<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-26142
BELMONT HOMES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MISSISSIPPI 64-0834574
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
HIGHWAY 25 SOUTH, INDUSTRIAL PARK DRIVE
BELMONT, MISSISSIPPI 38827 (601) 454-9217
-------------------------- --------------
(Address, including zip code of principal executive (Registrant's telephone number, including area code)
offices)
</TABLE>
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
--- ---
At November 4, 1997 9,467,000 shares of the Registrant's $.10 Par
Value Common Stock were outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BELMONT HOMES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $56,931 $57,512 $179,575 $170,638
Cost of sales 48,993 48,645 154,875 144,289
------- ------- -------- --------
Gross profit 7,938 8,867 24,999 26,349
Selling, general and administrative 6,293 3,637 18,633 11,349
------- ------- -------- --------
Income from operations 1,645 5,230 6,366 15,000
Other income (expense):
Interest expense (88) (9) (432) (75)
Interest income 168 177 435 459
Officers life insurance 1,500
------- ------- -------- --------
Income before income taxes 1,725 5,398 7,570 15,384
Income tax expense 673 2,043 2,388 5,848
------- ------- -------- --------
Net income 1,052 3,355 5,182 9,536
------- ------- -------- --------
Net income per common share $.11 $.35 $.55 $1.02
------- ------- -------- --------
Weighted average common shares
outstanding 9,482 9,551 9,482 9,378
------- ------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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BELMONT HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,521 $ 5,070
Certificates of deposit 8,588 8,243
Accounts receivable, net 10,940 7,829
Inventories 12,350 13,020
Prepaid and other 2,815 2,661
------- -------
Total current assets 39,214 36,823
Property, plant and equipment, net 21,607 22,318
Goodwill and other assets, net 19,367 20,214
------- -------
$80,188 $79,355
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 9,093
Accounts payable 6,084 3,461
Accrued expenses 14,168 10,744
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Total current liabilities 20,252 23,298
Long-term debt -- 1,303
Deferred income taxes 907 907
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Total liabilities 21,159 25,508
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Shareholders' equity:
Common stock 947 947
Additional paid-in capital 27,372 27,372
Retained earnings 34,203 29,021
Adjustment to predecessor basis (3,493) (3,493)
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Total shareholders' equity 59,029 53,847
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$80,188 $79,355
------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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BELMONT HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,182 $ 9,536
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,148 1,188
Loss on leasehold improvements at closed plant 299
Changes in operating assets and liabilities:
Accounts receivable (3,111) (3,835)
Inventories 670 (3,831)
Prepaid and other 122 (128)
Accounts payable 2,623 3,155
Accrued expenses 3,424 4,269
-------- --------
Net cash provided by operating activities 11,357 10,354
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,165) (4,834)
Certificates of deposit (345) (1,421)
Investment in supply joint ventures -- (2,505)
-------- --------
Net cash used by investing activities (1,510) (8,760)
Cash flows from financing activities:
Proceeds from notes 2,200
Repayment of long-term debt (10,396) (10,940)
Proceeds from sale of common stock net of
offering costs 12,390
-------- --------
Net cash provided by financing activities (10,396) 3,650
-------- --------
Net increase (decrease) in cash and equivalents (549) 5,244
Cash and equivalents at beginning of year 5,070 2,055
-------- --------
Cash and equivalents end of period $ 4,521 $ 7,299
-------- --------
</TABLE>
See Note to Condensed Consolidated Financial Statements.
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BELMONT HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED QUARTERLY FINANCIAL
STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In June 1993 Belmont Homes, Inc. ("Belmont"), which was 43% owned by
shareholders of BHI, Inc. (Predecessor) and 57% owned by new investors, acquired
through the issuance of debt and equity securities, substantially all of the
assets and liabilities of Predecessor for a purchase price of $15,541. This
transaction was accounted for using the purchase method of accounting including
the computational guidelines contained in EITF Issue No. 88-16.
In August 1995 Belmont incorporated Delta Homes, Inc., a wholly-owned
subsidiary and purchased for $450 a production facility in Clarksdale,
Mississippi.
In October 1995 Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Spirit
Homes, Inc. ("Spirit") for $9,800 of cash and debt.
In October 1996 Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Bellcrest
Homes, Inc. ("Bellcrest") for $9,500 of cash plus future contingent payments of
$3,500 if certain earnings levels are achieved through December 31, 1998. In
March 1997 the Company paid the former shareholders of Bellcrest $1,000 the
amount of contingent payments earned and accrued for in 1996.
The condensed consolidated financial statements include the accounts of
Belmont Homes, Inc. and its wholly-owned subsidiaries from incorporation or
acquisition date (collectively, the "Company") and have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally Accepted Accounting
Principles have been omitted. The condensed financial statements should be read
in conjunction with the Company's audited financial statements and notes
thereto.
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In the opinion of management, all adjustments, consisting only of
normal recurring adjustments that are necessary for a fair presentation, have
been included in the condensed consolidated financial statements for the interim
periods ended September 30, 1997 and 1996. The results of operations for the
three and nine month periods are not indicative of the results of operations to
be expected for the full year ending December 31, 1997 or any other interim
period.
(2) INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $9,077 $ 9,702
Work-in-process 641 798
Finished homes 2,632 2,520
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$12,350 $13,020
------- -------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the Company's condensed financial statements expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.1 84.6 86.2 84.6
----- ----- ----- -----
Gross profit 13.9 15.4 13.8 15.4
Selling, general and administrative 11.3 6.3 10.4 6.7
----- ----- ----- -----
Income from operations 2.9 9.1 3.4 8.8
Interest income (expense), net .1 .3 -- (.2)
Officer life insurance .8
Income taxes 1.2 3.6 1.3 3.4
----- ----- ----- -----
Net income 1.8 5.8 2.9 5.6
----- ----- ----- -----
</TABLE>
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THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Industry conditions in the Company's market territory remained
competitive due to an increase in the number of dealers (retailers) and
manufacturing plants in, or selling to, the Company's market territory. In
response, the Company re-aligned its manufacturing operations at the end of
the second quarter, idling one plant each at its Belmont and Spirit plant
clusters and closing a leased plant at Spirit which was rented on a month-to-
month basis. There was no severance paid as a result of this re-alignment and
the Company charged to expense all costs related for this action which consisted
primarily of $299 thousand for the write off of leasehold improvements at the
closed plant. The two idled plants may be reopened as market conditions improve.
