMA")
specifies certain credit underwriting requirements in order for installment
manufactured home sale contracts to be eligible for inclusion in a GNMA program.
HUD also has promulgated substantial disclosure and substantive regulations and
requirements in order for a manufactured home installment sale contract to
qualify for insurance under the Federal Housing Authority ("FHA") program, and
the failure to comply with such requirements and procedures can result in loss
of the FHA guaranty protection. In addition, the financing activities of CAC may
also become subject to the reporting and disclosure requirements of the Home
Mortgage Disclosure Act. In addition to the extensive federal regulation of
consumer credit matters, many states have also adopted consumer credit
protection requirements that may impose significant requirements for consumer
credit lenders. For example, many states require that a consumer credit finance
company such as CAC obtain certain regulatory licenses or permits in order to
engage in such business in that state, and many states also set forth a number
of substantive contractual limitations regarding provisions that permissibly may
be included in a consumer contract, as well as limitations upon the permissible
interest rates, fees and other charges that may be imposed upon a consumer.
Failure by the Company or CAC to comply with the requirements of federal or
state law pertaining to consumer credit could result in the invalidity of the
particular contract for the affected consumer, civil liability to the affected
customers, criminal liability and other adverse results.
- --------
* See Safe Harbor Statement on page 53.
8
<PAGE>
Employees
As of December 31, 1998, the Company had 5,668 employees, of whom 4,845 were
engaged in home manufacturing, 112 in sales, 208 in warranty and service, 379 in
general administration, 39 in delivery, 51 in retail finance and insurance
services and 34 in retail locations. At year end, only one home manufacturing
operation's employees (100 employees) were covered by a collective bargaining
agreement. Management considers its relations with its employees to be good.
Risk Factors
If you are interested in making an investment in Cavalier, you should carefully
consider the following risk factors concerning Cavalier and its business, in
addition to the other information contained in this Report on Form 10-K:
Uncertainties in Integrating Business Operations and Achieving Benefits of the
Belmont Merger
On December 31, 1997, a wholly owned subsidiary of Cavalier merged
with and into Belmont which is also a producer of manufactured housing.
For a more detailed description of Belmont and this transaction, you should
review Cavalier's Current Reports on Form 8-K dated August 20, 1997, December
11, 1997 and January 15, 1998 (as amended by Form 8-K/A dated March 16, 1998 and
Form 8-K/A dated March 17, 1998), and Cavalier's Registration Statement on Form
S-4 filed with the Commission on December 2, 1997 (Reg. No. 333-41319). The
acquisition of Belmont will require the consolidation of functions and the
integration of departments, systems and procedures, which will present
significant management challenges. We cannot make any assurances that we will
successfully accomplish these actions as rapidly as currently expected, if at
all. Although our primary purpose in taking such actions is to realize direct
cost savings and other operating efficiencies, synergies and benefits, Cavalier
cannot assure stockholders of the extent to which or whether such cost savings,
efficiencies, synergies or benefits will be achieved.
Cyclical and Seasonal Nature of the Manufactured Housing Industry
The manufactured housing industry is highly cyclical and seasonal and has
experienced wide fluctuations in aggregate sales in the past, resulting in the
failure of many manufacturing concerns. Many of the same national and regional
economic and demographic factors that affect the broader housing industry also
affect the market for manufactured homes. Historically, most sectors of the home
building industry, including the manufactured housing industry, have been
affected by the following, among other things:
o changes in general economic conditions;
o inflation;
o levels of consumer confidence;
o employment and income levels;
o housing demand;
o availability of alternative forms of housing;
o availability of financing; and
o the level and stability of interest rates.
9
<PAGE>
The Manufactured Housing Institute ("MHI") reported that from 1983 to 1991,
aggregate domestic shipments of manufactured homes declined 42%. According to
industry statistics, after a ten-year low in floor shipments in 1991, the
industry recovered significantly. Since 1992, floor shipments have increased
each year, as set forth in the table to the right, although the growth rate has
gradually slowed. Industry floor shipments in 1998 improved over 1997, with the
MHI reporting floor shipments increased 8% in 1998 over 1997. Over the past
several years, the manufactured housing industry has also experienced increases
in both the number of retail dealers and manufacturing capacity, which we
believe is currently resulting in slower retail turnover, higher dealer
inventories and increased price competition.
- --------------------------------------------------------------------------------
Percentage Increase in Floor Shipments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1992............................21%
1993............................22%
1994............................23%
1995............................12%
1996............................10%
1997.............................1%
1998.............................8%
10
<PAGE>
Sales in the manufactured housing industry are also seasonal in nature, with
sales of homes traditionally being stronger in April through October and weaker
during the first and last part of the calendar year. While seasonality did not
significantly impact Cavalier's business from 1992 through 1996, when industry
shipments were steadily increasing, the recent tightening of competitive
conditions may signal a return to the industry's traditional seasonal patterns.*
We cannot predict how long the recent tightening of competitive conditions will
last, or what the extent of their impact will be on the future results of
operations and financial condition of Cavalier. Furthermore, because of the
cyclical and seasonal nature of the manufactured housing industry and the recent
increase in competitive conditions, Cavalier cannot assure its investors that
the manufactured housing industry is not entering a change in its cycle or
returning to traditional seasonal patterns, either of which could have a
material adverse effect on Cavalier's results of operations or financial
condition.
Limitations on Ability to Pursue Growth Strategy
Cavalier's current growth strategies are to:
o expand the financing and other activities of CAC;
o develop its exclusive dealer network;
o develop the production and distribution of component parts for
manufactured housing;
o pursue additional acquisitions, and
o to a lesser extent, acquire or open Cavalier-owned retail locations.
Since 1991, Cavalier has expanded manufacturing capacity to meet the increased
demand for its manufactured homes. Downturns in shipments in the manufactured
housing industry, or a decline in the demand or in the growth in demand for
Cavalier's homes, could have a material adverse effect on us. Our ability to
execute our growth strategy depends on a number of factors, including the
following:
o general economic and industry conditions;
o competition from other companies in the same business as us;
o our ability to attract, retain or sell to additional independent
dealers, especially, exclusive dealers;
o the availability of semi-skilled workers in the areas in which our
manufacturing facilities are located;
o the ability of CAC to be competitive;
o the availability of capital and financing; and
o the ability to find and consummate attractive acquisitions and to
successfully integrate the operations of the acquired businesses.
There are other factors in addition to those listed above, many of which are
beyond our control. Cavalier cannot assure investors that our growth strategy
will be successful. Further, if our growth strategy is unsuccessful, we cannot
assure that this lack of success will not have a material adverse effect upon
Cavalier's results of operations or financial condition.
Uncertainties Regarding Retail Financing Activities
Cavalier purchases retail installment finance loans that have been originated by
our independent exclusive dealers. We maintain a reserve for estimated credit
losses on installment sale contracts owned by CAC to provide for future losses
based on our historical loss experience, current economic conditions and
portfolio performance. It is difficult to predict with any certainty the
appropriate reserves to establish, and we cannot assure investors that CAC will
not experience losses that exceed Cavalier's loss reserves and have a material
adverse effect on Cavalier's results of operations and financial condition.
Volatility or a significant change in interest rates might also materially
affect CAC's and Cavalier's business, results of operations or financial
condition.
Our strategy currently includes the continued expansion of the financial
services segment of our business. Accordingly, we may incur additional debt, or
other forms of financing, in order to continue to fund such growth. We may also
engage in other transactions, such as selling or securitizing portions of our
installment loan portfolio, that are designed to facilitate the ability of CAC
to purchase and/or originate an increased volume of loans and to reduce our
exposure to interest rate fluctuations and installment loan losses. Cavalier has
entered into such a transaction pursuant to the Retail Finance Agreement
discussed above under "Retail Finance Activities," and on March 13, 1998, sold
approximately $25 million of its loans. Additionally, CAC has periodically sold
installment loan contracts throughout 1998 to another financial institution. The
Company may sell a substantial portion of its existing loan portfolio in 1999
under this agreement in addition to the periodic sale of loans purchased by CAC
in the future. Cavalier believes the periodic sale of installment contracts
under the Retail Finance Agreement will reduce requirements for both working
capital and borrowings, increase Cavalier's liquidity, reduce Cavalier's
exposure to interest rate fluctuations and enhance the ability of CAC to
increase its volume of loan purchases. However, we cannot assure investors that
additional sales will indeed be made under this agreement or that CAC and
Cavalier will be able to realize the expected benefits from such agreement. We
also cannot offer any assurance that possible additional financing, or the
aforementioned transactions involving our installment loan portfolio, will be
available on terms acceptable to Cavalier. If they are not, we may be forced to
curtail the expansion of our financial services business and to alter our other
strategies.
- --------
* See Safe Harbor Statement on page 53.
11
<PAGE>
Limitations on Availability of Consumer and Dealer Financing
Third-party lenders generally provide consumer financing for manufactured home
purchases. Our sales depend in large part on the availability and cost of
financing for manufactured home purchasers and dealers. The availability and
cost of such financing is further dependent on financial institutions' lending
practices, the strength of the credit markets generally, governmental policies
and other conditions, all of which are beyond our control. In addition, most
states classify manufactured homes for both legal and tax purposes as personal
property rather than real estate. As a result, financing for the purchase of
manufactured homes is characterized by shorter loan maturities and higher
interest rates, and in certain periods such financing is more difficult to
obtain than conventional home mortgages. Unfavorable changes in these factors
may have a material adverse effect on Cavalier's results of operations or
financial condition.
Potential Unavailability and Increases in Prices of Raw Materials
The availability and pricing of certain raw materials, particularly lumber,
sheetrock, particle board and insulation may significantly affect Cavalier's
operating costs. Sudden increases in demand for these construction materials
caused by natural disasters or other market forces can greatly increase the
costs of materials or limit the availability of such materials. Increases in
costs cannot always be reflected immediately in prices and, consequently, may
adversely impact Cavalier's profitability. Further, a reduction in the
availability of raw materials also may affect our ability to meet or maintain
production requirements. Currently Cavalier is experiencing tightened supply
from its traditional vendors of certain types of raw materials, including
sheetrock and insulation, required for the production of our manufactured homes.
Contingent Repurchase and Guaranty Obligations
Manufactured housing companies customarily enter into repurchase and other
recourse agreements with lending institutions which have provided wholesale
floor plan financing to dealers. Substantially all of Cavalier's sales are made
to dealers located primarily in the South Central and South Atlantic regions of
the United States pursuant to repurchase agreements with lending institutions.
These agreements generally provide that Cavalier will repurchase our products
from the lending institutions for the balance due them in the event such product
is repossessed upon a dealer's default. The risk of loss under repurchase
agreements is lessened by the fact that (1) sales of our manufactured homes are
spread over a relatively large number of independent dealers; (2) the price that
Cavalier is obligated to pay under such repurchase agreements generally declines
over the period of the agreement and also declines during such period based on
predetermined amounts; and (3) in many cases, Cavalier has been able to resell
homes repurchased from lenders in the ordinary course of business without
incurring significant losses. While we have established a reserve for possible
repurchase losses, we cannot assure investors that we will not incur material
losses in excess of these reserves in the future.
Intense Competition
The production and sale of manufactured homes is a highly competitive industry,
characterized by low barriers to entry and severe price competition. Competition
is based primarily on the following factors:
o price;
o repair service;
o product features and quality;
o reputation for service and quality;
o depth of field inventory;
o delivery capabilities;
o warranty repair service;
o dealer promotions;
o merchandising; and
o terms of dealer and retail consumer financing.
In addition, Cavalier competes with other manufacturers, some of which maintain
their own retail sales centers, for independent dealers. Manufactured homes also
compete with other forms of low-cost housing, including site-built,
prefabricated and modular homes, apartments, townhouses and condominiums. We
face direct competition from numerous manufacturers, many of which possess
greater financial, manufacturing, distribution and marketing resources. As a
result of these competitive conditions, Cavalier may not be able to sustain past
levels of sales or to continue its recent sales growth or profitability.
Reliance on Executive Officers
Cavalier's success depends highly upon the personal efforts and abilities of its
current executive officers. Specifically, Cavalier relies on the efforts of its
Chairman of the Board, Barry B. Donnell, its President and Chief Executive
Officer, David A. Roberson, and its Vice President, Chief Financial Officer and
Secretary-Treasurer, Michael R. Murphy. The loss of the services of one or more
of these individuals could have a material adverse effect upon our business. We
12
<PAGE>
do not have employment or non-competition agreements with any of our executive
officers. Our continued growth, including the expansion of CAC's business, will
depend upon our ability to attract and retain additional experienced management
personnel.
Dependence on Independent Dealers
Cavalier depends on independent dealers for substantially all retail sales of
our manufactured homes. Typically only one dealer within a given market area
distributes a particular product line of ours. Our relationships with our
dealers are cancelable on short notice by either party. The manufactured housing
industry has recently experienced a trend of increasing competition for quality
independent dealers. Many manufacturers, which had previously not owned their
own retail sales centers, have begun purchasing independent dealers and/or
establishing their own retail sales centers. While we believe that our relations
with our independent dealers are generally good, we cannot assure our investors
that we will be able to maintain these relations, that these dealers will
continue to sell our homes, or that we will be able to attract and retain
quality independent dealers.
Potential Adverse Effects on Regulation
Cavalier is subject to a variety of federal, state and local laws and
regulations affecting the production, sale and financing of manufactured
housing. The National Manufactured Home Construction and Safety Standards Act of
1974, as amended, and regulations promulgated under such act by the U. S.
Department of Housing and Urban Development ("HUD"), impose comprehensive
national construction standards for manufactured homes and preempt conflicting
state and local regulations. Cavalier's failure to comply with such regulations
could expose us to a wide variety of sanctions, including closing one or more
manufacturing facilities. HUD has promulgated regulations with respect to
structural design and wind loads and energy conservation. Cavalier's operations
were not materially affected by the regulations; however, HUD has these matters
under continuous review and we cannot predict what effect (if any) additional
regulations promulgated by HUD would have on us or the manufactured housing
industry as a whole. In addition, the U. S. Consumer Product Safety Commission
regulates certain components of manufactured homes. Cavalier's manufactured
homes are also subject to local zoning and housing regulations. A number of
states require manufactured home producers to post bonds to ensure the
satisfaction of consumer warranty claims. A number of states have adopted
procedures governing the installation of manufactured homes, and both state and
local entities regulate utility connections. In addition, federal, state and
local authorities regulate the transportation of manufactured homes on highways.
Cavalier is also subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description and substance of Cavalier's warranties are also subject to a variety
of state laws and regulations.
A variety of federal laws affect the financing of manufactured homes, including
the financing activities conducted by CAC. For a discussion of these regulations
and certain risks associated with them, see discussion above under the heading
"Regulation."
Cavalier cannot assure its investors that failure to comply with any laws or
regulations applicable to or affecting Cavalier will not adversely affect us.
Compliance with Environmental Laws
Federal, state and local laws and regulations relating to the generation,
storage, handling, emission, transportation and discharge of materials into the
environment govern Cavalier's operations. In addition, third parties and
governmental agencies in some cases have the power under such laws and
regulations to require remediation of environmental conditions and, in the case
of governmental agencies and entities, to impose fines and penalties. The
requirements of such laws and enforcement policies have generally become more
strict in recent years. Accordingly, we cannot assure investors that we will not
be required to incur response costs, remediation expenses, fines, penalties or
other similar damages, expenses or liabilities, or to incur operational
shut-downs, business interruptions or similar losses, associated with compliance
with environmental laws and enforcement policies that either individually or in
the aggregate would have a material adverse effect on our results of operations
or financial condition.
Litigation
We suggest that you read Item 3., Legal Proceedings, below, for description of
certain risk factors associated with litigation.
Volatility of Stock Price
The Company's common stock is traded on the NYSE. The market price of the
Company's common stock may be subject to significant fluctuations in response to
variations in the Company's operating results and other factors affecting the
Company specifically, the manufactured housing industry generally, and the stock
market generally.
13
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage for
each principal facility of the Company, separated by segment, as of December 31,
1998.
<TABLE>
<CAPTION>
Approximate Owned/
Location Use (Number of Facilities) Square Footage Leased
Manufacturing & Distribution
<S> <C> <C> <C> <C>
Belmont Homes, Inc.
Belmont Mississippi Manufacturing facilities (3) 354,000 Owned
Clarksdale, Mississippi Manufacturing facility (1) 91,000 Owned
Cavalier Homes of Alabama
Addison, Alabama Manufacturing facilities (4) 545,000 Owned (a)
Buccaneer Homes
Hamiliton, Alabama Manufacturing facility (1) 195,000 Owned
Winfield, Alabama Manufacturing facilities (2) 205,000 Leased
Town & Country Homes
Fort Worth, Texas Manufacturing facility (1) 101,000 Owned
Mineral Wells, Texas Manufacturing facility (1) 81,000 Leased
Graham, Texas Manufacturing facility (1) 103,000 Leased
Spirit Homes, Inc.
Conway, Arkansas Manufacturing facilities (2) 220,000 Owned
Bigelow, Arkansas Manufacturing facility (1) 80,000 Owned
Bellcrest Homes, Inc.
Millen, Georgia Manufacturing facilities (2) 164,000 Owned
Adrian, Georgia Manufacturing facility (1) 90,000 Owned
Brigadier Homes of North Carolina
Nashville, North Carolina Manufacturing facility (1) 130,000 Owned
Homestead Homes
Cordele, Georgia Manufacturing facility (1) 110,000 Owned
Mansion Homes
Robbins, North Carolina Manufacturing facility (1) 99,000 Leased
Riverchase Homes
Haleyville, Alabama Manufacturing facility (1) 78,000 Owned
Astro Homes
Shippenville, Pennsylvania Manufacturing facility (1) 120,000 Owned
Quality Housing Supply, LLC
Hamiliton, Alabama Manufacturing facility (1) 50,000 Leased
Winfield, Alabama Distribution facility (1) 48,000 Leased
BRC Components, Inc.
Phil Campbell, Alabama Distribution facility (1) 50,000 Leased
Financial Services
Hamilton, Alabama Administrative Office 7,000 Owned
Haleyville, Alabama Administrative Office 1,000 Leased
Greensboro, North Carolina Administrative Office 2,000 Leased
General Corporate & Other
Addison, Alabama Administrative Office 8,000 Owned
Wichita Falls, Texas Administrative Office 1,000 Leased
Haleyville, Alabama Administrative Office 4,000 Leased
(a) During the first quarter of 1999, the Company purchased two of these
manufacturing facilities which were previously leased.
</TABLE>
In general, the manufacturing facilities are in good condition and are operated
at capacities which range from approximately 52% to 90%, excluding the facility
in Adrian, Georgia which began production in March 1999, and the idle facility
in Bigelow, Arkansas.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are 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 its subsidiaries and companies engaged in
businesses similar to it 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
14
<PAGE>
compensatory and punitive damages and trials by jury. The outcome of many of the
cases in which the Company is involved or may in the future become involved
cannot be predicted with any degree of reliability, and the potential exists for
unanticipated material adverse judgments against the Company and its respective
subsidiaries.
In addition, Belmont has been sued by three former shareholders (the
"Plaintiffs") of Belmont Homes, Inc., an Alabama corporation which originally
owned the initial Belmont manufacturing facility ("BHIA"), in the Circuit Court
of Madison County, Alabama (Case Number CV 97-2297) against BHIA, Belmont (as a
successor in interest of BHIA), certain other corporate entities (collectively,
the "Other Corporations"), the Estate of Jerold Kennedy (the former President
and Chief Executive Officer of Belmont), J. M. Page, and certain other unnamed
and unidentified individual officers, employees, agents and directors of BHIA,
Belmont and the Other Corporations, alleging breach of fiduciary duties,
misrepresentation, deceit, suppression and civil conspiracy. The Plaintiffs
state that they owned a majority of the stock in BHIA and sold such stock in
February of 1989. In addition to certain other allegations, the Plaintiffs claim
that Mr. Kennedy, along with others who allegedly conspired with him,
misrepresented and omitted certain facts to them regarding his attempts to hire
a production manager, that Belmont later hired the production manager, and that
the Plaintiffs would not have sold their stock in BHIA in the absence of these
alleged misrepresentations and omissions. In their complaint, the Plaintiffs
request an unspecified amount of compensatory and punitive damages and/or
equitable relief, including a constructive trust. The Company is aware that
these same plaintiffs have also filed a separate claim against the Estate of Mr.
Kennedy in the probate court of Franklin County, Alabama (Case Number 97-051),
alleging essentially the same facts and seeking substantial compensatory damages
and punitive damages and a constructive trust over the stock in the various
Belmont entities owned by Mr. Kennedy`s estate. In May 1998, the Circuit Court
of Madison County, Alabama, upon motion of the defendants, transferred the
Madison County action to the Circuit Court of Franklin County, Alabama, and the
plaintiffs subsequently appealed this decision to transfer to the Alabama
Supreme Court. The Company believes that the Plaintiffs' claims against Belmont
are without merit and intends to vigorously contest such claims. The outcome of
this litigation and its effect on the Company cannot presently be determined,
however, and the possibility exists for an adverse resolution of the litigation
which could have a material adverse effect on the results of operations and
financial condition of the Company in the quarter and year in which any such
adverse resolution occurs.*
In September 1998, the Company and certain of its subsidiaries, along with a
number of other manufactured housing producers, the Manufacturing Housing
Institute, and the Manufactured Housing Association for Regulatory Reform, were
named as defendants in a lawsuit purporting to be brought on behalf of all
Kentucky residents who own manufactured homes produced by the defendants. The
complaint was filed in the Commonwealth of Kentucky Pendleton Circuit Court,
Case No. 98-CI-00143, and alleges that the defendants engaged in wrongful
conduct and fraudulent misrepresentation and concealment, and that manufactured
housing units are unsafe and/or dangerous for residential use because their
design allegedly makes them more susceptible to fire. The plaintiffs seek
compensatory and punitive damages, a requirement to retrofit manufacturing
housing units with sprinkler systems, and other equitable and legal relief. The
Plaintiffs seek to bring the lawsuit as a class action, but the court has not
yet ruled as to whether class action status is proper. The Company believes the
claims are without merit and intends to vigorously defend the case. The outcome
of this litigation and its effect on the Company cannot presently be determined,
however, and the possibility exists for an adverse resolution of the litigation
which could have a material adverse effect on the results of operations and
financial condition of the Company. *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the last quarter of the
fiscal year.
- -------
* See Safe Harbor Statement on page 53.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK-
HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CAV". The following table sets forth, for each of the periods
indicated, the reported high and low closing sale prices per share on the NYSE
for the Company's common stock and the cash dividends paid per share in such
periods. All adjusted prices of the Company's common stock have been rounded to
the nearest one-eighth of one dollar.
Closing Sales Price
------------------------------
High Low Dividends
--------------- ------------- -----------
Year ended December 31, 1998
Fourth Quarter $ 11 3/8 $ 7 7/8 $ 0.040
Third Quarter $ 13 $ 9 1/16 0.030
Second Quarter $ 12 11/16 $ 10 7/8 0.030
First Quarter $ 11 13/16 $ 9 5/8 0.030
Year ended December 31, 1997
Fourth Quarter $ 10 7/8 $ 9 1/4 $ 0.018
Third Quarter $ 11 1/2 $ 9 1/2 0.019
Second Quarter $ 11 7/8 $ 9 3/8 0.019
First Quarter $ 12 1/4 $ 9 3/4 0.018
As of March 22, 1999, the Company had approximately 450 shareholders of record
and 5,900 beneficial holders of its common stock, based upon information in
securities position listings by registered clearing agencies upon request of the
Company's transfer agent.
The Company intends to continue to pay regular quarterly dividends. * However,
the payment of dividends on the Company's common stock is determined by the
Board of Directors of the Company in light of conditions then existing,
including the earnings of the Company and its subsidiaries, their funding
requirements and financial conditions, certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive covenants which, among other things, limit the aggregate dividend
payments and purchases of treasury stock to 50% of the Company's consolidated
net income for the two most recent fiscal years.
- --------
* See Safe Harbor Statement on page 53.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data regarding
the Company for the periods indicated. The statement of income data, the balance
sheet data, and other data of the Company for each of the five years ended
December 31, 1998, have been derived from the consolidated financial statements
of the Company. The Company's audited financial statements as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, including the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere in this report. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements (including the Notes thereto) and the other
financial information contained elsewhere in this report, and with the Company's
consolidated financial statements and the notes thereto appearing in the
Company's previously filed Annual Reports on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
----------- ----------- ------------ ----------- -----------
(in thousands, except per share amounts)
Statement of Income Data
Revenue:
Home manufacturing net sales $ 598,116 $ 553,730 $ 572,997 $ 420,519 $ 312,268
Financial services 6,088 5,346 3,333 1,764 703
Other 9,866 2,112 841 271 -
----------- ----------- ----------- ----------- -----------
Total revenue 614,070 561,188 577,171 422,554 312,971
Cost of sales 496,708 464,222 482,204 354,811 265,943
Selling, general and administrative 87,611 72,526 54,120 39,035 28,109
Non-recurring merger and related
costs - 7,359 - - -
----------- ----------- ----------- ----------- -----------
Operating profit 29,751 17,081 40,847 28,708 18,919
Life insurance proceeds - 1,500 1,750 - -
Other income (expense) - net 1,531 (242) 1,589 90 (612)
----------- ----------- ----------- ----------- -----------
Income before taxes $ 31,282 $ 18,339 $ 44,186 $ 28,798 $ 18,307
=========== =========== =========== =========== ===========
Net income $ 18,655 $ 10,247 $ 27,479 $ 17,630 $ 11,458
=========== =========== =========== =========== ===========
Basic net income per share1 $ .94 $ .52 $ 1.42 $ 1.06 $ .83
=========== =========== =========== =========== ===========
Diluted net income per share1 $ .93 $ .51 $ 1.39 $ 1.03 $ .82
=========== =========== =========== =========== ===========
Cash dividend per share1 $ .13 $ .07 $ .06 $ .04 $ .02
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding1 19,905 19,835 19,363 16,630 13,824
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding, assuming dilution1 20,144 20,028 19,799 17,057 14,036
=========== =========== =========== =========== ===========
Other Data
Capital expenditures $ 14,655 $ 10,186 $ 16,106 $ 13,482 $ 7,665
=========== =========== =========== =========== ===========
December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Balance Sheet Data
Working capital $ 41,707 $ 28,484 $ 24,746 $ 22,157 $ 18,095
Total assets $ 235,952 $ 211,554 $ 196,387 $ 132,694 $ 86,859
Long-term debt $ 3,650 $ 15,808 $ 6,227 $ 11,233 $ 13,057
Stockholders' equity $ 144,911 $ 133,551 $ 122,652 $ 75,119 $ 41,767
</TABLE>
1 As adjusted for all stock splits.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Industry Outlook
The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors which affect the housing market as a
whole. The manufactured housing industry experienced significant growth in
shipments from 1992 through 1996. Since 1992, floor shipments have increased
each year, although the growth rate gradually slowed to 1% in 1997. Industry
floor shipments in 1998 improved over 1997, with the Manufactured Housing
Institute reporting floor shipments increased 7.8% in 1998 over 1997. The
Company attributes this growth to a reduction in alternative housing, increased
availability of retail financing, increased consumer confidence and continuing
strength in the national economy. As a result, the manufactured housing industry
has, over the past several years, also experienced increases in both the number
of retail dealers and manufacturing capacity. The Company believes these
increases are currently resulting in slower retail turnover, higher dealer
inventories and increased price competition. Multi-section shipments continue to
grow as a percentage of overall shipments and represented 61.3% of industry
shipments in 1998 versus 57.9% in 1997. A single-section home is comprised of
one floor, while a multi-section home is comprised of two or more floors.
Results of Operations
The following table summarizes certain financial and operating data including,
as applicable, the percentage of total revenue:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996
----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Home manufacturing net sales $ 598,116 $ 553,730 $ 572,997
Financial services 6,088 5,346 3,333
Other 9,866 2,112 841
---------- ---------- ----------
Total revenue $ 614,070 100.0% $ 561,188 100.0% $ 577,171 100.0%
========== ========== ==========
Total revenue $ 614,070 100.0% $ 561,188 100.0% $ 577,171 100.0%
Cost of sales 496,708 80.9% 464,222 82.7% 482,204 83.5%
---------- ------- ---------- ------- ---------- -------
Gross profit $ 117,362 19.1% $ 96,966 17.3% $ 94,967 16.5%
========== ======= ========== ======= ========== =======
Selling, general and administrative $ 87,611 14.3% $ 72,526 12.9% $ 54,120 9.4%
Non-recurring merger and related costs $ - 0.0% $ 7,359 1.3% $ - 0.0%
Operating profit $ 29,751 4.8% $ 17,081 3.0% $ 40,847 7.1%
Other income $ 1,531 0.2% $ 1,258 0.2% $ 3,339 0.6%
Net income $ 18,655 3.0% $ 10,247 1.8% $ 27,479 4.8%
Installment loan purchases $ 27,438 $ 18,013 $ 19,932
Capital expenditures $ 14,655 $ 10,186 $ 16,106
Home shipments 24,387 23,602 25,652
Floor shipments 36,517 33,646 34,581
Independent exclusive dealer locations 232 132 115
Company-owned retail locations 5 - -
Home manufacturing facilities 23 22 24
</TABLE>
1998 compared to 1997
Revenue
Home manufacturing net sales for 1998 as compared to 1997 increased
by 9%, or $50 million, to a record $603 million, before elimination of
intercompany transactions of $5 million, with home shipments increasing by 3.3%.
During 1998, 49% of the Company's homes sold were multi-section homes compared
to 42% for the previous year. As the sale of multi-section homes continued to
increase, the number of floors sold in 1998 increased 8.5% from 1997. The
expansion of the Company's multi-section product base is in response to
increasing consumer demand for multi-section homes. At year end, the exclusive
dealer distribution system had grown to 237 exclusive dealer locations,
including five Company-owned retail locations. Sales to exclusive dealers
represented 40% of total 1998 sales compared to 30% in 1997. The Company
attributes the strong growth in its Exclusive Dealer Program to dealer
acceptance of the program's benefits and the introduction of the program to the
Belmont group of dealers. Actual shipments of homes during 1998 were 24,387
versus 23,602 in 1997. The average price of homes sold roseto $24,700 in 1998
from $23,500 in 1997. The increase in the average selling price was primarily
due to price increases instituted by the Company associated with rising prices
in raw materials and an increase in the shipment of multi-section homes.
Revenue from the financial services segment increased $0.7 million in 1998 as
compared to 1997 primarily due to a gain on the sale of a significant portion of
Cavalier Acceptance Corporation's (CAC)loan portfolio in 1998 and the subsequent
periodic resale of loans. In 1998, the effect of the portfolio sale on financial
services revenue was a reduction in interest income earned of $1.4 million,
17
<PAGE>
offset by the gain on sale of loans of $2 million. During 1998, the business
focus of CAC changed from building, holding and servicing a portfolio of loans
to purchasing loans from its dealers that are subsequently resold to another
financial institution without CAC retaining the servicing function. During 1998,
CAC purchased contracts totaling $27 million as compared to $18 million in 1997.
Other revenue consists mainly of revenue from wholesale supply businesses and
Company-owned retail sales locations. The supply businesses sell mainly to the
home manufacturing segment, whereas the Company-owned retail sales locations
purchase mainly from the home manufacturing segment. Revenue from external
customers increased $8 million in 1998 over 1997 due primarily to retail sales
of $7 million.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $117 million, or 19.1%, in 1998 versus $97 million, or 17.3%, in
1997. The Company believes an increase in total revenue and cost savings due to
increased purchasing and other efficiencies after the Belmont merger are
responsible for a significant portion of this increase. Currently, the Company
is experiencing tightened supply from its traditional vendors of certain types
of raw materials, including sheetrock and insulation, required for the
production of its manufactured 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 1998 were $88 million, or
14.3% of total revenue, compared to $73 million, or 12.9% of total revenue, in
1997, an increase of $15 million as compared to 1997. Of this increase, $4.5
million is related to broadened sales and marketing efforts, including
recruiting, set-up and maintenance of the exclusive dealer network, and the
continued development of a retail infrastructure. Additionally, selling, general
and administrative expenses increased $1.4 million due to higher costs for
employee benefits, primarily health insurance, $1 million for increased warranty
service activities and $0.7 million 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 associated with retail acquisitions, opening an additional home
manufacturing facility and the expansion of the supply distribution business.
Operating Profit
Operating profit is derived by deducting cost of sales and selling, general and
administrative expenses from total revenue. Operating profit improved $13
million to $30 million in 1998 from $17 million in 1997. Home manufacturing
operating profit improved $2.5 million due to an increase in sales and cost
savings associated with increased purchasing and other efficiencies after the
Belmont merger. Financial services operating profit improved $0.2 million due to
a gain on the sale of a significant portion of CAC's loan portfolio, offset by
reduced interest income on the portion of the portfolio sold. Additionally,
operating profit improved due to the absence of a $7.4 million non-recurring
merger charge in 1997.
Other Income (Expense)
Interest expense decreased in 1998 from 1997 due 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, as well as the payoff in September 1997 of debt
that had been used to support the 1996 Bellcrest acquisition, offset by floor
plan interest in 1998 incurred in connection with the Company-owned retail sales
locations.
Other, net, is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. The increase of $1.1 million in 1998 as compared to 1997 was
primarily due to increased interest income on earnings from the cash proceeds
from the sale of a portion of CAC's loan portfolio.
Net Income
Net income improved $8.5 million to $18.7 million in 1998 from $10.2 million in
1997 due primarily to an increase in total revenue, the cost savings associated
with increased purchasing and other efficiencies after the Belmont merger and
the absence of the non-recurring merger charge of $6.5 million net of taxes.
- --------
* See Safe Harbor Statement on page 53.
18
<PAGE>
1997 compared to 1996
Revenue
Home manufacturing net sales for 1997 as compared to 1996 decreased by 3%, or
$19 million, with home shipments declining by 8%. However, sales of
multi-section homes increased during the year, resulting in only a 3% decline in
the number of floors sold. The Company believes the decline in net sales was
primarily attributable to increased competition in the manufactured housing
industry related t an increase in manufacturing capacity, higher dealer
inventories and slower retail inventory turnover. Net sales for 1997 included
approximately $51 million from Bellcrest, which was acquired in October 1996.
Shipments of homes during 1997 were 23,602 compared to 25,652 in 1996. During
1997, the average price of homes sold rose to $23,500 versus $22,300 in 1996.
The increase in the average selling price was primarily due to price increases
established by the Company in response to rising prices in raw materials and an
increase in the shipment of multi-section homes. During 1997, the percentage of
multi-section homes sold was 42%, up from 35% of total homes sold in 1996.
Revenue from the financial services segment increased $2 million in 1997 as
compared to 1996 due primarily to an increase in the loan portfolio to $49
million at year-end 1997 from $36 million at the end of 1996. During 1997, CAC
purchased contracts totaling $18 million as compared to $20 million in 1996.
Other revenue consists primarily of revenue from wholesale supply businesses
which sell mainly to the home manufacturing segment. Revenue from external
customers increased $1 million in 1997 over 1996 due primarily to the start-up
of a new supply company in 1997.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $97 million, or 17.3%, in 1997 versus $95 million, or 16.5%, in 1996.
Gross profit for 1997 was negatively impacted by a reduction in home
manufacturing net sales and $0.8 million charged to warranty expense in
connection with conforming Belmont's contractual warranty arrangements to
Cavalier's.
Selling, General and Administrative
Selling, general and administrative expenses during 1997 were $73 million, or
12.9% of total revenue, compared to $54 million, or 9.4% of total revenue, in
1996. During 1997, selling, general and administrative expenses increased $19
million as compared to 1996 due primarily to the costs related to new or
expanded manufacturing facilities of $9.1 million, a $1.9 million increase in
selling and administrative salaries and commissions, a $1.1 million increase in
CAC's administrative costs consistent with its growth and expenses related to
the Company's expanded marketing programs of $0.9 million, partially offset by a
reduction in executive incentive compensation of $1.5 million. Additionally, the
Company charged to selling, general and administrative expense $0.3 million in
connection with conforming Belmont's contractual repurchase arrangements to its
own.
Merger and Related Costs
In connection with the Belmont merger, the Company recorded charges of $7.4
million in 1997. These charges were non-recurring and included $2.5 million from
the earn-out provision contained in the Stock Purchase Agreement between Belmont
and the shareholders of Bellcrest, $0.9 million for severance costs associated
with the consolidation of certain administrative functions, $3.1 million for
printing, investment banking, legal, accounting and other fees and $0.9 million
for other costs associated with combining and realigning the operations of the
two companies.
Operating Profit
Operating profit is derived by deducting cost of sales, selling, general and
administrative expenses and merger and related costs from total revenue.
Operating profit declined $23.8 million from 1996 to 1997. Home manufacturing
operating profit declined $17.4 million primarily due to the reduction in sales
and the increase in costs associated with new or expanded manufacturing
facilities of $9.1 million. Financial services operating profit improved $0.8
million primarily due to the increase in its loan portfolio. Additionally,
operating profit declined due to the non-recurring merger and related costs
associated with the Belmont merger of $7.4 million.
Other Income (Expense)
Interest expense for 1997 increased by $0.6 million as compared to 1996 due
primarily to additional borrowings to support the purchase of Bellcrest, which
debt was paid in full in September 1997, interest on two new industrial
development bond issues, as well as the additional borrowings incurred to
support the level of purchases of retail installment sales contracts by CAC.
The Company experienced non-recurring gains on life insurance proceeds during
1996 of $1.75 million as a result of the death of Cavalier's President and Chief
Executive Officer, Jerry F. Wilson, and during 1997 of $1.5 million as a result
of the death of Belmont's President and Chief Executive Officer, Jerold Kennedy.
19
<PAGE>
Other, net, is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. The decline of $1.2 million in 1997 as compared to 1996 was
primarily due to a $0.3 million loss on property disposals recorded in 1997 in
connection with the closing of a leased facility and a $0.4 million decline in
equity earnings.
Net Income
Net income declined from 1996 to 1997 primarily due to the reduction in home
manufacturing net sales, the increase in certain selling, general and
administrative expenses and the non-recurring charges associated with the
Belmont merger of $1.1 million recorded in connection with conforming Belmont's
contractual warranty and repurchase arrangements to Cavalier's and $7.4 million
of non-recurring merger and related costs (a total of $6.5 million net of
taxes).
