SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1998 Commission File Number 1-9751
CHAMPION ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Michigan 38-2743168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 University Drive, Suite 300, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 340-9090
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
Registered
Common Stock, $1 par value New York Stock Exchange
Series A Preferred Stock Chicago Stock Exchange
Purchase Rights Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
Registrant has been required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant as of March 5, 1998, based on the last sale price of $25.25 per
share for the Common Stock on the New York Stock Exchange on such date, was
approximately $757,259,721. As of March 5, 1998, the Registrant had 47,340,618
shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Report
Document into which it is incorporated
Proxy Statement for Annual Shareholders'
Meeting to be held April 28, 1998 ............ III
PART I
ITEM 1. BUSINESS.
GENERAL
Established in 1953, Champion Enterprises, Inc. and its subsidiaries
(collectively, the Registrant, Champion or the Company) operate primarily in
the manufactured housing industry. Champion has been principally a producer of
manufactured homes, with 53 manufacturing plants throughout the United States
and 2 plants in western Canada as of January 3, 1998. Since 1988 Champion has
also owned Lamplighter Homes, Inc. (Lamplighter), which operates retail sales
centers and distributes the Registrant's manufactured homes in the Northwest.
On February 9, 1998, the Company sold its commercial vehicles business which
produced mid-size buses, but which represented 4% or less of consolidated
sales during the last four years. At January 3, 1998 the Registrant had
approximately 11,300 employees.
For 1997 and 1996, the Registrant led the U.S. manufactured housing
industry in wholesale sales revenues and in the number of multi-section homes
sold, based on 1997 data obtained from industry members' filings with the
Securities and Exchange Commission (SEC), and 1996 data from a survey by
Manufactured Home Merchandiser (MHM), an industry trade publication.
During the past four years the Registrant significantly expanded its
manufactured housing operations through acquisitions, internal growth and, in
1996, its merger with Redman Industries, Inc.(Redman), a publicly held
company. Prior to the merger, Champion and Redman, respectively, were the
second and third largest producers of manufactured homes in the U.S., based on
1996 data obtained from industry members' SEC filings and 1995 data from a
survey by MHM. As a result of this growth, Champion's manufactured housing
sales revenues have increased from $297 million in 1993 (excluding Redman
sales) to almost $1.7 billion in 1997.
The Registrant has acquired six manufactured housing companies since
1994: Dutch Housing, Inc. in Michigan and Indiana in 1994; Chandeleur Homes,
Inc. in Alabama, Crest Ridge Homes, Inc. in Texas and New Horizon Manufactured
Homes, Ltd. in Alberta, Canada in 1995; and Grand Manor, Inc. in Georgia and
Homes of Legend, Inc. in Alabama in 1996. In addition, during the past two
years the Company opened 11 new production facilities, including six new
plants in 1997.
RECENT DEVELOPMENTS
During the second half of 1997, the Registrant announced its strategy to
expand its operations by seeking acquisitions of key manufactured housing
retailers in growth areas around the country. The Registrant's retail
strategy includes plans to acquire manufactured housing retailers and rapidly
expand their operations in order to have aggregate annual retail sales of at
least $1 billion 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 and control of costs.
Champion started its retail growth in 1997 by expanding its Lamplighter
operations through the opening or acquisition of six new sales centers, for a
year end total of 21 retail locations and 1997 sales of approximately $60
million. In February 1998, Lamplighter acquired an additional sales center.
Also in 1997, Champion entered into a strategic alliance with Zaring
National's HomeMax retail centers to design and produce private label homes.
Champion acquired Alpine Homes, Inc.("Alpine"), a retailer in Colorado, in
December of 1997. In 1998 through April 1, the Company completed the
acquisitions of six manufactured housing retailers: Southern Showcase Housing,
Inc., based in North Carolina; San Jose Advantage Homes, Inc. in California;
Iseman Corp., based in South Dakota; Accent Mobile Homes, Inc., headquartered
in North Carolina; a group of corporations comprising the Texas Home Buyers
Group, based in Texas; and a group of corporations comprising the Homes
America Group, headquartered in Nevada. These acquired businesses had
aggregate 1997 sales of approximately $370 million and operate 118 retail
locations in 18 states.
