Exhibit 10.2

 
CHANGE IN CONTROL AGREEMENT

Change in Control Agreement (the “Agreement”) made and entered into as of this
14th day of June 2009, by and between CAVALIER HOMES, INC., a Delaware
corporation (the “Employer”), and Michael R. Murphy (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive has been employed by Employer and desires to remain in
the employ of the Employer and continue providing services for, the Employer and
any present or future parent, subsidiary or affiliate of the Employer, and its
successors and assigns, including any entity succeeding to substantially all the
assets of the Employer in such capacity;

WHEREAS, it is anticipated that the Employer will enter into a transaction
resulting in a Change in Control (as defined below) of the Employer.

WHEREAS, the Executive desires certain assurances with respect to any Change in
Control of the Employer; and

WHEREAS, the Parent and the Employer desire to induce the Executive to remain in
such employ;

NOW, THEREFORE, the parties hereto hereby agree as follows:

1.           Term.  The term of this Agreement (the “Term”) shall continue until
the earlier of (i) the expiration of the first anniversary of this Agreement,
(ii) the Executive’s death or Disability, or (iii) the Executive’s earlier
voluntary termination (except for a termination for Good Reason).

 
Notwithstanding the foregoing, in the event a Change in Control occurs during
the original or any extended Term of this Agreement, this Agreement will remain
in effect for the longer of: (i) twelve (12) months beyond the month in which
such Change in Control occurred; or (ii) until all obligations of the Employer
hereunder have been fulfilled, and until all benefits required hereunder have
been paid to the Executive.

2.           Definitions.  Whenever used in this Agreement, the following terms
shall have the meanings set forth below:

 
(a)
“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act, as in effect on the date of this Agreement.

 
(b)
“Agreement” means this Change in Control Agreement.

 
 
 

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(c)           “Base Salary” means, (i) in the event of a Qualifying Termination,
the salary paid to the Executive by the Employer as annual salary (whether or
not deferred) in effect immediately prior to the Qualifying Termination, or (ii)
in the event of a Qualifying Reduction, the salary paid to the Executive by the
Employer as annual salary (whether or not deferred) in effect immediately prior
to the beginning of the Protection Period, in each case exclusive of amounts
received under incentive or other bonus plans, reimbursements (including,
without limitation, moving, relocation and other expense reimbursements), and
all other types of compensation; provided, however, that in no event shall “Base
Salary” mean an amount less than $210,000 per year.

(d)           “Board” means the Board of Directors of the Employer.

(e)           “Cause” means, as determined by the Board, acting in good faith
and based on information then known to it, the Executive’s:

 
(i)
material breach of any agreement with the Employer, which the Executive has not
cured within thirty (30) days written notice thereof;

 
(ii)
conviction of, or plea of guilty or nolo contendere to, a felony under the laws
of the United States or any State thereof; or

 
(iii)
gross negligence or willful misconduct in the scope of the Executive’s service
to the Employer, which the Executive has not cured within thirty (30) days of
written notice thereof.

 
(f)
“Change in Control” means any of the following:

 
(i)
The consummation of a merger or consolidation of the Employer with or into
another entity or any other corporate reorganization, if persons who were not
stockholders of Employer immediately prior to such merger, consolidation or
other reorganization own immediately after such merger, consolidation or other
reorganization fifty percent (50%) or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or surviving
entity;

 
(ii)
The sale, lease, exchange, transfer or other disposition (in one transaction or
in a series of related transactions) of all or substantially all of the
Employer’s assets;

 
(iii)
A change in the composition of the Board of Directors of the Employer, as a
result of which fewer than fifty percent (50%) of the incumbent directors are
directors who either (A) had been directors of the Employer on the date 24
months prior to the date

 
 
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of such change in the composition of the Board of Directors of the Employer (the
“Original Directors”), or (B) were appointed by the Board of Directors of the
Employer, or nominated for election to the Board of the Directors of the
Employer, with the affirmative votes of at least a majority of (1) the Original
Directors who were in office at the time of their appointment or nomination and
(2) the directors whose appointment or nomination was previously approved in a
manner consistent with this paragraph (B);

 
(iv)
Any transaction as a result of which any person is the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Employer representing at least fifty percent (50%) of the
total voting power represented by the Employer’s then-outstanding voting
securities; or

 
(v)
Employer’s stockholders approve a liquidation or dissolution of Employer.

(g)           “Change in Control Payment” has the meaning given to such term in
Section 3(b).

(h)           “Code” means the Internal Revenue Code of 1986, as the same may be
from time to time amended.

(i)           “Disability” means the Executive has become permanently disabled
and is unable to work for a period of 180 consecutive days.

(j)           “Employer” means Cavalier Homes, Inc., a Delaware corporation, and
its successors and assigns, including any entity succeeding to substantially all
the assets of the Employer.

 
(k)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(l)           “Executive” means the executive officer of the Employer identified
in the initial paragraph of this Agreement.