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Balances as of December 31,
--------------------------------
(Dollars in thousands) 1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 64,243 $ 37,276 $ 29,751
Certificates of deposit, maturing within one year $ - $ 4,000 $ -
Working capital $ 41,707 $ 28,484 $ 24,746
Current ratio 1.5 to 1 1.5 to 1 1.4 to 1
Long-term debt $ 3,650 $ 15,808 $ 6,227
Ratio of long-term debt to equity 1 to 40 1 to 8 1 to 20
Installment loan portfolio $ 26,117 $ 49,146 $ 36,425
</TABLE>
As of December 31, 1998, the Company had working capital of $42 million compared
to $28 million at the end of 1997, an increase of $14 million. The 1998 increase
in working capital and the decreases in long-term debt and the debt to equity
ratio were due to the sale of a portion of CAC's installment loan portfolio, of
which a portion of the proceeds were used to retire approximately $14 million in
debt and approximately $13 million was invested in short-term assets. Operating
activities provided cash of $37 million in 1998. The Company's capital
expenditures were approximately $15 million in 1998. Capital expenditures during
1998 included normal property, plant and equipment additions and replacements,
the continued expansion and modernization of certain of the Company's
manufacturing facilities, as well as the purchase of a Texas manufacturing
facility that was previously leased, land adjacent to a North Carolina and a
Georgia manufacturing facility, and an additional manufacturing facility in
Georgia to be placed in operation in 1999. During the first quarter of 1999, the
Company purchased, for a total of $3.4 million, two Alabama manufacturing
facilities that were previously leased. The Company also initiated a stock
repurchase program during the latter part of 1998 of 2,000,000 shares, of which
852,600 shares had been repurchased at December 31, 1998 for approximately $8
million. The Company completed this repurchase during the first quarter of 1999,
and the Board of Directors has authorized the repurchase of an additional
2,000,000 shares. During the first of quarter of 1999, through March 23, 1999,
the Company purchased 1,459,000 shares for $14 million.
As of December 31, 1997, the Company had working capital of $28 million compared
to $25 million at the end of 1996, an increase of $3 million. The 1997 working
capital increase of $3 million was due primarily to net long-term borrowings of
$3 million, $2 million in proceeds from the sale of common stock, installment
loan collections of $5 million and net cash provided by operating activities of
$23 million for the year, reduced by $10 million in capital expenditures and $18
million in installment loan purchases. Capital expenditures during 1997 included
normal property, plant and equipment additions and replacements and the
acquisition of a home manufacturing facility in Texas.
The Company entered into a credit agreement with its primary lender in February
1994 and later amended it in March 1996 and June 1998. The credit facility
presently consists of a $35 million revolving, warehouse and term-loan
agreement. The credit facility contains a revolving line of credit which
provides for borrowings (including letters of credit) of up to 80% and 50% of
the Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $10 million. Interest is payable under the
revolving line of credit at the bank's prime rate, or, if elected by the
Company, the 90-day LIBOR Rate plus 2.5%. The warehouse and term-loan agreements
contained in the credit facility provide for borrowings of up to 80% of the
Company's eligible (as defined) installment sales contracts, up to a maximum of
$25 million. Interest on the term notes is fixed for a period of five years from
issuance at a rate based on the weekly average yield on five-year treasury
securities averaged over the preceding 13 weeks, plus 1.95%, with a floating
rate for the remaining two years (subject to certain limits) equal to the bank's
prime rate plus 0.75%. The warehouse component of the credit facility provides
for borrowings of up to $25 million with interest payable at the bank's prime
rate, or, if elected by the Company, the 90-day LIBOR Rate plus 2.5%. However,
in no event may the aggregate outstanding borrowings under the warehouse and
term-loan agreement exceed $25 million. Under the credit facility, no amounts
were outstanding at December 31, 1998, and $12.7 million was outstanding at
December 31, 1997.
The credit facility contains certain restrictive covenants which limit, among
other things, the Company's ability to (i) make dividend payments and purchases
of treasury stock in an aggregate amount which exceeds 50% of consolidated net
20
<PAGE>
income for the two most recent years, (ii) mortgage or pledge assets which
exceed, in the aggregate, $1 million, (iii) incur additional indebtedness,
including lease obligations, which exceed in the aggregate $10 million and (iv)
make capital expenditures in excess of $14 million. In addition, the credit
facility contains certain financial covenants requiring the Company to maintain
on a consolidated basis certain defined levels of net working capital (at least
$3.5 million), tangible net worth (which must increase at least $2 million per
year, subject to a carryover for increases in excess of $2 million in the prior
year), debt to equity ratio (not to exceed 2 to 1) and cash flow to debt service
ratio (not less than 1.5 to 1). The credit facility also requires CAC to comply
with certain specified restrictions and financial covenants.
Since its inception, CAC has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CAC entered into an agreement with another lender providing for
the periodic resale of a portion of CAC's loans that meet established criteria.
In March 1998, CAC sold, under the retail finance agreement, a substantial
portion of its then existing portfolio of loans. The effect of this transaction
on net income was to reduce the amount of financial services revenue from
interest income on this portion of the portfolio, offset by reduced interest
expense on retired debt and earnings on the remaining proceeds. Pursuant to the
retail finance agreement, the Company may sell a substantial portion of its
existing installment loan portfolio in fiscal year 1999, in addition to the
periodic sale of installment contracts purchased by CAC in the future. * The
Company believes the periodic sale of installment contracts under the retail
finance agreement will reduce requirements for both working capital and
borrowings, increase the Company's liquidity, reduce the Company's exposure to
interest rate fluctuations and enhance the ability of CAC to increase its volume
of loan purchases.* There can be no assurance, however, that additional sales
will be made under this agreement, or that CAC and the Company will be able to
realize the expected benefits from such agreement. *
The Company's growth strategy currently includes the continued expansion of
financial services, component supply operations, and its independent dealer
network, the pursuit of additional acquisitions and, to a lesser extent, the
acquisition or opening of Company-owned retail locations. The Company currently
believes existing cash and funds available under the credit facility, together
with cash provided by operations, will be adequate to fund the Company's
operations and plans for the next twelve months. In order to provide additional
funds for continued pursuit of the Company's growth strategies and for
operations, the Company may incur, from time to time, additional short and
long-term bank indebtedness or other forms of financing and may issue, in public
or private transactions, its equity and debt securities, the availability and
terms of which will depend upon market and other conditions. * The Company may
engage in other transactions, such as selling or securitizing all or portions of
its installment loan portfolio, that are designed to facilitate the ability of
the Company to originate an increased volume of loans and to reduce the
Company's exposure to interest rate fluctuations and has entered into such a
transaction pursuant to the retail finance agreement, as further described
above. * There can be no assurance that such possible additional financing, or
the aforementioned potential transactions involving the Company's installment
loan portfolio, will be available on terms acceptable to the Company. It is
possible that a future lack of financing or a prolonged downturn in industry
conditions could cause the Company to curtail the expansion of financial
services or otherwise alter its growth strategies. *
Impact of Inflation
The Company generally has been able to increase its selling prices to offset
increased costs, including the costs of raw materials. Sudden increases in costs
as well as price competition, however, can affect the ability of the Company to
increase its selling prices. As discussed above, the Company currently is
experiencing tightened supply of certain types of raw materials. For a further
discussion of this matter, see "1998 Compared to 1997 - Gross Profit." The
Company believes that the relatively moderate rate of inflation over the past
several years has not had a significant impact on its sales or profitability,
but can give no assurance that this trend will continue in the future. *
Impact of Accounting Statements
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133 is required to be adopted for years beginning
after June 15, 1999. The Company is currently evaluating SFAS 133 and has not
yet determined its impact on the Company's consolidated financial statements.
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 system 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.
- --------
* See Safe Harbor Statement on page 53.
21
<PAGE>
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 75%
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 $800,000 and $1,200,000
as an expense, in addition to approximately $200,000 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. The Company 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 $1.4 million at December 31, 1998. 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 the
retail finance agreement discussed above. 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. Additionally, the
Company has installment loans receivable in its portfolio of $25 million which
may be sold during 1999. 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 216 months at December 31, 1998. The Company estimated
the fair value of its installment contracts receivable using discounted cash
flows and interest rates offered by CAC on similar contracts at December 31,
1998.
- --------
* See Safe Harbor Statement on page 53.
22
<PAGE>
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 two Industrial Development Revenue Bond issues at
fixed interest rates. The estimated fair value of outstanding borrowings
approximated carrying value at December 31, 1998. The Company estimated the fair
value of its debt instruments 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. The table below provides
information about the Company's financial instruments that are sensitive to
changes in interest rates at December 31, 1998.
<TABLE>
<CAPTION>
Assumed Annual Principal Cash Flows
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total Fair value
Installment loan portfolio $ 862 $ 961 $1,071 $1,194 $1,331 $20,698 $26,117 $ 26,211
(weighted average interest rate - 10.93%)
Expected Principal Maturity Dates
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair value
Notes payable and long-term debt $ 4,568 $ 429 $ 457 $ 480 $ 499 $ 1,785 $ 8,218 $ 8,218
(weighted average interest rate - 7.44%)
</TABLE>
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table below sets forth certain unaudited quarterly financial data for the
two years ended December 31, 1998 and 1997. The Company believes that the
following quarterly financial data includes all adjustments necessary for a fair
presentation, in accordance with generally accepted accounting principles. The
following quarterly financial data should be read in conjunction with the other
financial information contained elsewhere in this report. The operating results
for any interim period are not necessarily indicative of results for a complete
year or for any future period.
<TABLE>
<CAPTION>
Fourth Quarter Third Quarter Second Quarter First Quarter Total
----------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1998
Revenue:
Home manufacturing $ 158,457 $ 152,542 $ 164,274 $ 122,843 $ 598,116
Financial services 1,526 1,121 1,015 2,426 6,088
Other 3,397 3,835 2,324 310 9,866
------------ ------------ ------------ ------------ ------------
Total revenue 163,380 157,498 167,613 125,579 614,070
Gross profit 32,444 30,634 31,460 22,824 117,362
Net income 5,324 5,220 5,069 3,042 18,655
Basic net income per share a .27 .26 .25 .15 .94
Diluted net income per share a .27 .26 .25 .15 .93
1997
Revenue:
Home manufacturing $ 132,297 $ 137,744 $ 158,015 $ 125,674 $ 553,730
Financial services 1,526 1,382 1,296 1,142 5,346
Other 786 532 396 398 2,112
------------ ------------- ------------ ------------ ------------
Total revenue 134,609 139,658 159,707 127,214 561,188
Gross profit 23,681 24,214 27,273 21,798 96,966
Net income (4,165)b 3,639 6,880 c 3,893 10,247 b,c
Basic net income per share a (.21)b .18 .35 c .20 .52 b,c
Diluted net income per share a (.21)b .18 .34 c .19 .51 b,c
a The sum of quarterly amounts may not equal the annual amounts due to rounding.
b Includes non-recurring charges of $8,447, comprised of $1,088 recorded in
connection with conforming Belmont's contractual warranty and repurchase
arrangements to Cavalier's and $7,359 of non-recurring merger and related
costs ($6,526 net of taxes, or $.33 per share Basic and Diluted).
c Includes a non-recurring gain of $1,500 or $.08 per share Basic, and $.07
Diluted from life insurance proceeds.
</TABLE>
Prior amounts have been restated due to the December 31, 1997 Belmont Merger,
which was accounted for as a pooling of interests. Previously reported amounts
for the individual company's net sales, total revenues and gross profit have
been adjusted for the effect of former equity investments in unconsolidated
joint ventures which are now consolidated subsidiaries and for reclassification
of certain Belmont amounts to conform to Cavalier's presentation. In addition,
certain amounts from prior periods have been reclassified to conform to the
current presentation.
24
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 26
Consolidated Balance Sheets 27
Consolidated Statements of Income 29
Consolidated Statements of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Schedule -
II - Valuation and Qualifying Accounts 47
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the consolidated balance sheets of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the index at Item 8. The financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. The
consolidated financial statements and financial statement schedule give
retroactive effect to the merger of the Company and Belmont Homes, Inc., which
has been accounted for as a pooling of interests as described in Note 2 to the
consolidated financial statements. We did not audit the consolidated financial
statements of Belmont Homes, Inc. for the year ended December 31, 1996, which
statements reflect total revenues of $227,817,000. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Belmont Homes, Inc. for 1996,
is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
February 19, 1999
26
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 64,243 $ 37,276
Certificates of deposit, maturing within one year 4,000
Accounts receivable, less allowance for losses of
$1,201 (1998) and $1,175 (1997) 7,678 8,449
Notes and installment contracts receivable - current 1,577 1,561
Inventories 38,803 29,697
Deferred income taxes 9,413 7,240
Other current assets 4,077 1,292
--------- ---------
Total current assets 125,791 89,515
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,414 2,159
Buildings and improvements 41,991 36,741
Machinery and equipment 38,707 32,483
--------- ---------
86,112 71,383
Less accumulated depreciation and amortization 24,690 17,949
--------- ---------
Total property, plant and equipment, net 61,422 53,434
--------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $760 (1998) and
$1,272 (1997) 24,512 46,614
--------- ---------
GOODWILL, less accumulated amortization
of $4,154 (1998) and $3,102 (1997) 19,945 19,551
--------- ---------
OTHER ASSETS 4,282 2,440
--------- ---------
TOTAL $ 235,952 $ 211,554
========= =========
</TABLE>
27
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 405 $ 3,271
Notes payable under retail floor plan agreements 4,163
Accounts payable 15,944 9,575
Amounts payable under dealer incentive programs 18,752 14,614
Accrued compensation and related withholdings 7,154 4,294
Estimated warranties 12,400 11,700
Accrued merger and related costs 5,178
Other accrued expenses 25,266 12,399
--------- ---------
Total current liabilities 84,084 61,031
--------- ---------
DEFERRED INCOME TAXES 390 297
--------- ---------
LONG-TERM DEBT 3,650 15,808
--------- ---------
OTHER LONG-TERM LIABILITIES 2,917 867
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Series A Junior Participating Preferred Stock, $.01 par value; 200,000 shares
authorized, none issued
Preferred stock, $.01 par value; 300,000 shares authorized,
none issued
Common stock, $.10 par value; 50,000,000 shares authorized,
20,282,782 (1998) and 19,941,357 (1997) shares issued 2,028 1,994
Additional paid-in capital 60,760 57,228
Retained earnings 90,400 74,329
Treasury stock, at cost; 852,600 shares (8,277)
---------- ----------
Total stockholders' equity 144,911 133,551
---------- ----------
TOTAL $ 235,952 $ 211,554
========== ==========
See notes to consolidated financial statements.
</TABLE>
28
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
REVENUES $ 614,070 $ 561,188 $ 577,171
------------ ------------ ------------
COST OF SALES 496,708 464,222 482,204
SELLING, GENERAL AND ADMINISTRATIVE 87,611 72,526 54,120
MERGER AND RELATED COSTS 7,359
------------ ------------ ------------
584,319 544,107 536,324
------------ ------------ ------------
OPERATING PROFIT 29,751 17,081 40,847
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (820) (1,511) (845)
Life insurance proceeds 1,500 1,750
Other, net 2,351 1,269 2,434
------------ ------------ ------------
1,531 1,258 3,339
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 31,282 18,339 44,186
INCOME TAXES 12,627 8,092 16,707
------------ ------------ ------------
NET INCOME $ 18,655 $ 10,247 $ 27,479
============ ============ ============
BASIC NET INCOME PER SHARE $ 0.94 $ 0.52 $ 1.42
============ ============ ============
DILUTED NET INCOME PER SHARE $ 0.93 $ 0.51 $ 1.39
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 19,904,746 19,834,942 19,362,944
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 20,143,795 20,028,181 19,799,492
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
29
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
BALANCE, JANUARY 1, 1996 $ 1,830 $ 34,013 $ 39,276 $ 75,119
Sale of common stock to public 64 11,661 11,725
Stock options exercised 73 4,419 4,492
Income tax benefit attributable to exercise of
stock options 3,692 3,692
Sale of common stock under Employee Stock
Purchase Plan 2 238 240
Common stock issued in connection with
acquisitions 5 887 892
Accrued compensation 216 216
Cash dividends paid ($.06 per share) (1,203) (1,203)
Net income 27,479 27,479
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 1,974 55,126 65,552 122,652
Stock options exercised 7 7
Sale of common stock under Employee Stock
Purchase Plan 5 425 430
Sale of common stock under Dividend
Reinvestment Plan 17 1,653 1,670
Accrued compensation 172 172
Cash dividends paid ($.07 per share) (1,470) (1,470)
Retirement of common stock (2) (155) (157)
Net income 10,247 10,247
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 1,994 57,228 74,329 133,551
Stock options exercised 4 153 157
Income tax benefit attributable to exercise of
stock options 90 90
Sale of common stock under Employee Stock
Purchase Plan 5 504 509
Sale of common stock under Dividend
Reinvestment Plan 25 2,579 2,604
Accrued compensation 206 206
Cash dividends paid ($.13 per share) (2,584) (2,584)
Purchase of treasury stock $ (8,277) (8,277)
Net income 18,655 18,655
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 $ 2,028 $ 60,760 $ 90,400 $ (8,277) $ 144,911
========== ========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
30
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
OPERATING ACTIVITIES:
Net income $ 18,655 $ 10,247 $ 27,479
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,365 7,492 5,760
Provision for credit losses and repurchase commitments (486) 669 389
Gain on sale of installment contracts (2,048)
(Gain) loss on sale of property, plant and equipment 49 340 (144)
Other, net 267 211 (93)
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable 787 2,574 (672)
Inventories (6,248) (488) (8,021)
Accounts payable 6,313 (3,310) (146)
Amounts payable under dealer incentive programs 4,138 761 4,508
Accrued compensation and related withholdings 2,860 (1,743) 1,188
Estimated warranties 700 1,134 1,744
Other assets and liabilities 4,006 5,361 1,695
--------- --------- ---------
Net cash provided by operating activities 37,358 23,248 33,687
--------- --------- ---------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (2,358) (871) (8,515)
Proceeds from sale of property, plant and equipment 282 122 228
Capital expenditures (14,655) (10,186) (16,106)
Purchases of certificates of deposit (6,044) (8,000) (16,114)
Maturities of certificates of deposit 10,044 12,243 14,588
Proceeds from sale or maturity of marketable securities 1,097 2,479
Net change in notes and installment contracts (23,119) (13,547) (17,216)
Proceeds from sale of installment contracts 47,852
Other investing activities (1,085) 133 616
--------- --------- ---------
Net cash provided by (used in) investing activities 10,917 (19,009) (40,040)
--------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings on notes payable 1,307
Proceeds from long-term borrowings 25,263 9,650
Payments on long-term debt (15,024) (22,457) (12,610)
Net proceeds from sales of common stock 3,113 2,100 11,965
Proceeds from exercise of stock options 157 7 4,492
Cash dividends paid (2,584) (1,470) (1,203)
Purchase of treasury stock (8,277)
Other financing activities (157) 750
--------- --------- ---------
Net cash provided by (used in) financing activities (21,308) 3,286 13,044
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,967 7,525 6,691
--------- --------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 37,276 29,751 23,060
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 64,243 $ 37,276 $ 29,751
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
31
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc. and its wholly-owned and
majority-owned subsidiaries (collectively, the "Company"). The Company's
minority ownership interests in various joint ventures are accounted for
using the equity method and are included in other assets in the
accompanying consolidated balance sheets. Intercompany transactions have
been eliminated in consolidation. See Note 10 for information related to
the Company's business segments.
Nature of Operations - The Company designs and manufactures a wide range
of high quality manufactured homes which are sold to a network of dealers
located primarily in the South Central and South Atlantic regions of the
United States. In addition, through its financial services segment, the
Company offers retail installment sale financing and related insurance
products for manufactured homes sold through the Company's exclusive
dealer locations and company-owned retail locations.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and notes. Actual results could
differ from those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity of
those instruments. Additional information concerning the fair value of
other financial instruments is disclosed in Notes 3 and 4.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market. During
1998, 1997, and 1996, the Company purchased raw materials of approximately
$11,413, $10,573 and $11,645, respectively, from a joint venture.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method. Maintenance and repairs are
expensed as incurred. The Company paid or accrued $388, $270 and $73 in
1998, 1997 and 1996, respectively, for construction of plant facilities to
a company in which a stockholder and director of the Company is also a
stockholder.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over the
expected periods to be benefited, 15 to 25 years, using the straight-line
method. The Company evaluates the recoverability of goodwill primarily
using forecasted undiscounted cash flows, supplemented if necessary by an
independent appraisal of fair value.
32
<PAGE>
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped to the dealer, with the
exception of a subsidiary which employs drivers to deliver its homes;
accordingly, sales are recorded upon delivery (at which time title passes)
by this subsidiary. All sales are final and without recourse except for
the contingency described in Note 9. For Company-owned retail locations,
revenue is recorded upon transfer of title to the retail home buyer.
Interest income on installment contracts receivable is recognized using
the interest method.
Product Warranties - The Company provides the retail home buyer a one-year
limited warranty covering defects in material or workmanship in home
structure, plumbing and electrical systems. A liability is provided for
estimated future warranty costs relating to homes sold, based upon
management's assessment of historical experience factors and current
industry trends.
Allowance for Losses on Installment Contracts - The Company has provided
an allowance for estimated future losses resulting from retail financing
activities of Cavalier Acceptance Corporation ("CAC"), a wholly-owned
subsidiary, primarily based upon management's assessment of historical
experience and current economic conditions.
Insurance - The Company's workmen's compensation, product liability and
general liability insurance coverages (with the exception of a subsidiary
whose insurance is provided under fully insured policies) are provided
under incurred loss, retrospectively rated premium plans. Under these
plans, the Company incurs insurance expense based upon various rates
applied to current payroll costs and sales. Annually, such insurance
expense is adjusted by the carrier for loss experience factors subject to
minimum and maximum premium calculations. Refunds or additional premiums
are estimated when sufficiently reliable data is available in accordance
with the consensus reached in Emerging Issues Task Force Issue No. 93-14,
Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by
Insurance Enterprises and Other Enterprises.
Net Income Per Share - In accordance with Statement of Financial
Accounting Standards ("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 (in thousands of shares):
1998 1997 1996
Weighted average shares outstanding 19,905 19,835 19,363
Dilutive effect of stock options and warrants 239 193 436
-------- -------- --------
Weighted average shares outstanding,
assuming dilution 20,144 20,028 19,799
======== ======== ========
During 1996, the Company's Board of Directors declared a 3 for 2 stock
split in January and a 5 for 4 stock split in October. All applicable
share and per share data have been restated to give effect to all stock
splits. Options and warrants that could potentially dilute basic net
income per share in the future were not included in the computation of
diluted net income per share because to do so would have been
antidilutive. Antidilutive options and warrants were 641,796, 1,398,595,
and 209,057 for 1998, 1997, and 1996, respectively.
33
<PAGE>
Recent Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS 130, Reporting Comprehensive Income.
This statement is now effective, but has no impact on the Company. In June
1998, FASB issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 133 is required to be adopted for years beginning
after June 15, 1999. The Company is currently evaluating SFAS 133 and has
not yet determined its impact on the Company's consolidated financial
statements.
Reclassifications - Certain amounts from the prior periods have been
reclassified to conform to the 1998 presentation.
2. BUSINESS COMBINATION AND ACQUISITION
On December 31, 1997, Belmont Homes, Inc. ("Belmont") was merged with and
into a subsidiary of Cavalier Homes, Inc. ("Cavalier"), and 7,555,121
shares of Cavalier's common stock were issued in exchange for all of the
outstanding common stock of Belmont. The merger was accounted for as a
pooling of interests, and, accordingly, the accompanying financial
statements were restated to include the financial position, results of
operations and cash flows of Belmont for all periods presented prior to
the merger.
Revenues and net income for the separate companies and the combined
amounts presented in the consolidated financial statements are as follows
(excluding non-recurring merger and related costs in 1997):
1997 1996
Revenues:
Cavalier $ 336,343 $ 349,354
Belmont 224,845 227,817
--------- ---------
Combined $ 561,188 $ 577,171
========= =========
Net income:
Cavalier $ 10,428 $ 15,366
Belmont 5,688 12,113
--------- ---------
Combined $ 16,116 $ 27,479
========= =========
Certain amounts from Belmont's prior financial statements have been
reclassified to conform to Cavalier's presentation.
In connection with the merger, Cavalier recorded charges of $7.4 million
in the quarter ended December 31, 1997. These charges are non-recurring
and include $2.5 million from the earn-out provision contained in the
Stock Purchase Agreement between Belmont and the shareholders of
Bellcrest, $0.9 million for severance costs associated with the
consolidation of certain administrative functions, $3.1 million for
printing, investment banking, legal, accounting and other fees, and $0.9
million for other costs associated with combining and realigning the
operations of the two companies. Of the merger and related costs of $7.4
million, $5.2 million was recorded as an accrued liability in the
consolidated balance sheet at December 31, 1997.
On October 24, 1996, in a transaction accounted for using the purchase
method of accounting, the Company completed its purchase of 100% of the
stock of Bellcrest Homes, Inc. ("Bellcrest") through the cash payment of
$9,500.
34
<PAGE>
Under the terms of the Bellcrest Stock Purchase Agreement, the Company was
required to pay the former Bellcrest shareholders additional consideration
in an amount not to exceed $3,500 in the aggregate in the event Bellcrest
attained certain stated levels of earnings before income taxes for the
three-month period ended December 31, 1996 and for each of the years
ending December 31, 1997 and 1998. During 1997, the Company paid $1,000,
the amount earned and accrued for 1996, to the former shareholders. In
connection with the merger described above, the Company also paid the
remaining $2,500 to the former shareholders.
In connection with the merger, warrants issued to a former Bellcrest
shareholder in connection with the acquisition of Bellcrest were converted
to warrants to purchase 60,000 shares of Cavalier common stock. The
warrants, which expire in October 2001, are exercisable at $18.34 per
share and their fair value at the issue date was estimated to be
negligible. None of these warrants have been exercised as of December 31,
1998.
3. INSTALLMENT CONTRACTS RECEIVABLE
CAC finances retail sales through the purchase of installment contracts
from a portion of the Company's exclusive dealers. Standard loan programs
require minimum down payments, ranging from 0% to 15% of the purchase
price of the home, on all installment contracts based on the
creditworthiness of the borrower. In addition, CAC requires the borrower
to maintain adequate insurance on the home throughout the life of the
contract. Contracts are secured by the home which is subject to
repossession by CAC upon default by the borrower.
CAC's portfolio consists of fixed rate contracts with interest rates
generally ranging from 8.0% to 13.0% and from 9.25% to 14.0% at December
31, 1998 and 1997, respectively. The average original term of the
portfolio was approximately 216 and 217 months at December 31, 1998 and
1997, respectively. During 1998, CAC entered into an agreement to sell,
without recourse (provided that the transferred loan was properly
originated by the dealer and purchased by CAC), contracts in its portfolio
that meet specified credit criteria. Under this agreement, CAC sold
$45,804 contracts receivable and realized a gain of $2,048.
At December 31, 1998, estimated principal payments under installment
contracts receivable are as follows:
1999 $ 862
2000 961
2001 1,071
2002 1,194
2003 1,331
Thereafter 20,698
--------
Total $ 26,117
========
35
<PAGE>
Activity in the allowance for losses on installment contracts was as
follows:
1998 1997 1996
Balance, beginning of year $ 1,272 $ 941 $ 551
Provision for losses 1,042 1,329 778
Charge-offs, net (1,554) (998) (388)
-------- -------- -------
Balance, end of year $ 760 $ 1,272 $ 941
======== ======== =======
At December 31, 1998 and 1997, the estimated fair value of installment
contracts receivable was $26,211 and $50,103, respectively. These fair
values were estimated using discounted cash flows and interest rates
offered by CAC on similar contracts at that time.
4. CREDIT ARRANGEMENTS
The Company has a $35,000 revolving, warehouse and term-loan agreement
(the "Credit Facility") with its primary bank, whose president is a
director of the Company. The Credit Facility contains a revolving line of
credit which provides for borrowings (including letters of credit) of up
to 80% and 50% of the Company's eligible accounts receivable and
inventories, respectively, up to a maximum of $10,000. Interest is payable
under the revolving line of credit at the bank's prime rate (7.75% and
8.50% at December 31, 1998 and 1997, respectively) or, if elected by the
Company, the 90-day LIBOR rate plus 2.5% (7.57% at December 31, 1998). No
amounts were outstanding under the revolving line of credit at December
31, 1998 or 1997.
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible installment
sale contracts, up to a maximum of $25,000. Interest on term notes is
fixed for a period of five years from issuance at a rate based on the
weekly average yield on five-year treasury securities averaged over the
preceding 13 weeks, plus 1.95%, and floats for the remaining two years at
a rate (subject to certain limits) equal to the bank's prime rate plus
.75%. The warehouse component of the Credit Facility provides for
borrowings of up to $25,000 with interest payable at the bank's prime rate
or, if elected by the Company, the 90-day LIBOR rate plus 2.5%. However,
in no event may the aggregate outstanding borrowings under the warehouse
and term-loan agreement exceed $25,000. Amounts outstanding under the
warehouse and term-loan portion of the Credit Facility were $-0- and
$12,744 at December 31, 1998 and December 31, 1997, respectively.
The Credit Facility contains certain restrictive and financial covenants,
which, among other things, limit the aggregate of dividend payments and
purchases of treasury stock to 50% of consolidated net income for the two
most recent years, restrict the Company's ability to pledge assets, incur
additional indebtedness and make capital expenditures, and require the
Company to maintain certain defined financial ratios. Amounts outstanding
under the Credit Facility are secured by the accounts receivable and
inventories of the Company, loans purchased and originated by CAC, and the
capital stock of certain of the Company's consolidated subsidiaries. The
bank's commitment under the Credit Facility will expire in April 2000.
The Company has other lines of credit with banks totaling $2,000, which
expire in July, 1999. Amounts outstanding under these facilities totaled
$-0- and $1,000 at December 31, 1998 and 1997, respectively. Interest
rates under these lines range from prime to prime plus 2%. The Company
also
36
<PAGE>
has $4,163 of notes payable under retail floor plan agreements. The notes
are collateralized by inventories of $3,775 and bear interest at prime at
December 31, 1998.
The Company has amounts outstanding under three Industrial Development
Revenue Bond issues ("Bonds") of $4,052 and $4,442 at December 31, 1998
and 1997, respectively. Two of the bond issues bear interest at variable
rates ranging from 4.0% to 5.4% and mature at various dates through
November 2007. One of the bond issues is payable in equal monthly
installments and bears interest at 75% of the prime rate. The bonds are
collateralized by certain plant facilities.
During 1998, the Company repaid a term-loan with a balance of $887 at
December 31, 1997. This loan accrued interest at 7.95% and was payable in
equal monthly installments.
At December 31, 1998, principal repayment requirements on long-term debt
are as follows:
Year Ending
December 31,
1999 $ 405
2000 429
2001 457
2002 480
2003 499
Thereafter 1,785
-------
4,055
Total
Less current portion 405
-------
Long-term debt $ 3,650
=======
The estimated fair value of outstanding borrowings approximated carrying
value at December 31, 1998 and 1997. These estimates were determined using
rates at which the Company believes it could have obtained similar
borrowings at that time.
Cash paid for interest during the years ended December 31, 1998, 1997 and
1996 was $776, $1,445 and $910, respectively.
5. STOCKHOLDERS' EQUITY
The Company has adopted a Stockholder Rights Plan. The terms and
conditions of the plan are set forth in a Rights Agreement dated October
23, 1996 between the Company and its Rights Agent. Pursuant to the plan,
the Board of Directors of the Company declared a dividend of one Right (as
defined in the Rights Agreement) for each share of the Company's
outstanding common stock to stockholders of record on November 6, 1996.
The Rights, when exercisable, entitle the holder to purchase a unit of
0.80 one-hundredth share of Series A Junior Participating Preferred Stock,
par value $.01, at a purchase price of $80 per unit. Upon certain events
relating to the acquisition of, or right to acquire, beneficial ownership
of 20% or more of the Company's outstanding common stock by a third party,
or a change in control of the Company, the Rights entitle the holder to
acquire, after the Rights are no longer redeemable by the Company, shares
of common stock of the Company (or, in certain cases, securities of an
acquiring person) for each Right held at a significant discount.The Rights
will expire on November 6, 2006, unless redeemed earlier by the Company at
$.01 per Right
37
<PAGE>
under certain circumstances. In connection with the merger, Belmont
shareholders received one Right (as defined in the Rights Agreement) with
respect to each Cavalier share received pursuant to the Merger Agreement.
In January 1996, Belmont completed a public offering of approximately
640,000 shares of common stock. The net proceeds of approximately $11,725
were used to retire debt and for working capital.
Supplemental diluted net income per share for 1996, based on net income
after adjustment for dividends on preferred stock and the after tax effect
of interest expense on debt repaid with proceeds of the above offering,
and on the weighted average shares of common stock outstanding for 1996,
giving effect to the number of shares sold in the offering, the proceeds
of which were used to repay such preferred stock and debt, is as follows
assuming the transaction was effective on January 1, 1996:
1996
Net income, as adjusted $ 27,526
==========
Diluted net income per share $ 1.39
==========
Weighted average shares outstanding, assuming dilution 19,868,292
==========
6. INCENTIVE PLANS
Dealership Stock Option Plan -
o During 1998, the Company amended the Dealership Stock Option Plan
(the "Dealer Plan") to revise the criteria for earning stock options.
The Plan allows for 562,500 options to be issued to eligible
independent dealerships at a price equal to the fair market value on
the date of grant. These options are earned based on the amount
of contracts funded through CAC. Options granted under the Plan are
immediately exercisable and expire three years from the grant date.
Since these options have been granted to persons other than employees,
the Company adopted the recognition and measurement provisions of SFAS
123, Accounting for Stock-Based Compensation.
Employee and Director Plans:
o The Company has a Key Employee Stock Incentive Plan (the "1996 Plan")
which provides for the granting of both incentive and non-qualified
stock options. Additionally, the 1996 Plan provides for stock
appreciation rights and awards of both restricted stock and performance
shares. Options are granted at prices and terms determined by the
compensation committee of the Board of Directors. The 1996 Plan also
provides for an additional number of common shares to be reserved for
issuance each January 1 equal to 1.5% of the number of the common
shares outstanding on that date. Options granted under the 1996 Plan
are generally exercisable six months after the grant date and expire
ten years from the date of grant.
o The Company also has a Non-employee Director Plan under which 625,000
shares of the Company's common stock were reserved for grant to
non-employee directors at fair market value on the date of such grant.
Options are granted upon the director's initial election and
automatically on an annual basis thereafter. Options granted under the
plan are generally exercisable six months after the grant date and
expire ten years from the date of grant.
38
<PAGE>
o The Company has an Employee Stock Purchase Plan under which 625,000
shares of the Company's common stock may be issued to eligible
employees at a price equal to the lesser of 85% of the market price of
the stock as of the first or last day of the payment periods (as
defined). Employees may elect to have a portion of their compensation
withheld, subject to certain limits, to purchase the Company's common
stock.
o The Company has a Deferred Compensation and Flexible Option Plan
(the "Deferred Plan") which provides for deferral of a portion of
certain key employees' earnings plus a Company match. Upon the
occurrence of a distributable event, the employee will receive the
greater of cash at a fixed annual return or shares of the Company's
common stock credited to his account valued at fair market value. The
Company funds benefits under the Deferred Plan through cash
contributions and through the issuance to a trust of a stock option at
the time of deferral at an exercise price equal to fair market value on
the date of the grant. Under the Deferred Plan, there are 500,000
shares of Company common stock available for issuance. At December 31,
1998, the Company had recorded plan investments of $1,406 and a
deferred compensation liability of $1,630.
Compensation expense recorded in connection with these plans for the years
ended December 31, 1998 and 1997 was not material.
On July 25, 1996, substantially all employee stock options granted in 1996
at prices between $15.40 and $16.60 were repriced to an exercise price of
$13.60. On January 17, 1997, substantially all employee stock options then
exercisable at a price of $12.00 or higher were repriced to an exercise
price of $10.625. In addition, on January 17, 1997, an option issued under
the 1993 Non-employee Director's Plan to purchase 25,000 shares at $15.40
per share was canceled and reissued for 17,250 shares at $10.625 per
share.
During 1998, the Company revised the Dividend Reinvestment Plan to
increase the shares available under the Plan to 500,000 and to eliminate
the optional cash payment feature of the Plan. Participants in the Plan
may purchase additional shares of the Company's common stock by
reinvesting the cash dividends on all, or part, of their shares. The
purchase price of the stock will be the higher of 95% of the average
daily high and low sale prices of the Company's common stock on the four
trading days including and preceding the Investment Date (as defined) or
95% of the average high and low sales prices on the Investment Date.
The Company applied Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for
its employee and director plans. Accordingly, no compensation expense has
been recognized for these plans except where the exercise price was less
than the fair value on the date of grant. Had compensation cost been
determined based
39
<PAGE>
on the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS 123, the Company's
net income and net income per share would approximate the pro forma
amounts below:
1998 1997 1996
Net income:
As reported $ 18,655 $ 10,247 $ 27,479
Pro forma $ 16,506 $ 8,661 $ 24,888
Basic net income per share:
As reported $ 0.94 $ 0.52 $ 1.42
Pro forma $ 0.83 $ 0.44 $ 1.29
Diluted net income per share:
As reported $ 0.93 $ 0.51 $ 1.39
Pro forma $ 0.82 $ 0.43 $ 1.26
The fair value of options granted were estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions:
1998 1997 1996
Dividend yield 1.56 % 1.13 % 0.66 %
Expected volatility 40.49 % 43.94 % 41.25 %
Risk free interest rate 5.52 % 6.12 % 5.99 %
Expected lives 5.0 years 3.0 years 3.0 years
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts, and additional awards in future years are
anticipated.
With respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense reflected in the Company's financial statements have
been credited to additional paid-in-capital. These benefits, which totaled
$90 (1998), $-0- (1997), and $3,692 (1996), represent a noncash financing
transaction for purposes of the consolidated statements of cash flows.
