SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant X
Filed by a party other than the registrant _
Check the appropriate box:
_ Preliminary proxy statement
x Definitive proxy statement
_ Definitive additional materials
_ Soliciting material pursuant to Rule 14a-11(c) or 14a-12
CAVALIER HOMES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
x $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1),
or 14a-6(i)(2).
_ $500 per each party to the controversy pursuant to Exchange
Act Rule 14a(6)(i)(3)
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_ Fee computed on table below per Exchange Act Rules 14a(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
____________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
____________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________
_ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
____________________________________
(2) Form, schedule or registration statement no.:
____________________________________
(3) Filing party:
____________________________________
(4) Date filed:
____________________________________
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CAVALIER HOMES, INC.
POST OFFICE BOX 300
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
March 25, 1996
Dear Stockholder:
You are cordially invited to join us at our 1996 Annual Meeting of
Stockholders to be held on Wednesday, May 15, 1996, beginning at 10:00 A.M.,
C.D.T., at The Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901 6th Avenue
North, Birmingham, Alabama. At the meeting, we will consider the election of
directors, the selection by the Board of Directors of Deloitte & Touche LLP as
independent public accountants for the Company, the approval of three new plans
relating to compensation, stock incentives and similar benefits for officers and
employees and of amendments to the existing plan providing for stock options for
nonemployee directors, and any other business as may properly come before the
Annual Meeting.
Stockholders of the Company who are unable to be present personally at
the Annual Meeting may vote by proxy. The enclosed Notice and Proxy Statement
contain important information concerning the matters to be considered, and we
urge you to review them carefully. You will also find enclosed a copy of the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1995, which we encourage you to read.
It is important that your shares be voted whether or not you plan to be
present at the meeting. Whether you plan to attend or not, please complete,
sign, date and return the enclosed form of proxy promptly so that the Company
may be assured of the presence of a quorum at the Annual Meeting. If you attend
the meeting and wish to vote your shares personally, you may revoke your proxy.
We look forward to seeing you on May 15.
Sincerely yours,
CAVALIER HOMES, INC.
Barry B. Donnell
Chairman of the Board
Jerry F. Wilson
President and Chief Executive Officer
<PAGE>
CAVALIER HOMES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1996
TO THE STOCKHOLDERS OF CAVALIER HOMES, INC.:
The Annual Meeting of Stockholders of Cavalier Homes, Inc., a Delaware
corporation (the "Company"), will be held at The Summit Club, Suite 3100,
AmSouth-Harbert Plaza, 1901 6th Avenue North, Birmingham, Alabama, on Wednesday,
May 15, 1996, at 10:00 A.M., C.D.T. for the following purposes:
(1) To elect five directors;
(2) To consider the ratification and approval of the appointment by the
Board of Directors of Deloitte & Touche LLP as independent public
accountants for the Company;
(3) To consider the approval of the Cavalier Homes, Inc. Employee Stock
Purchase Plan;
(4) To consider the approval of the Cavalier Homes, Inc. 1996 Key Employee
Stock Incentive Plan;
(5) To consider the approval of the Cavalier Homes, Inc. Executive
Incentive Compensation Plan;
(6) To consider the approval of amendments to the Cavalier Homes, Inc.
1993 Amended and Restated Nonemployee Directors Stock Option Plan; and
(7) To transact such other business as may properly come before the
meeting.
Details respecting these matters are set forth in the accompanying Proxy
Statement.
Holders of record of the Common Stock of the Company at the close of
business on March 20, 1996 are entitled to notice of and to vote at the Annual
Meeting. A list of the stockholders of the Company who are entitled to vote at
the Annual Meeting will be available for inspection at 2000 B SouthBridge
Parkway, Birmingham, Alabama for a period of 10 days prior to the Annual Meeting
and at the Annual Meeting. The meeting may be adjourned from time to time
without notice other than such notice as may be given at the meeting or any
adjournment thereof, and any business for which notice is hereby given may be
transacted at any such adjourned meeting.
You are cordially invited to attend the Annual Meeting of the
Stockholders of your Company, and we hope you will be present at the meeting.
<PAGE>
WHETHER YOU PLAN TO ATTEND OR NOT, PLEASE SIGN AND RETURN THE ENCLOSED PROXY SO
THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT THE MEETING. A
postage-paid envelope is enclosed for your convenience in returning your proxy
to the Company.
BY ORDER OF THE BOARD OF DIRECTORS
David A. Roberson, Secretary
Post Office Box 300
Highway 41 North and Cavalier Road
Addison, Alabama 35540
March 25, 1996
<PAGE>
CAVALIER HOMES, INC.
POST OFFICE BOX 300
HIGHWAY 41 NORTH AND CAVALIER ROAD
ADDISON, ALABAMA 35540
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1996
The accompanying proxy is solicited on behalf of the Board of Directors
of Cavalier Homes, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders and any adjournments thereof (the "Annual
Meeting") to be held at The Summit Club, Suite 3100, AmSouth-Harbert Plaza, 1901
6th Avenue North, Birmingham, Alabama, on Wednesday, May 15, 1996, at 10:00
A.M., C.D.T. This Proxy Statement and the enclosed form of proxy are first being
mailed or given to stockholders on or about March 25, 1996.
GENERAL INFORMATION
Outstanding Voting Shares; Voting Procedures
Holders of record of the Common Stock of the Company outstanding at the
close of business on March 20, 1996, are entitled to notice of, and to vote at,
the Annual Meeting. A total of 9,158,204 shares of Common Stock were outstanding
on such date and will be entitled to vote at the Annual Meeting. Each holder of
shares of Common Stock entitled to vote has the right to one vote for each share
held of record on the record date for each matter to be voted upon. The shares
shown as outstanding on March 20, 1996 reflect the three-for-two split of the
Common Stock effected on February 15, 1996. All references to numbers of shares
shown in this Proxy Statement have been adjusted to reflect this split.
<PAGE>
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company entitled to vote, consisting of at least
4,579,103 shares, is necessary to constitute a quorum at the Annual Meeting.
Shares of Common Stock represented by a properly executed proxy will be treated
as present at the Annual Meeting for purposes of determining the presence or
absence of a quorum without regard to whether the proxy is marked as casting a
vote for or against or abstaining with respect to a particular matter. In
addition, shares of Common Stock represented by "broker non-votes" will be
treated as present for purposes of determining a quorum. In accordance with the
Bylaws of the Company, the five nominees receiving the highest vote totals will
be elected as directors of the Company. Accordingly, assuming the presence of a
quorum, abstentions and broker non-votes will not affect the outcome of the
election of directors at the Annual Meeting. The affirmative vote of the holders
of a majority of the outstanding shares of Common Stock of the Company present
in person or represented by proxy at the Annual Meeting and entitled to vote
thereon is required for approval of all other matters except the Cavalier Homes,
Inc. Executive Incentive Compensation Plan. Abstentions will be included for
purposes of determining whether the requisite number of affirmative votes has
been cast with respect to the approval of each of such matters and, accordingly,
will have the same effect as a negative vote. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
present in person or represented by proxy at the Annual Meeting and voting
thereon is required for approval of the Cavalier Homes, Inc. Executive Incentive
Compensation Plan. Abstentions with respect to such matter will not be included
in the vote total and will have no effect on the outcome of the vote. Broker
non-votes and shares as to which proxy authority has been withheld with respect
to such matters will not be considered as present and entitled to vote, and
therefore will have no effect on the outcome of the vote.
Voting Your Proxy
Proxies, in the form enclosed, properly executed by a stockholder and
returned to the Board of Directors of the Company, with instructions specified
thereon, will be voted at the Annual Meeting in accordance with such
instructions. If no specification is made, a properly executed proxy will be
voted in favor of:
(i) The election to the Board of Directors of the five nominees named in
this Proxy Statement;
(ii) The ratification of action taken by the Board of Directors in
selecting Deloitte & Touche LLP as independent public accountants for
the Company;
(iii)The approval of the Cavalier Homes, Inc. Employee Stock Purchase
Plan;
(iv) The approval of the Cavalier Homes, Inc. 1996 Key Employee Stock
Incentive Plan;
(v) The approval of the Cavalier Homes, Inc. Executive Incentive
Compensation Plan; and
(vi) The approval of amendments to the Cavalier Homes, Inc. 1993 Amended
and Restated Nonemployee Directors Stock Option Plan.
As of the date of this Proxy Statement, the Board of Directors knows of no
business to be presented for consideration or action at the Annual Meeting other
than the matters stated above. If any other matters properly come before the
meeting, however, it is the intention of the persons named in the enclosed form
of proxy to vote in accordance with their best judgment on such matters.
A stockholder may revoke a proxy by notice in writing delivered to the
Secretary of the Company, David A. Roberson, at any time before it is exercised.
A proxy may also be revoked by attending the Annual Meeting and voting in
person. The presence of a stockholder at the Annual Meeting will not
automatically revoke a proxy previously given to the Company.
Costs of Solicitation
The cost of soliciting proxies, including the preparation, printing and
mailing of this Proxy Statement, will be borne by the Company. The Company may
reimburse investment bankers, brokers and other nominees for their expenses
incurred in obtaining voting instructions from beneficial owners of Common Stock
held of record by such investment bankers, brokers and other nominees; however,
the Company has not entered into any written contract or arrangement for such
repayment of expenses. In addition to the use of mails, proxies may be solicited
by personal interview, telephone or facsimile machine by the directors, officers
and employees of the Company, without additional compensation.
<PAGE>
ELECTION OF DIRECTORS
The Bylaws of the Company provide for a Board of Directors of not fewer
than one nor more than 10 members, the exact number to be determined by
resolution of the Board of Directors. The Board of Directors has fixed the
number of directors at five and proposes the election of the five persons listed
below, each of whom has consented to being named and to serving in such capacity
as directors until the next Annual Meeting of Stockholders and until their
successors are duly elected and shall have qualified. Unless otherwise directed,
it is intended that shares of Common Stock represented by all proxies received
by the Board of Directors will be voted in favor of the nominees listed below.
Should any such nominee become unable or decline to accept election, which is
not anticipated, it is intended that such shares of Common Stock will be voted
for the election of such person or persons as the Board of Directors may
recommend.
The Board of Directors recommends a vote FOR the nominees listed below.
The following table sets forth certain information concerning each
nominee, each of whom is currently serving as a director and was previously
elected by the stockholders. Each nominee has occupied the position indicated
for at least the last five years.
Name Age Principal Occupation Director Since
Thomas A. Broughton, III 40 President of First 1986
Commercial Bank
(a state banking corporation)
Barry B. Donnell 56 Chairman of the Board 1986
of the Company
Lee Roy Jordan 54 President of Lee Roy Jordan 1993
Redwood Lumber Company
(lumber supply business) and
Southern Valve Services, Inc.
(remanufacturer and installer
of industrial valves)
John W Lowe 54 Partner, Lowe, Mobley & 1984
Lowe (law firm)
Jerry F. Wilson 56 President and Chief Executive 1984
Officer of the Company
<PAGE>
Information Regarding Board of Directors and Committees
During 1995, the Board of Directors held five regular meetings and two
meetings in which the directors participated by conference telephone. Each
director attended at least 75% of the aggregate of the number of meetings of the
Board of Directors and the number of meetings of all committees on which he
served held in 1995.
The Company currently pays each nonemployee director $2,500 and each
director who is employed by the Company $1,250 for each regular Board meeting at
which he is in attendance. Each director who participates in a telephone
conference Board meeting receives $250 per meeting. Directors also receive $750
for attendance at each committee meeting held on a date when no Board meeting is
held and $250 for each committee meeting held by conference telephone. Directors
are also reimbursed for travel and out-of-pocket expenses incurred in connection
with attending Board and committee meetings.
Pursuant to the Cavalier Homes, Inc. 1993 Amended and Restated
Nonemployee Directors Stock Option Plan (the "Nonemployee Directors Plan"),
options to purchase 46,875 shares of Common Stock (as adjusted from 20,000
shares specified in the Nonemployee Directors Plan to reflect all stock splits
since the adoption thereof) are granted to each nonemployee director upon first
being elected to the Board of Directors. In addition to such initial grants, on
January 15 of each year, each nonemployee director who has been serving as a
director for the preceding calendar year receives an option to purchase 11,718
shares of Common Stock (as adjusted from 5,000 shares specified in the
Nonemployee Directors Plan to reflect all stock splits since the adoption
thereof). All such options are granted at an exercise price equal to the fair
market value of the Common Stock, which is determined on the basis of the
closing price of the Common Stock on the New York Stock Exchange on the date of
grant. All options granted under the Nonemployee Directors Plan have a term of
10 years and are exercisable in whole or in part at any time beginning six
months after the date of grant; provided, however, that no option is exercisable
unless, at all times during the period from the date of grant and ending 12
months before the date of exercise, the optionee was a director of the Company.
For a description of certain proposed amendments to the Nonemployee Directors
Plan, see page 18 of this Proxy Statement.
The Board of Directors has two standing committees: the Compensation
Committee and the Audit Committee.
The Compensation Committee, which held four meetings during 1995, is
currently composed of Thomas A. Broughton, III, Lee Roy Jordan and John W Lowe.
The Compensation Committee administers the Company's present stock option plans
(other than the Nonemployee Directors Plan), fixes the compensation of the
executive officers of the Company and will administer the Cavalier Homes, Inc.
Employee Stock Purchase Plan if such plan is approved by the stockholders. In
addition, the Compensation Committee will administer the Cavalier Homes, Inc.
1996 Key Employee Stock Incentive Plan, if such plan is approved by the
stockholders, except for certain provisions thereof which, together with the
Cavalier Homes, Inc. Executive Incentive Compensation Plan, if such plan is
approved by the stockholders, will be administered by members of the
Compensation Committee who are both "outside directors" and "disinterested
directors," as described below. For a description of such proposed plans, see
pages 5 through 18 of this Proxy Statement.
The Audit Committee held two meetings during 1995. The Audit Committee
is currently composed of Thomas A. Broughton, III, Lee Roy Jordan and John W
Lowe. The Audit Committee, among other things, recommends the selection each
year of the Company's independent public accountants, reviews and evaluates the
Company's financial statements for reliability and informativeness, reviews the
external and internal audit procedures, scope and controls practiced by the
Company's independent public accountants and its internal accounting personnel,
and evaluates the services performed and fees charged by the Company's
independent public accountants to determine, among other things, that the
non-audit services performed by such auditors do not compromise their
independence.
<PAGE>
RATIFICATION AND APPROVAL OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has unanimously selected, subject to
ratification and approval by the stockholders, the accounting firm of Deloitte &
Touche LLP as the independent public accountants for the Company for fiscal year
1996. Deloitte & Touche LLP has served as the Company's auditors for many years.
Ratification of the selection of auditors is being submitted to the stockholders
of the Company because the Board of Directors believes it is an important
corporate decision in which stockholders should participate. If the stockholders
do not ratify the selection of Deloitte & Touche LLP or if Deloitte & Touche LLP
shall decline to act, resign or otherwise become incapable of acting, or if its
engagement is otherwise discontinued, the Board of Directors will select other
auditors for the period remaining until the 1997 Annual Meeting of Stockholders
when engagement of auditors is expected to again be subject to ratification by
the stockholders at such meeting.
Representatives of Deloitte & Touche LLP will be in attendance at the
Annual Meeting and will be provided an opportunity to address the meeting and to
answer appropriate questions from stockholders.
The Board of Directors recommends a vote FOR ratification and approval
of Deloitte & Touche LLP.
PROPOSAL TO APPROVE THE CAVALIER HOMES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Upon the recommendation of the Compensation Committee, and subject to
stockholder approval, the Board of Directors has adopted the Cavalier Homes,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), pursuant to which
eligible employees of the Company and its subsidiaries will be entitled to
purchase shares of Common Stock of the Company through payroll deductions. A
summary of the essential features of the Stock Purchase Plan is set forth below
but is qualified in its entirety by reference to the full text of the Stock
Purchase Plan which was filed electronically with this Proxy Statement with the
Securities and Exchange Commission (the "Commission"). Such text is not included
in the printed version of this Proxy Statement.
Purpose
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to encourage and facilitate the acquisition of a
proprietary interest in the Company by eligible employees. The purpose of the
Stock Purchase Plan is to provide eligible employees of the Company and its
subsidiaries with a financial incentive to advance the interests of the Company
by affording them an opportunity to purchase Common Stock through accumulated
payroll deductions. The Stock Purchase Plan is intended to qualify under
Sections 421 and 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). Proceeds from the sale of Common Stock under the Stock Purchase Plan
will be used by the Company for its general corporate purposes.
Description of the Stock Purchase Plan
Administration; Term of the Stock Purchase Plan. The Stock Purchase
Plan provides for administration by the Compensation Committee or its delegate.
All questions of interpretation or application of the Stock Purchase Plan are to
be determined by the Compensation Committee, which has the power to establish
and change rules and procedures with respect to the operation of the Stock
Purchase Plan. Administrative or other costs will not be charged against the
payroll deductions of a participant in the Stock Purchase Plan.
The Stock Purchase Plan is to become effective on the date of its
approval by the stockholders of the Company and is to remain in effect until all
shares of Common Stock subject to it have been purchased.
Offerings and Election Periods. Under the Stock Purchase Plan, the
Company will conduct a series of six-month offerings of shares of Common Stock.
Prior to the commencement of an offering, eligible employees will have a 30-day
period during which they may elect to participate in such offering.
<PAGE>
Eligibility. Any person who, on the first day of an offering, has been
employed for at least one year by the Company or any subsidiary of the Company
designated by the Board of Directors as a participating entity, and who is
customarily employed for at least 20 hours per week is eligible to participate
in an offering. Eligible employees become participants in an offering by
delivering to the Company an election form acknowledging their participation in
the offering and authorizing payroll deductions during the payment period
related to that offering. As of March 20, 1996, approximately 1,800 employees
would be eligible to participate in the Stock Purchase Plan.
Purchase Price. The price at which Common Stock will be sold to
participating employees is 85% of the lesser of the market price per share of
the Common Stock on (i) the first day of the payment period related to an
offering or (ii) the last day of such payment period. The market price of the
Common Stock on a given date is determined by reference to the closing sales
price per share of the Common Stock reported by either (i) any national
securities exchange on which the Common Stock is actively traded or (ii) The
Nasdaq Stock Market on the date on which such fair market value is determined
or, if Common Stock is not traded on such exchange or system on such date, then
on the immediately preceding date on which Common Stock was traded on such
exchange or system. On March 20, 1996, the closing price of the Common Stock on
the New York Stock Exchange was $14.75.
Payment of Purchase Price; Payroll Deductions. The total purchase price
for shares is to be accumulated by payroll deductions over a six-month payment
period, beginning on each January 1 and July 1. A participant's deductions may
not exceed 10% of his compensation.
Purchase of Common Stock; Exercise of Options. By executing an election
form and thereby agreeing to participate in an offering, an employee is granted,
as of the first day of the offering, an option to purchase shares of Common
Stock. The maximum number of shares which a participant may purchase in an
offering pursuant to the exercise of such option is that number of shares
(including fractional shares) arrived at by dividing the amount withheld from
compensation during the payment period by the purchase price of a share
described above. Unless the employee's participation is discontinued, the option
for the purchase of shares will be deemed to have been exercised automatically
on the last day of the payment period at the applicable purchase price. A
participant in the Stock Purchase Plan has no rights as a stockholder of the
Company unless and until shares of Common Stock are issued to him.
Notwithstanding the foregoing, (i) no employee may have more than
$21,250 withheld from compensation pursuant to the Stock Purchase Plan during
any calendar year; (ii) the Company may not grant an option to a participant
which would permit him to purchase Common Stock with a fair market value greater
than $25,000 during any calendar year; and (iii) the Company may not grant an
option to an employee under the Stock Purchase Plan if, immediately after the
grant, the employee would own 5% or more of the total combined voting power or
value of all classes of stock of the Company. For purposes of determining such
percentage ownership, all options which have been granted to such employee will
be considered to be outstanding. If the number of shares which would otherwise
be purchased pursuant to the exercise of options exceeds the number of shares
then available under the Stock Purchase Plan, a pro rata allocation of the
shares remaining is to be made in an equitable manner.
Withdrawal. A participant may discontinue his participation in an
offering or may decrease the rate of payroll deductions at any time at least 30
days before the last day of a payment period. An employee who terminates or
reduces his participation during a payment period may elect to participate in
subsequent offerings.
Termination of Employment. The termination of a participant's
employment for any reason, other than retirement or death, during a payment
period immediately cancels his or her participation in the Stock Purchase Plan.
In such event, the payroll deductions credited to the participant's account will
be returned without interest to such participant. A participant who retires
during an offering or the beneficiary of a participant who dies during an
offering may elect either to terminate or to continue participation in that
offering.
<PAGE>
Restriction on Disposition. The Company desires to encourage employees
to invest in and retain Common Stock. Accordingly, subject to the prior approval
of the Internal Revenue Service, and upon at least 30 days notice to eligible
employees, the Board of Directors may amend the Stock Purchase Plan to provide
that any participant who sells or otherwise disposes of any shares purchased
pursuant to the Stock Purchase Plan, other than as required by law, during the
one-year period beginning on the date of such purchase, shall be deemed to have
terminated his participation in the then-current offering and to have elected
not to participate in the immediately subsequent offering.
Shares Subject to the Stock Purchase Plan; Changes in Capitalization.
Subject to adjustment as described herein, the total number of shares of Common
Stock which may be sold pursuant to the exercise of options granted under the
Stock Purchase Plan may not exceed 500,000, constituting approximately 5.5% of
the shares of Common Stock outstanding as of March 20, 1996. In the Company's
discretion, the Common Stock to be sold may be authorized but unissued shares or
treasury shares. In the event of any change in the outstanding shares of Common
Stock of the Company by reason of any stock dividend, stock split, spin-off,
recapitalization, merger, consolidation, combination, exchange of shares or
otherwise, the aggregate number and class of shares of Common Stock available
for issuance under the Stock Purchase Plan, and the class and purchase price of
shares subject to outstanding options under the Stock Purchase Plan, are to be
adjusted as may be appropriate.
Nonassignability; No Right to Employment. No interest in or options
granted to an employee under the Stock Purchase Plan may be sold, pledged,
assigned or transferred for any reason. Participation in the Stock Purchase Plan
does not give an employee any right to be employed by the Company or a
subsidiary. The Stock Purchase Plan does not interfere with the Company's right
to discharge an employee.