The Registrant's three year goal through 1998 had been to achieve a
minimum compound annual growth in earnings per share of 20%, with 1995 results
as the base year and excluding nonrecurring charges. However, due to the
Registrant's recent rapid growth, its substantially larger size and lower than
anticipated inflation, a new long-term goal of a minimum 15% compound annual
growth in earnings per share has been established. This goal is based on
growth in the manufactured housing industry from 1991 to 1997 based on data
reported by the National Conference of States on Building Codes and Standards
(NCSBCS), the Registrant's increased manufacturing capacity, its increased
number of independent retail locations and owned retail companies, continued
market share improvement and the results of its acquisitions. This goal is
also based on a number of assumptions, many of which are beyond the
Registrant's control, including continued growth in both the manufactured
housing industry and the overall general economy, and only modest changes in
interest rates. There can be no assurance that these assumptions will prove
accurate and actual results may differ substantially from this goal.
MANUFACTURED HOUSING
Products
Most of the manufactured homes produced by the Registrant are constructed to
building standards in accordance with the National Manufactured Home
Construction and Safety Standards promulgated by the U.S. Department of
Housing and Urban Development ("HUD code homes"). Approximately 97% of the
homes produced by the Registrant in 1997 were HUD code homes. The remaining
3% of homes produced by the Registrant 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 Registrant produces a broad range of single and multi-section homes
under various trade names and brand names and in a variety of floor plans and
price ranges. The Registrant's manufactured homes generally range in size
from 400 to 4,000 square feet, but some are as large as 6,100 square feet.
Homes manufactured by the Registrant typically include two to four bedrooms, a
living room or family room, dining room, kitchen, and two full bathrooms.
During 1997 the Registrant's average wholesale price was $26,100, and
wholesale prices ranged from $10,000 to over $100,000. Retail sales prices of
the homes, without land, generally range from $15,000 to over $100,000,
depending upon size, floor plan, features and options.
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. These components include lumber,
plywood, chipboard, drywall, steel, vinyl floor coverings, insulation,
exterior siding (wood, vinyl and metal), windows, shingles, home appliances
such as refrigerators and ranges, furnaces, plumbing and electrical fixtures
and hardware. These components are presently available from several sources
and the Registrant is not dependent upon any particular supplier. Prices of
certain materials such as lumber can fluctuate significantly due to changes in
demand and supply. The industry and the Registrant generally have been able to
pass higher material costs on to the consumer in the form of surcharges and
increased base prices. It is not certain, however, that any future price
increases can be passed on to the consumer without affecting demand.
The completed home contains carpeting, cabinets, appliances, wall and
window coverings and electrical, heating and plumbing systems. Optional
features include fireplaces and skylights. Upon completion and sale of the
home, it is transported to a retail sales center or directly to the consumer's
home site. Upon sale from the retail sales location, the home is transported
to the home site, placed and readied by the retailer for occupancy. The
sections of a multi-section home are joined and the interior and exterior
seams are finished at the home site.
Production
The Registrant's 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 (also
known as floors) on a permanently affixed steel support chassis. Each home is
assembled in stages beginning with the construction of the chassis, then
adding other constructed and purchased components, and ending with 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 enables the Registrant to produce homes in one to
two days at substantially less cost than conventional site-built housing.
According to 1996 data reported by the U.S. Department of Commerce,
manufactured housing costs approximately $27.83 per square foot, compared to
$58.11 per square foot for site-built housing.
The Registrant's production schedule is based upon wholesale buyer
(retailer) orders which fluctuate from week to week, are subject to
cancellation at any time without penalty and are not necessarily an indication
of future business. Before scheduling homes for production, orders and
availability of financing are confirmed with the retailer. Orders are
generally filled within 90 days of receipt, depending upon the level of
unfilled orders and requested delivery dates. As of the end of December 1997,
unfilled orders for housing, although not firm, totaled an estimated $42
million, compared to $38 million a year earlier. 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.
The Registrant produces homes to fill existing wholesale and retail
orders and, therefore, generally does not carry finished goods inventories
except for homes awaiting delivery. Typically one to three weeks' supply of
raw materials is maintained.
Charges to transport manufactured homes increase with the distance from
the factory to the retailer and home site. As a result, most of the retail
outlets for a manufacturer's homes are located within a 250 to 500 mile radius
of its manufacturing plants.