40
<PAGE>
Information regarding all of the Company's stock option plans is summarized
below:
<TABLE>
<S> <C> <C> <C>
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
Outstanding at December 31, 1995 1,193,457 $ 4.51
Granted:
Price = Fair Value 1,640,833 14.42 $ 4.73
Price < Fair Value 28,833 13.70 3.75
Exercised (912,083) 4.92
Cancelled (489,431) 15.90
-----------
Outstanding at December 31, 1996 1,461,609 $ 11.76
Granted at Fair Value 858,425 10.61 $ 3.52
Exercised (1,000) 4.27
Cancelled (564,420) 13.75
-----------
Outstanding at December 31, 1997 1,754,614 $ 10.56
Granted at Fair Value 890,393 10.26 $ 3.50
Exercised (35,267) 4.45
Cancelled (49,746) 11.39
-----------
Outstanding at December 31, 1998 2,559,994 $ 10.52
=========== =========
Options exercisable as of December 31, 1998 2,438,434 $ 10.42
=========== =========
Options exercisable as of December 31, 1997 1,536,986 $ 10.37
=========== =========
Options exercisable as of December 31, 1996 649,947 $ 10.17
=========== =========
</TABLE>
Stock options available for future grants at December 31, 1998 were
1,152,864 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$0.55 - $10.00 465,294 9.30 $ 6.42 450,294 $ 6.38
$10.19 602,983 9.06 $ 10.19 602,983 $ 10.19
$10.22 - $10.63 876,824 8.10 $ 10.57 876,824 $ 10.57
$10.88 - $16.60 614,893 7.89 $ 13.88 508,333 $ 13.99
---------- -----------
$0.55 - $16.60 2,559,994 8.49 $ 10.52 2,438,434 $ 10.42
========== ======= ======== ========== ========
</TABLE>
41
<PAGE>
7. INCOME TAXES
Provision for income taxes consist of:
1998 1997 1996
Current:
Federal $ 12,469 $ 9,574 $ 15,456
State 2,238 921 2,258
--------- --------- ---------
14,707 10,495 17,714
--------- --------- ---------
Deferred:
Federal (1,337) (2,368) (712)
State (743) (35) (295)
--------- --------- ---------
(2,080) (2,403) (1,007)
--------- --------- ---------
Total $ 12,627 $ 8,092 $ 16,707
========= ========= =========
Total income tax expense for 1998, 1997, and 1996 is different from the
amount that would be computed by applying the expected federal income tax
rate of 35% to income before income taxes. The reasons for this difference
are as follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Income tax at expected federal income tax rate $ 10,948 $ 6,419 $ 15,465
State income taxes, net of federal tax effect 1,100 651 1,810
Non-taxable life insurance proceeds (525) (655)
Non-deductible operating expenses 295 387 107
State jobs tax credits (126) (40) (471)
Non-deductible merger related expenses 1,085
Other 410 115 451
--------- --------- ---------
$ 12,627 $ 8,092 $ 16,707
========= ========= =========
</TABLE>
Deferred tax assets and liabilities are based on the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities. The approximate tax effects of temporary
differences at December 31, 1998 and 1997 were as follows:
1998 1997
---------------------
Assets (Liabilities)
---------------------
Current differences:
Warranty expense $ 4,051 $ 4,058
Inventory capitalization 561 512
Allowance for losses on receivables 718 939
Accrued expenses 4,059 1,132
Other 24 599
--------- ---------
$ 9,413 $ 7,240
========= =========
42
<PAGE>
1998 1997
---------------------
Assets (Liabilities)
---------------------
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (2,061) $ (1,796)
Goodwill (569) (726)
Merger related expenses 1,007 1,331
Other 1,233 894
--------- ---------
$ (390) $ (297)
========= =========
Cash paid for income taxes for the years ended December 31, 1998, 1997 and
1996 was $12,250, $10,632 and $12,387, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company has self-funded group medical plans which are administered by
third party administrators. The Plans have reinsurance coverage limiting
liability for any individual employee loss to a maximum of $75, with an
aggregate limit of losses in any one year based on the number of covered
employees. Incurred claims identified under the Company's incident
reporting system and incurred but not reported claims are funded or
accrued based on estimates that incorporate the Company's past experience,
as well as other considerations such as the nature of each claim or
incident, relevant trend factors and advice from consulting actuaries. The
Company has established self insurance trust funds for payment of claims
and makes deposits to the trust funds in amounts determined by consulting
actuaries. The cost of these plans to the Company was $5,517, $4,693 and
$2,893 for years ended December 31, 1998, 1997 and 1996, respectively.
The Company sponsors employee 401(k) retirement plans covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of compensation as defined in the Plans. The
amount of the Company's matching contribution is discretionary as
determined by the Board of Directors. Company contributions amounted to
$623, $545 and $420 for the years ended December 31, 1998, 1997 and 1996,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Five of the Company's manufacturing facilities are leased under separate
operating lease agreements (the "Related Leases") with partnerships or
companies whose owners are certain officers, directors or stockholders of
the Company. The Related Leases require monthly payments ranging from $6
to $22 and provide for lease terms ending from April 1999 to July 2001 as
well as renewal option periods. The Related Leases also contain purchase
options whereby the Company can purchase the respective manufacturing
facility for amounts ranging from $850 to $1,900 at any time during the
lease terms. Two purchase options were exercised in January 1999 for
$1,500 and $1,900. The remaining purchase options range from $850 to
$1,125.
Additionally, the Company is obligated under various operating lease
agreements with varying monthly payments and expiration dates through June
2017. Total rent expense under operating leases was $1,353, $1,418 and
$1,242 for the years ended December 31, 1998, 1997 and 1996, respectively,
including rents paid to related parties of $865 (1998), $817 (1997) and
$765 (1996).
43
<PAGE>
Future minimum rents payable under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December
31, 1998 are as follows:
Year Ending
December 31,
1999 $ 592
2000 448
2001 356
2002 296
2003 156
Thereafter 322
-------
Total $ 2,170
=======
Contingent Liabilities and Other:
a. 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 $242,000 at
December 31, 1998. The Company has an allowance for losses of
$1,201 (1998) and $1,175 (1997) based on prior experience and market
conditions. Management expects no material loss in excess of the
allowance.
b. Under the insurance plans described in Note 1, the Company was
contingently liable at December 31, 1998 for future retrospective
premium adjustments up to a maximum of approximately $7,531 in the
event that additional losses are reported related to prior years.
c. 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.
d. 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 $1,980. At
December 31, 1998, $3,901 was outstanding under the various
guarantees, of which the Company had guaranteed $925.
44
<PAGE>
10. SEGMENT INFORMATION
On December 31, 1998, the Company adopted SFAS 131, Disclosure about
Segments of an Enterprise and Related Information. SFAS 131 established
standards for reporting information about segments in annual financial
statements and requires selected information about segments in interim
financial reports issued to stockholders. It also established standards
for related disclosures about products and services, and geographic areas.
Segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and
in assessing performance.
Under this standard, the Company's reportable segments are organized
around products and services. Through its home manufacturing segment, the
Company's 11 divisions, which are aggregated for reporting purposes,
design and manufacture homes which are sold in the United States to a
network of dealers which includes Company owned retail locations. Through
its financial services segment, the Company offers retail installment sale
financing and related insurance products for manufactured homes sold
through the Company's exclusive dealer network and Company-owned retail
locations. The Company's retail locations and various component
manufacturers, which include investments accounted for by the equity
method, are aggregated in a category described as "other". Retail
locations derive their revenue from home sales to individuals, while the
component manufacturers' customers are the Company and other
manufacturers. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies except
that intercompany profits, transactions and balances have not been
eliminated. The Company's determination of segment operating profit does
not reflect other income (expenses) or income taxes.
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Gross revenues:
Home manufacturing $ 603,369 $ 553,730 $ 572,997
Financial services 6,088 5,346 3,333
Other 43,866 22,688 14,576
--------- --------- ---------
Gross revenue 653,323 581,764 590,906
--------- --------- ---------
Intersegment revenues:
Home manufacturing 5,253
Financial services
Other 34,000 20,576 13,735
--------- -------- ---------
Intersegment revenues 39,253 20,576 13,735
--------- -------- ---------
Revenues from external customers:
Home manufacturing 598,116 553,730 572,997
Financial services 6,088 5,346 3,333
Other 9,866 2,112 841
--------- -------- ---------
Total revenues $ 614,070 $ 561,188 $ 577,171
========= ========= =========
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Operating profit:
Home manufacturing $ 26,193 $ 23,742 $ 41,101
Financial services 2,215 2,015 1,236
Other 1,887 598 156
Elimination (826) (77) 119
---------- ---------- ----------
Segment operating profit 29,469 26,278 42,612
General corporate 282 (9,197) (1,765)
---------- ---------- ----------
Operating profit $ 29,751 $ 17,081 $ 40,847
========== ========== ==========
Depreciation and amortization:
Home manufacturing $ 7,305 $ 6,686 $ 5,224
Financial services 209 208 150
Other 531 337 160
---------- ---------- ----------
Segment depreciation and amortization 8,045 7,231 5,534
General corporate 320 261 226
---------- ---------- ----------
Total depreciation and amortization $ 8,365 $ 7,492 $ 5,760
========== ========== ==========
Capital expenditures:
Home manufacturing $ 13,173 $ 8,370 $ 13,349
Financial services 181 265 196
Other 985 89 2,320
---------- ---------- ----------
Segment capital expenditures 14,339 8,724 15,865
General corporate 316 1,462 241
---------- ---------- ----------
Total capital expenditures $ 14,655 $ 10,186 $ 16,106
========== ========== ==========
Identifiable assets:
Home manufacturing $ 151,389 $ 139,454 $ 153,237
Financial services 28,406 41,050 26,283
Other 18,988 7,509 7,954
Elimination (1,753) (421) (77)
---------- ---------- ----------
Segment assets 197,030 187,592 187,397
General corporate 38,922 23,962 8,990
---------- ---------- ----------
Total assets $ 235,952 $ 211,554 $ 196,387
========== ========== ==========
</TABLE>
The financial services segment's operating profit includes net interest
income of $2,987, $3,283, and $2,232 for the years ended December 31,
1998, 1997, and 1996, respectively, and gains from the sale of installment
contracts of $2,048 at December 31, 1998. There were no sales of
installment contracts during the years ended December 31, 1997 and 1996.
Identifiable assets for the "other" category include $1,447, $1,264, and
$1,105 of investment in equity method investees as of December 31, 1998,
1997 and 1996, respectively. "Other" segment operating income includes
equity in the net income of investees accounted for by the equity method
of $250, $296, and $533 for the years ended December 31, 1998, 1997 and
1996, respectively.
* * * * *
46
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Increases Additions
Balance at Attributable Charged to Charged Balance at
Beginning of to Costs and to Other End of
Period Acquisitions Expenses Accounts Deductions Period
------------- ------------- ------------ ---------- ----------- -----------
Allowance for losses on Accounts
Receivable:
Year Ended December 31, 1998 $ 1,175 26 $ 1,201
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1997 $ 837 527 (189) $ 1,175
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1996 $ 787 51 225 (226) $ 837
============= ============= ============ ========== =========== ===========
Allowance for credit losses:
Year Ended December 31, 1998 $ 1,272 (512) $ 760
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1997 $ 941 1,329 (998) $ 1,272
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1996 $ 551 778 (388) $ 941
============= ============= ============ ========== =========== ===========
Accumulated amortization of goodwill:
Year Ended December 31, 1998 $ 3,102 1,052 $ 4,154
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1997 $ 1,947 1,068 87 $ 3,102
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1996 $ 1,165 782 $ 1,947
============= ============= ============ ========== =========== ===========
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 1998 $ 277 76 $ 353
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1997 $ 221 56 $ 277
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1996 $ 189 32 $ 221
============= ============= ============ ========== =========== ===========
Warranty reserve:
Year Ended December 31, 1998 $ 11,700 700 $ 12,400
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1997 $ 10,566 24,357 (23,223) $ 11,700
============= ============= ============ ========== =========== ===========
Year Ended December 31, 1996 $ 7,265 1,176 21,380 (19,255) $ 10,566
============= ============= ============ ========== =========== ===========
</TABLE>
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see
"Election of Directors," "Executive Officers and Principal Stockholders," and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 19, 1999,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders," "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"), "Compensation Committee Interlocks
and Insider Participation," and ''Certain Relationships and Related
Transactions" of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 1999, which are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the security ownership of management and certain beneficial
owners, see "Executive Officers and Principal Stockholders" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 19,
1999, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the
Company, see "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships and Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 19, 1999,
which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The financial statements contained in this report and the page on
which they may be found are as follows:
Financial Statement Description Form 10-K Page No.
Independent Auditors' Report 26
Consolidated Balance Sheets as of December 31, 1998 and 1997 27
Consolidated Statements of Income for the years ended December 31, 1998, 29
1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended 30
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 31
1998, 1997 and 1996
Notes to Consolidated Financial Statements 32
2. The financial statement schedules required to be filed with this
report and the pages on which they may be found are as follows:
No. Schedule Description Form 10-K Page No.
II Valuation and Qualifying Accounts 47
<PAGE>
3. The exhibits required to be filed with this report are listed below.
The Company will furnish upon request any of 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.
(3) Articles of Incorporation and By-laws.
(a) Composite Amended and Restated Certificate of
Incorporation of the Company.
* (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.
* (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.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
* (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.
(10) Material contracts
* (a) 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.
* (b) Lease Agreement dated October 16, 1996, between
Virginia Cary L. McDonald and Star Industries, Inc. regarding the lease of the
manufacturing facility located in Robbins, North Carolina, filed as Exhibit
10(b) to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
* (c) Assignment and Assumption Agreement between Star
Industries, Inc. and Cavalier Industries, Inc. regarding the lease of the
manufacturing facility located in Robbins, North Carolina, filed as Exhibit
10(c) to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
* (d) Cavalier Homes, Inc. Amended and Restated Dividend
Reinvestment Plan, filed as Appendix A to the Prospectus appearing in the
Company's Post-Effective Amendment No.1 to Form S-3, Registration No. 333-48111,
filed on September 29, 1998.
* ** (e) Cavalier Homes, Inc. Executive Incentive Compensation
Plan, filed as an Appendix to the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders held May 15, 1996.
* ** (f) Amendment to Cavalier Homes, Inc. Executive Incentive
Compensation Plan, filed as Exhibit 10(ii) to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1997.
* ** (g) Cavalier Homes, Inc. Employee Stock Purchase Plan,
filed as an Appendix to the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders held May 15, 1996.
* ** (h) Cavalier Homes, Inc. Key Employee Stock Incentive
Plan, filed as an Appendix to the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders held May 15, 1996.
<PAGE>
* ** (i) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, filed as Exhibit 10(i) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 28, 1997.
* ** (j) Amendment to Cavalier Homes, Inc. Key Employee
Stock Incentive Plan, effective December 30, 1997, filed as Exhibit 10(j) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* ** (k) Amendment to Cavalier Homes, Inc. Key Employee Stock
Incentive Plan, effective January 23, 1998, filed as Exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
** (l) Amendment to Cavalier Homes, Inc. Key Employee
Stock Incentive Plan, effective October 20, 1998.
* ** (m) Cavalier Homes, Inc. Amended and Restated Nonemployee
Directors Stock Option Plan, filed as an Appendix to the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (n) Amendment to Cavalier Homes, Inc. Amended and
Restated Nonemployee Directors Plan filed as Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
* ** (o) Amendment to Cavalier Homes, Inc. Amended and
Restated Nonemployee Directors Plan, filed as Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
* (p) Option and Stock Exchange Agreement by and among
Wheelhouse Structures, Inc., Shareholders of Wheel House Structures, Inc.
and Cavalier Homes, Inc. dated as of August 28, 1995, filed as Exhibit 2(a)
to the Company's Registration Statement on Form S-3 (Registration No.333-00607),
as amended.
* (q) Cavalier Homes, Inc. Amended and Restated
Dealership Stock Option Plan filed as Appendix A to the Company's Registration
Statement on Form S-3, Amendment No. 2, Registration No. 33-62487, dated
June 18, 1998.
* (r) Lease Agreement between City of Mineral Wells, Texas
and Cavalier Homes of Texas dated February 27, 1996, filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
* (s) Stock Purchase Agreement, as amended, by and among
Astro Mfg. Co., Inc., Shareholders of Astro Mfg. Co., Inc. and Cavalier Homes,
Inc. dated as of October 14, 1994, filed as Exhibit 2(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
* (t) Holdback agreement between Cavalier Homes, Inc.
and Raymond A. Peltcs, dated October 28, 1994, filed as Exhibit 2(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
(u) Revolving, Warehouse and Term Loan Agreement among
the Company and First Commercial Bank dated February 17, 1994.
* (v) Amendments to the Revolving, Warehouse and Term Loan
Agreement among the Company and First Commercial Bank dated March 14, 1996,
filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
* (w) Second Amendment to the Revolving Warehouse and
Term Loan Agreement among Cavalier Homes, Inc. and First Commercial Bank,
dated June 1, 1998, filed as Exhibit 10(b) to the Company's Quarterly Report
on Form 10-Q for the period ended June 26, 1998.
* (x) Assumption Agreement dated as of January 2, 1997,
by and among the Company, First Commercial Bank and certain subsidiaries of
the Company, filed as Exhibit 10(q) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
* (y) Assumption Agreement among Cavalier Homes, Inc. and
First Commercial Bank, dated June 1, 1998, filed as Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the period ended June 26, 1998.
(z) Cavalier Homes, Inc. 1993 Amended and Restated
Nonqualified Stock Option Plan.
* ** (aa) Cavalier Homes, Inc. 1988 Nonqualified Stock Option
Plan, as amended, filed as Exhibit 10(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
<PAGE>
* (bb) Lease between Cavalier Homes of Alabama, Inc. and
Robert L. Burdick, John W Lowe, and Jerry F. Wilson (now Estate of Jerry F.
Wilson), as tenants in common, dated July 30, 1996, filed as Exhibit 10(u)
to the Company's Annual Report on Form 10-K for the year ended December 31,1996.
* (cc) Assignment and Assumption Agreement between
Cavalier Homes of Alabama, Inc. and Cavalier Homes, Inc. regarding the lease
between Cavalier Homes of Alabama, Inc. and Robert L. Burdick, John W Lowe and
Jerry F. Wilson (now Estate of Jerry F. Wilson), filed as Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (dd) Commercial SubLease between Winston County Industrial
Development Association and Cavalier Homes of Alabama, Inc., dated March 5,
1993, filed as Exhibit 10(d) to the Company's Registration Statement on Form
S-2 (Registration No. 33-59452).
* (ee) Assignment and Assumption Agreement between
Cavalier Homes of Alabama, Inc. and Cavalier Homes, Inc. regarding the
Commercial Sub-Lease between Cavalier Homes of Alabama, Inc. and Winston
County Industrial Development Association, filed as Exhibit 10(x) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (ff) Sub-lease Agreement with Option to Purchase between
Winfield Industrial Development Association, Inc. and Buccaneer Homes of
Alabama, Inc. dated May 9, 1994, filed as Exhibit 10(k) to Amendment No. 1 to
the Company's Registration Statement on Form S-2 (Registration No. 33-78644).
* (gg) Lease Agreement with Option to Purchase between
Marion County Industrial Development Corporation, Inc and Quality Housing
Supply, Inc. dated May 9, 1994, filed as Exhibit 10(l) to Amendment No. 1 to the
Company's Registration Statement on Form S-2 (Registration No. 33-78644).
* (hh) Lease Agreement dated March 1, 1997, between the
City of Winfield and Buccaneer Homes, a division of Cavalier Manufacturing,
Inc., filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
* (ii) Lease Agreement dated March 1, 1995, between the
Industrial Development Board of the City of Haleyville, Alabama and Wheel House
Properties, Inc., as assigned to and assumed by Star Industries, Inc. on January
11, 1996, and as further assigned to and assumed by Cavalier Manufacturing,
Inc. in December 1996, filed as Exhibit 10(bb) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
* (jj) Guaranty Agreement between SouthTrust Bank of
Alabama and Cavalier Homes, Inc. dated June 20, 1997, relating to guaranty
payments by Quality Housing Supply, LLC, filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1997.
* (kk) Guaranty Agreement between AmSouth Bank of Alabama
and Cavalier Homes, Inc. dated June 11, 1997, relating to guaranty payments by
Ridge Point Manufacturing, filed as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 27, 1997.
* (ll) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments
by Lamraft, LP filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 26, 1997.
* (mm) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments
by Hillsboro Manufacturing, LP filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
* (nn) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments
by Woodperfect of Texas, LP filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 26, 1997.
(oo) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc., dated December 18, 1998, relating to guaranty of
payments by Lamraft, LP.
* (pp) The Agreement and Plan of Merger dated August 14,
1997, by and among the Company, Crimson Acquisition Corp. and Belmont Homes,
Inc., filed as Exhibit 2 to the Company's Current Report on Form 8-K dated
August 19, 1997.
<PAGE>
* (qq) Amendment No. 1 to the Agreement and Plan of Merger
referenced in Exhibit 10(pp) above filed as Exhibit 10(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
* ** (rr) Belmont Homes, Inc. 1994 Incentive Stock Plan,
filed as an Exhibit to the Belmont Homes, Inc. Registration Statement on Form
S-1, Registration No. 33-87868.
* ** (ss) Belmont Homes, Inc. 1994 Non-Qualified Stock Option
Plan for Non-Employee Directors, filed as an Exhibit to the Belmont Homes, Inc.
Registration Statement on Form S-1, Registration No. 33-87868.
* (tt) Stock Purchase Agreement dated October 25, 1996,
among Belmont Homes, Inc., Bellcrest Holding Co., Inc., G. Hiller Spann, Joe H.
Bell, James M. Birdwell and Delroy Dailey, Jr., filed as an exhibit to Belmont
Homes, Inc. Current Report on Form 8-K filed November 13, 1996, File No.0-26142.
* (uu) First Amendment to Stock Purchase Agreement between
Belmont Homes, Inc. and the former shareholders of Bellcrest Homes, Inc.
filed as Exhibit 10.1 to Belmont Homes, Inc. Current Report on Form 8-K filed
on September 8, 1997.
* (vv) Form of Indemnification Agreement between Belmont
Homes, Inc. and the Directors and Executive Officers of Belmont Homes, Inc.,
filed as Exhibit 10.2 to Belmont Homes, Inc. Current Report on Form 8-K filed
on September 8, 1997.
* (ww) Agreement dated March 10, 1998, by and between
Cavalier Acceptance Corporation and Green Tree Financial Servicing Corporation,
filed as Exhibit 10(xx) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
* (xx) Lease Agreement between The Industrial Development
Board of the Town of Addison and Cavalier Homes of Alabama, a division of
Cavalier Manufacturing, Inc., dated November 1, 1997, filed as Exhibit 10(yy)
to the Company's Annual Report on Form 10-K for the year ended December 31,1997.
* (yy) Commercial Sub-Lease and Agreement between Perfect
Panels, Inc. and Quality Housing Supply, Inc., dated July 1, 1996, filed as
Exhibit 10(zz) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
* (zz) Amended and Restated Finance Agreement among Cavalier
Manufacturing, Inc., Cavalier Acceptance Corporation and certain related
entities and Green Tree Financial Corp. and certain related entities, filed as
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the period
ended March 27, 1998.
* (aaa) Lease Agreement with Option to Purchase dated
November 29, 1995 between Winfield Industrial Properties, Inc. and Superior
Door Company, Inc., predecessor to Quality Housing Supply, LLC, filed as Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q for the period ended March
27, 1998.
* (bbb) Split dollar Agreement dated May 15, 1998, by
and between the Company and Jerry F. Wilson, Jr. as Trustee of the David
Allen Roberson Family Trust, filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the period ended June 26, 1998.
* (ccc) Cavalier Homes, Inc. Deferred Compensation Plan,
effective April 1, 1998, filed as Exhibit 10(d) to the Company's Quarterly
Report on Form 10-Q for the period ended June 26, 1998.
* (ddd) Cavalier Homes, Inc. Flexible Option Plan filed
as Exhibit 4(e) to the Company's Registration Statement on Form S-8,
Registration No. 333-57743, dated June 28, 1998.
* (eee) Form of Indemnification Agreement by and between
Cavalier Homes, Inc. and each member of its Board of Directors, filed as Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the period ended
September 25, 1998.
* (fff) Retention and Severance Agreement, dated August
26, 1998, by and between Cavalier Homes, Inc. and Barry B. Donnell, filed as
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the period
ended September 25, 1998.
(ggg) Retention and Severance Agreement, dated August
26, 1998, by and between Cavalier Homes, Inc. and David A. Roberson, originally
filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the
period ended September 25, 1998, but filed as an exhibit to this Annual Report
on Form 10-K in order to correct a typographical error.
<PAGE>
* (hhh) Retention and Severance Agreement, dated August
26, 1998, by and between Cavalier Homes, Inc. and Michael R. Murphy, filed
as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the period
ended September 25, 1998.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23)(a) Consent of Deloitte & Touche LLP.
(23)(b) Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule
(99) Independent Auditor's Report of KPMG Peat Marwick LLP.
_________________________________
* Incorporated by reference herein.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995:
Our disclosure and analysis in this Annual Report on Form 10-K 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, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ DAVID A. ROBERSON
--------------------
Its President
Date: March 30, 1999
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
/s/ DAVID A. ROBERSON Director and Principal Executive March 30, 1999
- --------------------- Officer
/s/ MICHAEL R. MURPHY Director and Principal Financial March 30, 1999
- --------------------- and Accounting Officer
/s/ BARRY DONNELL Chairman of the Board and Director March 30, 1999
- -----------------
/s/ THOMAS A. BROUGHTON, III Director March 30, 1999
- ----------------------------
/s/ JOHN W LOWE Director March 30, 1999
- ---------------
/s/ LEE ROY JORDAN Director March 30, 1999
- ------------------
/s/ GERALD R. MOORE Director March 30, 1999
- -------------------
/s/ A. DOUGLAS JUMPER, SR. Director March 30, 1999
- --------------------------
/s/ MIKE KENNEDY Director March 30, 1999
- ----------------
<PAGE>
INDEX
Exhibit
Number
(3)(a) Composite Amended and Restated Certificate of Incorporation
of the Company.
(10) Material Contracts
(l) Amendment to Cavalier Homes, Inc. Key Employee
Stock Incentive Plan, effective October 20, 1998.
(u) Revolving, Warehouse and Term Loan Agreement among
the Company and First Commercial Bank dated February
17, 1994.
(z) Cavalier Homes, Inc. 1993 Amended and Restated
Nonqualified Stock Option Plan.
(oo) Guaranty Agreement between First Commercial Bank
and Cavalier Homes, Inc., dated December 18, 1998,
relating to guaranty of payments by Lamraft, LP.
(ggg) Retention and Severance Agreement, dated August
26, 1998, by and between Cavalier Homes, Inc. and
David A. Roberson, originally filed as Exhibit 10(c)
to the Company s Quarterly Report on Form 10-Q for
the period ended September 25, 1998, but filed as an
exhibit to this Annual Report on Form 10-K in order
to correct a typographical error.
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23)(a) Consent of Deloitte & Touche LLP
(23)(b) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule (Filed as an EDGAR exhibit only)
(99) Independent Auditor's Report of KPMG Peat Marwick LLP
COMPOSITE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CAVALIER HOMES, INC.
In accordance with the provisions of the General
Corporation Law of the State of Delaware, including, without limitation,
Sections 103, 242 and 245 thereof, Cavalier Homes, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "corporation"), hereby
certifies: (i) that the present name of the corporation is "Cavalier Homes,
Inc."; (ii) that the original certificate of incorporation of the corporation
was filed with the Secretary of State of the State of Delaware on December 23,
1985; (iii) that certificates of amendment were filed with the Secretary of
State of the State of Delaware on March 20, 1986, and July 7, 1987,
respectively, and a restated certificate of incorporation was filed on April
21, 1993, thereby restating the original certificate of incorporation of the
corporation, as amended; (iv) that this Restated Certificate of Incorporation
of Cavalier Homes, Inc. has been adopted by the board of directors and
the stockholders of the corporation in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware;
(v) that this Restated Certificate of Incorporation of Cavalier Homes, Inc.
restates and integrates and also further amends the provisions of the
corporation's certificate of incorporation as theretofore amended or
supplemented; and (vi) that this Restated Certificate of Incorporation of
Cavalier Homes, Inc. reads as follows:
1. The name of the corporation is Cavalier Homes, Inc.
2. The address of its registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is 50,500,000; 50,000,000 of the authorized shares
shall be Common Stock, $.10 par value each; and 500,000 of the authorized
shares shall be Preferred Stock, $.01 par value each.
<PAGE>
Shares of Preferred Stock may be issued from time to time in
one or more series, each such series to have such distinctive
designation or title as may be fixed by the board of directors prior
to the issuance of any shares thereof. Each such series shall have
such voting powers, if any, and such designations, preferences and
relative, participating, optional, or other special rights, and such
qualifications, limitations, or restrictions thereof as shall be
stated in the resolution or resolutions providing for the issue of
such series of Preferred Stock, as may be adopted from time to time
by the board of directors prior to the issuance of any shares thereof,
in accordance with the laws of the State of Delaware. Each share
of any series of Preferred Stock shall be identical with all other
shares of such series, except as to the date from which accumulated
preferred dividends, if any, shall be cumulative.
Unless otherwise stated herein or in the resolution or
resolutions providing for the issuance of the Preferred Stock or any series
thereof, each share of Preferred Stock and each share of Common Stock shall
be of equal rank and shall entitle the holders thereof to the same rights
and privileges.
5. The board of directors is empowered to make, alter or repeal
the by-laws of the corporation.
6. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees is dissolution or of any
receiver or receivers appointed for this corporation under the provisions
of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of this corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may
be, and also on this corporation.
7. The election of directors need not be conducted by written
ballot.
8. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this reservation.
<PAGE>
9. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages,
for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section
174 of the General Corporation Law of Delaware, as the same exists or may
be hereafter amended, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law
of Delaware is hereafter amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a director
of the corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the
amended General Corporation Law of Delaware. Any repeal or modification
of this paragraph by the stockholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the corporation existing at the time of
such repeal or modification.
AMENDMENT TO
CAVALIER HOMES, INC.
1996 KEY EMPLOYEE STOCK INCENTIVE PLAN
As directed by the Board of Directors of Cavalier Homes, Inc.
(the "Company") at its meeting held on October 20, 1998, the Company's 1996 Key
Employee Stock Incentive Plan, as amended from time to time, is hereby further
amended in order to delete Section 13.2 thereof in its entirety.
/s/ BARRY B. DONNELL
----------------------------
Barry B. Donnell
REVOLVING, WAREHOUSE AND TERM LOAN AGREEMENT
by and among
Cavalier Homes, Inc.,
Cavalier Homes of Alabama, Inc.,
Cavalier Homes of Texas, Inc.,
Star Industries, Inc.,
Buccaneer Homes of Alabama, Inc.,
Brigadier Homes of North Carolina, Inc.,
Mansion Homes, Inc.,
Homestead Homes, Inc., and
Cavalier Acceptance Corporation,
as Borrowers
and
First Commercial Bank,
as Lender
Dated as of
February 17, 1994
<PAGE>
TABLE OF CONTENTS
No.
ARTICLE I
DEFINITIONS ........................................................ 1
1.1 Defined Terms........................................... 1
1.2 Accounting Terms........................................ 1
1.3 Construction of Terms................................... 1
ARTICLE II
THE REVOLVING LOAN .................................................... 2
2.1 General Terms........................................... 2
2.2 Disbursement of the Revolving Loan ..................... 4
2.3 The Revolving Note...................................... 4
2.4 Payments of Principal................................... 4
2.5 Interest Rate and Payments of Interest.................. 4
2.6 Payment to Lender....................................... 5
2.7 Use of Proceeds......................................... 5
2.8 [Intentionally Omitted.]................................ 5
2.9 Letters of Credit....................................... 5
2.10 Commitment and Usage Fees............................... 6
ARTICLE III
THE WAREHOUSE LOAN AND THE TERM LOANS.................................. 6
3.1 General Terms........................................... 6
3.2 Disbursement of the Warehouse Loan and the Term Loan(s). 7
3.3 (A) The Warehouse Note............................. 7
(B) The Term Note(s)............................... 7
3.4 Payments of Principal................................... 7
3.5 Prepayment.............................................. 7
3.6 Interest Rate and Payments of Interest.................. 8
3.7 Payment to Lender....................................... 9
3.8 Use of Proceeds......................................... 10
3.9 Commitment Fee.......................................... 10
ARTICLE IV
CONDITIONS PRECEDENT................................................... 10
4.1 Documents Required for the Closing...................... 10
4.2 Documents Required for Subsequent Advances.............. 11
4.3 Additional Conditions to the Term Loan(s)............... 12
4.4 Additional Required Documents........................... 12
4.5 Certain Events.......................................... 13
4.6 Legal Matters........................................... 13
ARTICLE V
COLLATERAL SECURITY.................................................... 13
5.1 Composition of the Collateral........................... 13
5.2 Rights in Property Held by Lender....................... 14
5.3 Rights in Property Held Either by Borrowers or by Lender 14
5.4 Priority of Liens....................................... 14
5.5 Perfection.............................................. 14
5.6 Chattel Paper or Instruments............................ 15
5.7 Release of Documentation For Eligible Contracts......... 15
5.8 Power of Attorney....................................... 16
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES......................................... 17
6.1 Original................................................ 17
6.2 Additional Representations and
Warranties of Cavalier Acceptance....................... 20
6.3 Reliance By Cavalier Acceptance on Dealer Representations 22
ARTICLE VII
COVENANTS OF BORROWERS................................................. 22
7.1 Affirmative Covenants................................... 23
7.2 Negative Covenants...................................... 27
7.3 Financial Covenants..................................... 29
7.4 Interpretation and Consolidation........................ 30
ARTICLE VIII
ADDITIONAL COVENANTS OF CAVALIER ACCEPTANCE............................ 31
8.1 Affirmative Covenants................................... 31
8.2 Negative Covenants...................................... 32
8.3 Financial Covenants..................................... 32
ARTICLE IX
DEFAULT................................................................ 33
9.1 Events of Default....................................... 33
9.2 Acceleration............................................ 35
9.3 Remedies................................................ 35
9.4 Right of Set-Off........................................ 36
9.5 Demand Obligations...................................... 36
9.6 Special Remedies........................................ 36
ARTICLE X
MISCELLANEOUS.......................................................... 37
10.1 Construction............................................ 37
10.2 Further Assurances...................................... 37
10.3 Indemnity............................................... 37
10.4 Enforcement and Waiver by Lender........................ 37
10.5 Expenses of Lender...................................... 38
10.6 Notices................................................. 38
10.7 Indemnity, Waiver and Release by Borrowers.............. 39
10.8 Reliance on this Agreement.............................. 39
10.9 Participation........................................... 40
10.10 No Partnership or Joint Venture......................... 40
10.11 Governing Law........................................... 40
10.12 JURISDICTION; WAIVERS................................... 40
10.13 Binding Effect, Assignment.............................. 41
10.14 Termination............................................. 41
10.15 Obligations Unconditional and Absolute.................. 42
10.16 Entire Agreement, Amendments............................ 42
10.17 Severability............................................ 42
10.18 Headings................................................ 42
10.19 Counterparts............................................ 42
10.20 Seal.................................................... 42
<PAGE>
SCHEDULES AND EXHIBITS
Schedule I - Defined Terms
Schedule II - Borrower Exceptions
Exhibit II.6.1(B) - Other Corporate or Fictitious Names
Exhibit II.6.1(D) - Mergers, Acquisitions, and Certain Changes
Exhibit II.6.1(I) - Claims, Litigation
Exhibit A - Form of Term Note
Exhibit B - Request for Advance - Revolving Loan
Exhibit B-1 - Request for Advance - Warehouse Loan
Exhibit C - Compliance Certificate - Consolidated
Exhibit C-1 - Compliance Certificate - Cavalier Acceptance
Exhibit D - Subrogation and Contribution Agreement
Exhibit E - Assumption Agreement
Exhibit F - Existing Liens
Exhibit G - Qualification to do Business
Exhibit H - Places of Business and Locations of the Collateral
Exhibit I - Existing Indebtedness
Exhibit J - States of Incorporation of Consolidated Entities
Exhibit K - Cavalier Homes's Ownership of Consolidated Entities
<PAGE>
REVOLVING, WAREHOUSE AND TERM LOAN AGREEMENT
THIS REVOLVING, WAREHOUSE AND TERM LOAN AGREEMENT (this
"Agreement"), dated as of February 17, 1994 is made by and among Cavalier Homes,
Inc., a Delaware corporation ("Cavalier Homes"), Cavalier Homes of Alabama,
Inc., an Alabama corporation, Cavalier Homes of Texas,Inc., a Texas corporation,
Star Industries, Inc., a Delaware corporation, Buccaneer Homes of Alabama, Inc.,
an Alabama corporation, Brigadier Homes of North Carolina, Inc., a North
Carolina corporation, Mansion Homes, Inc., a North Carolina corporation,
Homestead Homes, Inc., a Georgia corporation, and Cavalier Acceptance
Corporation, an Alabama corporation ("Cavalier Acceptance"), (collectively, the
"Initial Participating Subsidiaries"; Cavalier Homes and the Initial
Participating Subsidiaries, together with all entities who hereafter become
Participating Subsidiaries or Participating Partnerships, being hereinafter
sometimes collectively referred to as the "Borrowers"), and First Commercial
Bank, an Alabama state banking corporation (the "Lender"),
W I T N E S S E T H:
WHEREAS, Borrowers have requested Lender to lend to Borrowers
up to the sum of $5,000,000 on a revolving loan basis, and Lender is willing to
do so, but solely upon the terms and subject to the conditions hereinafter set
forth; and
WHEREAS, Cavalier Acceptance has requested Lender to make
available to Cavalier Acceptance a warehouse and term loan facility of up to
$8,000,000 to provide financing for Cavalier Acceptance's originating and
funding of loans to purchase manufactured homes, and Lender is willing to do so,
but solely upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Defined terms used herein are as set forth on
Schedule I attached hereto.
1.2 Accounting Terms. Accounting terms used and not otherwise defined
in this Agreement have the meanings determined by, and all calculations with
respect to accounting or financial matters unless otherwise provided herein
shall be computed in accordance with, Generally Accepted Accounting Principles.
1.3 Construction of Terms. Whenever used in this Agreement, the
singular number shall include the plural and the plural the singular, and
pronouns of one gender shall include all genders. References herein to articles,
sections, paragraphs or subparagraphs or the like shall refer to the
corresponding articles, sections, paragraphs or subparagraphs or the like of
this Agreement. The words "hereof", "herein", and terms of similar import shall
refer to this entire Agreement. Unless the context clearly requires otherwise,
the use of the words "including", "such as", or terms of similar meaning, shall
not be construed to imply the exclusion of any other particular elements.
