Exhibit 10.1

SETTLEMENT AGREEMENT
 

 
This Settlement Agreement, dated as of May 13, 2009 (the “Agreement”), is by and
among Cavalier Homes, Inc. (the “Company”), and the members of the Cavalier
Homes Committee for Change (the “Committee”) including, Legacy Housing, LTD.,
GPLH, LC, Shipley Brothers, LTD., K-Shipley, LLC, D-Shipley, LLC, B-Shipley,
LLC, Federal Investors Servicing, LTD., Federal Investors Management, L.C.,
Kenneth E. Shipley, Curtis D. Hodgson, Douglas M. Shipley, Billy G. Shipley and
Michael R. O’Connor (each, a “Committee Member,” and collectively, the
“Committee Members”).
 
WHEREAS, the Committee Members beneficially own (as defined below), in the
aggregate, shares of the Company’s common stock, par value $0.10 per share (the
“Common Stock”) as set forth on Schedule A to this Agreement (the “Shares”);
 
WHEREAS, prior to the date hereof Curtis D. Hodgson delivered a letter (the
“Nomination Notice Letter”) to the Company, dated as of January 21, 2009,
formally indicating his intention to nominate (the “Nomination”) three
individuals for election to the Board of Directors of the Company (the “Board”)
by the holders of the Common Stock (the “Stockholders”) at the 2009 Annual
Meeting of Stockholders (the “2009 Annual Meeting”);
 
WHEREAS, the Company and the Committee Members have determined that it is in
their mutual best interests and in the best interests of the Company’s
Stockholders to enter into this Agreement, whereby, among other things, the
Company will appoint Curtis D. Hodgson and Kenneth E. Shipley (the “New
Directors”) to the Board and the Committee will abandon its nomination of
directors, all as more fully provided herein;
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.1  Defined Terms. For purposes of this Agreement:
 
(a)           “Affiliate” has the meaning set forth in Rule 12b-2 promulgated by
the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
 
(b)           “Associate” has the meaning set forth in Rule 12b-2 promulgated by
the SEC under the Exchange Act.
 
(c)           The terms “beneficial owner” and “beneficially owns” have the same
meanings as set forth in Rule 13d-3 promulgated by the SEC under the Exchange
Act.
 
(d)           “Bylaws” means the Company’s Amended and Restated By-laws, as
amended.
 

 
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(e)           “Charter” means the Company’s Amended and Restated Certificate of
Incorporation, as amended.
 
(f)           “Confidential Information” means any non-public information that
is confidential to the Company and includes without limitation the stockholder
information delivered by the Company to the Committee; provided, that
Confidential Information will not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by the
Committee or its representatives, (ii) was available to the Committee on a
non-confidential basis prior to its disclosure to the Committee or its
representatives by the Company or on its behalf, or (iii) became or becomes
available to the Committee on a non-confidential basis from a Person other than
the Company or the Company’s representatives or agents; provided, that such
Person is not known by the Committee to be otherwise bound by a confidentiality
agreement or obligation with the Company or such Person is not known by the
Committee to be otherwise prohibited from transmitting the document or
information to the Committee.
 
(g)           “Person” means any individual, partnership, corporation, limited
liability company, group, syndicate, trust, government or agency, or any other
organization, entity or enterprise.
 
(h)           “SEC” means the Securities and Exchange Commission or any
successor agency.
 
(i)           “Termination Date” means the date the New Directors or their
replacements as provided in Section 2.1(d) are no longer members of the Board.
 
Section 1.2  Interpretation. When reference is made in this agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.” The words “hereof,” “herein,” “hereby” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The word “or” shall
not be exclusive. This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing an instrument to be drafted.
 
ARTICLE II
 
COVENANTS
 
Section 2.1  Board Appointments, 2009 Annual Meeting and Related Matters.
 
(a)           Board Appointments. Subject to the terms hereof and
contemporaneously herewith:
 
 
(i)
The Board has taken all requisite action to, in accordance with the Bylaws of
the Company, increase the size of the Board from eight (8) to ten (10)
directors; and

 

 
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(ii)
The Board has appointed the New Directors to serve as directors of the Company
to fill the two (2) vacancies thus created and to serve in such capacity until
the 2009 Annual Meeting or until their successors are duly elected and
qualified, subject to the terms of this Agreement.