Independent Retailers
During 1997, 97% of the Registrant's 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, the Registrant's independent retailers
may sell manufactured homes produced by other manufacturers in addition to
those produced by the Registrant. In 1997, no single independent retailer or
distributor accounted for more than 10% of the Registrant's 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, the Registrant enters into various repurchase
agreements with the lending institutions providing retailer financing, as is
more fully described in Note 10 of Notes to Consolidated Financial Statements.
The Registrant continually seeks to increase sales at its existing
independent retailers by increasing throughput of its homes, as well as by
finding new independent retailers to carry its homes.
Company Operated Retail Sales Centers
As of January 3, 1998, the Company operated 21 Lamplighter retail sales
centers in the northwestern U.S. and Alpine Homes in Colorado. These Company
operated retail locations accounted for 3% of the wholesale home shipments
made by the Registrant in 1997 and had total 1997 retail sales of
approximately $60 million.
As a result of the Company's acquisitions and expansions in 1998, the
Company has 141 retail locations in 20 states as of April 1, 1998. The
Registrant's acquired retail companies operate primarily in North Carolina,
South Carolina, Virginia, Texas, the western U. S., and the Great Plains
states. Some of these acquired businesses primarily sold homes produced by
Champion. Other of these acquired companies sold non-Champion homes either
exclusively or primarily (referred to in this discussion as "acquired
non-Champion retailers"). Each of the Registrant's owned retail companies does
business autonomously under its own name. Each company carries and sells
homes based on availability from suppliers and marketability for the local
area. The Registrant encourages Company operated retail centers to source
appropriate home models on a competitive basis from a variety of
manufacturers, including the Registrant and others.
One supplier to four of the acquired non-Champion retailers has informed
those retailers that it will discontinue supplying its homes to them. As a
result, these acquired non-Champion retailers have found other manufacturers,
including the Registrant, to supply comparable products on similar terms of
price, delivery and service. The Registrant believes that it has the
manufacturing capacity to provide homes to these retailers. The effects of
this supplier change for these retailers cannot be predicted with certainty at
this time. However, the Registrant believes the effects of this change should
not be adverse.
Retail sales centers operated by the Registrant generally range from one
and one-half to four acres in size, although some locations are up to 10
acres. As of April 1, 1998, the Registrant owned 14 retail locations and
leased 127 locations. Each sales center has a sales office which is a
manufactured home and has a variety of model homes of various sizes, 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 are repossessed
homes obtained from financial institutions. The Registrant's acquired
retailers generally finance their inventories of homes under floor plan
financing arrangements similar to those discussed above under "Independent
Retailers".
The Registrant's sales centers are usually located for high visibility on
a main road or highway. Model homes may be displayed in a residential setting
with sidewalks and landscaping. Each sales center usually employs a manager,
three or four commissioned salespersons and a serviceman. The Registrant uses
radio and television advertising in areas where it has 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.
The Registrant's retail strategy includes plans to acquire manufactured
housing retailers and expand their operations, as well as Lamplighter's, in
order to have retail sales of at least $1 billion by the year 2000.
Lamplighter, Alpine and the 1998 retail acquisitions through April 1 had
aggregate 1997 sales of approximately $430 million. The Registrant's other
related retail goals include improving the retail buying experience for the
home buyer and enhancing retail profits through better merchandising
techniques, improved efficiencies, control of costs and improved installation
of homes to reduce service costs.
Market
Manufactured housing competes in suburban and rural areas with other
forms of new low-cost housing such as site-built housing, prefabricated and
modular homes, condominiums, and with existing housing such as pre-owned homes
and apartments. According to statistics published by NCSBCS and the U.S.
Department of Commerce, manufactured housing wholesale shipments accounted for
an estimated 24% of new single-family housing starts and 31% of new
single-family homes sold in 1997. The Registrant believes that industry retail
home sales rose approximately 3% from 1996 levels based on data reported by
Statistical Surveys, Inc. Industry wholesale shipments of manufactured
housing declined 3% in 1997 to 353,377 homes according to data reported by
NCSBCS. Based on the Registrant's analysis of this data, the Registrant
attributes the decline in wholesale shipments to retailers reducing their
inventories of homes.
