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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-84227
PROSPECTUS
OFFER TO EXCHANGE ALL 7 5/8% SENIOR NOTES DUE 2009
FOR 7 5/8% SENIOR NOTES DUE 2009, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OF
CHAMPION ENTERPRISES, INC. LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON OCTOBER 11, 1999, UNLESS EXTENDED.
-------------------------
Terms of the exchange offer:
-- We will exchange all original notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer. You should
read the section called "The Exchange Offer" on page 12 for
information on how to exchange original notes for exchange notes.
-- You may withdraw tenders of original notes at any time prior to the
expiration of the exchange offer.
-- We believe that the exchange of original notes will not be a taxable
event for U.S. federal income tax purposes, but you should see
"Material United States Federal Income Tax Considerations" on page 51
for more information.
-- We will not receive any proceeds from the exchange offer.
-- The terms of the exchange notes are substantially identical to those
of the original notes, except that the exchange notes are registered
under the Securities Act and the transfer restrictions and
registration rights applicable to the original notes do not apply to
the exchange notes.
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF THE RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS BEFORE TENDERING THEIR ORIGINAL NOTES.
-------------------------
Neither the Securities and Exchange Commission (SEC) nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is September 10, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
Champion has filed with the SEC a registration statement on Form S-4 under
the Securities Act of 1933, covering the notes to be issued in the exchange
offer (File No. 333-12351). This prospectus does not contain all of the
information included in the registration statement. Any statement made in this
prospectus concerning the contents of any contract, agreement or other document
is not necessarily complete. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Champion files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information filed by us at the SEC's public reference room at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. Our
filings with the SEC are also available to the public from commercial document
retrieval services and at the SEC's web site at "http://www.sec.gov."
This prospectus incorporates by reference the following documents filed by
Champion with the SEC:
-- Annual Report on Form 10-K for the fiscal year ended January 2, 1999;
-- Quarterly Reports on Form 10-Q for the fiscal quarters ended April 3,
1999 and July 3, 1999;
-- Current Reports on Form 8-K filed April 28, 1999, July 12, 1999, July
30, 1999, August 26, 1999 and September 2, 1999; and
-- Proxy Statement dated March 9, 1999 for the 1999 Annual Meeting of
Shareholders held on
April 27, 1999.
In addition, all reports and other documents we subsequently file pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act will be deemed to be
incorporated by reference into this prospectus and to be part of this prospectus
from the date we subsequently file the reports and documents.
Any statements contained in a document incorporated or deemed to be
incorporated by reference into this prospectus are deemed to be modified or
superseded for purposes of this prospectus to the extent modified or superseded
by another statement contained in any subsequently filed document also
incorporated by reference in this prospectus. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute part of this prospectus.
You may also request a copy of any of these filings, at no cost, by writing
or telephoning us at the following address or phone number:
Champion Enterprises, Inc.
2701 University Drive, Suite 300
Auburn Hills, Michigan 48326
(248) 340-9090
Attention: Joseph H. Stegmayer,
Executive Vice President, Chief Strategic and Financial Officer
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THE COMPANY
GENERAL
We are the leading producer of manufactured housing in the U.S. currently
operating 62 home building facilities in 18 states and western Canada. In 1998,
we led the U.S. manufactured housing industry in wholesale revenues and in
wholesale shipments of homes and in 1999 we were named Manufacturer of the Year
by the National Manufactured Housing Congress. Our U.S. wholesale market share
for manufactured housing increased from 17.7% in 1997 to 18.3% in 1998.
Including the January 1999 acquisition of Homes of Merit, Inc., market share
improved to approximately 20% by June 1999. We are also the third largest
retailer of manufactured housing in the U.S. with 282 company-owned retail home
centers in 28 states as of July 3, 1999. Most of our homes are sold through
3,500 independent retail locations across the country and western Canada.
We believe that our position as the industry leader, our strong retail
organization and our broad independent retail network provide us with
competitive advantages in the industry. Our strengths include a decentralized,
entrepreneurial approach, a focus on our core housing business, geographic
diversity and the advantages that come from being a market leader. We also
benefit from an experienced management team, with the eight members of our
senior management having 175 years of combined experience in our industry. Our
Chairman and Chief Executive Officer, Walter R. Young, has been named Industry
Person of the Year by the National Manufactured Housing Congress for each of the
last three years. Our management team continues to execute the business strategy
described below in order to sustain these competitive advantages.
During the past five years we have significantly expanded our manufactured
housing production operations through acquisitions, internal growth and, in
1996, our merger with Redman Industries, Inc. As a result of this growth,
Champion's manufactured housing wholesale revenues have increased from $266
million in 1993, excluding Redman sales, to almost $1.9 billion in 1998.
We have also significantly expanded our retail organization. At the end of
1997 we operated 22 manufactured housing retail sales centers primarily in the
northwestern U.S. During 1998 and the first half of 1999 we expanded our retail
operations by completing the acquisition of 16 retail organizations which
operated 179 sales centers. During the same time period, an additional 81 sales
centers were added through local acquisitions and internal expansions, bringing
our total company-operated retail sales centers to 282 in 28 states as of July
3, 1999. Revenues from retail operations have increased from $61 million in 1997
to $562 million in 1998.
Our Company was established in 1953. Our principal executive offices are
located at 2701 University Drive, Suite 300, Auburn Hills, Michigan 48326. Our
telephone number is (248) 340-9090. Our web site is www.champent.com. The
information contained on our web site is not incorporated by reference in this
prospectus.
CHAMPION'S COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
We believe Champion's success results from our competitive strengths,
including:
-- Decentralized, entrepreneurial approach. We believe that a
streamlined organization creates better accountability, local market
sensitivity and focus. It also fosters the entrepreneurial culture
which is central to our retail and manufacturing operating strategy.
That is why we have only 75 employees in our corporate offices and the
remainder of our approximately 15,000 employees located among 52
profit centers.
-- Focus on core housing business. Unlike many of our competitors, we
are very selective in expanding beyond our core business lines. We
divested ourselves of the last of our non-core businesses with the
sale of our commercial vehicle operation in 1998, and we now focus
exclusively on housing.
-- Geographic diversity. Historically, the manufactured housing industry
was concentrated in Texas and the southeastern U.S. Today, consumers
are located throughout the country. In order to capture the
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geographic expansion of this industry, we currently have manufacturing
facilities in 18 states and western Canada, and retail home centers in
28 states.
-- Advantages of scale. Our leadership affords several advantages,
including price, technology and design leadership. Other advantages
are purchasing power as well as financial strength and access to
capital.
Our business strategy is to continue our growth and maintain our market
leadership by improving our operations and pursuing new, related platforms that
we believe will continue to generate long-term growth. This strategy is based on
the following elements:
-- Further consolidate the manufacturing segment through continued growth
of internal manufacturing operations and the selective acquisition of
housing manufacturers. We started up two additional manufacturing
facilities during 1999 where capacity was needed and to expand the
range of new models. These new plants were built near existing
facilities to reduce costs, allow us to utilize our personnel more
effectively and improve materials management.
-- Strengthen our retail organization through additional acquisitions of
key manufactured housing retailers and further expansion of internal
retail operations. The development of our retailing platform has been
an effective way to increase our market presence and has demonstrated
the benefits of expanding within our industry. As we integrate
retailers, we believe they benefit from sharing our best practices and
improved efficiencies, including purchasing synergies and control of
costs. We also hope to improve the retail buying experience for the
home buyer through better merchandising techniques and improved home
installation to reduce service costs.
-- Expand wholesale distribution through the strengthening of our
relationships with independent retailers. An important component of
this effort is the "Alliance of Champions" marketing program through
which independent retailers receive extensive training in retail
sales, retail management and home installation. Since last October
close to 700 independent retail locations have joined the Alliance
program. This program was introduced to help assure the continued
growth of well-managed, independent retailers of Champion homes.
-- Pursue opportunities to expand our role in the housing industry. We
continue to evaluate other growth opportunities in manufacturing,
retailing and other aspects of our industry that will build on our
core competencies.
INDUSTRY BACKGROUND
The manufactured housing industry has grown rapidly in the United States.
Once considered a niche market, it is now a significant part of the housing
industry with approximately 19,000,000 people living in manufactured homes in
the U.S. According to the U.S. Census Bureau, as of November 1998, manufactured
homes accounted for 30% of all new single-family unit sales.
Consumer acceptance of manufactured homes is on the rise. The industry, and
especially Champion, has made constant progress in improving quality, features
and style. The interiors of many manufactured homes are indistinguishable from
site-built homes. Features include spacious kitchens, multiple bathrooms,
vaulted ceilings, fireplaces, utility rooms, large closets and many other
features. Professional designers follow the latest trends in housing
construction and design and are quick to innovate.
Advances in production technology have improved the quality of manufactured
homes while controlling costs. Manufacturers are able to use production systems
that are simply not available to site builders. In addition, large manufacturers
like Champion are able to negotiate favorable contracts with materials
suppliers.
Manufactured homes continue to remain affordable. According to 1997 data
reported by the U.S. Department of Commerce, manufactured housing costs
approximate $28.94 per square foot, compared to $61.47 per square foot for
site-built housing. Manufactured homes are typically sold with major
free-standing appliances like stoves and refrigerators, window treatments, wall
coverings and other features that are usually
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not included in site-built homes. Consumers can add the cost of these items in
their finance package, reducing their move-in costs.
The traditional market segment in which manufactured housing is most
competitive includes consumers with household incomes under $40,000. This
segment has a high representation of young single persons and married couples,
as well as elderly or retired persons. These consumers are attracted by the
comparatively low cost of fully or partially furnished housing, together with
the low down payment requirements and the relative ease of financing. In
addition, persons in rural areas, where fewer housing alternatives exist, and
those who presently live in manufactured homes make up a significant portion of
the demand for new manufactured housing. We believe that a much larger market
may exist in urban and suburban areas, including apartment dwellers and persons
who have traditionally purchased low-priced site-built homes.
The recent strength of the homebuilding market in general is affected by a
number of different factors, including consumer confidence, job creation,
interest rates, general economic growth and overall affordability of housing. In
addition, demographic trends, such as changes in population growth, and
competition affect the demand for housing products.
The growth of the manufactured housing industry since 1991, in particular,
can be attributed to the following factors:
-- Favorable demographics. The industry has benefitted from a number of
different demographic shifts which are increasing the demand for
manufactured homes. A growing retiree and empty nester population and
increased immigrant home ownership are driving demand from these two
important customer bases. Furthermore, we believe that increases in
the number of people with vacation and second homes are contributing
to higher demand for manufactured homes. A strong economy and job
growth in the Sunbelt region of the U.S. has created a more robust
market in this region, which has been the strongest region in the
country for manufactured homes.
-- Credit availability. The amount of credit available to purchasers of
manufactured homes has increased significantly in the last ten years.
Purchasers have further benefitted from more favorable loan terms,
such as extended loan lives and lower down payment requirements.
-- Shift in product characteristics. We believe that manufactured homes
enjoy greater acceptability and improved image today than they have in
the past. Part of this can be attributed to the emergence of higher
quality, larger homes which have all the features and amenities of
many site-built homes, but with a substantial price advantage.
PRODUCTS
Manufactured homes are usually single-family dwellings, built in sections
in a controlled factory environment. They can be installed on private land or in
a community park. Homes usually consist of one, two or three sections, also
known as floors. Champion has increased its mix of multi-section homes over the
past six years, from 46% of our wholesale shipments in 1992 to 63% of our
wholesale shipments in 1998, which reflects sales to a broader customer base.
According to data reported by the National Conference of States on Building
Codes and Standards ("NCSBCS"), the industry's U.S. multi-section mix was 61% in
1998, compared to 58% in 1997.
Approximately 97% of our homes produced in 1998 were manufactured in
accordance with standards for manufactured homes adopted by the U.S. Department
of Housing and Urban Development ("HUD"), known as "HUD code" homes. The
remaining 3% of the homes we produced were manufactured in Canada or were
"modular homes." Homes produced in Canada are constructed in accordance with
applicable Canadian building standards. Modular homes are designed to meet local
building codes. The chief components and products used in manufactured housing
are generally the same kind and quality as those used by other housing builders,
including conventional site builders.
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We produce a broad range of single-section and multi-section homes under
various trade names and brand names and in a variety of floor plans and price
ranges. Our manufactured homes generally range in size from 800 to 2,300 square
feet, but some are as large as 6,100 square feet. These homes typically include
two to four bedrooms, a living room or family room, dining room, kitchen and two
full bathrooms.
During 1998, the average wholesale price of our homes was $27,000.
Wholesale prices range from $10,000 to over $100,000. During 1998 our average
retail selling price at our company-operated retail sales centers was $45,100
per new home. Retail sales prices of the homes, without land, generally range
from $15,000 to over $150,000, depending upon size, floor plan, features and
options.
PRODUCTION
Our homes are constructed in indoor facilities using an assembly-line
process employing approximately 150 to 250 production employees at each
facility. The homes are manufactured in one or more sections on a permanently
affixed steel support chassis. Other constructed and purchased components are
then added and the home is subject to a final quality control inspection. The
efficiency of the assembly-line process, protection from the elements of weather
and quantity discounts resulting from increased purchasing power enable us to
produce homes in one to two days at substantially less cost than conventional
site-built housing. Although manufactured homes can be produced throughout the
year in indoor facilities, demand for homes is usually affected by inclement
weather and by the cold winter months in northern areas of the U.S. and in
Canada.
Our production schedule is based upon orders we receive from retailers
either in response to specific customer orders or for display home purposes.
Before scheduling homes for production, orders and availability of financing are
confirmed with the retailer and floor plan lender. Orders are generally filled
within 90 days of receipt, depending upon the level of unfilled orders and
requested delivery dates. Since we produce homes to fill existing wholesale and
retail orders, our manufacturing plants generally do not carry finished goods
inventories except for homes awaiting delivery and they typically only maintain
a one to three weeks' supply of raw materials.
INDEPENDENT RETAILERS
During 1998, 89% of our wholesale shipments of homes were made to
approximately 3,500 independent retail locations throughout the U.S. and western
Canada. Some independent retailers operate multiple sales centers. As is common
in the industry, our independent retailers may sell manufactured homes produced
by other manufacturers in addition to those produced by us. In 1998, no single
independent retailer or distributor accounted for more than 5% of our
manufacturing sales. The majority of independent retailer home purchases are
financed by lending institutions on a floor plan basis secured by a lien on such
homes. The manufacturing facilities generally receive payment from the lending
institutions 7 to 15 days after homes are sold to independent retailers. In
accordance with trade practice, we enter into various repurchase agreements with
the lending institutions providing retailer floor plan financing, as is more
fully described in Note 10 of Notes to Consolidated Financial Statements,
incorporated by reference in this prospectus.
We continually seek to increase sales at existing independent retailers by
increasing throughput of our homes, as well as by finding new independent
retailers to carry our homes. During the second half of 1998 we introduced the
"Alliance of Champions" marketing program for selected Champion independent
retailers that have a record of success and a commitment to growth. The Alliance
program is designed to support the independent retailer in expanding his
business and improving the retail buying experience. The program assures
Alliance participants a supply of a broad range of quality homes from Champion's
manufacturing facilities. Additional benefits available to Alliance members are
access to wholesale and retail finance packages from third-party lenders and
availability of enhanced marketing programs.
COMPANY-OPERATED RETAIL SALES CENTERS
As a result of the acquisition of 16 retail organizations during 1998 and
through the first half of 1999, as well as internal expansions, we operated 282
retail sales locations in 28 states at July 3, 1999, compared to 22 sales
locations at January 3, 1998. Our retail sales in 1998 totaled $562 million,
compared to $61 million in
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1997. Purchases by company-operated retailers accounted for 14% of our wholesale
home shipments during the first half of 1999, up from 11% for the fiscal year
ended 1998. Of the total new homes sold by company-operated retailers in 1999,
60% were produced by us.