 
(b)           2009 Annual Meeting. The Company hereby covenants and agrees that
at the 2009 Annual Meeting, the New Directors will be nominated for election as
directors of the Company for terms expiring at the Company’s 2010 annual meeting
of stockholders (the “2010 Annual Meeting”) or until their successors are duly
elected and qualified. Prior to the 2009 Annual Meeting, (i) the Board shall
recommend that the Company’s stockholders vote in favor of the New Directors at
the 2009 Annual Meeting and (ii) the Company shall solicit proxies for the
election of the New Directors at the 2009 Annual Meeting.
 
(c)           Board Size, Director Retirements. The size of the Board will not
be increased to more than ten (10) directors at any time before the 2010 Annual
Meeting, unless approved by a majority of the independent directors and at least
one of the New Directors. Until the second anniversary of this Agreement, if any
director who is not a New Director retires from the Board as a result of such
director having reached his seventieth (70) birthday, any vacancy on the Board
created by such retirement shall not be filled.
 
(d)           New Director Vacancies. If any New Director leaves the Board
(whether by resignation or otherwise) before the 2010 Annual Meeting, the
Committee will be entitled to recommend to the Board replacement director(s)
(each of whom will be deemed a New Director for purposes of this Agreement). The
Board will not unreasonably withhold acceptance of any replacement director(s)
recommended by the Committee. In the event the Board does not accept a
replacement director(s) recommended by the Committee, the Committee will have
the right to recommend additional replacement director(s) for consideration by
the Board. The Board will appoint such replacement director(s) to the Board no
later than five (5) business days after the Board’s approval of such replacement
director(s).
 
Section 2.2  Expenses. Within five (5) business days of receiving reasonably
satisfactory documentation with respect to such expenses, the Company shall
reimburse the Committee an amount equal to the Committee’s actual out-of-pocket
expenses incurred on or prior to the date of this Agreement in connection with
the pending proxy contest, including the preparation of related filings with the
SEC, the fees and disbursements of counsel and other advisors, and the
negotiation and execution of this Agreement and all related activities and
matters, up to a maximum reimbursement of $200,000, and the Committee hereby
agrees that such payment shall be in full satisfaction of any claims or rights
it may have as of the date hereof for reimbursement of fees, expenses or costs
in connection with the pending proxy contest.
 
Section 2.3  Voting Provisions. Each Committee Member shall cause in the case of
all Shares owned of record and shall instruct the record owner, in the case of
all Shares beneficially owned but not owned of record, directly or indirectly,
by it, or by any Committee Affiliate or Associate, as of the record date for the
2009 Annual Meeting, to be present for quorum purposes and to be voted at such
meeting or any adjournments or postponements thereof (a) in favor of each
director nominated and recommended by the Board for election at such meeting and
(b)
 

 
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against any stockholder nominations for director which are not approved and
recommended by the Board for election at such meeting.
 
Section 2.4  Undertakings by the Committee. By executing this Agreement, the
Committee hereby (i) irrevocably withdraws the Nomination Notice Letter and any
nominations to the Board made prior to the date hereof, (ii) irrevocably ceases
any proxy solicitation activities with respect to the Company in connection with
the 2009 Annual Meeting and (iii) irrevocably withdraws the demand to inspect
certain of the Company’s books and records, pursuant to a demand letter, dated
as of March 11, 2009, sent by Curtis D. Hodgson to the Company. Within two (2)
business days of the date hereof, the Committee shall file, or cause to be filed
on its behalf, with the SEC an amendment to its Schedule 13D with respect to the
Company disclosing the material contents of this Agreement.
 