Net sales for the three months ended September 30, 1997 deceased by 1%
to $56.9 million from $57.5 million for the three months ended September 30,
1996 due to a $14.5 million decline in sales at the Company's Belmont and Spirit
operations. These sales declines were off set in part by the contribution of the
Company's Bellcrest Homes subsidiary which was acquired during the fourth
quarter of 1996. The number of homes sold during the quarter decreased 10% to
2,477 homes from 2,741 in the third quarter of 1996. Multi-sectional homes
increased to 38.2% of homes sold during the third quarter of 1997 from 22.9% in
the same quarter of 1996 due primarily to sales at Bellcrest Homes whose
multi-sectional mix was 73% for the quarter. The average price of a home sold
increased 14.2% to $22,984 in the third quarter of 1997 from $20,982 in 1996
due, in part, to the higher mix of multi-sectional homes sold by the Company
during the quarter.
Cost of sales includes costs of raw materials, direct labor, service
and warranty expense, insurance and payroll taxes. Cost of sales during the
third quarter of 1997 increased 1% to $49 million from $48.6 million for the
third quarter of 1996. Cost of raw materials and direct labor, which are two of
the largest components of cost of sales, were $34.7 million and $7.3 million,
respectively, for the third quarter of 1997 compared to $37 million and $6.7
million, respectively, for the third quarter of 1996. The $2.3 million decrease
in raw materials is due primarily to the higher mix of multi-section homes
during the quarter which as a percentage of sales value have a lower material
content. The $.6 million increase in direct labor is due primarily to higher
labor at operations where plants were idled and closed as these operations
adjusted to new mixes of homes and shorter production runs. As a percentage of
net sales, cost of sales for the third quarter of 1997 increased to 86.1% from
84.6% in the third quarter of 1996, due to (i) the $.6 million increase in
direct labor, (ii) a $.7 million increase in supervisory salaries to $1.7
million for the third quarter of 1997 from $1.0 million in the third quarter of
1996 of which $.5 million is due to increased incentive compensation including a
$.2 million payment to the estate of the Company's former President and CEO who
died in May 1997, and (iii) a $1 million increase in service and warranty to
$2.5 million in the third quarter of 1997 from $1.5 million in the third quarter
of 1996 of which $.2 million pertains to the Company's Spirit operations which
continues to experience increasing levels of warranty service, a $.2 million
increase in the warranty accrual in response to the continuing higher service at
Spirit and the inclusion of Bellcrest Homes which was acquired during the fourth
quarter of 1996.
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Selling, general and administrative expenses for the third quarter of
1997 increased 75% to $6.3 million in the third quarter of 1997 from $3.6
million in the third quarter of 1996 primarily as a result of increased dealer
promotion costs and the addition of Bellcrest Homes which was acquired during
the fourth quarter of 1996. Dealer promotion costs increased $1.1 million to
$2.6 million in the third quarter of 1997 from $1.5 million in the second
quarter of 1996. The Company believes the number of dealers and manufacturers in
its market territory has increased and expects these higher promotion costs to
continue. As a percentage of net sales, selling, general and administrative
expenses increased to 11.1% for the third quarter of 1997 from 6.3% for the
third quarter of 1996 due primarily to the higher dealer promotion costs and
increases in selling and administrative salaries and commissions.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales for the nine months ended September 30, 1997 increased 5% to
$179.6 million from $170.6 million for the nine months ended September 30, 1996
due to the acquisition of Bellcrest Homes which was acquired during the fourth
quarter of 1996. The number of homes sold decreased 2% to 8,020 in 1997 from
8,198 in 1996. Multi-section homes increased to 34.7% of homes sold during the
nine months ended September 30, 1997 from 24% in the prior year period due to
the higher such mix of homes at Bellcrest Homes whose multi-section mix was 68%
in 1997. The average price of a home sold increased 6.7% to $22,391 in the nine
months ended September 30, 1997 from $20,815 for the comparable period in the
prior year due in part to the higher mix of multi-section homes.
Costs of sales for the nine months ended September 30, 1997 increased
7.3% to $154.9 million from $144.3 million for the nine months ended September
30, 1996. Costs of raw materials and direct labor increased to $112.1 million
and $21.9 million, respectively, in 1997 from $108.6 million and $19.8 million,
respectively, in 1996 primarily as a result of increased sales volume and in
addition, for direct labor, for increases due to higher labor for the Company's
operations which idled and closed plants at the end of the second quarter due to
reduced orders. As a percentage of net sales, cost of sales for the nine months
ended September 30, 1997 increased to 86.2% from 84.6% due primarily to (i)
increased direct labor, (ii) a $1.5 million increase in salaries and wages to
$4.9 million during the nine months ended September 30, 1997 from $3.5 million
for the comparable period of the prior year due in part to the inclusion of
Bellcrest Homes which was acquired during the fourth quarter of 1996 and (iii) a
$1.1 million increase in warranty costs to $6.6 million for the nine months
ended September 30, 1997 from $5.6 million in the comparable period of the prior
year due to increases in warranty as a result of the inclusion of Bellcrest
Homes in 1997 and to an approximate $.5 million increase at the Company's Spirit
Homes operations. These increases as a percent of net sales were off set in part
by a decrease in raw materials to 62.4% for the nine months ended September 30,
1997 from 63.6% for the prior year period due primarily to the higher mix of
multi-sectional homes which have a lower raw material content as a percent of
sales value.
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Selling, general and administrative expenses for the nine months ended
September 30, 1997 increased 64% to $18.6 million from $11.3 million in the
comparable period of the prior year primarily as a result of increased dealer
promotion costs and the addition of Bellcrest Homes which was acquired during
the fourth quarter of 1996. Dealer promotion costs increased $4.2 million to
$8.3 million for the nine months ended September 30, 1997 from $4.1 million for
the comparable period in the prior year. The Company believes the number of
dealers and manufacturers in its market territory has increased and expects
these higher levels of promotional costs to continue. As a percentage of net
sales, selling, general and administrative expense increased to 10.4% for the
nine months ended September 30, 1997 from 6.7% for the nine months ended
September 30, 1996 as a result of the $4.2 million increase in dealer promotion
costs and a $1.3 million increase in selling and administrative salaries and
commissions to $5.8 million for the nine months ended September 30, 1997 from
$4.5 million for the comparable period of the prior year due in part to the
inclusion of such costs for Bellcrest Homes which was acquired during the fourth
quarter of 1996.
