Stockholder
Update
April 29,
2009
Dear
Fellow Stockholder:
In our
last letter to you, we cautioned you about a Dissident Group that is seeking to
force its way on to Cavalier’s board at this year’s annual
meeting. The Dissident Group has now sent a letter to stockholders
that we believe is filled with factual inaccuracies and innuendo meant to incite
rather than inform. We are outraged by their attempt to win votes by
playing fast and loose with the facts.
The
Boards
Proactive Steps
to Position Cavalier for the
Future
The
Dissident Group’s letter would have you believe your Board and management have
stood still in the face of a challenging market. This is an
outrageous distortion of the facts and conveniently ignores that
Cavalier’s management team
and Board have worked aggressively to decrease costs, right-size Cavalier’s
capacity, sell non-core assets and improve liquidity in order to weather the
storm that has hit our industry, and yet still remain profitable over the last
five years.
In summary,
your Board and management:
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Solidified
and streamlined management
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Replaced
the President and CEO in August of 2008 and appointed Bobby
Tesney
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Also
in August 2008, Barry Mixon, with over 38 years of industry experience and
24 years of experience with Cavalier, returned as Executive Vice
President
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Eliminated
two general managers positions to reduce overhead
costs
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Reduced
quarterly SG&A by 27% over the last twelve
months
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Promoted
lean manufacturing, operational
efficiencies
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Improved
gross margins to 18.2% in 2008 from 13.6% in
2007
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Developed
high-value products at low price
points
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Limited
risks in distribution by working mainly with independent
dealers
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Improved
cash position and eliminated debt
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Has
worked to provided wholesale floor plan
financing
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As a
result of the Board’s foresight and long-term plan,
Cavalier is currently one of
the best capitalized companies in the manufactured housing industry.
The recent
bankruptcies of Fleetwood Enterprises and numerous private companies demonstrate
the tremendous importance of liquidity in the current
environment.
By
keeping a long-term perspective and positioning the Company to survive the
toughest of industry conditions, Cavalier is well positioned as a
well-capitalized survivor. Cavalier believes that manufactured homes are
an important component of the overall housing market providing a low cost, high
quality alternative to hundreds of thousands of families across the
country.
Your Board
has managed Cavalier to maintain a strong balance sheet and position the company
to further increase market share and grow revenue as equilibrium returns to the
housing market
.
As a
result of the Board’s stewardship, Cavalier has the best performing stock price
of any manufactured housing company in 2009 and over the past twelve
months.
The
Dissident Group Would Seek to Replace Our Highly-Qualified
Directors
The
Dissident Group is seeking to replace three of your Board’s highly-qualified
directors:
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Barry
B. Donnell, Chairman of the Board of Directors and Co-Founder, with 47
years of experience in our industry, has been a critical part of helping
Cavalier navigate through difficult times in the
industry.
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Bobby
Tesney is our President and Chief Executive Officer. Mr.
Tesney’s work for Cavalier in a key management position since last August
has provided the leadership to reduce our cost structure, improve
liquidity, and better position Cavalier as industry shipments have
continued to decline.
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Thomas
A. Broughton, who has served as a member of the Board of Directors since
1986 and serves as Chairman of the Board’s Compensation
Committee. Mr. Broughton has significant banking and financial
experience and expertise which has been invaluable during his tenure on
the Board, and which is even of greater value given the current turmoil in
the financial markets.
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In place
of these highly-qualified directors, the Dissident Group is looking to elect
three of their own hand-picked nominees that include Kenneth Shipley and Curtis
Hodgson, co-founders and principals of Legacy Housing - a direct competitor of
Cavalier.
The
Dissident Nominees Have an Irreconcilable Conflict of Interest
In our
view, when a company has dealers (which Legacy Housing has) in five of the same
states that Cavalier does, and attends the industry’s largest tradeshow in
Tunica, MS in March 2009 for the first time to talk with customers in two other
states, that is a direct competitor! Don’t let the Dissident Group
tell you otherwise.
The Board
believes that Mr. Shipley and Mr. Hodgson have an irreconcilable conflict as
direct competitors of Cavalier and
could not
possibly represent
the interests of ALL stockholders.
We would
also remind you that
Mr.
Shipley, Mr. Hodgson, and the Dissident Group began this proxy contest only
after your Board rejected their proposal to have Cavalier acquire Legacy
Housing
, their privately held company, in a transaction that your board
believed would enrich Mr. Shipley and Mr. Hodgson at the expense of Cavalier
stockholders.
The
Dissident Group’s “Plan” is not in the Best Interests of
Stockholders
We
believe the Dissident Group’s only real plan is to get Cavalier to buy their
company and pay their proxy fight expenses.
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The Dissident Group outlines
a “plan” in its April 14 letter that is a mixture of actions either already
taken by your Board or which we believe are not right for your Company and could
hurt stockholder value.
Part of
their “plan” is to have Cavalier provide wholesale floor plan
financing. They either should have known or conveniently ignore the
fact that we plan to use a significant part of our cash, including the proceeds
from the sale of CIS, to provide financing under various floor plan programs for
our independent dealer network.
We believe this demonstrates
the Dissident Group will not bring any new value-enhancing ideas to the
boardroom.