ARTICLE II
THE REVOLVING LOAN
2.1 General Terms.
(A) Subject to the terms hereof, Lender will lend to
Borrowers, jointly and severally (except as limited by the terms of subsection
(D)of this Section 2.1 or by the terms of the Assumption Agreements), from time
to time until the Loan Termination Date for the Revolving Loan, such sums in
integral multiples of $10,000 as Borrowers may request, but which shall not
exceed, in the aggregate principal amount at any one time outstanding, the
lesser of:
(1) The Borrowing Base, or
(2) The Revolving Loan Commitment.
(B) Subject to the terms hereof, Borrowers may jointly and
severally borrow, repay without penalty or premium, and reborrow hereunder, from
the date of this Agreement until the Loan Termination Date for the Revolving
Loan. If at any time the unpaid principal balance of the Revolving Loan exceeds
the amount Borrowers could borrow at such time under the formula set forth
above, Borrowers shall immediately and without demand pay such sums to Lender,
in multiples of $10,000 to the extent necessary to reduce the Revolving Loan to
an amount which Borrowers could borrow at that time under such formula.
(C) Each Participating Subsidiary and Participating
Partnership, separately and severally, hereby appoints and designates Cavalier
Homes as such party's agent and attorney-in-fact to act on behalf of such party
for all purposes of the Loan Documents. Cavalier Homes shall have authority to
exercise on behalf of each Participating Subsidiary and Participating
Partnership all rights and powers that Cavalier Homes deems, in its sole
discretion, necessary, incidental or convenient in connection with the Loan
Documents, including the authority to execute and deliver certificates,
documents, agreements and other instruments referred to in or contemplated by
the Loan Documents, request Advances hereunder, request the issuance of Letters
of Credit, receive all proceeds of Advances under the Revolving Loan, give all
notices, approvals and consents required or requested from time to time by
Lender and take any other actions and steps that a Participating Subsidiary or a
Participating Partnership could take for its own account in connection with the
Loan Documents from time to time, it being the intent of the Participating
Subsidiaries and the Participating Partnerships to grant to Cavalier Homes
plenary power to act on behalf of the Participating Subsidiaries and the
Participating Partnerships in connection with and pursuant to the Loan
Documents. The appointment of Cavalier Homes as agent and attorney-in-fact for
the Participating Subsidiaries and the Participating Partnerships hereunder
shall be coupled with an interest and be irrevocable so long as any Loan
Document shall remain in effect. The Lender need not obtain any Participating
Subsidiary's or Participating Partnership's consent or approval for any act
taken by Cavalier Homes pursuant to any Loan Document, and all such acts shall
bind and obligate Cavalier Homes, the Participating Subsidiaries and the
Participating Partnerships, jointly and severally. Lender may rely on any
representation or request made or action taken by Cavalier Homes in connection
with the Loan Documents as authorized by the Participating Subsidiaries and the
Participating Partnerships. Each Participating Subsidiary and Participating
Partnership forever waives and releases any claim (whether now or hereafter
arising) against Lender based on Cavalier Homes' lack of authority to act on
behalf of any Participating Subsidiary or Participating Partnership in
connection with the Loan Documents.
(D) The liability of each Participating Partnership with
respect to the Obligations shall be limited to an amount equal to its
Partnership Liabilities. The liability of each Participating Subsidiary with
respect to the Obligations shall be limited to an amount equal to the greater of
(i) 95% of the Participating Subsidiary's Net Worth (as hereinafter defined)
from time to time; or (ii) the amount that in a legal proceeding brought within
the applicable limitations period is determined by the final, non-appealable
order of a court having jurisdiction over the issue and the applicable parties
to be the amount of value given by Lender, or received by the Participating
Subsidiary, in exchange for the obligations of the Participating Subsidiary
under this Agreement and the other Loan Documents. As used in this subsection
(D), "Net Worth" shall mean (x) the fair value of the property of the
Participating Subsidiary from time to time (taking into consideration the value,
if any of rights of subrogation, contribution and indemnity), minus (y) the
total liabilities of the Participating Subsidiary (including contingent
liabilities [discounted in appropriate instances], but excluding liabilities of
the Participating Subsidiary under this Agreement and the other Loan
Documents)from time to time.
(E) Each of the Initial Participating Subsidiaries (i)
acknowledges that it has had full and complete access to the underlying papers
relating to the Obligations and all other papers executed by any Person in
connection with the Obligations, has reviewed them and is fully aware of the
meaning and effect of their contents; (ii) is fully informed of all
circumstances that bear upon the risks of executing this Agreement and the other
Loan Documents and which a diligent inquiry would reveal; (iii) has adequate
means to obtain from the other Borrowers on a continuing basis information
concerning the other Borrowers' financial condition and is not depending on
Lender to provide such information, now or in the future; and (iv) agrees that
Lender shall have no obligation to advise or notify it or to provide it with any
data or information.
(F) Each of the Initial Participating Subsidiaries hereby
agrees that its obligations and liabilities with respect to the Obligations
other than the Warehouse Note and the Term Note(s) are joint and several with
the other Borrowers, continuing, absolute and unconditional (subject to the
provisions of subsection (D) of this Section 2.1 ). Without limiting he
generality of the foregoing, the obligations and liabilities of each of the
Initial Participating Subsidiaries with respect to the Loans and the Notes or
under the Security Documents shall not be released, discharged, impaired,
modified or in any way affected by (i) the invalidity or unenforceability of any
Loan Document, (ii) the failure of Lender to give such Initial Participating
Subsidiary a copy of any notice given to any other Borrower, (iii) any
modification, amendment or supplement of any obligation, covenant or agreement
contained in any Loan Document, (iv) any compromise, settlement, release or
termination of any obligation, covenant or agreement in any Loan Document, (v)
any waiver of payment, performance or observance by or in favor of any other
Borrower of any obligation, covenant or agreement under any Loan Document, (vi)
any consent, extension, indulgence or other action or inaction, or any exercise
or non-exercise of any right, remedy or privilege with respect to any Loan
Document, (vii) the extension of time for payment or performance of any of the
Obligations, (viii) the release or discharge of Lender's claims against any
Collateral now or any time hereafter securing any of the Obligations or
Borrowers, or any of them, by operation of law or otherwise or (ix) any other
matter that might be otherwise raised in avoidance of, or in defense against an
action to enforce, the obligations of such Initial Participating Subsidiary
under this Agreement, the Loans, the Notes or any other Loan Document.
(G) None of the Borrowers will exercise any rights that it may
acquire by way of subrogation under this Agreement or any of the Loan Documents
or any Subrogation and Contribution Agreement referred to in subsection (H)
below, by any payment made hereunder or under any of the other Loan Documents or
otherwise, until all the Obligations have been paid in full and this Agreement
has been terminated. If any amount shall be paid to a Borrower on account of any
such subrogation rights at any time when all of the Obligations shall not have
been paid in full and this Agreement terminated, such amount shall be held in
trust for the benefit of Lender and shall be paid forthwith to Lender to be
credited to and applied toward the Obligations, whether matured or unmatured, in
accordance with the terms of the Loan Documents.
(H) Borrowers will not amend or waive any provision of the
Subrogation and Contribution Agreement entered into by Borrowers of even date
herewith, nor consent to any departure by any party thereto from such
Subrogation and Contribution Agreement or from any similar Subrogation and
Contribution Agreements executed by other Participating Subsidiaries and
Participating Partnerships after the Closing, without having obtained the prior
written consent of Lender to such amendment, waiver or consent.
2.2 Disbursement of the Revolving Loan. Lender will credit or pay the
proceeds of each Advance under the Revolving Loan to the deposit account of any
Borrower with Lender or in such other manner as Borrowers and Lender may from
time to time agree.
2.3 The Revolving Note. Borrowers' joint and several obligation to
repay the Revolving Loan shall be evidenced by the Revolving Note, which shall
be duly executed by the Borrowers who are signatories hereto and joined in by
each Subsidiary and Controlled Partnership that becomes a Participating
Subsidiary or Participating Partnership after the Closing, under the terms of
an Assumption Agreement.
2.4 Payments of Principal. If not earlier demanded pursuant to Section
9.2 or Section 9.5 hereof, the outstanding principal balance of the
Revolving Loan shall be due and payable to Lender on the Loan Termination Date
for the Revolving Loan. Such Loan Termination Date includes the date that demand
is made by Lender, which demand may be made at any time in Lender's sole and
absolute discretion.
2.5 Interest Rate and Payments of Interest.
(A) Interest on the Revolving Loan shall be calculated and
paid as follows:
(1) Interest on the principal balance of the
Revolving Loan, from time to time outstanding,
will be payable at the rate (the "Revolving
Rate") equal to the Prime Rate in effect from
time to time until maturity, and two percent
(2%) above the Prime Rate in effect from time
to time after maturity, whether by demand,
acceleration or otherwise.
(2) Each time the Prime Rate shall change, the
Revolving Rate shall change concurrently
with such change in the Prime Rate.
(3) Interest shall be calculated on the basis of
a 360-day year, by multiplying the product
of the principal amount outstanding and the
applicable rate by the actual number of days
elapsed, and dividing by 360. Accrued
interest through the last day of each
calendar month shall be payable on the 15th
day of each month commencing March 15, 1994,
and at maturity, whether by demand,
acceleration or otherwise.
(4) Borrowers agree to pay a late charge equal
to five percent (5%) of the amount of the
payment which is late, but not more than the
maximum amount allowed by applicable Law
(the "Late Charge"), as follows: (a) if any
scheduled payment is late twenty (20) days
or more or (b) if any scheduled payment is
late ten (10) days or more, and two (2) or
more scheduled payments have been late
twenty (20) days or more since February 1 of
the year in which such scheduled payment is
late ten (10) days or more. This
subparagraph does not extend any payment due
date expressly stated in the Agreement or
any other Loan Document and does not in any
way prevent or estop Lender from requiring
that payments be made by Borrowers strictly
when due. Unless accepted by Lender, and
unless accompanied by all other amounts then
due to Lender, the tender of such payment by
Borrowers does not cure any Event of Default
arising from the payment default upon which
such Late Charge was assessed.
(B) If, at any time, the Revolving Rate or the Late Charge
shall be deemed by any competent court of law, governmental agency or tribunal
to exceed the maximum rate of interest permitted by any applicable Laws, then,
for such time as the Revolving Rate or Late Charge, as applicable, would be
deemed excessive, its application shall be suspended and there shall be charged
instead the maximum rate of interest permissible under such Laws, and any excess
interest or charges actually collected by Lender shall be credited as a partial
prepayment of principal.
2.6 Payment to Lender. All sums payable to Lender hereunder shall be
paid directly to Lender in United States Dollars and immediately available funds
at the place payment is due. If Lender shall send to Borrowers statements of
amounts due hereunder, such statements shall be considered correct and
conclusively binding on Borrowers unless Borrowers notify Lender to the contrary
within thirty (30) days of the receipt of any statement that any Borrower deems
to be incorrect. Alternatively, at its sole discretion, Lender may charge
against any deposit account of any Borrower all or any part of any amount due
hereunder.
2.7 Use of Proceeds. The proceeds of the Revolving Loan shall be used
by Borrowers initially to renew and extend all existing loans or letters of
credit of Borrowers with Lender and thereafter for general working capital
purposes.
2.8 [Intentionally Omitted.]
2.9 Letters of Credit.
(A) At the request of Cavalier Homes, Lender may from time to
time, but at its sole discretion, issue Letters of Credit for the account
of Borrowers in such amounts as requested by Borrowers and approved by Lender;
provided, however, that the maximum aggregate amount of outstanding Letter of
Credit Obligations shall not exceed, when added to the Revolving Loan, the
maximum amount available to Borrowers under Section 2.1 (A) hereof. Each request
by Borrowers for issuance of a Letter of Credit shall be submitted by Cavalier
Homes on behalf of Borrowers on Lender's then-standard application and agreement
form for Letters of Credit, shall obligate Borrowers to reimburse Lender upon
demand for any amounts drawn upon the Letter of Credit and for such other sums
as specified therein, shall be executed by a duly authorized officer of Cavalier
Homes and, if Lender should require, shall be submitted to Lender at least two
(2) business days prior to the proposed date of issuance for such Letter of
Credit. In consideration for Lender's issuance of any Letter of Credit,
Borrowers shall pay to Lender a fee for the issuance of each such Letter of
Credit equal to one percent (1%) per annum of the amount of the Letter of
Credit. This fee shall be due and payable upon the issuance of a Letter of
Credit and Lender may, at its election, obtain payment of any such fee, if such
fee is not paid upon issuance of the Letter of Credit, either by debiting any
account of any Borrower in the amount of such fee or making an Advance under the
Revolving Loan Commitment for the purpose of paying such fee. Any such Letter of
Credit issued by Lender shall be in form and substance satisfactory to Lender,
shall be in an amount that does not exceed the maximum amount permitted under
this subsection (A) and shall expire by its terms on a date not later than the
Loan Termination Date for the Revolving Loan.
(B) If a draft drawn under any Letter of Credit is presented
to Lender and honored by Lender, Borrowers shall, immediately upon written
demand of Lender, reimburse Lender for the amount of such draft, together with
interest thereon, from the date such draft is honored by Lender to and including
the date of reimbursement by Borrowers, at the rate of interest applicable to
Advances under the Revolving Loan Commitment. If Borrowers should fail to
reimburse Lender upon such demand, Lender at its option may, but shall not be
required to, and without further notice to or demand upon Borrowers, make an
Advance for the purpose of paying to Lender the amount due to Lender together
with interest thereon. Any Advance made by Lender under subsection (A) or this
subsection (B) of this Section 2.9, shall for all purposes under this Agreement
be treated as an Advance under the Revolving Loan Commitment, and the amount of
any such Advance shall be included as part of the unpaid principal balance of
the Revolving Loan.
(C) Notwithstanding any other provision of this Agreement,
this Agreement shall no be terminated by Borrowers at any time during
which any Letter of Credit is in effect. The provisions of this Section
2.9 shall govern the issuance of any Letter of Credit issued by Lender for the
account of Borrowers, but this Agreement does not require or obligate Lender to
issue any such Letters of Credit, with the issuance thereof being at Lender's
sole discretion.
2.10 Commitment and Usage Fees. At Closing and upon the renewal (if
applicable) of the Revolving Loan, Borrowers shall pay to Lender the Commitment
Fee for the Revolving Loan. In addition, Borrowers shall pay to Lender an annual
Usage Fee based upon the average amount of the Revolving Loan outstanding as
follows: If the average outstanding balance of the Revolving Loan exceeds
$1,000,000, Borrowers shall pay to Lender a Usage Fee of $5,000; if the average
outstanding balance of the Revolving Loan exceeds $1,500,000, Borrowers shall
pay to Lender a Usage Fee of $10,000; and if the average outstanding balance of
the Revolving Loan exceeds $2,000,000, Borrowers shall pay to Lender a Usage Fee
of $15,000. These Usage Fees (which are not cumulative) shall be measured as of
the 15th day of December each year, and shall be based upon the prior twelve
(12) months (or portion thereof). If Borrowers do not pay any Usage Fee to
Lender upon written demand, Lender at its option may, but shall not be required
to, and without further notice or demand upon Borrowers, make an Advance for the
purpose of paying to Lender the amount of such Usage Fee. Any such Advance so
made by Lender shall for all purposes under this Agreement be treated as an
Advance under the Revolving Loan Commitment, and the amount of any such Advance
shall be included as part of the unpaid principal balance of the Revolving Loan.
ARTICLE III
THE WAREHOUSE LOAN AND THE TERM LOANS
3.1 General Terms.
(A) Subject to the terms hereof, Lender shall make available
to Cavalier Acceptance a short-term warehouse loan (the "Warehouse Loan") in the
maximum principal amount, at any time outstanding, of up to $2,000,000. Subject
to the provisions of subsection (C) below, indebtedness outstanding under the
Warehouse Loan may be converted to a Term Loan, whereupon the principal amount
so converted will thereupon again be available to be advanced as part of the
Warehouse Loan; provided, however, that the maximum amount of principal
outstanding under the Warehouse Loan an all Term Loan(s) shall not exceed
$8,000,000 (the outstanding principal balance of the Warehouse Loan and all Term
Loan(s) is herein referred to, in the aggregate, as the "$8,000,000 Loan").
(B) Subject to the terms hereof, Lender will lend to Cavalier
Acceptance, from time to time until the Loan Termination Date for the Warehouse
Loan, such sums in integral multiples of $500,000 as Cavalier Acceptance may
request by not less than one (1) business day's notice to Lender, but which
Advances shall not exceed, in the aggregate principal amount at any one time
outstanding, the sum of $2,000,000.
(C) Until the Loan Termination Date for the Warehouse Loan,
and so long as no Event of Default shall have occurred and be continuing, and
subject to the satisfaction of all conditions precedent contained in Article IV,
indebtedness owing under the Warehouse Loan may, at the option of Cavalier
Acceptance, be converted to a Term Loan. The Eligible Contracts delivered by
Cavalier Acceptance to Lender with respect to each Term Loan shall for certain
purposes hereunder be allocated to such Term Loan (the "Allocated Eligible
Contracts").
(D) If at any time the unpaid principal balance of the
Warehouse Loan shall exceed $2,000,000, Cavalier Acceptance shall immediately
and without demand pay such sum to Lender, in multiples of $10,000, as necessary
to reduce the Warehouse Loan to an amount which Cavalier Acceptance could borrow
at that time under such formula. If at any time the unpaid principal balance of
any Term Loan shall exceed 80% of the aggregate outstanding balance of the
Allocated Eligible Contracts for such Term Loan, then Cavalier Acceptance shall
have thirty (30) days within which to (1) substitute a replacement Eligible
Contract to increase the aggregate outstanding principal balance of the
Allocated Eligible Contracts for such Term Loan, and/or (2) pay such sums to
Lender, in multiples of $10,000, all as necessary to reduce the outstanding
principal balance of such Term Loan to not more than 80% of the aggregate
outstanding principal balance of the Allocated Eligible Contracts for such Term
Loan.
3.2 Disbursement of the Warehouse Loan and the Term Loan(s). Lender
will credit or pay the proceeds of each Advance under the Warehouse and Term
Loan Commitment to Cavalier Acceptance's deposit account with Lender or in such
other manner as Cavalier Acceptance and Lender may from time to time agree. The
Term Loan(s) will be advanced solely as a conversion to a Term Loan of
indebtedness outstanding under the Warehouse Loan.
3.3 (A) The Warehouse Note. Cavalier Acceptance's obligation
to repay the Warehouse Loan shall be evidenced by the Warehouse Note.
(B) The Term Note(s). At the time of the establishment of any
Term Loan, Cavalier Acceptance will execute and deliver to Lender a Term Note,
evidencing the principal amount so converted, and will pay to Lender all
interest then accrued but unpaid on said principal amount. The principal amount
of any Term Note shall not be less than $2,000,000.
3.4 Payments of Principal.
(A) The Warehouse Loan. If not earlier demanded pursuant to
Section 9.2, the outstanding principal balance of the Warehouse Loan shall be
due and payable to Lender on the Loan Termination Date for the Warehouse Loan.
(B) The Term Loan(s). If not earlier demanded pursuant to
Section 9.2, the principal of each Term Loan shall be payable in
eighty-three(83) monthly installments, beginning on the 15th day of the month
next succeeding the date of the applicable Term Note, and continuing on the same
day of each month thereafter until the seventh anniversary date of each such
Term Note, at which time all outstanding principal of such Term Loan, together
with all accrued but unpaid interest thereon, shall be payable. The monthly
installments payable on each Term Loan shall be the amount required, at the
applicable interest rate, to repay such Term Loan, in full, in substantially
equal monthly payments.
3.5 Prepayment. The Term Loan(s) may be prepaid, in full, upon not less
than thirty (30) days notice and, if such prepayment (including any payment made
upon acceleration of the maturity date upon the occurrence of an Event of
Default) in full should occur during the fixed-rate period for any Term Loan, a
premium equal to one percent (1%) of the amount of the prepayment shall be
payable; provided, however, that no such premium shall be due if the funds for
such prepayment are obtained by any Borrower other than as proceeds of the
refinancing by another lender of any Loan; and provided further, however, that
no premium shall be due on any mandatory prepayment required by the
immediately-following sentence. In addition to the prepayments specified under
Section 3.1(D), the $8,000,000 Loan shall be subject to certain mandatory
prepayments in the event that Cavalier Acceptance shall have received
prepayments to it of Chattel Paper which constitutes Collateral under this
Agreement (regardless of whether such Chattel Paper is classified as an Eligible
Contract), as follows: (1) In the event that Cavalier Acceptance shall receive a
principal prepayment upon an Allocated Eligible Contract, then 80% of the amount
of such prepayment shall be due to Lender as a prepayment to Lender of the Term
Loan to which such Allocated Eligible Contract was allocated; and (2) in the
event that Cavalier Acceptance should receive a prepayment of any other Chattel
Paper constituting Collateral under this Agreement, then the full amount of such
prepayment shall be due to Lender as a prepayment to be applied by Lender to
such Indebtedness outstanding upon the $8,000,000 Loan as Lender may elect.
3.6 Interest Rate and Payments of Interest.
(A) The Warehouse Loan. Interest on the Warehouse Loan shall
be calculated and paid as follows:
(1) Interest on the principal balance of the
Warehouse Loan, from time to time
outstanding, will be payable at the rate
(the "Warehouse Rate") of one percent (1%)
above the Prime Rate in effect from time to
time until maturity, and three percent (3%)
above the Prime Rate in effect from time to
time after maturity, whether by demand,
acceleration or otherwise.
(2) Each time the Prime Rate shall change, the
Warehouse Rate shall change concurrently
with such change in the Prime Rate.
(3) Interest shall be calculated on the basis of
a 360-day year, by multiplying the product
of the principal amount outstanding and the
applicable rate by the actual number of days
elapsed, and dividing by 360. Accrued
interest through the last day of each
calendar month shall be payable on the 15th
day of each month commencing March 15, 1994,
and at maturity, whether by demand, acceleration
or otherwise.
(4) Cavalier Acceptance agrees to pay a late
charge equal to five percent (5%) of the
amount of the payment which is late, but not
more than the maximum amount allowed by
applicable Law (the "Late Charge"), as
follows: (a) if any scheduled payment is
late twenty (20) days or more or (b) if any
scheduled payment is late ten (10) days or
more, and two (2)or more scheduled payments
have been late twenty (20) days or more
since February 1 of the year in which such
scheduled payment is late ten (10) days or
more. This subparagraph does not extend any
payment due date expressly stated in the
Agreement or any Security Document and does
not in any way prevent or estop Lender from
requiring that payments be made by Cavalier
Acceptance strictly when due. Unless
accepted by Lender, and unless accompanied
by all other amounts then due to Lender, the
tender of such payment by Cavalier
Acceptance does not cure the Event of
Default arising from the payment default
upon which such Late Charge was assessed.
(B) The Term Loan(s). Interest on each Term Loan shall be
calculated and paid as follows:
(1) Interest on the principal balance of each
Term Loan, from time to time outstanding,
will be payable at a rate (the "Term Rate")
that will be fixed for five years at the per
annum rate of interest equal to 240 basis
points (2.40%) above the Five Year Treasury.
For any Term Loan, the Five Year Treasury
shall be measured by adding, on the date of
calculation, the Five Year Treasury rates as
have been made available on the thirteen
] (13) Mondays immediately preceding (but
not including) the date of the Term Note,
and dividing such sum by thirteen (13).
Lender will furnish to Cavalier Homes a
report of the Five Year Treasury each
week. After five years, such fixed rate
shall convert to a floating rate of interest
equal to three-quarters of one percent
(.75%) above the Prime Rate in effect from
time to time; provided, however, that such
floating rate shall never be less than the
original fixed rate for such Term Note, and
shall never be greater (prior to maturity)
than the original fixed rate multiplied by
1.50. The Term Rate in effect from time
to time after maturity, whether by
acceleration or otherwise, shall be equal
to the applicable Term Rate in effect prior
to said maturity plus two percent (2.00%).
(2) During any period of time in which the
interest rate for any Term Loan is not a
fixed rate, each time the Prime Rate shall
change, the Term Rate for such Term Loan
shall change contemporaneously with such
change in the Prime Rate.
(3) Interest shall be calculated on the basis of
a 360-day year, by multiplying the product
of the principal amount outstanding and the
applicable rate by the actual number of days
elapsed, and dividing by 360. Accrued
interest through the last day of each
calendar month shall be payable on the due
date of each payment of principal under the
Term Note.
(4) Cavalier Acceptance agrees to pay a late
charge equal to five percent (5%) of the
amount of the payment which is late, but no
more than the maximum amount allowed by
applicable Law (the "Late Charge") as
follows: (a) if any scheduled payment is
late twenty (20) days or more or (b) if any
scheduled payment is late ten (10) days or
more, and two (2) or more scheduled payments
have been late twenty (20) days or more
since February 1 of the year in which such
scheduled payment is late ten (10) days or
more. This subparagraph does not extend any
payment due date expressly stated in the
Agreement or any Security Document and does
not in any way prevent or estop Lender from
requiring that payments be made by Cavalier
Acceptance strictly when due. Unless
accepted by Lender, and unless accompanied
by all other amounts then due to Lender, the
tender of such payment by Cavalier
Acceptance does not cure the Event of
Default arising from the payment default
upon which such Late Charge was assessed.
(C) If, at any time, the Warehouse Rate, the Term Rate or a
Late Charge shall be deemed by any competent court of law, governmental agency
or tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as the Warehouse Rate, the Term Rate or Late Charge,
as applicable, would be deemed excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permissible under
such Laws, and any excess interest or charges actually collected by Lender shall
be credited as a partial prepayment of principal.
3.7 Payment to Lender. All sums payable to Lender hereunder shall be
paid directly to Lender in United States Dollars and immediately available funds
at the place payment is due. If Lender shall send to Cavalier Acceptance
statements of amounts due hereunder, such statements shall be considered correct
and conclusively binding on Cavalier Acceptance unless Cavalier Acceptance
notifies Lender to the contrary within thirty (30) days of its receipt of any
statement which it deems to be incorrect. Alternatively, at its sole discretion,
Lender may charge against any deposit account of Cavalier Acceptance all or any
part of any amount due hereunder.
3.8 Use of Proceeds. The proceeds of the Warehouse Loan shall be used
by Cavalier Acceptance to reimburse itself, in part, for working capital used by
it to originate and fund loans (evidenced by Chattel Paper falling within the
definition of an Eligible Contract) for the purchase of manufactured homes.
3.9 Commitment Fee. Cavalier Acceptance shall pay to Lender at the
Closing a Commitment Fee for the $8,000,000 Loan equal to $36,000. With respect
to such fee, $20,000 shall be deemed fully earned by Lender and shall not be
refundable to Cavalier Acceptance. With respect to the remainder of the
Commitment Fee, up to $16,000 of such fee shall be refundable to Cavalier
Acceptance based upon usage of the $8,000,000 Loan. The usage refund will be the
amount determined by multiplying $16,000 times the Unused Percentage. As used in
this Section 3.9, the term "Unused Percentage" shall be equal to 1.00 minus the
"Used Percentage", with the Used Percentage calculated by dividing the total
amount advanced under the $8,000,000 Loan by $8,000,000. Usage shall be measured
as of the Loan Termination Date.
ARTICLE IV
CONDITIONS PRECEDENT
The obligation of Lender to make the Loans and any Advance under this
Agreement, and the issuance by Lender of any Letter of Credit, is subject to the
following conditions precedent:
4.1 Documents Required for the Closing. Prior to the disbursement of
the initial Advance, the following instruments and documents, duly executed by
all proper Persons, shall have been delivered to Lender:
(A) This Agreement;
(B) The Revolving Note;
(C) The Warehouse Note;
(D) The financing statements required by Section 5.5;
(E) A certificate of Cavalier Homes' and each Initial
Participating Subsidiary's corporate secretary, in form satisfactory to Lender,
dated as of the date of this Agreement, certifying as to the incumbency and
signatures of the officers of each such Borrower signing this Agreement, the
Revolving Note (and for Cavalier Acceptance, the Warehouse Note), and the other
Loan Documents, and each other document to be delivered pursuant hereto,
together with the following documents attached thereto:
(1) A copy of resolutions of such Borrower's
board of directors authorizing the execution,
delivery and performance of this Agreement, the
Revolving Note (and for Cavalier Acceptance,
the Warehouse Note) and the other Loan Documents,
and each other document to be delivered pursuant
hereto; and
(2) A copy, certified as of the most recent date
practicable by the judge of probate of the
county in which such Borrower's articles or
certificate of incorporation is filed or the
secretary of state of the state where such
Borrower is incorporated, as appropriate, of
such Borrower' articles or certificate of
incorporation;
(F) A copy of the bylaws of each of Cavalier Homes and
Cavalier Acceptance (attached to the appropriate certificate of corporate
secretary for each such Borrower);
(G) Certificates, as of the most recent dates practicable, of
the aforesaid secretaries of state, the secretary of state of each state in
which each Borrower is qualified as a foreign corporation and the department of
revenue or taxation of each of the foregoing states, as to the good standing of
such Borrower;
(H) A written opinion of John W Lowe, Esq., legal counsel for
Borrowers, dated as of the date of this Agreement and addressed to Lender, in
form satisfactory to Lender;
(I) The Closing Certificate, in form satisfactory to
Lender;
(J) A Compliance Certificate as of a date not more than one
(1) day prior to the initial Advance, substantially in the form of Exhibit C or
Exhibit C-1, as appropriate, attached hereto and incorporated herein, certifying
a Borrowing Base under the Revolving Loan Commitment or a Contracts Borrowing
Base under the Warehouse and Term Loan Commitment, as appropriate, of not less
than the amount of the requested initial Advance;
(K) The Commitment Fees;
(L) The Pledge Agreements, in form satisfactory to Lender,
together with certificates representing the shares pledged thereby, duly
endorsed in blank;
(M) The Guaranty Agreement, in form satisfactory to Lender;
(N) Chattel Paper evidencing contracts funded by Cavalier
Acceptance on or before December 31, 1993 (and which if funded after such date
would be an Eligible Contract), in the aggregate principal amount of not less
than $2,500,000, duly pledged to Lender as Collateral;
(O) The Assignment of Life Insurance, in form satisfactory to
Lender;
(P) The Subrogation and Contribution Agreement, substantially
in the form of Exhibit D, attached hereto and incorporated herein;
(Q) The binders for the insurance policies described in
Section 7.1(E) of this Agreement (such insurance policies shall be delivered to
Lender within sixty (60) calendar days of the date of Closing); and
(R) The payment of accrued costs and expenses under Section
10.5 of this Agreement.
4.2 Documents Required for Subsequent Advances. At the time of, and as
a condition to, each subsequent Advance under the Revolving Loan Commitment or
the Warehouse and Term Loan Commitment, Cavalier Homes or Cavalier Acceptance,
as appropriate, shall have duly delivered to Lender the following instruments
and documents duly executed by all proper parties:
(A) A Compliance Certificate, substantially in the form of
Exhibit C or Exhibit C-1, attached hereto and incorporated herein, as
appropriate, current for the month in which each Advance is requested,
acceptable to Lender; and
(B) A Request for Advance, substantially in the form of
Exhibit B or Exhibit B-1, attached hereto and incorporated herein, as
appropriate.
Borrowers hereby agree (i) that Lender shall be entitled to rely upon the most
recent Compliance Certificate in its possession until the same are superseded,
respectively, by another such certificate, and (ii) that each Request for
Advance shall constitute a confirmation of the representations and warranties
contained in the most recent such certificates then in Lender's possession, as
well as those contained in Article hereof.
4.3 Additional Conditions to the Term Loan(s). Conversion of the
Indebtedness owing under the Warehouse Loan to a Term Loan is subject to the
following additional conditions precedent:
(A) Cavalier Acceptance shall have delivered to Lender a duly
authorized and executed Term Note pertaining to such Term Loan;
(B) The original principal amount of any Term Note is
$2,000,000;
(C) The original principal amount of any Term Note shall not
be more than 80% of the aggregate outstanding principal balance of the Allocated
Eligible Contracts furnished to and acceptable as collateral by Lender;
(D) Lender and its counsel shall be satisfied in all respects
with the enforceability against Cavalier Acceptance of any Term Note delivered
to evidence a Term Loan;
(E) Cavalier Acceptance shall have provided to Lender a
schedule of the Allocated Eligible Contracts delivered at the time of conversion
for such Term Loan, setting out such information as may be required by Lender,
but which shall include, among other things, the name and account number for
each individual borrower, the outstanding principal balance of such borrower's
Eligible Contract, and the date through which payment has been made, and shall
have provided the executed original Eligible Contracts and such other documents
related to the Eligible Contracts as Lender may require or request. Lender, upon
receipt of the foregoing documents shall have a reasonable amount of time to
review the same for conformity to Lender's collateral review standards and the
requirements of this Agreement. If any document submitted relative to an
Eligible Contract requires correction or otherwise to be conformed to Lender's
collateral review standards, then such document shall be returned to Cavalier
Acceptance for correction and the Chattel Paper to which the document relates
shall be ineligible as an Eligible Contract and for funding the Advance
requested. With the prior written consent of Lender, Cavalier Acceptance may
provide Eligible Contract(s) in substitution for the Chattel Paper which fails
to meet Lender's collateral review standards.
4.4 Additional Required Documents.
(A) Lender shall also have received on or before the date on
which a Subsidiary becomes a Participating Subsidiary (i) a certificate of each
Subsidiary's corporate secretary, in form satisfactory to Lender and certifying
as to the incumbency and signatures of the officers of each such Subsidiary,
together with the following documents attached thereto:
(1) A copy of resolutions of such Subsidiary's
board of directors authorizing the execution,
delivery and performance of this Agreement, the
Revolving Note and the other Loan Documents,
and each other document to be delivered pursuant
hereto;
(2) A copy, certified as of the most recent date
practicable by the judge of probate of the
county in which such Subsidiary's articles
or certificate of incorporation is filed or
the secretary of state of the state where
such Subsidiary is incorporated, as appropriate,
of such Subsidiary's articles or certificate of
incorporation; and
(3) At Lender's request, a copy of such Subsidiary's
bylaws;
(ii) certificates, as of the most recent dates practicable of the aforesaid
secretaries of state, the secretary of state of each state in which each
Subsidiary is qualified as a foreign corporation and the department of revenue
or taxation of each of the foregoing states, as to the good standing of such
Subsidiary; (iii) a written opinion of John W Lowe, Esq., legal counsel for each
Subsidiary and addressed to Lender, in form satisfactory to Lender; (iv) fully
executed copies of all Loan Documents that this Agreement requires to be
executed or delivered (or both) by such Subsidiary (including a duly executed
Subrogation and Contribution Agreement and a duly executed Assumption Agreement,
in the case of any Subsidiary that becomes a Participating Subsidiary after the
Closing, and fully executed Security Documents); and (v) such additional
supporting documents as Lender or its counsel may reasonably request.
(B) Lender shall also have received on or before the date on
which a Controlled Partnership becomes a Participating Partnership (i) a copy of
the partnership agreement under which such Controlled Partnership was formed,
certified as true and correct on and as of the date of which Loan Documents are
executed and delivered by such Controlled Partnership; (ii) a written opinion of
John W Lowe, Esq., legal counsel for such Controlled Partnership and addressed
to Lender, in form satisfactory to Lender; (iii) duly executed copies of all
Loan Documents that this Agreement requires to be executed or delivered (or
both) by such Controlled Partnership (including a duly executed Assumption
Agreement, in the case of any Controlled Partnership that becomes a
Participating Partnership after the Closing, and fully executed Security
Documents); and (iv) such additional supporting documents as Lender or its
counsel may reasonably request.
4.5 Certain Events. At the time of the initial Advance, of each
subsequent Advance under any of the Loans and of the issuance of each Letter of
Credit:
(A) The representations and warranties set forth in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on the date the Advance was
requested and on the date of the Advance, as the case may be, except as
otherwise expressly provided;
(B) No Event of Default shall have occurred and be continuing,
and no event shall have occurred and be continuing that, with the giving of
notice or passage of time or both, would be an Event of Default;
(C) No material adverse change shall have occurred in the
financial condition of any Borrower since the date of this Agreement; and
(D) No demand for payment shall have been made by Lender;
(E) Cavalier Homes and Cavalier Acceptance shall be full
compliance with the provisions of Section 7.3 or Section 8.3, as appropriate,
hereof; and
(F) All of the Loan Documents shall have remained in full
force and effect.
4.6 Legal Matters. At the time of the disbursement of the initial
Advance, and of each subsequent Advance, under the Revolving Loan Commitment or
under the Warehouse and Term Loan Commitment, and of the issuance of each Letter
of Credit, all legal matters incidental thereto shall be satisfactory to counsel
to Lender.
ARTICLE V
COLLATERAL SECURITY
5.1 Composition of the Collateral. The property in which a security
interest is granted pursuant to the provisions of Sections 5.2 and 5.3
hereof or pursuant to the provisions of any Security Document is herein
collectively called the "Collateral." The Collateral and all of each Borrower's
other property of any kind held by Lender, shall stand as one general,
continuing collateral security for all Obligations and may be retained by Lender
until all Obligations have been satisfied in full and Lender's commitment to
lend under this Agreement has been terminated.
5.2 Rights in Property Held by Lender. As security for the prompt
satisfaction of all Obligations, each Borrower hereby assigns, transfers and
conveys to Lender all of such Borrower's right, title and interest in and to,
and grants Lender a lien on and a security interest in, all amounts that may be
owing from time to time by Lender to such Borrower in any capacity, including,
without limitation, any balance or share belonging to such Borrower, of any
deposit or other account with Lender, which lien and security interest shall be
independent of any right of set-off which Lender may have.
5.3 Rights in Property Held Either by Borrowers or by Lender. As
further security for the prompt satisfaction of all Obligations, in addition to
any other or further security provided under any of the Security Documents, each
Borrower hereby assigns to Lender all of such Borrower's right, title and
interest in and to, and grants Lender a lien upon and security interest in, all
of the following, wherever located, whether now owned or hereafter acquired,
together with all replacements therefor and proceeds (including, without
limitation, insurance proceeds) thereof (all of which shall constitute original
Collateral under this Agreement):
(A) Accounts;
(B) Chattel Paper;
(C) Contracts;
(D) Contract Rights;
(E) Documents;
(F) Eligible Contracts;
(G) General Intangibles;
(H) Instruments;
(I) Inventory;
(J) Rights as seller of Goods and rights to returned,
repossessed or reclaimed Goods; and
(K) All Records pertaining to any of the Collateral.