Interest expense for the nine months ended September 30, 1997 was $432
thousand compared to $75 thousand for the nine months ended September 30, 1996
due primarily to additional borrowings supporting the Bellcrest acquisition
during the fourth quarter of 1996. In September 1997 the Company paid off all
outstanding borrowings.
Income tax expense for the nine months ended September 30, 1997 was
$2.4 million or an effective tax rate of 31.5% compared to $5.8 million for the
nine months ended September 30, 1996 or an effective tax rate of 38%. The
differences in these effective rates is primarily attributable to the receipt
during the second quarter of 1997 of $1.5 million of Officer Life Insurance
which is non-taxable.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents including certificates of deposit were $13.1
million at September 30, 1997 compared to $13.3 million at year end December 31,
1996.
Net cash provided by operating activities was $11.4 million for the
nine months ended September 30, 1997 compared to $10.4 million for the nine
months ended September 30, 1996 due in part to a $1.2 million increase in
depreciation and amortization (including the write off of leasehold improvements
at the closed Spirit plant) to $2.4 million for the nine months ended September
30, 1997 from $1.2 million in the comparable period of the prior year. Accounts
receivable are funded by approved dealer floor-plan financing and usually are
collected within 15 days, except in periods when extended terms are granted to
promote sales. All homes are manufactured against orders, and currently, no
homes are produced for inventory.
The Company utilized $1.2 million for the purchase of property, plant
and equipment during the nine months ended September 30, 1997 compared with $4.8
million during the nine months ended September 30, 1996. Expenditures during
1996 were primarily for the addition of
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two plants at Spirit Homes. In addition, during 1996 the Company utilized $2.5
million for investment in two raw material supply joint ventures which produce
passage doors, paneling and cabinet doors.
The Company's financing activities used $10.4 million in cash for the
repayment of all short and long-term debt during the nine months ended September
30, 1997 compared with providing $3.7 million during the comparable period of
the prior year. In January 1996 the Company raised approximately $11.7 million
in net cash proceeds from the secondary sale of stock to the public and used
$10.9 million of these proceeds to retire outstanding debt.
The Company's backlog at September 30, 1997 was $12.8 million for 774
floors compared to $23.5 million for 1,485 floors at September 30, 1996.
The Company plans to continue its current growth strategy of acquiring
or constructing new production facilities when necessitated by consumer demand.
In order to provide any additional funds necessary for the continued pursuit of
this growth strategy, the Company may incur, from time to time, additional
short- and long-term bank indebtedness, including mortgage loans and industrial
revenue bond financing, and may issue, in public or private transactions, equity
and debt securities, the availability and terms of which will depend upon market
and other conditions.
Certain forward-looking statements in this Quarterly Report on Form
10-Q (including, without limitation, statements regarding the growth and
financing strategies of the Company, projections of revenues, income, earnings
per share or other financial items) involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include general economic and business
conditions; industry trends; demographic changes; competition; raw material and
labor costs and availability; import protection and regulation; relationships
with customers, distributors or dealers; changes in the business strategy or
development plans of the Company; the availability, terms and development of
capital; changes in or failure to identify or consummate successful acquisitions
or to assimilate the operations of any acquired businesses with those of the
Company.
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PART II--OTHER INFORMATION
Item 6.
(a) Exhibits
Exhibit 10.1 Non-Competition and Non-Solicitation Agreement
between the Company and Mr. John W. Allison dated August 14, 1997.
Exhibit 10.2 Non-Competition and Non-Solicitation Agreement
between the Company and Mr. G. Hiller Spann dated August 14, 1997.
Exhibit 10.3 Non-Competition and Non-Solicitation agreement
between the Company and Mr. Keith Kennedy dated August 14, 1997.
Exhibit 27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(i) The Company filed a report on Form 8-K (Item 5) on August 20,
1997 with respect to its execution of a definitive Agreement and Plan of Merger
with Cavalier Homes, Inc.
(ii) The Company filed a report on Form 8-K (Item 5) on September
8, 1997 with respect to the election of G. Hiller Spann as the Company's
President and CEO, the execution of the First Amendment to Stock Purchase
Agreement between the Company and the former shareholders of Bellcrest Homes,
Inc., and the execution of indemnification agreements with its Directors and
Executive Officers.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELMONT HOMES, INC.
Date: November 12, 1997 /s/ William Kunkel
------------------
Executive Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1
NON-COMPETITION AND
NON-SOLICITATION AGREEMENT
(JOHN W. ALLISON)
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this
"Agreement") is made as of August 14, 1997, by and among Cavalier Homes, Inc., a
Delaware corporation ("CH"), Belmont Homes, Inc., a Mississippi corporation
("BH"), Spirit Homes, Inc., an Arkansas corporation and a wholly owned
subsidiary of BH ("BH Sub"), and John W. Allison, an individual residing in the
State of Arkansas ("Executive").
W I T N E S S E T H :
WHEREAS, Executive is currently employed by BH as Acting President and
Chief Executive Officer, and by BH Sub as President; and
WHEREAS, pursuant to that certain Agreement and Plan of Merger by and
among BH, Crimson Acquisition Corp., a Mississippi corporation and wholly owned
subsidiary of CH ("Sub"), and CH, dated as of the date hereof (the "Merger
Agreement"), Sub will merge (the "Merger") with and into BH in a merger in which
BH shall be the surviving corporation; and
WHEREAS, Executive is a shareholder in BH, and as such will receive
substantial financial benefit from the Merger, and CH would not have entered
into the Merger Agreement, nor would CH have paid the substantial consideration
described therein, without Executive's execution of this Agreement; and
WHEREAS, in further consideration for the execution of this Agreement,
BH and BH Sub have agreed to retain Executive as an employee at will,
conditioned upon the execution of this Agreement, and Executive specifically
acknowledges the valuable nature of this consideration, and freely and
voluntarily enters into this Agreement;
NOW, THEREFORE, based upon the foregoing and on other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Acknowledgments by Executive. Executive acknowledges that (a) the
products and services of BH and CH (collectively with their subsidiaries and
affiliates, the "Companies") are marketed throughout the southeastern region of
the United States; (b) the Companies compete with other businesses that are or
could be located in any part of the United States; (c) CH, Sub and BH would not
have executed the Merger Agreement without the assurance that the covenants set
forth in Section 2 of this Agreement would be made; (d) the provisions of
Section 2 of this Agreement are reasonable and necessary to protect and preserve
the Companies'
1
<PAGE> 2
business; and (e) the Companies would be irreparably damaged if Executive were
to breach the covenants set forth in Section 2 of this Agreement.