The market for manufactured housing is affected by a number of different
factors, including consumer confidence, job creation, general economic growth
and the overall affordability of manufactured housing versus other forms of
housing. In addition, demographic trends, such as changes in population
growth, and competition affect the demand for housing products. The
affordability of manufactured housing is influenced by interest rates and the
availability of financing. Although the Registrant does not believe there is a
direct correlation between manufactured housing shipments and interest rate
changes, there can be no assurance that a rise in overall interest rates would
not have an adverse impact on the general economy and, therefore, the market
for manufactured housing. Generally, manufactured housing is less sensitive to
interest rate changes than other housing.
The Registrant believes the segment of the housing market in which
manufactured housing is most competitive includes consumers with household
incomes under $40,000. This segment has a high representation of young
singles 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. 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. The
Registrant believes that a much larger market may exist, including apartment
dwellers and persons who have traditionally purchased low-priced site-built
homes. In the past a number of factors have restricted demand for
manufactured housing, including less-favorable financing terms for
manufactured housing compared to site-built housing, the effects of
restrictive zoning on the availability of certain locations for home placement
and, in some cases, an unfavorable public image. These negative factors have
lessened considerably in recent years with improved quality and appearance,
increased financing availability and less restrictions.
Competition
According to the Manufactured Housing Institute (MHI), an industry trade
association, in 1997 there were approximately 90 producers of manufactured
homes in the U.S. operating an estimated 323 production facilities. This
total compares to 313 plants a year ago and 216 plants in 1991. In 1996 the
top four companies had combined market share of 49%, according to data from a
survey by MHM. Capital requirements for entry into the manufactured housing
industry are relatively low. 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
the terms of retailer and retail customer financing.
In 1997 the Registrant sold 64,285 homes of which 57.8% were
multi-sectionals. The multi-section mix increased from 55.5% in 1996. Based
on data reported by NCSBCS, in 1997 the Registrant's U.S. wholesale market
share of HUD code homes sold was 17.7%, up from 16.5% in 1996. According to
NCSBCS data, the industry's U.S. multi-section mix was 57.9% in 1997, up from
52.2% in 1996.
DISCONTINUED OPERATIONS
In December 1997 the Registrant entered into an agreement to sell the
assets and the business of Champion Motor Coach, Inc., its commercial vehicles
business which manufactured mid-size buses at two plants in Michigan. The
sale was completed in February, 1998.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Report, including the Registrant's
plans regarding its number of manufacturing facilities, capital expenditures,
retail strategy, products and performance, views of industry prospects and
anticipated demand for manufactured homes, and the Company'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, are forward looking statements within the
meaning of the Securities Exchange Act of 1934. In addition, the Company 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 the Registrant in particular include
the following.
Long-term growth in the manufactured housing industry may be affected by
the relative cost of manufactured housing versus other forms of housing,
general economic trends including inflation and unemployment rates, consumer
confidence, job growth and interest rates, and changes in demographics
including new household formation, the number of Americans on fixed incomes
and the availability and cost of financing. Changes in housing regulations,
including HUD and local building codes, and local zoning regulations could
also affect the manufactured housing industry. In the short-term,
manufactured housing sales may be affected by inclement weather.
Profitability of the Company may be affected by its ability to
efficiently expand operations and to utilize production capacity.
Additionally, raw materials comprise a significant portion of the Company's
cost of sales. Profitability may be affected by the Company's ability to pass
increased material costs, particularly lumber costs, to its customers.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages, and the position or
office held by each, are as follows:
Position or Office Name Age
Chairman of the Board of
Directors, President and
Chief Executive Officer Walter R. Young, Jr. 53
Chief Operating Officer Philip C. Surles 56
President, Retail Operations
and Chief Financial Officer Joseph H. Stegmayer 47
Executive Vice President-Finance A. Jacqueline Dout 43
Vice President, General Counsel
and Secretary John J. Collins, Jr. 46
Controller Richard Hevelhorst 50
The executive officers of the Registrant serve at the pleasure of the
Registrant's Board of Directors except for Mr. Walter R. Young, Jr., who is
currently serving a three year term ending April 30, 2001, unless terminated
earlier in accordance with the terms of a certain Letter Agreement between the
Registrant and Mr. Young, dated April 27, 1990.
Mr. Young joined the Registrant in April 1990 as President and Chief
Executive Officer and was elected Chairman of the Board in April 1992.