Amendment and Termination of the Stock Purchase Plan. The Board of
Directors may amend or terminate the Stock Purchase Plan at any time, but no
amendment shall deprive a participant or beneficiary of any right or benefit
which accrued prior to the date of such amendment. No amendment which increases
the number of shares of Common Stock which may be purchased under the Stock
Purchase Plan may be made without prior approval of the stockholders of the
Company.
Federal Income Tax Consequences
The general principles of federal income tax law that apply to the
Stock Purchase Plan are summarized in the following discussion. All provisions
of federal income tax law are subject to change. Currently, the maximum tax rate
applicable to capital gain income of individuals is less than the maximum tax
rate applicable to ordinary income. The following material, therefore, discusses
the characterization of income under the various Stock Purchase Plan features as
ordinary income or capital gain or loss. State and local tax consequences are
beyond the scope of this summary.
The Stock Purchase Plan is intended to qualify under Sections 421 and
423 of the Code, which provide that no income will be taxable to a participant
until the shares of Common Stock purchased under the Stock Purchase Plan are
sold or otherwise disposed of. Upon the sale or other disposition of the shares,
the participant will generally be subject to tax and the amount of the tax owed
will depend upon the holding period. Upon any sale or other disposition of the
shares more than two years from the first day of the offering and more than one
year from the date the shares are transferred to the participant, the
participant will recognize ordinary income measured as the lesser of (i) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (ii) an amount equal to 15% of the fair
market value of the shares as of the first day of the offering period. Any
additional gain will be treated as long-term capital gain. No income tax
deduction will be allowed the Company for shares transferred to an employee,
provided such shares are held for the periods described above. Upon the sale or
other disposition of the shares before the expiration of either of these holding
periods, the participant will recognize ordinary income for the taxable year of
the disposition generally measured as the excess of the fair market value of the
shares on the date the shares are purchased over the purchase price. Generally,
the Company will be entitled to a deduction equal to the amount of ordinary
income recognized by the employee.
<PAGE>
Participation in and Benefits Under the Stock Purchase Plan
Participation in the Stock Purchase Plan is voluntary and is dependent
on an eligible employee's election to participate and the level of his or her
payroll deductions. Accordingly, it is not possible to predict the benefits that
will be received by particular employees or groups of employees, or to determine
the benefits that would have been received by or allocated to such persons for
1995 if the Stock Purchase Plan had been in effect.
Vote Required
Approval of the Stock Purchase Plan will require the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock of the
Company present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon.
Recommendation
The Board of Directors recommends a vote FOR approval of the Stock
Purchase Plan.
PROPOSAL TO APPROVE THE CAVALIER HOMES, INC.
1996 KEY EMPLOYEE STOCK INCENTIVE PLAN
Upon the recommendation of the Compensation Committee, which made such
recommendation after consultation with a nationally-recognized compensation and
employee benefits consulting firm engaged by the Company to review, and provide
assistance regarding, the Company's executive incentive compensation program,
and subject to stockholder approval, the Board of Directors has adopted the
Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan (the "Stock
Incentive Plan"), pursuant to which key employees of the Company will be
eligible for awards of stock options, stock appreciation rights, restricted
stock and performance shares. A summary of the essential features of the Stock
Incentive Plan is set forth below but is qualified in its entirety by reference
to the full text of the Stock Incentive Plan which was filed electronically with
this Proxy Statement with the Commission. Such text is not included in the
printed version of this Proxy Statement.
Background and Purpose
Over the past 10 years the Company has granted benefits under the (i)
Cavalier Homes, Inc. Long Term Incentive Compensation Plan, (ii) Cavalier Homes,
Inc. 1988 Nonqualified Stock Option Plan and (iii) Cavalier Homes, Inc. 1993
Amended and Restated Nonqualified Stock Option Plan (collectively, the "Prior
Plans"). The Board of Directors continues to believe that long-term incentive
compensation should be one of the fundamental components of compensation for the
Company's key employees and that stock options and other stock-based incentives
similar to those which have been available under the Prior Plans should continue
to play an important role in encouraging employees to have a greater financial
investment in the Company. The Board of Directors believes that the Stock
Incentive Plan will help promote long-term growth and profitability by further
aligning stockholder and employee interests.
The purpose of the Stock Incentive Plan is to promote the interests of
the Company by affording participants an opportunity to acquire a proprietary
interest in the Company and by providing participants with long-term financial
incentives for outstanding performance. If the Stock Incentive Plan is approved,
the Compensation Committee will be afforded a great deal of flexibility in the
types and amounts of awards that can be made and the terms and conditions
applicable to those awards.
<PAGE>
Description of the Stock Incentive Plan
Number of Shares. The aggregate number of shares of Common Stock that
will be available for grants under the Stock Incentive Plan is the sum of (i)
600,000 shares, constituting approximately 6.6% of the shares of Common Stock
outstanding as of March 20, 1996; (ii) 1.5% of the Common Stock outstanding on
January 1, 1997 and each January 1 thereafter; and (iii) shares of Common Stock
which are subject to options granted under the Prior Plans but as to which such
options may from time to time expire, lapse or be canceled or terminated. Upon
the approval of the Stock Incentive Plan by the stockholders of the Company, no
further options or other benefits are to be granted under the Prior Plans, but
any options outstanding under such plans may be exercised in accordance with the
terms thereof. All shares allocated to awards under the Stock Incentive Plan
that are canceled or forfeited will be available for subsequent awards. In no
event may a participant receive awards during any calendar year covering in the
aggregate more than 100,000 shares.
Administration; Term of the Stock Incentive Plan. The Stock Incentive
Plan will be administered by the Compensation Committee, the members of which
will be ineligible to receive awards. It is intended that the Compensation
Committee will at all times be composed of "disinterested persons" within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange
Act of 1934 (the "Exchange Act") and that all of its members acting with respect
to matters governed by Section 162(m) of the Code will be "outside directors"
within the meaning of Section 162(m) of the Code. Under the Stock Incentive
Plan, the Compensation Committee will have full power to (i) designate the key
employees to receive awards from time to time, (ii) determine the sizes and
types of awards, (iii) determine the terms and provisions of awards as it deems
appropriate, (iv) construe and interpret the Stock Incentive Plan and establish,
amend or waive rules and regulations relating to the administration of the Stock
Incentive Plan, (v) amend the terms and provisions of any outstanding award to
the extent such terms and provisions are within the discretion of the
Compensation Committee and (vi) make all other decisions and determinations
necessary or advisable for the administration of the Stock Incentive Plan. All
determinations and decisions made by the Compensation Committee pursuant to the
Stock Incentive Plan shall be final, conclusive and binding.
The Stock Incentive Plan is to become effective on the date of its
approval by the stockholders of the Company and is to remain in effect until all
shares of Common Stock subject to it have been purchased or acquired.
Notwithstanding the foregoing, no grants of incentive stock options ("ISOs")
will be made under the Stock Incentive Plan after February 27, 2006.
Eligibility. Only "key employees" of the Company and its subsidiaries
will be eligible to participate in the Stock Incentive Plan. The fact that an
employee is a director of the Company will not make him ineligible for an award
unless he is a member of the Compensation Committee. The selection of key
employees will be entirely within the discretion of the Compensation Committee.
As of March 20, 1996, approximately 70 officers and other key employees would be
eligible to participate in the Stock Incentive Plan. The concept of a "key
employee" is, however, somewhat flexible and it is anticipated that such factors
as the duties and responsibilities of employees, the value of their services,
their present and potential contributions to the success of the Company and
other relevant factors will be considered. Accordingly, the number of persons
who ultimately may be eligible to participate in the Stock Incentive Plan is not
presently determinable.
Awards of Stock Options and Stock Appreciation Rights. The Stock
Incentive Plan provides for the grant of options to purchase shares of Common
Stock at option prices to be determined by the Compensation Committee as of the
date of grant. For stock option awards intended to qualify as ISOs, the option
price may not be less than the fair market value of shares of Common Stock on
the date of grant. For such purpose "fair market value" means the average of the
high and low sales price per share of the Common Stock as reported by either (i)
any national securities exchange on which the Common Stock is actively traded or
(ii) The Nasdaq Stock Market on the day on which such fair market value is
determined or, if Common Stock is not traded on such exchange or system on such
date, then on the immediately preceding date on which Common Stock was traded on
such exchange or system. On March 20, 1996, the closing price of the Common
Stock of the Company on the New York Stock Exchange was $14.75. Each grant of
options is to be evidenced by an award agreement which is to specify the option
price, the term of the option, the number of shares subject to the option and
such other provisions as the Compensation Committee may determine. The shares
subject to an option may be purchased in such installments and on such exercise
dates as set forth in the award agreement. Options granted under the Stock
Incentive Plan will expire not more than 10 years from the date of grant. The
award agreement will also set forth the extent (if any) to which the participant
will have the right to exercise his options following termination of employment.
<PAGE>
Awards of options under the Stock Incentive Plan, which may be either
ISOs (which qualify for special tax treatment) or non-qualified stock options
("NQSOs"), are to be determined by the Compensation Committee in its discretion.
Notwithstanding the foregoing, the Compensation Committee may not grant ISOs to
any participant that, in the aggregate, are first exercisable during any one
calendar year to the extent that the aggregate fair market value of the shares
subject to such options, at the time of grant, exceeds $100,000.
Payment for shares issued pursuant to the exercise of an option may be
made either in cash or by tendering shares of Common Stock of the Company with a
fair market value at the date of the exercise equal to the portion of the
exercise price which is not paid in cash.
A participant granted an option under the Stock Incentive Plan will
have no rights as a stockholder of the Company with respect to the shares
subject to such option except to the extent shares are actually issued. Options
may not be sold, transferred, pledged or assigned, except as otherwise provided
by law or in an award agreement relating to NQSOs. The Compensation Committee
may impose restrictions on the transfer of shares acquired pursuant to the
exercise of options as it may deem advisable.
The Stock Incentive Plan also provides for the grant of stock
appreciation rights ("SARs"), either in tandem with stock options or
freestanding, which entitle holders upon exercise to receive either cash or
shares of Common Stock or a combination thereof as the Compensation Committee,
in its discretion, shall determine with a value equal to the difference between
(i) the fair market value on the exercise date of the shares of Common Stock
with respect to which an SAR is exercised and (ii) the fair market value of such
shares on the date of grant or, if different, the exercise price of the related
option in the case of a tandem SAR. With respect to a tandem SAR, the exercise
of the option (or the SAR) will result in the cancellation of the related SAR
(or option) to the extent of the number of shares in respect of which such
option or SAR has been exercised.
Awards of Restricted Stock and Performance Shares. The Stock Incentive
Plan provides for the award of shares of restricted stock to such key employees
and on such terms and conditions as determined from time to time by the
Compensation Committee. The restricted stock award agreement to be entered into
with the participant will contain the terms of the award, including the number
of shares of restricted stock granted and the applicable period of restriction.
Additional restrictions may include the continued service of the participant
with the Company, the attainment of specified performance goals or any other
conditions deemed appropriate by the Compensation Committee.
The stock certificates evidencing the restricted stock will bear an
appropriate legend and will be held in the custody of the Company until the
applicable restrictions have been satisfied. The participant cannot sell,
transfer, pledge or assign shares of restricted stock until the applicable
restrictions have been satisfied. Once the restrictions are satisfied, the
shares will be delivered to the participant. During the period of restriction,
the participant may exercise full voting rights and will be credited with all
dividends payable with respect to the restricted stock. Such dividends may be
payable to the participant or subject to additional restrictions as determined
by the Compensation Committee and set forth in the award agreement. The award
agreement will also set forth the extent, if any, to which the participant will
have the right to receive unvested restricted stock following termination of
employment.
In addition to restricted stock, the Compensation Committee may award
performance shares to key employees. The value of a performance share will equal
the fair market value of a share of Common Stock. The number of performance
shares granted or the vesting of granted performance shares can be contingent on
the attainment of certain performance goals or other conditions over a period of
time (the "performance period"), all as determined by the Compensation Committee
and evidenced by an award agreement to be entered into with the participant.
During the performance period, the Compensation Committee will determine whether
any performance shares have been earned. Earned performance shares may be paid
in cash, shares of Common Stock or a combination thereof having an aggregate
fair market value equal to the value of the performance shares as of the payment
date. Common Stock used to pay earned performance shares may have additional
restrictions as determined by the Compensation Committee. In addition, the
Compensation Committee may cancel any earned performance shares and replace them
with stock options determined by the Compensation Committee to be of equivalent
value based on a conversion formula specified in the participant's performance
share award agreement. Except as otherwise provided in the award agreement,
performance shares may not be sold, transferred, pledged or assigned, other than
by will or the laws of descent and distribution.
<PAGE>
Section 162(m) of the Code. Compensation from the exercise of options
and SARs that are granted under the Stock Incentive Plan and that have an
exercise price at least equal to fair market value at the date of grant should
be treated as "performance-based compensation" for purposes of Section 162(m) of
the Code. In addition, the Stock Incentive Plan authorizes the Compensation
Committee to make awards of restricted stock or performance shares that are
conditioned on the satisfaction of certain performance criteria. For such awards
intended to result in "performance-based compensation," the Compensation
Committee, or the members thereof who are "outside directors" within the meaning
of Section 162(m), will establish prior to, or within the permitted period of
time after the commencement of, the applicable performance period the applicable
performance criteria. The Compensation Committee (or members thereof as
described above) may select from among the following objective performance
measures for such purposes: (i) incentive net income, (ii) earnings per share,
(iii) return on assets, (iv) return on equity, (v) revenues or (vi) total
stockholder return, as such terms are defined in the Stock Incentive Plan. The
performance criteria are to be stated in the form of an objective,
nondiscretionary formula and the Compensation Committee (or members thereof as
described above) will certify in writing the attainment of such performance
criteria prior to any payout with respect to such awards.
Withholding for Payment of Taxes. The Stock Incentive Plan provides for
the withholding and payment of any payroll or withholding taxes required by
applicable law. The Stock Incentive Plan permits a participant to satisfy such
requirement, with the approval of the Compensation Committee and subject to the
terms of the Stock Incentive Plan, by having the Company withhold from the
participant a number of shares of Common Stock otherwise issuable under the
award having a fair market value equal to the amount of the applicable payroll
and withholding taxes.
Changes in Capitalization; Change in Control. In the event of any
change in the outstanding shares of Common Stock of the Company by reason of any
stock dividend, stock split, spin-off, recapitalization, merger, consolidation,
combination, exchange of shares or otherwise, the aggregate number and class of
shares of Common Stock with respect to which awards may be made under the Stock
Incentive Plan, and the number, class and price of shares subject to outstanding
awards under the Stock Incentive Plan are to be adjusted by the Compensation
Committee as it determines to be appropriate and equitable in its discretion.
The Stock Incentive Plan provides that in the event of a change in
control of the Company, all options and SARs will become and remain fully
exercisable as of the date of the change in control. Outstanding awards of
restricted stock and performance shares will become immediately vested and any
applicable performance conditions shall be deemed satisfied (at the target
performance condition, if applicable) as of the date of the change in control.
For purposes of the Stock Incentive Plan, a "change in control" is
defined as (i) the acquisition by any person of securities of the Company
representing 20% or more of the combined voting power of the Company's
then-outstanding securities; (ii) any change in control which is required to be
reported pursuant to the rules of the Commission; (iii) when, during any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the directors of the Company cease for any reason to constitute at
least a majority thereof unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at least
two-thirds of the directors at the beginning of such period; or (iv) a
transaction requiring stockholder approval for the acquisition of the Company by
an entity other than the Company or any subsidiary, through purchase of assets,
by merger or otherwise.
Amendment and Termination of the Stock Incentive Plan. The Board of
Directors may alter, amend, discontinue, suspend or terminate the Stock
Incentive Plan at any time in whole or in part. Notwithstanding the foregoing,
stockholder approval will be required for any change to the material terms of
the Stock Incentive Plan and no amendment or modification of the Stock Incentive
Plan may materially and adversely affect any award previously granted without
the consent of the participant.
<PAGE>
Federal Income Tax Consequences
The general principles of federal income tax law that apply to the
Stock Incentive Plan are summarized in the following discussion. All provisions
of federal income tax law are subject to change. Currently, the maximum tax rate
applicable to capital gain income of individuals is less than the maximum tax
rate applicable to ordinary income. The following material, therefore, discusses
the characterization of income under the various Stock Incentive Plan features
as ordinary income or capital gain or loss. State and local tax consequences are
beyond the scope of this summary.
Incentive Stock Options. ISOs granted under the Stock Incentive Plan
will be subject to the applicable provisions of the Code, including Section 422
thereof. If no "disqualifying disposition" of shares of Common Stock issued to
an optionee upon the exercise of an ISO is made within one year after the
exercise date or within two years after the date the ISO was granted, then (i)
no income will be recognized by the optionee at the time of the grant of the
ISO, (ii) no income will be recognized by the optionee at the date of exercise,
(iii) upon sale of the shares acquired by exercise of the ISO, any amount
realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss
and (iv) no deduction will be allowed to the Company for federal income tax
purposes. If a "disqualifying disposition" of such shares is made, the optionee
will recognize taxable ordinary income in an amount equal to the excess of the
fair market value of the shares purchased at the time of exercise over the
option price (the "bargain purchase element") and the Company will be entitled
to a federal income tax deduction equal to such amount. The amount of any gain
in excess of the bargain purchase element realized upon a "disqualifying
disposition" will be taxable as capital gain to the holder (for which the
Company will not be entitled to a federal income tax deduction). Upon exercise
of an ISO, the optionee may be subject to alternative minimum tax.
Nonqualified Stock Options. With respect to NQSOs granted under the
Stock Incentive Plan, (i) no income is recognized by the optionee at the time
the NQSO is granted, (ii) at exercise, ordinary income is recognized by the
optionee in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise, and the Company
receives a tax deduction for the same amount and (iii) on disposition, the net
appreciation or depreciation after the date of exercise is treated as either
short-term or long-term capital gain or loss depending on whether the shares
have been held for more than one year.
Stock Appreciation Rights. Upon the grant of an SAR, the participant
recognizes no taxable income and the Company receives no deduction. The
participant will recognize ordinary income and the Company will receive a
deduction at the time of exercise equal to the cash and fair market value of
shares payable upon such exercise.
Restricted Stock. Upon becoming entitled to receive shares at the end
of the applicable restriction period without a forfeiture, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
shares at that time. However, a recipient who makes an election under Section
83(b) of the Code within 30 days of the date of the grant will recognize
ordinary taxable income on the date of the grant equal to the fair market value
of the shares of restricted stock as if the shares were unrestricted and could
be sold immediately. If the shares subject to such election are subsequently
forfeited, the recipient will not be entitled to any deduction, refund or loss
for tax purposes. Upon sale of the shares after the restriction period has
expired, the holding period to determine whether the recipient has long-term or
short-term capital gain or loss begins when the restriction period expires, and
the tax basis will be the fair market value of the shares at that time. However,
if the recipient timely elects to be taxed as of the date of grant, the holding
period commences on the date of the grant and the tax basis will be the fair
market value of the shares on the date of the grant as if the shares were then
unrestricted and could be sold immediately. The Company generally will be
entitled to a deduction, equal to the amount that is taxable as ordinary
compensation income to the recipient, for the Company's taxable year in which
the recipient recognizes such income.
<PAGE>
Performance Shares. A participant who is awarded performance shares
will not recognize income and the Company will not be allowed a deduction at the
time the award is made. When a participant receives payment for performance
shares in cash or shares of Common Stock of the Company, the amount of the cash
and the fair market value of the shares received will be ordinary income to the
participant and will be allowed as a deduction for federal income tax purposes
to the Company. However, if there is a substantial risk that any shares used to
pay out earned performance shares will be forfeited (for example, because the
Compensation Committee conditions such shares on the performance of future
services), the taxable event is deferred until the risk of forfeiture lapses. In
that case, the participant can elect to make a Section 83(b) election as
previously described. The Company can take the corresponding deduction at the
time the income is recognized by the participant.
Participation in and Benefits Under the Stock Incentive Plan
As described above, the employees of the Company and its subsidiaries
who are to receive awards under the Stock Incentive Plan and the types and sizes
of such awards are to be determined by the Compensation Committee or the members
thereof who are "outside directors" within the meaning of Section 162(m) of the
Code. Accordingly, it is not possible to predict the benefits or amounts that
will be received by or allocated to particular employees or groups of employees,
or to determine the benefits or amounts that would have been received by or
allocated to such persons for 1995 if the Stock Incentive Plan had been in
effect.
Vote Required
Approval of the Stock Incentive Plan will require the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock of the
Company present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon.
Recommendation
The Board of Directors recommends a vote FOR approval of the Stock
Incentive Plan.
PROPOSAL TO APPROVE THE CAVALIER HOMES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Upon the recommendation of the Compensation Committee, which made such
recommendation after consultation with the nationally-recognized compensation
and employee benefits consulting firm engaged by the Company to review, and
provide assistance regarding, the Company's executive incentive compensation
program, and subject to stockholder approval, the Board of Directors has adopted
the Cavalier Homes, Inc. Executive Incentive Compensation Plan (the "EIC Plan"),
which is designed to provide annual and, if so determined by the Committee
administering the EIC Plan, long-term incentive compensation to certain key
employees of the Company and its subsidiaries in the event certain objective
financial performance goals are achieved. A summary of the essential features of
the EIC Plan is set forth below, but is qualified in its entirety by reference
to the full text of the EIC Plan which was filed electronically with this Proxy
Statement with the Commission. Such text is not included with the printed
version of this Proxy Statement.
Background and Purpose
Section 162(m) of the Code limits the deductibility to the Company of
certain compensation paid to certain employees in excess of $1,000,000 per year.
Compensation that qualifies as "performance-based compensation" and satisfies
certain other conditions, including approval by the stockholders of the material
terms under which the compensation is payable, is not subject to any limit on
its deductibility. The Company desires to establish the EIC Plan in order to
provide annual and long-term incentive compensation that qualifies as
"performance-based compensation."
<PAGE>
Description of the EIC Plan
Administration. The EIC Plan is to be administered by a Committee of at
least two "outside directors" within the meaning of Section 162(m) of the Code
who are also to be "disinterested persons" within the meaning of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act. The Committee will be
comprised of eligible members of the Compensation Committee or will be otherwise
designated by the Board of Directors.