5.4 Priority of Liens. The foregoing liens shall be first and prior
liens except for Permitted Liens.
5.5 Perfection.
(A) Each Borrower will:
(1) Execute such financing statements (including
amendments thereto and continuation statements
thereof), in form satisfactory to Lender as
Lender may from time to time specify;
(2) Pay, or reimburse Lender for paying, all
costs and taxes of filing or recording the
same in such public offices as Lender may
designate;
(3) Deliver such of the Collateral which in the
sole judgment of Lender is best perfected by
possession, to Lender or its designated agent
or bailee; and
(4) Take such other steps as Lender may from time to
time direct, including, without limitation,
the noting of Lender's lien on the Collateral
and on any certificates of title therefor,
all to perfect Lender's security interest in
the Collateral.
(B) Each of Cavalier Homes, Star Industries, Inc., and
Cavalier 0Acceptance will further:
(1) Execute such stock powers relating to the
Pledged Stock, in form satisfactory to Lender
as Lender may from time to time specify;
(2) Pay, or reimburse Lender for paying, all
costs for the transfer of the Pledged Stock;
(3) Deliver the Pledged Stock to Lender or its
designated agent or bailee; and
(4) Take such other steps as Lender may from time
to time direct, all to perfect Lender's
security interest in the Collateral.
(C) In addition to the foregoing, and not in limitation
thereof:
(1) A carbon, photographic, or other reproduction
of this Agreement shall be sufficient as a
financing statement and may be filed in any
appropriate office in lieu thereof; and,
(2) To the extent lawful, each Borrower hereby
appoints Lender as its attorney-in-fact
(without requiring Lender to act as such) to
execute any financing statement in the name
of such Borrower, and to perform all other
acts that Lender deems appropriate to perfect
and continue its security interest in, and to
protect and preserve, the Collateral.
5.6 Chattel Paper or Instruments. Each Borrower will deliver
immediately to Lender any Chattel Paper or Instruments arising out of the
Collateral usually, but not exclusively, as proceeds. Further, the parties
hereby agree that such Chattel Paper or Instruments constitute original
Collateral rather than proceeds; but if proceeds, then Lender's security
interest created by this Agreement in the Chattel Paper or Instruments shall not
be claimed merely as proceeds.
5.7 Release of Documentation For Eligible Contracts. In the event
Cavalier Acceptance or Lender shall determine that a document relative to any
Chattel Paper or any Eligible Contract which has been delivered to Lender in
connection with the conversion of the Warehouse Loan to a Term Loan fails to
meet Lender's collateral review standards or is otherwise deficient subsequent
to the initial review by Lender, then upon Cavalier Acceptance's delivery to
Lender of a trust receipt in form and substance satisfactory to Lender and
designating the purpose for which delivery is requested, Lender shall deliver
such documents to Cavalier Acceptance for correction. Within forty-five (45)
days of Lender' delivery of any such nonconforming document to Cavalier
Acceptance for correction, such document shall be corrected or otherwise conform
to Lender's collateral review standards, or the Contract to which the
nonconforming document relates shall be ineligible and Cavalier Acceptance shall
pay Lender the unpaid principal balance of such Contract or, with the prior
written consent of Lender, shall deliver to Lender Eligible Contract(s) in
substitution for such Contract.
5.8 Power of Attorney. Each Borrower hereby constitutes and appoints
Lender, or any other person whom Lender may designate, as such Borrower's
attorney-in-fact, to exercise upon the occurrence of any Event of Default,
solely at Borrowers' joint and several cost and expense, all or any of the
following powers, all of which powers, being coupled with an interest, shall be
irrevocable until all Obligations shall have been performed and paid:
(A) To receive, take, endorse, sign and deliver in Lender's
name or in the name of any Borrower any and all checks, notes, drafts and other
instruments relating to Accounts and Eligible Contracts which constitute part of
the Collateral;
(B) To receive, open and dispose of all mail addressed to any
Borrower that relates to the Collateral and to notify postal authorities to
change the address for the delivery thereof to such address as Lender may
designate;
(C) To transmit to account parties and to obligors upon
Accounts and Eligible Contracts which constitute part of the Collateral, notice
of Lender's interest therein, and to demand and to receive from such Persons at
any time, in the name of Lender or of any Borrower or of the designee of Lender,
information concerning such Accounts, such Eligible Contracts, and the amounts
owing thereon;
(D) To notify such Account Debtors and/or obligors to make
payments on such Accounts and/or Eligible Contracts directly to Lender or to a
lock-box designated by Lender;
(E) To take or to bring, in the name of Lender or in the name
of any Borrower, all steps, action, suits or proceedings deemed by Lender to be
necessary or desirable to effect the collection of such Accounts or such
Eligible Contracts;
(F) To exercise all of the rights and remedies of Borrowers,
or any of them, with respect to the collection of the Accounts;
(G) To settle, adjust, compromise, extend, renew, discharge,
terminate or release the Accounts in whole or in part;
(H) To sell or assign the Accounts upon such terms, for such
amounts and at such time or times as Lender deems advisable;
(I) To take control, in any manner, of any item of
payment on, or proceeds of, Collateral;
(J) To use the information recorded on or contained in any
data processing equipment and computer hardware and software relating to the
Collateral to which any Borrower has access; and
(K) To do all acts and things necessary, in Lender's sole
judgment, to carry out the purposes of this Agreement.
All acts of such attorney-in-fact or designee taken pursuant
to this Section 5.8 or Section 9.6 are hereby ratified and approved by each
Borrower, and said attorney or designee shall not be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Original. To induce Lender to enter into this Agreement, each of
the Borrowers jointly and severally represents and warrants to Lender, as of the
date hereof and, except as otherwise expressly provided, as of all times
(including, without limitation, as of the date each Advance under any of the
Loans is requested and made) until this Agreement is terminated in writing, all
Obligations hereunder are satisfied and no commitments hereunder remain
outstanding, as follows:
(A) Cavalier Homes is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware; each
Consolidated Entity is duly organized, validly existing and in good standing
under the Laws of the state in which it is incorporated or formed,
all as set forth in Exhibit J, attached hereto and incorporated herein;
Cavalier Homes and each Consolidated Entity has the lawful power to own its
properties and to engage in the business it conducts, and is duly
qualified and in good standing in the jurisdictions wherein the nature of the
business transacted by it or property owned by it makes such
qualification necessary; the states in which Cavalier Homes and each
Consolidated Entity is qualified to do business are set forth in Exhibit G,
attached hereto and incorporated herein; the percentage of ownership by Cavalier
Homes, Star Industries, Inc. or Cavalier Acceptance, as applicable, of the
outstanding stock of each Consolidated Entity is as listed in Exhibit K,
attached hereto and incorporated herein; the addresses of all places of business
and headquarters of Cavalier Homes and each Consolidated Entity are as set forth
in Exhibit H, attached hereto and incorporated herein, and the addresses of all
places where the Collateral is located and a brief description of the nature of
the Collateral at each such location are set forth in Exhibit H;
(B) Neither Cavalier Homes nor any Consolidated Entity has
used any corporate or fictitious name other than the name for Cavalier Homes or
each Consolidated Entity as is used in this Agreement, which is the same as the
name shown, respectively, on Cavalier Homes' and each Consolidated Entity's
certificate or articles of incorporation through the date of filing of the last
amendment thereto, except as set forth in Exhibit II.6.1(B) attached hereto and
incorporated herein;
(C) None of the Borrowers is directly or indirectly controlled
by, or acting on behalf of, any Person which is an "Investment Company," within
the meaning of the Investment Company Act of 1940, as amended;
(D) Neither Cavalier Homes nor any Consolidated Entity has
been the surviving corporation in a merger, acquired any business, or changed
its principal executive office within five (5) years and one (1) month prior to
the date hereof, except as set forth in Exhibit II.6.1(D), attached hereto and
incorporated herein;
(E) Neither Cavalier Homes nor any Consolidated Entity is in
default with respect to any of its existing Indebtedness, and the making and
performance of this Agreement, the Notes, and the other Loan Documents will not
(immediately, or with the passage of time, the giving of notice, or both):
(1) Violate the charter or by-law provisions of
any Borrower, or violate any Law or result
in a default under any contract, agreement,
or instrument to which any Borrower or any
Consolidated Entity is a party or by which
any Borrower or any Consolidated Entity or
its property is bound; or
(2) Result in the creation or imposition of any
security interest in, or lien or encumbrance
upon, any of the assets of any Borrower or
any Consolidated Entity, except in favor of
Lender;
(F) Each Borrower has the power and authority to enter into
and perform this Agreement, the Notes to which it is a party, and the other Loan
Documents, and to incur the obligations herein and therein provided for, and has
taken all corporate action necessary to authorize the execution, delivery, and
performance of this Agreement, the Notes to which it is a party, and the other
Loan Documents;
(G) This Agreement, the Notes, and the other Loan Documents
are, or when delivered will be, valid, binding, and enforceable in accordance
with their respective terms;
(H) The Security Documents, together with any UCC-1's and all
other documents filed in connection therewith, create as security for the
Obligations, a valid and enforceable perfected first priority security interest
in and lien on all of each Borrower's rights, title and interest in the
Collateral, in favor of Lender, superior and prior to the rights of all third
Persons and subject to no other liens.
(I) Except as disclosed in the footnotes to the Financial
Statements delivered to Lender, or in Exhibit II.6.1(I), attached hereto and
incorporated herein, and except for matters in which an insurer has accepted the
defense without reservation of rights, there is no pending order, notice, claim,
litigation, proceeding or investigation against or affecting Cavalier Homes or
any Consolidated Entity that would involve the payment of $250,000 or more if
adversely determined;
(J) Cavalier Homes and each Consolidated Entity has good and
marketable title to all of its assets, including the Collateral, free of any
security interest, encumbrance or lien, or claim of any third person except
for Permitted Liens;
(K) The Financial Statements, including any schedules and
notes pertaining thereto, have been prepared in accordance with Generally
Accepted Accounting Principles consistently applied, and fully and fairly
present the financial condition of Cavalier Homes and the Consolidated Entities
as of the dates thereof and the results of operations for the periods covered
thereby, and there have been no material adverse changes in the Consolidated
financial condition or business of Cavalier Homes and the Consolidated Entities
from the dates of the Financial Statements to the date hereof;
(L) As of the date of the Financial Statements, Cavalier Homes
and the Consolidated Entities had no material Indebtedness of any nature,
including, without limitation, liabilities for taxes and any interest or
penalties relating thereto, except to the extent reflected (in a footnote or
otherwise) and reserved against in the Financial Statements or as disclosed in
or permitted by this Agreement; none of the Borrowers knows or has any
reasonable ground to know of any basis for the assertion against it or any
Consolidated Entity of any material Indebtedness of any nature not fully
reflected and reserved against in the Financial Statements;
(M) Except as otherwise permitted herein, Cavalier Homes and
each Consolidated Entity have filed all federal, state and local tax returns and
other reports that they are required by Law to file prior to the date hereof and
which are material to the conduct of its businesses, have paid or caused to be
paid all taxes, assessments and other governmental charges that are due and
payable prior to the date hereof, and have made adequate provision for the
payment of such taxes, assessments or other charges accruing but not yet
payable; none of the Borrowers has any knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments or charges not provided for on its books; (N) Except to the extent
that the failure to comply would not materially interfere with the conduct of
the business of Cavalier Homes or any Consolidated Entity, each of Cavalier
Homes' and each Consolidated Entity has, to the best of its knowledge, complied
with all applicable Law with respect to:
(N) (1) Any restrictions, specifications, or other
requirements pertaining to products that Cavalier
Homes or any Consolidated Entity manufactures
or sells or to the services that Cavalier Homes
or any Consolidated Entity performs;
(2) The conduct of its businesses; and
(3) The use, maintenance and operation of the real
and personal properties owned or leased by it in
the conduct of its businesses;
(O) No representation or warranty by any Borrower contained
herein or in any certificate or other document furnished by any Borrower
pursuant hereto contains any untrue statement of material fact or omits to state
a material fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made;
(P) Each consent, approval or authorization of, or filing,
registration or qualification with, any Person that is required to be obtained
or effected by Cavalier Homes or any Consolidated Entity, in connection with the
execution and delivery of this Agreement, the Notes, and the other Loan
Documents, or the undertaking or performance of any obligation hereunder or
thereunder has been duly obtained or effected;
(Q) All existing Indebtedness of each Borrower:
(1) For money borrowed; or
(2) Under any security agreement, mortgage, or
agreement covering the lease by any Borrower
as lessee of real or personal property,
is described in Exhibit I, attached hereto and incorporated herein;
(R) To the best of each Borrower's knowledge, all parties
(including each of Borrower and each Consolidated Entity) to any material lease,
contract or commitment of any kind to which any Borrower or any other
Consolidated Entity is a party have complied with the provisions of such lease,
contract or commitment; no party is in default under any material lease,
contract, or other commitment thereof and no event has occurred which, but for
the giving of notice or the passage of time, or both, would constitute a
default;
(S) Neither Cavalier Homes nor any Consolidated Entity has
made any agreement or taken any action which may cause any Person to become
entitled to a commission or finder's fee as a result of the making of any of the
Loans;
(T) Cavalier Homes' Consolidated federal tax returns for all
years of operation, including the fiscal year of Cavalier Homes ended December
31, 1992, have been filed with the Internal Revenue Service and have not been
challenged or have been challenged and finally resolved;
(U) Each Benefit Plan maintained or contributed to by any
Borrower or any ERISA Affiliate that is a Pension Plan satisfies the minimum
funding standards of Section 302 of ERISA; (1) there have been no Reportable
Events (as defined in Section 4043 of ERISA) or Prohibited Transactions (as
defined in Section 408 of ERISA) with respect to any Benefit Plan; (2) the
Internal Revenue Service has not issued a minimum funding waiver with respect to
any Benefit Plan that is a Pension Plan; (3) none of the Benefit Plans is a
multiemployer plan as defined in Section 3(37) of ERISA; (4) each Benefit Plan
to which 4980B of the Internal Revenue Code of 1986, as amended, applies has
been operated in compliance therewith; and (5) no Benefit Plan provides benefits
to employees beyond retirement or other termination of employment other than
benefits required by Section 4980B of the Internal Revenue Code of 1986, as
amended.
(V) Each of Cavalier Homes and the Consolidated Entities is,
to the best of its knowledge, in compliance with all Environmental Laws;
(W) Each Borrower owns or has the rights to use, pursuant to
written licenses, all patents, trademarks and copyrights used or employed in its
business and products; and
(X) No Borrower's Inventory is subject to any license
agreement relating to patents, trademarks or copyrights which could, directly or
indirectly, preclude or render impracticable the realization by Lender of the
value of such Inventory.
6.2 Additional Representations and Warranties of Cavalier Acceptance.
To induce Lender to enter into this Agreement, Cavalier Acceptance represents
and warrants to Lender, as of the date hereof and as of all times (including,
without limitation, as of the date each Advance under the Warehouse and Term
Loan Commitment is requested and made) until this Agreement is terminated in
writing, all Obligations hereunder are satisfied, and no commitments hereunder
remain outstanding, that with respect to each Eligible Contract included in the
Collateral:
(A) All parties to the Eligible Contract (including any
co-buyer, co-maker, or guarantor) were of legal age and otherwise had legal
capacity to contract at the time they signed the Eligible Contract, and any
party identified as a "buyer" is, to the best knowledge of Cavalier Acceptance,
not a "straw-man" buyer acting on behalf of an undisclosed third party, but is
instead intending to own and use the manufactured home described thereon;
(B) All signatures on the Eligible Contract (including the
signature of any co-buyer, co-maker, or guarantor) are genuine and, if made in a
representative capacity, were duly authorized, and the Eligible Contract is
valid and enforceable in accordance with its terms;
(C) The address, including the county of residence, of each
party to the Eligible Contract as of the date of execution of the Eligible
Contract is correctly shown on the Eligible Contract;
(D) The Eligible Contract correctly sets forth the cash
selling price and down payment made to the dealer in cash and/or the amount
allowed by the dealer for any property taken in trade, and the application
submitted to Cavalier Acceptance in connection with the Eligible Contract
arising therefrom is true and correct in all respects to the best knowledge of
Cavalier Acceptance, and each of the Eligible Contracts and the application
fully and accurately disclose any incentive, rebate, refund, or the like
provided to or on behalf of the purchaser, directly or indirectly, and whether
provided by the manufacturer and/or the dealer;
(E) The cash down payment made by the purchaser and shown on
the Eligible Contract does not represent, either directly or indirectly, a loan
made by, or otherwise arranged by, the dealer to or for the purchaser;
(F) The Eligible Contract correctly describes the manufactured
home sold by the dealer to the purchaser;
(G) The sale of the manufactured home covered by the Eligible
Contract was a bona fide sale at retail in the regular course of the dealer's
business or a sale by such dealer of a manufactured home that has been
repossessed by Cavalier Acceptance;
(H) The manufactured home described in the Eligible Contract
is not subject to any lien, encumbrance or security interest except any security
interest created in favor of Cavalier Acceptance;
(I) No party has required credit life insurance, credit
disability insurance, accident and health insurance or any other insurance of
any kind (other than property damage insurance) in connection with the Eligible
Contract and the purchase of any such insurance coverage is truly optional with
the purchaser;
(J) The purchaser received a fully completed copy of the
Eligible Contract at the time he or she signed it;
(K) Unless Lender has expressly consented in writing, the
Eligible Contract was not past due more than ninety (90) days (and the Eligible
Contract has not been re-dated) or dishonored at the time it was sold to
Cavalier Acceptance or pledged to Lender hereunder, and Cavalier Acceptance has
no notice or knowledge of any claim, defense, or setoff to which the purchaser
is entitled;
(L) The dealer has notified the purchaser that the Eligible
Contract would be submitted to Cavalier Acceptance, at its office, and the
purchaser has been notified of the appropriate address of such office, and that
all payments are to be made by the purchaser only to Cavalier Acceptance or its
assigns, and the dealer has not received any payment on the Eligible Contract
except for payments disclosed to Cavalier Acceptance in writing at the time the
Eligible Contract is offered for sale to Cavalier Acceptance;
(M) There has been delivered or caused to be delivered to the
appropriate authority within ten (10) days following the date upon which the
purchaser took possession of the manufactured home a duly completed application
for a certificate of title for the vehicle described in the Eligible Contract,
Cavalier Acceptance is shown as the "first lienholder" on said application, and
the application was accompanied by the existing certificate of title or the
manufacturer's certificate of origin for the home described on the application
and the appropriate fee, or, if the home is not subject to the title laws, there
has been delivered to Cavalier Acceptance a financing statement which correctly
described the home as collateral, is signed by the purchaser as "debtor", is
executed by the dealer as "secured party", shows the correct name and address of
the purchaser as "debtor", and shows Cavalier Acceptance as either "secured
party" or "assignee of secured party";
(N) The manufactured home described on the Eligible Contract
is new unless expressly designated on the Eligible Contract as "used";
(O) The manufactured home identification number and/or serial
number shown on the Eligible Contract and on the certificate of title
application and/or financing statement are true and correct;
(P) The sale which gave rise to the Eligible Contract was not
solicited at the residence of the purchaser and is not subject to rescission or,
if solicited at a location deemed under applicable law to constitute the
residence of the purchaser and to give rise to a right of rescission, notice of
such right of rescission was duly given to all persons entitled thereto, which
right has expired without being exercised;
(Q) Either the manufacturer or the dealer has agreed to
service and repair the home described on the Eligible Contract in accordance
with any warranty made by the dealer or the manufacturer with respect to the
home;
(R) All insurance premiums financed under the Eligible
Contract have been paid, except as otherwise disclosed in writing;
(S) The person executing the Eligible Contract on behalf of
the dealer, including its execution as the seller of the home and as the
assignor of the Eligible Contract to Cavalier Acceptance, was fully authorized
to execute and deliver the Eligible Contract on behalf of the dealer, and the
representations, warranties and covenants set forth in the dealer's assignment
for each Eligible Contract are, upon delivery of such Eligible Contract to
Cavalier Acceptance the valid and binding obligations of the dealer;
(T) Cavalier Acceptance has good title to, and full right and
power to assign to Lender the Eligible Contract, and the Eligible Contract is
not subject to any lien, encumbrance, or prior assignment;
(U) All requirements of all applicable federal and state
consumer protection laws and regulations in connection with the Eligible
Contract and the sale of the home described thereon have been complied with;
(V) If the Eligible Contract is a Federal Housing
Administration contract, the manufactured home and the home site upon which it
has been or will be placed meet all applicable eligibility requirements
promulgated by the Department of Housing and Urban Development (HUD), and the
requirements set forth in HUD's regulations, including, without limitation, the
requirement that certain certificates be furnished by the dealer and/or the
purchaser to Cavalier Acceptance concerning and evidencing such compliance, have
been complied with;
(W) In connection with any sale or attempted sale of a
manufactured home to any person, the dealer did not hold itself out as an agent
of Cavalier Acceptance for any purpose, and did not make any representations,
assurance or other statements of any kind to any such person which purport in
any way on behalf of or binding upon Cavalier Acceptance; and
(X) The manufactured home is insured by the purchaser thereof
against loss, theft or damage (including both collision and comprehensive
coverages) in an amount not less than the lesser of the unpaid balance owing on
the Eligible Contract or the average retail value of the home, under a policy of
insurance which provides for payment to Cavalier Acceptance in the event of a
loss covered by the policy.
6.3 Reliance By Cavalier Acceptance on Dealer Representations. Lender
and Cavalier Acceptance recognize that, in making the representations and
warranties specified in Section 6.2 of this Agreement, Cavalier Acceptance has
relied, in those instances where knowledge of the matters contained in the
representations and warranties would not be within the personal knowledge of
Cavalier Acceptance, upon representations and warranties provided to Cavalier
Acceptance by the mobile home dealer from whom Cavalier Acceptance acquired the
particular Eligible Contract. To that end, Lender and Cavalier Acceptance agree
that so long as such representations and warranties are made by Cavalier
Acceptance in good faith and without knowledge that any such representation or
warranty contained in Section 6.2 is incorrect when made, then any such
misrepresentation (if any) shall not be deemed to be an Event of Default
hereunder, and the only effect of such misrepresentation shall be to cause such
Chattel Paper to thereupon cease to be an Eligible Contract for purposes of this
Agreement.
ARTICLE VII
COVENANTS OF BORROWERS
Each Borrower does hereby jointly and severally covenant and agree with
Lender that, so long as any of the Obligations remains unsatisfied or any
commitments hereunder remain outstanding, and thereafter until this Agreement is
terminated in writing, it will comply, and it will cause the other Borrowers and
other Consolidated Entities to comply, at all times with the following
covenants, unless the Lender in a particular instance shall have given its prior
written consent to the contrary:
7.1 Affirmative Covenants.
(A) Each Borrower will take and will cause each other
Consolidated Entity to take all necessary steps to preserve its corporate
existence and franchises and comply with all present and future Laws applicable
to it in the operation of its businesses and all material agreements to which it
is subject.
(B) Each Borrower will use the proceeds of the Revolving Loan
only for the purposes set forth in Section 2.7, and will furnish to Lender
such evidence as it may reasonably require with respect to such use.
(C) Cavalier Homes will furnish to Lender:
(1) Within thirty (30) days after the close of each
calendar month:
(i) A Consolidated and consolidating
income statement of Cavalier Homes
and the Consolidated Entities for
such period; and
(ii) A Consolidated and consolidating
balance sheet of Cavalier Homes and
the Consolidated Entities as of the
end of such period
all in reasonable detail, subject to year-end
audit adjustments;
(2) Within ninety (90) days after the close of each
fiscal year of Cavalier Homes:
(i) A Consolidated statement of
Stockholders' Equity and a
Consolidated statement of Cash
Flows of Cavalier Homes and the
Consolidated Entities for such
fiscal year;
(ii) Consolidated and consolidating
income statements of Cavalier Homes
and the Consolidated Entities for
such fiscal year; and
(iii) Consolidated and consolidating
balance sheets of Cavalier Homes
and the Consolidated Entities as of
the end of such fiscal year
all in reasonable detail, including all
supporting schedules and comments; the
Consolidated statements and balance sheets
to be audited by an independent certified
public accountant selected by Cavalier Homes
and acceptable to Lender, and certified by
such accountants to have been prepared in
accordance with Generally Accepted
Accounting Principles, consistently applied,
by Cavalier Homes and the Consolidated
Entities, except for any inconsistencies
explained by such accountants to Lender, in
form satisfactory to Lender; in addition,
Cavalier Homes will obtain from such
independent certified public accountants and
deliver to Lender, within ninety (90) days
after the close of each fiscal year of
Cavalier Homes, their written statement that
in making the examination necessary to their
certification they have obtained no
knowledge of any Event of Default by
Cavalier Homes or any other Borrower, or
disclosing all Events of Default of Cavalier
Homes or any other Borrower of which they
have obtained knowledge; provided, however,
that in making their examination such
accountants shall not be required to go
beyond the bounds of generally accepted
auditing procedures for the purpose of
certifying financial statements; Lender
shall have the right from time to time to
discuss the affairs of Cavalier Homes and
the Consolidated Entities directly with
Cavalier Homes' independent certified public
accountant after notice to Cavalier Homes
and opportunity of Cavalier Homes to be
present at any such discussions;
(3) Contemporaneously with each monthly and
year-end financial report required by the
foregoing paragraphs, and at any additional
time in Lender's discretion or when any
material deterioration in the Borrowing Base
would be disclosed thereby, a Compliance
Certificate, wherein in addition to the
financial information reported in such
Compliance Certificate, the president or
chief financial officer of Cavalier Homes
shall certify that he has individually
reviewed the provisions of this Agreement
and that a review of the activities of
Borrowers and the Consolidated Entities
during such year or monthly period, as the
case may be, has been made by or under the
supervision of the signer of such
certificate with a view to determining
whether each Borrower has kept, observed,
performed and fulfilled all its obligations
under this Agreement, and that, to the best
of his knowledge each Borrower has observed
and performed each and every undertaking
contained in this Agreement and is not at
the time in Default in the observance or
performance of any of the terms and
conditions hereof or, if any Borrower shall
be so in Default, specifying all such
Defaults and Events of Default of which he may
have knowledge;
(4) Promptly after sending or making available
or filing of the same, copies of all 10-K's
and 10-Q's that any Borrower sends or makes
available to its stockholders and all other
registration statements and reports that any
Borrower files with the Securities and
Exchange Commission or any successor Person,
which are requested by Lender;
(5) Contemporaneously with each Compliance
Certificate for the Revolving Loan, an aging
as of the end of the calendar month or other
period to which each such Compliance
Certificate pertains, in such form and
detail as shall be satisfactory to Lender, of:
(i) The then Eligible Accounts, and
(ii) All other Accounts of each Borrower
certified by the president or chief
financial officer of Cavalier Homes
to be complete and correct;
(6) At Lender's request, a listing of each
Borrower's Inventory, in such form and
detail as shall be satisfactory to Lender,
showing the amount, size, grade, manufacturer,
and cost of each item or group thereof and
identifying Eligible Inventory, certified by
the president or chief financial officer
of Cavalier Homes to be complete and correct;
and
(7) Upon Lender's request from time to time
copies of any or all agreements, contracts,
or commitments of the type referred to in
Section 6.1 (R) hereof.
(D) Cavalier Homes and each Consolidated Entity will maintain
its Inventory, Equipment, real estate and other properties in good condition and
repair (normal wear and tear excepted), and will pay and discharge or cause to
be paid and discharged when due, the cost of repairs to or maintenance of the
same, and will pay or cause to be paid all rental or mortgage payments due on
such real estate. In addition, Borrowers jointly and severally agree to
reimburse Lender for any reasonable expenses incurred by Lender to protect and
preserve the Collateral pursuant to Section 5.5 (C).
(E) Cavalier Homes and each Consolidated Entity will maintain,
or cause to be maintained, public liability insurance, and fire and extended
coverage insurance on all tangible assets owned by it, naming Lender as
mortgagee and loss payee in all policies insuring the Collateral, all in such
form and amounts as are consistent with industry practices and with such
insurers as may be satisfactory to Lender. Such policies shall contain a
provision whereby they cannot be canceled except after ten (10) days written
notice to Lender. Borrowers will furnish to Lender such evidence of insurance as
Lender may require. Borrowers hereby jointly and severally agree that, in the
event Cavalier Homes or any Consolidated Entity fails to pay or cause to be paid
the premium on any such insurance, Lender may do so and be reimbursed by
Borrower therefor. Lender is hereby appointed each Borrower's attorney-in-fact
(without requiring Lender to act as such) to endorse any check which may be
payable to such Borrower to collect such returned or unearned premiums or the
proceeds of such insurance, and any amount so collected may be applied by Lender
toward satisfaction of any of the Obligations.
(F) Cavalier Homes and the Consolidated Entities will pay or
cause to be paid when due all taxes, assessments and charges or levies imposed
upon it or on any of its property or which it is required to withhold and pay
over, except where contested in good faith by appropriate proceedings with
adequate reserves therefor having been set aside on their books; provided,
however, that Cavalier Homes and the Consolidated Entities shall pay or cause to
be paid all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attached (or security therefor) appears imminent.
(G) Cavalier Homes and the Consolidated Entities will, when
requested to do so, make available for inspection by Lender's duly authorized
representatives any of its books and Records, and will furnish to Lender any
information regarding its business affairs and financial condition within a
reasonable time after written request therefor. Cavalier Homes and each Borrower
will and will cause each of the other Consolidated Entities to keep proper books
of record and account in which full, true and correct entries in all material
respects shall be substantially in conformity with GAAP and all requirements of
Law shall be satisfied in all dealings and transactions in relation to its
business and activities. Cavalier Homes and each Borrower will, and will cause
each of the other Consolidated Entities to, permit Lender's officers and
designated representatives to visit and inspect, during normal business hours,
any of the properties of such Borrower or such Consolidated Entity, and to
examine the books of account of such Borrower or such Consolidated Entity and to
discuss the affairs, finances, accounts of such Borrower or such Consolidated
Entity, and be advised as to the same by, its and their officers, all at such
reasonable times and intervals and to such reasonable extent as Lender may from
time to time request. In connection with the foregoing, Lender agrees to utilize
such documents, materials and information solely and exclusively in connection
with this Agreement and the other Loan Documents and the transactions
contemplated herein and therein to exercise its best efforts to keep all such
documents, materials and information delivered or made available by Borrowers
confidential from anyone other than Persons employed or retained by Lender who
are expected to be engaged in evaluating, approving, structuring, and enforcing
or administering the Loans; provided, however, that nothing herein shall prevent
Lender from disclosing such information;
(1) to any actual or potential assignee or participant
of any loan or note; provided that such assignee or
participant shall be subject to this Section;
(2) upon order of any court or administrative agency
after it, to the extent practical, gives notice to
Cavalier Homes pursuant to which Cavalier Homes
or the affected Borrower may seek a protective
order against such disclosure;
(3) upon request or demand of any regulatory agency or
authority having jurisdiction over Lender;
(4) which has been publicly disclosed;
(5) in connection with any litigation;
(6) to the extent reasonably required in connection
with the exercise of any remedy hereunder;
(7) to Lender's legal counsel and independent auditors
in connection with Lender's business.
(H) Cavalier Homes and each Consolidated Entity will collect
its Accounts and Eligible contracts and sell its Inventory only in the ordinary
course of business.
(I) Cavalier Homes and each Consolidated Entity will keep
accurate and complete Records of its Accounts, Eligible Contracts, Inventory and
Equipment, consistent with sound business practices.
(J) Cavalier Homes and each Consolidated Entity will give
immediate notice to Lender of:
(1) Any litigation or proceeding (other than
matters in which an insurer has accepted the
defense without reservation of rights) in
which it is a party if an adverse decision
therein would require it to pay over more
than $250,000; and
(2) The institution of any other suit or
proceeding involving it that might materially
and adversely affect its operations,
financial condition, property or business
prospects.
(K) Within ten (10) days of Lender's request therefor, each
Borrower will furnish to Lender any or all of the following: (a) copies of
federal income tax returns filed by such Borrower; (b) such Borrower's bylaws;
and (c) a complete list of Benefit Plans that such Borrower and its ERISA
Affiliates have ever maintained or to which it or they have contributed.
(L) Cavalier Homes and each Consolidated Entity will pay when
due (or within applicable grace periods) all Indebtedness exceeding $50,000 in
amount due third Persons, except when the amount thereof, not to exceed
$250,000, is being contested in good faith by appropriate proceedings and with
adequate reserves therefor being set aside on the books of Cavalier Homes and
each Consolidated Entity.
(M) Cavalier Homes and each Consolidated Entity will notify
Lender immediately if it becomes aware of the occurrence of any Event of Default
or of any fact, condition or event that only with the giving of notice or
passage of time or both, could become an Event of Default, or if it becomes
aware of any material adverse change in the business prospects, financial
condition (including, without limitation, proceedings in bankruptcy, insolvency,
reorganization, or the appointment of a receiver or trustee), or results of
operations of Cavalier Homes, or any Consolidated Entity, or of the failure of
Cavalier Homes or any Consolidated Entity to observe any of its undertakings
hereunder or under any of the Loan Documents.
(N) Cavalier Homes and each Consolidated Entity will notify
Lender thirty (30) days in advance of any change in the location of any of its
places of business or the discontinuance of any existing place of business, and
will notify Lender within fifteen (15) day after the establishment of any new
place of business.
(O) Cavalier Homes and each Consolidated Entity will notify
Lender thirty (30) days in advance of any change in the location or use of any
of the Collateral and within thirty (30) days after any change in condition,
aside from normal wear and tear, of any of the Collateral.
(P) Each Borrower and each ERISA Affiliate will:
(1) Fund each of its Pension Plans, if any, in
accordance with no less than the minimum
funding standards set forth in Section 302
of ERISA;
(2) At Lender's request, furnish to Lender, promptly
after filing the same, copies of all reports
or statements filed with the United States
Department of Labor, the Pension Benefit
Guaranty Corporation, or the Internal Revenue
Service with respect to any Benefit Plans;
(3) Promptly advise Lender of the occurrence of any
Reportable Eventor Prohibited Transaction, each
as defined in ERISA, with respect to any Benefit
Plan; and
(4) Promptly advise Lender of the issuance of a
funding waiver by the Internal Revenue Service
with respect to any Pension Plan.
(Q) Cavalier Homes and each Consolidated Entity will comply
with all Environmental Laws, and will handle, store, treat, discharge, and
dispose of any Hazardous Materials only in compliance with all Environmental
Laws.
(R) Each Borrower will maintain its primary deposit account
relationship with Lender.
7.2 Negative Covenants.
(A) Neither Cavalier Homes nor any Consolidated Entity will
change its name, enter into any merger, consolidation, reorganization or
recapitalization, reclassify its capital stock, or liquidate or dissolve;
provided, however, that this clause (A) is not intended to prevent Borrower from
raising capital through any public debt or securities offering.
(B) Neither Cavalier Homes nor any Consolidated Entity will
sell, transfer, lease or otherwise dispose of all or (except in the ordinary
course of business) any material part of its assets.
(C) Unless the proceeds of such sale are paid to Lender
pursuant to this Agreement, neither Cavalier Homes nor any Consolidated Entity
will sell, or enter into any agreement to sell, any of its Accounts or Eligible
Contracts.
(D) Neither Cavalier Homes nor any Consolidated Entity will
sell, lease, transfer, assign, or otherwise dispose of any of the Collateral
except in the ordinary course of business and as permitted under this Agreement.
(E) Neither Cavalier Homes nor any Consolidated Entity will
sell, or otherwise dispose of, or for any reason cease operating, any of its
divisions, franchises, or lines of business.
(F) Neither Cavalier Homes nor any Consolidated Entity will
mortgage, pledge, grant or permit to exist a security interest in or lien, which
exceed, in the aggregate, $1,000,000, upon any of its real property, now owned
or leased or hereafter acquired or leased, except for Permitted Liens, unless
such Borrower gives Lender thirty (30) days notice of its intent to grant such
lien and Lender expressly consents in writing thereto.
(G) Neither Cavalier Homes nor any Consolidated Entity will
become liable, directly or indirectly, as guarantor or otherwise for any
obligation of any other Person, except for guarantees existing and disclosed to
Lender prior to Closing and endorsements of commercial paper for deposit or
collection in the ordinary course of business; provided, however, that with
respect to dealers selling Inventory manufactured by any Borrower, Cavalier
Homes may guaranty up to $50,000 in principal amount of lines of credit used for
such dealer to purchase such Inventory.
(H) Neither Cavalier Homes nor any Consolidated Entity will
incur, create, assume, or permit to exist any Indebtedness except:
(1) The Loans;
(2) Loans obtained by Cavalier Homes from the First
National Bank of Hamilton not to exceed
$750,000 in aggregate principal amount;
(3) Existing Indebtedness as set forth in Exhibit I,
attached hereto and incorporated herein, to the
extent shown on such Exhibit I to be permitted
to exist after the Closing;
(4) Trade indebtedness incurred in the ordinary
course of business;
(5) Contingent Indebtedness permitted by Section
7.2(G); and
(6) Indebtedness secured by Permitted Liens and
lease obligations not to exceed, in the
aggregate, $2,500,000 with such Indebtedness and
lease obligations not to exceed $50,000 for
Cavalier Acceptance); as used in this paragraph,
the term "lease" means a lease that is not
reflected on a Consolidated balance sheet of
Cavalier Homes and the Consolidated Entities and
should not be so reflected under General
Accepted Accounting Principles.
(I) Cavalier Homes will not declare or pay any dividends, or
make any other payments or distributions on account of its capital stock, or any
payments to redeem, purchase or retire any of its capital stock, which exceed,
in the aggregate for all such payments, fifty percent (50%) of the average of
itsConsolidated net income determined under General Accepted Accounting
Principles, consistently applied, by Cavalier Homes, for the two most recent
fiscal years preceding the period to which such dividends or distributions
relate, nor make any assignment or transfer of Accounts, Chattel Paper, or,
other than in the ordinary course of business, of Inventory.