Mr. Surles joined the Company 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 the Company's
President, Southwestern Region and in various executive capacities with Redman
for 20 years.
In January 1998 Mr. Stegmayer joined the Company 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.
Prior to joining the Registrant in April 1994, Ms. Dout served as Vice
President and Treasurer of Mallinkrodt Group, Inc., a producer of health care
products and specialty chemicals, where she was employed for six years.
Mr. Collins joined the Company in 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 the Registrant during 1997,
and was the Resident Director of one of its offices.
Mr. Hevelhorst joined the Registrant as Controller in May 1995.
Previously for the past five years he was employed in various financial and
accounting positions at Evans Industries, Inc., a privately-held manufacturer,
and most recently was their Treasurer and Chief Financial Officer.
ITEM 2. PROPERTIES.
All of the Registrant's manufacturing facilities are one story with
concrete floors and wood and steel superstructures. The Registrant owns all of
its manufacturing facilities except for three housing facilities which are
leased, and owns substantially all of the machinery and equipment used in each
of its facilities. The Registrant believes its plant facilities are generally
well maintained and, with completed and planned expansions, provide ample
capacity to meet expected demand.
The following table sets forth certain information as of January 3, 1998 with
respect to the Registrant's housing manufacturing facilities, all of which are
assembly-line operations.
Location Approximate Square Feet
United States:
Alabama: Guin (2 plants) 220,000
Boaz (7 plants)* 678,000
Talladega 163,000
Arizona: Chandler 85,000
California: Corona** 208,000
Lindsay 156,000
Woodland** 99,000
Colorado: Berthoud 103,000
Florida: Plant City 92,000
Georgia: Thomasville (2 plants) 190,000
Richland 119,000
Idaho: Weiser 130,000
Indiana: LaGrange (4 plants) 326,000
Ridgeville 105,000
Topeka (4 plants) 388,000
Michigan: White Pigeon (3 plants) 190,000
Mississippi: Gulfport 78,000
Nebraska: Central City 130,000
York (2 plants) 314,000
New York: Sangerfield 114,000
North Carolina: Lillington (2 plants) 220,000
Maxton 132,000
Sanford (2 plants) 226,000
Oregon: Silverton 102,000
Woodburn 110,000
Pennsylvania: Claysburg 140,000
Ephrata 131,000
Tennessee: Henry 125,000
Texas: Athens 150,000
Breckenridge (2 plants) 229,000
Burleson (2 plants) 222,000
Washington: Chehalis 103,000
Canada:
Alberta: Medicine Hat 92,000
British
Columbia: Penticton 74,000
*Includes one leased facility of 60,000 square feet.
**Leased facility.
The Registrant leases its executive offices, which are located in Auburn
Hills, Michigan. Other miscellaneous properties are also owned or leased,
including 141 locations in 20 states used in the retail sale of manufactured
housing, of which 127 are leased and 14 are owned. Of these Company operated
sales centers, 118 located in 18 states were obtained through acquisitions in
1998 through April 1. In addition, Lamplighter opened a new sales center in
early 1998. Also, in March 1998 a new manufacturing facility in Lillington,
North Carolina began production.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Registrant is involved in routine
litigation incidental to its business. This litigation arises principally from
the sale of its products and in various governmental agency proceedings
arising from occupational safety and health, wage and hour, and similar
employment and workplace regulations. In the opinion of the Registrant's
management, none of such matters presently pending are material to the
Registrant's overall financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Registrant's security
holders during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) The Registrant's common stock is listed on the New York, Chicago and
Pacific Stock Exchanges as ChampEnt and has a ticker symbol of CHB. Quarterly
stock prices were as follows:
HIGH LOW
1997
1st Quarter $20 3/8 $14
2nd Quarter 18 5/8 13 3/4
3rd Quarter 19 13/16 14 1/4
4th Quarter 21 1/4 16 1/8
1996
1st Quarter 15 1/2 11 7/8
2nd Quarter 26 1/8 14 3/16
3rd Quarter 22 5/8 17 5/8
4th Quarter $23 1/4 $18 1/4
(b) There were approximately 6,000 shareholders of record and 17,000
beneficial holders on March 5, 1998.