Each of our retail companies does business autonomously under its own name
and carries and sells homes based on availability from suppliers and
marketability for their local area. Some of the retail locations acquired in
1998 sell homes primarily produced by us while others sell principally or
exclusively non-Champion homes. We encourage our retailers to source home models
on a competitive basis from a variety of manufacturers, including Champion.
Our retail sales centers generally range in size from one and one-half acre
to four acres, although some locations are up to 10 acres. Each sales center has
a sales office and a variety of model homes of various sizes, and offers various
floor plans, features and prices. Customers may purchase a home from an
inventory of homes maintained at the location, including the model homes, or may
order a home that will be built at a manufacturing facility. Many sales centers
also sell pre-owned homes that are obtained through trade-ins or repossessions
from financial institutions. Our retail centers generally finance their
inventories of homes under floor plan financing arrangements similar to those
discussed above under "Independent Retailers."
Our retail sales centers are usually located on a main road or highway for
high visibility. Model homes may be displayed in a residential setting with
sidewalks and landscaping. Each sales center usually employs a manager and three
or four commissioned salespersons. We use radio and television advertising in
areas where we have a concentration of sales centers. Most retail customers
finance the purchase of their home through a lending institution. The sales
center often assists in arranging financing and insurance on the home, for which
a fee is received. The sales centers may also sell additional items in
connection with the sale of the home, such as central air conditioning, decks,
skirting and other appliances. In addition, retailers often arrange for
necessary permits and utility connections.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, depth of
field inventory, promotion, merchandising and retailer and retail customer
financing terms. In addition, manufactured homes compete with other forms of
low-cost housing, including site-built, prefabricated and modular homes,
apartments, townhouses and condominiums.
According to NCSBCS, in 1998 there were approximately 89 producers of
manufactured homes in the U.S. operating an estimated 330 production facilities.
In 1998, the top four companies had combined market share of approximately 54%,
according to data from a survey by Manufactured Home Merchandiser. Based on
industry data reported by NCSBCS, in 1998 our U.S. wholesale market share of HUD
code homes sold was 18.3%, up from 17.7% in 1997. By the end of the first half
of 1999, our U.S. wholesale market share was approximately 20%, including Homes
of Merit which we acquired in January 1999.
On the retail side, there are an estimated 7,500 retail locations
throughout the U.S. We sell our homes through approximately 3,500 independent
retail locations as well as through our company-operated retail centers, which
totaled 282 at July 3, 1999.
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RISK FACTORS
In addition to the other information contained in, or incorporated by
reference into, this prospectus, you should consider the following factors
before deciding to tender your original notes in the exchange offer.
THE CYCLICAL AND SEASONAL NATURE OF THE HOUSING MARKET MAY CAUSE FLUCTUATIONS IN
OPERATING RESULTS.
The housing market historically has been highly cyclical and seasonal and
subject to volatility in quarterly operating results. The housing market is
influenced by many national and regional economic and demographic factors,
including consumer confidence, interest rates, availability of financing,
regional population and employment trends and general economic conditions,
including recessions. The housing industry generally experiences lower sales in
the first and fourth calendar quarters of the year primarily as a result of the
effect of adverse weather on construction, manufacturing, distribution and sales
efforts, as well as retail sales and setups. We may, in certain periods, be
affected by these economic and seasonal trends. We cannot assure you that the
housing market will not experience future declines or that such declines will
not have a material adverse effect on us.
OUR FUTURE RESULTS OF OPERATIONS ARE DEPENDENT UPON OUR ABILITY TO ASSIMILATE
THE OPERATIONS OF ACQUISITIONS.
During the past five years we have significantly expanded our manufactured
housing production operations through acquisitions, with nine acquisitions of
manufactured housing companies since 1994. We have also significantly expanded
our retail operations. We had 282 retail sales locations in 28 states as of July
3, 1999, compared to 22 sales locations at January 3, 1998. Our future results
of operations are dependent, in part, upon the ability of our management to
assimilate the operations of recent acquisitions, as well as any future
acquisitions and to oversee these expanded operations. Our ability to manage
these and any future acquisitions will depend upon a number of factors,
including our capital resources, our ability to retain key employees and our
ability to control operating and production costs. We cannot assure you that we
will be successful in these efforts or that these efforts may not in certain
circumstances adversely affect our operating results.
WE DEPEND ON INDEPENDENT RETAILERS.
During 1998, 89% of our wholesale shipments of homes were made to
approximately 3,500 independent retail locations throughout the U.S. and western
Canada. Some independent retailers operate multiple sales centers. As is common
in the industry, our independent retailers may sell manufactured homes produced
by other manufacturers in addition to those produced by us. While we believe
that our relations with our independent retailers are generally good, our
relationships with our retailers are cancellable on short notice by either
party, and we cannot assure you that we will be able to maintain these
relations, that these retailers will continue to sell our homes or that we will
be able to attract and retain quality independent retailers.
OUR SALES DEPEND ON THE AVAILABILITY OF RETAILER AND CONSUMER FINANCING.
Our retailers and the retail purchasers of our homes normally secure
financing from third-party lenders. The availability, interest rate and other
costs of such financing are dependent on the lending practices of financial
institutions, governmental policies and economic and other conditions, all of
which are beyond our control. Interest rates for manufactured home loans are
generally higher, and the terms of these loans shorter, than loans for
site-built homes. Additionally, manufactured home financing is at times more
difficult to obtain than conventional home mortgages. There can be no assurance
that affordable wholesale or retail financing for manufactured homes will
continue to be available on a widespread basis. If such financing were to become
unavailable, such unavailability could have a material adverse effect on our
results of operations.
WE COULD BE ADVERSELY IMPACTED BY CONTINGENT LIABILITIES.
As is customary in the manufactured housing industry, most retailers
finance their purchases through floor plan arrangements under which a financial
institution provides the retailer with a loan for the purchase price of the home
and maintains a security interest in the home as collateral. In connection with
a floor plan
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arrangement, the financial institution which provides the retailer financing
customarily requires us to enter into a separate repurchase agreement with the
financial institution under which we are obligated, upon default by the retailer
and repossession by the financial institution, to repurchase a home in an amount
equal to the unpaid loan balance for the home, plus certain administrative and
handling expenses, reduced by the amount of any damage to the home. The maximum
potential repurchase obligation at July 3, 1999 was $900 million, exclusive of
any resale value. Losses incurred in connection with these agreements in 1994
through 1998 were immaterial and estimated losses are provided for currently. In
1998, Champion repurchased 165 homes and recorded a loss on resale of
approximately $120,000 in connection with these repurchases. On July 23, 1999,
Champion's largest independent retail customer filed a Chapter 11 bankruptcy
petition. As a result, Champion expects to incur a one-time after tax charge of
$20.5 million or $0.41 per diluted share in the third quarter of 1999 in
connection with the repurchase of homes sold to this retailer. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Other Matters" below. We cannot assure you that we will not suffer additional
losses with respect to, and as a consequence of, these financing arrangements.
OUR GROWTH MAY BE LIMITED BY THE AVAILABILITY OF MANUFACTURED HOUSING SITES.
Any limitation on the growth of the number of sites for placement of
manufactured homes or on the operation of manufactured housing communities could
adversely affect the manufactured housing business. Manufactured housing
communities and individual home placements are subject to local zoning
ordinances and other local regulations relating to utility service and
construction of roadways. In the past, property owners often have resisted the
adoption of zoning ordinances permitting the location of manufactured homes in
residential areas, which we believe has adversely affected the growth of the
industry. We cannot assure you that manufactured homes will receive widespread
acceptance or that localities will adopt zoning ordinances permitting the
location of manufactured home areas. The inability of the manufactured home
industry to gain such acceptance and zoning ordinances could have a material
adverse effect on our results of operations.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the exchange notes, you will surrender to us in exchange original
notes of like principal amount, the terms of which are identical in all material
respects to the exchange notes. The original notes surrendered in exchange for
exchange notes will be retired and canceled and cannot be reissued.
On May 3, 1999, we issued and sold the original notes. We used the net
proceeds of that offering, which were approximately $197.3 million, primarily to
reduce borrowings under our bank credit facility.
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CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
Champion as of July 3, 1999 after the use of the net proceeds from the initial
offering of the notes. This table should be read in conjunction with "Use of
Proceeds" and the Consolidated Financial Statements of Champion and the notes
thereto incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
(IN THOUSANDS
EXCEPT PAR
VALUE)
-------------
<S> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable to bank..................................... $ 7,000
Floor plan payable........................................ 147,938
Accounts payable.......................................... 68,880
Other current liabilities................................. 217,603
----------
Total current liabilities.............................. 441,421
----------
Long-term debt:
7 5/8% Notes Due May 15, 2009............................. 200,000
Other long-term debt...................................... 23,370
Deferred portion of purchase price.......................... 34,700
Other long-term liabilities................................. 64,095
Shareholders' equity:
Preferred stock, no par value; 5,000 shares authorized; no
shares issued and outstanding.......................... --
Common stock, $1 par value; 120,000 authorized; 48,577
issued and outstanding................................. 48,577
Capital in excess of par value............................ 44,655
Retained earnings......................................... 365,319
Foreign currency translation adjustments.................. (989)
----------
Total shareholders' equity............................. 457,562
----------
Total liabilities and shareholders' equity.................. $1,221,148
==========
</TABLE>
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SELECTED FINANCIAL DATA
The following table sets forth selected financial data for Champion for
each of the fiscal years ended December 31, 1994, December 30, 1995, December
28, 1996, January 3, 1998 and January 2, 1999. The selected financial data as of
and for each of the five fiscal years then ended have been derived from our
Consolidated Financial Statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. You should read this data
in conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of Champion and the notes thereto incorporated by reference in this
prospectus.
The selected financial data as of and for the six months ended July 4, 1998
and July 3, 1999 have been derived from our unaudited consolidated financial
statements. In the opinion of management, the interim consolidated financial
statements include all adjustments necessary for a fair presentation of the
results of operations, financial position and cash flow for those periods. The
results for the six months ended July 3, 1999 are not necessarily indicative of
results that may be expected for the entire fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales
Manufacturing...................... $1,088,381 $1,346,685 $1,572,427 $1,652,229 $1,898,596 $ 918,818 $1,034,114
Retail............................. 34,702 27,200 33,202 60,624 561,659 210,707 400,149
Less intercompany................ (22,600) (18,800) (22,800) (37,800) (206,000) (84,000) (145,000)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net sales............................ 1,100,483 1,355,085 1,582,829 1,675,053 2,254,255 1,045,525 1,289,263
Cost of sales........................ 942,259 1,151,012 1,338,800 1,423,595 1,852,676 866,906 1,054,529
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin......................... 158,224 204,073 244,029 251,458 401,579 178,619 234,734
Selling, general and administrative
expenses........................... 89,289 112,396 130,629 135,028 231,295 101,682 139,926
Nonrecurring merger and other
charges............................ 2,700 -- 22,000 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income..................... 66,235 91,677 91,400 116,430 170,284 76,937 94,808
Net interest income (expense)........ 673 298 525 941 (13,486) (4,590) (12,229)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Pretax income-continuing
operations......................... $ 66,908 $ 91,975 $ 91,925 $ 117,371 $ 156,798 $ 72,347 $ 82,579
========== ========== ========== ========== ========== ========== ==========
Income-continuing operations......... $ 43,808 $ 54,475 $ 52,225 $ 70,771 $ 94,198 $ 43,447 $ 50,379
Income-discontinued operations....... 3,230 1,810 1,361 4,500 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................... $ 47,038 $ 56,285 $ 53,586 $ 75,271 $ 94,198 $ 43,447 $ 50,379
========== ========== ========== ========== ========== ========== ==========
OTHER FINANCIAL DATA
EBITDA............................... $ 77,023 $ 102,971 $ 127,863 $ 133,521 $ 197,195 $ 89,790 $ 113,079
Ratio of earnings to fixed charges... 33.1x 26.3x 29.1x 91.4x 9.7x 12.8x 6.3x
Depreciation and amortization........ $ 8,088 $ 11,294 $ 14,463 $ 17,091 $ 26,911 $ 12,853 $ 18,271
Capital expenditures................. $ 18,762 $ 19,854 $ 50,094 $ 38,266 $ 49,120 $ 21,814 $ 31,537
BALANCE SHEET DATA (end of period)
Net property, plant and equipment.... $ 59,783 $ 75,271 $ 119,994 $ 143,519 $ 190,963 $ 171,340 $ 216,083
Total assets......................... 290,090 367,872 461,222 501,250 1,021,672 934,274 1,221,148
Long-term debt....................... 2,536 1,685 1,158 1,813 121,629 3,552 223,370
Shareholders' equity................. $ 133,266 $ 176,142 $ 226,634 $ 280,416 $ 405,246 $ 349,111 $ 457,562
OTHER STATISTICAL INFORMATION
Number of employees end of period.... 7,600 8,700 10,700 11,300 14,000 12,000 15,000
Homes sold
-- Wholesale....................... 44,453 53,955 61,796 64,285 70,359 34,631 37,990
Retail -- new...................... 644 477 541 983 11,738 4,545 8,176
Retail -- pre-owned................ 51 36 28 87 2,867 1,005 2,086
Wholesale multi-section mix.......... 54% 54% 56% 58% 63% 61% 65%
</TABLE>
10
<PAGE> 12
The 1996 merger with Redman Industries, Inc., which was accounted for as a
pooling of interests, required all prior years to be restated to include
Redman's results. See the Notes to our Consolidated Financial Statements
incorporated by reference in this prospectus for information regarding the
merger with Redman and discontinued operations.
EBITDA is defined as operating income before nonrecurring charges plus
depreciation and amortization. We have included EBITDA because it is used by
certain investors as a measure of our operating performance. EBITDA is not
required under generally accepted accounting principles and should not be
considered an alternative to net income or any other measure of performance
required by generally accepted accounting principles. EBITDA should also not be
used as a measure of liquidity or cash flows under generally accepted accounting
principles.
SEPARATE FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES
Substantially all the Company's subsidiaries are guarantors of indebtedness
under the $200 million senior notes. Separate financial statements for each
guarantor subsidiary are not included in this filing because each guarantor
subsidiary is fully, unconditionally, jointly and severally liable for the
senior notes. In addition, the aggregate total assets and pretax income of and
the Company's net investment in the nonguarantor subsidiaries is not material to
the consolidated totals of the Company.
11
<PAGE> 13
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions set forth in this prospectus and in the
accompanying letter of transmittal, we will accept for exchange original notes
which are properly tendered on or before the expiration date and not withdrawn
as permitted below. As used in this prospectus, the term "expiration date" means
5:00 p.m., New York City time, on October 11, 1999. However, if we, in our sole
discretion, have extended the period of time for which the exchange offer is
open, the term "expiration date" means the latest time and date to which we
extend the exchange offer.
As of the date of this prospectus, $200 million aggregate principal amount
of the original notes is outstanding. This prospectus, together with the letter
of transmittal, is first being sent on or about, September 10, 1999, to all
holders of original notes known to us. Our obligation to accept original notes
for exchange pursuant to the exchange offer is subject to the conditions set
forth below under "-- Conditions to the Exchange Offer."
We reserve the right to extend the period of time during which the exchange
offer is open. If we extend the exchange offer by giving oral or written notice
of an extension to the holders of original notes as described below, we will
delay acceptance for exchange of any original notes. During any extension
period, all original notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us. Any original notes not
accepted for exchange will be returned to the tendering holder after the
expiration or termination of the exchange offer.
Original notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple of $1,000.
We reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any original notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "-- Conditions to the Exchange Offer." We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the original notes as promptly as practicable. If we materially change the
terms of the exchange offer, we will resolicit tenders of the original notes. We
will notify you of any extension by means of a press release or other public
announcement no later than 9:00 a.m., New York City time on the date of the
extension.