2. Non-competition. As an inducement for CH and Sub to enter into the
Merger Agreement, as additional consideration for the consideration to be paid
to Executive pursuant to his employment at will with BH and BH Sub, and in
consideration of the matters set forth in the above recitals, Executive agrees
that:
(a) For a period of one (1) year after the Effective Time (as
defined in the Merger Agreement) (the "Non-Compete Period"):
(i) Executive will not engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, or be employed by, any person or
entity engaged in the business of manufacturing or producing new
manufactured housing (not previously owned) which has a manufacturing
facility located anywhere within one hundred (100) miles of Belmont,
Mississippi, Conway, Arkansas or Millen, Georgia; provided, however,
that Executive may purchase or otherwise acquire up to (but not more
than) 4.9% of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange
or have been registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended;
(ii) Executive will not, directly or indirectly, either for
himself or any other person, except in the ordinary course of the
Companies' business while Executive is employed by one of the Companies
as may be necessary to carry out Executive's duties as an employee of
such Companies, induce or attempt to induce any employee of any of the
Companies to leave the employ of such company; and
(b) Executive agrees that each of the covenants in
subparagraph (a) above are reasonable with relation to their duration,
geographical area and scope;
(c) Executive will not, at any time during or after the
Non-Compete Period, slander or libel the Companies, or any of their
stockholders, directors, officers, employees, or agents; and
(d) Executive will, at any time during the period of this
Agreement, at CH's, BH's or BH Sub's request, confirm to BH Executive's
compliance with the provisions of this Agreement within ten (10) days of any
such request for confirmation by BH.
2
<PAGE> 3
3. Remedies. If Executive breaches the covenants set forth in Section 2
of this Agreement, the Companies will be entitled to recover monetary damages
from Executive on account thereof, and in addition to their right to damages and
any other rights they may have (whether covered in this Section 3 or otherwise),
to obtain injunctive or other equitable relief to restrain any breach or
threatened breach or otherwise to specifically enforce the provisions of Section
2 of this Agreement, it being agreed that money damages alone would be
inadequate to compensate the Companies and would be an inadequate remedy for
such breach.
4. Certain Termination Events. (a) In the event that Executive is
terminated from employment at any time after the Effective Time (as defined in
the Merger Agreement) and prior to the first anniversary of the Effective Time
with BH and BH Sub for any reason other than for Cause (as defined below) or the
voluntary termination of such employment by Executive, BH shall maintain and pay
for Executive's family health insurance coverage for a period of three years
from such termination date, to the extent permitted by law and the applicable
plan (the "Insurance Obligations"). For purposes of this Section 4, "Cause"
shall mean Executive's (i) breach of this Agreement; (ii) dishonesty or fraud in
connection with his employment; (iii) failure to adhere (in any material
respect) to any policy of any of the Companies to which the Executive is subject
and that is known or reasonably should be known to Executive; (iv) appropriation
(or attempted appropriation) of a material business opportunity of any of the
Companies, including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of any of the Companies;
(v) misappropriation (or attempted misappropriation) of any of the Companies'
funds or property; (vi) 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 (vi) Executive's insubordination, willful misconduct in
the performance of, or gross neglect of, his duties with BH or BH Sub or any of
the Companies, as determined by the good faith judgment of the Board of
Directors of BH or BH Sub.
(b) This agreement on the part of BH is additional
consideration given to Executive to induce him to make the covenants set forth
in Section 2 of this Agreement. Executive acknowledges and agrees that BH would
not have agreed to the Insurance Obligations under the conditions set forth in
this Section 4 without Executive's having made the covenants set forth in
Section 2 of this Agreement. In the event Executive breaches any of the
covenants set forth in Section 2 of this Agreement, the Insurance Obligations
shall be forfeited by Executive. This forfeiture and recovery right of BH shall
be in addition to and not in lieu of any other rights and remedies available to
BH for such breach, including, without limitation, the rights and remedies set
forth in Section 4 above.
(c) Nothing in this Agreement or otherwise shall give
Executive any right to continued employment with any of the Companies, and
Executive's employment with BH and BH Sub and, if applicable, the Companies is
and shall remain terminable at will.
5. Successors and Assigns. This Agreement will be binding upon CH, BH,
BH Sub and Executive and will inure to the benefit of Executive, CH, BH, BH Sub
and their respective affiliates, successors, heirs and assigns.
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<PAGE> 4
6. Governing Law. This Agreement will be governed by the laws of the State of
Arkansas without regard to conflicts of laws principles.
7. Severability. In the event any provision or portion of this
Agreement is held to be illegal, invalid or unenforceable, in whole or in part,
for any reason, under present or future law, such provision shall be severable
and the remainder thereof shall not be invalidated or rendered unenforceable or
otherwise adversely affected. Without limiting the generality of the foregoing,
if a court of competent jurisdiction should deem any provision of this Agreement
to create a restriction that is unreasonable as to scope, duration or
geographical area, the parties hereto agree that the provisions of this
Agreement shall be enforceable in such scope, for such duration and in such
geographic area as any court of competent jurisdiction may determine to be
reasonable.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between CH,
BH, BH Sub and Executive with respect to the subject matter of this Agreement.
This Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment. This Agreement shall be terminated and
deemed null and void in its entirety ab initio in the event the Merger Agreement
is terminated in accordance with its terms and the Merger is not consummated.
The restrictions upon Executive set forth in Section 2 above shall also
terminate upon a breach of BH's obligations under Section 4 when it is otherwise
obligated to provide the Insurance Obligations.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
CAVALIER HOMES, INC.
By: /s/ DAVID A. ROBERSON
----------------------------------
Name:
-------------------------------
Title:
------------------------------
BELMONT HOMES, INC.
By: /s/ JOHN W. ALLISON
---------------------------------
Name:
-------------------------------
Title:
-------------------------------
SPIRIT HOMES, INC.
By: /s/ John W. Allison
---------------------------------
Name:
-------------------------------
Title:
------------------------------
/s/ John W. Allison
-------------------------------------
John W. Allison
5
<PAGE> 1
EXHIBIT 10.2
NON-COMPETITION AND
NON-SOLICITATION AGREEMENT
(GLINN H. SPANN)
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this
"Agreement") is made as of August 14, 1997, by and among Cavalier Homes,
Inc., a Delaware corporation ("CH"), Belmont Homes, Inc., a Mississippi
corporation ("BH"), Bellcrest Homes, Inc., a Georgia corporation and a wholly
owned subsidiary of BH ("BH Sub"), and Glinn H. Spann, an individual residing in
the State of Georgia ("Executive").