(c) The Registrant has not paid cash dividends during the past two
fiscal years. Consistent with its plan to improve shareholder value through
investments in its businesses, the Company does not plan to pay cash dividends
in the near term.
ITEM 6. SELECTED FINANCIAL DATA
Six-year highlights (unaudited)
(in thousands, except per share amounts and units sold)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992
____________________________________________________________________________________________________________
OPERATIONS
Net sales $1,675,053 $1,582,829 $1,355,085 $1,100,483 $ 739,603 $ 601,592
Cost of sales 1,423,595 1,338,800 1,151,012 942,259 636,159 522,972
____________________________________________________________________________________________________________
Gross margin 251,458 244,029 204,073 158,224 103,444 78,620
Selling, general and
administrative expenses 135,028 130,629 112,396 89,289 74,732 62,617
Nonrecurring merger and
other charges -- (22,000) -- (2,700) (572) (1,308)
____________________________________________________________________________________________________________
Operating income 116,430 91,400 91,677 66,235 28,140 14,695
Interest income (expense), net 941 525 298 673 (1,770) (4,985)
____________________________________________________________________________________________________________
Pretax income-continuing
operations 117,371 91,925 91,975 66,908 26,370 9,710
____________________________________________________________________________________________________________
Income-continuing operations 70,771 52,225 54,475 43,808 18,470 7,137
Income (loss)-discontinued
operations 4,500 1,361 1,810 3,230 (3,750) (3,847)
Extraordinary gain (loss) -- -- -- -- (1,753) 420
____________________________________________________________________________________________________________
Net income $ 75,271 $ 53,586 $ 56,285 $ 47,038 $ 12,967 $ 3,710
===========================================================================================================
Basic earnings per share:
Income-continuing operations $ 1.49 $ 1.10 $ 1.14 $ 0.92 $ 0.44 $ 0.19
Income (loss)-discontinued
operations 0.10 0.03 0.04 0.07 (0.09) (0.10)
Extraordinary gain (loss) -- -- -- -- (0.04) 0.01
____________________________________________________________________________________________________________
Net income $ 1.59 $ 1.13 $ 1.18 $ 0.99 $ 0.31 $ 0.10
============================================================================================================
Diluted earnings per share:
Income-continuing operations $ 1.45 $ 1.06 $ 1.10 $ 0.90 $ 0.43 $ 0.19
Income (loss)-discontinued
operations 0.09 0.03 0.04 0.06 (0.09) (0.10)
Extraordinary gain (loss) -- -- -- -- (0.04) 0.01
____________________________________________________________________________________________________________
Net income $ 1.54 $ 1.09 $ 1.14 $ 0.96 $ 0.30 $ 0.10
============================================================================================================
Basic weighted shares outstanding 47,483 47,515 47,886 47,601 42,182 37,080
Diluted weighted shares outstanding 48,875 49,327 49,389 48,900 42,954 37,820
Depreciation and amortization $ 17,091 $ 14,463 $ 11,294 $ 8,088 $ 6,363 $ 6,749
Capital expenditures $ 38,266 $ 50,094 $ 19,854 $ 18,762 $ 10,601 $ 4,840
FINANCIAL POSITION
Working capital $ 46,094 $ 21,479 $ 26,433 $ 36,537 $ 35,046 $ 19,163
Property and equipment, net 143,519 119,994 75,271 59,783 44,578 41,480
Total assets 501,250 461,222 367,872 290,090 204,490 177,349
Long-term reserves and other
liabilities 37,410 50,544 38,179 29,977 27,787 61,441
Shareholders' equity 280,416 226,634 176,142 133,266 81,741 22,316
Per share $ 6.02 $ 4.75 $ 3.73 $ 2.79 $ 1.76 $ 0.60
Return on average equity 30% 27% 36% 44% 25% 19%
OTHER STATISTICAL INFORMATION
Single-section homes sold 27,125 27,497 24,682 20,327 16,138 15,911
Multi-section homes sold 37,160 34,299 29,273 24,126 16,469 13,338
Total homes sold 64,285 61,796 53,955 44,453 32,607 29,249
Floors sold 102,468 96,839 83,775 69,293 49,773 45,213
See accompanying Notes to Consolidated Financial Statements for information regarding the 1996 merger with
Redman Industries, Inc., discontinued operations and earnings per share calculations.