In addition, from the date hereof until the Termination Date, each of the
Committee and each Committee Member agree that neither they nor any of their
respective Affiliates or Associates will, without the prior written consent of
the Company, in any manner, directly or indirectly, acting alone or in concert
with others:
 
 
(i)
Effect, seek, offer or propose (whether publicly or otherwise) to effect, or
cause or participate in, facilitate or finance, or in any way assist any other
Person to effect, seek, offer or propose (whether publicly or otherwise) to
effect or participate in any “solicitation” of “proxies” (as such terms are used
in the proxy rules of the SEC) or consents to vote any voting securities of the
Company or conduct any nonbinding referendum with respect to Common Stock of the
Company, or make, or in any way participate in, any “solicitation” of any
“proxy” with respect to the Company within the meaning of Rule 14a-1 promulgated
by the SEC under the Exchange Act (but without regard to the exclusion set forth
in Rule 14a-1(1)(2)(iv) from the definition of “solicitation”);

 
 
(ii)
Seek to advise or influence any Person with respect to the voting of any
securities of the Company;

 
 
(iii)
Form, join or in any way participate in a “group” (as defined under Section
13(d) of the Exchange Act) with respect to the securities of the Company other
than the Section 13(d) “group” that includes all or some lesser number of the
Committee Members, but does not include any other members who are not currently
identified as a Committee Member;

 
 
(iv)
Initiate, propose or otherwise “solicit” (as such term is used in the proxy
rules of the SEC) the Company’s stockholders for the approval of stockholder
proposals whether made pursuant to Rule 14a-8 or Rule 14a-4 under the Exchange
Act or otherwise;

 
 
(v)
Take any action which might force the Company to make a public announcement
regarding any of the types of matters set forth in (i) above; or

 

 
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(vi)
Enter into any discussions or arrangements with any third party with respect to
any of the foregoing.

 
Provided, however, that nothing herein will limit the ability of any Committee
Member, or its respective Affiliates and Associates, except as otherwise
provided in Section 2.3, to vote its Shares on any matter submitted to a vote of
the stockholders of the Company or announce its opposition to any Board-approved
proposals not supported by the New Directors or limit the ability of the New
Directors to exercise their rights as members of the Board while serving as
members of the Board.
 
Each of the Committee and each Committee Member also agree during such period
not to request the Company (or its directors, officers, employees or agents),
directly or indirectly, to amend or waive any provision of this Section
(including this sentence).
 
Section 2.5  Undertakings by the New Directors. Each New Director, while serving
in his capacity as a director and for one year following his resignation or
departure from the Board, agrees not to use any Confidential Information that he
learns in his capacity as a director of the Company in any way that would be
competitive to the Company or its operations.
 
Section 2.6  Publicity. Promptly after the execution of this Agreement, the
Company and the Committee will issue a joint press release in the form attached
hereto as Schedule B (the “Press Release”). Following the date of the execution
of this Agreement through the Termination Date, none of the parties hereto will
make any public statements (including any filing with the SEC or any other
regulatory or governmental agency, including any stock exchange) that are
inconsistent with, or otherwise contrary to, the statements in the Press Release
issued pursuant to this Section 2.6. Following the date of the execution of this
Agreement through the Termination Date, neither the Company nor its employees,
officers, directors, Associates or Affiliates on the one hand or the Committee
nor their principals, Associates or Affiliates on the other hand shall make any
further negative or disparaging remarks about the other or make, or cause to be
made, any statement or announcement that relates to and constitutes an ad
hominem attack on, or relates to and otherwise disparages, the other, its
employees, officers or its directors or any person who has served as an
employee, officer or director of either the Committee or the Company; provided,
that nothing herein will limit the ability of any Committee Member, its
respective Affiliates and Associates to publicly announce its opposition to any
Board-approved proposals not supported by the New Directors.
 
Section 2.7  Mutual Releases. Upon the execution of this Agreement, the Company
and the Committee hereby agree to mutual releases as follows:
 
 
(a)
Release by Company. The Company hereby agrees for the benefit of the Committee
and each Committee Member and each Affiliate, Associate, officer, director,
member, partner, manager stockholder, agent, employee, attorney, assigns,
predecessor and successor, past and present, of the Committee and each Committee
Member (the Committee, each Committee Member and each such Person being a
“Committee Released Person”) as

 

 
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follows: the Company, for itself and for its officers, directors, assigns,
agents and successors, past and present, hereby agrees and confirms that,
effective from and after the date of this Agreement, it hereby acknowledges full
and complete satisfaction of, and covenants not to sue, and forever fully
releases and discharges each Committee Released Person of, and holds each
Committee Released Person harmless from, any and all claims of any nature
whatsoever (“Claims”), whether known or unknown, suspected or unsuspected,
including, but not limited to, those arising in respect of or in connection with
the nomination and election of directors or other actions to be taken at the
2009 Annual Meeting, occurring any time or period of time on or prior to the
date of this Agreement (including the future effects of such occurrences,
conditions, acts or omissions).
 