One of
their other ideas is for Cavalier to re-enter the home financing market,
which Cavalier just exited with the
sale of CIS
.
We believe this is a bad
idea and shows their misjudgment of the current economic
climate.
Your
Board and management made a prudent decision to exit that business because it
eliminated the risk in Cavalier’s retail finance business, freed up capital, and
allowed management to focus on the Company’s core manufacturing
operations. We continue to believe that the CIS transaction was in
the best interest of Cavalier and its stockholders.
1
The Dissident Group has stated that they intend to ask Cavalier to reimburse
them for all expenses - currently estimated to be $225,000 – that they incur in
connection with their proxy contest and that they do not intend to submit the
question of such reimbursement to a stockholder vote. The Board believes that
there are better ways to spend stockholder capital than to line the pockets of
the Dissident Group for their unnecessary and disruptive proxy
contest.
Stockholders
Should Question the Dissident Group’s Credibility
In their
April 14
th
letter
to stockholders, the Dissident Group claims they were “shocked when we heard in
January 2009 that the Board was considering the sale of
CIS.” We are surprised to hear the Dissident Group make this
claim. On November 24
th
, 2008,
Cavalier issued a public press release and filed a corresponding Form 8-K with
the SEC, where we announced the potential sale of our finance subsidiary,
CIS. Is this the kind of watchdog you want to represent
you?
The
Dissident Group Distorts Compensation Issues
The
Dissident Group again distorts the truth in their letter when it comes to
compensation matters. Let’s set the record straight:
The
Dissidents imply that bonuses are paid if there is a loss.
This
is simply not true; no bonuses will be paid to key executives in 2009 until the
Company achieves pre-tax profits of $2.5 million, including the cost of the
bonuses.
The
Dissident’s say that key executives qualify for bonuses amounting to several
times their annual salary.
The
truth is that since the August 2008 management change, a new bonus plan caps
bonuses at 1 times annual salary.
The
Dissidents question the use of a skybox at Bryant-Denny Stadium.
What
the Dissidents fail to tell you is that Cavalier has had the skybox since the
late-1990s and that management will review the skybox expense annually for a
return on investment. The skybox is used as a sales tool to entertain
dealers and customers and the Board believes this is beneficial for our sales
team and the Company.
The
Dissidents state a compensation figure for Barry Donnell.
Again,
what the Dissidents fail to disclose is that Mr. Donnell has not been an
employee of the Company since 2004; and since that time he has only received
normal fees as a director.
The
Dissidents claim that only one member of the Board has purchased any Cavalier
stock in the open market in the past five years.
This
is simply not true; several members of the Board have made purchases in the open
market.
Another thing the Dissidents
don’t tell you is that key executives have volunteered to have their base
salaries reduced.
VOTE
FOR THE CAVALIER DIRECTORS ON THE
WHITE
CARD
Your
Board urges you to reject the Dissident Group’s nominees and support your
current Board.
We
strongly oppose the dissident nominees and ask that stockholders reject their
nominees and their self serving agenda. We urge you to vote for
Cavalier’s director nominees who will act in the best interests of ALL
stockholders. Please act in your own best interests and protect your
investment by voting for our nominees on the WHITE card now.
If you have already voted on Legacy’s
gold card, you can still vote in favor of the Company’s nominees by signing,
dating and mailing the enclosed WHITE card. Only your latest dated
vote will be counted.
Thank you
for your continued support.
On behalf
of the Board of Directors,
Cavalier
has filed a proxy statement in connection with its 2009 annual meeting of
stockholders. The Company's stockholders are strongly advised to read the proxy
statement and the accompanying WHITE proxy card, as they contain important
information, including information relating to the participants in such proxy
solicitation. Stockholders can obtain this proxy statement, any
amendments or supplements to the proxy statement and other documents filed by
Cavalier with the SEC for free at the internet website maintained by the SEC at
www.sec.gov
and
Cavalier’s website at
www.cavhomesinc.com
.
Forward
Looking Statements
With the
exception of historical information, the statements made in this press release,
including those containing the words "expects," "anticipates," "thinks" and
"believes," and words of similar import, and those relating to industry trends
and conditions, Cavalier's expectations for its results of operations during the
most recent fiscal quarter and in future periods, acceptance of Cavalier's new
product initiatives and the effect of these and other steps taken in the last
several years on Cavalier's future sales and earnings, and Cavalier's plans and
expectations for addressing current and future industry and business conditions,
constitute forward-looking statements, are based upon current expectations, and
are made pursuant to the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve certain known and unknown assumptions, risks and uncertainties that
could cause actual results to differ materially from those included in or
contemplated by the statements, including among other matters, significant
competitive activity, including promotional and price competition; interest
rates; increases in raw material and energy costs; changes in customer demand
for Cavalier's products; inherent risks in the market place associated with new
products and new product lines; and other risk factors listed from time to time
in Cavalier's reports filed with the Securities and Exchange Commission,
including, but not limited to, those discussed or indicated in Cavalier's Annual
Report on Form 10-K for the period ended December 31, 2008, under the heading
"Item 1. Business-Risk Factors," as filed with the Securities and Exchange
Commission. Cavalier disclaims any obligation to update any forward-looking
statements as a result of developments occurring after the date of this
letter.