W I T N E S S E T H :
WHEREAS, Executive is currently employed by BH Sub as President; and
WHEREAS, pursuant to that certain Agreement and Plan of Merger by and
among BH, Crimson Acquisition Corp., a Mississippi corporation and wholly owned
subsidiary of CH ("Sub"), and CH, dated as of the date hereof (the "Merger
Agreement"), Sub will merge (the "Merger") with and into BH in a merger in which
BH shall be the surviving corporation; and
WHEREAS, Executive is a shareholder in BH, and as such will receive
substantial financial benefit from the Merger, and CH would not have entered
into the Merger Agreement, nor would CH have paid the substantial consideration
described therein, without Executive's execution of this Agreement; and
WHEREAS, contemporaneously herewith, BH and certain former shareholders
of BH Sub are entering into an amendment to that certain Stock Purchase
Agreement among BH and the Shareholders of BH Sub dated as of October 25, 1996,
providing for the acceleration of certain earnout payments by BH to such
shareholders in the event of the consummation of the Merger (the "Earnout
Acceleration"), and Executive will receive substantial financial benefit from
such acceleration, and BH would not enter into such amendment, nor would CH
permit BH to enter into such amendment, unless Executive entered into this
Agreement; and
WHEREAS, in further consideration for the execution of this Agreement,
BH Sub has agreed to retain Executive as an employee at will, conditioned upon
the execution of this Agreement, and Executive specifically acknowledges the
valuable nature of this consideration, and freely and voluntarily enters into
this Agreement;
NOW, THEREFORE, based upon the foregoing and on other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Acknowledgments by Executive. Executive acknowledges that (a) the
products and services of BH, BH Sub and CH (collectively with their subsidiaries
and affiliates, the "Companies") are marketed throughout the southeastern region
of the United States; (b) the
1
<PAGE> 2
Companies compete with other businesses that are or could be located in any part
of the United States; (c) CH, Sub and BH would not have executed the Merger
Agreement without the assurance that the covenants set forth in Section 2 of
this Agreement would be made; (e) the provisions of Section 2 of this Agreement
are reasonable and necessary to protect and preserve the Companies' business;
and (f) the Companies would be irreparably damaged if Executive were to breach
the covenants set forth in Section 2 of this Agreement.
2. Non-competition. As an inducement for CH and Sub to enter into the
Merger Agreement, as additional consideration for the consideration to be paid
to Executive pursuant to his employment at will with BH Sub, and in
consideration of the matters set forth in the above recitals, Executive agrees
that:
(a) Commencing as of the date hereof and for a period of two
(2) years after the Effective Time (as defined in the Merger Agreement), whether
or not Executive remains in the employ of any of the Companies, or until the
occurrence of any of the events set forth in Section 11, whichever shall first
occur (the "Non-Compete Period"):
(i) Executive will not, directly or indirectly, engage or
invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, financing, or control of, be
employed by, associated with, or in any manner connected with, lend
Executive's name or any similar name to, lend Executive's credit to, or
render services or advice to, any person or entity engaged in the
business of manufacturing, producing, selling or distributing
manufactured housing which has a manufacturing, distribution, warehouse
or other facility anywhere within one hundred (100) miles of Millen,
Georgia; provided, however, that Executive may purchase or otherwise
acquire up to (but not more than) 4.9% of any class of securities of
any enterprise (but without otherwise participating in the activities
of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, as amended;
(ii) Executive will not, directly or indirectly, either for
himself or any other person, except in the ordinary course of the
Companies' business while Executive is employed by one of the Companies
as may be necessary to carry out Executive's duties as an employee of
such Companies, (A) induce or attempt to induce any employee of any of
the Companies to leave the employ of such company, (B) in any way
interfere with the relationship between any of the Companies and any
employee of such company, or (C) induce or attempt to induce any
customer, dealer, supplier, licensee, or business relation of any of
the Companies to cease doing business with or reduce the amount of its
business with such company, or in any way interfere with the
relationship between any customer, supplier, licensee, or business
relation of any of the Companies; and
(iii) Executive will not, directly or indirectly, either for
himself or any other person, solicit the business of any person that is
a customer, dealer, supplier, licensee or business relation of any of
the Companies, whether or not Executive had personal contact with such
person, with respect to products or activities which
2
<PAGE> 3
compete, directly or indirectly, in whole or in part with the products
or activities of any of the Companies, except on behalf of one or more
of the Companies.
(b) Executive agrees that each of the covenants in
subparagraphs (a) above are reasonable with relation to their duration,
geographical area and scope;
(c) Executive will not, at any time during or after the
Non-Compete Period, slander or libel the Companies, or any of their
stockholders, directors, officers, employees, or agents; and
(d) Executive will, at any time during the period of this
Agreement, at CH's, BH's or BH Sub's request, confirm to BH Executive's
compliance with the provisions of this Agreement within ten (10) days of any
such request for confirmation by BH.
(e) In the event Executive=s employment is terminated by BH
Sub prior to the Effective Time (as defined in the Merger Agreement) other than
for Cause (as defined in Section 5 below), then Executive shall not be subject
to the restrictions set forth in this Section 2 unless BH Sub agrees in writing
to make the payments set forth in Section 5 below, in which event the
Non-Compete Period and the period during which such payments are to be made will
be for a period of two years following such termination of employment.
3. Extension of the Term for Violations. The period during which the
covenants set forth in Section 2 above shall apply shall be extended by one day
for each day in which any of the Companies establishes by adjudication before a
court of competent jurisdiction one or more violations by Executive of any
provision of this Agreement, and the Companies shall be entitled to an
injunction restraining Executive from further violations for a period of two (2)
years from the date of the final decree granting such injunction less only such
number of days subsequent to the Effective Time as Executive has not violated
this Agreement; provided, however, in no event shall the Companies be entitled
to more than 730 days in the aggregate of protection following the Effective
Time under this Agreement and any such injunction taken together. The burden
shall be on Executive to establish the number of days, following the first
established violation, on which violations have not occurred. The purpose of
this provision is to prevent Executive from profiting from his own wrong if he
violates this Agreement.
4. Remedies. In addition to the rights and remedies of the Companies
set forth in Section 3, if Executive breaches the covenants set forth in Section
2 of this Agreement, the Companies will be entitled to recover monetary damages
from Executive on account thereof, and in addition to their right to damages and
any other rights they may have (whether covered in this Section 4 or otherwise),
to obtain injunctive or other equitable relief to restrain any breach or
threatened breach or otherwise to specifically enforce the provisions of Section
2 of this Agreement, it being agreed that money damages alone would be
inadequate to compensate the Companies and would be an inadequate remedy for
such breach.