Our acceptance of the tender of original notes by a tendering holder will
form a binding agreement upon the terms and subject to the conditions provided
in this prospectus and in the accompanying letter of transmittal.
PROCEDURES FOR TENDERING
Except as described below, a tendering holder must deliver to First Chicago
Trust Company of New York, the exchange agent, on or before the expiration date:
(1) certificates for the original notes or confirmation of book-entry
transfer of the original notes under the procedures specified in
"-- Book-Entry Transfer" below, and
(2) a letter of transmittal, properly completed and executed, with all
other documents required by the letter of transmittal.
The method of delivery of original notes, letters of transmittal and all
other required documents is at your election and risk. If the delivery is by
mail, we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send letters of transmittal or original notes to
us.
If you are a beneficial owner whose original notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, and
wish to tender, you should promptly instruct the registered holder to tender on
your behalf. Any registered holder that is a participant in book-entry transfer
12
<PAGE> 14
facility system of The Depository Trust Company (DTC) may make book-entry
delivery of the original notes by causing the DTC to transfer the original notes
into the exchange agent's account.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the original notes surrendered for exchange are tendered:
-- by a registered holder of the original notes who has not completed the
box entitled "Special Issuance Instructions" on the letter of
transmittal, or
-- for the account of an "eligible institution."
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be made by an "eligible
institution." An "eligible institution" is a financial institution -- including
most banks, savings and loan associations and brokerage houses -- that is a
participant in the Securities Transfer Agents Medallion Program.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of original notes tendered for exchange. This discretion
extends to the determination of all questions concerning the timing of receipts
and acceptance of tenders. These determinations will be final and binding.
We reserve the right to reject any particular original note not properly
tendered or any acceptance which might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the right to waive any defects or
irregularities or conditions of the exchange offer as to any particular original
note either before or after the expiration date, including the right to waive
the ineligibility of any tendering holder. Our interpretation of the terms and
conditions of the exchange offer as to any particular original note either
before or after the expiration date, including the letter of transmittal and the
instructions to the letter of transmittal, shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of original notes must be cured within a reasonable period of time. Neither we,
the exchange agent nor any other person will be under any duty to give
notification of any defect or irregularity in any tender of original notes. Nor
will we, the exchange agent or any other person incur any liability for failing
to give notification of any defect or irregularity.
If the letter of transmittal is signed by a person other than the
registered holder of original notes, the letter of transmittal must be
accompanied by a written instrument of transfer or exchange in satisfactory form
duly executed by the registered holder with the signature guaranteed by an
eligible institution. The original notes must be endorsed or accompanied by
appropriate powers of attorney. In either case, the original notes must be
signed exactly as the name of any registered holder appears on the original
notes.
If the letter of transmittal or any original notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder will represent to us that, among other things,
-- the exchange notes are being acquired in the ordinary course of
business of the person receiving the exchange notes, whether or not
that person is the holder, and
-- neither the holder nor any other person acting on behalf of the holder
has any arrangement or understanding with any person to participate in
the distribution of the exchange notes.
In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in and does
not intend to engage in a distribution of the exchange notes.
If any holder or other person acting on behalf of the holder is an
"affiliate" of ours, as defined under Rule 405 of the Securities Act, or is
engaged in, or intends to engage in, or has an arrangement or understanding with
any person to participate in, a distribution of the exchange notes that holder
or other person can not rely on the applicable interpretations of the staff of
the SEC and must comply with the
13
<PAGE> 15
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where the original notes were acquired by it as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus that meets the requirements of the Securities
Act in connection with any resale of the exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "Plan of Distribution."
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all original notes properly
tendered. We will issue the exchange notes promptly after acceptance of the
original notes. See "-- Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be deemed to have accepted properly tendered
original notes for exchange when, as and if we have given oral followed by
written notice to the exchange agent, with prompt written confirmation of any
oral notice.
For each original note accepted for exchange, the holder of the original
note will receive an exchange note having a principal amount equal to that of
the tendered original note. The exchange notes will bear interest from the most
recent date to which interest has been paid on the original notes or, if no
interest has been paid on the original notes, from May 3, 1999. Accordingly,
registered holders of exchange notes on the relevant record date for the first
interest payment date following the completion of the exchange offer will
receive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from May 3, 1999. Original notes accepted
for exchange will cease to accrue interest from and after the date of completion
of the exchange offer. Holders of original notes whose original notes are
accepted for exchange will not receive any payment for accrued interest on the
original notes otherwise payable on any interest payment date the record date
for which occurs on or after completion of the exchange offer and will be deemed
to have waived their rights to receive the accrued interest on the original
notes.
In all cases, issuance of exchange notes for original notes will be made
only after timely receipt by the exchange agent of:
-- certificates for the original notes, or a timely book-entry
confirmation of the original notes, into the exchange agent's account
at the book-entry transfer facility,
-- a properly completed and duly executed letter of transmittal, and
-- all other required documents.
Unaccepted or non-exchanged original notes will be returned without expense
to the tendering holder of the original notes. In the case of original notes
tendered by book-entry transfer pursuant to the book-entry procedures described
below, the non-exchanged original notes will be credited to an account
maintained with the book-entry transfer facility, as promptly as practicable
after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
original notes at the book-entry transfer facility for purposes of the exchange
offer within two business days after the date of this prospectus. Any financial
institution that is a participant in the book-entry transfer facility's systems
may make book-entry delivery of original notes by causing the book-entry
transfer facility to transfer the original notes into the exchange agent's
account at the facility. However, the letter of transmittal or a manually signed
facsimile copy of the letter of transmittal, with any required signature
guarantees and any other required documents, must be delivered to the exchange
agent on or before the expiration date, unless the holder has strictly complied
with the guaranteed delivery procedures described below.
14
<PAGE> 16
GUARANTEED DELIVERY PROCEDURES
If a registered holder of original notes desires to tender the original
notes, and the original notes are not immediately available, or time will not
permit the holder's original notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer described above cannot be completed on a timely basis, a tender may
nonetheless be made if:
-- the tender is made through an eligible institution;
-- prior to the expiration date, the exchange agent received from an
eligible institution a properly completed and duly executed letter of
transmittal, or a manually signed facsimile copy of the letter of
transmittal, and notice of guaranteed delivery, substantially in the
form provided by us, by facsimile transmission, mail or hand delivery,
(a) setting forth the name and address of the holder of original notes
and the amount of original notes tendered,
(b) stating that the tender is being made,
(c) guaranteeing that within three New York Stock Exchange (NYSE)
trading days after the expiration date, the certificates for all
physically tendered original notes, in proper form for transfer, or
a book-entry confirmation, as the case may be, and any other
documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent; and
(d) the certificates for all physically tendered original notes, in
proper form for transfer, or a book-entry confirmation, as the case
may be, and all other documents required by the letter of
transmittal, are received by the exchange agent within three NYSE
trading days after the expiration date.
WITHDRAWAL RIGHTS
Tenders of original notes may be withdrawn at any time before 5:00 p.m.,
New York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at the address or, in the case of eligible institutions, at
the facsimile number, set forth below under "-- Exchange Agent" before 5:00
p.m., New York City time, on the expiration date. Any notice of withdrawal must:
-- specify the name of the person, referred to as the depositor, having
tendered the original notes to be withdrawn;
-- identify the notes to be withdrawn, including the certificate number
or numbers and principal amount of the original notes;
-- contain a statement that the holder is withdrawing his election to
have the original notes exchanged;
-- be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the original notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer to have the trustee with respect
to the original notes register the transfer of the original notes in
the name of the person withdrawing the tender; and
-- specify the name in which the original notes are registered, if
different from that of the depositor.
If original notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn original notes and otherwise comply with the
procedures of the facility. We will determine all questions as to the validity,
form and eligibility, including time of receipt, of notices of withdrawal. Our
determination shall be final and binding on all parties. Any original notes so
withdrawn will be deemed not to have been validly tendered for exchange. No
exchange notes will be issued unless the original notes so withdrawn are validly
retendered. Any original notes that have been tendered for exchange, but which
15
<PAGE> 17
are not exchanged for any reason, will be returned to the tendering holder
without cost to the holder. In the case of original notes tendered by book-entry
transfer, the original notes will be credited to an account maintained with the
book-entry transfer facility for the original notes, as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn original notes may be retendered by following the procedures
described under "-- Procedures for Tendering" above at any time on or before
5:00 p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue exchange notes in exchange for, any
original notes, and may terminate or amend the exchange offer, if at any time
before the acceptance of the original notes for exchange or the exchange of the
exchange notes for the original notes, any of the following events shall occur:
-- there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (1) seeking to
restrain or prohibit the making or completion of the exchange offer or
any other transaction contemplated by the exchange offer, or assessing
or seeking any damages as a result of such transaction or (2)
resulting in a material delay in our ability to accept for exchange or
exchange some or all of the original notes pursuant to the exchange
offer; or any statute, rule, regulation, order or injunction shall be
sought, proposed, introduced, enacted, promulgated or deemed
applicable to the exchange offer or any of the transactions
contemplated by the exchange offer by any governmental authority,
domestic or foreign, or any action shall have been taken, proposed or
threatened, by any governmental authority, domestic or foreign, that
in our sole judgment might directly or indirectly result in any of the
consequences referred to in clauses (1) or (2) above or, in our sole
judgment, might result in the holders of exchange notes having
obligations with respect to resales and transfers of exchange notes
which are greater than those described in the interpretation of the
SEC referred to above, or would otherwise make it inadvisable to
proceed with the exchange offer; or
-- there shall have occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market;
(2) any limitation by a governmental authority which may adversely
affect our ability to complete the transactions contemplated by the
exchange offer;
(3) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the
extension of credit; or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the exchange offer, a material acceleration
or worsening of such calamities; or
-- any change, or any development involving a prospective change, shall
have occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects and those of our subsidiaries taken as a whole that, in our
sole judgment, is or may be adverse to us, or we shall have become
aware of facts that, in our sole judgment, have or may have an adverse
impact on the value of the original notes or the exchange notes; which
in our sole judgment in any case, and regardless of the circumstances,
including any action by us, giving rise to any such condition, makes
it inadvisable to proceed with the exchange offer and/or with such
acceptance for exchange or with such exchange.
16
<PAGE> 18
These conditions to the exchange offer are to our sole benefit and may be
asserted by us regardless of the circumstances giving rise to any of these
conditions, or may be waived by us in whole or in part in our sole discretion.
Our failure at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any original notes, if at
such time any stop order is threatened or in effect relating to the registration
statement of which this prospectus constitutes a part or the qualification of
the Indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
We have appointed First Chicago Trust Company of New York as the exchange
agent for the exchange offer. You should direct all executed letters of
transmittal to the exchange agent at the address set forth below. You should
direct questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery to the exchange agent addressed as follows:
DELIVERY TO: First Chicago Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT DELIVERY:
First Chicago Trust Company of New York First Chicago Trust Company of New York
Corporate Actions, Suite 4660 Corporate Actions, Suite 4680
P.O. Box 2569 14 Wall Street, 8th Floor
Jersey City, New Jersey 07303-2569 New York, New York 10005
</TABLE>
BY HAND DELIVERY:
First Chicago Trust Company of New York
c/o Securities Transfer and Reporting Services, Inc.
Attn: Corporate Actions
100 William Street, Galleria
New York, New York 10038
FOR INFORMATION CALL:
(800) 251-4215
IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, THEN YOUR DELIVERY OR TRANSMISSION WILL NOT CONSTITUTE A VALID
DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The principal solicitation for this exchange offer is being made by mail;
however, additional solicitation may be made by telephone, facsimile or in
person by our officers, regular employees and affiliates. We will not pay any
additional compensation to any officers or employees who engage in this
solicitation. We will not make any payment to brokers, dealers, or others
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and reimburse reasonable
out-of-pocket expenses incurred in connection with the exchange offer.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us. We estimate these expenses in the aggregate to be
approximately $100,000.
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<PAGE> 19
ACCOUNTING TREATMENT
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the exchange notes under generally accepted accounting
principles.
TRANSFER TAXES
Holders who tender their original notes for exchange will not be obligated
to pay any related transfer taxes, except that holders who instruct us to
register exchange notes in the name of, or request that original notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer taxes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES
Holders of original notes who do not exchange their original notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the original
notes and the restrictions on transfer of the original notes as set forth in the
legend on the notes as a consequence of the issuance of the original notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the original notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. As
discussed in "Exchange Offer; Registration Rights," we do not currently
anticipate that we will register original notes under the Securities Act.
Based on an interpretation of the Securities Act by the staff of the SEC,
as set forth in no-action letters issued to third parties, we believe that
exchange notes issued in the exchange offer may be offered for resale, resold or
otherwise transferred by holders of the exchange notes, other than any holder
which is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the exchange notes are acquired
in the ordinary course of the holders' business and the holders have no
arrangement or understanding with any person to participate in the distribution
of the exchange notes. However, the SEC has not specifically considered this
exchange offer in the context of issuing a no-action letter. We cannot assure
you that the staff of the SEC would make a similar determination with respect to
the exchange offer as in the other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of exchange notes and has no arrangement or
understanding to participate in a distribution of exchange notes. If any holder
is an affiliate of ours, is engaged in or intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of the exchange notes to be acquired in the exchange offer, that holder:
(1) could not rely on the applicable interpretations of the staff of the
SEC, and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes must acknowledge that the original notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of Distribution." In addition, to comply
with state securities laws, the exchange notes may not be offered or sold in any
state unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification, with which there has been
compliance, is available. The offer and sale of the exchange notes to "qualified
institutional buyers," as defined under Rule 144A of the Securities Act, is
generally exempt from registration or qualification under the state securities
laws. We currently do not intend to register or qualify the sale of exchange
notes in any state where an exemption from registration or qualification is
required and not available.
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. In addition, from time to time, we and our representatives have made or
may make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
us with the SEC and press releases or oral statements made by our management.
These statements relate to analyses and other information which are based on
forecasts of future results and estimates of amounts not yet determinable. These
statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "The Company" and other sections
of this prospectus and in the documents incorporated by reference in this
prospectus.
Certain statements included or incorporated by reference in this
prospectus, including Champion's plans regarding its number of manufacturing
facilities, capital expenditures, contingent liabilities related to repurchase
agreements, retail strategy, products and performance, views of industry
prospects and anticipated demand for manufactured homes, and Champion's
long-term goal of compound annual growth in earnings per share of 15% and its
retail sales goal of $1 billion by the year 2000, could be construed to be
forward-looking statements. In addition, Champion from time to time may publish
other forward-looking statements. Such forward-looking statements are based on
management's estimates, assumptions and projections and are subject to risks and
uncertainties that could cause actual results to differ materially from the
anticipated results or other expectations discussed in the forward-looking
statements. Factors which could affect the forward-looking statements and
Champion in particular include those discussed below.
Long-term growth in the manufactured housing industry (wholesale and
retail) may be affected by: (1) the relative cost of manufactured housing versus
other forms of housing; (2) general economic trends, including inflation and
unemployment rates, consumer confidence, job growth and interest rates; (3)
changes in demographics, including new household formations and the number of
Americans on fixed income; (4) the availability and cost of financing for
manufactured homes; (5) changes in government regulations and policies,
including HUD regulations, local building codes and zoning regulations; and (6)
changes in regional markets and the U.S. economy as a whole. Short-term sales
could be affected by inclement weather and inventory levels of manufactured
housing retailers. Fluctuations in interest rates may affect the demand for
manufactured housing to the extent that those changes reduce job growth, slow
the U.S. economy, or cause a loss in consumer confidence.