Eligibility. Only those "covered employees" of the Company or of a
subsidiary designated by the Committee as eligible for short-term or long-term
incentive compensation may participate in the EIC Plan. Initially, it is
anticipated that the participants in the EIC Plan will include the executive
officers of the Company, as named in the Summary Compensation Table on page 28
of this Proxy Statement. Participation in the future will be at the discretion
of the Committee, but it is anticipated that each of the executive officers of
the Company will participate each year.
Short-Term Incentive Compensation. Short-term incentive compensation
under the EIC Plan will be determined on the basis of short-term performance
periods, which are defined as the first three, the first six, and the first
nine-month periods during each fiscal year of the Company (a "Plan Year") as
well as each Plan Year itself. Prior to the earlier of the 90th day of each
short-term performance period or the date on which 25% of the short-term
performance period has elapsed, the Committee will determine (i) which employees
will be eligible for short-term incentive compensation under the EIC Plan for
that performance period, (ii) a formula for determining a short-term incentive
compensation pool based on the incentive net income for such short-term
performance period and (iii) a formula for allocating such pool among such
employees. In that regard, (A) the formula for determining the amount of a pool
for a short-term performance period and (B) the formula for allocating such pool
will be fixed formulas that do not permit Committee discretion; however, the
Committee will have the discretion to reduce or eliminate short-term incentive
compensation based on the Committee's evaluation of a covered employee's
personal performance during a short-term performance period. The amount of
short-term incentive compensation for each performance period is to be reduced
by the aggregate amount of short-term incentive compensation paid to the covered
employee for all prior performance periods ending within that performance
period. For purposes of the EIC Plan, "incentive net income" means, with respect
to any performance period, the net income of the Company for such period
determined under generally accepted accounting principles, before deducting
expenses for income taxes, incentive compensation paid under the EIC Plan and
certain incentive compensation paid to key employees of the Company's
subsidiaries.
Long-Term Incentive Compensation. Long-term incentive compensation
under the EIC Plan will be determined on the basis of a period (consisting of
two or more consecutive Plan Years) determined by the Committee within the first
90 days of the first such Plan Year. For each long-term performance period the
Committee will determine (i) which employees will be eligible for long-term
incentive compensation under the EIC Plan for that performance period, (ii) a
formula for determining a long-term incentive compensation pool with respect to
the performance period based on the incentive net income, earnings per share,
return on assets, return on equity, revenues or total stockholder return for the
performance period (as such terms are defined in the EIC Plan), or any other
measure of the Company's financial performance for such period as the Committee
may designate, and (iii) a formula for allocating any pool among the eligible
employees. Each formula for the performance period will be a fixed formula that
does not permit any Committee discretion; however, the Committee will have the
discretion to reduce or eliminate long-term incentive compensation based on the
Committee's evaluation of a covered employee's personal performance during a
long-term performance period.
Payment of Incentive Compensation. Any short-term incentive
compensation is to be paid in cash and any long-term incentive compensation is
to be paid in cash or shares of restricted stock issued under the Stock
Incentive Plan or both. The Committee is to determine the percentage, if any,
but not exceeding 40% of the long-term incentive compensation which is to be
paid in shares of restricted stock. The number of shares is to equal the number
of shares of Common Stock that could be purchased with the applicable amount if
such shares were purchased at a discount from their fair market value, the
applicable discount rate being either 20% or 30% as selected by the employee.
The period of restriction for the restricted stock will depend on the discount
rate selected by the key employee: a two-year period of restriction will apply
if the 20% discount rate is selected, and a three-year period of restriction
will apply if a 30% discount rate is selected.
<PAGE>
In no event will any participant be paid more than (i) $2,000,000 of
short-term incentive compensation for a Plan Year or (ii) more than $2,000,000
of long-term incentive compensation for each Plan Year during a long-term
performance period. Any shares of restricted stock payable as described above
for long-term incentive compensation will be awarded under the Stock Incentive
Plan and will be subject to the limitation under the Stock Incentive Plan which
provides that a participant cannot receive awards covering more than 100,000
shares in any calendar year.
Amendment and Termination of the EIC Plan. The Board of Directors will
have the power to amend, modify or terminate the EIC Plan at any time, provided
that no such amendment, modification or termination shall reduce the amount
payable to a covered employee as of the date of such amendment, modification or
termination.
Federal Income Tax Consequences
The amount of an award under the EIC Plan generally will be includible
in income by the recipient. The Company has structured the EIC Plan with the
intention that compensation payable thereunder would be qualified
"performance-based compensation" under Section 162(m) and would be deductible by
the Company. To qualify, the Company is seeking stockholder approval of the EIC
Plan.
Participation in and Benefits Under the EIC Plan
As described above, it is anticipated that the participants in the EIC
Plan will include the executive officers of the Company named in the Summary
Compensation Table on page 28 of this Proxy Statement. Participation in future
years will be at the discretion of the Committee, but it is anticipated that
each of the executive officers of the Company will participate each year.
For competitive business reasons, the specific performance goals
determined by the Committee for purposes of the EIC Plan will not be publicly
disclosed. However, incentive compensation actually paid under the EIC Plan will
be included each year in the disclosure regarding executive compensation as
required by the rules of the Commission. Although it is not possible to predict
the benefits or amounts that will be received by or allocated to particular
executive officers under the EIC Plan, reference is made to the Summary
Compensation Table on page 28 of this Proxy Statement and to the Report of the
Compensation Committee on pages 25 through 27 of this Proxy Statement for a
description of incentive compensation paid to the executive officers of the
Company for 1995 and prior years.
Although the Board of Directors intends the EIC Plan to be the
principal source of short-term and long-term incentive compensation for the
Company's executive officers, the approval of the EIC Plan will not affect the
Company's right to pay incentive compensation to such officers or other key
employees outside of the EIC Plan that does not qualify as "performance-based
compensation" under Section 162(m) of the Code. The Company retains this right
because the strictly objective, mechanical formulas of the EIC Plan required by
Section 162(m) ignore potentially important components of an individual's
performance that are not reflected in the Company's incentive net income (such
as a key employee's contributions towards the achievement of strategic
objectives). In the event the EIC Plan is not approved by the stockholders, the
Compensation Committee will determine how incentive compensation is to be paid
to key employees. In such event, a portion of such compensation may not be
deductible by the Company by reason of the limitations under Section 162(m).
Vote Required
Approval of the EIC Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
present in person or represented by proxy at the Annual Meeting and voting
thereon.
Recommendation
The Board of Directors recommends a vote FOR approval of the EIC Plan.
<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO THE
CAVALIER HOMES, INC. 1993 AMENDED AND RESTATED
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
Description and Purpose of the Proposed Amendments
In February 1996, the Board of Directors adopted, subject to
stockholder approval, certain amendments to the Nonemployee Directors Plan
pursuant to which nonemployee directors of the Company are granted nonqualified
stock options ("NQSOs"). The Nonemployee Directors Plan was adopted by the Board
of Directors in July 1993 and was approved by the stockholders of the Company at
the 1994 Annual Meeting of Stockholders. Prior to such amendments (the "February
1996 Amendments"), the number of shares of Common Stock reserved for issuance
under the Nonemployee Directors Plan was 281,250, after giving effect to stock
splits effected subsequent to the date of adoption. After the grants made under
the Nonemployee Directors Plan on January 15, 1996, options to purchase a total
of 233,910 shares had been granted, and 47,340 shares were available for future
grants. Prior to the February 1996 Amendments, the Nonemployee Directors Plan
was to expire 10 years from the date of its adoption by the Board of Directors.
Given the current configuration of the Nonemployee Directors Plan and the
current number of directors of the Company who are eligible to participate
therein, and after giving effect to outstanding options, options for all shares
of Common Stock reserved for issuance under the Nonemployee Directors Plan would
have been granted by January 1998.
The Board of Directors desires to continue to utilize the Nonemployee
Directors Plan beyond such date and, accordingly, the February 1996 Amendments
provide for an increase in the number of shares of Common Stock available for
grants of options to 500,000, including the shares as to which options have
already been granted as described above. At the same time, the Board of
Directors also determined, and the February 1996 Amendments provide, that the
size of initial and annual grants (other than the annual grants due to be made
to the incumbent directors on January 15, 1997) are to be reduced to 20,000
shares and 5,000 shares, respectively, and the aggregate number of shares as to
which options may be granted to any director under the Nonemployee Directors
Plan is to be limited to 125,000. Because of such reduction and limitation, the
Board of Directors believes that the original 10-year term of the Nonemployee
Directors Plan is no longer necessary, and the February 1996 Amendments provide
that such term be eliminated. Additionally, the February 1996 Amendments change
the definitions of "fair market value" and "change in control" as described
below.
A summary of the essential features of the Nonemployee Directors Plan
as amended by the February 1996 Amendments is set forth below but is qualified
in its entirety by reference to the full text of the Nonemployee Directors Plan,
as so amended, which was filed electronically with this Proxy Statement with the
Commission.
Such text is not included in the printed version of this Proxy Statement.
Description of the Nonemployee Directors Plan, as Amended
Purpose of the Nonemployee Directors Plan. The purpose of the
Nonemployee Directors Plan is to attract and retain highly qualified nonemployee
directors, which the Company believes can be difficult due to the exposure to
liability for directors of public companies and the duties required of a
nonemployee director. Any director of the Company who is not also an employee of
the Company is eligible to participate in the Nonemployee Directors Plan. As of
the date of this Proxy Statement, three persons were eligible to participate in
the Nonemployee Directors Plan.
Number of Shares. The number of shares of Common Stock reserved for
issuance upon the exercise of options granted or to be granted pursuant to the
Nonemployee Directors Plan may not exceed 500,000 shares, constituting
approximately 5.5% of the shares of Common Stock outstanding as of March 20,
1996. In the Company's discretion, such shares may be authorized but unissued
shares or treasury shares. If options expire, terminate, or are canceled for any
reason without being wholly exercised, new options may be granted covering the
number of shares to which such option expiration, termination or cancellation
relates.
<PAGE>
Administration. The Nonemployee Directors is administered by an
Administrator who is appointed by the Board of Directors of the Company. The
Administrator has been and will continue to be the Chairman of the Board of
Directors of the Company, who at the present time is Barry B. Donnell. The
Administrator is responsible for the general administration of the Nonemployee
Directors Plan and also has the authority to interpret it, to determine the
details and provisions of each Stock Option Agreement executed pursuant thereto,
and to make all other determinations necessary or advisable in the
administration thereof.
Option Price. The per share exercise price of the shares of Common
Stock subject to options granted under the Nonemployee Directors Plan is the
closing sales price per share of the Common Stock as reported by either (i) any
national securities exchange on which the Common Stock is actively traded or
(ii) The Nasdaq Stock Market on the day on which such fair market value is
determined or, if Common Stock is not traded on such exchange or system on such
date, then on the immediately preceding date on which Common Stock was traded on
such exchange or system. On March 20, 1996, the closing price of the Common
Stock of the Company on the New York Stock Exchange was $14.75.
Option Period and Exercise. Each option granted pursuant to the
Nonemployee Directors Plan must be exercised between six months after the date
of grant and 10 years from the date of grant, unless it becomes exercisable
earlier upon a change in control of the Company, as described below. No option
is exercisable unless at all times during the period from the date the option is
granted and ending on the day which is 12 months before the date of exercise the
optionee was a director of the Company, or any successor thereof.
Option Grants and Agreement. The Nonemployee Directors Plan provides
that each person who is not an employee of the Company and who is first elected
to serve as a director of the Company after February 27, 1996 and while the
Nonemployee Directors Plan remains in effect, is to be granted an option to
purchase 20,000 shares of Common Stock as of the date such person is first
elected as a director. Subject to the aggregate limitation described below, (i)
on January 15, 1997, each director who is not then an employee of the Company
but who was serving as a director on February 27, 1996, is to be granted an
option to purchase 11,718 shares (subject to adjustment) and any other person
who is not then an employee and who is first elected to serve as a director
after February 27, 1996 is to be granted an option to purchase 5,000 shares. On
January 15, 1998 and on each January 15 thereafter, each director who is not
also an employee of the Company as of such date and who has served as a director
of the Company during the calendar year immediately preceding such date will
receive, effective as of such date, an option to purchase 5,000 shares of Common
Stock. In the event that the remaining shares available for grants are less than
the aggregate number necessary to make such grants to eligible directors, then
each eligible director will receive a pro rata grant of the remaining shares
that are available for grant. The number of shares subject to the initial and
annual grants described above will not be adjusted prior to such grants for
changes in the capitalization of the Company, except for the options to purchase
11,718 shares to be granted to each incumbent nonemployee director on January
15, 1997.
Notwithstanding any other provision of the Nonemployee Directors Plan,
no director may be awarded options to purchase more than 125,000 shares in the
aggregate under the Nonemployee Directors Plan. The number of shares subject to
such aggregate limitation on grants will not be adjusted for changes in the
capitalization of the Company.
Each option granted pursuant to the Nonemployee Directors Plan is
required to be evidenced by a Stock Option Agreement, which agreement must set
forth such terms and conditions as may be determined by the Administrator.
Changes in Capitalization; Change in Control. In the event that the
outstanding shares of Common Stock of the Company are increased, decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of reorganization, recapitalization,
reclassification, combination of shares, stock split, or stock dividend
occurring after the date of the approval by the stockholders of the February
1996 Amendments, (a) the aggregate number and class of shares which may be
issued and sold will be adjusted appropriately and (b) rights under outstanding
options which have been granted and are outstanding, both as to the number and
class of shares and the option price, will be adjusted appropriately.
<PAGE>
In the event of a change in control, each outstanding option will
terminate, but each optionee will have the right, immediately prior to such
change in control, to exercise outstanding options in full, regardless of
whether the option by its terms is at such time immediately exercisable in full.
For purposes of the Nonemployee Directors Plan, a "change in control" is defined
as (i) the acquisition by any person of securities of the Company representing
20% or more of the combined voting power of the Company's then-outstanding
securities; (ii) any change in control which is required to be reported pursuant
to the rules of the Commission; (iii) when, during any period of two consecutive
years, individuals who, at the beginning of such period, constitute the
directors of the Company cease for any reason to constitute at least a majority
thereof unless each director who was not a director at the beginning of such
period was elected by, or on the recommendation of, at least two-thirds of the
directors at the beginning of such period; or (iv) a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or any subsidiary, through purchase of assets, by merger or
otherwise.
Effect of Disability, Death or Other Termination of Directorship. In
the event that the directorship of an optionee to whom an option was granted is
terminated for any reason other than for cause, including without limitation,
the failure of such director to be re-elected as a director of the Company by
the stockholders of the Company, such option may be exercised at any time prior
to the expiration date of the option or within 12 months after the date of such
termination, whichever is earlier, but only to the extent such optionee had the
right to exercise such option at the date of such termination. If the
directorship of an optionee to whom an option was granted is terminated for
cause, such option terminates immediately upon such termination. The term "for
cause" is defined as a good faith express determination by the Board of
Directors of the Company that the optionee has been guilty of willful misconduct
or dishonesty, or a good faith express determination by the Board of Directors
of the Company that the optionee has been derelict in, has breached or has
grossly neglected the optionee's duty to the Company.
Termination, Amendment, and Modification. The Board of Directors may at
any time terminate, and may at any time and from time to time and in any respect
amend or modify, the Nonemployee Directors Plan; provided, however, that no such
action of the Board of Directors without approval of the stockholders of the
Company may (i) materially increase the total number of shares of Common Stock
subject to the Nonemployee Directors Plan, except as contemplated by certain
antidilution provisions contained therein; (ii) materially increase the benefits
accruing to participants thereunder; or (iii) materially modify the requirements
as to eligibility for participation; and provided, further, that no termination,
amendment, or modification of the Nonemployee Directors Plan in any manner
affects any Stock Option Agreement previously entered into without the consent
of the optionee or transferee of the optionee. Except as may be necessary to
comport with changes in the Code or the rules thereunder, the Nonemployee
Directors Plan may not be amended more than once every six months.
Federal Income Tax Consequences
The options granted and to be granted under the Nonemployee Directors
Plan are NQSOs for federal income tax purposes. With respect to such NQSOs (i)
no income is recognized by the optionee at the time the NQSO is granted, (ii) at
exercise, ordinary income is recognized by the optionee in an amount equal to
the difference between the option price and the fair market value of the shares
on the date of exercise, and the Company receives a tax deduction for the same
amount and (iii) on disposition, the net appreciation or depreciation after the
date of exercise is treated as either short-term or long-term capital gain or
loss depending on whether the shares have been held for more than one year.
<PAGE>
Participation in and Benefits Under the Nonemployee Directors Plan
As described above, the number of shares as to which options are to be
granted initially and the number of shares as to which options are to granted
annually to nonemployee directors of the Company are fixed amounts and the
aggregate number of such shares as to which any one director is entitled to be
granted options is limited to 125,000.
Although the number of shares of Common Stock subject to options to be
granted to nonemployee directors pursuant to initial and annual grants is set
forth in the Nonemployee Directors Plan, since (i) the exercise price of options
to be granted in the future under the Nonemployee Directors Plan is not known
and (ii) the actual value, if any, which an optionee may realize upon exercise
of an option will depend upon the excess of value of the Common Stock over the
exercise price on the date of exercise, the benefits which may be received by
participants in the Nonemployee Directors Plan in the future are not
determinable. Each of Messrs. Broughton, Jordan and Lowe has been granted
options to purchase 77,970 shares of Common Stock (as adjusted to reflect all
stock splits) under the Nonemployee Directors Plan since its adoption by the
Board of Directors in 1993, at exercise prices ranging from $5.18 to $12.51 per
share.
Vote Required
Approval of the February 1996 Amendments will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock of
the Company present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon.
Recommendation
The Board of Directors recommends a vote FOR approval of the amendments
to the Nonemployee Directors Plan.
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
Executive Officers
The following table sets forth certain information concerning the
executive officers of the Company, who are elected annually by the Board of
Directors:
Name Age Position with the Company
Jerry F. Wilson 56 President and Chief Executive Officer
Barry B. Donnell 56 Chairman of the Board
David A. Roberson 39 Chief Financial Officer and Secretary
-Treasurer
Messrs. Wilson's and Donnell's business experience is set forth above (see
"Election of Directors"). Mr. Roberson, who is the nephew of Mr. Wilson, has
been the Secretary-Treasurer of the Company, and has functioned as its principal
financial and accounting officer, since 1984.
<PAGE>
Stock Ownership
Except as set forth in the table below there was no person known by the
Company to be the beneficial owner as of March 20, 1996 of more than 5% of the
outstanding shares of Common Stock. Set forth below is information as of March
20, 1996, with respect to the beneficial ownership of Common Stock by (a) each
of the directors of the Company (which directors also constitute the nominees
for election as directors at the Annual Meeting), (b) the Company's Chief
Executive Officer and the two other executive officers of the Company during the
fiscal year ended December 31, 1995 and (c) all directors and executive officers
of the Company as a group.
Number of Shares
Name of Common Stock Percent of Class(1)
Thomas A. Broughton, III 116,146 (2) 1.2%
Barry B. Donnell 600,000 (3) 6.1%
Lee Roy Jordan 66,252 (4) *
John W Lowe 188,122 (5) 1.9%
Jerry F. Wilson 170,000 1.7%
David A. Roberson 132,274 (6) 1.3%
All Directors and Executive
Officers as a Group 1,272,794 (7) 12.8%
(six persons)
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Beneficial ownership in the foregoing table is based upon information
furnished by the persons listed. For the purposes of the foregoing table, the
percentage of class beneficially owned has been computed, in accordance with
Rule 13d-3(d)(1) under the Exchange Act, on the basis of 9,158,204 shares of
Common Stock outstanding on March 20, 1996 plus 755,971 shares of Common Stock
issuable pursuant to the exercise of outstanding options exercisable on March
20, 1996 or within 60 days thereafter. Except as otherwise indicated in these
notes to the foregoing table, beneficial ownership includes sole voting and
investment power. All information with respect to the beneficial ownership of
shares has been adjusted to reflect the three-for-two stock split effected on
February 15, 1996.
(2) Includes 13,182 shares beneficially owned in an Individual Retirement
Account and 66,252 shares issuable pursuant to stock options exercisable on
March 20, 1996 or within 60 days thereafter.
(3) Includes 117,187 shares issuable pursuant to stock options exercisable
on March 20, 1996 or within 60 days thereafter and 18,750 shares held by the
Donnell Foundation, of which Mr. Donnell is co-trustee. Mr. Donnell's address is
P. O. Box 5003, Wichita Falls, Texas 76307.
(4) Constitutes shares issuable pursuant to stock options exercisable on
March 20, 1996 or within 60 days thereafter.
(5) Includes 66,252 shares issuable pursuant to stock options exercisable
on March 20, 1996 or within 60 days thereafter and 12,655 shares owned by adult
children of Mr. Lowe, with respect to which Mr. Lowe disclaims beneficial
ownership.
(6) Includes 3,120 shares owned by the minor children of Mr. Roberson,
3,375 shares beneficially owned in an Individual Retirement Account and 93,750
shares issuable pursuant to stock options exercisable on March 20, 1996 or
within 60 days thereafter.
(7) See notes 1-6 above.
EXECUTIVE COMPENSATION
The following tables, graphs and other information provide details
concerning executive compensation.
<PAGE>
Performance Graph
The following indexed graph compares the yearly percentage change in
the Company's cumulative total stockholder return on its Common Stock with the
cumulative total return of (i) the Standard and Poor's 500 Stock Index and (ii)
a group of public companies, each of which is engaged in the business of
designing, producing and selling manufactured homes. The industry group
companies included in the index are: Cavco Industries, Inc.; Champion
Enterprises, Inc.; Clayton Homes, Inc.; Fleetwood Enterprises, Inc.; Kit
Manufacturing Company; Liberty Homes, Inc.; Nobility Homes, Inc.; Oakwood Homes
Corporation; Schult Homes Corporation; and Skyline Corporation.