5. Payment to Executive Upon Certain Termination Events. (a) In the
event that Executive is terminated from employment after the Effective Time (as
defined in the Merger Agreement) and during the Non-Compete Period with BH Sub
for any reason other than for Cause (as defined below) or the voluntary
termination of such employment by Executive, BH
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<PAGE> 4
Sub shall pay or cause to be paid to Executive the full amount of Executive's
salary for the balance of the Non-Compete Period, in equal monthly installments
payable on the first day of each calendar month (the "Termination Payments")
during such period, and shall comply with the requirements of Part 6 of Title I
of the Employee Retirement Income Security Act of 1974, as amended. For purposes
of this Section 5, "Cause" shall mean Executive's (i) breach of this Agreement;
(ii) dishonesty, disloyalty or fraud in connection with his employment; (iii)
failure to adhere to any policy of any of the Companies to which the Executive
and other similarly situated employees are subject and that is known or
reasonably should be known to Executive; (iv) appropriation (or attempted
appropriation) of a material business opportunity of any of the Companies,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of the Companies; provided, however,
that the foregoing shall not apply to the rental of housing to certain of BH
Sub's employees by a company controlled by Executive's wife; (v)
misappropriation (or attempted misappropriation) of any of the Companies' funds
or property; (vi) 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 (vii) Executive's insubordination, willful misconduct in
the performance of, or gross neglect of, his duties with BH Sub or any of the
Companies, as determined by the good faith judgment of the Board of Directors of
BH Sub.
(b) This agreement on the part of BH Sub is additional
consideration given to Executive to induce him to make the covenants set forth
in Section 2 of this Agreement. Executive acknowledges and agrees that BH Sub
would not have agreed to make the Termination Payments under the conditions set
forth in this Section 5 without Executive's having made the covenants set forth
in Section 2 of this Agreement. In the event Executive breaches any of the
covenants set forth in Section 2 of this Agreement, the Termination Payments, if
otherwise due, shall be forfeited by Executive, and any portion of the
Termination Payments previously paid to Executive shall be returned to and
recoverable by BH Sub. This forfeiture and recovery right of BH Sub shall be in
addition to and not in lieu of any other rights and remedies available to BH Sub
for such breach, including, without limitation, the rights and remedies set
forth in Sections 3 and 4 above.
(c) Nothing in this Agreement or otherwise shall give
Executive any right to continued employment with any of the Companies, and
Executive=s employment with BH Sub and, if applicable, the Companies is and
shall remain terminable at will.
(d) Each of the Companies hereby guarantees to Executive BH's
timely payment of the Earnout Acceleration and BH Sub's timely payment of the
Termination Payments.
6. Successors and Assigns. This Agreement will be binding upon CH, BH,
BH Sub and Executive and will inure to the benefit of Executive, CH, BH, BH Sub
and their respective affiliates, successors, heirs and assigns.
7. Governing Law. This Agreement will be governed by the laws of the
State of Alabama without regard to conflicts of laws principles.
4
<PAGE> 5
8. 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 any of the parties in the courts of the State
of Alabama, County of Winston, or in the United States District Court for the
Northern District of Alabama, 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 any party anywhere in the world.
9. Severability. In the event any provision or portion of this
Agreement is held to be illegal, invalid or unenforceable, in whole or in part,
for any reason, under present or future law, such provision shall be severable
and the remainder thereof shall not be invalidated or rendered unenforceable or
otherwise adversely affected. Without limiting the generality of the foregoing,
if a court of competent jurisdiction should deem any provision of this Agreement
to create a restriction that is unreasonable as to scope, duration or
geographical area, the parties hereto agree that the provisions of this
Agreement shall be enforceable in such scope, for such duration and in such
geographic area as any court of competent jurisdiction may determine to be
reasonable.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11. Termination of Agreement Upon Certain Events. (a) This Agreement
shall be terminated and null and void effective upon and following a "Change in
Control" of CH, or upon David A. Roberson's death, legal incompetency, or
termination as President and Chief Executive Officer of CH or, if applicable,
its successors and assigns. A Change in Control means any of the following: (i)
a tender offer or exchange offer is consummated for shares of common stock of
CH, provided that the person making such offer purchases or otherwise acquires
shares of CH's stock representing more than 50% of the outstanding shares of
common stock pursuant to such offer; (ii) a merger or consolidation of CH with
or into another corporation pursuant to which CH will not survive or will
survive only as a subsidiary of another corporation (other than such a merger or
consolidation involving CH (A) after which no person owns 20% or more of the
stock of the resulting corporation who did not own such stock immediately before
such merger or consolidation, or (B) in which all or substantially all of the
stockholders of CH receive 50% or more of the stock of the resulting
corporation, or (C) after which at least a majority of the board of directors of
the resulting corporation were members of the board of directors of CH
immediately prior to such merger of consolidation); (iii) a sale of all or
substantially all of the assets of CH; (iv) any person or group (as such terms
are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) becomes the holder of 50% or more of the outstanding shares of common
stock of CH; or (v) CH sells, liquidates (other than into itself or a wholly
owned subsidiary of itself), or otherwise disposes of its entire ownership
interest in BH Sub or other affiliate of CH which at the time employs Executive.
The Merger shall not be deemed to constitute a Change in Control of CH.
(b) This Agreement shall be terminated and deemed null and
void in its entirety ab initio in the event the Merger Agreement is terminated
in accordance with its terms and the Merger is not consummated.
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<PAGE> 6
(c) The restrictions upon Executive set forth in Section 2
above shall also terminate upon the earlier of a breach of BH's obligation to
pay the Earnout Acceleration when it is otherwise obligated to do so or a breach
of BH Sub's obligation to make Termination Payments when it is otherwise
obligated to do so.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between CH,
BH, BH Sub and Executive with respect to the subject matter of this Agreement.
This Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
CAVALIER HOMES, INC.
By: /s/ David A. Roberson
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BELMONT HOMES, INC.
By: /s/ John W. Allison
-------------------------------------
Name:
------------------------------------
Title:
----------------------------------
BELLCREST HOMES, INC.
By: /s/ Richard Z. Craig, Jr.