The profitability of Champion may also be affected by: (1) its ability to
efficiently expand operations and to utilize production capacity; (2) its
ability to pass increased raw material costs, particularly lumber, insulation
and drywall costs, on to its customers; (3) market share position; (4) growth in
the manufactured housing industry as a whole; (5) the results of its
acquisitions; and (6) the strength of retail distribution.
The risks and uncertainties that may affect us are more specifically
described in "Risk Factors" in this prospectus and in our quarterly report on
Form 10-Q for the quarter ended July 3, 1999, which is incorporated by reference
in this prospectus. If one or more of these risks or uncertainties materialize,
or if underlying assumptions prove incorrect, our actual results may vary
materially from those expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 3, 1999 VERSUS SIX MONTHS ENDED JULY 4, 1998
OVERVIEW
Champion Enterprises, Inc. is the leading producer and third largest
retailer of manufactured housing in the U.S. For the six months ended July 3,
1999, consolidated revenues grew 23% from a year ago due to higher wholesale
volume, internal expansions and acquisitions completed in 1998 and 1999.
Throughout 1998 Champion acquired 14 manufactured housing retail organizations
and a home building facility. In January 1999 Champion completed the
acquisitions of Homes of Merit, Florida's largest producer of manufactured
homes, and Heartland Homes, a Texas housing retailer. In June 1999 the Company
acquired Care Free Homes, Inc., a housing retailer headquartered in Utah.
Total gross margin and selling, general and administrative expenses
("SG&A") rose in 1999 due to higher wholesale volume, acquisitions and expanded
retail operations. As a percent of revenues, gross margin and SG&A increased due
to expanded retail operations. In 1999 operating income increased 23% to $95
million, or 7.4% of sales, comparable to last year's six month margin
percentage. Net income in 1999 increased 16% to $50 million, compared to $43
million in 1998 year-to-date. For the year-to-date period, income per diluted
share rose 16% to $1.02, compared to $0.88 per diluted share in 1998.
CONSOLIDATED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 3, 1999 JULY 4, 1998 % CHANGE
------------ ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Manufacturing................................... $1,034.1 $ 918.8 13%
Retail.......................................... 400.2 210.7 90%
Less: intercompany.............................. (145.0) (84.0)
-------- --------
Total net sales................................... $1,289.3 $1,045.5 23%
======== ========
Gross margin...................................... $ 234.7 $ 178.6 31%
SG&A.............................................. 139.9 101.7 38%
-------- --------
Operating income.................................. $ 94.8 $ 76.9 23%
======== ========
As a percent of sales
Gross margin.................................... 18.2% 17.1%
SG&A............................................ 10.9% 9.7%
Operating income................................ 7.4% 7.4%
</TABLE>
MANUFACTURING OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 3, 1999 JULY 4, 1998 % CHANGE
------------ ------------ --------
<S> <C> <C> <C>
Net sales (in millions)........................... $ 1,034.1 $ 918.8 13%
Segment income (in millions)...................... $ 85.4 $ 79.5 7%
Segment margin.................................... 8.3% 8.7%
Homes sold........................................ 37,990 34,631 10%
Floors sold....................................... 63,378 56,344 12%
Multi-section mix................................. 65% 61%
Average home price................................ $ 27,200 $ 26,500 3%
Manufacturing facilities -- end of period......... 65 57 14%
</TABLE>
20
<PAGE> 22
Manufacturing revenues increased to $1 billion for the six months ended
July 3, 1999, a 13% improvement over a year ago due to higher sales volume from
existing operations and the inclusion of Homes of Merit. Wholesale home
shipments and floors sold were up 10% and 12%, respectively, from a year
earlier. A floor is a section of a home. A single-section home is comprised of
one floor, while a multi-section home is comprised of two or more floors. Of the
total wholesale shipments for the six months, 86% were to independent retailers
and the remaining 14% were to company-operated sales centers. The wholesale
multi-section mix was 65%, compared to 61% in the first half of 1998.
Excluding Homes of Merit from both periods, Champion's wholesale shipments
of homes and floors sold rose 3.5% and 5.0%, respectively, from a year earlier.
According to data reported by the National Conference of States on Building
Codes and Standards ("NCSBCS"), U.S. industry wholesale shipments for the first
six months of 1999 increased 1.3% in homes and 3.9% in floors from the
comparable 1998 period.
For the year-to-date period, manufacturing segment income rose 7% to reach
$85 million, or 8.3% of related sales. The decline in margin percentage was due
to lower levels of unfilled orders in 1999 and rising material costs,
particularly lumber and drywall.
Although dealer orders can be cancelled at anytime without penalty, and
unfilled orders are not necessarily an indication of future business, Champion's
unfilled orders for wholesale housing at July 3, 1999 totaled approximately $59
million, compared to $100 million a year ago, which excluded Homes of Merit. At
July 3, 1999, including six Homes of Merit plants, the Company had 65 home
building facilities, compared to 57 one year earlier.
Due to consolidating operations in certain regions, Champion recently
temporarily idled one manufacturing facility in each of the following locations:
Boaz, Alabama; Chehalis, Washington; Maxton and Lillington, North Carolina; and
White Pigeon, Michigan. During the third quarter of 1999, Champion opened new
plants in New York, Arizona and Kentucky. The New York facility is a replacement
for the plant destroyed by fire in the first quarter.
RETAIL OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 3, 1999 JULY 4, 1998 % CHANGE
------------ ------------ --------
<S> <C> <C> <C>
Net sales (in millions)........................... $ 400.2 $ 210.7 90%
Segment income (in millions)...................... $ 32.6 $ 20.9 56%
Segment margin.................................... 8.1% 9.9%
New homes sold.................................... 8,176 4,545 80%
Pre-owned homes sold.............................. 2,086 1,005 108%
Total homes sold.................................. 10,262 5,550 85%
% Champion produced - new homes sold.............. 60% 44%
Average new home price............................ $45,600 $44,200 3%
Sales centers -- end of period.................... 282 188
</TABLE>
Retail sales reached $400 million in the year-to-date period, almost double
a year ago, due to expanded retail operations from acquisitions and internal
expansions. At July 3, 1999 retail sales centers totaled 282 in 28 states, up
from 188 locations a year ago and 246 at the beginning of the year. Of the 36
locations added during 1999, 16 were acquired upon the acquisitions of Heartland
Homes and Care Free Homes and 20 net locations were added through internal
expansions and minor acquisitions of other retail companies.
Segment income, before inventory financing charges, was $33 million for the
1999 year-to-date period, rising 56% from the comparable 1998 six months.
Operating margins represented 8.1% of related revenues and were affected by
start-up and expansion costs for new sales locations, as well as lower margins
at some of the minor acquisitions. In 1999 60% of new retail homes sold were
produced by Champion facilities, compared to 44% in the comparable 1998 period.
21
<PAGE> 23
OTHER MATTERS
During 1999 a non-cash accounting charge of approximately $4.4 million was
recorded to eliminate the manufacturing profits in inventories of Champion
produced homes at company-operated sales centers. This amount compares to $7.3
million a year ago. Interest expense was higher in 1999 due to increased amounts
outstanding on Champion's line of credit, Senior Notes payable and floor plan
payable. Income tax expense in 1999 increased due to higher pretax income. The
effective tax rate was 39% in 1999, compared to 40% in 1998, as a result of
lower state tax rates due to certain acquisitions.
On July 23, 1999, Ted Parker Home Sales, Inc., Champion's largest
independent retail customer, filed a Chapter 11 bankruptcy petition. Sales to
this customer represented 3.5% of Champion's wholesale home shipments in 1998
and 2.7% for the six months ended July 3, 1999. Champion is contingently liable
under repurchase agreements with the customer's inventory floor plan lenders and
expects that it will be required to repurchase most of the inventory for which
it is contingently liable. The maximum repurchase obligation for this customer,
excluding the resale value of the homes, is approximately $69 million. The
Company also plans to open approximately 20 new retail locations in the
Carolinas to facilitate the sale of the homes it expects to repurchase. In the
quarter ending October 2, 1999, Champion will provide a pretax charge of $33.6
million ($20.5 million after tax or $0.41 per diluted share). This charge
primarily is for the discounting and other costs that are anticipated in the
reselling of the homes.
Based on current industry conditions, Champion believes that its second
half 1999 earnings will be approximately 40% below last year's $1.03 per diluted
share, excluding the $0.41 per share one-time charge discussed above. The
industry's U.S. wholesale shipments in the remainder of 1999 and into 2000 could
suffer from current excess levels of industry retail inventories. Increased
competitive pressures are expected to reduce the Company's wholesale and retail
margins until industry retail inventories are reduced to acceptable levels.
On August 26, 1999, a putative shareholder class action suit entitled Joel
Miller v. Champion Enterprises, Inc. was filed against the Company and Walter R.
Young in the U.S. District Court for the Eastern District of Michigan. The
complaint seeks unspecified damages and costs for alleged violations of federal
securities laws. The plaintiff generally alleges, among other things, that the
Company made false and misleading statements and omitted other information
regarding the financial condition of Ted Parker Home Sales, Inc. ("Ted Parker")
and the potential impact on the Company of Ted Parker becoming insolvent. The
Company believes that it is possible that additional similar actions have been
or may be filed. The Company intends to vigorously defend against this
litigation.
RESULTS OF OPERATIONS 1998 VERSUS 1997
OVERVIEW
In 1998, Champion led the U.S. manufactured housing industry in wholesale
revenues and wholesale shipments of homes. As of February 10, 1999, Champion had
65 home building facilities in 18 states and western Canada and operated 264
retail sales centers in 28 states.
Operating income from continuing operations rose 46% to $170 million and
net sales rose 35% to approximately $2.3 billion. Income from continuing
operations reached $94 million, or $1.91 per share, up 32% compared to $71
million, or $1.45 per share in 1997. Net income per share for 1998 of $1.91 was
24% higher than $1.54 in 1997, which included $0.09 per share of income from
discontinued operations. Growth in 1998 was driven by higher manufacturing
volume and the results of Champion's 1998 retail acquisitions.
During 1998, Champion continued implementing its retail strategy, started
in the second half of 1997, of acquiring key manufactured housing retailers and
rapidly expanding their operations with a goal of at least $1 billion in annual
retail sales by the year 2000. Related goals are to improve the retail buying
experience for the home buyer and to enhance profits through better
merchandising techniques, improved efficiencies, control of costs and improved
home installation to reduce service costs.
22
<PAGE> 24
During 1998, Champion completed 15 retail acquisitions, including Heartland
Homes Group, with nine sales centers in Texas, which was acquired on January 5,
1999. These acquired businesses operated a total of 172 sales centers. On
January 4, 1999, Champion completed the acquisition of Homes of Merit, Inc.,
Florida's largest producer of manufactured homes, with six manufacturing
facilities. The financial results of Homes of Merit and Heartland Homes are not
included in Champion's 1998 financial statements or in this discussion.
In February 1998, Champion completed its sale of the assets and business of
Champion Motor Coach, Inc., its commercial vehicles business which manufactured
mid-size buses. As a result, the commercial vehicles business is classified and
discussed as discontinued operations for all periods reported in this
prospectus.
All earnings per share amounts referred to in this discussion are based on
diluted earnings per share calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Fiscal years 1998 and 1996
were each comprised of 52 weeks while 1997 was comprised of 53 weeks.
CONSOLIDATED
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales
Manufacturing......................................... $1,898 $1,652 15%
Retail................................................ 562 61
Less: intercompany.................................... (206) (38)
------ ------
Total net sales......................................... $2,254 $1,675 35%
Gross margin............................................ $ 401 $ 251 60%
SG&A.................................................... 231 135 71%
------ ------
Operating income........................................ $ 170 $ 116 46%
As a percent of sales
Gross margin.......................................... 17.8% 15.0%
SG&A.................................................. 10.3% 8.1%
Operating income...................................... 7.6% 7.0%
</TABLE>
Gross margins in 1998 benefitted from higher wholesale volume, expanded
retail operations, and the effects on margins of Champion owned retailers
selling Champion produced homes. Selling, general and administrative expenses
("SG&A") increased due primarily to expanded retail operations. Margins in 1997
were unfavorably impacted by the restructuring of the product line at Redman's
Indiana facilities, as well as low levels of unfilled orders in the first half
of the year which also affected results at plants that started up in 1997.
In 1997 Champion's retail segment was not material. Operating income in
1998 was comprised of the following (in millions):
<TABLE>
<CAPTION>
PERCENT OF
RELATED SALES
-------------
<S> <C> <C>
Manufacturing segment.................................... $165 8.7%
Retail segment........................................... 47 8.4%
General corporate expenses............................... (23)
Intercompany profit elimination.......................... (10)
Amortization of goodwill................................. (9)
----
Operating income......................................... $170 7.6%
</TABLE>
In 1998, non-cash accounting charges of $10.2 million were recorded to
eliminate the manufacturing profits in inventories of Champion produced homes at
company-operated sales centers. These charges are levied on pre-acquisition
inventory that is sold and replaced by Champion produced homes, as well as any
increases in Champion products, primarily due to opening new retail sales
centers.
23
<PAGE> 25
MANUFACTURING OPERATIONS
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Net sales (in millions)............................. $ 1,898 $ 1,652 15%
Homes sold.......................................... 70,359 64,285 9%
Floors sold......................................... 115,519 102,468 13%
Multi-section mix................................... 63% 58%
Average home price.................................. $ 27,000 $ 25,700 5%
Manufacturing facilities-year end................... 60 55 9%
</TABLE>
Manufacturing revenues increased due to higher volume to independent and
company-operated retailers, with wholesale home shipments and floors sold up 9%
and 13%, respectively, from 1997 levels. Sales of multi-section homes rose 19%,
comprising 63% of total homes sold compared to 58% last year, contributing to a
higher average selling price per home. Wholesale shipments of single-section
homes decreased 3% from a year ago. Wholesale shipments to company-operated home
centers accounted for 11% of total homes sold in 1998.
Champion's U.S. wholesale shipments of HUD code homes rose 9.2% from a year
earlier, which resulted in a U.S. market share improvement to 18.3% from 17.7%
in 1997. According to data reported by the NCSBCS, U.S. industry wholesale
shipments of HUD code homes and floors increased 5.5% and 7.8%, respectively,
from 1997 levels. Industry sales of multi-section homes rose 12% and
single-section shipments decreased 3%.
Segment margins were 8.7% of related sales as a result of higher volume and
product mix and pricing. Higher levels of unfilled orders throughout 1998
allowed for production efficiencies. Margins in 1997 were hurt by restructuring
at Redman's Indiana facility and low levels of unfilled orders in the first half
of the year.
Although retailer orders can be canceled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, Champion's
unfilled wholesale orders for housing at January 2, 1999 totaled approximately
$73 million, excluding Homes of Merit, compared to $42 million a year ago.
Strong order activity around the country resulted in the increase.
During 1998, Champion constructed four manufacturing facilities and
acquired one other. As of February 10, 1999, Champion had 65 home building
facilities, including the six Homes of Merit plants and excluding a New York
facility that was destroyed by a fire in January 1999.
RETAIL OPERATIONS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales (in millions).................................. $ 562 $ 61
New homes sold........................................... 11,738 983
Used homes sold.......................................... 2,867 87
% Champion produced-new homes sold....................... 49% 100%
Average new home price................................... $45,100 $60,400
Company-operated sales centers-year end.................. 246 22
</TABLE>
Retail sales substantially increased in 1998 due to the retail acquisitions
completed throughout the year. The average selling price per home was higher in
1997 because of the large percentage of multi-section homes sold by Champion's
single retail operation.
Retail margins in 1998, excluding floor plan financing costs, were 8.4% of
sales, and were the result of high volume, controlled fixed costs and inventory
levels, and finance related and insurance income. Margins in 1998 were affected
by startup and expansion costs, primarily in the second half of the year. During
1998 and through February 10, 1999, 70 new sales centers were added, of which 37
were greenfield start ups.