Comparison of Cumulative Total Return
Assumes Initial Investment of $100 and Reinvestment of Dividends
1900 |
|
D 1800 | +
O | +
L 1600 | +
L | +
A 1500 | +
R | +
S 1400 | +
| +
1200 | +
| + +
1000 | + +
| + +
800 | + + +
| + + + +
600 | + + + +
| + + + +
400 | + + + +@
| + +@ +@ +@
200 | + +@ +@ +@=
| +@= +@= +@= +@= +@=
0 | +@= +@= +@= +@= +@= +@=
+-----+----------+----------+----------+----------+----------+---------
1990 1991 1992 1993 1994 1995
YEAR
+ Cavalier Homes = S & P 500 @ Peer Group
1991 1992 1993 1994 1994 1995
Cavalier Homes 100.00 140.39 779.34 1,049.00 752.42 1,811.85
S & P 500 100.00 130.47 140.41 154.56 156.60 214.86
Peer Group 100.00 145.22 244.58 275.78 242.49 380.76
Report of the Compensation Committee on Executive Compensation
General. The Compensation Committee of the Board of Directors consists
of three directors, Thomas A. Broughton, III, Lee Roy Jordan and John W Lowe.
The Compensation Committee is responsible for establishing the salaries and
bonuses of the Company's executive officers. The Compensation Committee also
administers the terms, conditions and policies of, and the benefits granted
under, the Company's stock incentive plans for executive officers and other key
employees.
Compensation Policies. The Compensation Committee believes that the
most effective executive compensation program is one which provides incentives
to achieve both increased current profitability and longer term stockholder
value. In this regard, the Compensation Committee believes executive
compensation should be comprised of a reasonable annual base salary and a bonus
program that rewards the executive officers in a manner directly related to the
profitability of the Company. The Compensation Committee further believes that
annual base salary and bonus arrangements should be supplemented with
equity-based programs, pursuant to which the Company affords the ownership and
retention of the Company's Common Stock by its executive officers and other key
employees. The Compensation Committee endorses the proposition that equity
ownership by management is beneficial because it aligns management's and
stockholders' interest in the enhancement of stockholder value. In general,
considering the cyclical nature of the manufactured housing industry and the
Company's business, the philosophy of the Compensation Committee has been to
design a compensation system comprised of a cash component that is conservative
when the Company's operations are marginal and rewarding when its operations are
good, and an equity component that provides the executive officers with a strong
incentive to manage the Company's operations with a view towards maintaining and
increasing stockholder value. The Compensation Committee feels that the
combination of these programs helps to assure that the Company's executive
officers and other key employees have a meaningful stake in the Company, its
value, and its long-term and short-term performance.
<PAGE>
The Compensation Committee determines base salary, bonus and other
components of executive compensation upon the basis of corporate performance,
judged by revenues, earnings, stock trading prices, and strategies, and on the
basis of the Compensation Committee's subjective perception of a particular
executive's performance and worth to the Company, the Company's past
compensation practices and a comparison of the Company's executive compensation
with the compensation paid by other companies in the same industry (which
generally are the companies included in the industry group included in the index
for the performance graph set forth above) and, to a lesser extent, a random
selection of other companies. In making executive compensation decisions, the
Compensation Committee takes the views of Mr. Wilson and Mr. Donnell into
account and considers information provided by them. In the past the Compensation
Committee has not established particular target levels to be used in judging
corporate performance and has not assigned relative weights or values to any of
the factors considered in judging corporate performance. However, as reported
elsewhere in this Proxy Statement, the Compensation Committee has recommended
the adoption of, and the Board of Directors has adopted, subject to stockholder
approval, the Cavalier Homes, Inc. Executive Incentive Compensation Plan (the
"EIC Plan"), pursuant to which short-term and long-term incentive compensation
can be paid to executive officers of the Company based on the performance of the
Company measured by certain objective corporate financial performance criteria.
If the EIC Plan is approved by the stockholders, it is intended that bonuses for
the Company's executive officers for short-term and long-term performance
periods will be paid pursuant to the EIC Plan rather than under the program
utilized in 1995 and prior years.
Generally, base salaries for executive officers have been fixed at
levels comparable to or below the base salaries for persons in similar positions
in other companies in the manufactured housing industry. In the past bonuses
have been tied to corporate performance and have been set as a percentage of the
Company's net income before certain deductions. Under the EIC Plan, bonuses will
be payable over specified performance periods and determined on the basis of
target levels set by the Committee of outside directors responsible for
administration of the EIC Plan and the performance of the Company measured by
certain objective financial performance criteria. In the past, stock options
have been the component of executive compensation designed to motivate
executives to improve the long-term performance of the Company and the Common
Stock in the market, to encourage the Company's executives to achieve superior
results over the longer term and to align executive officers' and stockholders'
interests. The Compensation Committee's decisions respecting stock option grants
generally have been made using the same criteria discussed above and have taken
into consideration the number of unexercised options held by the executive
officers, exercise prices and market prices of the Company's Common Stock. As
reported elsewhere herein, the Compensation Committee has recommended the
adoption of, and the Board of Directors has adopted, subject to stockholder
approval, the Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan (the
"Stock Incentive Plan"), pursuant to which the Compensation Committee can grant
both incentive and nonqualified stock options as well as make awards of stock
appreciation rights, restricted stock and performance shares to executive
officers and other key employees. These awards also would be intended to
motivate executives to improve the long-term performance of the Company and the
Common Stock in the market, to encourage the Company's executives to achieve
superior results over the long term and to align the interests of the executive
officers with the interests of the stockholders.
Chief Executive Officer Compensation. Mr. Wilson's compensation for
1995 was established according to the policies, bases and relationships to
corporate performance that are discussed above as being applicable to the
Company's executive officers generally. Mr. Wilson's base salary of $96,000 per
annum was fixed in 1992, and he received the same base salary in 1995. After
taking into account the above factors, the Compensation Committee decided there
was no reason to change this amount for 1995. In 1992, the Compensation
Committee determined that Mr. Wilson should receive an annual incentive bonus
equal to a fixed percentage of the Company's net income before deducting
expenses for income taxes, incentive compensation payable to executive officers
of the Company and certain incentive compensation paid to key employees of the
Company's subsidiaries under their key employee compensation agreements. In
making such determination, the Compensation Committee reviewed the Company's
then anticipated possible ranges of consolidated net income before income taxes
and bonus compensation and subjectively determined what fixed percentage of
those figures would result in reasonable compensation for and an adequate
incentive to attain corporate performance in those ranges. This same methodology
was used in 1993 and 1994 to determine Mr. Wilson's bonus for those years. After
reviewing the Company's anticipated operations for 1995, and the criteria
described above, the Compensation Committee concluded that the same bonus
arrangement should be utilized in 1995. In doing so, the Compensation Committee
also took into account the key role played by Mr. Wilson in the Company's
operations, that Mr. Wilson's cash compensation had been conservative when the
Company's operations had been only marginally profitable, and that under Mr.
Wilson's leadership the Company has experienced a significant and substantial
growth in its revenues, earnings and market capitalization. The Compensation
Committee did not make any grants of stock options to Mr. Wilson during 1995.
<PAGE>
Deductibility of Executive Compensation. In 1993, Section 162(m) of the
Code was enacted to limit to $1,000,000 per year the corporate deduction for
compensation paid to each of a corporation's chief executive officer and the
four other most highly compensated executive officers, unless certain
requirements are met. To the extent the compensation is "performance-based" as
defined in Section 162(m), it is excluded from the calculation of the amount of
compensation subject to the above limitation.
During 1995 the Compensation Committee reviewed the provisions of
Section 162(m) of the Code and concluded that the Company should try to
structure its executive compensation plans to ensure deductibility while
preserving the Company's ability to attract and retain qualified executives.
After the Compensation Committee's consultation with management, the Company
engaged a nationally-recognized compensation and employee benefits consulting
firm to review the Company's executive compensation program and assist the
Company in structuring its executive compensation program to comply with Section
162(m) of the Code. As described elsewhere herein, the Company is submitting the
EIC Plan and the Stock Incentive Plan to a vote of stockholders at the Annual
Meeting with the intention that compensation payable under the EIC Plan and
compensation expense associated with awards under the Stock Incentive Plan can
be qualified "performance-based compensation" under Section 162(m) and not be
subject to the $1,000,000 limitation on deductibility.
Members of the Compensation Committee:
Thomas A. Broughton, III
Lee Roy Jordan
John W Lowe
Summary Compensation Table
The following summary compensation table sets forth information
concerning compensation for services in all capacities, including cash and
non-cash compensation, awarded to, earned by or paid to the Company's Chief
Executive Officer and the two other executive officers of the Company in each of
the last three fiscal years.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Long-Term All
Compen- Other
sation Compen-
Awards sation($)(4)
- --------------------------------------------------------------------------------------------------------
Other Annual Securities
Name and Compensation Underlying
Principal Position Year Salary($) Bonus($)(1) ($)(2) Options(#)(3)
- --------------------------------------------------------------------------------------------------------
Jerry F. Wilson 1995 96,000 1,121,273 - None 7,744
President and Chief 1994 96,000 664,265 - None 8,413
Executive Officer 1993 96,000 418,450 - 117,187 8,946
- --------------------------------------------------------------------------------------------------------
Barry B. Donnell 1995 84,000 672,806 - None 8,571
Chairman of the Board 1994 84,000 398,559 - None 8,042
1993 84,000 246,275 - 117,187 9,138
- --------------------------------------------------------------------------------------------------------
David A. Roberson 1995 67,500 336,404 - None 1,688
Chief Financial Officer; 1994 60,000 233,676 - None 1,706
Secretary-Treasurer 1993 60,000 129,110 - 93,750 2,457
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Certain amounts that were included as Bonus for 1993 in the Proxy
Statement for the 1994 Annual Meeting have been reclassified as Other Annual
Compensation to conform to the classification for 1994 and 1995.
(2) For the years ended December 31, 1995, 1994 and 1993 none of the
named executive officers received perquisites or other personal benefits in
excess of the amounts required to be disclosed under the revised rules on
executive compensation disclosure adopted by the Commission; accordingly, the
amounts of such benefits are omitted. Certain amounts that were included as
Other Annual Compensation for 1993 in the Proxy Statement for the 1994 Annual
Meeting have been reclassified as All Other Compensation to conform to the
classification for 1994 and 1995.
(3) Options granted to executive officers during 1993 were granted
pursuant to the Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified
Stock Option Plan and have been adjusted for subsequent stock splits effected
prior to March 20, 1996.
(4) Includes the following for 1995: (i) matching contributions made by
the Company to its 401(k) plan during 1995 on behalf of each executive officer
in the amount of $1,688; (ii) directors' fees paid by the Company in 1995 to
each of Mr. Wilson and Mr. Donnell in the amount of $5,500 and $6,750,
respectively; and (iii) payment by the Company of life insurance premiums in the
amount of $556 and $133, respectively, in connection with certain split-dollar
agreements between the Company and certain associates of each of Mr. Wilson and
Mr. Donnell. The amount reflected in the column includes the portion of the
premium that is attributable to term insurance coverage for each such executive
officer. The agreements provide that the Company is to pay all premiums due on
the insurance policies on the life of each such officer, and that upon the
earlier of the death of the insured or the cancellation of the policy, the owner
of the policy is to reimburse the Company for such premiums, less an amount
equal to the cost of current life insurance protection as measured by tables
supplied by the Internal Revenue Service. Certain amounts that were included as
Other Annual Compensation for 1993 in the Proxy Statement for the 1994 Annual
Meeting have been reclassified as All Other Compensation to conform to the
classification for 1994 and 1995. Information Concerning Stock Options
The Company did not grant any stock options to any of its executive
officers during 1995. The following table sets forth the number and dollar value
of stock options held by executive officers of the Company that remained
unexercised at year end.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (All at Fiscal Year-End
Shares Acquired Exercisable) (#) (1) (All Exercisable) ($)
on Exercise (#) Value Realized
Name ($)
- --------------------------------------------------------------------------------------------------------
Jerry F. Wilson 0 0 117,187(2) 1,014,844
- --------------------------------------------------------------------------------------------------------
Barry B. Donnell 0 0 117,187 1,014,844
- --------------------------------------------------------------------------------------------------------
David A. Roberson 0 0 93,750 811,875
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Options granted to executive officers were granted in 1993 pursuant
to the Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock Option
Plan and have been adjusted for subsequent stock splits effected prior to March
20, 1996.
(2) In February 1996 Mr. Wilson exercised all such options and sold
the shares of Common Stock acquired upon such exercise.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1995, the following directors of the Company served, and
continue to serve, as members of the Compensation Committee: Thomas A.
Broughton, III, Lee Roy Jordan and John W Lowe.
Mr. Lowe is a partner in the law firm of Lowe, Mobley and Lowe
(previously known as James, Lowe and Mobley), which rendered legal services to
the Company and its subsidiaries during 1995 and which the Company expects to
continue to render legal services during 1996, and has an ownership interest in
certain entities that lease certain facilities to the Company, as described
below. During 1995, the Company and its subsidiaries paid Lowe, Mobley and Lowe
legal fees in the aggregate amount of $99,651.
Cavalier Homes of Alabama, Inc., a subsidiary of the Company ("Cavalier
- - Alabama"), leases a manufacturing facility, office premises and certain
equipment from a partnership, the partners of which include Jerry F. Wilson and
John W Lowe, each of whom owns a one-third interest in such partnership and
together beneficially own 3.6% of the outstanding Common Stock of the Company.
The original lease was entered into in September 1984. The current lease term,
which expires on September 5, 1996, provides for rental payments to be made by
Cavalier - Alabama in the amount of $25,000 per month. During 1995 Cavalier -
Alabama made rental payments to such partnership in the aggregate amount of
$300,000. Cavalier - Alabama has renegotiated the lease for a two-year term
commencing on September 6, 1996 and renewable for an additional three years at
the option of Cavalier - Alabama. Rental payments during the initial term are to
be $15,000 per month and $18,000 per month thereafter. Cavalier - Alabama has
the option to purchase the leased property at any time during the term of the
present lease for $1,750,000, and will have the option to purchase the property
during the term of the renegotiated lease for $2,100,000. The renegotiated lease
is to include additional land adjacent to the property currently under lease.
The Company expects to make rental payments during 1996 in the aggregate amount
of $260,000. The Company believes that the payments made and to be made under
the present lease terms and payments to be made under the renegotiated lease
terms are reasonable compared to amounts that would be paid to an unaffiliated
entity for similar space.
Cavalier - Alabama leases another manufacturing facility from a
partnership, the partners of which include Jonathan B. Lowe, who owns a 5%
partnership interest, and Michael P. Lowe, who owns a 5% partnership interest,
each of whom is a son of John W Lowe; David A. Roberson, who owns a 10%
partnership interest; and Jerry F. Wilson, Jr., who owns a 10% partnership
interest and Jonathan D. Wilson, who owns a 10% partnership interest, each of
whom is a son of Jerry F. Wilson. The foregoing partners of such partnership
beneficially own, in the aggregate, approximately 2.0% of the outstanding Common
Stock of the Company, not including the shares of Common Stock beneficially
owned by John W Lowe and Jerry F. Wilson. The lease, which was entered into in
May 1993, expires in May 1997 and may be renewed for an additional four years at
the option of Cavalier - Alabama, provides for rental payments to be made by
Cavalier - Alabama in the amount of $240,000 per year. Rent during the optional
extension period is to be $264,000 per year. During 1995 Cavalier - Alabama made
rental payments to such partnership in the aggregate amount of $240,000 and
expects to make rental payments in 1996 in the aggregate amount of $240,000.
Cavalier - Alabama has the option to purchase the leased property at any time
during the term of the lease for $1,500,000. The Company believes that the
payments made and to be made under the lease are reasonable compared to amounts
that would be paid to an unaffiliated entity for similar space.
<PAGE>
Quality Housing Supply, Inc., a subsidiary of the Company ("Quality"),
leases a manufacturing facility from a corporation, the shareholders of which
include John W Lowe, who owns a 25% interest in such corporation, and Jerry F.
Wilson Jr. and Jonathan D. Wilson, each of whom owns a 12.5% interest in such
corporation. The foregoing shareholders of such corporation beneficially own, in
the aggregate, approximately 2.5% of the outstanding Common Stock of the
Company, not including the shares of Common Stock beneficially owned by Jerry F.
Wilson. The lease, which was entered into in May 1994, is for an initial term of
five years with an option to renew by Quality for an additional five years.
Monthly rental payments during the initial term are $6,000, and monthly rental
payments during the optional extension period are equal to the initial rent
increased by a factor based on increases in the Consumer Price Index ("CPI").
During 1995 Quality made rental payments to such corporation in the aggregate
amount of $72,000 and expects to make rental payments in 1996 in the aggregate
amount of $72,000. Quality also has the option at any time to purchase the land
and improvements subject to the lease for $850,000, subject to a CPI adjustment
if the purchase is during the renewal term. Quality also has a right of first
refusal to purchase the property in the event the lessor has a bona fide offer
to sell the property to a third party purchaser. The Company believes that the
payments made and to be made under the lease are reasonable compared to amounts
that would be paid to an unaffiliated entity for similar space.
During 1995 the Company was a party to a $13 million revolving,
warehouse and term loan agreement (the "Credit Facility") with First Commercial
Bank, of which Mr. Broughton is the President. The Credit Facility contained a
revolving line of credit which provided for borrowings (including letters of
credit) of up to 80% and 50% of the Company's eligible (as defined) accounts
receivable and inventories, respectively, up to a maximum of $5 million.
Interest was payable under the revolving line of credit at the bank's prime
rate. The warehouse and term loan agreements contained in the Credit Facility
provided for borrowings of up to 80% of the Company's eligible (as defined)
installment sales contracts, up to a maximum of $8 million. Interest on term
notes was fixed for a period of five years from issuance at a rate based on the
weekly average yield on five year treasury securities averaged over the
preceding 13 weeks, plus 2.4%, with a floating rate for the remaining two years
(subject to certain limits) equal to the bank's prime rate plus .75%. The
warehouse component of the Credit Facility provided for borrowings of up to $2
million with interest payable at the bank's prime rate plus 1%. However, in no
event could the aggregate borrowings under the warehouse and term loan agreement
exceed $8 million. Amounts outstanding under the Credit Facility are secured by
accounts receivable and inventory, loans purchased and originated by Cavalier
Acceptance Corporation, a Company subsidiary, and the capital stock of certain
Company subsidiaries. During 1995 the maximum principal balance outstanding
under the term loan component of the Credit Facility was $5,538,356, and the
Company made interest payments to First Commercial Bank in the aggregate amount
of $501,325. The Company had no borrowings under the revolving credit line
component of the Credit Facility.
In March 1996 the Credit Facility was amended to (i) increase the
maximum available borrowings under the warehouse and term loan portion of the
Credit Facility to $18 million from the previous limit of $8 million and thereby
increase the total amount of available borrowings under the Credit Facility
(including the revolving line of credit) to $23 million from $13 million; (ii)
reduce the interest rate on prospective borrowings under the term loan portion
of the Credit Facility by 0.4%; and (ii) extend the term of the Credit Facility
to April 1998. All other major terms and conditions of the Credit Facility
remain unchanged. The Company expects to continue to utilize the Credit Facility
during the current year.
<PAGE>
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Buccaneer Homes of Alabama, Inc., a subsidiary of the Company
("Buccaneer"), leases a manufacturing facility from a corporation, the
shareholders of which include Jerry F. Wilson, Jr. and Jonathan D. Wilson, each
of whom owns a 12.5% interest in such corporation. The foregoing shareholders of
such corporation beneficially own, in the aggregate, approximately .6% of the
outstanding Common Stock of the Company, not including the shares of Common
Stock beneficially owned by Jerry F. Wilson. The lease, which was entered into
in May 1994, is for an initial term of five years with an option to renew by
Buccaneer for an additional five years. Monthly rental payments during the
initial term are $9,250, and monthly rental payments during the optional
extension period are equal to the initial rent increased by a factor based on
increases in the CPI. During 1995 Buccaneer made rental payments to such
corporation in the aggregate amount of $111,000 and expects to make rental
payments in 1996 in the aggregate amount of $111,000. Buccaneer also has the
option at any time to purchase the land and improvements subject to the lease
for $875,000, subject to a CPI adjustment if the purchase is during the renewal
term. Buccaneer also has a right of first refusal to purchase the property in
the event the lessor has a bona fide offer to sell the property to a third party
purchaser. The Company believes that the payments made and to be made under the
lease are reasonable compared to amounts that would be paid to an unaffiliated
entity for similar space.
During January 1996, Star Industries, Inc., a subsidiary of the Company
("Star"), purchased a manufacturing facility from a corporation, the
shareholders of which include David A. Roberson, who owns a 10% interest in such
corporation, and Jerry F. Wilson, Jr. and Jonathan D. Wilson, each of whom owns
a 12.5% interest in such corporation. The foregoing shareholders of such
corporation beneficially own, in the aggregate, approximately 1.9% of the
outstanding Common Stock of the Company, not including the shares of Common
Stock beneficially owned by Jerry F. Wilson. The facility was purchased in
connection with the Company's acquisition of Riverchase Homes, Inc. (formerly
Wheel House Structures, Inc.) in January 1996 and is utilized by such Company
subsidiary. The facility was purchased for $1,650,000 which consisted of cash in
the amount of $550,000 and the assumption of such corporation's obligations
under an industrial development bond issue of $1,100,000 which bears interest at
a variable rate of 75% of the prime lending rate of the bank which purchased
such industrial development bonds. The Company believes that the purchase terms
were reasonable compared to amounts that would have been paid to an unaffiliated
entity for similar space.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's executive officers, directors and beneficial owners of
more than 10% of the Company's Common Stock are required under the Exchange Act
to file reports of ownership and changes in ownership with the Commission and
the New York Stock Exchange. Copies of these reports must also be furnished to
the Company. Based on a review of copies of such reports furnished to the
Company, the Company believes that during 1995 all applicable filing
requirements were complied with in a timely manner.
OTHER MATTERS
The Board of Directors does not know of any other business to be
presented for consideration at the Annual Meeting. If other matters properly
come before the Annual Meeting, the persons named in the accompanying form of
proxy will vote thereon in their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals submitted for consideration at the 1997 Annual
Meeting of Stockholders must be received by the Company no later than November
26, 1996, to be included in the 1997 proxy material.
CAVALIER HOMES, INC.
David A. Roberson
Secretary-Treasurer
March 25, 1996
<PAGE>
CAVALIER HOMES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Jerry F.