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
/s/ Glinn H. Spann
-----------------------------------------
Glinn H. Spann
7
<PAGE> 1
EXHIBIT 10.3
NON-COMPETITION AND
NON-SOLICITATION AGREEMENT
(KEITH KENNEDY)
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this "Agreement")
is made as of August 14, 1997, by and among Cavalier Homes, Inc., a Delaware
corporation ("CH"), Belmont Homes, Inc., a Mississippi corporation ("BH"), and
Keith Kennedy, an individual residing in the State of Alabama ("Executive").
W I T N E S S E T H :
WHEREAS, Executive is currently employed by BH as Senior Vice President
of Manufacturing and General Manager; and
WHEREAS, pursuant to that certain Agreement and Plan of Merger by and
among BH, Crimson Acquisition Corp., a Mississippi corporation and wholly owned
subsidiary of CH ("Sub"), and CH, dated as of the date hereof (the "Merger
Agreement"), Sub will merge (the "Merger") with and into BH in a merger in which
BH shall be the surviving corporation; and
WHEREAS, Executive is a shareholder in BH, and is the beneficiary of an
estate which is a shareholder of BH, and as such will receive substantial
financial benefit from the Merger, and CH would not have entered into the Merger
Agreement, nor would CH have paid the substantial consideration described
therein, without Executive's execution of this Agreement; and
WHEREAS, in further consideration for the execution of this Agreement,
BH has agreed to retain Executive as an employee at will, conditioned upon the
execution of this Agreement, and Executive specifically acknowledges the
valuable nature of this consideration, and freely and voluntarily enters into
this Agreement;
NOW, THEREFORE, based upon the foregoing and on other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Acknowledgments by Executive. Executive acknowledges that (a) the
products and services of BH and CH (collectively with their subsidiaries and
affiliates, the "Companies") are marketed throughout the southeastern region of
the United States; (b) the Companies compete with other businesses that are or
could be located in any part of the United States; (c) CH, Sub and BH would not
have executed the Merger Agreement without the assurance that the covenants set
forth in Section 2 of this Agreement would be made; (d) the provisions of
Section 2 of this Agreement are reasonable and necessary to protect and preserve
the Companies'
1
<PAGE> 2
business; and (e) the Companies would be irreparably damaged if Executive were
to breach the covenants set forth in Section 2 of this Agreement.
2. Non-competition. As an inducement for CH and Sub to enter into the
Merger Agreement, as additional consideration for the consideration to be paid
to Executive pursuant to his employment at will with BH, and in consideration of
the matters set forth in the above recitals, Executive agrees that:
(a) Commencing as of the date hereof and for a period of two
(2) years after the Effective Time (as defined in the Merger Agreement), whether
or not Executive remains in the employ of any of the Companies, or until the
occurrence of any of the events set forth in Section 11, whichever shall first
occur (the "Non-Compete Period"):
(i) Executive will not, directly or indirectly, engage or
invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, financing, or control of, be
employed by, associated with, or in any manner connected with, lend
Executive's name or any similar name to, lend Executive's credit to, or
render services or advice to, any person or entity engaged in the
business of manufacturing, producing, selling or distributing
manufactured housing which has a manufacturing, distribution, warehouse
or other facility anywhere within one hundred (100) miles of Belmont,
Mississippi; provided, however, that Executive may purchase or
otherwise acquire up to (but not more than) 4.9% of any class of
securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended;
(ii) Executive will not, directly or indirectly, either for
himself or any other person, except in the ordinary course of the
Companies= businesses while Executive is employed by one of the
Companies as may be necessary to carry out Executive's duties as an
employee of such Companies, (A) induce or attempt to induce any
employee of any of the Companies to leave the employ of such company,
(B) in any way interfere with the relationship between any of the
Companies and any employee of such company, or (C) induce or attempt to
induce any customer, dealer, supplier, licensee, or business relation
of any of the Companies to cease doing business with or reduce the
amount of its business with such company, or in any way interfere with
the relationship between any customer, supplier, licensee, or business
relation of any of the Companies; and
(iii) Executive will not, directly or indirectly, either for
himself or any other person, solicit the business of any person that is
a customer, dealer, supplier, licensee or business relation of any of
the Companies, whether or not Executive had personal contact with such
person, with respect to products or activities which compete, directly
or indirectly, in whole or in part with the products or activities of
any of the Companies, except on behalf of one or more of the Companies.
2
<PAGE> 3
(b) Executive agrees that each of the covenants in
subparagraphs (a) above are reasonable with relation to their duration,
geographical area and scope;
(c) Executive will not, at any time during or after the
Non-Compete Period, slander or libel the Companies, or any of their
stockholders, directors, officers, employees, or agents; and
(d) Executive will, at any time during the period of this
Agreement, at CH's or BH's request, confirm to BH Executive's compliance with
the provisions of this Agreement within ten (10) days of any such request for
confirmation by BH.
(e) In the event Executive=s employment is terminated by BH
prior to the Effective Time (as defined in the Merger Agreement other than for
Cause (as defined in Section 5 below), then Executive shall not be subject to
the restrictions set forth in this Section 2 unless BH agrees in writing to make
the payments set forth in Section 5 below, in which event the Non-Compete Period
and the period during which such payments are to be made will be for a period of
two years following such termination of employment.
3. Extension of the Term for Violations. The period during which the
covenants in Section 2 above shall apply shall be extended by one day for each
day in which any of the Companies establishes by adjudication before a court of
competent jurisdiction one or more violations by Executive of any provision of
this Agreement, and the Companies shall be entitled to an injunction restraining
Executive from further violations for a period of two (2) years from the date of
the final decree granting such injunction less only such number of days
subsequent to the Effective Time as Executive has not violated this Agreement;
provided, however, in no event shall the Companies be entitled to more than 730
days in the aggregate of protection following the Effective Time under this
Agreement and any such injunction taken together. The burden shall be on
Executive to establish the number of days, following the first established
violation, on which violations have not occurred. The purpose of this provision
is to prevent Executive from profiting from his own wrong if he violates this
Agreement.
4. Remedies. In addition to the rights and remedies of the Companies
set forth in Section 3, if Executive breaches the covenants set forth in Section
2 of this Agreement, the Companies will be entitled to recover monetary damages
from Executive on account thereof, and in addition to their right to damages and
any other rights they may have (whether covered in this Section 4 or otherwise),
to obtain injunctive or other equitable relief to restrain any breach or
threatened breach or otherwise to specifically enforce the provisions of Section
2 of this Agreement, it being agreed that money damages alone would be
inadequate to compensate the Companies and would be an inadequate remedy for
such breach.