24
<PAGE> 26
OTHER MATTERS
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Net interest expense (income)............................... $13.5 $(0.9)
Income taxes................................................ $62.6 $46.6
Effective income tax rate................................... 40% 40%
Income from discontinued operations......................... -- $ 4.5
</TABLE>
Interest expense was higher in 1998 due to amounts outstanding on
Champion's revolving line of credit and interest on floor plan obligations. Line
of credit borrowings were used to finance retail acquisitions. The floor plan
liabilities were used to finance retail inventories. In 1997 there were no
borrowings on Champion's line of credit.
Income tax expense increased in 1998 due to higher taxable income, with the
effective tax rate comparable to last year.
Discontinued operations in 1997 include the results of operations and the
sale of the commercial vehicles business, and income from a previously disposed
business.
MANUFACTURED HOUSING INDUSTRY OUTLOOK
The industry's retail home sales were flat in 1998 from 1997 levels,
according to data reported by Statistical Surveys, Inc. Industry wholesale
shipments of HUD code homes increased 5.5% in 1998, following a decrease of 3%
in 1997 and increases of 7% in 1996, 12% in 1995 and 20% in 1994, according to
data reported by NCSBCS. Analysts' estimates for 1999 industry U.S. wholesale
home shipments range from 2% to 4% below 1998 levels. Through June 1999,
industry U.S. wholesale shipments rose 1.3% in homes and 3.9% in floors.
Management believes that wholesale shipments in the remainder of 1999 and into
2000 could suffer from the buildup of retail inventories.
The economic fundamentals that affect the industry continue to remain
favorable. Employment levels and consumer confidence are strong, financing
remains available despite some recent tightening, and interest rates are stable.
Improved product quality and design enables manufactured homes to compete
directly with site-built homes, resulting in a broader market for manufactured
housing. Changing demographics and lifestyles have increased consumer interest
in high value, low maintenance manufactured homes. U.S. industry wholesale
shipments of HUD code homes totaled 372,843 in 1998, representing an estimated
30% of all new single-family homes sold in the U.S. Management believes that
moderate changes in interest rates will not have a significant direct impact on
demand for manufactured housing. However, to the extent that increased interest
rates reduce job growth, slow the U.S. economy, or cause a loss in consumer
confidence, demand for manufactured housing may be adversely affected.
Long-term industry growth will be affected by, among other things, the
relative cost of manufactured housing versus other forms of housing, including
rental housing, general economic trends, changes in demographics including new
household formation, the number of Americans on fixed incomes, and the
availability and cost of financing. Changes in regional markets and the U.S.
economy as a whole will continue to affect overall housing industry cycles.
The retail segment of the industry is currently undergoing significant
change, including consolidation (vertical integration) by large housing
manufacturers as well as by other professionally managed organizations. Champion
is a major consolidator of manufactured housing retailers. One of Champion's
related goals is to improve the retail buying experience for the home buyer.
RESULTS OF OPERATIONS 1997 VERSUS 1996
OVERVIEW
In 1997, Champion led the manufactured housing industry in wholesale
revenues and wholesale multi-section homes sold. In 1996, Champion merged with
Redman Industries, Inc. in a combination that was accounted for as a pooling of
interests. Therefore, the Consolidated Financial Statements and Management's
25
<PAGE> 27
Discussion and Analysis for 1996 are presented on a combined basis with Redman.
Fiscal year 1997 was comprised of 53 weeks while 1996 was comprised of 52 weeks.
Operating income from continuing operations rose 27% to $116 million and
net sales rose 6% to approximately $1.7 billion. Income from continuing
operations reached $71 million, or $1.45 per share, compared to $69 million, or
$1.40 per share, before nonrecurring charges in 1996.
During the second half of 1997, Champion announced its strategy to expand
its manufactured housing operations by seeking acquisitions of key housing
retailers in growth areas around the country. During 1997, Champion expanded its
Lamplighter retail operations in the Northwest by acquiring or opening six new
sales centers resulting in a year end total of 21 retail locations. In December
1997, Champion acquired Alpine Homes, Inc., a retailer in Colorado. Champion's
1997 retail sales rose to $61 million from $33 million in the prior year.
CONSOLIDATED
<TABLE>
<CAPTION>
1997 1996 % CHANGE
---- ---- --------
(DOLLARS IN MILLIONS,
EXCEPT AVERAGE HOME PRICE)
<S> <C> <C> <C>
Net sales
Manufacturing...................................... $ 1,652 $ 1,573 5%
Retail............................................. 61 33
Less: intercompany................................. (38) (23)
-------- -------
Total net sales................................. $ 1,675 $ 1,583 6%
Gross margin......................................... $ 251 $ 244 3%
SG&A................................................. 135 131 3%
Nonrecurring merger charges.......................... -- 22
-------- -------
Operating income..................................... $ 116 $ 91 27%
As a percent of sales
Gross margin....................................... 15.0% 15.4%
SG&A............................................... 8.1% 8.3%
Operating income................................... 7.0% 5.8%
Wholesale
Home shipments..................................... 64,285 61,796 4%
Floors sold........................................ 102,468 96,839 6%
Multi-section mix.................................. 58% 56%
Average price...................................... $ 25,700 $25,400 1%
New retail homes sold................................ 983 541
</TABLE>
In 1997, Champion's U.S. wholesale shipments of HUD code homes increased
4.5% over 1996, while industry U.S. wholesale shipments were down 2.8% to
353,377 homes. Champion's HUD code floor shipments increased 6.6% in 1997
compared to a 1.0% increase for the U.S. industry. Net sales revenues increased
by almost 6%, equivalent to the increase in floors sold. Increased shipments of
multi-section homes contributed to the higher average selling price per home.
Champion's multi-section mix for the year was comparable to the industry's
57.9%. Champion's U.S. wholesale market share in 1997 rose to 17.7% from 16.5%
in 1996, based on data reported by NCSBCS.
Gross margin and operating income percentages, excluding nonrecurring
charges, slipped slightly as manufacturing costs rose, partially offset by lower
material costs and SG&A expenses. Champion experienced lower levels of unfilled
orders for much of the year, as retailers reduced inventories by an estimated
10% to 15% during the year. Lower unfilled orders, especially during the first
two quarters, did not enable Champion's manufacturing plants to schedule
production in a manner that could maximize utilization of direct labor and other
productive resources. Additionally, during 1997 Champion opened six plants,
increasing the number of manufactured home facilities at year end to 55. Because
of lower unfilled orders, some of the new plants did
26
<PAGE> 28
not ramp up production as quickly as normal, which adversely affected margins.
Material costs declined primarily because of additional purchasing power
generated by Champion's merger with Redman. SG&A declined as a percent of sales
due in part to the savings realized by closing the Redman corporate headquarters
and combining corporate staffs. These savings were somewhat offset by higher
regional and plant SG&A costs as some functions were decentralized.
In the fourth quarter of 1996, Champion recorded a pretax charge of $22
million, or $16.8 million after tax ($0.34 per share), for the nonrecurring
costs associated with the Redman merger.
OTHER MATTERS
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Net interest income......................................... $ 0.9 $ 0.5
Income taxes................................................ $46.6 $39.7
Effective income tax rate................................... 40% 43%
Income from discontinued operations......................... $ 4.5 $ 1.4
</TABLE>
Net interest income increased in 1997 because of higher cash balances and
no borrowings during the year on Champion's line of credit. Income tax expense
increased in 1997 due to higher taxable income. The effective tax rate in 1996
was higher due to the nondeductible portion of the nonrecurring merger charges.
Discontinued operations include the results of operations and the sale of
the commercial vehicles business, and income from a previous disposed business.
Commercial vehicles sales for 1997 were $60 million, resulting in operating
income of $1.4 million. This income was offset by pretax charges of $1.3
million, which were recorded for certain valuation and other reserves
established in connection with the sale of the business. In 1996, sales were $61
million and operating income was $2.4 million.
In the fourth quarter of 1997, after tax income of $4.5 million, or $0.09
per share, was recognized from the collection of installment notes receivable
and settlement of certain reserves that were established in connection with the
1993 disposal of a former Redman subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances totaled $29 million at July 3, 1999, compared to $24 million
at January 2, 1999. During the year-to-date period, long-term debt increased
$102 million, generally due to acquisitions, new plant construction and working
capital needs. Net cash totaling $65 million was used for these acquisitions and
for other acquisition related payments. Expenditures in 1999 included $32
million for capital improvements and $8.6 million for common stock repurchases.
These stock buybacks, totaling 442,000 shares during the six months, were
pursuant to a Board of Directors authorization for up to 3.0 million shares.
Through mid August of 1999 969,000 shares have been repurchased at a cost of
$15.7 million. During the six months ended July 3, 1999, cash of $5 million was
generated from stock option exercises and related tax benefits and $6 million
from increased floor plan payables.
Assets and liabilities increased during 1999 due to acquisitions and higher
wholesale revenues in June 1999 as compared to December 1998. Accrued
compensation and dealer discounts decreased during the first two quarters due to
payments made under annual programs. At quarter end debt was 45% of total
capital. Earnings before interest, taxes, depreciation and amortization totaled
$113 million for 1999, up from $90 million a year ago.
The Company has a five-year $325 million unsecured bank line of credit,
which was completed in May 1998 and includes letters of credit. At quarter end
Champion had $33 million of letters of credit outstanding and bank borrowings
totaling $7 million were outstanding at July 3, 1999.
On May 3, 1999 Champion completed an offering for $200 million of unsecured
Senior Notes (the original notes) due May 15, 2009 with interest payable
semi-annually at an annual rate of 7 5/8%. The net
27
<PAGE> 29
proceeds from the offering totaling $197 million were used to reduce bank debt
and for general corporate purposes.
Additional borrowings may be necessary during 1999 to fund acquisitions,
common stock repurchases, and capital expenditures. Total 1999 expenditures of
approximately $56 million are planned for new construction and expansions of
manufacturing facilities and internal retail expansions. In addition,
approximately $69 million of floor plan borrowings will be needed to repurchase
homes due to the customer's bankruptcy discussed above.
The Company believes that existing cash balances, cash flow from operations
and additional availability under its line of credit are adequate to meet its
anticipated financing needs, operating requirements, capital expenditures,
common stock repurchases, and acquisitions in the foreseeable future. However,
management may explore other opportunities to raise capital to finance growth.
The registrant's long-term goals are to increase earnings per share at a minimum
compound annual growth rate of 15% and to reach $1 billion in retail revenues by
the year 2000. Consistent with its plan to improve shareholder value through
investments in sound operating businesses and common stock repurchases, the
registrant does not plan to pay cash dividends in the near term.
IMPACT OF INFLATION
Inflation has not had a material effect on Champion's operations during the
last three years. Commodity prices, including lumber, fluctuate; however, during
periods of rising commodity prices Champion has been able to pass the increased
costs to its customers in the form of surcharges and base price increases.
YEAR 2000 ISSUE
Champion began assessments in prior years to identify the work required to
assure that its computer systems successfully operate after January 1, 2000.
This review included analyzing software internally developed, software licensed
from third parties and the Year 2000 status of significant suppliers, including
wholesale and retail financing companies. It has been determined that a small
portion of Champion's computer systems could be affected by the Year 2000 Issue.
The process of replacing or modifying such software and hardware was started in
1997 and remaining changes are expected to be substantially completed by third
quarter 1999. Costs incurred to date by Champion related to the Year 2000 Issue
have been immaterial and were charged to expense as incurred. Remaining costs to
make Champion's computer systems Year 2000 compliant are not expected to have a
material effect on results of operations, liquidity or capital resources.
Champion is dependent upon licensed software for a significant portion of
its computer applications. It has been represented by these suppliers that such
third-party software is Year 2000 compliant. Champion's operations are also
dependent on an adequate supply of raw materials, energy and utilities, delivery
services, and wholesale and retail financing. A variety of vendors are used for
these products and services, and Champion is reviewing its major vendors to
determine the potential impact of the Year 2000 Issue. Management is not aware
of any significant problems with these vendors relating to this issue. In the
event that certain suppliers are not Year 2000 compliant, Champion could be
adversely affected.
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MANAGEMENT
DIRECTORS
The following table sets forth certain information as of April 27, 1999,
concerning the directors of Champion. Each director holds office until his or
her successor is duly elected and qualified or until his or her resignation or
removal, if earlier.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walter R. Young................................ 54 Chairman of the Board, President and Chief
Executive Officer and Director
Robert W. Anestis.............................. 53 Director
Selwyn Isakow.................................. 47 Director
Brian D. Jellison.............................. 53 Director
Ellen R. Levine................................ 56 Director
George R. Mrkonic.............................. 46 Director
Robert L. Stark................................ 65 Director
Carl L. Valdiserri............................. 62 Director
</TABLE>
Walter R. Young has served as a director of Champion since 1990. He is
Chairman of the Board of Directors, President and Chief Executive Officer of
Champion. Mr. Young was named President and Chief Executive Officer in 1990 and
became the Chairman of the Board in 1992. For 31 years in a variety of
industries, Mr. Young has been a performance-driven leader, who faces issues and
is a catalyst for change.
Robert W. Anestis has served as a director of Champion since 1991. On
January 1, 1999, he became the Chairman, President and Chief Executive Officer
of Florida East Coast Industries, Inc. ("FECI"), headquartered in St. Augustine,
Florida. FECI is engaged in the railroad and commercial real estate business.
During the preceding five years, he was the President of Anestis & Company, an
investment banking and financial advisory firm located in Westport, Connecticut.
Mr. Anestis, who has been in the industry 11 years, brings merger and
acquisition expertise, strategic planning and policy experience with a strong
legal and financial background to the Board.
Selwyn Isakow has served as a director of Champion since 1991. He is
President of The Oxford Investment Group, Inc., a merchant banking and corporate
development firm located in Bloomfield Hills, Michigan. Mr. Isakow is also a
director of Ramco-Gershenson Properties Trust, Oxford Automotive, Inc., and the
Bank of Bloomfield Hills. Mr. Isakow brings expertise in the areas of mergers
and acquisitions, strategic planning, accounting and finance in multiple
manufacturing and distribution industries.
Brian D. Jellison joined Champion's Board on January 11, 1999. He is an
Executive Vice President of Ingersoll-Rand Company, a major, diversified
industrial equipment and components manufacturer, headquartered in Woodcliff
Lake, New Jersey. From 1994 to 1998 Mr. Jellison was President of Ingersoll's
Architectural Hardware Group. With a strong background in both manufacturing and
marketing, Mr. Jellison brings 30 years of broad-based business experience to
Champion's Board.
Ellen R. Levine was elected to Champion's Board on March 5, 1999. She has
been the Editor-In-Chief of Good Housekeeping magazine since October 1994.
Previously, she served as the Editor-In-Chief of Redbook magazine from 1991 to
1994. Ms. Levine brings to Champion's Board excellent communication and
marketing skills, particularly with brand recognition, which were acquired
through 35 years of experience as a journalist.
George R. Mrkonic has served as a director of Champion since 1994. He is
Vice Chairman of Borders Group, Inc., a retailer of books and music located in
Ann Arbor, Michigan. From November 1994 to January 1997, Mr. Mrkonic was also
the President of Borders Group, Inc. Mr. Mrkonic is a director of Syntel, Inc.
and Borders Group, Inc. Strengths that Mr. Mrkonic brings to Champion's Board
include strategic vision, an operating mentality and a sense of urgency.
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<PAGE> 31
Robert L. Stark has served as a director of Champion since 1996. In 1997 he
retired as the Dean of the University of Kansas Regents Center, Overland Park,
Kansas. From 1958 until his retirement in March 1993, Mr. Stark served in
various executive capacities at Hallmark Cards, Inc., a worldwide manufacturer
of greeting cards and related products. Mr. Stark is a director of Payless Shoe
Source, Inc. and a former director of Redman Industries, Inc. Mr. Stark brings
over 35 years of broad-based business experience to Champion's Board including
experience as Chief Operating Officer of a multi-billion dollar corporation and
as a past and present director of publicly-traded corporations.