Wilson and David A. Roberson, or either of them, proxies of the undersigned,
with full power of substitution, to represent and to vote all shares of Common
Stock of Cavalier Homes, Inc. which the undersigned would be entitled to vote at
the Annual Meeting of Stockholders of Cavalier Homes, Inc., to be held on
Wednesday, May 15, 1996, beginning at 10:00 A.M., C.D.T., at The Summit Club,
Suite 3100, AmSouth-Harbert Plaza, 1901 6th Avenue North, Birmingham, Alabama,
and at any adjournment or postponement thereof, in the following manner:
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed [ ] AUTHORITY WITHHELD to
below (except as otherwise vote for all nominees listed below
instructed below)
Thomas A. Broughton, III. Barry B. Donnell, Lee Roy Jordan, John W Lowe and
Jerry F. Wilson
To withhold authority to vote for any nominee, write that nominee's name in the
space provided below.
--------------------------------------------------------
2. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE CAVALIER HOMES, INC. EMPLOYEE STOCK PURCHASE
PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE THE CAVALIER HOMES, INC. 1996 KEY EMPLOYEE STOCK
INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE>
(Continued from other side)
5. PROPOSAL TO APPROVE THE CAVALIER HOMES, INC. EXECUTIVE INCENTIVE
COMPENSATION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO APPROVE AMENDMENTS TO THE CAVALIER HOMES, INC. 1993 AMENDED
AND RESTATED NONEMPLOYEE DIRECTORS STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
The Board of Directors recommends a vote FOR Items 1 through 6. If this
proxy is properly signed and returned, the shares represented will be voted FOR
Items 1 through 6 unless you otherwise specify herein.
Dated:__________________________1996
------------------------------------
Signature
------------------------------------
Signature
Please sign this proxy exactly as your name appears hereon. When signing as
executor, administrator, trustee, corporate officer, etc., please give full
title. In case of joint owners, each joint owner should sign.
Please Date, Sign and Return TODAY in the Enclosed Envelope.
No Postage Required if Mailed in the United States.
CAVALIER HOMES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
ARTICLE 1. - NAME
This plan shall be known as the "Cavalier Homes, Inc. Executive Incentive
Compensation Plan" (the "Plan").
ARTICLE 2. - PURPOSE AND INTENT
Cavalier Homes, Inc. (the "Company") establishes this Plan with an effective
date of February 27, 1996 for the purpose of providing certain of its executive
officers with short-term and long-term incentive compensation based on the
performance of the Company measured by certain objective corporate financial
performance criteria. The intent of the Plan is to provide "performance-based
compensation" within the meaning of Section 162(m)(4)(C) of the Code. The
provisions of the Plan shall be construed and interpreted to effectuate such
intent.
ARTICLE 3. - DEFINITIONS
For purposes of the Plan, the following terms shall have the following meanings:
3.1. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and references thereto shall include the applicable Treasury regulations
thereunder.
3.2. "Committee" means those individuals, not less than two, who are Outside
Directors and Disinterested Directors and who are (a) members of the
Compensation Committee of the Company's Board of Directors or (b) otherwise
designated by such Board of Directors.
3.3. "Common Stock" means the ten cent ($0.10) par value common stock of the
Company.
3.4. "Covered Employee" means, with respect to a Performance Period, any
employee of the Company or a subsidiary designated as such by the Committee in
accordance with Article 5 or 7 hereof.
3.5. "Disability" means a Covered Employee's physical or mental inability to
perform the normal duties of his employment by the Company as determined by a
physician selected by the Committee after an examination of such Covered
Employee; provided, however, that if such Covered Employee fails or refuses to
cooperate in such examination, the determination of his Disability shall be made
by the Committee in its sole discretion.
3.6. "Disinterested Director" means a person described in Rule 16b-3 promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, or any successor definition adopted by said Commission.
3.7. "Earnings Per Share" means, with respect to a Long-Term Performance Period,
the consolidated "earnings per share" of the Common Stock for such Performance
Period determined in accordance with generally accepted accounting principles.
3.8. "Fair Market Value" means "Fair Market Value" as such term is defined in
the Stock Plan.
3.9. "Fiscal Quarters" means the four approximately ninety-day periods during
each Plan Year used by the Company for financial reporting purposes.
3.10. "Good Cause" means:
3.10.1. the Covered Employee's neglect of the proper performance of his duties;
3.10.2. the Covered Employee's breach of any material provision of any written
employment agreement between the Company and the Covered Employee;
<PAGE>
3.10.3. the Covered Employee's substantial dependence on, or addiction to,
alcohol or drugs;
3.10.4. the Covered Employee's commission of an act of dishonesty, theft, fraud
or embezzlement;
3.10.5. the Covered Employee's breach of his fiduciary duties or duty of loyalty
to the Company; or
3.10.6. the Covered Employee's conviction of a felony or a crime involving moral
turpitude.
3.11. "Incentive Net Income" means, with respect to a Performance Period, the
consolidated "net income" of the Company and its subsidiaries for such
Performance Period determined in accordance with generally accepted accounting
principles before deducting expenses for income taxes, compensation paid or
payable pursuant to this Plan and certain incentive compensation paid to key
employees of the Company's subsidiaries under their key employee compensation
agreements.
3.12. "Long-Term Performance Period" means a period of two or more consecutive
Plan Years designated as such by the Committee pursuant to Article 7 hereof.
3.13. "Outside Director" means an "outside director" within the meaning of
Section 162(m)(4)(C)(i) of the Code, subject to any applicable transition rules
under Section 162(m) of the Code.
3.14. "Performance Period" means a Short-Term Performance Period or a Long-Term
Performance Period.
3.14.1. "Period of Restriction" means a "Period of Restriction" as such term is
defined in the Stock Plan.
3.15. "Plan Year" means the period of time from March 30, 1996 to December 31,
1996 and each fiscal year of ------------ the Company (January 1 to December 31)
thereafter.
3.16. "Pool" means, with respect to any Performance Period, the aggregate amount
of short-term or long-term incentive compensation which the Company shall pay
for such Performance Period designated by the Committee pursuant to Article 5 or
7 hereof.
3.17. "Restricted Stock" means Restricted Stock as such term is defined in the
Stock Plan.
3.18. "Return on Assets" means, with respect to a Long-Term Performance Period,
the consolidated "return on average assets" of the Company and its subsidiaries
for such Performance Period determined in accordance with generally accepted
accounting principles.
3.19. "Return on Equity" means, with respect to a Long-Term Performance Period,
the consolidated "return on average common stockholders' equity" of the Company
and its subsidiaries for such Performance Period determined in accordance with
generally accepted accounting principles.
3.20. "Revenues" means, with respect to a Long-Term Performance Period, the
consolidated "revenues" of the Company and its subsidiaries for such Performance
Period determined in accordance with generally accepted accounting principles.
3.21. "Short-Term Performance Period" means:
3.21.1. with respect to the first Plan Year, the following periods of time (1)
March 30, 1996 to June 28, 1996, (2) March 30, 1996 to September 27, 1996 and
(3) such Plan Year; and
3.21.2. with respect to any other Plan Year, (1) the first Fiscal Quarter of
such Plan Year, (2) the first two Fiscal Quarters of such Plan Year (3) the
first three Fiscal Quarters of such Plan Year and (4) such Plan Year.
<PAGE>
3.22. "Stock Plan" means the Cavalier Homes, Inc. 1996 Key Employee Stock
Incentive Plan, as the same may be amended from time to time.
3.23. "Total Stockholder Return" means, with respect to a Long-Term Performance
Period, the percentage change in the value of an initial investment in the
Common Stock during such Performance Period assuming the reinvestment of all
dividends paid on such shares during such Performance Period.
ARTICLE 4. - ADMINISTRATION
The Committee shall be responsible for administering the Plan. The Committee
shall have all of the powers necessary to enable it to properly carry out its
duties under the Plan. Without limiting the generality of the foregoing, the
Committee shall have the power to construe and interpret the Plan and to
determine all questions that shall arise hereunder. The Committee shall have
such other and further specified duties, powers, authority and discretion
elsewhere in the Plan either expressly or by necessary implication conferred
upon it. The Committee may appoint such agents, who need not be members of the
Committee, as it may deem necessary for the effective performance of its duties
and may delegate to such agents such power and duties as the Committee may deem
expedient or appropriate that are not inconsistent with the intent of the Plan.
The decision of the Committee upon all matters within its scope of authority
shall be final and conclusive on all persons, except to the extent otherwise
provided by law.
ARTICLE 5. - SHORT-TERM INCENTIVE COMPENSATION
The Company shall pay short-term incentive compensation in accordance with the
provisions of this Article. Prior to the earlier of the 90th day of each
Short-Term Performance Period or the date on which 25% of such Short-Term
Performance Period has elapsed, the Committee shall determine (i) the Covered
Employees who shall be eligible for short-term incentive compensation for such
Short-Term Performance Period, (ii) a formula for determining a Pool based on
the Incentive Net Income for such Short-Term Performance Period and (iii) a
formula for allocating such Pool among such Covered Employees. In that regard,
(A) the formula for determining the amount of a Pool for a Short-Term
Performance Period and (B) the formula for allocating such Pool among the
Covered Employees for such Short-Term Performance Period shall be fixed formulas
that do not permit Committee discretion. The amount of short-term incentive
compensation payable to a Covered Employee for a Short-Term Performance Period
shall be reduced by the aggregate amount of short-term incentive compensation
paid to such Covered Employee pursuant to this Plan for all other Short-Term
Performance Periods ending within such Short-Term Performance Period. Any
short-term incentive compensation payable to a Covered Employee under this
Article shall be paid in accordance with the provisions of Article 6 hereof.
ARTICLE 6. - PAYMENT OF SHORT-TERM INCENTIVE COMPENSATION
Any short-term incentive compensation payable to a Covered Employee for a
Short-Term Performance Period shall be paid as soon as practicable following the
end of such Short-Term Performance Period but in no event before the Committee
shall certify in writing the attainment of the levels of Incentive Net Income
under the formulas in effect under Article 5 hereof for such Short-Term
Performance Period and the amount of short-term incentive compensation, if any,
payable pursuant to such formulas for such Short-Term Performance Period. It is
the intent of this Article that any payments made hereunder will effectuate the
requirements of Section 162(m)(4)(C))(iii) of the Code. Notwithstanding the
foregoing, if a Covered Employee's employment with the Company and its
affiliates is terminated for Good Cause, the Covered Employee shall forfeit and
have no further right to receive any short-term incentive compensation under
this Plan. If a Covered Employee's employment is terminated during one or more
Short-Term Performance Periods due to death or Disability, then the Covered
Employee or his estate or personal representative (as the case may be) shall be
entitled to receive a pro rata portion of the short-term incentive compensation
payable to such Covered Employee pursuant to Article 5 hereof for each such
Short-Term Performance Period based upon the portion of such Short-Term
<PAGE>
Performance Period during which the Covered Employee was an employee of the
Company. If the Covered Employee's employment is terminated during one or more
Short-Term Performance Periods for any reason other than death, Disability or
for Good Cause, the Covered Employee shall be entitled to receive such portion,
if any, of the short-term incentive compensation payable to such Covered
Employee pursuant to Article 5 hereof for each such Short-Term Performance
Period as the Committee, in its sole discretion, shall determine but not
exceeding the portion of such short-term incentive compensation which would have
been payable to such Covered Employee pursuant to Article 5 hereof had his
employment terminated on account of his death or Disability. Notwithstanding the
foregoing provisions of this Article, the Committee, in its discretion, may
reduce or eliminate the amount of short-term incentive compensation which the
Company shall pay to a Covered Employee or his estate or personal representative
(as the case may be) for a Short-Term Performance Period based on the
Committee's evaluation of such Covered Employee's personal performance during
such Short-Term Performance Period. Notwithstanding any provisions of the Plan
to the contrary, in no event shall a Covered Employee be paid more than Two
Million Dollars ($2,000,000) of short-term incentive compensation for any Plan
Year hereunder.
ARTICLE 7. - LONG-TERM INCENTIVE COMPENSATION
The Company shall pay long-term incentive compensation in accordance with the
provisions of this Article. Within the first 90 days of each Plan Year during
the term of this Plan, the Committee, in its discretion, may establish a
Long-Term Performance Period beginning with such Plan Year. At the time any such
Long-Term Performance Period is established, the Committee shall determine (i)
the Covered Employees who shall be eligible for long-term incentive compensation
for such Long-Term Performance Period, (ii) a formula for determining a Pool
based on the Incentive Net Income, Earnings Per Share, Return on Assets, Return
on Equity, Revenues or Total Stockholder Return for such Long-Term Performance
Period or any other measure of the Company's financial performance for such
Long-Term Performance Period as the Committee may designate and (iii) a formula
for allocating such Pool among such Covered Employees. In that regard, (A) the
formula for determining the amount of the Pool for a Long-Term Performance
Period and (B) the formula for allocating such Pool among the Covered Employees
for such Long-Term Performance Period shall be fixed formulas that do not permit
Committee discretion. Any long-term incentive compensation payable to Covered
Employees under this Article shall be paid in accordance with the provisions of
Article 8 hereof.
ARTICLE 8. - PAYMENT OF LONG-TERM INCENTIVE COMPENSATION
Any long-term incentive compensation payable to a Covered Employee for a
Long-Term Performance Period shall be paid in cash or, subject to the adoption
and requisite approval of the Stock Plan, shares of Restricted Stock or both as
soon as practicable following the end of such Long-Term Performance Period but
in no event before the Committee shall certify in writing the attainment of the
levels of Incentive Net Income under the formulas in effect under Article 7
hereof for such Long-Term Performance Period and the amount of long-term
incentive compensation, if any, payable pursuant to such formulas for such
Long-Term Performance Period. At the time it makes any such certification, the
Committee shall also determine the percentage, if any, but not exceeding 40%, of
the long-term incentive compensation payable to such Covered Employee for such
Long-Term Performance Period which shall be paid in the form of shares of
Restricted Stock. The number of shares of Restricted Stock which shall be issued
to such Covered Employee shall be the number of whole shares which could be
purchased with such percentage of such long-term incentive compensation after
applying a 20% or 30% discount from the Fair Market Value of Common Stock
determined as of the last day of such Long-Term Performance Period. The Covered
Employee shall elect the applicable discount rate pursuant to an irrevocable
written election in such form and at such time as the Committee may approve. If
the Covered Employee elects a 20% discount, the shares of Restricted Stock
issued to him shall have a two year Period of Restriction beginning on the last
day of such Long-Term Performance Period and, if the Covered Employee elects a
30% discount, the shares of Restricted Stock issued to him shall have a three
year Period of Restriction beginning on such day. Any shares of Restricted Stock
<PAGE>
issued to a Covered Employee pursuant to this Article shall be issued pursuant
to the Stock Plan, shall be evidenced by an appropriate award agreement under
the Stock Plan and shall be subject to any applicable limitations set forth in
the Stock Plan regarding the number of shares of Common Stock which may be
awarded to an individual pursuant to the Stock Plan in any calendar year. It is
the intent of this Article that any payments made hereunder will effectuate the
requirements of Section 162(m)(4)(C)(iii) of the Code. Notwithstanding the
foregoing, if a Covered Employee's employment with the Company and its
affiliates is terminated for Good Cause, the Covered Employee shall forfeit and
have no further right to receive any long-term incentive compensation under this
Plan. If a Covered Employee's employment is terminated during one or more
Long-Term Performance Periods due to death or Disability, then the Covered
Employee or his estate or personal representative (as the case may be) shall be
entitled to receive a pro-rata portion of the long-term incentive compensation
payable to such Covered Employee pursuant to Article 7 hereof for each such
Long-Term Performance Period based upon the portion of such Long-Term
Performance Period during which the Covered Employee was an employee of the
Company. If the Covered Employee's employment is terminated during one or more
Long-Term Performance Periods for any reason other than death, Disability or for
Good Cause, then the Covered Employee shall be entitled to receive such portion,
if any, of the long-term incentive compensation payable to such Covered Employee
pursuant to Article 7 hereof for each such Long-Term Performance Period as the
Committee, in its sole discretion, shall determine but not exceeding the portion
of such long-term incentive compensation which would have been payable to such
Covered Employee pursuant to Article 7 hereof had his employment terminated on
account of his death or Disability. Notwithstanding the foregoing provisions of
this Article, the Committee, in its discretion, may reduce or eliminate the
amount of long-term compensation which the Company shall pay to a Covered
Employee or his estate or beneficiary (as the case may be) for a Long-Term
Performance Period based on the Committee's evaluation of such Covered
Employee's personal performance during such Long-Term Performance Period.
Notwithstanding any provisions of the Plan to the contrary, in no event shall
long-term incentive compensation paid to a Covered Employee for a Long-Term
Performance Period exceed the product of (i) Two Million Dollars ($2,000,000)
and (ii) the number of Plan Years in such Long-Term Performance Period.
ARTICLE 9. - WITHHOLDING
Any amount payable hereunder shall be subject to applicable payroll and
withholding taxes.
ARTICLE 10. - STOCKHOLDER APPROVAL
In accordance with Section 162(m)(4)(C)(ii) of the Code, the effectiveness of
the Plan and the award of any short-term or long-term incentive compensation
hereunder are subject to the Plan's approval by the stockholders of the Company
after disclosure to the stockholders of the Company of the material terms of the
Plan, such approval and ratification to be obtained (i) on or before December
31, 1996 and (ii) at such other times as required by Section 162(m)(4)(C)(ii) of
the Code.
ARTICLE 11. - AMENDMENT, MODIFICATION AND TERMINATION
The Board of Directors of the Company may amend, modify or terminate the Plan at
any time, provided that no amendment, modification or termination of the Plan
shall reduce the amount payable to a Covered Employee under the Plan as of the
date of such amendment, modification or termination.
ARTICLE 12. - APPLICABLE LAW
The Plan shall be construed, administered, regulated and governed in all
respects under and by the laws of the United States to the extent applicable,
and to the extent such laws are not applicable, by the laws of the State of
Alabama.
<PAGE>
ARTICLE 13. - MISCELLANEOUS
A Covered Employee's rights and interest under the Plan may not be assigned or
transferred by the Covered Employee. To the extent the Covered Employee acquires
a right to receive payments from the Company under the Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company.
Nothing contained herein shall be deemed to create a trust of any kind or any
fiduciary relationship between the Company and the Covered Employee. Designation
as a Covered Employee in the Plan shall not entitle or be deemed to entitle a
Covered Employee to continued employment with the Company.
CAVALIER HOMES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1. - GENERAL
1.1. PURPOSE AND INTENT. The purpose of this Plan is to provide Eligible
Employees with a financial incentive to advance the interests of the Company and
the Subsidiaries by affording them an opportunity to acquire a proprietary
interest in the Company. The Company intends that this Plan shall be treated as
an "employee stock purchase plan" as defined in Code ss.423(b).
1.2. STOCKHOLDER APPROVAL. This Plan shall become effective on the date the same
is approved by the stockholders of the Company. The Company shall not conduct
any Offerings pursuant to this Plan unless it has been approved by the
stockholders within twelve (12) months after the date it is adopted by the
Board.
ARTICLE 2. - DEFINITIONS
Unless otherwise provided herein, the following terms shall have the following
meanings:
2.1. ADMINISTRATOR: The Compensation Committee of the Board.
2.2. BENEFICIARY: With respect to a Participant who dies during the Payment
Period for an Offering, the party determined pursuant to Article 9 hereof.
2.3. BOARD: The Board of Directors of the Company.
2.4. CODE: The Internal Revenue Code of 1986, as amended from time to time, and
references thereto shall include the applicable Treasury regulations thereunder.
2.5. COMPANY: Cavalier Homes, Inc., a Delaware corporation.
2.6. COMPENSATION: A Participant's regular earnings, overtime pay, bonuses,
commissions, sick pay, vacation pay and holiday pay unreduced by any of such
amounts which are contributed by the Participant to a plan described in Code
ss.125 or ss.401(k).
2.7. ELECTION FORM: The form provided by the Administrator pursuant to which an
Eligible Employee may elect to participate in an Offering and which contains the
acknowledgement and directions described in Section 4.2 hereof.
2.8. ELECTION PERIOD: The 30 day period of time ending immediately before the
Payment Period for an Offering during which an Eligible Employee may elect to
participate in such Offering.
2.9. ELIGIBLE EMPLOYEE: With respect to an Offering, an Employee who, on the
first day of the Payment Period for such Offering, is customarily employed for
at least 20 hours per week and who has been employed by an Employer for at least
one year prior to the first day of the Payment Period for such Offering.
2.10. EMPLOYEE: A common law employee of the Company or a Subsidiary.
2.11. EMPLOYER: With respect to an Employee, the Company or Subsidiary by which
he is employed.
2.12. EXERCISE DATE: The last day of the Payment Period for an Offering.
2.13. EXERCISE PRICE: With respect to Shares subject to an Option granted in
connection with an Offering, an amount equal to the lesser of:
(a) 85% of the Market Price of a Share as of the Grant Date for such Offering;
or
(b) 85% of the Market Price of a Share as of the Exercise Date for such
Offering.
2.14. GRANT DATE: The first day of an Offering.
2.15. MARKET PRICE: As of any date, the closing sales price of a Share on such
date as reported by (1) any national securities exchange on which the Shares are
actively traded or (2) The Nasdaq Stock Market or, if no Shares are traded on
such exchange or system on such date, then on the next preceding date on which
any Shares were traded on such exchange or system.
<PAGE>
2.16. OFFERING: The six (6) calendar month periods of time beginning on each
January 1 and July 1, during which the Company shall grant Options to
Participants and sell shares to Participants and Beneficiaries upon the exercise
of such Options in accordance with this Plan.
2.17. OPTION: The right to purchase Shares from the Company for an amount equal
to the Exercise Price of such Shares and upon the terms and conditions of this
Plan.
2.18. PARTICIPANT: With respect to an Offering, an Eligible Employee who has
elected to participate in such Offering.
2.19. PAYMENT PERIOD: The six (6) calendar month periods of time beginning on
each January 1 and July 1, commencing with the January 1 or July 1 next
following the date on which this Plan becomes effective, during which a
Participant may pay the aggregate Exercise Price of the Shares subject to the
Option granted to him in connection with an Offering.
2.20. RETIREE: A Participant whose employment with his Employer terminates for
any reason other than his death if, on his Termination Date, he has been an
Employee during at least ten calendar years and the sum of:
2.20.0.0.0.1. the number of calendar years during which he has been an Employee;
and
2.20.0.0.0.2. his age on his birthday coincident with or immediately preceding
such Termination Date, equals or exceeds 70.