(J) Other than any Consolidated Entity, neither Cavalier Homes
nor any Consolidated Entity will form any Subsidiary, or Controlled Partnership,
or make any investment in or make any loan in the nature of any investment to
any Person, which, in the aggregate, exceed $1,050,000.
(K) Neither Cavalier Homes nor any Consolidated Entity will
make any loan or advance to any of their respective officers, shareholders,
directors or employees except for business travel and similar temporary advances
in the ordinary course of business, nor pay salary to executive and management
personnel aggregating in excess of the Borrowers' compensation formula, as
previously disclosed to Lender and as in effect as of December 31, 1993.
(L) Neither Cavalier Homes nor any Consolidated Entity will
pay, in an aggregate amount in any fiscal year of Cavalier Homes(commencing with
the current fiscal year of Cavalier Homes), lease obligations in excess of
$1,500,000; as used in this paragraph, the term "lease" means a lease that is
not reflected on a Consolidated balance sheet of Cavalier Homes and the
Consolidated Entities and should not be so reflected under Generally Accepted
Accounting Principles.
(M) Neither Cavalier Homes nor any Consolidated Entity will
purchase or otherwise invest in or hold securities, non-operating real estate or
other non-operating assets, except:
(1) Direct obligations of the United States of
America;
(2) The present investment as of the Closing in any
such assets; and
(3) Operating assets that hereafter become
non-operating assets.
(N) Neither Cavalier Homes nor any Consolidated Entity will
enter into any sale-leaseback transaction.
(O) [Intentionally omitted.]
(P) Neither Cavalier Homes nor an Consolidated Entity will
furnish to Lender any certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material fact necessary
to make it not misleading in light of the circumstances under which it was
furnished.
(Q) Neither Cavalier Homes nor any Consolidated Entity will
directly or indirectly apply any part of the proceeds of any of the Loans to the
purchasing or carrying of any "margin stock" within the meaning of Regulation U
or any regulations, interpretations or rulings thereunder.
(R) Neither Cavalier Homes nor any Consolidated Entity will
treat, store, handle, discharge, or dispose of any Hazardous Materials except in
compliance with all Environmental Laws.
(S) Neither Cavalier Homes nor any Consolidated Entity will
enter into any transaction or series of transactions where any Affiliate,
officer, director or shareholder of Cavalier Homes or any Consolidated Entity or
any family member or Affiliate of the foregoing, is a counter-party to such
transaction or series of transactions; unless such transaction is on the same
terms as those available to unaffiliated Persons on an "arms-length" basis;
provided, however, that this covenant is not intended to prohibit or impede
Cavalier Homes use of, or transfers among the Borrowers of, working capital
within its Consolidated group.
(T) Neither Cavalier Homes nor any Consolidated Entity
will enter into any agreement whereby title to any of Cavalier Homes' or the
Consolidated Entity's inventory passes to any transferee prior to delivery by
Cavalier Homes or the Consolidated Entity.
(U) Neither Cavalier Homes, nor the Consolidate Entities, will
make capital expenditures for the 1994 fiscal year of Cavalier Homes in excess
of $3,000,000, in the aggregate, or for any fiscal year of Cavalier Homes
thereafter in excess of $2,000,000, in the aggregate.
7.3 Financial Covenants.
(A) Cavalier Homes will maintain at all times:
(1) Consolidated Net Working Capital of at
least $3,500,000.
(2) Consolidated Tangible Net Worth in the
following minimum amounts calculated as set
forth below:
(i) From the date of Closing and
thereafter through 1994, an amount
equal to the Consolidated Tangible
Net Worth reflected in the audited
Financial Statements provided to
Lender for the fiscal year of
Cavalier Homes that ended on
December 31, 1993;
(ii) As of January 1, 1995, and on each
January 1 thereafter, the
Consolidated Tangible Net Worth of
Cavalier Homes shall have increased
by at least $2,000,000 over the
prior year's Consolidated Tangible
Net Worth (provided, that if the
Consolidated Tangible Net Worth
shall have increased during any
fiscal year by more than $2,000,000,
other than in connection with an
issuance of stock as described
below, the for purposes of
measuring the $2,000,000 increase
for the next fiscal year, such
excess may be included in the
following year's calculations); and
(iii) In addition to the requirements
specified above, Cavalier Homes'
minimum Consolidated Tangible Net
Worth requirement shall be
automatically increased by the net
proceeds received by Cavalier
Homes in connection with any
issuance or conversion of capital
stock.
(3) A ratio of Consolidated Liabilities to
Consolidated Tangible Net Worth of not more
than 2.0 to 1.0;
(4) A ratio of Consolidated Cash Flow (measured
on a historical basis) to Debt Service of
not less than 1.50 to 1.00; and
(5) A Borrowing Base such that the amount of the
outstanding Revolving Loan will not, at any
time, exceed the Borrowing Base.
(B) Cavalier Homes will make capital contributions to Cavalier
Acceptance in the amount of $2,000,000 during 1994.
The covenant set forth in this subsection (B) of this Section 7.3 shall remain
in effect as long as any of the $8,000,000 Loan or any other Indebtedness owed
by Cavalier Acceptance to Lender remains outstanding.
7.4 Interpretation and Consolidation. Except as otherwise expressly
provided in this Article, each Borrower shall also cause and require each of
the Consolidated Entities to observe and perform the covenants and agreements of
this Article that are to be observed and performed by such Borrower, regardless
of whether any such covenant expressly refers to the Consolidated Entities. All
financial covenants set forth in Section 7.3 shall be computed on a Consolidated
basis for Cavalier Homes and the Consolidated Entities. In addition, all
calculations required to be made in connection with any numerical or dollar
limitations set forth in this Article shall be made on a combined or
Consolidated basis for Cavalier Homes and the Consolidated Entities, in
accordance with Generally Accepted Accounting Principles, but after elimination
of intercompany items.
ARTICLE VIII
ADDITIONAL COVENANTS OF CAVALIER ACCEPTANCE
Cavalier Acceptance does hereby covenant and agree with Lender that, so
long as any of the Obligations remains unsatisfied or any commitments hereunder
remain outstanding, and thereafter until this Agreement is terminated in
writing, it will comply at all times with the covenants set forth in Article
hereof and the following additional covenants:
8.1 Affirmative Covenants.
(A) Cavalier Acceptance will use the proceeds of the
$8,000,000 Loan only for the purposes set forth in Section 3.8, and will furnish
to Lender such evidence as it may reasonably require with respect to such use.
(B) Cavalier Acceptance will furnish to Lender:
(1) Within thirty (30) days after the close of
each calendar month:
(i) An income statement of Cavalier
Acceptance for such period; and
(ii) A balance sheet of Cavalier
Acceptance as of the end of such
period,
all in reasonable detail, subject to year-
end audit adjustments;
(2) Contemporaneously with each monthly and
year-end financial report required for
Cavalier Acceptance by this Section 8.1(B),
and at any additional time in Lender's
discretion or when any material
deterioration in the Contracts Borrowing
Base would be disclosed thereby, a
Compliance Certificate, wherein in addition
to the financial information reported in
such Compliance Certificate, the president
or chief financial officer of Cavalier
Acceptance shall certify that he has
individually reviewed the provisions of this
Agreement and that a review of the
activities of Cavalier Acceptance during
such fiscal year or monthly period, as the
case may be, has been made by or under the
supervision of the signer of such
certificate with a view to determining
whether Cavalier Acceptance has kept,
observed, performed and fulfilled all its
obligations under this Agreement, and that,
to the best of his knowledge, Cavalier
Acceptance has observed and performed each
and every undertaking contained in this
Agreement and is not at the time in Default
in the observance or performance of any of
the terms and conditions hereof or, if
Cavalier Acceptance shall be so in Default,
specifying all such Defaults and Events of
Default of which he may have knowledge;
(3) Contemporaneously with each Compliance
Certificate for the $8,000,000 Loan, a
report as of the end of such month, in such
form and detail as shall be satisfactory to
Lender, of the then Eligible Contracts
certified by Cavalier Acceptance's president
or chief financial officer to be complete
` and correct; and
(4) Contemporaneously with each Compliance
Certificate for the $8,000,000 Loan, a
delinquency report and repossession status
report with respect to all of Cavalier
Acceptance's Chattel Paper, whether Eligible
Contracts or not, each such report in such
form and detail as shall be satisfactory to
Lender.
(C) Cavalier Acceptance will, at its sole expense, when
requested to do so by Lender, cause its independent certified public accountants
(which shall be acceptable to Lender) to provide such audit confirmation
relating to the Eligible Contracts as may reasonably be required by Lender.
(D) So long as any Eligible Contract constitutes Collateral
hereunder, (i) Cavalier Acceptance agrees, as trustee for Lender and without
compensation by Lender, to service all Eligible Contracts and to use its best
efforts to effect collection of all amounts payable thereunder as they become
due; (ii) Cavalier Acceptance shall perform such duties exclusively, unless
Lender shall give written approval otherwise; and (iii) upon demand by Lender,
after an Event of Default, Cavalier Acceptance shall notify each purchaser under
an Eligible Contract of the assignment to Lender of the Eligible Contract under
which he is obligated, including in such notice instructions that the purchaser
shall make all payments on the Eligible Contract to Lender, or its
subcontracting servicing agent, as Lender shall direct.
8.2 Negative Covenants.
(A) Unless reasonably determined by Cavalier Acceptance to be
in its and Lender's best interest, Cavalier Acceptance will not compromise,
extend, release, or adjust payments on any Eligible Contract or related
documentation, accept a conveyance of pledged property in full or partial
satisfaction of any Eligible Contract, or release any security interest securing
any Eligible Contract.
(B) Cavalier Acceptance will not transfer, sell, assign or
deliver any Eligible Contract pledged to Lender to any person, corporation,
partnership, association or trust other than Lender.
(C) Cavalier Acceptance will not grant, create, incur, permit,
assume or suffer to exist any mortgage, pledge, lien, security interest or other
encumbrance of any kind upon any Eligible Contract now or hereafter pledged to
Lender, unless and until such Eligible Contract has been released from the
security interest granted to Lender, except for (x) liens granted to Lender to
secure the Notes and the Loans and (y) such non-consensual liens as may be
deemed to arise as a matter of law.
(D) Unless reasonably determined by Cavalier Acceptance to be
in its and Lender's best interest, Cavalier Acceptance will not modify or waive
any term of any pledged Eligible Contract or release any obligor.
8.3 Financial Covenants. (A) Cavalier Acceptance will maintain
at all times:
(i) Net Working Capital in the following minimum amount:
During 1994 and thereafter..........$ 500,000.00;
(ii) Tangible Net Worth in the following minimum amount:
During 1994 and thereafter..........$1,000,000.00;
(iii) A ratio of Liabilities to Tangible Net Worth of not
more than 3.0 to 1.0;
(iv) A Contracts Borrowing Base such that the amount of
Cavalier Acceptance's outstanding $8,000,000 Loan will
not, at any time, exceed its Contracts Borrowing Base;
(v) An Average Repossession Ratio less than the following
maximum percentages:
until May 31, 1994 less than 3.00% June 1, 1994 to
September 30, 1994 less than 2.50% October 1, 1994 and
thereafter less than 2.30%;
(vi) A Charge-Off Ratio less than the following maximum
percentages:
until May 31, 1994 less than 2.50% June 1, 1994 to
September 30, 1994 less than 2.20% October 1, 1994 and
thereafter less than 1.80%; and
(vii) A ratio of Loan Loss Reserves (after deduction of
losses for the then-current period) to the
then-outstanding principal balance of Cavalier
Acceptance's loan portfolio of not less than 2.00%.
(B) Cavalier Acceptance shall not at any time:
(i) Permit the ratio of its delinquent retail Contracts
measured against (1) all Contracts prior to June 30, 1994 or (2) aged Contracts
(i.e., more than 120 days old) thereafter to exceed the following percentages:
number of days delinquent maximum percentage
30 days
until May 31, 1994 5.50%
June 1, 1994 to November 30, 1994 4.50%
December 1, 1994 and thereafter 3.25%;
(ii) Make capital expenditures for any year in excess of
$100,000; and
(iii) Incur other Indebtedness or capital leases for any
year in excess of $50,000.
ARTICLE IX
DEFAULT
9.1 Events of Default. The occurrence of any one or more of the
following events shall constitute a Default or an Event of Default hereunder:
(A) Any Borrower shall fail to pay when due any installment of
principal under any of the Loans, or any interest or fee payable under this
Agreement or any Security Document or other Loan Document; provided, however,
that a payment default described in this clause (A) shall not constitute an
Event of Default unless such payment default shall not have been cured within
ten (10) days of written notice thereof from the Lender and, provided, further,
however, that the foregoing proviso shall not apply during any calendar year if
two (2) such defaulted payments shall previously have occurred in such calendar
year.
(B) (1) Any Borrower shall fail to observe or perform any of
its covenants contained in Sections 7.1(A), 7.1(E), 7.1(M), 7.2(A); or
(2) Any Borrower or any Consolidated Entity shall
fail to observe or perform any other obligation to be observed or performed by
it hereunder (other than any obligation of Cavalier Acceptance under Section 8.3
hereof), or under any of the Notes to which it is a party or under any of the
other Loan Documents, and such failure shall continue for fifteen (15) days
after the earlier of: (i) written notice of such failure from Lender; or (ii)
Lender is notified or should have been notified of such failure pursuant to the
provisions of Section 7.1(M).
(C) Any Borrower or any Consolidated Entity shall (1) fail to
pay when due any Indebtedness (other than the Loans) to Lender; or (2) fail to
pay any Indebtedness of more than $50,000 due any third Persons (other than any
Indebtedness involving bona fide disputes of less than $250,000) and such
failure shall continue beyond any applicable grace period and shall not be cured
within fifteen (15) days after written notice thereof from Lender to Cavalier
Homes.
(D) Any financial statement, representation, warranty or
certificate made or furnished by any Borrower or any Consolidated Entity to
Lender in connection with this Agreement, or as inducement to Lender to enter
into this Agreement, or in any separate statement or document to be delivered
hereunder to Lender: (1) shall be materially false, incorrect, or incomplete
when made; or (2) shall become materially false or incorrect and remain so for
fifteen (15) days after the earlier of: (1) written notice from Lender; or (2)
Lender is notified or should have been notified pursuant to the provisions of
Section 7.1(M).
(E) Any Borrower or any Consolidated Entity shall admit its
inability to pay its debts as they mature, or shall make an assignment for the
benefit of itself or any of its creditors.
(F) Proceedings in bankruptcy, or for reorganization of any
Borrower or any Consolidated Entity, or for the readjustment of any of their
respective debts, under the federal Bankruptcy Code, as amended, or any part
thereof, or under any other Law, whether state or federal, for the relief of
debtors, now or hereafter existing, shall be commenced by any Borrower or any
Consolidated Entity or shall be commenced against any Borrower or any
Consolidated Entity and shall not be discharged within thirty (30) days of its
commencement.
(G) A receiver, trustee or conservator shall be appointed for
any Borrower or any Consolidated Entity or for any substantial part of their
respective assets, or any proceedings shall be instituted for the dissolution or
the full or partial liquidation of any Borrower or any Consolidated Entity, and
such receiver, trustee or conservator shall not be discharged within thirty (30)
days of his appointment, or such proceedings shall not be discharged within
thirty (30) days of its commencement, or any Borrower or any Consolidated Entity
shall discontinue business or materially change the nature of its business.
(H) Any Borrower or any Consolidated Entity shall suffer final
judgments for payment of money aggregating in excess of $250,000 and shall not
discharge the same within a period of thirty (30) days unless, pending further
proceedings, execution has been effectively stayed.
(I) A creditor of any Borrower or any Consolidated Entity
shall obtain possession of any substantial part of the Collateral by any means,
including, without limitation, levy, distraint, replevin or self-help.
(J) The validity or enforceability of this Agreement, any of
the Notes, or any other Loan Document shall be contested by any Borrower or any
Consolidated Entity or any of them shall deny that it has any or further
liability or obligation hereunder or thereunder.
(K) Any Pension Plan shall fail to meet the minimum funding
standards of Section 302 of ERISA as now in effect or hereafter amended.
(L) A criminal investigation is commenced and results i an
indictment with respect to any Borrower or any Consolidated Entity.
(M) Any property of any Borrower or any Consolidated Entity is
seized by a governmental authority, or a forfeiture proceeding is commenced
against Borrower or any Consolidated Entity, or any property of any Borrower or
any Consolidated Entity.
(N) Any default or event of default shall occur under any of
the other Loan Documents.
9.2 Acceleration. Immediately and without notice upon the occurrence of
an Event of Default specified in the foregoing Sections 9.1(E), 9.1(F),
9.1(G) or at Lender's option upon the occurrence of any other Event of Default,
all Obligations, whether hereunder or otherwise, shall immediately become due
and payable without further action of any kind on Lender's part.
9.3 Remedies. After the occurrence of any Event of Default, Lender
shall have, in addition to the rights and remedies given to it by this Agreement
or any other Loan Document, all those allowed by all applicable Law, including,
without limitation, the Uniform Commercial Code as enacted in any jurisdiction
in which any Borrower or any Collateral may be located. No right or remedy
conferred upon Lender in this Agreement is intended to be exclusive of any other
right or remedy contained in the Notes, this Agreement, or in any other Loan
Document, and every such right or remedy shall be cumulative in addition to
every other right or remedy contained herein or therein or now or hereafter
available to Lender pursuant to applicable Law, in equity or otherwise. Without
limiting the generality of the foregoing, Lender may immediately, without demand
of performance and without other notice (except as specifically required by this
Agreement or the other Loan Documents, or as required by Law and which cannot be
waived) or demand whatsoever to Borrowers, all of which are hereby expressly
waived, and without advertisement, sell at public or private sale or otherwise
realize upon, the whole or, from time to time, any part of the Collateral, or
any interest which any Borrower may have therein. After deducting from the
proceeds of sale or other disposition of the Collateral all expenses (including
all reasonable expenses for legal services), Lender shall apply such proceeds
toward the satisfaction of the Obligations in such order as Lender may elect.
Any remainder of the proceeds after satisfaction in full of the Obligations
shall be distributed as required by applicable Law. Notice of any sale or other
disposition shall be given to Cavalier Homes on behalf of Borrowers at least
five (5) days before the time of any intended public sale or of the time after
which any intended private sale or other disposition of the Collateral is to be
made, which Borrowers hereby agree shall be reasonable notice of such sale or
other disposition. Borrowers shall be jointly and severally liable for any
deficiency. Each Borrower agrees to assemble, or to cause to be assembled, at
its own expense, the Collateral at such place or places as Lender shall
designate. At any such sale or other disposition, Lender may, to the extent
permissible under applicable Law, purchase the whole or any part of the
Collateral, free from any right of redemption on the part of any Borrower, which
right is hereby waived and released. Without limiting the generality of any of
the rights and remedies conferred upon Lender under this paragraph, Lender may,
to the full extent permitted by applicable Law:
(A) Refuse to extend further Advances under any of the Loans
or convert or permit to beconverted any Warehouse Loan to a Term Loan;
(B) Enter upon any Borrower's premises, exclude therefrom any
Borrower or any Affiliate thereof, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a court of
competent jurisdiction, using all necessary force to do so;
(C) At Lender's option, use, operate, manage and control the
Collateral in any lawful manner;
(D) Collect and receive all rents, income, revenue, earnings,
issues and profits therefrom;
(E) Maintain, repair, renovate, alter or remove the Collateral
as Lender may determine in its sole discretion; and
(F) Collect all Accounts in Lender's or any Borrower's name
and take control of any cash or non-cash proceeds of any or all of the
Collateral;
(G) Enforce payment of any Accounts, prosecute any action or
proceeding with respect to Accounts, extend the time of payment of any and all
Accounts, make allowances and adjustments with respect thereto and to issue
credits in the name of the Lender or any Borrower;
(H) Settle, compromise, extend, renew, release, terminate or
discharge, in whole or in part, any Account or deal with the same as Lender may
deem advisable; and
(I) Require any Borrower to open all mail only in the presence
of a representative of the Lender, who make take therefrom any remittance on any
of the Collateral.
9.4 Right of Set-Off. Upon the occurrence of any Event of Default,
Lender may, and is hereby authorized by each Borrower, at any time and from time
to time, to the fullest extent permitted by applicable Law, and without advance
notice to any Borrower (any such notice being expressly waived by each
Borrower), set-off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and any other Indebtedness at any
time owing by Lender to, or for the credit or the account of, any Borrower
against any or all of the Obligations of Borrowers now or hereafter existing
whether or not such Obligations have matured and irrespective of whether Lender
has exercised any other rights that it has or may have with respect to such
Obligations, including without limitation, any acceleration rights. The
aforesaid right of set-off may be exercised by Lender against Borrowers or any
of the Consolidated Entities or against any trustee in bankruptcy, debtor in
possession, assignee for the benefit of the creditors, receiver, or execution,
judgment or attachment creditor of Borrowers or any of the Consolidated
Entities, or such trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by Lender prior to the making, filing or issuance, or service upon
Lender of, or of notice of, any such petition; assignment for the benefit of
creditors; appointment or application for the appointment of a receiver; or
issuance of execution, subpoena, order or warrant. Lender agrees to promptly
notify Cavalier Homes on behalf of borrowers after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of Lender under this
Section 9.4, Section 9.5 and Section 9.6 are in addition to the other
rights and remedies (including, without imitation, any other rights of set-off)
which Lender may have.
9.5 Demand Obligations. All of the Obligations (other than the Term
Loan(s)) of Borrowers shall be due and payable in full upon demand made by
Lender, whether or not any Event of Default has occurred and whether or not
Lender reasonably deems itself to be insecure. Demand may be made at any time or
without reason. The enumeration in Section 9.1 hereof of certain Events of
Default, and the enumeration of certain remedies available to Lender upon an
Event of Default (as described in Sections , and hereof), does not in any way
limit the right of Lender to otherwise demand payment in the absence of the
occurrence of any Event of Default. Demand is not thereby qualified or in any
way relative in nature.
9.6 Special Remedies. Upon the occurrence of any Event of Default, in
addition to all rights and remedies provided for in Article IX hereof, each
Borrower agrees that Lender shall have the following rights with respect to the
Collateral, and each will take all such steps as to permit Lender to realize the
benefit of such rights and as may be directed by Lender in connection therewith,
including, without limitation, the following:
(A) Lender or any other Person serving as any Borrower's
attorney-in-fact under Section 5.8 of this Agreement shall have, in addition to
the powers set forth in Section 5.8 or otherwise, the following rights and
powers: (i) to initiate contact with any Person with respect to the transfer and
vesting in Lender of the Collateral pledged to Lender, and to request and to
receive confirmation from any Person that all rights of any Borrower with
respect to such Collateral may be transferred to and exercised by Lender; (ii)
to notify any and all other third parties as may be deemed necessary or
desirable in order to insure a smooth and efficient transition of the Accounts
and Eligible Contracts pledged to Lender from any Borrower to Lender, including,
without limitation, the furnishing by any third parties of computer services,
tax services, insurance services, escrow services or similar services to any
Borrower in connection with its servicing activities of loans included in the
Collateral; (iii) to exercise all or any of any Borrower's rights and remedies
with respect to its Accounts and its Eligible Contracts pledged to Lender,
including, without limitation, the right to settle, adjust, compromise, extend,
renew, discharge, terminate or release any thereof, either in whole or in part,
or to sell, assign, transfer, take control of, use and/or dispose of, in any
manner, all or any part of the Collateral; and (iv) to do all acts and things
necessary, in the sole judgment of Lender, to permit Lender to enjoy the benefit
of its security interest in the Collateral.
(B) Each Borrower agrees to cooperate fully with Lender in
connection with any and all steps taken by Lender under Article IX of this
Agreement, including, without limitation, the execution and delivery to Lender
and/or to third parties, such additional documents, notices, certificates and
the like as to permit the vesting in and transfer to Lender of the benefit of
its rights in and to the Collateral, including, without limitation, the Accounts
and Eligible Contracts pledged to Lender.
ARTICLE X
MISCELLANEOUS
10.1 Construction. The provisions of this Agreement shall be in
addition to those of any guaranty, pledge or security agreement, note or other
evidence of liability held by Lender, all of which are incorporated herein and
shall be construed as complementary to each other. Nothing herein contained
shall prevent Lender from enforcing any or all other notes, guaranties, pledges
or security agreements in accordance with their respective terms.
10.2 Further Assurances. From time to time, each Borrower will execute
and deliver to Lender such additional documents and will provide such additional
information as Lender may reasonably require to carry out the terms of this
Agreement and be informed of the status and affairs of Borrowers and the
Consolidated Entities. Each Borrower will take any and all actions as reasonably
requested by Lender to ensure that Lender enjoys the full benefits of the
security intended to be granted hereunder and under the Security Documents and
the other Loan Documents.
10.3 Indemnity. Borrowers hereby agree to jointly and severally
indemnify Lender and its officers, directors, agents and attorneys against, and
to jointly and severally hold Lender and all such other persons harmless from,
any claims, demands, liabilities, costs, damages, and judgments (including,
without limitation, liability under any Environmental Laws and costs of defense
and attorneys' fees) resulting from any representation or warranty made by any
Borrower or on any Borrower's behalf pursuant to Article of this Agreement
having been false or inaccurate when made (including, without limitation, each
time that an Advance under any of the Loans is requested or made) or becoming
and remaining false or inaccurate thereafter, or resulting from any Borrower's
breach of any of the covenants set forth in Article or Article of this
Agreement. This agreement of indemnity shall be a continuing agreement and shall
survive payment of the Loans and termination of this Agreement and the
Obligations hereunder.
10.4 Enforcement and Waiver by Lender. Lender shall have the right at
all times to enforce the provisions of this Agreement, each of the Notes, and
the other Loan Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on Lender's part in refraining from so
doing at any time or times. Lender's failure at any time or times to enforce its
rights under such provisions, strictly in accordance with the same, shall not be
construed as having created a custom in any way or manner contrary to specific
provisions of this Agreement or as having in any way or manner modified or
waived the same. All rights and remedies of Lender are cumulative and concurrent
and the exercise of one right or remedy shall not be deemed a waiver or release
of any other right or remedy.
10.5 Expenses of Lender. Borrowers will, on demand, jointly and
severally reimburse Lender for all expenses, including the fees and expenses of
legal counsel for Lender, reasonably incurred in connection with the
preparation, administration, amendment, modification, renewal, extension, or
enforcement of this Agreement and the other Loan Document and any other
documents related to this Agreement and the collection or attempted collection
of the Loans and the Notes; provided, however, that Borrowers' obligation to
reimburse Lender for the legal fees incurred in the initial preparation of these
documents shall be limited to $5,000. If Borrowers should fail to pay any such
expenses, Lender may, but shall not be obligated to, make such payment by making
an Advance under the Revolving Loan Commitment for such purpose, without notice
to Borrowers. Any amounts paid or advanced by Lender under this Section or under
any of the Security Documents shall bear interest at the rate specified for
Advances under the Revolving Loan Commitment. The obligation of Borrowers under
this Section to pay all expenses incurred by Lender shall survive payment of the
Obligations and termination of this Agreement.
10.6 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by first class mail, postage prepaid, return receipt
requested, or telegraph, or facsimile, as follows, unless such address is
changed by written notice hereunder:
(A) If to any Borrower:
Cavalier Homes, Inc.
Post Office Box 300
Highway 41 North
Addison, Alabama 35540
Facsimile # (205) 747-1605
Attention: Mr. David Roberson
with a copy to:
John W Lowe, Esquire
Post Office Box 576
1210 21st Street
Haleyville, Alabama 35565
Facsimile # (205) 486-4531
(B) If to Lender:
First Commercial Bank
2000 SouthBridge Parkway
Post Office Box 11746
Birmingham, Alabama 35202-1746
Facsimile #(205) 868-4898
Attention: Mr. Paul B. Wallace
with a copy to:
Bradley, Arant, Rose & White
1400 Park Place Tower
2001 Park Place
Birmingham, Alabama 35203
Facsimile #(205) 251-9915
Attention: J. David Dresher, Esquire
10.7 Indemnity, Waiver and Release by Borrowers. To the maximum extent
permitted by applicable Law, each Borrower and each Consolidated Entity:
(A) Protects, indemnifies, and holds Lender (including any
Participant) and its employees, agents, representatives, officers, directors and
assigns, harmless against and of any and all liabilities, costs and expenses
(including attorney's fees, court costs and expenses), judgments, damages,
claims, demands, actions or proceedings by whomever asserted (including, but not
limited to, retail customers with respect to the Chattel Paper constituting
Collateral under this Agreement, any person or persons who prosecute or defend
any actions or proceedings as representative of or on behalf of a class or
interest group or any government instrumentality, body, agency, department,
commission or any administrative body or agency having jurisdiction pursuant to
any applicable statute, rule, regulation, order or decree) arising out of,
connected with, or resulting from any claim or defense against the dealer
selling the goods which gave rise to the applicable Chattel Paper, or against
Cavalier Acceptance or any other Borrower, whether such claim or defense arises
out of the Chattel Paper or the underlying sale of the home or otherwise, and
whether the claim or defense is asserted in connection with the Lender's (or any
Participant's) attempting to collect the Chattel Paper or otherwise;
(B) Waives protest of all commercial paper at any time held by
Lender on which any Borrower is any way liable;
(C) Except as the same may herein be specifically granted,
waives notice of acceleration and of intention to accelerate;
(D) Waives notice and opportunity to be heard, after
acceleration in the manner provided in Section 9.2, before exercise by
Lender of the remedies of self-help, set-off, or of other summary procedures
permitted by any applicable Law or by any agreement with any Borrower or any
Consolidated Entity, and except where required hereby or by any applicable Law
which requirement cannot be waived, notice of any other action taken by Lender;
and
(E) Releases Lender and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except gross negligence or willful misconduct.
10.8 Reliance on this Agreement. There are no third-party
beneficiaries, other than Borrowers or Lender, to this Agreement or any of
the other Loan Documents. All conditions to Lender's obligations to make
Advances under this Agreement are imposed solely and exclusively for Lender's
benefit. Neither Borrowers nor any other Person shall have standing to require
satisfaction of any such condition or be entitled to assume that Lender will
refuse to make Advances in the absence of strict compliance with any or all of
such conditions, and neither Borrower nor any other Person or entity shall,
under any circumstances, be deemed to be a beneficiary of any conditions hereof,
any or all of which conditions may be waived freely, in whole or part by Lender
in its sole discretion at any time if Lender deems it advisable to do so. The
parties expressly agree that whenever notice is required to be given as a
condition precedent of the exercise of any right of Lender hereunder any failure
by Lender to give such notice shall result only in Lender's inability to
exercise such right in the absence of such notice and shall be of no other
consequence whatsoever and give rise to no claim against Lender. This Agreement
shall not benefit and may not be relied upon by, any Person other than Borrowers
and Lender. Nothing in this Agreement or otherwise creates an obligation on
Lender's part to advise Borrowers or any other Person of whether any Advances
are available except upon an actual and bona fide request therefor.
10.9 Participation. Notwithstanding any other provision of this
Agreement, Borrowers understand that Lender may enter into participation
agreements with Participants whereby Lender will allocate certain percentages of
its commitment to them. Borrowers acknowledge that, for the convenience of all
parties, this Agreement is being entered into with Lender only and that its
Obligations hereunder are undertaken for the benefit of, and as an inducement to
any such Participant as well as Lender, and Borrowers hereby grant to each such
Participant, to the extent of its participation in any of the Loans, the right
to set off deposit accounts maintained by any Borrower with such Participant.
Each Borrower authorizes Lender to disclose financial and other information
regarding such Borrower to Participants and potential Participants.
10.10 No Partnership or Joint Venture. Notwithstanding anything to the
contrary herein contained or implied, Lender, by this Agreement or by any action
pursuant hereto or thereto, shall not be deemed a partner, joint venturer or
participant in the venture of Borrowers, and Borrowers hereby jointly and
severally indemnify and agree to defend Lender harmless (including, without
limitation, the payment of attorneys' fees) from any and all damages resulting
from such allegation or construction of the parties' relationship. The
requirements herein, and the restrictions imposed in this Agreement, are solely
for the protection and benefit of Lender and shall not be construed to create
any obligation on behalf of Lender to supervise, warn or disclose matters to any
Borrower.
10.11 Governing Law. This Agreement is entered into and performable in
Jefferson County, Alabama and the substantive Laws of the United States and the
State of Alabama, without giving effect to its principles of conflict of laws,
shall govern the construction of this Agreement and the documents executed and
delivered pursuant hereto, and the rights and remedies of the parties hereto and
thereto, except to the extent that the location of any Collateral in a state or
jurisdiction other than Alabama requires that the perfection of Lender's
security interest hereunder, and the enforcement of certain of Lender's remedies
with respect to the Collateral, be governed by the laws of such other state or
jurisdiction.
Initial
Lender)
Initial
(Cavalier Homes on
behalf of each Borrower)
10.12 JURISDICTION; WAIVERS.
(A) JURY WAIVER. EACH BORROWER AND LENDER HEREBY EACH:
(1) IRREVOCABLY AND UNCONDITIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM OF ANY
TYPE AS TO ANY MATTER ARISING DIRECTLY OR INDIRECTLY OUT OF OR WITH RESPECT TO
THIS AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH; AND
(2) AGREES THAT ANY OF THEM MAY FILE A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED-FOR AGREEMENT BETWEEN AND AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL
BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY OF ANY KIND WHATSOEVER BETWEEN THEM
SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING
WITHOUT A JURY.
(B) CONSENT TO JURISDICTION; WAIVER OF VENUE. EACH
BORROWER AND LENDER HEREBY EACH:
(1) KNOWINGLY AND VOLUNTARILY CONSENTS TO THE
PERSONAL JURISDICTION OF ANY COURT OF COMPETENT SUBJECT MATTER JURISDICTION
(WHETHER STATE OR FEDERAL) HOLDING IN BIRMINGHAM, JEFFERSON COUNTY, ALABAMA, FOR
THE DETERMINATION OF ANY CLAIM OR CONTROVERSY ARISING UNDER OR IN CONNECTION
WITH
<PAGE>
THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH; AND KNOWINGLY AND VOLUNTARILY
WAIVES ANY OBJECTION TO THE EXERCISE OF PERSONAL JURISDICTION OVER IT OR ANY OF
THEM BY SAID COURTS ON THE GROUND THAT IT OR ANY OF THEM DOES NOT HAVE THE
REQUISITE MINIMUM CONTACTS WITH THE STATE OF ALABAMA OR THAT EXERCISE OF SUCH
JURISDICTION OTHERWISE FAILS TO MEET THE REQUIREMENTS OF MINIMUM CONTACTS OR DUE
PROCESS UNDER THE CONSTITUTION OF THE UNITED STATES OR THE STATE OF ALABAMA; AND
AGREES THAT SERVICE OF PROCESS ON IT OR ANY OF THEM AT ITS ADDRESS SET FORTH IN
SECTION 10.6 OF THE AGREEMENT IN ACCORDANCE WITH THE PROVISIONS OF THE
ALABAMA RULES OF CIVIL PROCEDURE WILL BE SUFFICIENT NOTICE OF ANY PROCEEDING
AGAINST ANY OF IT OR ANY OF THEM IN ANY SUCH COURT, AND WAIVES ANY REQUIREMENT
OF OTHER OR ADDITIONAL SERVICE OF PROCESS OR NOTICE OF ANY SUCH PROCEEDING; AND
FURTHER AGREES THAT EXERCISE OF JURISDICTION OVER IT OR ANY OF THEM BY COURTS
HOLDING IN BIRMINGHAM, JEFFERSON COUNTY, ALABAMA SHALL BE IN ADDITION TO, AND
NOT IN LIEU OF, THE EXERCISE OF JURISDICTION OVER IT OR ANY OF THEM BY ANY OTHER
COURT OF COMPETENT JURISDICTION, WHETHER WITHIN OR WITHOUT THE STATE OF ALABAMA;
AND
(2) KNOWINGLY AND VOLUNTARILY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY ACTION OR
PROCEEDING AGAINST IT OR ANY OF THEM IN ANY COURT MENTIONED HEREINABOVE OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME.
10.13 Binding Effect, Assignment. This Agreement shall inure to the
benefit of, and shall be binding upon, the respective successors and permitted
assigns of the parties hereto. No Borrower has the right to assign any of its
rights or obligations hereunder without Lender's prior written consent.
10.14 Termination. The terms and provisions of this Agreement shall
continue in effect until the Obligations shall have been fully paid and
performed, and Lender shall have no further obligation whatsoever to make any
Advances under any of the Loans, issue any Letters of Credit or extend any other
credit or accommodation, and Lender and Borrowers terminate this Agreement in
writing. Following any termination (if applicable), the terms and provisions of
this Agreement (excluding any obligation to lend or other commitment hereunder
made by Lender), and all of the covenants and promises of Borrowers hereunder,
shall be automatically reinstated if at any time all or any part of any payment
made upon the Obligations is rescinded or must for any reason be returned to the
Person making such payment, whether due to insolvency, bankruptcy, dissolution,
appointment of a custodian or receiver, or any other reason whatsoever, all as
though such payment had not been made.
10.15 Obligations Unconditional and Absolute. Borrowers hereby
acknowledge and agree that their liability to Lender with respect to the
Obligations are continuing, absolute, unconditional and, except for the
$8,000,000 Loan, joint and several (subject to the provisions of Section (D) of
this Agreement). Notwithstanding the generality of the foregoing, each
Borrower's liability upon the Obligations shall remain in full force and effect,
and shall not be affected, discharged, impaired or modified in any manner
whatsoever due to (a) the invalidity or unenforceability of any of the Loan
Documents executed by any other Person, (b) any Borrower's failure to receive
any notice given by Lender to any other Person, (c) any modification, amendment
or supplement of any covenant or agreement contained in any of the Loan
Documents executed by any third Person, (d) any compromise, settlement, release
or termination of any promise, agreement or other liability contained in any of
the Notes or any of the other Loan Documents, (e) any waiver granted by Lender
with respect to the payment, performance or observance of any promise or
agreement contained under any of the Loan Documents, (f) any accommodation,
extension, action or inaction (including any exercise or non-exercise of any
right or remedy) with respect to any of the Loan Documents, (g) the extension of
maturity for the payment or performance of any of the Obligations due from any
Borrower or other third Person, or (h) the release, discharge, non-perfection or
impairment of Lender's claims or rights against any Collateral now or at any
time hereafter securing any of the Obligations, or the release or discharge of
any of Lender's claims or rights against any Borrower, guarantor or third Person
liable upon the Obligations, whether any such release, discharge or impairment
occurs due to operation of law, action or inaction by Lender, or otherwise.