Carl L. Valdiserri has served as a director of Champion since 1995. He is
Chairman and Chief Executive Officer of Rouge Industries, Inc., an integrated
steel manufacturer located in Dearborn, Michigan. Mr. Valdiserri is also a
director of Rouge Industries, Inc. Mr. Valdiserri brings to the Board operating
management perspective and experience that was acquired through 40 years of
progressively challenging assignments at several integrated steel companies.
EXECUTIVE OFFICERS
The following table sets forth certain information as of April 27, 1999,
concerning the executive officers of Champion.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walter R. Young...................................... 54 Chairman of the Board, President and
Chief Executive Officer
Joseph H. Stegmayer.................................. 48 Executive Vice President, Chief
Strategic and Financial Officer
Philip C. Surles..................................... 57 Chief Operating Officer
M. Mark Cole......................................... 37 President, Retail Operations
Donald D. Williams................................... 54 Chief Marketing Officer
John J. Collins, Jr. ................................ 47 Vice President, General Counsel and
Secretary
Richard P. Hevelhorst................................ 51 Vice President and Controller
Carmel E. Thomas..................................... 39 Treasurer
</TABLE>
Joseph H. Stegmayer joined Champion in January 1998 from Clayton Homes,
Inc., a leading manufactured housing company, where for the previous five years
he held various executive positions including President and Chief Operating
Officer and Vice Chairman.
Philip C. Surles joined Champion upon the October 1996 merger with Redman
Industries, Inc., a leading manufactured housing company. Prior to his
appointment to Chief Operating Officer in May 1997, he served as Champion's
President, Southwestern Region and in various executive capacities with Redman
for 20 years.
M. Mark Cole joined Champion in January 1998 upon the acquisition of
Southern Showcase Housing, Inc., a manufactured housing retailer, where he was
President for eight years, and was promoted to the position of President, Retail
Operations in September 1998.
Donald D. Williams joined Champion in March 1999. Mr. Williams was most
recently Executive Vice President and Account Managing Director at Young and
Rubicam Brazil, overseeing Ford Motor Company's advertising, direct marketing
and promotional activities in Brazil. From 1989 to 1996 he served as Executive
Vice President, Group Director for Young and Rubicam Advertising Detroit.
John J. Collins, Jr. joined Champion in March 1997. For the previous five
years, he was Principal and Managing Director of Miller, Canfield, Paddock and
Stone PLC, a law firm which provided legal services to Champion during 1997 and
1998, and was the Resident Director of one of its offices.
Richard P. Hevelhorst joined Champion as Controller in May 1995 and was
promoted to the position of Vice President and Controller in February 1999.
Prior to joining Champion, he served as Treasurer and Chief Financial Officer of
Evans Industries, Inc., a privately-held manufacturer, where he was employed for
five years.
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<PAGE> 32
Carmel E. Thomas joined Champion in July 1998. Previously for the past five
years she was Director of Finance/Assistant Treasurer of Difco Laboratories,
Inc., a manufacturer of microbiology reagents.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
In May 1998, Champion entered into a five-year revolving credit agreement
with a group of banks for an unsecured line of credit for $325 million,
including $60 million of availability to cover letters of credit. At Champion's
option, borrowings are subject to interest at either the bank's prime rate or
the bank's Eurodollar rate plus 0.575% to 1.0%. Champion is subject to an annual
commitment fee ranging from 0.15% to 0.25% on the entire facility and a fee for
outstanding letters of credit.
The agreement provides for annual reductions in the line of credit in
September of each year, reducing the line to the following amounts: $275 million
in 1999, $200 million in 2000 and $175 million in 2001. The agreement contains
covenants which, among other things, limit additional indebtedness and require
maintenance of certain financial ratios and minimum net worth. The weighted
average interest rate on amounts borrowed at July 3, 1999 was 7.75%.
FLOOR PLAN FINANCING
As is customary in our industry, the majority of the homes purchased by our
company-owned retailers are financed by third-party lending institutions which
provide the retailer with a credit line for the purchase price of their
inventory of homes secured by a lien on such homes. The credit line is used by
the retailer to finance display models as well as to finance the initial
purchase of a home from the manufacturer until the home buyer obtains permanent
financing or otherwise pays the retailer for the home. At July 3, 1999,
Champion's company-owned retailers had $147.9 million in outstanding floor plan
financing.
Champion does not guarantee this indebtedness and does not provide any
additional collateral to secure the obligations of its company-owned retailers.
In accordance with trade practice, we do enter into various repurchase
agreements with those lending institutions providing wholesale floor plan
financing to both our independent and our company-owned retailers. Under these
repurchase agreements, we are obligated, upon default by the retailer and the
repossession of a home by the lending institution, to repurchase the home from
the lending institution at an amount equal to the unpaid loan balance for the
home, plus certain administrative and handling expenses, reduced by the amount
of any damage to the home. Any homes that we repurchase are then available for
resale by us.
DESCRIPTION OF THE NOTES
The form and terms of the exchange notes and the original notes are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the original notes do not apply to the
exchange notes.
The original notes are, and the exchange notes will be, issued under the
Indenture, dated as of May 3, 1999, as supplemented July 30, 1999, between
Champion, its Subsidiary Guarantors and The First National Bank of Chicago, as
Trustee. References to the notes include the exchange notes unless the context
otherwise requires. The terms of the notes include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust Indenture Act
of 1939. This description of the notes contains definitions of terms that are
used in the Indenture and are necessary to understand this section of the
prospectus. In this section, "Champion" refers only to Champion Enterprises,
Inc. and not to any of its subsidiaries.
The Subsidiary Guarantors are A-1 Homes Group, Inc., Accent Mobil Homes,
Inc., Alpine Homes, Inc., American Transport, Inc., Art Richter Insurance, Inc.,
Auburn Champ, Inc., Bryan Mobile Homes, Inc., Builders Credit Corporation, CAC
Funding Corporation, Cal-Nel, Inc., Care Free Homes, Inc., Carnival Homes, Inc.,
Central Mississippi Manufactured Housing, Inc., Champion Financial Corporation,
Champion
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<PAGE> 33
Home Builders Co., Champion Home Centers, Inc., Champion Home Communities, Inc.,
Champion Motor Coach, Inc., Chandeleur Homes, Inc., Cliff Ave. Investments,
Inc., Colonial Housing, Inc., Country Estates Homes, Inc., Countryside Homes,
Inc., Crest Ridge Homes, Inc., Crestpointe Financial Services, Inc., Dutch
Housing, Inc., Factory Homes Outlet, Inc., Factory Outlet, Inc., Fleming County
Industries, Inc., Gateway Acceptance Corp., Gateway Mobile & Modular Homes,
Inc., Gateway Properties Corp., Gem Homes, Inc., Grand Manor, Inc., Heartland
Homes, Inc., HomePride Finance Corp., Homes America Finance, Inc., Homes America
of Arizona, Inc., Homes America of California, Inc., Homes America of Oklahoma,
Inc., Homes America of Utah, Inc., Homes America of Wyoming, Inc., Homes of
Legend, Inc., Homes of Merit, Inc., I.D.A., Inc., Imperial Housing, Inc.,
Investment Housing, Inc., Iseman Corp., Jasper Mobile Homes, Inc., Kentuckybilt
Homes, Inc., Lake Country Living, Inc., Lamplighter Homes, Inc., Lamplighter
Homes (Oregon), Inc., M&J Southwest Development Corp., Manufactured Housing of
Louisiana, Inc., Mobile Factory Outlet, Inc., Moduline International, Inc.,
Northstar Corporation, Philadelphia Housing Center, Inc., Premier Housing, Inc.,
Redman Business Trust, Redman Homes Management Company, Inc., Redman Homes,
Inc., Redman Industries, Inc., Redman Investment, Inc., Redman Management
Services Business Trust, Redman Retail, Inc., Regency Supply Company, Inc., San
Jose Advantage Homes, Inc., Service Contract Corporation, Southern Showcase
Finance, Inc., Southern Showcase Housing, Inc., Star Fleet, Inc., The Okahumpka
Corporation, Thomas Homes of Austin, Inc., Thomas Homes of Buda, Inc., Thomas
Homes of Texas, Inc., Tom Terry Enterprises, Inc., Trading Post Mobile Homes,
Inc., U.S.A. Mobile Homes, Inc., Victory Investment Company, Vidor Mobile Home
Center, Inc., Western Homes Corporation, Whitworth Management, Inc. and Wright's
Mobile Homes, Inc.
The following description is only a summary of the material provisions of
the Indenture. A summary of some of the definitions used is included in this
prospectus under the heading "-- Certain Definitions." We urge you to read the
Indenture because it, and not this description, defines your rights as holders
of the notes. We have filed a copy of the Indenture as an exhibit to the
registration statement which includes this prospectus. You may request a copy of
the Indenture at our address set forth under the heading "Where You Can Find
More Information."
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes:
-- are senior unsecured obligations of the Company guaranteed on a senior
unsecured basis by the Subsidiary Guarantors;
-- are equal in right of payment with all existing and future senior
unsecured indebtedness of the Company; and
-- are senior in right of payment to any future subordinated obligations
of the Company.
PRINCIPAL, MATURITY AND INTEREST
The original notes were, and the exchange notes will be, issued initially
in the principal amount of $200 million. The original notes were, and the
exchange notes will be, issued in denominations of $1,000 and any integral
multiple of $1,000. The notes will mature on May 15, 2009.
Interest on the notes will accrue at the rate of 7 5/8% per annum and will
be payable semiannually in arrears on May 15 and November 15 of each year,
commencing on November 15, 1999. We will make each interest payment to the
holders of record of the notes on the May 1 and November 1 immediately preceding
such interest payment date.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest on each exchange note will accrue from the last interest payment date
on which interest was paid on the original note surrendered for exchange. If no
interest has been paid on the original note, interest will be paid on the
exchange note from the date of the issuance of the original note. Holders whose
original notes are accepted in the exchange offer will be deemed to have waived
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<PAGE> 34
their right to receive accrued interest on the original notes. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Additional interest may accrue on the notes in certain circumstances
pursuant to the Registration Rights Agreement.
OPTIONAL REDEMPTION
The Company, at its option, may at any time redeem all or any portion of
the notes at a redemption price plus accrued interest to the date of redemption
equal to the greater of (i) 100% of their principal amount or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the applicable Treasury
Yield plus 35 basis points.
"Treasury Yield" means, with respect to any redemption date applicable to
the notes, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
applicable Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means, with respect to the notes, the United
States Treasury security selected by an Independent Investment Banker as having
a maturity comparable to the remaining term of the notes that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes.
"Independent Investment Banker" means, with respect to the notes offered
hereby, Credit Suisse First Boston Corporation or, if such firm is unwilling or
unable to select the applicable Comparable Treasury Issue, an independent
investment banking institution of national standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date
applicable to the notes, (i) the average of the applicable Reference Treasury
Dealer Quotations for such redemption date after excluding the highest and
lowest such applicable Reference Treasury Dealer Quotations, or (ii) if the
Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer" means, with respect to the notes offered
hereby, each of Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and two other primary U.S. Government securities dealers in New
York City (each a "Primary Treasury Dealer") appointed by the Trustee in
consultation with the Company; provided, however, that if any of the foregoing
shall cease to be a Primary Treasury Dealer, the Company shall substitute
therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date for the notes, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue for the notes (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third business day preceding
such redemption date.
Holders of the notes to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption.
RANKING
The original notes are, and the exchange notes will be, senior unsecured
obligations of the Company, will rank equal in right of payment with all
existing and future senior unsecured indebtedness of the Company, will be senior
in right of payment to all future subordinated indebtedness of the Company and
will be guaranteed on a senior unsecured basis by the Subsidiary Guarantors. As
of July 3, 1999, after giving application of the net proceeds from the original
notes offering, the Company had, on a consolidated basis, $7.0 million of
indebtedness outstanding under the Credit Facility and was able to borrow an
additional $285 million under
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<PAGE> 35
the Credit Facility. All loans outstanding under the Credit Facility rank equal
with the notes and are guaranteed by the Subsidiary Guarantors.
All existing and future indebtedness and other liabilities, including
contingent liabilities, of the Company's Subsidiaries that are not Subsidiary
Guarantors, including the claims of the trade creditors and claims of preferred
stockholders, if any, of such Subsidiaries, will be effectively senior to the
notes. As of July 3, 1999, the total indebtedness of the Company's Subsidiaries
which are not Subsidiary Guarantors was approximately $4 million. The notes and
the Subsidiary Guarantees also will be effectively subordinated to any secured
indebtedness of the Company or the applicable Subsidiary Guarantor, to the
extent of the value of the assets securing such indebtedness. The Company and
the Subsidiary Guarantors had secured indebtedness as of July 3, 1999 of
approximately $172 million.
GUARANTEES
The Subsidiary Guarantors will jointly and severally Guarantee, on a senior
unsecured basis, our obligations under the notes. The obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary
to prevent such Subsidiary Guaranty from constituting a fraudulent conveyance
under applicable law.
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition, including by way of consolidation
or merger, of a Subsidiary Guarantor or the sale or disposition of all
or substantially all the assets of a Subsidiary Guarantor, in each case
other than to the Company or an Affiliate of the Company; or
(2) if the Subsidiary Guarantor ceases to be a guarantor under the Credit
Facility and any other senior indebtedness of the Company ranking pari
passu in right of payment with the notes with respect to which it has
provided a Guarantee;
provided, however, that the Subsidiary Guaranty of a Subsidiary Guarantor will
not be released as long as such Subsidiary Guarantor provides a Guarantee in
connection with any senior indebtedness of the Company outstanding at any time
ranking equal in right of payment with the notes, including the Credit Facility.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON LIENS
The Company will not, and will not permit any Significant Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien (the "Initial Lien")
of any nature whatsoever on any of its properties (including Capital Stock of a
Subsidiary), whether owned at the Issue Date or thereafter acquired, other than
Permitted Liens and except as provided under "-- Exempted Indebtedness" below,
without effectively providing that the notes shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured.
Any Lien created for the benefit of the Holders of the notes pursuant to
the preceding sentence shall provide by its terms that such Lien shall be
automatically and unconditionally released and discharged upon the release and
discharge of the Initial Lien.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Significant Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless:
(1) the Company or such Significant Subsidiary would be entitled to create
a Lien on any such property subject to such Sale/Leaseback Transaction
without equally and ratably securing the notes pursuant to the covenant
described under "-- Limitation on Liens"; or
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<PAGE> 36
(2) the Company, within 360 days after completion of such Sale/Leaseback
Transaction, applies an amount equal to the greater of (A) the fair
value (as determined by the Board of Directors) of such property or (B)
the net proceeds from such Sale/Leaseback Transaction to the redemption
or retirement of the notes or the repayment of other Indebtedness
ranking pari passu with the notes. In lieu of applying any or all of
the net proceeds from such Sale/Leaseback Transaction to the redemption
or retirement of Indebtedness, the Company may deliver notes to the
Trustee for cancellation and reduce the amount to be applied to the
redemption of notes by an amount equal to the aggregate principal
amount of notes so delivered.
The foregoing shall not apply to any Sale/Leaseback Transaction (1) between
the Company and any one of its Subsidiaries, (2) between Subsidiaries of the
Company or (3) involving a lease for a period, including renewal periods,
optional or otherwise, not in excess of four years.