2.21. SHARE: A share of the ten cent ($0.10) par value common stock of the
Company.
2.22. SUBSIDIARY: Any corporation, partnership, joint venture, affiliate, or
other entity in which the Company has an ownership interest, and which the Board
designates as a participating entity in the Plan.
2.23. TERMINATION DATE: The effective date of the termination of a Participant's
employment with his Employer.
ARTICLE 3. - SHARES SUBJECT TO OFFERINGS
3.1. LIMIT ON SHARES. Subject to the provisions of Section 3.2 hereof, the
aggregate number of Shares which the Company may sell pursuant to the exercise
of Options granted under this Plan shall not exceed 500,000. In the Company's
discretion, such Shares may be authorized but unissued shares or treasury
shares.
3.2. ADJUSTMENTS. In the event of an increase or decrease or other change in the
Shares by reason of a stock dividend, stock split, recapitalization,
combination, conversion, exchange of shares or the like, then, as of the date of
such increase, decrease or other change, there shall be an equitable adjustment
of the number of Shares subject to the Options then outstanding under this Plan,
the number of Shares which the Company could sell pursuant to Options thereafter
granted pursuant to this Plan and the Exercise Price of a Share.
3.3. SHARES SUBJECT TO FORFEITED OPTIONS. All Shares subject to Options which
are forfeited may be subject to Options granted in connection with any
subsequent Offering.
ARTICLE 4. - PARTICIPATION
4.1. ELECTION TO PARTICIPATE. An Employee who is an Eligible Employee at any
time during the Election Period for an Offering may elect to participate in such
Offering by completing, signing and delivering an Election Form to the
Administrator during such Election Period.
4.2. CONTENT OF ELECTION FORM. A Participant's Election Form for an Offering
shall:
<PAGE>
4.2.1. acknowledge that, as a result of his election to participate in such
Offering, the Company shall grant an Option to him in accordance with the
provisions of this Plan;
4.2.2. direct his Employer to withhold an amount (not to exceed 10%) of the
Compensation payable to him during the Payment Period for such Offering (and, if
he is employed by a Subsidiary, to remit such amount to the Company); and
4.2.3. direct the Company to use the amounts withheld from his Compensation to
pay the Exercise Price of the Shares subject to such Option.
Notwithstanding the foregoing provisions of this Section, a Participant's
Election Form shall be ineffective to the extent that the amount which it
directs his Employer to withhold from his Compensation during any calendar year,
when combined with any amount previously withheld from his Compensation pursuant
to this Plan during such calendar year, exceeds $21,250.
4.3. EFFECT OF ELECTION FORM. All amounts withheld from a Participant's
Compensation during the Payment Period for an Offering shall be held by the
Company until such time as it is required by the provisions of this Plan to:
4.3.1. use such amounts to pay the aggregate Exercise Price of the Shares
subject to the Option granted to such Participant in connection with such
Offering; or
4.3.2. pay the same to such Participant or his Beneficiary pursuant to the
applicable provisions of this Plan.
Until such time, the Company may use such amounts for any purpose and shall have
no obligation to segregate such amounts from its funds.
4.4. ELECTION TO REDUCE PARTICIPATION. A Participant may elect to reduce the
extent of his participation in an Offering by completing, signing and delivering
to the Administrator not less than 30 days before the Exercise Date for such
Offering an amended Election Form which reduces the amount which his Employer is
authorized to withhold from the Compensation payable to him during the Payment
Period (or remaining portion thereof) for such Offering. Any such reduction
shall be effective as soon as reasonably practical after the date on which such
amended Election Form is received by the Administrator. A Participant who elects
to reduce the extent of his participation in an Offering shall not subsequently
be entitled to change the extent of his participation in such Offering except to
terminate such participation pursuant to Section 4.5.
4.5. ELECTION TO TERMINATE PARTICIPATION. A Participant may elect to terminate
his participation in an Offering by completing, signing and delivering to the
Administrator not less than 30 days before the Exercise Date for such Offering a
form provided by the Administrator for such purpose. Any such termination shall
be effective as soon as administratively practical after the date on which such
form is received by the Administrator. A Participant who elects to terminate his
participation in an Offering may not later elect to participate in such Offering
but may elect to participate in subsequent Offerings.
4.6. AUTOMATIC TERMINATION OF PARTICIPATION. A Participant other than a Retiree
whose employment with his Employer terminates for any reason other than his
death shall cease to be a Participant on his Termination Date. A Participant who
dies on a date which is not during the Payment Period for an Offering shall
cease to be a Participant on the date of his death.
4.7. RETIREE'S ELECTION TO TERMINATE OR CONTINUE PARTICIPATION. A Retiree whose
Termination Date is during the Payment Period for an Offering may elect to
terminate or continue participation in such Offering in accordance with this
Section. The Retiree shall have no right to pay the Company or his Employer, and
neither the Company nor his Employer shall accept, any of the amounts which,
absent the termination of his employment with his Employer, would have been
withheld from his Compensation during the portion of such Payment Period
subsequent to his Termination Date.
<PAGE>
4.7.1. Notice To Retiree. Prior to a Retiree's Termination Date or as soon as
administratively practical thereafter, the Administrator shall deliver to such
Retiree a form pursuant to which he may make such election and which reflects
the amount (determined pursuant to Section 6.3 hereof) which the Company shall
pay him if he elects to terminate such participation.
4.7.2. Election By Retiree. The Retiree shall make such election by completing,
signing and delivering such form to the Administrator prior to the earlier of
(1) the Exercise Date for such Offering and (2) the 30th day after the same is
provided to him. If the Retiree does not deliver such form to the Administrator
prior to the earlier of such dates then, on the earlier of such dates, he shall
be deemed to have elected to terminate such participation.
4.8. BENEFICIARY'S ELECTION TO TERMINATE OR CONTINUE PARTICIPATION. The
Beneficiary of a Participant who dies during the Payment Period for an Offering
may elect to terminate or continue participation in such Offering in accordance
with this Section. The Beneficiary shall have no right to pay the Company or the
Participant's Employer, and neither the Company nor such Employer shall accept,
any of the amounts which, absent the Participant's death, would have been
withheld from his Compensation during the portion of such Payment Period
subsequent to his Termination Date.
4.8.1. Notice To Beneficiary. As soon as administratively practical following
the date of the Participant's death, the Administrator shall deliver to his
Beneficiary a form pursuant to which he may make such election and which reflect
the amount (determined pursuant to Section 6.4 hereof) which the Company shall
pay him if he elects to terminate such participation.
4.8.2. Election By Beneficiary. The Beneficiary shall make such election by
completing, signing and delivering such form to the Administrator prior to the
earlier of (1) the Exercise Date for such Offering and (2) the 30th day after
the same is provided to him. If the Beneficiary does not deliver such form to
the Administrator prior to the earlier of such dates, then, on the earlier of
such dates, he shall be deemed to have elected to terminate such participation.
ARTICLE 5. - GRANT OF OPTIONS
5.1. GRANT OF OPTIONS. On the Grant Date for each Offering, the Company, subject
to the limitations contained in the following provisions of this Article, shall
grant to each Participant an Option entitling him to purchase on the Exercise
Date for such Offering the number of Shares determined pursuant to Section 7.1
hereof.
5.2. LIMITATION FOR FIVE PERCENT OWNERS. Notwithstanding the foregoing
provisions of this Article, the Company shall not grant an Option to a
Participant if, immediately after such Option is granted, such Participant would
own stock possessing at least 5% of the total combined voting power or value of
all classes of stock of the Company or any of the Subsidiaries. For purposes of
this Section, the attribution rules of Code ss.424(d) shall apply and Shares
which the Participant may purchase under any outstanding options shall be
treated as owned by the Participant.
5.3. LIMITATION ON VALUE OF SHARES. Notwithstanding the foregoing provisions of
this Article, the Company shall not grant an Option to a Participant which would
permit his right to purchase stock under this Plan (and under all employee stock
purchase plans maintained by his Employer and its parent and subsidiary
corporation, if any) to accrue at a rate in excess of $25,000 of fair market
value of such stock (determined at the time such Option is granted) for each
calendar year during which such Option is outstanding at any time.
ARTICLE 6. - FORFEITURE OF OPTIONS
6.1. FORFEITURE ON ELECTION TO TERMINATE PARTICIPATION. If, pursuant to Section
4.5 hereof, a Participant elects to terminate his participation in an Offering
effective as of a date during the Payment Period for such Offering, then:
6.1.2.0.0.1. as of such effective date, the Option then owned by such
Participant shall be forfeited; and
<PAGE>
6.1.2.0.0.2. as soon as administratively practical after such effective date,
the Company shall pay him the amount (if any) withheld from his Compensation
during such Payment Period, without interest.
6.1.2.0.0.3. FORFEITURE ON CERTAIN TERMINATIONS OF EMPLOYMENT. If a
Participant's employment with his Employer terminates for any reason other than
his death and his Termination Date is during a Payment Period, then, unless such
Participant is a Retiree:
6.1.3. as of his Termination Date, the Option then owned by him shall be
forfeited; and
6.1.4. as soon as administratively practical after his Termination Date, the
Company shall pay him the amount (if any) withheld from his Compensation during
such Payment Period, without interest.
6.2. FORFEITURE OF RETIREE'S OPTIONS. If, pursuant to Section 4.7 hereof, a
Retiree whose Termination Date is during the Payment Period for an Offering
elects (or is deemed to have elected) to terminate participation in an Offering,
then:
6.2.1. as of the date of such election (or deemed election), the Option then
owned by him shall be forfeited; and
6.2.2. as soon as administratively practical after such date, the Company shall
pay him the amount (if any) withheld from his Compensation during such Payment
Period, without interest.
6.3. FORFEITURE OF BENEFICIARY'S OPTIONS. If, pursuant to Section 4.8 hereof,
the Beneficiary of a Participant who dies during the Payment Period for an
Offering elects (or is deemed to have elected) to terminate participation in an
Offering, then:
6.3.1. as of the date of such election (or deemed election), all of the Options
then owned by him shall be forfeited; and
6.3.2. as soon as administratively practical after such date, the Company shall
pay him the amount (if any) withheld from the Participant's Compensation during
such Payment Period, without interest.
ARTICLE 7. - EXERCISE OF OPTIONS
7.1. EXERCISE OF PARTICIPANT'S OPTION. On the Exercise Date for an Offering,
each Participant who has not elected to terminate his participation in such
Offering pursuant to Section 4.5 hereof shall be deemed to have exercised the
Option then owned by him and to have purchased from the Company the number of
Shares (including fractional Shares) obtained by dividing (1) the aggregate
amount which was withheld from his Compensation during such Payment Period by
(2) the Exercise Price of a Share. As soon as administratively practical after
such Exercise Date, the Company shall, in its sole discretion, (i) deliver to
such Participant a stock certificate or certificates evidencing his ownership of
such number of Shares or (ii) deposit such number of Shares in a brokerage
account established for such Participant at a registered broker-dealer selected
by the Company.
7.2. EXERCISE OF RETIREE'S OPTIONS. If, pursuant to Section 4.7 hereof, a
Retiree whose Termination Date is during the Payment Period for an Offering
elects to continue participation in such Offering, then, on the Exercise Date
for such Offering, he shall be deemed to have exercised the Option then owned by
him and to have purchased from the Company the number of Shares (including
fractional Shares) obtained by dividing (1) the aggregate amount which was
withheld from his Compensation during such Payment Period by (2) the Exercise
Price of a Share. As soon as administratively practical following the date on
which the Retiree is deemed to have exercised such Option, the Company shall, in
its sole discretion, (i) deliver to such Retiree a stock certificate or
certificates evidencing his ownership of such number of Shares or (ii) deposit
such number of Shares in a brokerage account established for such Retiree at a
registered broker-dealer selected by the Company.
<PAGE>
7.3. EXERCISE OF BENEFICIARY'S OPTIONS. During his lifetime, a Participant's
Options shall be exercised only by him. If, pursuant to Section 4.8 hereof, the
Beneficiary of a Participant who dies during the Payment Period for an Offering
elects to continue participation in such Offering, then, on the Exercise Date
for such Offering, he shall be deemed to have exercised the Option then owned by
him and to have purchased from the Company the number of Shares (including
fractional Shares) obtained by dividing (1) the aggregate amount withheld from
the Participant's Compensation during such Payment Period by (2) the Exercise
Price of a Share. As soon as administratively practical following the date on
which the Beneficiary is deemed to have exercised such Options, the Company
shall, in its sole discretion, (i) deliver to such Beneficiary a stock
certificate or certificates evidencing his ownership of such number of Shares or
(ii) deposit such number of Shares in a brokerage account established for such
Beneficiary at a registered broker-dealer selected by the Company.
7.4. LIMITATION FOR CERTAIN OFFERINGS. If the number of Shares which the Company
is required to sell to the Participants and Beneficiaries on any Exercise Date
pursuant to this Article exceeds the number of Shares which the Company is then
authorized to sell pursuant to Section 3.1 hereof, then, notwithstanding the
foregoing provisions of this Article:
(a) the aggregate number of Shares which the Company shall sell on such Exercise
Date shall be that which the Company is then authorized to sell pursuant to
Section 3.1 hereof; and
(b) the number of Shares which the Company shall sell to each such Participant
and Beneficiary shall be that obtained by multiplying:
(1) the number of Shares which the Company is required to sell to such
Participant or Beneficiary pursuant to the foregoing purposes of this Article;
by
(2) a fraction, the numerator of which shall be the number of Shares which the
Company is then authorized to sell pursuant to Section 3.1 hereof and the
denominator of which shall be the number of Shares which the Company would be
required to sell to all of such Participants and Beneficiaries pursuant to the
foregoing provisions of this Article.
7.5. RESTRICTION ON DISPOSITION. Subject to the prior approval of the Internal
Revenue Service and upon at least 30 days' prior notice to the Eligible
Employees, the Board may amend this Plan to provide that a Participant who sells
or otherwise disposes of any Shares purchased by him pursuant to this Plan other
than as required by law during the one year period beginning on the date of such
purchase shall be deemed to have elected to terminate his participation in the
Offering which includes the date of such sale or disposition and to have elected
not to participate in the Offering immediately following such Offering.
ARTICLE 8. - AMENDMENT AND TERMINATION
8.1. AMENDMENT. The Board may amend this Plan at any time; provided, however,
that:
8.1.1. unless approved by the stockholders of the Company, no such amendment
shall increase the number of Shares which the Company is authorized to sell
pursuant to the exercise of Options granted under this Plan other than to
reflect an adjustment which is required by Section 3.2 hereof; and
8.1.2. no such amendment shall deprive any Participant or Beneficiary of any
right or benefit which had accrued prior to the effective date of such
amendment.
Without limiting the generality of the foregoing, no such amendment shall cause
any Option to be forfeited or adversely affect the right of a Participant or
Beneficiary to exercise any Option then owned by him.
8.2. TERMINATION. The Board may terminate this Plan at any time. In the event
the Board terminates this Plan, then:
<PAGE>
8.2.1. the Company shall not grant any Options pursuant to this Plan on or after
the effective date of such termination; and
8.2.2. the rights of the Participants and Beneficiaries with respect to the
Options owned by them on such effective date shall survive such termination.
ARTICLE 9. - BENEFICIARY
9.1. DESIGNATION OF BENEFICIARY. At the time he first elects to participate in
an Offering, a Participant shall designate a Beneficiary on a form provided by
the Administrator for such purpose. The Participant may change such designation
from time to time on a form provided by the Administrator for such purpose. In
the event a Participant does not designate a Beneficiary or the Beneficiary
designated by a Participant predeceases such Participant and no new Beneficiary
has been designated, then such Participant's Beneficiary shall be his surviving
spouse, if any, or, if none, his estate. 9.1.2.0.0.1. EFFECT OF DESIGNATION. If
a Participant dies during the Payment Period for an Offering, then, on the date
of his death, the Option then owned by him shall be owned by his Beneficiary.
ARTICLE 10. - ADMINISTRATION
10.1. ADMINISTRATION. The Administrator or its delegates shall administer the
Plan and shall have all powers necessary or appropriate to enable it to carry
out its duties including, without limitation, the power to interpret the Plan,
to decide all issues arising under the Plan, to establish and change rules and
procedures with respect to the operation of the Plan and all other powers
conferred upon it herein. The Administrator may rely and act on any information
provided by the Company without further inquiry or liability.
10.2. EXCULPATION AND INDEMNIFICATION. No officer of the Company or member of
the Board or of the Compensation Committee of the Board shall be responsible or
liable for any mistake or error of judgment in connection with their
responsibilities, obligations or duties with respect to this Plan. The Company
shall indemnify each officer of the Company, member of the Board and member of
the Compensation Committee of the Board to the full extent of any liabilities,
expenses, penalties, damages or other pecuniary loss, including attorney's fees,
which he may suffer as a result of his responsibilities, obligations or duties
in connection with this Plan. Such indemnification shall be paid by the Company
to the extent that liability insurance is not available to cover the payment of
such items. The Company may purchase and maintain such insurance on behalf of
such individuals.
ARTICLE 11. - MISCELLANEOUS
11.1. ASSIGNABILITY. No Participant or Beneficiary shall alienate, sell,
transfer, assign, pledge or otherwise encumber his interest in this Plan or any
Option granted to him pursuant to this Plan other than by will or the applicable
laws of descent and distribution. Any attempt by a Participant or Beneficiary to
alienate, sell, transfer, assign, pledge or encumber any such interest or Option
in contravention of this Article shall be ineffective and the Company shall have
no obligation to, and shall not, recognize or give effect to the same.
11.2. EFFECT OF GRANT OF OPTION. The owner of an Option granted hereunder shall
not be, and shall have no rights as, a stockholder of the Company with respect
to the Shares subject to such Option unless and until such Shares are issued to
him pursuant to the exercise of such Option.
11.3. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall give an Employee
the right to be employed by his Employer nor shall this Plan interfere with the
right of the Company or a Subsidiary to discharge an Employee at any time.
11.4. GOVERNING LAW. This Plan shall be construed according to the laws of the
State of Alabama.
11.5. NUMBER AND GENDER. Whenever the context so requires, the singular number
shall include the plural and the plural shall include the singular and the
gender of any pronoun shall include the other genders.
<PAGE>
11.6. SEVERABILITY. The invalidity of this Plan with respect to one or more
persons shall not affect the rights and obligations of any other person
hereunder in any manner whatsoever. The invalidity of one or more provisions of
this Plan shall not affect the validity of any other provision of this Plan in
any manner whatsoever.
CAVALIER HOMES, INC.
1996 KEY EMPLOYEE STOCK INCENTIVE PLAN
ARTICLE 1. - ESTABLISHMENT, PURPOSE AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Cavalier Homes, Inc., a Delaware corporation
(the "Company"), hereby establishes an incentive compensation plan to be known
as the "Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan" (the
"Plan"), as set forth herein. The Plan permits the Company to grant Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted
Stock and Performance Shares, as defined herein. The Plan shall become effective
upon its approval by the stockholders of the Company (the "Effective Date") and
shall remain in effect as provided in Section 1.3 hereof. The Plan shall not
become effective unless such stockholder approval shall have been obtained.
1.2. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the interests of
the Company by affording Participants, as defined herein, an opportunity to
acquire a proprietary interest in the Company, and by providing Participants
with long-term financial incentives for outstanding performance. The Plan is
further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of key employees upon whose judgment,
interest and special effort the successful conduct of its operation is largely
dependent.
1.3. DURATION OF THE PLAN. The Plan shall commence as of the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 14 hereof, until all Shares subject to it shall have been
purchased or acquired according to the provisions hereof. However, in no event
may an Award of an ISO, as such terms are defined herein, be granted under the
Plan after February 27, 2006, although an ISO granted prior thereto may extend
beyond such date.
ARTICLE 2. - DEFINITIONS
Whenever used in the Plan, the following capitalized terms shall have the
meanings set forth below:
2.1. "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock or Performance Shares.
2.2. "AWARD AGREEMENT" means a written agreement between the Company and a
Participant setting forth the terms and provisions applicable to an Award
granted by the Company to such Participant hereunder.
2.3. "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.4. "CHANGE IN CONTROL" means the occurrence of any of the following:
2.4.0.0.0.1. when any "person," as such term is used in Section 13(d) or 14(d)
of the Exchange Act (other than the Company or any subsidiary or any employee
benefit plan of the Company or any subsidiary (including its trustee)), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the Company's
outstanding securities;
2.4.0.0.0.2. any transaction or event relating to the Company required to be
described pursuant to the requirements of Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act;
2.4.0.0.0.3. when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board cease, for any reason, to constitute at least a majority
thereof, unless the election or the nomination for election by the Company's
stockholders of each director first elected during such period was approved by a
vote of at least two-thirds of the directors then still in office who were
directors of the Company at the beginning of any such period; or
<PAGE>
2.4.0.0.0.4. any transaction requiring stockholder approval for the acquisition
of the Company by an entity other than the Company or any subsidiary through
purchase of assets, or by merger, or otherwise.
2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and references thereto shall include the applicable Treasury regulations
thereunder.
2.6. "COMMITTEE" means the Compensation Committee of the Board.
2.7. "COMMON STOCK" means the ten cent ($0.10) par value common stock of the
Company.
2.8. "COMPANY" means Cavalier Homes, Inc., a Delaware corporation, and any
successor as provided in Article 17 hereof.
2.9. "DIRECTOR" means any individual who is a member of the Board.
2.10. "DISABILITY" with respect to a Participant means physical or mental
inability to perform the normal duties of his employment by the Company as
determined by a physician selected by the Committee after an examination of such
Participant; provided, however, that if such participant fails or refuses to
cooperate in such examination, the determination of his Disability shall be made
by the Committee in its sole discretion. 2.11. "EARNINGS PER SHARE" means the
consolidated "earnings per share" of the Common Stock determined in accordance
with generally accepted accounting principles.
2.12. "EFFECTIVE DATE" means the date described in Section 1.1 hereof.