 
(b)
Release by the Committee and each Committee Member. The Committee and each
Committee Member hereby agrees for the benefit of the Company, and each
Affiliate, Associate, officer, director, stockholder, agent, employee, attorney,
assigns, predecessor and successor, past and present, of the Company (the
Company and each such Person being a “Company Released Person”) as follows: the
Committee and each Committee Member, for itself and for its members, officers,
directors, assigns, agents and successors, past and present, hereby agrees and
confirms that, effective from and after the date of this Agreement, it hereby
acknowledges full and complete satisfaction of, and covenants not to sue, and
forever fully releases and discharges each Company Released Person of, and holds
each Company Released Person harmless from, any and all Claims, whether known or
unknown, suspected or unsuspected, including, but not limited to, those arising
in respect of or in connection with the nomination and election of directors or
other actions to be taken at the 2009 Annual Meeting, occurring any time or
period of time on or prior to the date of this Agreement (including the future
effects of such occurrences, conditions, acts or omissions).

 
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES
 
Section 3.1  Representations and Warranties of the Company. The Company hereby
represents and warrants that this Agreement and the performance by the Company
of its obligations hereunder (i) has been duly authorized, executed and
delivered by it, and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, (ii) does not
require the approval of the stockholders of the Company and (iii) does not and
will not violate any law, any order of any court of other agency of government,
the Charter or the Bylaws, or any provision of any indenture, agreement or other
instrument to which the Company or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of, or give rise to, any lien, charge,
restriction, claim, encumbrance or adverse penalty of any nature whatsoever
pursuant to any such indenture, agreement or other instrument.
 

 
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Section 3.2  Representations and Warranties of the Committee and each Committee
Member. Each of the Committee and each Committee Member represents and warrants
that this Agreement and the performance by the Committee and each such Committee
Member, together with each of their respective Affiliates and Associates, of
their obligations hereunder (i) has been duly authorized, executed and delivered
by the Committee and each such Committee Member, and is a valid and binding
obligation of the Committee and each such Committee Member, enforceable against
the Committee and each such Committee Member in accordance with its terms, (ii)
does not require the approval of the owners or members of the Committee or any
Committee Member and (iii) does not and will not violate any law, any order of
any court of other agency of government, the governing instruments of the
Committee or any Committee Member, or any provision of any indenture, agreement
or other instrument to which the Committee or any Committee Member or any of
their properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of, or give rise to, any lien, charge, restriction, claim,
encumbrance or adverse penalty of any nature whatsoever pursuant to any such
indenture, agreement or other instrument. Each of the Committee and each
Committee Member hereby further represents and warrants that, as of the date
hereof, their respective Affiliates are, collectively, the beneficial owners of
such number of Shares as are respectively set forth on Schedule A of this
Agreement.
 
ARTICLE IV
 
OTHER PROVISIONS
 
Section 4.1  Remedies.
 
(a)           Each party hereto hereby acknowledges and agrees, on behalf of
itself and its Affiliates, that irreparable harm would occur in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties will be entitled to specific relief hereunder, including an injunction
or injunctions to prevent and enjoin breaches of the provision of this Agreement
and to enforce specifically the terms and provision hereof in any state or
federal court in the State of Delaware, in addition to any other remedy to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with such remedy are hereby waived.
 
(b)           Each party hereto agrees, on behalf of itself and its Affiliates,
that any actions, suits or proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby will be brought solely and
exclusively in any state or federal court in the State of Delaware (and the
parties agree not to commence any action, suit or proceeding relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to the respective addresses set forth
in Section 4.2 (with a copy to the attorney indicated) will be effective service
of process for any such action, suit or proceeding brought against any party in
any such court. Each party, on behalf of itself and its Affiliates, irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transaction contemplated
hereby, in the state or federal courts in the State of Delaware, and
 

 
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hereby further irrevocably and unconditionally waives and agrees not be plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an improper or inconvenient forum.