EXEMPTED INDEBTEDNESS
Notwithstanding the foregoing limitations on Liens and Sale/Leaseback
Transactions, the Company and its Significant Subsidiaries may create, Incur or
otherwise cause to suffer to exist or become effective Liens without securing
the notes or enter into a Sale/Leaseback Transaction without complying with
clause (2) under "-- Limitation on Sale/Leaseback Transactions", or enter into a
combination of such transactions if at the time of such event, and after giving
effect thereto and to the retirement of any Indebtedness which is concurrently
being repaid, the sum of (1) the principal amount of Indebtedness secured by
such Liens or the Attributable Debt in respect of such Sale/Leaseback
Transaction, as the case may be, and (2) the principal amount of all other
Indebtedness secured by Liens (not including Liens permitted under
"-- Limitations on Liens") and all other Attributable Debt in respect of
Sale/Leaseback Transactions then outstanding (not including Sale/Leaseback
Transactions permitted under "-- Limitation on Sale/Leaseback Transactions"),
measured, in each case, at the time any such Lien is Incurred or any such
Sale/Leaseback Transaction is entered into, does not exceed 15% of Consolidated
Net Tangible Assets.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the notes and the Indenture;
(2) immediately after giving effect to such transaction on a pro forma
basis, no Default shall have occurred and be continuing; and
(3) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel regarding compliance with the
Indenture.
The Successor Company will be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the notes.
FUTURE SUBSIDIARY GUARANTORS
The Company will cause each Person that provides a Guarantee in connection
with any senior indebtedness of the Company outstanding at any time ranking
equal in right of payment with the notes, including the Credit Facility, to
execute and deliver to the Trustee a Guaranty Agreement, pursuant to which such
Person will Guarantee payment of the notes on the same terms and conditions as
those set forth in the
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<PAGE> 37
Indenture, at the time such Person executes and delivers such Guarantee in
connection with such pari passu indebtedness.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the notes when due, continued
for 30 days;
(2) a default in the payment of principal of and premium, if any, on any
note when due at its Stated Maturity, upon optional redemption, upon
declaration or otherwise;
(3) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 60 days after notice with any
of the covenants (i) described under "-- Certain Covenants" or (ii)
elsewhere in the Indenture;
(5) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"); or
(6) any Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of the Indenture or such Subsidiary
Guaranty) or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty (the "guarantee provisions").
However, a default under clause (4) will not constitute an Event of Default
until the Trustee or the holders of 25% in principal amount of the outstanding
notes notify the Company of the default and the Company does not cure such
default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the notes will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding notes may rescind
any such acceleration with respect to the notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a note
may pursue any remedy with respect to the Indenture or the notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to
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the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of a note or that would involve the Trustee in personal
liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any note, the Trustee may withhold notice if and so long as a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the holders of the notes. In addition, Champion is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers of the certificate know of
any Default that occurred during the previous year. We are also required to
deliver to the Trustee, within 30 days after its occurrence, written notice of
any event which would constitute certain Defaults, its status and what action we
are taking or propose to take in respect to the event.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, an amendment may not, among
other things:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the amount payable upon the redemption of any note or change the
time at which any note may be redeemed as described under "-- Optional
Redemption" above;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's notes or any Subsidiary Guarantee;
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
(8) make any change in the ranking or priority of any note that would
adversely affect the holders; or
(9) make any change in any Subsidiary Guaranty that would adversely affect
the holders.
Notwithstanding the preceding, without the consent of any holder of the
notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor Person of the obligations
of the Company under the Indenture;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Code);
(4) to add Guarantees, including Subsidiary Guaranties, with respect to the
notes or to release Subsidiary Guarantors from Subsidiary Guaranties as
provided by the terms of the Indenture or to secure the notes;
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(5) to add to the covenants of the Company for the benefit of the holders
of the notes or to surrender any right or power conferred upon the
Company;
(6) to make any change that does not adversely affect the rights of any
holder of the notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to holders of the notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the notes, or any
defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
At any time, we may terminate all of our obligations under the notes and
the Indenture, except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the notes.
In addition, at any time we may terminate our obligations under the
covenants described under "-- Certain Covenants" (other than the covenant
described under "-- Merger and Consolidation"), the bankruptcy provisions with
respect to Significant Subsidiaries and the guarantee provisions described under
"-- Defaults" above and the limitations contained in clause (2) under
"-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the notes may not be accelerated because of an Event of Default
specified in clause (4)(i), (5) (with respect only to Significant Subsidiaries)
or (6) under "-- Defaults" above or because of the failure of the Company to
comply with clause (2) under "-- Certain Covenants -- Merger and Consolidation"
above. If we exercise either our legal defeasance option or our covenant
defeasance option, each Subsidiary Guarantor will be released from all its
obligations under its Subsidiary Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money sufficient or
U.S. Government Obligations, the principal of and interest on which when due,
will be sufficient, or a combination thereof, sufficient for the payment of
principal and interest on the notes to redemption or maturity, as the case may
be, and must comply with certain other conditions, including delivery to the
Trustee of an opinion of counsel to the effect that holders of the notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The First National Bank of Chicago is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions;
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provided, however, if it acquires any conflicting interest (as defined in the
Trust Indenture Act) it must either eliminate such conflict within 90 days,
apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. If an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any holder of notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the Indenture.
GOVERNING LAW
The Indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Affiliate" of any specified Person means
(1) any other Person, directly or indirectly, controlling or controlled by
or
(2) under direct or indirect common control with such specified Person.
For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for net rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended). The term "net rental payments" under any lease for any period shall
mean the sum of the rental and other payments required to be paid in such period
by the lessee thereunder, not including, however, any amounts required to be
paid by such lessee on account of maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates or similar charges required to be
paid by such lessee thereunder or any amounts required to be paid by such lessee
thereunder contingent upon the amount of sales, maintenance and repairs,
reconstruction, insurance, taxes, assessments, water rates or similar charges.
Attributable Debt may be reduced by the present value of the rental obligations,
calculated on the same basis, that any sublessee has for all or part of the
applicable property.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
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"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Champion Development Corporation" means one or more direct, wholly-owned
Subsidiaries of the Company which at all times, directly or indirectly, through
one or more Subsidiaries, are engaged entirely or substantially entirely in real
estate development and businesses related or incidental thereto. The
determination of what constitutes a real estate development business shall be
made in the reasonable good faith judgment of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total amount of assets appearing on the most recently published consolidated
balance sheet of the Company and its Subsidiaries (less applicable reserves and
other properly deductible items) after deducting (1) all current liabilities
(excluding (i) the amount of those which are by their terms extendable or
renewable at the option of the obligor to a date more than 12 months after the
date as of which the amount is being determined, (ii) all intercompany items
between the Company and any Subsidiary of the Company or between Subsidiaries of
the Company and (iii) the current portion of long-term Indebtedness which would
otherwise be included therein) and (2) all goodwill, tradenames, trademarks,
patents, unamortized debt discount and expense and other like intangible assets,
all as determined in accordance with GAAP.
"Credit Facility" means the Credit Agreement dated as of May 5, 1998 by and
among Champion Enterprises, Inc., the Guarantors party thereto, the Banks party
thereto, PNC Bank, National Association, as Administrative Agent, NBD Bank, as
Syndication Agent, Comerica Bank, as Documentation Agent and National City Bank,
Harris Trust and Savings Bank, Keybank National Association, Nationsbank, N.A.
and Wachovia Bank, N.A., as Co-Agents (including the loans thereunder and any
guarantees and security documents in connection therewith), as amended,
extended, renewed, restated, supplemented or otherwise modified from time to
time, and any agreement (and related document) governing Indebtedness incurred
to Refinance, in whole or in part, the borrowings and commitments then
outstanding or permitted to be outstanding under such Credit Facility or a
successor Credit Facility, whether by the same or any other group of lenders.
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
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(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a significant
segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of
the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or
services, to take-or-pay or to maintain financial statement conditions
or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Person Guarantees the Company's obligations
with respect to the Notes on the terms provided in the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary of the Company (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of principal
of a non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through
(3) above) entered
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into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business
Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation
preference with respect to any Preferred Stock (but excluding, in each
case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
with respect to contingent obligations, the amount of liability required by GAAP
to be accrued or reflected on the most recently published balance sheet of such
Person.
"Interest Rate Agreement" means, in respect of a Person, any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Issue Date" means the date on which the notes are originally issued.
"Legal Holiday" is a Saturday, a Sunday, a day on which banking
institutions are not required to be open in the State of New York or any day on
which the Federal Reserve System Fedwire is not scheduled to be operational.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
pledges or deposits in connection with bids, tenders, contracts (other
than for the payment of Indebtedness) or leases to which such Person is
a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of
rent, in each case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens;
(3) Liens for taxes, assessments, governmental charges or levies not yet
subject to penalties for non-payment or which are being contested in
good faith and by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters
of credit do not constitute Indebtedness;
(5) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred
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in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially
impair their use in the operation of the business of such Person;
(6) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to,
property (including Capital Stock) of such Person; provided, however,
that the Lien may not extend to any other property owned by such Person
or any of its Subsidiaries at the time the Lien is Incurred, and the
Indebtedness (other than any interest thereon) secured by the Lien may
not be Incurred more than 360 days (or thereafter if such Lien is
created pursuant to a firm commitment to lend entered into within such
360-day period) after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full
operation of the property subject to the Lien;
(7) Liens existing on the Issue Date;
(8) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,
however, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries;
(9) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger
or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries;
(10) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Subsidiary of such Person;
(11) Liens securing Hedging Obligations;
(12) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to
in the foregoing clauses (6), (7), (8) and (9); provided, however,
that:
(A) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements to or on such
property); and
(B) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of (x) the outstanding principal
amount or, if greater, committed amount of the Indebtedness
described under clauses (6), (7), (8) or (9) at the time the
original Lien became a Permitted Lien and (y) an amount necessary to
pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement;
(13) any Lien incurred or assumed in connection with the issuance by a
state or political subdivision thereof of any securities the interest
on which is exempt from Federal income taxes by virtue of Section 103
of the Code, or any other laws and regulations in effect at the time
of such issuance;
(14) Liens in favor of, or required by contracts with, governmental
entities; and
(15) Liens arising out of judgments against the Company or its Subsidiaries
being contested in good faith by the Company or such Subsidiary.
For purposes of this definition, the term "Indebtedness" shall be deemed to
include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the
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distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of
such Person.
"Principal" of a note means the principal of the note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Principal Property" means any property owned or leased by any Subsidiary
of the Company, the net book value of which, in the aggregate, on the date on
which the determination is being made exceeds 1% of Consolidated Net Tangible
Assets.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Registration Rights Agreement" means the Registration Rights Agreement
dated April 28, 1999, among the Company, the Subsidiary Guarantors, Credit
Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and the Company or a Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Significant Subsidiary" means any Subsidiary of the Company that owns
Principal Property; provided, however, that Champion Development Corporation
shall not be treated as a Significant Subsidiary.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guaranty" means a Guarantee, including any Guaranty Agreement,
on the terms set forth in the Indenture by a Subsidiary Guarantor of the
Company's obligations with respect to the notes.
"Subsidiary Guarantor" means, unless released from their Subsidiary
Guaranties as permitted by the Indenture, A-1 Homes Group, Inc., Accent Mobil
Homes, Inc., Auburn Champ, Inc., Champion Home Builders Co., Chandeleur Homes,
Inc., Crest Ridge Homes, Inc., Dutch Housing, Inc., Grand Manor, Inc., Heartland
Homes, Inc., Homes of Legend, Inc., Homes of Merit, Inc., Lamplighter Homes,
Inc., Lamplighter Homes (Oregon), Inc., Redman Business Trust, Redman Homes,
Inc., Southern Showcase Housing, Inc. and any other Person that becomes a
Subsidiary Guarantor pursuant to the covenant described under "-- Certain
Covenants -- Future Subsidiary Guarantors" or "Amendments and Waivers."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
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BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the exchange notes will be issued in fully
registered form. Except as described below, the exchange notes initially will be
represented by one or more global notes (the "Global Note"), in definitive,
fully registered form without interest coupons. The Global Note will be
deposited with, or on behalf of, DTC and registered in the name of DTC or its
nominee. Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to DTC or another nominee of DTC. You may hold your
beneficial interests in the Global Note directly through DTC if you have an
account with DTC or indirectly through organizations which have accounts with
DTC.
DTC has advised the Company as follows:
-- DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
-- DTC was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions
among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to others such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, whether directly
or indirectly.
Upon the issuance of the Global Note, DTC or its custodian will credit, on
its book-entry registration and transfer system, the principal amount of the
exchange notes represented by the Global Note to the accounts of participants.
Ownership of beneficial interests in the Global Note will be limited to persons
who have accounts with DTC or persons that may hold interests through such
persons. Ownership of beneficial interests in the Global Note will be shown on,
and the transfer of those ownership interests will be effected only through,
records maintained by DTC or its nominee, with respect to interests of
participants, and records of participants, with respect to interests of persons
other than participants. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as DTC or its nominee is the registered holder and owner of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole record owner and holder of the exchange notes evidenced by the Global Note
for all purposes under the Indenture and the exchange notes. Except as set forth
below, as an owner of a beneficial interest in the Global Note, you will not:
-- be entitled to have the exchange notes represented by the Global Note
registered in your name,
-- receive or be entitled to receive physical delivery of certificated
notes in definitive form, and
-- be considered to be the owner or holder of any exchange notes under
the Global Note.
We understand that under existing industry practice, in the event an owner
of a beneficial interest in the Global Note desires to take any action that DTC,
as the holder of the Global Note, is entitled to take, DTC would authorize the
participants to take such action, and the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
We will make payments of principal, premium, if any, and interest on notes
represented by the Global Note to DTC or its nominee, as the case may be, as the
registered owner of the Global Note.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note, as shown on the records of
DTC or its nominee. We also expect that payments by participants or indirect
participants to owners of beneficial
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<PAGE> 47
interests in the Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of such participants or indirect participants. We
will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Note for any note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other aspect
of the relationship between DTC and its participants or indirect participants or
the relationship between such participants or indirect participants and the
owners of beneficial interests in the Global Note owning through such
participants.
Transfer between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of notes in
certificated form for any reason, including to sell notes to persons in states
which require the delivery of the notes or to pledge the notes, a holder must
transfer its interest in the Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
Unless and until they are exchanged in whole or in part for certificated
exchange notes in definitive form, the Global Note may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC.
Beneficial owners of exchange notes registered in the name of DTC or its
nominee will be entitled to be issued, upon request, exchange notes in
definitive certificated form.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange as described
below, only at the direction of one or more participants to whose account the
DTC interests in the Global Note are credited. Further, DTC will take any action
permitted to be taken by a holder of notes only in respect of that portion of
the aggregate principal amount of notes as to which the participant or
participants has or have given that direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the trustee nor the Company
will have any responsibility or liability for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
Subject to certain conditions, the exchange notes represented by the Global
Note are exchangeable for certificated notes in definitive form of like tenor in
denominations of $1,000 and integral multiples thereof if:
(1) DTC notifies us that it is unwilling or unable to continue as
depository for the Global Note or DTC ceases to be a clearing agency
registered under the Exchange Act and, in either case, we are unable to
locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the exchange
notes represented by the Global Note; or
(3) a default entitling the holders of the exchange notes to accelerate the
maturity thereof has occurred and is continuing.
Any exchange note that is exchangeable as described above is exchangeable
for certificated notes issuable in authorized denominations and registered in
such names as DTC shall direct. Subject to the foregoing, the Global Note is not
exchangeable, except for Global Note of the same aggregate denomination to be
registered in the name of DTC or its nominee.
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<PAGE> 48
SAME-DAY PAYMENT
The Indenture requires us to make payments in respect of the notes
(including principal, premium and interest) by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
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<PAGE> 49
EXCHANGE OFFER; REGISTRATION RIGHTS
As part of the sale of the original notes to the initial purchasers,
consisting of Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill, Lynch, Pierce, Fenner & Smith
Incorporated, pursuant to the purchase agreement, dated April 28, 1999, among
Champion and the initial purchasers, the holders of the original notes became
entitled to the benefits of the Registration Rights Agreement, dated as of April
28, 1999 by and among Champion, its subsidiary guarantors and the initial
purchasers.