2.13. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
2.14. "FAIR MARKET VALUE" as of any date means (i) with respect to an Award of
an ISO and an Award which is intended to qualify under the Performance-Based
Exception, the average of the high and low sales price of a Share on such date
as reported by (1) any national securities exchange on which the Shares are
actively traded or (2) the Nasdaq Stock Market or, if no Shares are traded on
such exchange or system on such date, then on the next preceding date on which
any Shares were traded on such exchange or system; and (ii) with respect to all
other Awards, the closing sales price of a Share on such date as reported by (1)
any national securities exchange on which the Shares are actively traded or (2)
the Nasdaq Stock Market or, if no Shares are traded on such exchange or system
on such date, then on the next preceding date on which any Shares were traded on
such exchange or system.
2.15. "FREESTANDING SAR" means an SAR granted independently of any Options.
2.16. "INCENTIVE NET INCOME" means the consolidated "net income" of the Company
and its subsidiaries determined in accordance with generally accepted accounting
principles before deducting expenses for income taxes, compensation paid or
payable pursuant to the Company's Executive Incentive Compensation Plan and
certain incentive compensation paid to key employees of the Company's
subsidiaries under their key employee compensation agreements.
2.17. "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase Shares
granted pursuant to Article 5 hereof which is designated as an Incentive Stock
Option and is intended to meet the requirements of Section 422 of the Code.
2.18. "INSIDER" shall mean an individual who is required to file reports of
beneficial ownership and changes in beneficial ownership with the Securities and
Exchange Commission under Section 16 of the Exchange Act.
2.19. "KEY EMPLOYEE" means an employee of the Company or any Subsidiary who is
designated as a key employee by the Committee.
2.20. "NAMED EXECUTIVE OFFICER" means, for a calendar year, a Participant who is
one of the group of "covered employees" for such calendar year within the
meaning of Section 162(m) of the Code.
<PAGE>
2.21. "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase Shares
granted pursuant to Article 5 hereof which is not intended to meet the
requirements of Section 422 of the Code.
2.22. "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option.
2.23. "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to the exercise of an Option.
2.25. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception, set
forth in Section 162(m)(4)(C) of the Code, from the deductibility limitations of
Section 162(m) of the Code.
2.26. "PERFORMANCE SHARE" means an Award granted pursuant to Article 8 hereof.
2.27. "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and such Shares are subject to
a substantial risk of forfeiture, as provided in Article 7 hereof.
2.28. "PRIOR PLANS" means the (i) Cavalier Homes, Inc. Long Term Incentive
Compensation Plan, (ii) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan
and (iii) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan.
2.29. "RESTRICTED STOCK" means an Award granted pursuant to Article 7 hereof.
2.30. "RETURN ON ASSETS" means the consolidated "return on average assets" of
the Company and its subsidiaries determined in accordance with generally
accepted accounting principles.
2.31. "RETURN ON EQUITY" means the consolidated "return on average common
stockholders' equity" of the Company and its subsidiaries determined in
accordance with generally accepted accounting principles.
2.32. "REVENUES" means the consolidated "revenues" of the Company and its
subsidiaries for determined in accordance with generally accepted accounting
principles.
2.33. "SHARES" means the shares of Common Stock of the Company.
2.34. "STOCK APPRECIATION RIGHT" OR "SAR" means an Award granted to a
Participant alone or in tandem with a related Option pursuant to Article 6
hereof which is designated as an SAR and which grants such Participant the right
to receive payment of an amount equal to the appreciation in the value of
Shares.
2.35. "SUBSIDIARY" means any corporation, partnership, joint venture, affiliate,
or other entity in which the Company has an ownership interest, and which the
Committee designates as a participating entity in the Plan.
2.36. "TANDEM SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
a Share under the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall similarly be canceled).
ARTICLE 3. - ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by the Committee. All of the
members of the Committee shall comply with the "disinterested administration"
requirement of Rule 16b-3 promulgated under the Exchange Act. Any action taken
with respect to Named Executive Officers for purposes of meeting the
Performance-Based Exception shall be taken by the Committee only if all of the
members of the Committee are "outside directors" within the meaning of Code
Section 162(m), subject to any applicable transition rules under Code Section
162(m). If all of the members of the Committee are not "outside directors," such
action shall be taken by a subcommittee of the Committee of two (2) or more
members, all of whom are "outside directors."
<PAGE>
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law, or by the Articles of
Incorporation or Bylaws of the Company, and subject to the provisions hereof,
the Committee shall have full power to designate the Key Employees who shall
participate in the Plan; determine the sizes and types of Awards; determine the
terms and provisions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 14 hereof), amend the
terms and provisions of any outstanding Award to the extent such terms and
provisions are within the discretion of the Committee as provided in the Plan.
The Committee shall make all other decisions relating to the operation of the
Plan, and all other determinations which may be necessary or advisable for the
administration of the Plan.
3.3. DECISIONS BINDING. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan shall be final, conclusive and binding on
all persons, including the Company, its stockholders, employees, Participants,
and their estates and beneficiaries.
ARTICLE 4. - SHARES SUBJECT TO THE PLAN
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Beginning on the Effective Date,
there is hereby reserved for grants of Awards under the Plan the number of
Shares equal to the sum of:
4.1.1. Six Hundred Thousand (600,000) Shares; and
4.1.2. One and one-half percent (1.5%) of the Shares outstanding as of January
1, 1997 and each January 1 thereafter; and
4.1.3. such number of Shares reserved for issuance under the Prior Plans in
excess of the number of Shares as to which options have been awarded thereunder
as of the Effective Date including any Shares subject to options previously
granted under the Prior Plans which hereafter shall lapse, expire, terminate or
be canceled.
The number of Shares reserved for grants of Awards under this Section 4.1 shall
be subject to adjustment as provided in Section 4.3 hereof. In no event shall a
Participant receive Awards of Options, Freestanding SARs, Restricted Stock or
Performance Shares during any one (1) calendar year covering in the aggregate
more than One Hundred Thousand (100,000) Shares.
4.2. LAPSED AWARDS. If any Award granted hereunder is canceled, terminates,
expires or lapses for any reason (with the exception of the termination of a
Tandem SAR upon exercise of the related Option, or the termination of a related
Option upon exercise of the corresponding Tandem SAR), any Shares subject to
such Award shall again be available for the grant of an Award under the Plan.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate
capitalization, such as a stock dividend or stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Section 368 of the Code) or any partial or complete liquidation
of the Company, such adjustment shall be made in the number and class of Shares
reserved under the Plan, and in the number, class and price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
ARTICLE 5. - STOCK OPTIONS
5.1. GRANT OF OPTIONS. Subject to the terms and conditions of this Article, and
to such other terms and conditions as the Committee may determine, Options may
be granted to Key Employees in such number and at such times as shall be
determined by the Committee.
<PAGE>
5.2. AWARD AGREEMENT. Each Option granted shall be evidenced by an Award
Agreement that shall specify the Option Price, the term of the Option, the
number of Shares subject to such Option and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO or an NQSO. Subject to the following provisions
of this Article, all of such specifications and provisions shall be determined
by the Committee.
5.3. RESTRICTION ON OPTION PRICE. The Option Price of an ISO shall not be less
than the Fair Market Value of a Share on the date the Option is granted.
5.4. TERM OF OPTIONS. Each Option shall expire at such time as the Committee
shall determine at the time of grant; provided, however, that no Option shall be
exercisable later than the 10th anniversary date of its grant.
5.5. EXERCISE OF OPTIONS. The Shares subject to an Option may be purchased in
such installments and on such exercise dates as shall be set forth in the Award
Agreement. Any Shares not purchased on the applicable exercise date may be
purchased thereafter at any time prior to the final expiration of the Option. In
no event shall any Option be exercised, in whole or in part, after its
expiration date.
5.6. PAYMENT. Options shall be exercised by the delivery of a written notice of
exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
either: (a) in cash or its equivalent, or (b) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the aggregate Option Price (provided that the Shares which are tendered have
been held by the Participant for at least six (6) months prior to their tender
to satisfy the Option Price), or (c) by a combination of (a) and (b). The
Committee also may allow cashless exercise as permitted under Federal Reserve
Board's Regulation G or Regulation T, subject to applicable securities laws
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law. As soon as practicable
after receipt of a written notification of exercise and full payment, the
Company shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares purchased
under the Option(s).
5.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on the transfer of Shares acquired pursuant to the exercise of an
Option granted under this Article as it may deem advisable including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which the Common Stock is then
listed or traded and under any state securities laws applicable to such Shares.
5.8. TERMINATION OF EMPLOYMENT. Each Award Agreement with respect to Options
granted hereunder shall set forth the extent to which the Participant shall have
the right to exercise the Options following termination of the Participant's
employment with the Company or its Subsidiaries, as the case may be. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement, need not be uniform among all Options issued
pursuant to this Article, may reflect distinctions based on the reasons for
termination of employment and may include provisions relating to a Participant's
competition with the Company after termination of employment. In that regard, if
an Award Agreement permits exercise of an Option following the death of the
Participant, the Award Agreement shall provide that such Option shall be
exercisable to the extent provided therein by any person that may be empowered
to do so under the Participant's will or, if the Participant shall fail to make
a testamentary disposition of the Option or shall have died intestate, by the
Participant's executor or other legal representative.
5.9. NONTRANSFERABILITY OF OPTIONS.
5.9.1. Incentive Stock Options. No ISO granted under this Article may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant shall be exercisable during his or her lifetime only by
such Participant.
<PAGE>
5.9.2. Nonqualified Stock Options. Except as otherwise provided in an Award
Agreement, no NQSO granted under this Article may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in an
Award Agreement, all NQSOs granted to a Participant shall be exercisable during
his or her lifetime only by such Participant.
5.10. NO RIGHTS. A Participant granted an Option hereunder shall have no rights
as a stockholder of the Company with respect to the Shares subject to such
Option except to the extent that Shares are issued to the Participant upon the
exercise of such Option.
5.11. LIMITS ON INCENTIVE STOCK OPTIONS. Except as may otherwise be permitted by
the Code, the Committee shall not grant ISOs to any Participant that, in the
aggregate, are first exercisable during any one calendar year to the extent that
the aggregate Fair Market Value of the Shares subject to such ISOs, at the time
of grant, exceeds $100,000.
ARTICLE 6. - STOCK APPRECIATION RIGHTS
6.1. GRANT OF SARs. Subject to the terms and conditions of this Article, and to
such other terms and conditions as the Committee may determine, SARs may be
granted to Key Employees at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of such forms of SARs. The Committee shall have
complete discretion in determining the number of Shares covered by SARs granted
hereunder (subject to Article 4 hereof) and in determining the terms and
provisions pertaining to such SARs. The number of Shares covered by a
Freestanding SAR shall be counted against the number of Shares available for
grants of Awards under Section 4.1 hereof, but the number of Shares covered by a
Tandem SAR shall not be so counted. The grant price of a Freestanding SAR shall
equal the Fair Market Value of a Share on the date of grant of the SAR. The
grant price of a Tandem SAR shall equal the Option Price of the related Option.
6.2. EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. In no event shall the exercise period for a Tandem SAR exceed the
exercise period for the related Option. Notwithstanding any other provision of
this Plan to the contrary, with respect to a Tandem SAR granted in connection
with an ISO: (i) the Tandem SAR will expire no later than the expiration of the
underlying ISO; (ii) the value of the payout with respect to the Tandem SAR
shall not exceed the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
6.3. EXERCISE OF FREESTANDING SARs. Freestanding SARs may be exercised upon
whatever terms and provisions the Committee, in its sole discretion, imposes
upon them.
6.4. AWARD AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
6.5. TERM OF SARs. The term of an SAR granted under the Plan shall be determined
by the Committee, in its sole discretion; provided, however, that such term
shall not exceed 10 years.
6.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company equal to the product of (i) the
difference between the Fair Market Value of a Share on the date of exercise over
the grant price and (ii) the number of Shares with respect to which the SAR is
exercised. At the discretion of the Committee, the payment upon exercise may be
in cash, in Shares of equivalent value, or in some combination thereof;
provided, however, that from and after the date of a Change in Control, the
exercise of an SAR may be settled only in cash.
<PAGE>
6.7. RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the Plan,
the Committee may impose such conditions on exercise of an SAR (including,
without limitation, the right of the Committee to limit the time of exercise to
specified periods) as may be required to satisfy the requirements of Section 16
of the Exchange Act.
6.8. TERMINATION OF EMPLOYMENT. Each Award Agreement with respect to SARs
granted hereunder shall set forth the extent to which the Participant shall have
the right to exercise the SAR following termination of the Participant's
employment with the Company or its Subsidiaries, as the case may be. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement, need not be uniform among all SARs issued
pursuant to the Plan, may reflect distinctions based on the reasons for
termination of employment and may include provisions relating to a Participant's
competition with the Company after termination of employment. In that regard, if
an Award Agreement permits exercise of an SAR following the death of the
Participant, the Award Agreement shall provide that such SAR shall be
exercisable to the extent provided therein by any person that may be empowered
to do so under the Participant's will, or if the Participant shall fail to make
a testamentary disposition of the SAR or shall have died intestate, by the
Participant's executor or other legal representative.
6.9. NONTRANSFERABILITY OF SARs. Except as otherwise provided in an Award
Agreement, no SAR may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in an Award Agreement, all
SARs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
ARTICLE 7. - RESTRICTED STOCK
7.1. GRANT OF RESTRICTED STOCK. Subject to the terms and conditions of this
Article, and to such other terms and conditions as the Committee may determine,
the Committee, at any time and from time to time, may grant Shares of Restricted
Stock to Key Employees in such numbers as the Committee shall determine.
7.2. AWARD AGREEMENT. Each Restricted Stock grant shall be evidenced by an Award
Agreement that shall specify the Period or Periods of Restriction, the number of
Shares of Restricted Stock granted, and such other provisions as the Committee
shall determine.
7.3. TRANSFERABILITY. Except as provided in this Article, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Award Agreement,
or upon earlier satisfaction of any other conditions, as specified by the
Committee in its sole discretion and set forth in the Award Agreement. All
rights with respect to Restricted Stock granted to a Participant under the Plan
shall be available during his or her lifetime only to such Participant.
7.4. OTHER RESTRICTIONS. The Committee may impose such other conditions or
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, a requirement that
Participants pay a certain purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, or individual), time-based restrictions on vesting
following the attainment of the performance goals and restrictions under
applicable federal or state securities laws. The Company shall retain the
certificates representing Shares of Restricted Stock in the Company's possession
until such time as all conditions and restrictions applicable to such Shares
have been satisfied. Except as otherwise provided in this Article or in the
applicable Award Agreement, or as otherwise required by law, Shares of
Restricted Stock shall become freely transferable by the Participant after the
last day of the Period of Restriction.
7.5. VOTING RIGHTS. During the Period of Restriction, Participants owning Shares
of Restricted Stock granted hereunder may exercise full voting rights with
respect to such Shares.
<PAGE>
7.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants owning Shares of Restricted Stock granted hereunder may be credited
with regular cash dividends paid with respect to the underlying Shares while
they are so owned. The Committee may apply any restrictions to the dividends
that the Committee deems appropriate. In the event that any dividend constitutes
a "derivative security" or an "equity security" pursuant to Section 16 under the
Exchange Act, such dividend shall be subject to a vesting period equal to the
remaining vesting period of the Shares of Restricted Stock with respect to which
the dividend is paid.
7.7. TERMINATION OF EMPLOYMENT. Each Award Agreement with respect to Restricted
Stock granted hereunder shall set forth the extent to which the Participant
shall have the right to receive unvested Restricted Shares following termination
of the Participant's employment with the Company or its Subsidiaries, as the
case may be. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement, need not be uniform among
all Shares of Restricted Stock issued pursuant to the Plan, may reflect
distinctions based on the reasons for termination of employment and may include
provisions relating to a Participant's competition with the Company after
termination of employment. In amplification but not limitation of the foregoing,
in the case of an Award of Restricted Stock to a Named Executive Officer which
is intended to qualify for the Performance-Based Exception, the Award Agreement
may provide that such Restricted Stock may become payable in the event of a
termination of employment by reason of death, Disability or Change in Control,
such payment not to occur before attainment of the related performance goal.
7.8. COORDINATION WITH EXECUTIVE INCENTIVE COMPENSATION PLAN. The Cavalier
Homes, Inc. Executive Incentive Compensation Plan (the "EIC Plan") is intended
to provide annual and long-term cash incentives to Named Executive Officers and
other eligible employees. In accordance with the EIC Plan, a Named Executive
Officer receiving long-term performance-based compensation under the EIC Plan
may receive at least 40% of such compensation in the form of Shares of
Restricted Stock, with the number of such Shares being determined on a
discounted basis depending on the length of the Period of Restriction selected
by such Named Executive Officer. Notwithstanding any provision of this Plan to
the contrary, Shares of Restricted Stock to be received by a Named Executive
Officer under the EIC Plan as described above shall be awarded by such members
of the Committee who are "outside directors" within the meaning of Code Section
162(m). The number of such Shares and the applicable Period of Restriction shall
be determined in accordance with the terms of the EIC Plan and set forth in an
appropriate Award Agreement.
ARTICLE 8. - PERFORMANCE SHARES
8.1. GRANT OF PERFORMANCE SHARES. Subject to the terms and conditions of this
Article and to such other terms and conditions as the Committee may determine,
Performance Shares may be granted to eligible Key Employees in such amounts,
upon such terms and at such times as shall be determined by the Committee. The
number and vesting of Performance Shares granted shall be conditioned upon the
degree of attainment of specified performance goals or other conditions over a
specified period (the "Performance Period") as determined by the Committee,
subject to Section 3.1 hereof. The terms and provisions of an Award of
Performance Shares shall be evidenced by an appropriate Award Agreement.
8.3. FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. The Committee shall
establish the amount of payment to be made under an Award of Performance Shares
if the performance goals or other conditions are met. Such Award shall be
expressed in terms of Shares. After the completion of a Performance Period, the
performance of the Company, subsidiary, division or individual, as the case may
be, shall be measured against the performance goals or other conditions, and the
Committee shall determine whether all, none or a portion of an Award shall be
paid. The Committee shall pay any earned Performance Shares as soon as
practicable after they are earned in the form of cash, Shares or a combination
thereof (as determined by the Committee) having an aggregate Fair Market Value
equal to the value of the earned Performance Shares as of the date they are
earned. Any Shares used to pay earned Performance Shares may be issued subject
to any restrictions deemed appropriate by the Committee. In addition, the
Committee, in its discretion, may cancel any earned Performance Shares and grant
Stock Options to the Participant which the Committee determines to be of
equivalent value based on a conversion formula stated in the applicable Award
Agreement. The Committee, in its discretion, may also grant dividend equivalent
rights with respect to earned but unpaid Performance Shares as evidenced by the
applicable Award Agreement. Performance Shares shall have no voting rights.
<PAGE>
8.4. TERMINATION OF EMPLOYMENT. Each Award Agreement with respect to Performance
Shares granted hereunder shall set forth the extent to which the Participant
shall have the right to receive unearned Performance Shares following
termination of the Participant's employment with the Company and its
Subsidiaries, as the case may be. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreements,
need not be uniform among all Performance Shares awarded pursuant to the Plan,
may reflect distinctions based on the reasons for termination of employment and
may include provisions relating to a Participant's competition with the Company
after termination of employment.
8.5. NONTRANSFERABILITY. Except as otherwise provided in an Award Agreement with
respect to Performance Shares granted hereunder, Performance Shares may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, except
as otherwise provided in an Award Agreement, a Participant's rights under the
Plan shall be exercisable during the Participant's lifetime only by the
Participant.
ARTICLE 9. - PERFORMANCE MEASURES
The performance measure or measures to be used for purposes of Awards, other
than Options, to Named Executive Officers which are designed to qualify for the
Performance-Based Exception shall be selected from among the following
alternatives:
(a) Incentive Net Income;
(b) Earnings Per Share;
(c) Return on Assets;
(d) Return on Equity;
(e) Revenues; or
(f) Total Stockholder Return
In the event that applicable tax or securities laws change in order to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.
ARTICLE 10. - BENEFICIARY DESIGNATION
Each Participant may, from time to time, designate any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
ARTICLE 11. - DEFERRALS
The Committee may permit a Participant to defer such Participant's receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option or SAR, the lapse or
waiver of restrictions with respect to Restricted Stock, or the satisfaction of
any requirements or goals with respect to Performance Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
<PAGE>
ARTICLE 12. - RIGHTS OF KEY EMPLOYEES
12.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's employment at any time
and for any reason, nor confer upon any Participant any right to continue in the
employ of the Company or its Subsidiaries. For purposes of this Plan, a transfer
of a Participant's employment between the Company and a Subsidiary, or between
Subsidiaries shall not be deemed to be a termination of employment.
12.2. PARTICIPATION. No Key Employee shall have the right to be selected to
receive any Award under this Plan, or, having been so selected, to be selected
to receive any future Award.
ARTICLE 13. - CHANGE IN CONTROL
13.1. TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges: (i) any and all Options and SARs granted hereunder shall
become immediately exercisable, and shall remain exercisable throughout their
entire term; (ii) any restriction periods and restrictions imposed on Shares of
Restricted Stock shall lapse; (iii) the target payout opportunities attainable
under all outstanding Awards of Restricted Stock and Performance Shares shall be
deemed to have been fully earned for the entire Performance Period(s) as of the
effective date of the Change in Control; and (iv) the vesting of all Awards
shall be accelerated as of the effective date of the Change in Control.
13.2. LIMITATION ON CHANGE-IN-CONTROL BENEFITS. It is the intention of the
Company and the Participants to reduce the amounts payable or distributable to a
Participant hereunder if the aggregate Net After Tax Receipts (as defined below)
to the Participant would thereby be increased, as a result of the application of
the excise tax provisions of Section 4999 of the Code. Accordingly, anything in
this Plan to the contrary notwithstanding, in the event that the independent
accountants regularly employed by the Company immediately prior to any "change"
described below (the "Accounting Firm") shall determine that receipt of all
Payments (as defined below) would subject the Participant to tax under Section
4999 of the Code, it shall determine whether some amount of Payments would meet
the definition of a "Reduced Amount," (as defined below). If the Accounting Firm
determines that there is a Reduced Amount, the aggregate Payments shall be
reduced to such Reduced Amount in accordance with the provisions of Section
13.2(b) below.