</TABLE>
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1997 VERSUS 1996
Overview
Champion Enterprises, Inc. ("Champion" or "Company") is the leading producer
of manufactured housing in the United States and Canada. In 1997 Champion led
the manufactured housing industry in wholesale revenues and multi-section
homes sold. In 1996 Champion merged with Redman Industries, Inc. ("Redman")
in a combination that was accounted for as a pooling of interests. Therefore,
the Financial Statements and Management's Discussion and Analysis for all
periods in this Annual Report are presented on a combined basis with Redman.
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 year
1997 was comprised of 53 weeks while 1996 and 1995 were each comprised of 52
weeks.
Champion reported record sales, income and earnings per share in 1997.
Operating income from continuing operations rose 27% to $116 million and net
sales rose 6% to approximately $1.7 billion, both historic highs. Income from
continuing operations reached $70.8 million, or $1.45 per share, compared to
$69.0 million, or $1.40 per share, before nonrecurring merger 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. The Company's retail strategy
includes plans to acquire manufactured housing retailers and rapidly expand
their operations in order to have aggregate annual retail sales of at least $1
billion by the year 2000.
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. Lamplighter's 1997 sales rose to $60
million from $33 million in the prior year. Also in 1997, Champion entered
into a strategic alliance with Zaring National's HomeMax retail centers to
design and produce private label homes. In December Champion acquired Alpine
Homes, Inc., a retailer in Colorado.
In 1998 through April 1, the Company completed the acquisitions of six
manufactured housing retailers: Southern Showcase Housing, Inc., based in
North Carolina; San Jose Advantage Homes, Inc., in California; Iseman Corp.,
based in South Dakota; Accent Mobile Homes, Inc., headquartered in North
Carolina; a group of corporations comprising the Texas Home Buyers Group,
based in Texas; and a group of corporations comprising the Homes America
Group, headquartered in Nevada. These acquisitions had aggregate 1997 sales
of approximately $370 million and operate 118 retail locations in 18 states.
The acquired businesses, combined with the Company's existing retail
operations, enable Champion to take a leading role in the retail segment of
the industry.
In December 1997 the Company entered into an agreement to sell the assets and
business of Champion Motor Coach, Inc., its commercial vehicles business which
manufactures mid-size buses. The sale was completed in February 1998. As a
result, the commercial vehicles business is classified and discussed as
discontinued operations for all periods reported in this Annual Report.
Bar chart showing Net Sales (in millions)
1995 $1,355.1
1996 $1,582.8
1997 $1,675.1
Bar chart showing Operating Income (in millions)
1995 $ 91.7
1996 $ 91.4
1997 $ 116.4
Bar chart showing Homes Sold (in thousands)
1995 54
1996 62
1997 64
Operations
(Dollars in millions,
except average home price) 1997 1996 % change
- -------------------------------------------------------------
Net sales $1,675 $1,583 5.8%
Gross margin 251 244 3.0%
SG&A 135 131 3.4%
Nonrecurring merger charges -- 22
Operating income $ 116 $ 91 27.4%
As a percent of sales:
Gross margin 15.0% 15.4%
SG&A 8.1% 8.3%
Nonrecurring merger charges -- 1.4%
Operating income 7.0% 5.8%
Homes sold 64,285 61,796 4.0%
Average home price $26,100 $25,600 1.7%
Multi-section mix 57.8% 55.5%
Floors sold 102,468 96,839 5.8%
- ------------------------------------------------------------
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. 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. Increased shipments of multi-section
homes contributed to the higher average selling price per home. The Company's
multi-section mix for the year was comparable to the industry's 57.9%.
Champion's wholesale market share of HUD code homes sold in 1997 rose to 17.7%
from 16.5% last year, based on data reported by the National Conference of
States on Building Codes and Standards ("NCSBCS").
____________
*U.S. manufactured homes are constructed in accordance with the Federal
Manufactured Home Construction and Safety Standards, as administered by the
U.S. Department of Housing and Urban Development (HUD). The HUD code
regulates manufactured home design and construction, strength and durability,
fire resistance and energy efficiency. Other building codes apply to modular
homes and homes built in Canada.