10.16 Entire Agreement, Amendments. This Agreement, including the
Schedules and Exhibits hereto, all of which are hereby incorporated herein by
reference, the other Loan Documents and all other documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties,
and may be amended only by a writing signed on behalf of each party.
10.17 Severability. If any provision of this Agreement, the Notes, or
the other Loan Documents shall be held invalid under any applicable Law, such
invalidity shall not affect any other provision of this Agreement or such other
instrument or agreement that can be given effect without the invalid provision,
and, to this end, the provisions hereof are severable.
10.18 Headings. The table of contents and article, section, paragraph
and subparagraph headings hereof are inserted for convenience of reference only,
and shall not alter, define, or be used in construing the text of such articles,
sections, paragraphs or subparagraphs.
10.19 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
10.20 Seal. This Agreement is intended to take effect as an instrument
under seal.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
day and year first above written.
BORROWERS:
CAVALIER HOMES, INC.
By: /s/ Jerry F. Wilson [L.S.]
--------------------------------------------
Its: President
--------------------------------------------
CAVALIER HOMES OF ALABAMA, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
CAVALIER HOMES OF TEXAS, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
STAR INDUSTRIES, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
BUCCANEER HOMES OF ALABAMA, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
<PAGE>
BRIGADIER HOMES OF NORTH
CAROLINA, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
MANSION HOMES, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
HOMESTEAD HOMES, INC.
By: /s/ David A. Roberson [L.S.]
--------------------------------------------
Its Secretary
CAVALIER ACCEPTANCE CORPORATION
By: /s/ Jerry F. Wilson, Jr. [L.S.]
--------------------------------------------
Its: President
LENDER:
FIRST COMMERCIAL BANK
By: /s/ Paul B. Wallace [L.S.]
-------------------------------------------
Its Vice President
<PAGE>
SCHEDULE I
DEFINED TERMS
"Accounts", "Chattel Paper", "Contracts", "Documents",
"Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
"Inventory" and other terms not specifically defined in the Agreement shall have
the same respective meanings as are given to those terms in the Uniform
Commercial Code as currently adopted and in effect in the State of Alabama on
the date of the Agreement.
"Account Debtor" means any Person for which any Borrower holds
any right to payment arising from a bona fide outright sale or lease of Goods or
for services rendered by such Borrower to that Person.
"Advance" means each loan of money or credit made to one or
more of the Borrowers by Lender under the Agreement.
"Affiliate" shall mean any Person (A) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, any Borrower, or (B) five percent (5%) or more of
the equity interest of which is held beneficially or of record by any Borrower.
The term "control" means the possession, directly or indirectly, of the power to
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Revolving, Warehouse and Term Loan
Agreement, as may be amended or supplemented from time to time.
"Allocated Eligible Contracts" shall have the meaning ascribed
thereto in Section 3.1 of the Agreement.
"Assignment of Life Insurance" means the assignment of the
Insurance Policy as Collateral, duly authorized and executed by Cavalier Homes
at Closing and in form satisfactory to Lender, as such Assignment of Life
Insurance may be hereafter supplemented or amended.
"Assumption Agreement" means each Assumption Agreement duly
authorized and executed by each Subsidiary and Controlled Partnership that is to
become a Participating Subsidiary or a Participating Partnership after Closing
and substantially in the form of Exhibit E to the Agreement, as each such
Assumption Agreement may be thereafter supplemented or amended, and "Assumption
Agreements" means all of them, collectively.
"Average Repossession Ratio" means the ratio of (A) the total
number of repossession for the current fiscal year, divided by the number of
months then-ended, to (B) the sum of the number of loans outstanding on the last
day of each month, divided by the number of months then-ended.
"Benefit Plan" means any employee welfare benefit plan as
defined in Section 3(1) of ERISA or any employee pension benefit plan as defined
in Section 2(2) of ERISA.
"Borrower" means each of Cavalier Homes, Inc., a Delaware
corporation, Cavalier Homes of Alabama, Inc., an Alabama corporation, Cavalier
Homes of Texas, Inc., a Texas corporation, Star Industries, Inc., a Delaware
corporation, Buccaneer Homes of Alabama, Inc., an Alabama corporation, Brigadier
Homes of North Carolina, Inc., a North Carolina corporation, Mansion Homes,
Inc., a North Carolina corporation, Homestead Homes, Inc., a Georgia
corporation, and Cavalier Acceptance Corporation, an Alabama
<PAGE>
corporation, and the entities that become Participating Subsidiaries and
Participating Partnerships after Closing, and "Borrowers" means all of them,
collectively.
"Borrowing Base" means, at any time, with respect to the
Revolving Loan, the amount computed on the Compliance Certificate for the
Revolving Loan most recently delivered to, and accepted by, Lender in accordance
with the Agreement and equal to the aggregate of:
(A) Eighty percent(80%)of Eligible Accounts of Borrowers;
plus
(B) Fifty percent (50%) of Eligible Inventory.
"Cash Flow" means, as to any Person, the aggregate of: (A) net
income after taxes (or the net deficit, as applicable) plus (B) amounts that
have been deducted for (i) amortization of intangible assets, (ii) depreciation
and depletion, and (iii) deferred taxes and expenses; all as shown by the income
statement of such Person, calculated in accordance with Generally Accepted
Accounting Principles.
"Cavalier Acceptance" means Cavalier Acceptance Corporation,
an Alabama corporation.
"Cavalier Homes" means Cavalier Homes, Inc., a Delaware
corporation.
"Charge-Off Ratio" means the sum of the total dollar amount
charged as a loan loss against the Loan Loss Reserve during the current fiscal
year of Cavalier Acceptance, divided by the then-outstanding principal balance
of Cavalier Acceptance's loan portfolio.
"Closing" means the time and place of actual execution and
delivery of the Agreement, the Revolving Note, the Warehouse Note and the other
Loan Documents which are to be executed at closing.
"Closing Certificate" means a certificate, in form
satisfactory to Lender, dated as of the date of Closing, and signed on behalf of
each Borrower by the president or a vice president of such Borrower.
"Collateral" means the property and rights, and any proceeds,
in whatever form, thereof, described in Sections 5.1, 5.2, and 5.3 of the
Agreement and in the Security Documents.
"Commitment Fee" means (i) with respect to the Revolving Loan,
the annual fee, due and payable and fully earned at Closing and annually
thereafter upon renewal (if applicable), equal to $10,000 and (ii) with respect
to the $8,000,000 Loan, the fee, due and payable at Closing, equal to $36,000,
of which $20,000 shall be fully earned and nonrefundable at Closing and the
remainder of which may be refundable in accordance with Section 3.9 of the
Agreement.
"Compliance Certificate" means (i) with respect to the
Revolving Loan a certificate in the form of Exhibit C to the Agreement,
certified by the president or chief financial officer of Cavalier Homes to be
correct, which is delivered by Cavalier Homes on behalf of Borrowers and
accepted by Lender pursuant to Section 4.1(I), Section 4.2(A) or Section
7.1(C)(3)of the Agreement and (ii) with respect to the $8,000,000 Loan, a
certificate in the form of Exhibit C-1 to the Agreement, certified by the
president or chief financial officer of Cavalier Acceptance to be correct, which
is delivered by Cavalier Acceptance and accepted by Lender pursuant to Section
8.1(B) of the Agreement.
"Consolidated" refers to the consolidation of the accounts of
a Person and its Consolidated Entities on a balance sheet and statement of
income and retained earnings in accordance with Generally Accepted Accounting
Principles.
"Consolidated Entity" means any Person the financial
statements of which are appropriately consolidated with the financial statements
of Cavalier Homes under Generally Accepted Accounting Principles and
"Consolidated Entities" means all of them, collectively.
"Contracts Borrowing Base" means, at any time, with respect to
the $8,000,000 Loan, eighty percent (80%) of the aggregate outstanding principal
balances of the Eligible Contracts, as set forth and computed on the Compliance
Certificate for the $8,000,000 Loan most recently delivered to, and accepted by,
Lender in accordance with the Agreement.
"Controlled Partnership" means a general partnership of which
any Borrower or Subsidiary is a general partner, or a limited partnership whose
sole general partner is a Borrower and with respect to which partnership such
Borrower or Subsidiary is entitled to receive not less than 50% of the
distributions of cash made to the partners thereof, other than any preferred
cash distribution arrangement approved by Lender in writing.
"Current Assets" and "Current Liabilities" mean, at any time,
all assets or liabilities, respectively, that, in accordance with Generally
Accepted Accounting Principles should be classified as current assets or current
liabilities, respectively, on a balance sheet of a Person.
"Debt Service" means, at any time, the sum of (i) all interest
payments for the prior twelve (12) months plus (ii) current maturities (due
within the next twelve (12) month period) of Indebtedness.
"Default" and "Event of Default" each mean the occurrence,
with respect to any of the Loans, of an event described in Section 9.1 of
the Agreement.
"Dollars" and "$" each mean United States Dollars.
"$8,000,000 Loan" means the aggregate unpaid principal balance
of all Advances made pursuant to Article of the Agreement, whether in the form
of the Warehouse Loan or the Term Loan(s).
"Eligible Account" means, at any time, an Account that
conforms and continues to conform to each and all of the following conditions:
(A) The Account arose from a bona fide outright sale of Goods
by any Borrower or from services performed by such Borrower and such Goods have
been shipped to the appropriate Account Debtors or their designees (or the sale
has otherwise been consummated) or the services have been performed for the
appropriate Account Debtor;
(B) The Account is based upon an enforceable order or
contract, written or oral, for Goods shipped or held for services performed and
the same were shipped, held, or performed in accordance with such order or
contract;
(C) Such Borrower's title to the Account and, except as to the
Account Debtor, to any Goods is absolute and is not subject to any prior
assignment, claim, lien, or security interest, except Permitted Liens;
(D) The amount shown on such Borrower's books, and on any
invoice or statement delivered to Lender, is owing to such Borrower, less any
partial payment that has been made thereon by any Person;
(E) The Account shall be eligible only to the extent that it
is not subject to any claim of reduction, counterclaim, set-off, recoupment, or
any claim for credits, allowances, or adjustments by the Account Debtor because
of return, inferior, or damaged Goods or unsatisfactory services, or for any
other reason, except for customer discounts, not to exceed five percent (5%),
allowed for prompt payment;
(F) The Account Debtor has not returned or refused to retain,
or otherwise notified such Borrower of any dispute concerning, or claimed
nonconformity of, any of the Goods or services from the sale of which the
Account arose;
(G) The Account is due and payable not more than thirty (30)
days from the date of the invoice therefor and the invoice has not been
re-dated;
(H) The Account is not more than sixty (60) days past due nor
outstanding more than ninety (90) days from the date of the invoice therefor and
the invoice has not been re-dated;
(I) The Account does not arise out of a contract with, or
order from, an Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment by such Borrower to Lender of the Account arising
with respect thereto;
(J) Such Borrower has not received any note, trade acceptance,
draft or other Instrument with respect to, or in payment of, the Account nor any
Chattel Paper with respect to the Goods giving rise to the Account, unless, if
any such Instrument or Chattel Paper has been received, such Borrower
immediately notifies Lender and endorses or assigns and delivers the same to
Lender;
(K) Such Borrower has not received any notice of the death of
the Account Debtor or a partner thereof; nor of the dissolution, termination of
existence, insolvency, business failure, appointment of a receiver for any part
of the property of, assignment for the benefit of creditors by, or the filing of
a petition in bankruptcy, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against, the Account Debtor. Upon receipt by
such Borrower of any such notice, it will immediately give Lender written notice
and advice thereof;
(L) The Account Debtor is not a Subsidiary or other Affiliate
of such Borrower;
(M) The Account does not arise out of a contract with, or
order from, an agency of the United States Government; and
(N) Lender has not deemed such Account ineligible because of
uncertainty about the creditworthiness of the Account Debtor or because Lender
otherwise reasonably considers the collateral value thereof to Lender to be
impaired or its ability to realize such value to be insecure.
Eligible Accounts shall be valued at the lower of cost or air
market value. Any Chattel Paper which is an Eligible Contract and included in
the Contracts Borrowing Base shall be excluded from the definition of Eligible
Account. In the event of any dispute under the foregoing criteria about whether
an Account is or has ceased to be an Eligible Account, the sole decision and
discretion of Lender shall control.
"Eligible Contract" means, at any time, Chattel Paper upon
which Lender has a property perfected security interest and that conforms and
continues to conform to each and all of the following conditions:
(A) The representations contained in Section 6.2 and Section
6.3 of the Agreement are true and correct in all respects with respect to
the Chattel Paper;
(B) The Chattel Paper arose out of the retail sale of a new
home manufactured by one of the Borrowers or the sale of a manufactured home
repossessed by Cavalier Acceptance;
(C) The Chattel Paper evidences the obligation of a retail
customer to repay Indebtedness incurred to purchase a new home manufactured by
one of the Borrowers or the sale of a manufactured home repossessed by Cavalier
Acceptance;
(D) The Chattel Paper has been duly assigned to, and is owned
by, Cavalier Acceptance;
(E) The Chattel Paper is not more than ninety (90) days past
due in payment and the Chattel Paper has not been re-dated;
(F) The Chattel Paper evidences an amount financed not in
excess of $70,000;
(G) The portfolio index score used by Cavalier Acceptance to
underwrite such Chattel Paper was not less than 70;
(H) The Chattel Paper was funded by Cavalier Acceptance on or
after January 1, 1994; and
(I) The Chattel Paper has been reviewed and approved by Lender
in its sole discretion.
In the event of any dispute under the foregoing criteria about
whether Chattel Paper is or has ceased to be an Eligible Contract, the sole
decision and discretion of Lender shall control.
"Eligible Inventory" means, at any time, Inventory of any
Borrower held at the location or locations specified on Exhibit H to the
Agreement, which is not (a) damaged or defective in any way, (b) sold or
segregated for sale, or (c) consigned Inventory. Eligible Inventory shall be
valued at the lower of cost or fair market value; provided, however, that,
Lender may exclude from the Borrowing Base all or a proportionate part of any
particular portion of any Borrower's Inventory which Lender reasonably deems
ineligible because its market value has declined or because Lender otherwise
reasonably considers the collateral value thereof to Lender to be impaired or
its ability to realize such a value to be insecure.
"Environmental Laws" means the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980 (CERCLA), as
amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource
Conservation and Recovery Act (RCRA), as amended (42 U.S.C. Sections 6901, et
seq.), the Clean Water Act, as amended (33 U.S.C. Sections 1251, et seq.), the
Clean Air Act, as amended (42 U.S.C. Sections 7401, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. Sections 2601, et seq.), the
Emergency Planning and Community Right-to-Know Act (EPCRA), as amended (42
U.S.C. Sections 11001, et seq.), and the rules and regulations adopted and
publications promulgated pursuant thereto, and the rules and regulations of the
Occupational Safety and Health Administration (OSHA) pertaining to occupational
exposure to asbestos, as amended, and any other federal, state or local
environmental law, ordinance, rule, or regulation now or hereafter in effect.
"ERISA" means the federal Employee Retirement Income Security
Act of 1974, as amended and in effect from time to time, and the regulations
promulgated by the Department of Labor or the Pension Benefit Guaranty
Corporation thereunder.
"ERISA Affiliate" means any trade or business, whether or not
incorporated, that with Borrower is a member of a group that would be treated as
a single employer for purposes of Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended.
"Financial Statements" means the Consolidated balance sheets
of Cavalier Homes and the Consolidated Entities as of December 31, 1992, and
Consolidated statements of income and retained earnings and Cash Flows of
Cavalier Homes and the Consolidated Entities for the years or months ended on
such dates all as furnished to Lender, and shall also mean any such balance
sheets and statements as may hereafter be furnished by any Borrower to Lender.
"Five Year Treasury" means the weekly average yield on United
States treasury securities adjusted to a constant maturity of five (5) years, as
released each Monday by the Federal Reserve Board in Release H.15. The Five Year
Treasury on February 17, 1994 was 5.36%.
"Fixed Assets" means, at any time, all assets (other than
Current Assets) that should, in accordance with Generally Accepted Accounting
Principles be classified as assets on a balance sheet of any Borrower.
"Generally Accepted Accounting Principles" and "GAAP" each
mean generally accepted principles of accounting in effect from time to time in
the United States applied in a manner consistent with those used in preparing
such financial statements as have theretofore been furnished to Lender by
Borrowers.
"Guaranty Agreement" means the guaranty of payment duly
authorized and executed by Cavalier Homes at Closing and in form satisfactory to
Lender, as such Guaranty Agreement may be hereafter amended or supplemented.
Such Guaranty Agreement shall unconditionally guarantee the repayment of the
$8,000,000 Loan made by Lender to Cavalier Acceptance.
"Hazardous Materials" means any asbestos, urea formaldehyde
foam insulation, flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, or related or
unrelated substances or materials defined, regulated, controlled, limited or
prohibited in any Environmental Laws.
"Indebtedness" means, as to any Person, all items of
indebtedness, obligation or liability, whether matured or unmatured, liquidated
or unliquidated, direct or contingent, joint or several, including, but without
limitation:
(A) All indebtedness guaranteed, directly or indirectly, in
any manner, or endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise:
(1) to purchase such indebtedness; or
(2) to purchase, sell or lease (as lessee or
lessor) property, products, materials or
supplies or to purchase or sell services,
primarily for the purpose of enabling the
debtor to make payment of such indebtedness
or to assure the owner of the indebtedness
against loss; or
(3) to supply funds to or in any other manner
invest in the debtor;
(C) All indebtedness secured by (or for which the holder of
such indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of Goods or
services under leases that, in accordance with Generally Accepted Accounting
Principles, should not be reflected on the lessee's balance sheet.
"Initial Participating Subsidiaries" means all of Cavalier
Homes of Alabama, Inc., an Alabama corporation, Cavalier Homes of Texas, Inc., a
Texas corporation, Star Industries, Inc., a Delaware corporation, Buccaneer
Homes of Alabama, Inc., an Alabama corporation, Brigadier Homes of North
Carolina, Inc., a North Carolina corporation, Mansion Homes, Inc., a Georgia
corporation, Homestead Homes, Inc., a Georgia corporation, and Cavalier
Acceptance Corporation, an Alabama corporation, collectively.
"Insurance Policy" means that certain life insurance policy in
the amount of $2,000,000 naming Jerry F. Wilson as insured, which is assigned to
Lender as additional security for the Obligations in the Assignment of Life
Insurance.
"Law" and "Laws" each mean all ordinances, statutes, rules,
regulations, orders, injunctions, judgments, writs or decrees of any government
or political subdivision or agency thereof, or any court or similar entity
established by any thereof.
"Lender" means First Commercial Bank, an Alabama state banking
corporation.
"Letter of Credit Borrowings" means the maximum aggregate
amount that Lender could be required to pay under any drafts that conceivably
could be drawn under all Letters of Credit outstanding on such date, but does
not include drafts that have been drawn and paid.
"Letter of Credit Obligations" means (a) the Letter of Credit
Borrowings and (b) the reimbursement obligations and other obligations of
Borrowers under this Agreement with respect to drawings made on Letters of
Credit (including any obligations owing under the application or agreement
relating to any such Letter of Credit), including all principal, interest, fees
and other charges relating thereto.
"Letter of Credit" means each letter of credit issued by
Lender pursuant to Section 2.9 of the Agreement, and "Letters of Credit" means
all of them, collectively.
"Liabilities" means all Indebtedness and all other items that,
in accordance with Generally Accepted Accounting Principles, should be
classified as liabilities on a balance sheet of a Person.
"Loan Documents" means the Agreement, the Revolving Note, the
Warehouse Note, and each Term Note, the applications for Letters of Credit, the
Assumption Agreements, the Subrogation and Contribution Agreements, the Security
Documents and all other agreements, instruments and documents executed or
delivered at any time in connection with the Obligations, or to evidence or
secure any of the Obligations, all as may be amended or supplemented from time
to time.
"Loan Loss Reserve" means an allowance of reserve funds
established and maintained by Cavalier Acceptance, through charges made against
operating income, to be used for the purpose of absorbing losses from Cavalier
Acceptance's loan portfolio.
"Loans" means the Revolving Loan and the $8,000,000 Loan
(including the Warehouse Loan and all Term Loan(s) thereunder), collectively.
"Loan Termination Date" means, (i) with respect to the
Revolving Loan, the earliest of (A) March 31, 1995 or (B) upon demand by Lender;
(ii) with respect to the Warehouse Loan, the earliest of (A) February 28, 1995
or (B) the date to which the maturity of the Warehouse Note may be accelerated
pursuant to Section 9.2 of the Agreement; and (iii) with respect to any Term
Loan, the earlier of (A) the maturity date of the applicable Term Note or (B)
the date to which the maturity of the applicable Term Note may be accelerated
pursuant to Section 9.2 of the Agreement.
"Long-Term Liabilities" means Liabilities less the portion
thereof that constitutes Current Liabilities.
"Net Working Capital" means, at any time, the amount by which
Current Assets exceed Current Liabilities.
"Net Worth" means, at any time, Stockholders' Equity, less the
sum of:
(A) Any surplus resulting from any write-up of assets
subsequent to the date of Closing;
(B) Any amount at which shares of capital stock of Borrower
appear as an asset on Borrower's balance sheet; and
(C) Loans and advances to stockholders, directors, officers or
employees, of Borrower or any Affiliate.
"Notes" means the Revolving Note, the Warehouse Note and the
Term Note(s), collectively.
"Obligations" means the obligations, whether joint or several,
of Borrowers:
(A) To pay the principal of and interest on the Revolving
Note, the Warehouse Note, and the Term Note(s) in accordance with the terms
thereof and to satisfy, pay and perform the Letter of Credit Obligations and all
other liabilities to Lender, whether under the Agreement or otherwise, whether
now existing or hereafter incurred, matured or unmatured, direct or contingent,
joint or several, including any extensions, modifications, and renewals thereof
and substitutions therefor;
(B) To repay to Lender all amounts advanced by Lender under
the Agreement or under any of the Security Documents, or otherwise on behalf of
any Borrower, including, without limitation, advances for principal or interest
payments to prior secured parties, mortgagees, or lienors, or for taxes, levies,
insurance rent, repairs to or maintenance or storage of any of the Collateral;
and
(C) To reimburse Lender, on demand, for all of Lender's
expenses and costs, including the reasonable fees and expenses of its counsel,
in connection with the preparation, administration, amendment, modification, or
enforcement of the Agreement and the documents required or contemplated
hereunder, including, without limitation, any proceeding brought or threatened
to enforce payment of any of the obligations referred to in the foregoing
paragraphs (A) and (B); provided, however, that the obligation of Borrower to
reimburse Lender for the legal fees and expenses incurred in the initial
preparation of these documents shall be limited to $5,000.
"Participant" means any bank, financial institution, Affiliate
of Lender, or other entity which purchases an interest in the Revolving Note,
the Warehouse Note or any Term Note from Lender at any time.
"Participating Partnership" means any Controlled Partnership
that hereafter executes and delivers to the Lender an Assumption Agreement, a
Security Agreement and all other documents necessary to assume joint and several
liability as to the Obligations arising with respect to the Revolving Loan or
any agreement or instrument executed by such Controlled Partnership in
connection therewith (to the extent of its Partnership Liabilities) and to
include all of its Accounts, Inventory and other Collateral in the Collateral.
"Participating Subsidiary" means (a) the Initial Participating
Subsidiaries and (b) any other Subsidiary that hereafter executes and delivers
to the Lender an Assumption Agreement, a Security Agreement and all other
documents necessary to assume joint and several liability as to the Obligations
arising with respect to the Revolving Loan or any agreement or instrument
executed by such Subsidiary in connection therewith (in the maximum amount
provided for in such Assumption Agreement) and to include all of its Accounts,
Inventory and other Collateral in the Collateral.
"Partnership Liability" means, with respect to a Participating Partnership, that
part, if any, of an Advance (together with interest thereon and fees, prepayment
premiums and other charges properly attributable thereto) that is received by
and used by or for the benefit of such Participating Partnership, as certified
to Lender by Cavalier Homes, under Section 4.2, in connection with Cavalier
Homes' request for such Advance, and "Partnership Liabilities" means the
aggregate amount of all such parts of Advances that are received by and used by
or for the benefit of such Participating Partnership.
"Pension Plan" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA that is subject to Section 302 of ERISA.
"Permitted Liens" means:
(A) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or to participate in any
fund in connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
(C) Liens of mechanics, materialmen, warehousemen, carriers,
or other like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of ten percent (10%)
of the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(E) Encumbrances consisting of zoning restrictions, easement
or other restrictions on the use of real property, none of which materially
impairs the use of such property by Borrower or any Consolidated Entity in the
operation of its business, and none of which is violated in any material respect
by existing or proposed structures or land use;
(F) Liens in favor of Lender;
(G) Existing liens set forth or described on Exhibit F to the
Agreement;
(H) Purchase money security interests granted to secure not
more than the purchase price of assets, the purchase of which does not violate
the Agreement or any instrument or document contemplated under the Agreement;
(I) Non-purchase money security interests in the real property
of any Borrower or Consolidated Entity granted to secure aggregate Indebtedness
not to exceed $1,000,000; and
(J) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long as levy
and execution thereon have been stayed and continue to be stayed and they do
not, in the aggregate, materially detract from the value of the property of any
Borrower or any Consolidated Entity or materially impair the use thereof in the
operation of its business:
(1) Claims or liens for taxes, assessments or
charges due and payable and subject to interest or penalty;
(2) Claims, liens and encumbrances upon, and
defects of title to, real or personal property, including any attachment of
personal or real property or other legal process prior to adjudication of a
dispute on the merits;
(3) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other like liens; and
(4) Adverse judgments on appeal.
"Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government or political subdivision or agency thereof, and any
other legal entity.
"Pledge Agreement" means each of the assignments of the
Pledged Stock as Collateral, duly authorized and executed by Cavalier Homes,
Star Industries, Inc., or Cavalier Acceptance, as applicable, at Closing and in
form satisfactory to Lender, as each such Pledge Agreement may be hereafter
amended or supplemented, and "Pledge Agreements" means all of them,
collectively.
"Pledged Stock" has the meaning given to such term in the
Pledge Agreement.
"Prime Rate" means the rate of interest periodically
designated by Lender as its Prime Rate. The Prime Rate is not necessarily the
lowest interest rate charged by Lender. The Prime Rate on the date of the
Agreement is 6%.
"Records" means correspondence, memoranda, tapes, discs,
microfilm, microfiche, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary or machine language, and
all filing cabinets, computer hardware, and other containers in which any of the
foregoing is stored, maintained or updated.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System as now or from time to time hereafter in effect and
shall include any successor or other regulation or official interpretation of
said Board of Governors relating to the extension of credit by banks for the
purpose of purchasing or carrying margin stocks applicable to member banks of
the Federal Reserve System.
"Revolving Loan" means the aggregate unpaid principal balance
from time to time of all Advances made pursuant to Article of the Agreement.
"Revolving Loan Commitment" means the Lender's commitment to
lend to Borrowers up to the sum of $5,000,000 in principal amount outstanding
from time to time pursuant to Article of the Agreement, and subject to, the
terms of the Agreement.
"Revolving Note" means the promissory note, in form
satisfactory to Lender, dated as of the date of the Agreement and payable on
demand, but if no demand is made, on March 31, 1995, made by each Borrower to
evidence such Borrower's joint and several obligation to repay the Revolving
Loan and the interest thereon, and includes any amendment to such note and any
promissory note given in extension or renewal of, or in substitution for, such
note.
"Revolving Rate" means the rate defined in Section 2.5(A) of
the Agreement.
"Security Documents" means the Pledge Agreements, the
Assignment of Life Insurance, the Guaranty Agreement, and any documents required
or contemplated under Article of the Agreement, whether delivered at or after
the Closing, together with any other documents or agreements, now or hereinafter
in effect, which secure (A) the payment of any of the Loans or (B) the
performance of the Obligations of any Borrower thereunder.
"Stockholders' Equity" means, at any time, the sum of the
following accounts less treasury stock carried at cost) set forth in a balance
sheet of Borrower (or, if the Borrower in question is Cavalier Homes, a
Consolidated balance sheet of the Consolidated Entities), prepared in accordance
with Generally Accepted Accounting Principles consistently applied:
(A) The par or stated value of all outstanding capital
stock;
(B) Capital surplus; and
(C) Retained earnings.
"Subrogation and Contribution Agreement" means each
Subrogation and Contribution Agreement duly authorized and executed at Closing
by each Borrower or duly authorized and executed thereafter by each Subsidiary
and Controlled Partnership that becomes a Participating Subsidiary or
Participating Partnership thereafter and substantially in the form of Exhibit D
to the Agreement, as each such Subrogation and Contribution Agreement may be
hereafter or thereafter supplemented or amended, and "Subrogation and
Contribution Agreements" means all of them, collectively.
"Subsidiary" means any corporation of which more than fifty
percent (50%) of the outstanding voting securities shall, at the time of
determination, be owned directly, or indirectly through one or more
intermediaries, by any Borrower.
"Tangible Net Worth" means, at any time, Stockholders' Equity
less the sum of:
(A) Any surplus resulting from any write-up of assets
subsequent to the date of the latest Financial Statements delivered to Lender
prior to Closing;
(B) Goodwill, including any amounts, however designated on a
balance sheet of any Borrower, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of any Borrower;
(C) Patents, trademarks, trade names and copyrights;
(D) Any amount at which shares of capital stock of any
Borrower appear as an asset on any Borrower's balance sheet;
(E) Loans and advance to stockholders, directors, officers or
employees;
(F) Deferred expenses; and
(G) Any other amount in respect of an intangible that, in
accordance with Generally Accepted Accounting Principles, should be classified
as an asset on a balance sheet of any Borrower.
"Term Loan" and "Term Loans" means the unpaid principal
balance from time to time on that portion of the $8,000,000 Loan which has been
converted to term loan(s) pursuant to requirements of the Agreement.
"Term Note" means the promissory note of Cavalier Acceptance,
substantially in the form of Exhibit A to the Agreement, evidencing its
obligation to repay a Term Loan, and includes any amendment to such note and any
promissory note given in extension or renewal of, or in substitution for, such
note, and "Term Notes" means, collectively, all of the Term Notes so made by
Cavalier Acceptance.
"Term Rate" means the rate defined in Section 3.6(B) of the
Agreement.
"UCC-1" means each financing statement to be filed pursuant to
the Uniform Commercial Code, as enacted in any state in which any of the
Collateral is located, in order to perfect Lender's lien on the Collateral.
"Usage Fee" means the fee due to Lender pursuant to Section
2.10 hereof.
"Warehouse Loan" means the aggregate unpaid principal balance
from time to time of the short-term portion of the $8,000,000 Loan.
"Warehouse and Term Loan Commitment" means the Lender's
commitment to lend to Cavalier Acceptance up to the sum of $8,000,000 in
principal amount outstanding from time to time pursuant to Article of the
Agreement, and subject to, the terms of the Agreement.
"Warehouse Note" means the promissory note of Cavalier
Acceptance, in form satisfactory to Lender, dated as of the date of the
Agreement and payable on January 31, 1995, made by Cavalier Acceptance to
evidence Cavalier Acceptance's obligation to repay the Warehouse Loan and the
interest thereon, and includes any amendment to such note and any promissory
note given in extension or renewal of, or in substitution for, such notes.
"Warehouse Rate" means the rate defined in Section 3.6(A)
of the Agreement.
CAVALIER HOMES, INC.
1993 AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
As used herein, the following terms shall have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:
(a) "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Company" shall mean Cavalier Homes, Inc, a Delaware
corporation.
(d) "Committee" shall mean the Compensation Committee of the
Board.
(e) "Executive Officers" shall have the meaning afforded that term
by Rule 3b-7 promulgated under the 1934 Act.
(f) "Fair Market Value" shall mean the closing price per share of
the Stock on the principal United States securities exchange registered
under the 1934 Act, or the last sales price per share of Stock quoted
on an automated quotation system of a registered securities association,
if applicable, on which such Stock is sold in the regular way.
(g) "Stock" with respect to each share to which that term refers,
shall mean one (1) share of Common Stock, par value $0.10 per share, of the
Company now authorized; any other shares of the Stock of the Company
hereafter authorized; and securities of the Company which, under any
conditions, will be converted into or exchanged for any such Stock.
(h) "Option" shall mean an option to purchase Stock granted pursuant
to the provisions of Article VI hereof.
<PAGE>
(i) "Optionee" shall mean an officer (who may also be a director) or
other key employee of the Company or any of its subsidiaries to whom an
Option has been granted hereunder.
<PAGE>
(j) "Plan" shall mean the Cavalier Homes, Inc. 1993 Amended and
Restated Nonqualified Stock Option Plan, the terms of which are set forth
herein.
(k) "Stock Option Agreement" shall mean the agreement between the
Company and the Optionee under which the Optionee may purchase Stock
hereunder.
ARTICLE II
THE PLAN
Section 2.1 Name
This Plan shall be known as the "Cavalier Homes, Inc. 1993 Amended
and Restated Nonqualified Stock Option Plan."
Section 2.2 Purpose
The purpose of the Plan is to advance the interests of the Company and
its stockholders by affording to officers (who may also be directors) and other
key employees of the Company and its subsidiaries an opportunity to acquire or
increase their proprietary interest in the Company by the grant to such officers
and employees of Options under the terms set forth herein. The purpose of the
Plan is also to provide compensation to selected officers and employees for past
services rendered to the Company or its subsidiaries. By thus compensating such
officers and employees and encouraging such officers and employees to become
owners of Stock of the Company, the Company seeks to attract, retain, compensate
and motivate those highly competent individuals upon whose judgment, initiative,
leadership, and continued efforts the success of the Company in large measure
depends.
Section 2.3 Effective Date
The Plan shall be deemed adopted and shall become effective as of the
date of its approval by the Board, subject to its subsequent approval within
twelve (12) months from the date of such action by the Board by the affirmative
vote of a majority of the outstanding shares of Stock of the Company present in
person or by proxy at the stockholders meeting and entitled to vote thereon,
voting in accordance with the Restated Certificate of Incorporation of the
Company and the General Corporation Law of the State of Delaware, at an annual
or special meeting of the stockholders of the Company. The Plan shall expire ten
(10) years from the date of its adoption by the Board. Any Option granted prior
to stockholder approval of the Plan as herein provided shall be subject to such
approval and shall have no legal effect and shall convey no rights to the holder
thereof in the event said stockholder approval of the Plan is not obtained.
<PAGE>
ARTICLE III
PARTICIPANTS
Section 3.1 Eligibility
Except as otherwise provided herein, any officer (who may also be a
director) and any key employee of the Company or its subsidiaries shall be
eligible to participate in the Plan. Subject to the express provisions of the
Plan, the Committee may grant Options to any eligible officer or employee of the
Company or its subsidiaries in accordance with such determinations as the
Committee from time to time in its sole discretion shall make; provided,
however, that no member of the Committee shall be eligible to participate in the
Plan.
ARTICLE IV
ADMINISTRATION
Section 4.1 Duties and Powers of the Committee
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and authority
to determine from among eligible officers and employees those to whom and the
time or times at which Options may be granted, the number of shares of Stock to
be subject to each Option, the exercise price of each Option, and the period for
the exercise of such Option which need not be the same for each grant hereunder.
Subject to the express provisions of the Plan, the Committee shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the details and provisions of each
Stock Option Agreement, and to make all other determinations necessary or
advisable in the administration of the Plan.
Section 4.2 Majority Rule
The Committee currently consists of two persons, and the concerted
actions of both such persons in administering the Plan shall be final and
binding on all parties. In the event that the Board hereafter appoints more
persons to serve on the Committee, a majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority present at a
meeting at which a quorum is present or any action taken without a meeting
evidenced by a writing executed by a majority of the whole Committee shall
constitute the action of the Committee.
<PAGE>
Section 4.3 Company Assistance
The Company shall supply full and timely information to the Committee
on all matters relating to eligible officers and employees, their employment,
death, retirement, disability, or other termination of employment, and such
other pertinent facts as the Committee may require. The Company shall furnish
the Committee with such clerical and other assistance as is necessary in the
performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
Section 5.1 Limitations
The number of shares of Stock which may be issued and sold hereunder
shall not exceed 330,000 shares of Common Stock, subject to adjustment pursuant
to the provisions of Section 5.3 hereof. Such shares may be either authorized
and unissued shares or shares issued and thereafter acquired by the Company, and
such amount of shares shall be and is hereby reserved for issuance pursuant to
this Plan. Any of such shares which may remain unsold and which are not subject
to outstanding Options at the termination of the Plan shall cease to be reserved
for the purpose of the Plan, but until the termination of the Plan, the Company
shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. No Optionee hereunder shall receive Options which, in
the aggregate, exceed 100,000 shares of Stock.
Section 5.2 Options Granted Under Plan
Shares of Stock with respect to which an Option granted hereunder shall
have been exercised shall not again be available for grant hereunder. If Options
granted hereunder shall expire, terminate, or be canceled for any reason without
being wholly exercised, new Options may be granted hereunder covering the number
of shares to which such Option expiration, termination or cancellation relates.
Section 5.3 Antidilution
<PAGE>
In the event that the outstanding shares of Stock hereafter are
increased, decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of reorganization,
recapitalization, reclassification, combination of shares, stock split, or stock
dividend after the date that the Board initially adopts this Plan,
(a) the aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted appropriately; and
(b) rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted appropriately.
In the event of (i) a dissolution or liquidation of the Company, (ii)
any merger, consolidation or combination involving the Company, other than (A)
any merger, consolidation or combination that is solely for the purpose of
changing the domicile of the Company, and (B) any merger, consolidation or
combination that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power of
the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation or combination, or (iii) any sale
of substantially all the assets of the Company or a sufficient amount of stock
in the Company (whether by tender offer, original issuance, or a single or
series of related stock purchase and sale agreements and/or transactions)
sufficient to confer on the purchaser or purchasers thereof (whether
individually or in a group) the ability to elect a majority of the Board of
Directors of the Company, each outstanding Option granted hereunder shall
terminate, but the Optionee shall have the right, immediately prior to such
dissolution, liquidation, merger, consolidation, combination, or asset or stock
sale to exercise outstanding Options in full, without regard to any installment
exercise provisions and whether the Option by its terms is at such time
immediately exercisable in full, to the extent that it shall not have been
exercised. In the event of a transaction of the nature described in (ii) above,
nothing contained herein shall prevent the Board and the Board of Directors of
the surviving corporation and/or the acquiring corporation from converting an
Option into an option to purchase stock in the surviving or acquiring
corporation on a fair and equitable basis.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined solely by the Committee, and any such
adjustment shall provide for the elimination of fractional share interests.