Section 4.2  Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
hereto shall be in writing and shall be deemed validly given, made or served, if
(a) given by telecopy, when such telecopy is transmitted to the telecopy number
set forth below and the appropriate confirmation is received or (b) if given by
any other means, when actually received during normal business hours at the
address specified in this subsection:
 
If to the Company:
Cavalier Homes, Inc.
32 Wilson Boulevard 100
Addison, Alabama 35540
Attn: Bobby Tesney
Fax: (256) 747-7004
 
With a copy to:
Lowe, Mobley & Lowe
P.O. Box 576
or
1210 21st Street
Haleyville, AL 35565
Attn: John W Lowe
Fax: (205) 486-4531
 
If to the Committee
or any Committee Member:
Legacy Housing, LTD.
15400 Knoll Trail, Suite 101, LB 25
Dallas, Texas 75248
Attn: Curtis D. Hodgson
Fax: (972) 294-3765
 
With a copy to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attn: Steve Wolosky
Fax: (212) 451-2222
 

Section 4.3  Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and may be amended only
by an agreement in writing executed by the parties hereto.
 
Section 4.4  Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles of such state.
 
Section 4.5  Further Assurances. Each party agrees to take or cause to be taken
such
 
 
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further actions, and to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments, and to obtain such
consents, as may be reasonably required or requested by the other party in order
to effectuate fully the purposes, terms and conditions of this Agreement.
 
Section 4.6  Third-Party Beneficiaries. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and nothing in this Agreement is intended to confer on
any person other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement except as explicitly stated in this Agreement.
 
Section 4.7  Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
 
Section 4.8  Confidential Information. The Committee and each Committee Member
shall promptly return or destroy, as directed by the Company, all Confidential
Information in its possession or in the possession of its representatives. Upon
request, an authorized representative of the Committee shall certify in writing
to the Company the destruction of all Confidential Information destroyed or
returned, as the case may be, and shall hold all oral Confidential Information
confidential. The Committee and each Committee Member shall permanently erase
all related electronic and computer files and backup copies from the media on
which they are contained.
 
Section 4.9  No Waiver. Any waiver by any party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be construed as a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
 
Section 4.10  Severability. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon the legality or enforceability of any other provision of this
Agreement.
 
[Signatures to follow]
 

 
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
caused the same to be executed by its duly authorized representative as of the
date first above written.
 

 
CAVALIER HOMES, INC.
 
 
By:        /S/ BARRY B.
DONNELL                                                                  
 
Name:   Barry B. Donnell
 
Title:     Chairman of the Board of Directors
 
 
LEGACY HOUSING, LTD.
 
 
By: GLPH, LC, its general partner
 
 
By:        /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     President
 
 
GPLH, LC
 
 
By:        /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     President
 
 
SHIPLEY BROTHERS, LTD.
 
 
By: K-Shipley, LLC, its general partner,
 
 
By:         /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     President
 
 
K-SHIPLEY, LLC
 
 
By:         /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     President
 
 
D-SHIPLEY, LLC
 
 
By:        /S/ DOUGLAS M. SHIPLEY
 
Name:   Douglas M. Shipley
 
Title:     President

 
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B-SHIPLEY, LLC
 
 
By:        /S/ BILLY G.
SHIPLEY                                                                   
 
Name:   Billy G. Shipley
 
Title:     President
 
 
FEDERAL INVESTORS SERVICING, LTD
 
 
By: Federal Investors Management, L.C., its general partner
 
 
By:        /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     Manager
 
 
FEDERAL INVESTORS MANAGEMENT, L.C.
 
 
By:         /S/ KENNETH E. SHIPLEY
 
Name:   Kenneth E. Shipley
 
Title:     Manager
 
     
/S/ KENNETH E. SHIPLEY
 
KENNETH E. SHIPLEY
 
 
/S/ CURTIS D. HODGSON
 
CURTIS D. HODGSON
 
 
/S/ DOUGLAS M. SHIPLEY
 
DOUGLAS M. SHIPLEY
 
 
/S/ BILLY G. SHIPLEY
 
BILLY G. SHIPLEY
 
 
/S/ MICHAEL R. O’CONNOR
 
MICHAEL R. O’CONNOR

 

 
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