(m)           “Good Reason” means the occurrence during the Protection Period of
any of the following events without Executive’s prior written consent:

 
(i)
the assignment to Executive by Employer of duties inconsistent with Executive’s
employment as a member of Employer’s senior management with responsibility for
accounting and financial matters, including a significant reduction in
authority, responsibilities and status, if such assignment or change results in
a

 
 
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substantial diminution of Executive’s position, authority, duties,
responsibilities or status;

 
(ii)
Executive’s relocation by Employer to any place more than 25 miles from the
location at which the Executive performed the substantial portion of Executive’s
duties prior to the Change in Control, except for required travel by Executive
on Employer’s business to an extent substantially consistent with Executive’s
business travel obligations immediately prior to such Change in Control;

 
(iii)
any material breach by Employer of any provision of this Agreement or any other
Agreement between Employer and Executive which breach continues for a period of
thirty (30) days following delivery by Executive to Employer of written notice
of such breach; or

 
(iv)
The failure of any successor of the Employer to assume in a writing delivered to
the Executive and reasonably satisfactory to the Executive the obligations of
Employer hereunder.

 
(n)
“Notice of Termination” has the meaning given to such term in Section 5.

(o)           “Protection Period” means the period commencing with the first to
occur of (i) the earliest date that a Change in Control occurs or (ii) Employer
shareholder approval of a transaction which upon consummation will constitute a
Change in Control, and ending on the first to occur of (iii) the last day of the
twelfth (12th) calendar month following the calendar month during which such
Change in Control occurred or (iv) a determination by the Board that such Change
in Control will not be consummated.  Anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs, and if the Termination Date with
respect to Executive’s employment by Employer or the Reduction Date with respect
to Executive’s Base Salary occurs prior to the date on which the Change in
Control occurs, unless it is reasonably demonstrated by Employer that such
termination of employment or reduction in salary (i) was not at the request of a
third party who has taken steps reasonably calculated to effect the Change in
Control and (ii) did not otherwise arise in connection with or in anticipation
of the Change in Control, then for all purposes of this Agreement the
“Protection Period” shall be deemed to have commenced on the date immediately
preceding the Termination Date or the Reduction Date, respectively

(p)           “Qualifying Reduction” means a reduction in Executive’s Base
Salary.

 
(q)
“Qualifying Termination” means:

 
(i)
An involuntary termination of the Executive’s employment by the Employer (or any
successor to the Parent or the Employer after the

 
 
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Change in Control) for reasons other than Cause (and other than on account of
the Executive’s death or Disability);

 
(ii)
A voluntary termination of employment by the Executive for Good Reason; or

 
(iii)
A repudiation or breach by the Employer of any of the provisions of this
Agreement, or the failure of any successor of the Employer to assume in a
writing delivered to the Executive and reasonably satisfactory to the Executive
the obligations of Employer hereunder.

 
(r)
“Reduction Date” means the date that a reduction in the Executive’s Base Salary
is effective.

 
(s)
“Salary Reduction Payments” has the meaning given to such term in Section 3(c).

 
(t)
“Term” has the meaning given to such term in Section 1.

 
(u)
“Termination Date” means the date that a termination of Executive’s employment
with Employer is first effective.

3.           Change in Control/Severance Payment/Salary Reduction Payments.

(a)           Entitlement to Benefits upon Termination.  If a Qualifying
Termination of Executive’s employment occurs during the Protection Period, the
Employer shall pay to the Executive the Change in Control benefits described in
this Section 3.  Change in Control benefits will not be payable if Executive’s
employment is terminated for Cause, if Executive’s employment is terminated by
Executive voluntarily without Good Reason, or if Executive’s employment is
terminated by reason of Disability or death.  In addition, the Change in Control
benefits will not be payable if Executive’s employment is terminated for any or
no reason prior to or following the Protection Period.

(b)           Change in Control Payment and Benefits.  Executive shall be
entitled to receive a lump sum cash payment equal to 100% of the Executive’s
Base Salary in effect immediately prior to the Termination Date (the “Change in
Control Payment”).  Except as otherwise provided in Section 4, the Change in
Control Payment will be paid in one lump sum on the fifth (5th) business day
following the Termination Date.  Employer shall maintain for the remaining
duration of the Protection Period Executive’s health insurance coverage
(including dental coverage and other insurance coverage and benefits generally
available to employees of the Employer as of the Termination Date) under the
Employer’s insurance policy and pay the Employer’s portion of such coverage,
with the intent of the parties being that Executive shall continue to receive
such health insurance coverage for a period of twelve (12) months following a
Change in Control.  Executive shall have the right to elect COBRA health
insurance coverage at the end of the

 
 
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Protection Period.  The Executive’s Change in Control Payment shall be reduced
by the aggregate amount of the Executive’s Base Salary paid to the Executive
during the Protection Period.

(c)           Salary Reduction Payments.  If a Qualifying Reduction of
Executive’s Base Salary occurs during the Protection Period, the Employer shall
pay to the Executive on a monthly basis for each month, beginning on the
Reduction Date and continuing through the Protection Period, an amount equal to
the difference between the Executive’s reduced salary and the Executive’s Base
Salary (the “Salary Reduction Payments”).  The Salary Reduction Payments shall
increase if, during the remaining months in the Protection Period (following a
Reduction Date), Executive’s Base Salary is further reduced, with the intent of
the parties being that Executive shall continue to receive his original Base
Salary for a period of twelve (12) months following a Change in Control.