Under the Registration Rights Agreement, we and the subsidiary guarantors
agreed, jointly and severally, to:
(1) file a registration statement with the SEC with respect to a registered
offer to exchange the original notes for new 7 5/8% Senior Notes due
2009, having terms substantially identical in all material respects to
the original notes, except that the exchange notes will not contain
transfer restrictions, within 90 days after May 3, 1999, the date the
original notes were issued;
(2) cause the registration statement to be declared effective under the
Securities Act within 180 days after the issuance of the original
notes;
(3) offer the exchange notes in exchange for surrender of the original
notes, as soon as practicable after the effectiveness of the
registration statement; and
(4) keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer
is mailed to the holders of the original notes.
The exchange offer being made by this prospectus, if consummated within the
required time periods, will satisfy our obligations under the Registration
Rights Agreement. We understand that there are approximately 23 beneficial
owners of original notes. This prospectus, together with the letter of
transmittal, is being sent to all the beneficial holders known to us. For each
original note validly tendered to us in the exchange offer and not withdrawn by
the holder of the original note, the holder of the original note will receive an
exchange note having a principal amount equal to that of the tendered original
note. Interest on each exchange note will accrue from the last interest payment
date on which interest was paid on the tendered original note in exchange for an
exchange note or, if no interest has been paid on the original note, from the
date of the original issue of the original note.
Based on an interpretation of the Securities Act by the Staff of the SEC,
as set forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold and otherwise transferred by
holders of the exchange notes without further compliance with the registration
and prospectus delivery provisions of the Securities Act. However, any purchaser
of original notes who is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act, or who intends to participate in the exchange offer
for the purpose of distributing the exchange notes:
(1) will not be able to rely on the interpretation by the staff of the SEC
set forth in the above referenced no-action letters,
(2) will not be able to tender original notes in the exchange offer, and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
notes,
unless the sale or transfer is made under an exemption from these requirements.
Each holder of the original notes who wishes to exchange original notes for
exchange notes in the exchange offer will be required to make representations,
including that:
(1) it is neither our affiliate nor a broker-dealer tendering notes
acquired directly from us for its own account;
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<PAGE> 50
(2) any exchange notes to be received by it were acquired in the ordinary
course of its business; and
(3) at the time of commencement of the exchange offer, it has no
arrangement with any person to participate in the distribution, within
the meaning of the Securities Act, of the exchange notes.
In addition, in connection with any resales of exchange notes, any
participating broker-dealer who acquired the exchange notes for its own account
as a result of market-making activities or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The SEC has taken
the position that participating broker-dealers may fulfill their prospectus
delivery requirements, except for the resale of an unsold allotment from the
original sale of the original notes, with the prospectus contained in the
registration statement. Under the Registration Rights Agreement, we are required
to allow participating broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements to use the prospectus contained in the
registration statement for the resale of exchange notes.
In the event that:
(1) applicable interpretations of the staff of the SEC do not permit us and
the subsidiary guarantors to effect the exchange offer; or
(2) for any other reason the exchange offer is not consummated within 210
days of the date of the Registration Rights Agreement; or
(3) an initial purchaser shall notify us within 10 business days following
consummation of the exchange offer that notes held by it are not
eligible to be exchanged for exchange in the exchange offer; or
(4) any holder shall notify the Company within 10 business days following
consummation of the exchange offer that such holder is prohibited by
law or SEC policy from participating in the exchange offer; such holder
may not resell the exchange notes acquired by it in the exchange offer
to the public without delivering a prospectus and the prospectus
contained in the registration statement is not appropriate or available
for such resales by such holder; or such holder is a broker-dealer and
holds notes that are part of an unsold allotment from the original sale
of the notes,
then, we and the subsidiary guarantors have agreed, at our cost, to:
(1) as promptly as practicable, file a shelf registration statement
covering resales of the original notes or the exchange notes, as the
case may be;
(2) use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act; and
(3) keep the shelf registration statement effective until the earliest of
(A) the time when the notes covered by the shelf registration statement
can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144, (B) two years from the effective
date and (C) the date on which all notes registered under the shelf
registration statement are disposed of in accordance therewith.
In the event a shelf registration statement is filed, we and the subsidiary
guarantors have agreed, among other things, to provide to each holder for whom
such shelf registration statement was filed copies of the prospectus which is a
part of the shelf registration statement, notify each such holder when the shelf
registration statement has become effective and take certain other actions as
are required to permit unrestricted resales of the original notes or the
exchange notes, as the case may be. A holder selling such original notes or
exchange notes pursuant to the shelf registration statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such holder (including certain indemnification obligations).
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<PAGE> 51
We have agreed to pay additional cash interest on the notes if
(1) by August 2, 1999 (90 days after issuance of the original notes),
neither the registration statement nor the shelf registration statement
is filed with the SEC;
(2) by November 29, 1999 (210 days after the issuance of the original
notes), the exchange offer is not consummated and, if applicable, the
shelf registration statement is not declared effective; or
(3) after either the registration statement or the shelf registration
statement is declared effective, such registration statement thereafter
ceases to be effective or usable (subject to certain exceptions).
Each of the foregoing events is referred to as a registration default. The
rate of the additional interest will be 0.25% per annum for the first 90-day
period immediately following the occurrence of a registration default, and such
rate will increase by an additional 0.25% per annum with respect to any
subsequent period until all registration defaults have been cured, up to a
maximum additional interest rate of 0.50% per annum. We will pay such additional
interest on regular interest payment dates. Such additional interest will be in
addition to any other interest payable from time to time with respect to the
original notes and the exchange notes.
All references in the Indenture, in any context, to any interest or any
other amount payable on or with respect to the notes shall be deemed to include
any additional interest pursuant to the Registration Rights Agreement.
If we and the subsidiary guarantors effect the exchange offer, we and the
subsidiary guarantors will be entitled to close the exchange offer 30 days after
the commencement thereof provided that we have accepted all notes validly
tendered in accordance with the terms of the exchange offer.
For each note tendered to us pursuant to the exchange offer, we will issue
to the holder of such note an exchange note having a principal amount equal to
that of the surrendered note. Interest on each exchange note will accrue from
the last interest payment date on which interest was paid on the note
surrendered in exchange therefor or, if no interest has been paid on such note,
from the date of its original issue.
Under existing SEC interpretations, the exchange notes will be freely
transferable by holders other than our affiliates after the exchange offer
without further registration under the Securities Act if the holder of the
exchange notes represents to us in the exchange offer that it is acquiring the
exchange notes in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in the distribution
of the exchange notes and that it is not an affiliate of the Company, as such
terms are interpreted by the SEC; provided, however, that broker-dealers
receiving exchange notes in the exchange offer will have a prospectus delivery
requirement with respect to resales of such exchange notes. The SEC has taken
the position that these broker-dealers may fulfill their prospectus delivery
requirements with respect to exchange notes (other than a resale of an unsold
allotment from the original sale of the notes) with the prospectus contained in
the registration statement.
Under the Registration Rights Agreement, the Company and the subsidiary
guarantors are required to allow participating broker-dealers and other persons,
if any, with similar prospectus delivery requirements to use the prospectus
contained in the registration statement in connection with the resale of such
exchange notes for 180 days following the effective date of such registration
statement (or such shorter period during which participating broker-dealers are
required by law to deliver such prospectus).
A holder of notes (other than certain specified holders) who wishes to
exchange such notes for exchange notes in the exchange offer will be required to
represent that any exchange notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of the
exchange offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the exchange notes and that it is not an "affiliate" of the Company, as defined
in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
50
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material United States federal
income tax consequences associated with the exchange of the original notes for
the exchange notes in the exchange offer and the ownership and disposition of
the exchange notes. This summary applies only to a holder of an exchange note
who acquired an original note at the initial offering from an initial purchaser
for the original offering price and who acquires the exchange notes in the
exchange offer. This discussion is based on provisions of the Internal Revenue
Code, Treasury regulations, and administrative and judicial interpretations of
the Code and the regulations, all as currently in effect and all of which are
subject to change, possibly with retroactive effect. This discussion does not
address the tax consequences to subsequent purchasers of the exchange notes and
is limited to investors who hold the exchange notes as capital assets. The tax
treatment of the holders of the notes may vary depending upon their particular
situations. In addition, holders, including insurance companies, tax exempt
organizations, financial institutions and broker-dealers, may be subject to
special rules not discussed below. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OF THE EXCHANGE OF THE
ORIGINAL NOTES FOR THE EXCHANGE NOTES IN THE EXCHANGE OFFER AND THE OWNERSHIP
AND DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY RELEVANT FOREIGN, STATE, LOCAL OR OTHER TAXING
JURISDICTION.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
The term United States holder means a holder of an exchange note that is,
for United States federal income tax purposes:
-- a citizen or resident of the United States,
-- a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision of the United
States,
-- an estate the income of which is subject to United States federal
income taxation regardless of its source and
-- a trust if a United States court is able to exercise primary
supervision over the administration of that trust and one or more
United States persons have the authority to control all substantial
decisions of the trust. The term non-U.S. holder means a holder of an
exchange note that is not a United States holder.
EXCHANGE OFFER
The exchange of an original note for an exchange note in the exchange offer
will not constitute a significant modification of the original note for United
States federal income tax purposes. Therefore, the exchange note received will
be treated as a continuation of the original note in the hands of the holder. As
a result, there will be no United States federal income tax consequences to a
United States holder who exchanges an original note for an exchange note in the
exchange offer and that holder will have the same adjusted tax basis and holding
period in the exchange note as it had in the original note immediately before
the exchange.
STATED INTEREST
Stated interest payable on an exchange note generally will be included in
the gross income of a United States holder as ordinary interest income at the
time accrued or received, in accordance with the United States holder's method
of accounting for United States federal income tax purposes.
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<PAGE> 53
DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement at maturity or other taxable
disposition of an exchange note, a United States holder generally will recognize
capital gain or loss equal to the difference between the amount realized by the
holder, except to the extent that amount is attributable to accrued interest,
which will be treated as ordinary interest income, and the holder's adjusted tax
basis in the exchange note. The capital gain or loss will be long-term capital
gain or loss if the United States holder's holding period for the exchange note
exceeds one year at the time of the disposition.
UNITED STATES TAXATION OF NON-UNITED STATES HOLDERS
STATED INTEREST
In general, payments of interest received by a non-U.S. holder will not be
subject to United States federal withholding tax, provided that:
-- (1) the non-U.S. holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of
Champion entitled to vote, (2) the non-U.S. holder is not a controlled
foreign corporation that is related to Champion actually or
constructively through stock ownership, and (3) the beneficial owner
of the exchange note, under penalty of perjury, either directly or
through a financial institution which holds the exchange note on
behalf of the non-U.S. holder and holds customers' securities in the
ordinary course of its trade or business, provides Champion or its
agent with the beneficial owner's name and address and certifies,
under penalty of perjury, that it is not a United States holder;
-- the interest received on the exchange note is not effectively
connected with the conduct by the non-U.S. holder of a trade or
business within the United States and the non-U.S. holder complies
with certain reporting requirements; and
-- the non-U.S. holder is entitled to the benefits of an income tax
treaty under which the interest is exempt from United States
withholding tax and the non-U.S. holder complies with certain
reporting requirement.
Payments of interest not exempt from United States federal withholding tax as
described above will be subject to withholding tax at the rate of 30% (subject
to reduction under an applicable income tax treaty).
GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale, redemption or other disposition of an
exchange note unless:
-- the gain is effectively connected with the conduct of a trade or
business within the United States by the non-U.S. holder or
-- in the case of a non-U.S. holder who is a nonresident alien
individual, the holder is present in the United States for 183 or more
days in the taxable year and other requirements are met. In addition,
an exchange of an original note for an exchange note in the exchange
offer will not constitute a taxable exchange of the original note for
non-U.S. holders. See "-- United States Taxation of United States
Holders -- Exchange Offers" above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Non-corporate United States holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium, if any, and interest on, and
the proceeds of the disposition of, the notes. In general, backup withholding
will be imposed if the United States holder:
-- fails to furnish its taxpayer identification number, which, for an
individual, would be the holder's Social Security number,
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<PAGE> 54
-- furnishes an incorrect taxpayer identification number,
-- is notified by the IRS that the holder has failed to report payments
of interest or dividends or
-- under certain circumstances, fails to certify, under penalty of
perjury, that the holder has furnished a correct taxpayer
identification number and has been notified by the IRS that the holder
is subject to backup withholding tax for failure to report interest or
dividend payments.
In addition, these payments of principal, premium and interest to United States
holders will generally be subject to information reporting. United States
holders should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining this
exemption, if applicable.
Backup withholding generally will not apply to payments made to a non-U.S.
holder of an exchange note who provides the certification described under
"United States Taxation of Non-U.S. Holders -- Stated Interest" or otherwise
establishes an exemption from backup withholding. Payments by a United States
office of a broker of the proceeds of a disposition of the exchange notes
generally will be subject to backup withholding at a rate of 31% unless the
non-United States holder certifies it is a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the holder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS.
NEW TREASURY REGULATIONS
New final Treasury regulations governing information reporting and the
certification procedures regarding withholding and backup withholding on amounts
paid to non-U.S. holders after December 31, 1999 generally would not alter the
treatment of non-U.S. holders described above. The new Treasury regulations
would alter the procedures for claiming the benefits of an income tax treaty and
may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a non-U.S. holder of an exchange note.
Holders should consult their tax advisors concerning the effect, if any, of such
new Treasury regulations on an investment in the exchange notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for original notes where the
original notes were acquired as a result of market-making activities or other
trading activities. Champion has agreed that, for a period of 180 days after the
expiration date of the exchange offer, it will make this prospectus, available
to any broker-dealer for use in connection with any resale. In addition, until
October 30, 1999, all dealers effecting transactions in the exchange notes may
be required to deliver a prospectus.
Champion will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale.
These resales may be made at market prices prevailing at the time of resale, at
prices related to these prevailing market prices or negotiated prices. Any
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any of the exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an underwriter within the meaning of the
Securities Act, and any profit on the resale of exchange notes and any
commission or concessions received by those persons may be deemed to be
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<PAGE> 55
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
Champion will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. Champion has agreed to pay all
expenses incident to the exchange offer, including the expenses of one counsel
for the holders of the notes, other than commissions or concessions of any
brokers or dealers. Champion will indemnify the holders of the notes, including
any broker-dealers, against various liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Dykema Gossett PLLC, Bloomfield Hills, Michigan will pass upon the validity
of the issuance of the exchange notes.
EXPERTS
The Consolidated Financial Statements of Champion Enterprises, Inc.
incorporated in this prospectus by reference to the Annual Report on Form 10-K
for the year ended January 2, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY
ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF SEPTEMBER 10, 1999. YOU SHOULD NOT ASSUME THAT SUCH
INFORMATION IS ACCURATE AS OF ANY OTHER DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information..... 1
The Company............................. 2
Risk Factors............................ 7
Use of Proceeds......................... 8
Capitalization.......................... 9
Selected Financial Data................. 10
The Exchange Offer...................... 12
Forward-Looking Statements.............. 19
Management's Discussion and Analysis.... 20
Management.............................. 29
Description of Certain Indebtedness..... 31
Description of the Notes................ 31
Exchange Offer; Registration Rights..... 48
Material United States Federal Income
Tax Considerations.................... 51
Plan of Distribution.................... 53
Legal Matters........................... 54
Experts................................. 54
</TABLE>
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$200,000,000
CHAMPION ENTERPRISES, INC. LOGO
EXCHANGE OFFER
7 5/8% SENIOR NOTES DUE 2009
-------------------------
PROSPECTUS
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SEPTEMBER 10, 1999
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