5. Payment to Executive Upon Certain Termination Events. (a) In the
event that Executive is terminated from employment after the Effective Time (as
defined in the Merger Agreement) and during the Non-Compete Period with BH for
any reason other than for Cause (as defined below) or the voluntary termination
of such employment by Executive, BH shall pay or cause to be paid to Executive
the full amount of Executive's salary for the balance of the Non-Compete Period,
in equal monthly installments payable on the first day of each calendar month
(the "Termination Payments") during such period, and shall comply with the
requirements of Part
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<PAGE> 4
6 of Title I of the Employee Retirement Income Security Act of 1974, as amended.
For purposes of this Section 5, "Cause" shall mean Executive's (i) breach of
this Agreement; (ii) dishonesty, disloyalty or fraud in connection with his
employment; (iii) failure to adhere to any policy of any of the Companies to
which the Executive is subject and that is known or reasonably should be known
to Executive; (iv) appropriation (or attempted appropriation) of a material
business opportunity of the Companies, including attempting to secure or
securing any personal profit in connection with any transaction entered into on
behalf of any of the Companies; (v) misappropriation (or attempted
misappropriation) of any of the Companies' funds or property; (vi) 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 minor traffic offenses); or (vii)
Executive's insubordination, willful misconduct in the performance of, or gross
neglect of, his duties with BH or any of the Companies, as determined by the
good faith judgment of the Board of Directors of BH.
(b) This agreement on the part of BH is additional
consideration given to Executive to induce him and to make the covenants set
forth in Section 2 of this Agreement. Executive acknowledges and agrees that BH
would not have agreed to make the Termination Payments under the conditions set
forth in this Section 5 without Executive's having made the covenants set forth
in Section 2 of this Agreement. In the event Executive breaches any of the
covenants set forth in Section 2 of this Agreement, the Termination Payments, if
otherwise due, shall be forfeited by Executive, and any portion of the
Termination Payments previously paid to Executive shall be returned to and
recoverable by BH. This forfeiture and recovery right of BH shall be in addition
to and not in lieu of any other rights and remedies available to BH for such
breach, including, without limitation, the rights and remedies set forth in
Sections 3 and 4 above.
(c) Nothing in this Agreement or otherwise shall give
Executive any right to continued employment with any of the Companies, and
Executive=s employment with BH and, if applicable, the Companies is and shall
remain terminable at will.
(d) Each of the Companies hereby guarantees to Executive BH's
timely payment of the Termination Payments.
6. Successors and Assigns. This Agreement will be binding upon CH, BH
and Executive and will inure to the benefit of Executive, CH, BH and their
respective affiliates, successors, heirs and assigns.
7. Governing Law. This Agreement will be governed by the laws of the
State of Alabama without regard to conflicts of laws principles.
8. 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 any of the parties in the courts of the State
of Alabama, County of Winston, or in the United States District Court for the
Northern District of Alabama, 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 any party anywhere in the world.
4
<PAGE> 5
9. Severability. In the event any provision or portion of this
Agreement is held to be illegal, invalid or unenforceable, in whole or in part,
for any reason, under present or future law, such provision shall be severable
and the remainder thereof shall not be invalidated or rendered unenforceable or
otherwise adversely affected. Without limiting the generality of the foregoing,
if a court of competent jurisdiction should deem any provision of this Agreement
to create a restriction that is unreasonable as to scope, duration or
geographical area, the parties hereto agree that the provisions of this
Agreement shall be enforceable in such scope, for such duration and in such
geographic area as any court of competent jurisdiction may determine to be
reasonable.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11. Termination of Agreement Upon Certain Events. (a) This Agreement
shall be terminated and null and void effective upon and following a "Change in
Control" of CH, or upon David A. Roberson's death, legal incompetency, or
termination as President and Chief Executive Officer of CH or, if applicable,
its successors and assigns. A Change in Control means any of the following: (i)
a tender offer or exchange offer is consummated for shares of common stock of
CH, provided that the person making such offer purchases or otherwise acquires
shares of CH's stock representing more than 50% of the outstanding shares of
common stock pursuant to such offer; (ii) a merger or consolidation of CH with
or into another corporation pursuant to which CH will not survive or will
survive only as a subsidiary of another corporation (other than such a merger or
consolidation involving CH (A) after which no person owns 20% or more of the
stock of the resulting corporation who did not own such stock immediately before
such merger or consolidation, or (B) in which all or substantially all of the
stockholders of CH receive 50% or more of the stock of the resulting
corporation, or (C) after which at least a majority of the board of directors of
the resulting corporation were members of the board of directors of CH
immediately prior to such merger of consolidation); (iii) a sale of all or
substantially all of the assets of CH; (iv) any person or group (as such terms
are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) becomes the holder of 50% or more of the outstanding shares of common
stock of CH; or (v) CH sells, liquidates (other than into itself or a wholly
owned subsidiary of itself), or otherwise disposes of its entire ownership
interest in BH or other affiliate of CH which at the time employs Executive. The
Merger shall not be deemed to constitute a Change in Control of CH.
(b) This Agreement shall be terminated and deemed null and
void in its entirety ab initio in the event the Merger Agreement is terminated
in accordance with its terms and the Merger is not consummated.
(c) The restrictions upon Executive set forth in Section 2
above shall also terminate upon a breach of BH's obligation to make Termination
Payments when it is otherwise obligated to do so.
5
<PAGE> 6
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior written and oral agreements and
understandings between CH, BH and Executive with respect to the subject matter
of this Agreement. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
CAVALIER HOMES, INC.
By: /s/ David A. Roberson
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
BELMONT HOMES, INC.
By: /s/ John W. Allison
-------------------------------------
Name:
------------------------------------
Title:
----------------------------------
/s/ Keith Kennedy
-----------------------------------------
Keith Kennedy
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BELMONT HOMES, INC. FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,521
<SECURITIES> 8,588
<RECEIVABLES> 10,977
<ALLOWANCES> 37
<INVENTORY> 10,940
<CURRENT-ASSETS> 39,214
<PP&E> 25,667
<DEPRECIATION> 4,060
<TOTAL-ASSETS> 80,188
<CURRENT-LIABILITIES> 20,252
<BONDS> 0
0
0
<COMMON> 947
<OTHER-SE> 58,082
<TOTAL-LIABILITY-AND-EQUITY> 80,188
<SALES> 179,575
<TOTAL-REVENUES> 181,510
<CGS> 154,875
<TOTAL-COSTS> 154,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 7,570
<INCOME-TAX> 2,388
<INCOME-CONTINUING> 5,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,182
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0
</TABLE>