4.           Compliance with Section 409A.

(a)           The Executive shall not have any right to make any election
regarding the time or form of any payment due under this Agreement.

(b)           Payments and benefits under this Agreement are intended to comply
with Section 409A of the Code and all provisions of this Agreement shall be
interpreted in accordance with Section 409A of the Code and Department of
Treasury regulations and other interpretive guidance issued thereunder,
including without limitation any such regulations or other guidance that may be
issued after the date of this Agreement. Notwithstanding any provision of this
Agreement to the contrary, in the event Board determines that any payments or
benefits may or do not comply with Section 409A of the Code, the Board may, with
the consent of Executive which shall not be unreasonably withheld, take any
actions that the Board determines are necessary or appropriate to (i) exempt
this Agreement and payments and benefits thereunder from the application of
Section 409A of the Code and/or preserve the intended tax treatment of the
payments and benefits provided under the Agreement, or (ii) comply with the
requirements of Section 409A of the Code.  Without limiting the generality of
the foregoing, in the event that Employer determines that a severance payment
pursuant to Section 3 hereof would cause the imposition of an excise tax on the
Executive pursuant to Code Section 409A(a)(1)(B) if made at the time set forth
in Section 3, payment shall be made at the earliest date that payment can be
made without the imposition of such excise tax.

5.           Notice of Termination.  Any termination of the Executive’s
employment by the Employer for Cause or by the Executive for Good Reason shall
be communicated by a Notice of Termination.  For purposes of this Agreement, a
“Notice of Termination” shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon, and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provisions so
indicated.

 
 
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6.           At Will Employment.  Nothing in this Agreement shall confer upon
the Executive the right to remain in the employ of the Employer, it being
understood and agreed that (a) the Executive is an employee at will and serves
at the pleasure of the Employer at such compensation as the Employer shall
determine from time to time, subject to Section 3 herein, and (b) the Employer
shall have the right to terminate the Executive’s employment at any time, with
or without Cause subject to Section 3 herein.

7.           Costs of Enforcement.  In the event that Executive incurs any costs
or expenses, including attorneys’ fees, in the enforcement of his rights under
this Agreement then, unless the Employer is wholly successful in defending
against the enforcement of such rights, the Employer shall promptly pay to the
Executive all such costs and expenses. Any such reimbursement shall be made as
promptly as practicable after the final disposition of the Executive’s
enforcement claims, but in no event later than March 15th of the calendar year
following the calendar year in which occurs such final disposition.

8.           Notices.  All notices hereunder shall be in writing and shall be
sent by registered or certified mail, return receipt requested, if intended for
the Employer shall be addressed to it, attention of Employer’s Chief Executive
Officer, 32 Wilson Boulevard 100, Addison, AL 35540, or at such other address of
which the Employer shall have given notice to the Executive in the manner herein
provided; and if intended for the Executive, shall be mailed to him at the
address of the Executive set forth in the payroll records of the Employer or at
such other address of which the Executive shall have given notice to the
Employer in the manner herein provided.

9.           Entire Agreement.  This Agreement constitutes the entire
understanding between the parties with respect to the matters referred to
herein, and no waiver of or modification to the terms hereof shall be valid
unless in writing signed by the party to be charged and only to the extent
therein set forth. All prior and contemporaneous agreements and understandings
with respect to the subject matter of this Agreement are hereby terminated and
superseded by this Agreement.

10.           No Mitigation or Offset.  Except as otherwise provided herein, in
the event of any termination of the Executive’s employment, the Executive shall
not be required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Employer pursuant to this
Agreement.  Further, the amount of any payment under this Agreement shall not be
reduced by any compensation earned by the Executive or benefit provided to the
Executive as the result of employment by another employer or otherwise.  The
amounts payable hereunder shall not be subject to set-off, counterclaim,
recoupment, defense or other right that the Employer may have against the
Executive.

11.           Withholding.  The Employer shall be entitled to withhold from
amounts payable to the Executive hereunder such amounts as may be required by
applicable law.

12.           Assumption.  Upon sale of all or substantially all of the business
and/or assets of Employer, successor to Employer (whether direct or indirect, by
purchase, merger,

 
 
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consolidation or otherwise) shall assume in a writing reasonably acceptable to
Executive the obligations of Employer under this Agreement.

13.           Binding Nature.  This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective heirs, administrators,
executives, personal representatives, successors and assigns.

14.           Validity.  The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

15.           Governing Law.  This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Alabama without giving
effect to conflicts of laws.

16.           Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
 

 
Employer:
 
CAVALIER HOMES, INC.
 
 
By:
/s/ Bobby Tesney
 
Name:
Bobby Tesney
 
Title
President and Chief Executive Officer
             
Executive:
 
/s/ Michael R. Murphy
 
Michael R. Murphy

 

 
 
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