13.2.1. For purposes of this Section 13.2:
(i) A "Payment" shall mean any payment or distribution in the
nature of compensation to or for the benefit of a Participant who is a
"disqualified individual" within the meaning of Section 28OG(c) of the
Code and which is contingent on a "change" described in Section
28OG(b)(2)(A)(i) of the Code with respect to the Company, whether paid
or payable pursuant to this Plan or otherwise;
(ii) "Plan Payment" shall mean a Payment paid or payable
pursuant to this Plan (disregarding this Section 13.2);
(iii) "Net After Tax Receipt" shall mean the Present Value of
a Payment, net of all taxes imposed on the Participant with respect
thereto under Sections 1 and 4999 of the Code, determined by applying
the highest marginal rate under Section 1 of the Code which applied to
the Participant's Federal taxable income for the immediately preceding
taxable year;
(iv) "Present Value" shall mean such value determined in
accordance with Section 28OG(d)(4) of the Code; and
(v) "Reduced Amount" shall mean the smallest aggregate amount
of Payments which (A) is less than the sum of all Payments and (B)
results in aggregate Net After Tax Receipts which are equal to or
greater than the Net After Tax Receipts which would result if all
Payments were paid to or for the benefit of the Participant.
<PAGE>
13.2.2. If the Accounting Firm determines that aggregate Payments
should be reduced to the Reduced Amount, the Committee shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof, and the Participant may then elect, in the Participant's sole
discretion, which and how much of the Payments, including without limitation
Plan Payments, shall be eliminated or reduced (as long as after such election
the Present Value of the aggregate Payments is equal to the Reduced Amount), and
shall advise the Committee in writing of such election within 10 days of the
Participant's receipt of notice. If no such election is made by the Participant
within such 10 day period, the Committee may elect which of the Payments,
including without limitation Plan Payments, shall be eliminated or reduced (as
long as after such election the Present Value of the aggregate Payments is equal
to the Reduced Amount) and shall notify the Participant promptly of such
election. All determinations made by the Accounting Firm under this Section 13.2
shall be binding upon the Company and the Participant and shall be made within
60 days immediately following the event constituting the "change" referred to
above. As promptly as practicable following such determination, the Company
shall pay to or distribute for the benefit of the Participant such Payments as
are then due to the Participant under this Plan.
13.2.3. At the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Company to or for the benefit of the Participant pursuant to this Plan which
should not have been so paid or distributed ("Overpayment") or that additional
amounts which will have not been paid or distributed by the Company to or for
the benefit of the Participant pursuant to this Plan could have been so paid or
distributed ("Underpayment"), in each case, consistent with the calculation of
the Reduced Amount hereunder. In the event that the Accounting Firm, based
either upon the assertion of a deficiency by the Internal Revenue Service
against the Company or the Participant which the Accounting Firm believes has a
high probability of success or controlling precedent or other substantial
authority, determines that an Overpayment has been made, any such Overpayment
paid or distributed by the Company to or for the benefit of the Participant
shall be treated for all purposes as a loan ab initio to the Participant which
the Participant shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by the Participant to the Company if and to the extent
such deemed loan and payment would not either reduce the amount on which the
Participant is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Participant together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
13.3. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS.
Notwithstanding any other provision of this Plan or any Award Agreement
provision, the provisions of this Article may not be terminated, amended, or
modified on or after the date of a Change in Control to affect adversely any
Award theretofore granted under the Plan without the prior written consent of
the Participant with respect to said Participant's outstanding Awards; provided,
however, the Board of Directors, upon recommendation of the Committee, may
terminate, amend, or modify this Article at any time and from time to prior to
the date of a Change in Control.
ARTICLE 14. - AMENDMENT, MODIFICATION AND TERMINATION
14.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board may at any time and
from time to time, alter, amend, discontinue, suspend or terminate the Plan in
whole or in part; provided, however, that (i) no amendment which requires
stockholder approval in order for the Plan to continue to comply with Rule 16b-3
promulgated under the Exchange Act shall be effective unless such amendment
shall be approved by the requisite vote of stockholders of the Company entitled
to vote thereon; and (ii) no termination, amendment, or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Participant holding such Award.
<PAGE>
14.2. ACCELERATION OF AWARD VESTING; WAIVER OF RESTRICTIONS. Notwithstanding any
provision of this Plan or of any Award Agreement to the contrary, the Committee,
in its sole and exclusive discretion, shall have the power at any time to (i)
accelerate the vesting of any Award granted under the Plan, including without
limitation, acceleration to such a date that would result in said Awards
becoming immediately vested, or (ii) waive any restrictions of any Award granted
under the Plan.
ARTICLE 15. - WITHHOLDING
15.1. TAX WITHHOLDING. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising as a result of this Plan.
15.2. SHARE WITHHOLDING. With respect to withholding required upon the exercise
of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date as of which the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All such elections shall be irrevocable, made in writing,
signed by the Participant, and subject to any restrictions or limitations that
the Committee, in its sole discretion, deems appropriate.
ARTICLE 16. - INDEMNIFICATION
Each person who is or shall have been a member of the Committee shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to defend the same before he or
she undertakes to defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
ARTICLE 17. - SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
or assets of the Company.
ARTICLE 18. - MISCELLANEOUS
18.1. GENDER AND NUMBER. Whenever the context so requires, the singular shall
include the plural and the plural shall include the singular and the gender of
any pronoun shall include the other genders.
18.2. SEVERABILITY. The invalidity of this Plan with respect to one or more
persons shall not affect the rights and obligations of any other person
hereunder in any manner whatsoever. The invalidity of one or more provisions of
this Plan shall not affect the validity of any other provision of this Plan in
any manner whatsoever.
<PAGE>
18.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
18.4. SECURITIES LAWS COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Exchange Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
18.5. GOVERNING LAW. This Plan shall be construed according to the laws of the
State of Alabama.
CAVALIER HOMES, INC.
1993 AMENDED AND RESTATED NONEMPLOYEE
DIRECTORS STOCK OPTION PLAN
(As Amended Through February 27, 1996)
SECTION 1.1 DEFINITIONS
As used herein, the following terms shall have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a) 1934 ACT means the Securities Exchange Act of 1934, as amended.
(b) ADMINISTRATOR means the person or persons designated to administer
this Plan under Section 4.1 below.
(c) CHANGE IN CONTROL means the occurrence of any of the following:
(1) when any "person," as such term is used in Section 13(d)
or 14(d) of the 1934 Act (other than the Company or any subsidiary or
any employee benefit plan of the Company or any subsidiary (including
its trustee)), is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the 1934 Act), directly or indirectly of
securities of the Company representing twenty percent (20%) or more of
the combined voting power of the Company's outstanding securities;
(2) any transaction or event relating to the Company required
to be described pursuant to the requirements of Item 6(e) of Schedule
14A of Regulation 14A promulgated under the 1934 Act;
(3) when, during any period of two consecutive years during
the existence of the Plan, the individuals who, at the beginning of
such period, constitute the Board cease, for any reason, to constitute
at least a majority thereof, unless the election or the nomination for
election by the Company's stockholders of each director first elected
during such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors of the Company at the
beginning of any such period; or
(4) any transaction requiring stockholder approval for the
acquisition of the Company by an entity other than the Company or any
subsidiary through purchase of assets, or by merger, or otherwise.
(d) COMPANY means Cavalier Homes, Inc, a Delaware corporation.
(e) FAIR MARKET VALUE means, with respect to Stock as of any date, the
closing sales price of a share of Stock on such date as reported by (1) any
national securities exchange on which the Stock is actively traded or (2) the
Nasdaq Stock Market or, if no Stock is traded on such exchange or system on such
date, then on the next preceding date on which any Stock was traded on such
exchange or system.
(f) STOCK with respect to each share to which that term refers, shall
mean one (1) share of Common Stock, par value $0.10 per share, of the Company
now authorized; any other shares of the Stock of the Company hereafter
authorized; and securities of the Company which, under any conditions, will be
converted into or exchanged for any such Stock.
(g) OPTION shall mean an option to purchase Stock granted pursuant to
the provision of Article 6 hereof.
(h) OPTIONEE shall mean a nonemployee director of the Company to whom
an Option has been granted hereunder.
(i) PLAN shall mean the Cavalier Homes, Inc. 1993 Amended and Restated
Nonemployee Directors Stock Option Plan, the terms of which am set forth herein.
(j) STOCK OPTION AGREEMENT shall mean the agreement between the Company
and the Optionee under which the Optionee may purchase Stock hereunder.
<PAGE>
ARTICLE 2 - THE PLAN
2.1 NAME. This Plan shall be known as the "Cavalier Homes, Inc. 1993 Amended and
Restated Nonemployee Directors Stock Option Plan."
2.2 PURPOSE. The purpose of the Plan is to advance the interests of the Company
and its stockholders by affording to directors of the Company who are not also
employees of the Company an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such directors of Options under the
terms set forth herein. The purpose of the Plan is also to provide compensation
to directors of the Company who are not also employees of the Company for past
services rendered to the Company. By thus compensating such directors and
encouraging such directors to become owners of Stock of the Company, the Company
seeks to attract, retain, compensate and motivate those highly competent
individuals upon whose judgment, initiative, leadership, and continued efforts
the success of the Company in large measure depends.
2.3 EFFECTIVE DATE. The Plan shall be deemed adopted and shall become effective
as of the date of its approval by the Board, subject to its subsequent approval
within twelve (12) months from the date of such action by the Board by the
affirmative vote of a majority of the outstanding shares of Stock of the Company
present in person or by proxy and entitled to vote thereon, voting in accordance
with the Certificate of incorporation of the Company and the General Corporation
Law of the State of Delaware, at an annual or special meeting of the
stockholders of the Company. The Plan shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 8 hereof, until all Stock subject to it shall have been
purchased or acquired according to the provisions hereof. Any Option granted
prior to stockholder approval of the Plan as herein provided shall be subject to
such approval and shall have no legal effect and shall convey no rights to the
holder thereof in the event said stockholder approval of the Plan is not
obtained.
ARTICLE 3 - PARTICIPANTS
3.1 ELIGIBILITY. Except as otherwise provided herein, any director of the
Company who is not also an employee of the Company shall be eligible to
participate in the Plan.
ARTICLE 4 - ADMINISTRATION
4.1 DUTIES AND POWERS OF ADMINISTRATOR. The Plan shall be administered by the
Administrator. Subject to the express provisions of the Plan, the Administrator
shall be responsible for the general administration of the Plan and shall also
have the authority to interpret the Plan, to determine the details and
provisions of each Stock Option Agreement, and to make all other determinations
necessary or advisable in the administration of the Plan.
4.2 MAJORITY RULE. The Administrator initially shall be the Chairman of the
Board of the Company, who shall serve at the pleasure of the Board. In the event
that the Board hereafter appoints more than one person to serve as the
Administrator, a majority of the members of such persons shall constitute a
quorum, and any action taken by a majority present at a meeting at which a
quorum is present or any action taken without a meeting evidenced by a writing
executed by a majority of such persons shall constitute the action of the
Administrator. In the event only two persons are serving in the capacity of the
Administrator, the concerted action of both such persons shall constitute the
action of the Administrator.
4.3 COMPANY ASSISTANCE. The Company shall supply full and timely information to
the Administrator on all matters relating to eligible directors, their death,
retirement, disability or other termination of directorship, and such other
pertinent facts as the Administrator may require. The Company shall furnish the
Administrator with such clerical and other assistance as is necessary in the
performance of his or its duties.
<PAGE>
ARTICLE 5 - SHARES OF STOCK SUBJECT TO PLAN
5.1 LIMITATIONS. The number of shares of Stock which may be issued and sold
hereunder shall not exceed 500,000 shares of Stock, subject to adjustment
pursuant to the provisions of Section 5.3 hereof. Such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company, and such amount of shares shall be and is hereby reserved for issuance
pursuant to this Plan. The Company shall at all times reserve a sufficient
number of shares to meet the requirements of the Plan.
5.2 OPTIONS GRANTED UNDER PLAN. Shares of Stock with respect to which an Option
granted hereunder shall have been exercised shall not again be available for
grant hereunder. If Options granted hereunder shall expire, terminate, or be
canceled for any reason without being wholly exercised, new Options may be
granted hereunder covering the number of shares to which such Option expiration,
termination or cancellation relates.
5.3 ANTIDILUTION.
In the event that the outstanding shares of Stock are increased,
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company after May 15, 1996 by reason of
reorganization, recapitalization, reclassification, combination of shares, stock
split or stock dividend, then, subject to Section 6.1 hereof:
(a) the aggregate number of shares of Stock which may be issued and
sold hereunder, as set forth in Section 5.1 hereof, shall be adjusted
appropriately;
(b) the aggregate number of shares of Stock subject to Options which
may be granted pursuant to Section 6.1(b)(i) hereof shall be adjusted
appropriately; and
(c) rights under Options which have been granted and are outstanding
hereunder, both as to the number of subject shares and their option price, shall
be adjusted appropriately.
Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited under applicable laws or by the rules and regulations of
any governmental agencies or national securities exchanges, any and all Options
granted hereunder shall become immediately exercisable, and shall remain
exercisable throughout their entire term.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined solely by the Administrator, and any
such adjustment shall provide for the elimination of fractional share interests.
ARTICLE 6 - OPTIONS
6.1 OPTION GRANT AND AGREEMENT.
Directors of the Company who are not employees of the Company shall be
entitled to receive Options under this Plan only at the times set forth in this
Section 6.1. Each Option granted hereunder shall be evidenced by a Stock Option
Agreement dated as of the date of grant and executed by the Company and the
Optionee, which Agreement shall set forth such terms and conditions as may be
determined by the Administrator consistent with the Plan.
(a) Initial Grants to New Directors. Each person who is not an employee
of the Company and is first elected to the serve as a director of the Company
after February 27, 1996 and while this Plan remains in effect shall be granted
an Option to purchase 20,000 shares of Stock effective as of the date of such
first election. The number of shares subject to such initial grant shall not be
adjusted prior to such grant pursuant to Section 5.3 hereof, notwithstanding any
adjustment pursuant to Section 5.3 hereof in the number of shares which can be
purchased on exercise of such Option.
<PAGE>
(b) Annual Grants. Subject to Paragraph (c) hereof, on January 15,
1997, (i) each director of the Company who is not then an employee of the
Company but who was serving as a director of the Company on February 27, 1996
shall be granted an Option to purchase 11,718 shares of Stock and (ii) any other
person who is not then an employee of the Company and who is first elected to
serve as a director of the Company after February 27, 1996 shall be granted an
Option to purchase 5,000 shares of Stock. On January 15, 1998 and on each
January 15 thereafter, each director who is not an employee of the Company on
such date and who has served as a director of the Company during the calendar
year immediately preceding such date shall be granted, effective as of such
date, an Option to purchase 5,000 shares of Stock. The number of shares subject
to annual grants described in clause (ii) above shall not be adjusted prior to
such grants pursuant to Section 5.3 hereof, notwithstanding any adjustment
pursuant to Section 5.3 hereof in the number of shares which can be purchased on
exercise of such Options.
(c) Limitation. Notwithstanding any other provision of this Plan, no
director shall be granted Options to purchase more than an aggregate of 125,000
shares of Stock under the Plan. The number of shares subject to such aggregate
limitation on grants shall not be adjusted pursuant to Section 5.3 hereof.
(d) Proration. If at the time of any grant pursuant to paragraph (a) or
(b) of this Section 6.1 the remaining number of shares of Stock available for
grants under the Plan is less than the number of shares necessary to make grants
of Options to eligible directors pursuant to said paragraphs (a) or (b), then
each eligible director shall receive a pro rata grant of the remaining shares
that are available for grant under the Plan.
6.2 OPTION PRICE. The per share price of the Stock subject to each Option
granted under the Plan shall be the Fair Market Value of a share of Stock of the
Company on the date of grant.
6.3 OPTION PERIOD. The period for the exercise of each Option shall be between
six months after the date of grant and ten years from the date of grant, unless
it should become exercisable earlier upon a Change in Control. For purposes of
grants of Options made under this Plan prior to the date of stockholder approval
of the Plan the six-month period shall be deemed to commence as of the date of
stockholder approval.
6.4 OPTION EXERCISE.
(a) Options may be exercised with respect to whole shares only, for
such shares of Stock and within the period permitted by the exercise thereof
under the terms of the Plan, and shall be exercised by written notice of intent
to exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office in the State of Alabama, and payment in full
to the Company at said office of the amount of the Option price for the number
of shares of Stock with respect to which the Option is then being exercised.
(b) No Option granted hereunder shall be exercisable unless at all
times during the period beginning on the date of the granting of such Option and
ending on the day which is twelve months before the date of exercise, the
Optionee was a director of the Company, or of a corporation (or parent or
subsidiary of such corporation) issuing or assuming such Option in accordance
with the terms of this Plan.
6.5 NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an Optionee
otherwise than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code"), or Title I of the Employee Retirement Income
Security Act, as amended ("ERISA"), or the rules thereunder.
6.6 EFFECT OF DISABILITY, DEATH OR OTHER TERMINATION OF DIRECTORSHIP.
(a) In the event that the directorship of an Optionee to whom an Option
shall have been granted shall be terminated for any reason other than for cause
(as defined below), including, without limitation, the failure of such director
to be re-elected as a director of the Company by the stockholders of the
Company, such Option may be exercised at any time prior to the expiration date
of the Option or within twelve months after the date of such termination,
whichever is earlier, but only to the extent such Optionee had the right to
exercise such Option at the date of such termination.
<PAGE>
(b) If the directorship of an Optionee to whom an Option shall have
been granted is terminated for cause, as defined below, such Option shall
terminate immediately upon such termination. For purposes of this Section 6.6,
the term "for cause" shall be defined as a good faith express determination by
the Board that the Optionee has been guilty of willful misconduct or dishonesty,
or a good faith express determination by the Board that the Optionee has been
derelict in has breached or has grossly neglected the Optionee's duty to the
Company.
(c) If an Optionee to whom an Option shall have been granted shall die
or become totally and permanently disabled while he is a director of the Company
or within twelve months after the termination of continuously being a director
of the Company and the Optionee has not otherwise been terminated for cause,
such Option may be exercised (to the extent that the Optionee would otherwise
have been entitled to do so at the date of his death or total and permanent
disability) by such Optionee, his personal representative, the executor or
administrator of the estate of the Optionee, or the person or persons to whom an
Option granted hereunder shall have been validly transferred pursuant to a will
or the laws of descent and distribution.
(d) No transfer of an Option by the Optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Administrator
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of such Option.
6.7 RIGHTS AS STOCKHOLDER. An Optionee or a transferee of an Option shall have
no rights as a stockholder with respect to any shares subject to such Option
prior to the purchase of such shares by exercise of such Option as provided
herein.
ARTICLE 7 - STOCK CERTIFICATES
7.1 STOCK CERTIFICATES. The Company shall not be required to issue or deliver
any certificate for shares of Stock purchased upon the exercise of an Option
granted hereunder or any portion thereof, prior to fulfillment of all of the
following conditions:
(a) the completion of any registration or other qualification of such
shares under any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Administrator shall in his or its sole discretion deem necessary or
advisable;
(b) the obtaining of any approval or other clearance from any federal
or state governmental agency which the Administrator shall in his or its sole
discretion determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the exercise
of the Option as the Administrator from time to time may establish for reasons
of administrative convenience;
(d) the compliance with any and all applicable federal, state or local
laws; and
(e) such other terms and conditions as may be set forth in the Plan.
ARTICLE 8 - TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
8.1 TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN. The Board may at any
time terminate, and may at any time and from time to time and in any respect
amend or modify, the Plan; provided, however, that no such action of the Board
without approval of the stockholders of the Company may
(a) materially increase the total number of shares of Stock subject
to the Plan except as contemplated in Section 5.3 hereof;
<PAGE>
(b) materially increase the benefits accruing to participants under the
Plan; or
(c) materially modify the requirements as to eligibility for
participation in the Plan; and provided, further, that no termination,
amendment, or modification of the Plan shall in any manner affect any Stock
Option Agreement theretofore granted pursuant to the Plan without the consent of
the Optionee or transferee of the Option. Except as may be necessary to comport
with changes in the Code, ERISA, or the rules thereunder, this Plan may not be
amended more than once every six months.
ARTICLE 9 - MISCELLANEOUS
9.1 CONTINUATION AS A DIRECTOR. Nothing in the Plan or in any Option granted
hereunder or in any Stock Option Agreement relating thereto shall confer upon
any participant the right to continue as a director of the Company or any of its
subsidiaries.
9.2 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any of its subsidiaries, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees or
directors of the Company or any of its subsidiaries.
9.3 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the successors
and assigns of the Company.
9.4 SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.
9.5 HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections hereof
are inserted for convenience and references; they constitute no part of the
Plan.
9.6 INVESTMENT REPRESENTATION. Each Stock Option Agreement shall contain an
agreement that, upon demand by the Administrator for such a representation, the
Optionee shall deliver to the Administrator at the time of any exercise of an
Option a written representation that the shares of Stock to be acquired upon
such exercise are to be acquired for investment purposes only and not for resale
or with a view to the distribution thereof. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of an
Option and prior to the expiration of the Option period shall be a condition
precedent to the right of the Optionee or such other persons to purchase such
shares.
9.7 COMPLIANCE WITH SECTION 16. With respect to persons subject to Section 16 of
the 1934 Act, transactions under the Plan are intended to comply with all
applicable provisions of Section 16 Act and the rules thereunder (including,
without limitation, Rule 16b-3) or their successors thereunder. To the extent
any provision of the Plan or any Stock Option Agreement or any action by the
Administrator falls to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Administrator, and it shall
be restructured to the extent deemed advisable by the Administrator so to
comply.
9.8 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise
of Options thereunder, and the obligation of the Company to sell and deliver
shares under such Options, shall be subject to all applicable federal and state
laws, rules and regulations and to such approvals by any governmental or
regulatory agency or national securities exchange as may be required. The
Company shall not be required to issue or deliver any certificates for shares of
Stock prior to the completion of any registration or qualification of such
shares under any federal or state law, or any ruling or regulation of any
governmental body or national securities exchange which the Company shall in its
sole discretion, determine to be necessary or advisable.
9.9 WITHHOLDING BY THE COMPANY. A Stock Option Agreement executed pursuant to
this Plan may contain a provision to the effect that the Optionee will consent
to any withholding and other actions that the Company deems reasonably necessary
to enable the Company to obtain the benefit of an income tax deduction under the
Code, and any related state or local income tax laws, in the amount of the
difference between the Option exercise price of the Stock and its Fair Market
Value on the date of exercise or the lapse of a restriction, as applicable.