ARTICLE VI
OPTIONS
Section 6.1 Option Grant and Agreement
Each Option granted hereunder shall be evidenced by a Stock Option
Agreement dated as of the date of grant and executed by the Company and the
Optionee, which Agreement shall set forth such terms and conditions as may be
determined by the Committee consistent with the Plan.
<PAGE>
Section 6.2 Option Price
The per share price of the Stock subject to each Option shall be
determined by the Committee in the exercise of its discretion, with due
consideration for the compensation and incentive purposes of this Plan, but said
per share price shall not be less than the greater of (i) the par value of the
Stock on the date the Option is granted or any time during which the Option is
exercisable, or (ii) 60% of the Fair Market Value of the Stock on the date of
grant.
Section 6.3 Option Period
Each Option granted hereunder must be granted within ten years from the
effective date of the Plan. The period for the exercise of each Option shall be
determined by the Committee, but in no instance shall such period exceed ten
years. Options granted to Executive Officers and employee directors of the
Company shall not be exercisable within the first six months after the date of
grant, unless it should become exercisable upon a change of control of the
Company pursuant to Section 5.3 hereof. The Committee in its discretion may
accelerate the times when Options are exercisable after the initial grant
thereof; provided, however, that the Committee may not exercise such power in a
manner that would shorten the initial six-month period for Executive Officers or
employee directors of the Company referred to in the foregoing sentence if to do
so would cause a violation of Section 16 of the 1934 Act or the rules and
regulations promulgated thereunder. For purposes of grants of Options made under
this Plan prior to the date of stockholder approval of the Plan, the six-month
period shall be deemed to commence as of the date of stockholder approval.
Section 6.4 Option Exercise
(a) Options may be exercised with respect to whole shares only, for
such shares of Stock and within the period permitted by the exercise thereof as
determined by the Committee, and shall be exercised by written notice of intent
to exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office in the State of Alabama, and payment in full
to the Company at said office of the amount of the Option price for the number
of shares of Stock with respect to which the Option is then being exercised.
(b) No Option granted hereunder shall be exercisable unless at all
times during the period beginning on the date of the granting of such Option and
ending on the day which is three months before the date of exercise, or ending
on a day which is twelve (12) months before the date of exercise in the event
that the Optionee is an Executive Officer (or ending on such other date at the
discretion of the Compensation Committee), the Optionee was a full-time employee
of either the Company or a parent or subsidiary of the Company, or a corporation
(or parent or subsidiary of such corporation) issuing or assuming such Option in
accordance with the terms of this Plan.
<PAGE>
Section 6.5 Nontransferability of Option
No Option shall be transferred by an Optionee otherwise than by will or
the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended (the
"Code"), or Title I of the Employee Retirement Income Security Act, as amended
("ERISA"), or the rules thereunder.
Section 6.6 Effect of Disability, Death or Other Termination of Employment
(a) In the event that the employment of an Optionee to whom an Option
shall have been granted shall be terminated for any reason other than for cause
(as defined below), such Option may be exercised (to the extent that the
Optionee shall have been entitled to do so at the date of his termination) by
such Optionee, (i) if such Optionee is not an Executive Officer of the Company
at any time after such termination and before the earlier of three months or the
original expiration date of the Option, but only to the extent such Optionee had
the right to exercise such Option at the date of such termination; or (ii) if
such Optionee is an Executive Officer of the Company, at any time after such
termination and before the earlier of twelve months or the original expiration
date of the Option, but only to the extent such Optionee had the right to
exercise such Option at the date of such termination.
(b) If the employment of an Optionee to whom an Option shall have been
granted is terminated for cause, as defined below, such Option shall terminate
immediately upon such termination. For purposes of this Section 6.6, the term
"for cause" shall be defined as a good faith express determination by the Board
that the Optionee has been guilty of willful misconduct or dishonesty, or a good
faith express determination by the Board that the Optionee has been derelict in,
has breached or has grossly neglected the Optionee's duty to the Company.
(c) If an Optionee to whom an Option shall have been granted shall die
or become totally and permanently disabled while he is employed by the Company
or its subsidiaries, or within twelve months (in the case of an Executive
Officer) or three months (in the case of an Optionee who is not an Executive
Officer) after the termination of continuous employment with the Company or its
subsidiaries, and the Optionee has not otherwise been terminated for cause, such
Option may be exercised (to the extent that the Optionee would otherwise have
been entitled to do so at the date of his death or total and permanent
disability) by such Optionee, his personal representatives, the executor or
administrator of the estate of the Optionee, or the person or persons to whom an
Option granted hereunder shall have been validly transferred pursuant to a will
or the laws of descent and distribution.
(d) No transfer of an Option by the Optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of such Option.
<PAGE>
(e) The Compensation Committee may, in their sole discretion, either at
the date of execution of Stock Option Agreement or at any time thereafter,
increase the amount of time during which an Optionee or his personal
representative, executor, administrator or other legatee or devisee may exercise
such Option following such Optionee's termination other than for cause, as set
forth in paragraphs (a) and (b) above.
Section 6.7 Rights as Stockholder
An Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any shares subject to such Option prior to the
purchase of such shares by exercise of such Option as provided herein.
ARTICLE VII
STOCK CERTIFICATES
Section 7.1 Stock Certificates
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of an Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) the completion of any registration or other qualification of such
shares under any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall in its sole discretion deem necessary or advisable;
(b) the obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall in its sole discretion
determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons of
administrative convenience;
(d) the compliance with any and all applicable federal, state or
local laws; and
(e) such other terms and conditions as may be set forth in the Plan.
<PAGE>
ARTICLE VIII
TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
Section 8.1 Termination, Amendment, and Modification of the Plan
The Board may at any time terminate, and may at any time and from time
to time and in any respect amend or modify, the Plan; provided, however, that no
such action of the Board without approval of the stockholders of the Company may
(a) materially increase the total number of shares of Stock subject to
the Plan, except as contemplated in Section 5.3 hereof;
(b) materially increase the benefits accruing to participants
under the Plan; or
(c) materially modify the requirements as to eligibility for
participation in the Plan; and
provided, further, that no termination, amendment, or modification of the Plan
shall in any manner affect any Stock Option Agreement theretofore granted
pursuant to the Plan without the consent of the Optionee or transferee of the
Option. Except as may be necessary to comport with changes in the Code, ERISA,
and the rules thereunder, this Plan may not be amended more than once every six
months.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Employment
Nothing in the Plan or in any Option granted hereunder or in any Stock
Option Agreement relating thereto shall confer upon any employee the right to
continue in the employ of the Company or any of its subsidiaries.
Section 9.2 Other Compensation Plans
<PAGE>
The adoption of the Plan shall not affect any other stock option or
incentive or other compensation plans in effect for the Company or any of its
subsidiaries, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation for employees of the Company or
any of its subsidiaries.
Section 9.3 Plan Binding on Successors
The Plan shall be binding upon the successors and assigns of the
Company.
Section 9.4 Singular, Plural; Gender
Whenever used herein, nouns in the singular shall include the plural,
and the masculine pronoun shall include the feminine gender.
Section 9.5 Headings, Etc., No Part of Plan
Headings of Articles and Sections hereof are inserted for convenience
and references; they constitute no part of the Plan.
Section 9.6 Investment Representation
Each Stock Option Agreement shall contain an agreement that, upon
demand by the Committee for such a representation, the Optionee shall deliver to
the Committee at the time of any exercise of an Option a written representation
that the shares of Stock to be acquired upon such exercise are to be acquired
for investment and not for resale or with a view to the distribution thereof.
Upon such demand, delivery of such representation prior to the delivery of any
shares issued upon exercise of an Option and prior to the expiration of the
Option period shall be a condition precedent to the right of the Optionee or
such other persons to purchase any such shares.
Section 9.7 Compliance with Section 16
With respect to persons subject to Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
provisions of Section 16 of the 1934 Act and the rules promulgated thereunder
(including, without limitation, Rule 16b-3) or their successors under the 1934
Act. To the extent any provision of the Plan or any Stock Option Agreement or
any action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee, and
it shall be restructured to the extent deemed advisable by the Committee so to
comply.
<PAGE>
Section 9.8 Compliance with Other Laws and Regulations
The Plan, the grant and exercise of Options thereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to the completion of
any registration or qualification of such shares under any federal or state law,
or any ruling or regulation of any governmental body or national securities
exchange which the Company shall, in its sole discretion, determine to be
necessary or advisable.
Section 9.9 Withholding by the Company
A Stock Option Agreement executed pursuant to this Plan may contain a
provision to the effect that the Optionee will consent to any withholding and
other actions that the Company deems reasonably necessary to enable the Company
to obtain the benefit of an income tax deduction under the Code, and any related
state or local income tax laws, in the amount of the difference between the
Option exercise price of the Stock and its fair market value on the date of
exercise or the lapse of a restriction, as applicable.
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is executed as of December 18, 1998,
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. The Bank has agreed to lend Lamraft L.P. (the "Borrower")
an amount not to exceed $2,000,000 in principal amount (the "Loan"), as
evidenced by the Borrower's promissory note (the "Note") of even date herewith
payable to the order of the Bank.
B. Because the Guarantor is a limited partner of the Borrower
and expects to benefit materially from the business of the Borrower that will be
made possible by the Loan, the Guarantor has requested the Bank to make the Loan
to the Borrower.
C. The Bank has required, as a condition to making the Loan to
the Borrower, the execution of this Agreement by the Guarantor.
Agreement
NOW, THEREFORE, in order to induce the Bank to make the Loan
to the Borrower pursuant to the Note, 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
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
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 Note;
(d) all amounts payable by the Borrower under the terms of any
mortgages, security agreements, pledge agreements or other documents
evidencing or securing the Loan (the "Security Documents"); and
<PAGE>
(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 Note (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;
<PAGE>
(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 Loan, the interest rate borne by the 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;
<PAGE>
(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 marshalling 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.
<PAGE>
3. Waiver by Guarantor. The Guarantor unconditionally waives,
insofar as such Guarantor's obligations hereunder are concerned:
(a) notice 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 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.
<PAGE>
(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 the 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.
<PAGE>
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.
<PAGE>
7. Consent to Jurisdiction, Waiver of Jury Trial. The
Guarantor irrevocably (a) waives the Guarantors 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
_______________ of __________________, _____________, 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 Guarantors 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
Loan, the Guarantor, who acknowledges that the Guarantor will benefit from the
Loan 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 the
Loan.
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.
<PAGE>
12. Reliance. The Guarantor acknowledges that in making the
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 will not in the future monitor, carefully the
progress of construction of such project being financed with the proceeds of the
Loan, the Bank may not secure payment of the Loan by a Deed of Trust on such
project or otherwise, and the Bank does not intend to conduct any physical
inspections of project. Any rights that the Bank has under the Loan Documents
with respect to the Borrower and/or such 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 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 Note by the Bank and any
disposition and payment of the 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 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.
<PAGE>
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
<PAGE>
STATE OF ALABAMA )
)
JEFFERSON 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 10th day of December, 1998.
/s/ Carol Burkett Crawford
---------------------------
Notary Public
[AFFIX SEAL]
My commission expires: August 5, 2000
---------------
August 26, 1998
Mr. David A. Roberson
Cavalier Homes, Inc.
Highway 41 North and Cavalier Road
Addison, AL 35540
Re: Retention and Severance Agreement
Dear Mr. Roberson:
Cavalier Homes, Inc., a Delaware corporation (the "Company"), considers
the establishment and maintenance of a sound and vital senior management team to
be essential to protecting and enhancing the best interests of the Company and
its stockholders. In this connection, the Company recognizes that the
possibility of a change in control may exist in the future, and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself, to
their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. The Board has also determined that appropriate steps should be
taken to encourage senior management's participation, in the event of a proposed
change of control, in the successful completion of the change of control
transaction while maintaining their focus on business performance and strategy
execution.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement sets forth the
benefits which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a change in control of
the Company (as defined in Section 2 of this letter agreement) under the
circumstances described below.
1. Company's Right to Terminate. You acknowledge that this Agreement
does not operate as an employment contract nor establish any right of continued
employment with the Company and that the Company may terminate your employment
at any time, subject to providing the benefits hereinafter specified, if
applicable, in accordance with the terms hereof.
<PAGE>
Mr. David Roberson
August 26, 1998
Page 2
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below and
such change of control occurs prior to the termination of your employment. For
purposes of this Agreement, a "change in control of the Company" means with
respect to the Company, if subsequent to the date of this Agreement:
(a) Any person, entity or "group" (within the meaning of Rules
13d-1 through 13d-6 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (other than any subsidiary or affiliate as of the date hereof
of the Company or any employee benefit plan of the Company) (i) has acquired or
agreed to acquire beneficial ownership of 20% or more of the voting and/or
economic interest in the capital stock of the Company, or (ii) has obtained or
agreed to obtain the power (whether or not exercised) to elect a majority of the
board of directors of the Company; or
(b) A majority of the board of directors of the Company shall
consist at such time of individuals other than (x) members of the board of
directors on the date hereof and (y) other members of such board of directors
nominated, recommended, elected, or approved to succeed or become a director by
a majority of such members referred to in clause (x) or a nominating committee
elected or appointed by such members referred to in clause (x) or by members so
nominated, recommended, elected or approved (such directors described in clauses
(x) and (y) above being hereinafter sometimes referred to as "Continuing
Directors"); or
(c) The approval by the stockholders of the Company of (i) a
merger or consolidation of the Company, statutory share exchange, or other
similar transaction with another corporation, partnership, or other entity or
enterprise in which either the Company is not the surviving or continuing
corporation (other than such a transaction that is solely for the purpose of
changing the domicile of the Company) or shares of common stock of the Company
are to be converted into or exchanged for cash, securities other than common
stock of the Company, or other property, (ii) a sale or disposition of all or
substantially all of the assets of the Company, or (iii) the dissolution of the
Company; or
(d) Any transaction or event relating to the Company occurs
which is (or which would be if the Company had a class of equity securities
registered under Section 12 of the Exchange Act) required to be described
pursuant to the requirements of Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act.
3. Termination Following Change in Control. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent voluntary or involuntary termination of your
employment, whether by you or by the Company, if such termination occurs within
the period beginning on the date that the change of control is completed (the
"Change of Control Date") and ending on the second anniversary of the Change of
Control Date (the "Trigger
<PAGE>
Mr. David Roberson
August 26, 1998
Page 3
Period") unless such termination is (i) because of your death or Retirement,
(ii) by the Company for Cause or (iii) by the Company or you for Disability
(such termination within such period, as limited by clauses (i) through (iii),
being sometimes referred to hereinafter as a "Payment Trigger"). In the event
your employment is terminated within the Trigger Period, whether by you or the
Company, following the occurrence of any of the events set forth at paragraph
(c) below, such termination of your employment shall be deemed to be an
involuntary termination of your employment by the Company and shall entitle you
to the benefits provided in Section 4 hereof.
(a) Disability; Retirement.
(i) "Disability" shall mean a disability which
entitles you to a disability benefit under a disability program
sponsored or maintained by the Company; provided, that if no such
program is applicable to you, then "Disability" shall mean that, based
on medical evidence reasonably satisfactory to the Compensation
Committee of the Board, you are totally and permanently unable to
engage in any occupation or gainful employment for which you are
reasonably suited by background, training, education or experience.
(ii) Termination by the Company or you of your
employment based on "Retirement" shall mean termination in accordance
with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(b) Cause. Termination by the Company of your employment for
"Cause" shall mean termination based upon on any of the following:
(i) dishonesty or fraud by you in connection with
your employment;
(ii) appropriation (or attempted appropriation) by
you of a material business opportunity of the Company, including
attempting to secure or securing any personal profit in connection with
any transaction entered into on behalf of the Company;
(iii) misappropriation by you (or attempted
misappropriation) of any of the Company's funds or property;
(iv) your conviction of, or indictment for (or its
procedural equivalent) or entering of a guilty plea or plea of no
contest with respect to, a felony or any other criminal offense
involving moral turpitude (other than traffic offenses); or
<PAGE>
Mr. David Roberson
August 26, 1998
Page 4
(v) willful misconduct by you in the performance of
your duties with the Company, as determined by the good faith judgment
of the Compensation Committee of the Board.
For purposes of this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless done, or omitted to be done, by you not in good
faith and without any reasonable belief that your action or omission was in the
best interest of the Company. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a Notice of Termination (as defined below) from the
Chief Executive Officer of the Company or the Compensation Committee of the
Board, after reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Compensation Committee of the Board (or, if
there be no such committee or such committee delivers the Notice of Termination,
the Board of Directors), finding that in the good faith opinion of such
committee (or the Board) you were guilty of conduct set forth above in clauses
(i), (ii), (iii), (iv) or (v) of the first sentence of this paragraph and
specifying the particulars thereof in detail.
(c) Constructive Termination. Your employment will be deemed
to have been involuntarily terminated by the Company upon the termination of
your employment, whether by you or by the Company, following the occurrence of
any of the following without your prior written consent (any such event being
sometimes referred to hereinafter as your "Constructive Termination"):
(i) subsequent to a change in control of the Company,
any reduction in your title, duties, responsibilities or authority with
the Company immediately prior to the change in control, except in
connection with the termination of your employment for Cause,
Disability, Retirement or as a result of your death or voluntarily by
you; or
(ii) subsequent to a change in control of the
Company, a reduction by the Company in your base salary as in effect
immediately prior to the change in control; or
(iii) subsequent to a change in control of the
Company, a failure by the Company to continue any bonus plans in which
you are presently entitled to participate as the same may be modified
from time to time prior to (but not in anticipation of) such change in
control, or as the same may be modified following such change in
control as may be required by or desirable for the Company due to
changes to (x) the Internal Revenue Code of 1986, as amended (the
"Code"), (y) applicable accounting rules or principles or (z)
applicable laws or regulations, including, without limitation, the
Employee Retirement Income and Security Act of 1974, as amended, (the
"Bonus Plans") or a failure by the Company to continue you
<PAGE>
Mr. David Roberson
August 26, 1998
Page 5
as a participant in the Bonus Plans on at least the same basis as you
are participating in accordance with the Bonus Plans immediately prior
to the change in control; or
(iv) subsequent to a change in control of the
Company, the failure by the Company to continue in effect any benefit
or compensation plan, life insurance plan, health-and-accident plan or
disability plan in which you are participating immediately prior to the
change in control of the Company (or plans providing you with
substantially similar benefits), the taking of any action by the
Company which would materially adversely affect your participation in
or materially reduce your benefits under any of such plans or deprive
you of any material fringe benefit enjoyed by you immediately prior to
the change in control, or the failure by the Company to provide you
with the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy in effect
immediately prior to the change in control; or
(v) subsequent to a change in control of the Company,
the failure by the Company to obtain the assumption of or the agreement
to perform this Agreement by any successor as contemplated in Section 7
hereof; or
(vi) subsequent to a change in control of the
Company, a change in the location of your employment greater than fifty
(50) miles from your office location immediately prior to the change in
control; or
(vii) subsequent to a change in control of the
Company, any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (d) below (and, if applicable, paragraph (b)
above); or
(viii) subsequent to a change in control of the
Company, (A) at the direction or with the concurrence of members of the
Board or management of the Company who became such members following
the change in control, a material business strategic plan, direction,
policy or program of the Company is altered in a material manner
(hereinafter a "Policy Change"), and (B) you disagree in good faith
with such Policy Change and believe in good faith that such Policy
Change will have a material adverse effect on the Company and so state
in a written notice delivered to the Board within thirty (30) days of
becoming aware (or thirty (30) days after you, exercising reasonable
diligence, should have become aware) of such Policy Change, and (C) the
Policy Change is not reversed within thirty (30) days of the date on
which your written notice is received by the Board, and (D) you
terminate your employment with the Company as a result of such
disagreement and belief.
<PAGE>
Mr. David Roberson
August 26, 1998
Page 6
(d) Notice of Termination. Any purported termination by the
Company pursuant to your Disability or Retirement, as defined in paragraph (a)
above, or for Cause, as defined in paragraph (b) above, or by you pursuant to
your Disability or Retirement, as defined in paragraph (a) above or by you or
the Company based on an event of Constructive Termination, as defined in
paragraph (c) above, shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (B) if you employment is terminated due to your death, the date of your
death, (C) if your employment is terminated pursuant to paragraph (b) above, the
date specified in the Notice of Termination, (D) if your employment is
terminated for Retirement, the date specified in the Notice of Termination, and
(E) if your employment is terminated for any other reason, the date on which a
Notice of Termination is given; provided that if within thirty (30) days after
any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected);
provided further, however, that if such disputed termination constitutes a
Payment Trigger, the Trigger Period shall not run pending resolution of the
dispute but shall recommence upon the date that the dispute is finally
determined (as set forth in the preceding proviso).
4. Certain Benefits Upon Termination. (a) If, after a change in control
of the Company shall have occurred, as defined in Section 2 above, your
employment with the Company shall be terminated (including a Constructive
Termination) within the Trigger Period by the Company or you other than for
Cause, Disability, Retirement or death, and other than by your voluntarily
terminating your employment with the Company, then you shall be entitled to the
benefits provided below:
(i) the Company shall pay to you within thirty (30)
days following the Date of Termination in a lump sum cash payment your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given plus (A) credit for any vacation earned but not taken,
(B) the amount, if any, of any bonus or long-term incentive compensation for a
past fiscal year which has been earned but not yet been paid to you, (C) the
amount, if any, of any bonus for the current year to be paid as a percentage
of Company profit based on the Company's results through the most recent fiscal
quarter as of the Date of Termination without
<PAGE>
Mr. David Roberson
August 26, 1998
Page 7
pro-ration, (D) a pro-rated payment, based on the Company's results through the
most recent quarter as of the Date of Termination, with respect to the long-term
incentive compensation payable under the Company's performance based long-term
incentive program for the long-term performance period that next ends following
the Date of Termination, and (E) a pro-rated payment, based on the Company's
results as of the Date of Termination, of any other bonus due under any other
Bonus Plans;
(ii) in lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Company shall pay as
severance pay to you within thirty (30) days following the Date of Termination a
lump sum cash amount equal to 2.99 times the sum of (A) the amount of your
annual base salary at the highest rate in effect during the twelve (12) months
immediately preceding the Date of Termination, and (B) the average annual
bonus received by you with respect to the three (3) years immediately preceding
the Date of Termination, or with respect to the period beginning January 1,
1996 and ending December 31 of the calendar year immediately preceding on the
Date of Termination, if such period is less than three years at the Date of
Termination, and (C) (x) the most recent amount earned by you (whether in stock
or cash or a combination thereof) under the Company's performance based
long-term incentive program established under the Company's Executive Incentive
Compensation Plan or, (y) if the Date of Termination giving rise to your right
to benefits hereunder occurs before the end of the initial Long-Term
Performance Period established under the long-term incentive program so that
benefits have not yet accrued under the long-term incentive program, the target
amount established for you under the program for the Long-Term Performance
Period next ending; and
(iii) the Company shall maintain in full force and
effect, for your continued benefit until the earlier of (A) three (3) years
after the Date of Termination or (B) you obtain substantially the same coverage
from a new employer, all life insurance, medical, health and accident, and
disability plans, programs or arrangements in which you were entitled to
participate immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that your participation in any such plan
or program is barred, the Company shall use reasonable efforts to arrange to
provide you with benefits substantially similar to those which you are entitled
to receive under such plans and programs.
(b) If, after a change in control of the Company shall have
occurred, as defined in Section 2 above, you shall voluntarily terminate your
employment with the Company within the Trigger Period other than for Disability,
Retirement or death or in connection with an event of Constructive Termination,
then you shall be entitled to the benefits set forth below:
(i) the Company shall pay to you within thirty (30)
days following the Date of Termination in a lump sum cash payment your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given plus (A) credit for any vacation earned but not taken,
(B) the amount, if any, of any bonus or long-term incentive
<PAGE>
Mr. David Roberson
August 26, 1998
Page 8
compensation for a past fiscal year which has been earned but not yet been paid
to you, (C) the amount, if any, of any bonus for the current year to be paid as
a percentage of Company profit based on the Company's results through the most
recent fiscal quarter as of the Date of Termination without pro-ration, (D) a
pro-rated payment, based on the Company's results through the most recent
quarter as of the Date of Termination, with respect to the long-term incentive
compensation payable under the Company's performance based long-term incentive
program for the long-term performance period that next ends following the Date
of Termination, and (E) a pro-rated payment, based on the Company's results as
of the Date of Termination, of any other bonus due under any other Bonus Plans;
(ii) in lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Company shall pay as
severance pay to you within thirty (30) days following the Date of Termination
a lump sum cash amount equal to the sum of (A) the amount of your
annual base salary at the highest rate in effect during the twelve (12) months
immediately preceding the Date of Termination, and (B) the average annual bonus
received by you with respect to the three (3) years immediately preceding the
Date of Termination, or with respect to the period beginning January 1, 1996
and ending December 31 of the calendar year immediately preceding on the Date
of Termination, if such period is less than three years at the Date of
Termination, and (C) (x) the most recent amount earned by you (whether in stock
or cash or a combination thereof) under the Company's performance based
long-term incentive program established under the Company's Executive Incentive
Compensation Plan or, (y) if the Date of Termination giving rise to your right
to benefits hereunder occurs before the end of the initial Long-Term Performance
Period established under the long-term incentive program so that benefits have
not yet accrued under the long-term incentive program, the target amount
established for you under the program for the Long-Term Performance Period next
ending; and
(iii) the Company shall maintain in full force and
effect, for your continued benefit until the earlier of (A) the first
anniversary of the Date of Termination or (B) you obtain substantially the
same coverage from a new employer, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such plans and programs. In the event that your participation in
any such plan or program is barred, the Company shall use reasonable efforts
to arrange to provide you with benefits substantially similar to those which you
are entitled to receive under such plans and programs.
(c) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise. In the event that you voluntarily
terminate your employment with the Company and are paid the benefits
contemplated by paragraph (b) of this Section 4 and, at any time within five (5)
years following the receipt of such
<PAGE>
Mr. David Roberson
August 26, 1998
Page 9
payment, you are reemployed by the Company or any subsidiary thereof in a
position where your duties or responsibilities with the Company or such
subsidiary are commensurate with those of your position with the Company
immediately prior to the original termination of your employment which gave rise
to the Company's payment of benefits under this Section 4, you shall, on the
date of such reemployment, be obligated to repay to the Company, in cash, an
amount equal to the benefit paid to you under paragraph (b) of this Section 4,
plus any amounts paid to you under Section 5 hereof in connection with the
payments to you pursuant to paragraph (b) of this Section 4 (and not previously
repaid by you pursuant to the terms of Section 5).
5. Tax Gross-Up.
(a) If you become entitled to any payments or benefits whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a change in
control or any person affiliated with the Company or such persons (in the
aggregate, "Payments" or singularly, "Payment") which are subject to taxes under
Section 4999 (or any successor provision thereto) of the Code (the "Excise
Tax"), the Company shall pay to you an additional amount ("Gross-Up Payment")
such that the net amount retained by you, after deduction of (A) any Excise Tax
on Payments, (B) any federal, state and local income tax and Excise Tax upon the
payment provided for by this Section, and (C) any interest and penalties imposed
because the Excise Tax is not paid during the period beginning with the earlier
of the date (i) the IRS issues a notice stating that an Excise Tax is due with
respect to a Payment, (ii) you deliver to the Company an opinion of tax counsel
selected by you and reasonably acceptable to the Company that all or a portion
of the Payment is subject to the Excise Tax and setting forth the estimated
amount of the Excise Tax on the Payment, and (iii) the Company delivers to you
an opinion of tax counsel selected by the Company and reasonably acceptable to
you that all or a portion of the payment is subject to the Excise Tax and
setting forth the estimated amount of the Excise Tax on the Payment (the "Excise
Tax Imposition Date") and ending ten (10) days after the Excise Tax Imposition
Date, shall be equal to the full amount of the Payments. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of your residence on the date the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(b) The Gross-Up Payment for any Payment made shall be paid to
you within ten (10) days after the Excise Tax Imposition Date, unless the
Company undertakes to indemnify you as provided in Section 5 (c).
(c) In lieu of paying the Gross-Up Payment for any Payment,
the Company may elect to undertake, at its sole expense, the defense and
settlement of any assessment by the IRS of the Excise Tax on any Payment. In the
alternative, the Company may elect to pay the Gross-Up
<PAGE>
Mr. David Roberson
August 26, 1998
Page 10
Payment and seek to recover the Excise Tax by pursuing a claim for a refund. If
the Company so elects to undertake the defense or settlement of any assessment
by the IRS of the Excise Tax on any Payment or the recovery of the Excise Tax
through a claim for refund, the Company shall protect, defend, indemnify and
hold you forever harmless from and against the Excise Tax on such Payment and
payments pursuant to this Section 5(c) and any federal, state and local income
tax (determined pursuant to the last sentence of Section 5(a)) upon payments
pursuant to this Section 5(c) and any and all liabilities, demands, claims,
actions, causes of action, assessments, losses, costs, damages or expenses,
including attorneys' and accountants' fees in connection with any thereof, and
any interest and penalties sustained by you as a result of or arising out of or
by virtue of the Company's undertaking. You shall cooperate with the Company as
reasonably requested by the Company in the conduct of such defense, settlement
or refund claim.
(d) If the Excise Tax is determined to be less than the amount
taken into account in determining the Gross-Up Payment paid pursuant to Section
5(a), you shall repay to the Company within ten (10) days after the time that
the amount of such reduction in Excise Tax is finally determined the portion of
the Gross-Up Payment attributable to such reduction plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code for
debt instruments with a maturity after issuance equal to the period beginning on
the date the Gross-Up Payment was made and ending on the date of repayment
required by this sentence, or in the case of a refund, plus interest paid on
such refund. If the Excise Tax is determined to exceed the amount taken into
account in determining the Gross-Up Payment paid pursuant to Section 5(a) (the
"Excise Tax Deficit"), the Company within ten (10) days after the time that the
amount of the Excise Tax Deficit is finally determined shall make an additional
payment to you in an amount equal to (i) the Excise Tax Deficit, plus (ii) an
amount equal to any interest and penalties payable to the IRS with respect to
the Excise Tax Deficit, plus (iii) any federal, state and local income tax and
Excise Tax (determined pursuant to the last sentence of Section 5(a)) upon
payments made pursuant to this sentence.
6. Term of Agreement. This Agreement shall become effective on the date
hereof and, subject to the first sentence of the second paragraph of this
Section 6, shall continue in effect until the earliest of the following:
(i) a Date of Termination in accordance with Section 3(e) or
other termination of your employment with the Company shall have
occurred prior to a change in control of the Company; or
(ii) if a Payment Trigger shall have occurred during the term
of this Agreement, the performance by the Company of all its
obligations, and the satisfaction by the Company of all its obligations
and liabilities, under this Agreement;
<PAGE>
Mr. David Roberson
August 26, 1998
Page 11
(iii) the date that is the fifth (5th) anniversary of the date
of this Agreement; provided, however, that if a change in control of
the Company occurs prior to such fifth (5th) anniversary, the Company's
obligation to you under this Agreement due to such change in control
shall not lapse upon the fifth (5th) anniversary, but shall continue
through the final day of the Trigger Period that begins with such
change in control if such final day of the Trigger Period is later than
such fifth (5th) anniversary.
Any change in control of the Company during the term of this
Agreement that for any reason ceases to constitute a change in control or is not
followed by a Payment Trigger shall not effect a termination or lapse of this
Agreement, and, in such event, this Agreement shall continue to apply to the
event of any subsequent change in control of the Company occurring prior to the
end of the term of this Agreement. Any transfer of your employment from the
Company to a subsidiary, from a subsidiary to the Company, or from one
subsidiary to another subsidiary shall not constitute a termination of your
employment for purposes of this Agreement.
7. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall, if such failure occurs
subsequent to a change in control of the Company, constitute an event of
Constructive Termination and entitle you to compensation from the Company in
accordance with Section 4 hereof, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 7 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
<PAGE>
Mr. David Roberson
August 26, 1998
Page 12
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by certified
or registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the
Chairman of the Board of the Company with a copy to the Secretary of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
9. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be authorized by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement; provided,
however, that this Agreement shall not supersede or in any way limit the rights,
duties or obligations you may have under any other written agreement with the
Company. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama without regard
to principles regarding conflicts of laws.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Enforcement; Expenses. The provisions of this Agreement shall be
regarded as divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remainder of such provisions or parts hereof
and the applicability thereof shall not be affected thereby. The Company shall
pay all fees, costs and expenses (including, without limitation, reasonable
attorneys' fees and the costs of investigating any potential claim) (herein,
collectively, "Costs") incurred by you in connection with any dispute arising
under or relating to this Agreement or any action(s) or proceeding(s) to enforce
your rights under this Agreement, should you prevail in such action or
proceeding, and, in addition to paying your Costs, the Company shall pay to you
(i) interest on such Costs and on the aggregate amount of the benefits due to
you under Section 4 above (said benefits being referred to in this Section 11 as
the "Termination Benefits") from your Date of Termination to the date such Costs
and Termination Benefits are paid to you at an annual rate equal to the prime
lending rate charged by First Commercial Bank, or the successor thereto, in
effect on the Date of Termination, and (ii) liquidated and agreed compensatory
damages in an amount equal to twenty-five percent (25%) of the Termination
Benefits.
<PAGE>
Mr. David Roberson
August 26, 1998
Page 13
12. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against either party only in the courts of the state
and county in which you are employed by the Company and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
CAVALIER HOMES, INC.
/s/ MICHAEL R. MURPHY
-----------------------------
Its Vice President
AGREED TO THIS 26TH DAY OF AUGUST, 1998.
/s/ DAVID A. ROBERSON
- -------------------------------
David A. Roberson
Exhibit 11
Statement re Computation of Per Share Earnings
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- --------------
BASIC & PRIMARY
Net Income $ 18,655 $ 10,247 $ 27,479
============== ============== ==============
SHARES:
Weighted average common shares
outstanding (basic) 19,904,746 19,834,942 19,362,944
Dilutive effect of stock options
and warrants 239,049 193,239 436,548
-------------- -------------- --------------
Weighted average common shares
outstanding, assuming dilution (diluted) 20,143,795 20,028,181 19,799,492
============== ============== ==============
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
Bellcrest Homes, Inc., a Georgia corporation
Belmont Homes, Inc., a Mississippi corporation
BRC Components, Inc., an Alabama corporation
Cavalier Acceptance Corporation, an Alabama corporation
Cavalier Associated Retailers, Inc., a Delaware corporation
Cavalier Industries, Inc., a Delaware corporation
Cavalier Manufacturing, Inc., a Delaware corporation
Cavalier Properties, Inc., a Delaware corporation
Cavalier Real Estate Co., Inc., a Delaware corporation
Delta Homes, Inc., a Mississippi corporation
Home Transportation Co., Inc., a Mississippi corporation
Impact Media Group, Inc., an Alabama corporation
Kensinger Homes, Inc., a Florida corporation
Quality Certified Insurance Services, Inc., an Alabama corporation
Quality Insurance Agency, Inc., a Mississippi corporation
Quality Housing Supply, LLC, a Tennessee limited liability company
Ridge Pointe Manufacturing, LLC, an Alabama limited liability company
Spirit Homes, Inc., an Arkansas corporation
The Home Place, Inc., an Alabama corporation
Exhibit 23
Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-20842, 33-20859, 33-86232, 33-86236, 333-06371, 333-04953, 333-19833,
333-45255 and 333-57743 of Cavalier Homes, Inc. on form S-8, and to the
incorporation by reference in Registration Statements Nos. 33-62487 (as
amended), 33-63060 (as amended), 33-86348 (as amended), 333-18213 (as amended),
333-00607 (as amended), 333-48111(as amended) and 333-64925 (as amended) of
Cavalier Homes, Inc. on Form S-3 of our report dated February 19, 1999,
appearing in this Annual Report on Form 10-K of Cavalier Homes, Inc. for the
year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
March 26, 1999
Independent Auditors' Consent
We consent to incorporation by reference in the Registration
Statements of Cavalier Homes, Inc. (Form S-8 Registration Nos. 33-20842,
33-20859, 33-86232, 33-86236, 333-06371, 333-04953, 333-19833, 333-45255 and
333-57743 and Form S-3 Registration Nos. 33-62487, 33-63060, 33-86348,
333-18213, 333-00607, 333-48111 and 333-64925, each as amended) of our report
dated February 21, 1997, with respect to the consolidated statements of
income, shareholders' equity and cash flows of Belmont Homes, Inc. and
subsidiaries for the year ended December 31, 1996, which report appears in the
December 31, 1998 annual report on Form 10K of Cavalier Homes, Inc.
/s/ KPMG PEAT MARWICK LLP
- ------------------------------
KPMG Peat Marwick, LLP
Jackson, Mississippi
March 30, 1999
<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 Annual Report on Form 10-k and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 64243
<SECURITIES> 0
<RECEIVABLES> 7678
<ALLOWANCES> 1201
<INVENTORY> 38803
<CURRENT-ASSETS> 125791
<PP&E> 86112
<DEPRECIATION> 24690
<TOTAL-ASSETS> 235952
<CURRENT-LIABILITIES> 84084
<BONDS> 0
0
0
<COMMON> 2028
<OTHER-SE> 142883
<TOTAL-LIABILITY-AND-EQUITY> 235952
<SALES> 607982
<TOTAL-REVENUES> 614070
<CGS> 496708
<TOTAL-COSTS> 496708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (486)
<INTEREST-EXPENSE> 820
<INCOME-PRETAX> 31282
<INCOME-TAX> 12627
<INCOME-CONTINUING> 18655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18655
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.93
</TABLE>
Independent Auditors' Report
The Board of Directors and Shareholders
Belmont Homes, Inc.:
We have audited the consolidated statements of income, shareholders' equity and
cash flows of Belmont Homes, Inc. and subsidiaries (Belmont)for the year ended
December 31, 1996. These consolidated financial statements (not presented
separately herein) are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of Belmont Homes, Inc. and subsidiaries for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Jackson, Mississippi KPMG Peat Marwick LLP
February 21, 1997