<PAGE>
Gross margin and operating income percentages slipped slightly compared to
1996 percentages excluding nonrecurring merger charges. In 1997 manufacturing
costs rose, partially offset by lower material costs and selling, general and
administrative expenses ("SG&A"). The Company 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 the Company's manufacturing
plants to schedule production in a manner that could maximize utilization of
direct labor and other productive resources. Additionally, during 1997 the
Company 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 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, the Company 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.
Although dealer orders can be cancelled at anytime without penalty, and
unfilled orders are not necessarily an indication of future business, the
Company's unfilled orders for housing at the end of December 1997 totaled
approximately $42 million compared to $38 million last year. Incoming orders
(in floors) were up approximately 20% in the fourth quarter compared to last
year.
Other Matters
(Dollars in millions) 1997 1996
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Net interest income increased in 1997 because of higher cash balances and no
borrowings on the Company's line of credit during the year. 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 previously disposed business.
Commercial vehicles sales for the year were $60 million from the sale of 1,124
buses, resulting in operating income of $1.4 million. This income was offset
by pretax charges of $1.3 million, which were recorded in the fourth quarter
of 1997 for certain valuation and other reserves established in connection
with the sale of the business. In 1996 sales were $61 million from the sale
of 1,227 buses 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.
RESULTS OF FOURTH QUARTER 1997 VERSUS 1996
Overview
Champion reported record fourth quarter net sales and income from continuing
operations of $430 million and $18.9 million, respectively. Income per share
from continuing operations for the quarter was $0.39 compared to $0.34 per
share before nonrecurring merger charges of $0.34 in 1996. The fourth quarter
of 1997 was comprised of 14 weeks while the comparable quarter of 1996 was
comprised of 13 weeks.
Operations
(Dollars in millions) 1997 1996 % change
- ------------------------------------------------------------
Net sales $ 430 $ 410 4.9%
Gross margin 66 61 8.3%
SG&A 35 33 6.2%
Nonrecurring merger charges -- 22
Operating income $ 31 $ 6 451.4%
As a percent of sales:
Gross margin 15.3% 14.8%
SG&A 8.2% 8.1%
Nonrecurring
merger charges -- 5.4%
Operating income 7.1% 1.4%
Homes sold 16,201 15,709 3.1%
Multi-section mix 60.9% 56.1%
Floors sold 26,472 24,738 7.0%
- ------------------------------------------------------------
Net sales revenues increased 5% on a 3% increase in homes sold. Shipments of
multi-section homes rose 12% over last year's fourth quarter while sales of
single-section homes declined 8%. As a result, floors shipped increased 7%.
For the quarter, U.S. industry wholesale shipments of homes and floors were
down 1.8% and up 2.6%, respectively, from last year. Operating margins
benefited from higher volumes, lower material costs and improved performance
versus last year at the Talladega, Alabama facility, a greenfield plant, that
was opened in the third quarter of 1996. In addition, 1996 operating income
was reduced by nonrecurring merger charges totaling $22 million.
Other Matters
Discontinued operations include the results of operations and the sale of the
commercial vehicles business, and income from a previously disposed business.
Commercial vehicles sales were $14.9 million for the fourth quarter of 1997
with operating income of $0.2 million, versus sales of $15.9 million and
operating income of $0.2 million last year. Pretax charges of $1.3 million
were recorded in the fourth quarter of 1997 for certain valuation and other
reserves established in connection with the sale of the business. During the
quarter, 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.
MANUFACTURED HOUSING INDUSTRY OUTLOOK
Retail home deliveries rose approximately 3% in 1997 from 1996 levels,
according to data reported by Statistical Surveys, Inc. Industry wholesale
shipments of manufactured homes decreased 3% in 1997, following increases of
7% in 1996, 12% in 1995 and 20% in 1994, according to data reported by NCSBCS.
In 1997 industry retail inventories declined an estimated 10% to 15%.
Industry analysts' estimates for 1998 industry U.S. wholesale home shipments
range from approximately equal to 1997 levels to a 5% increase. Management
believes that 1998 wholesale shipments will benefit from the reduction of
retail inventories that occurred during 1997.
The economic fundamentals that affect the industry continue to remain
favorable. Employment levels and consumer confidence are strong, financing
remains available 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. The industry shipped 353,377 HUD code homes in 1997,
representing an estimated 31% 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.
Management is encouraged by the continuing favorable trends in these areas.
The Company is positioned to take advantage of these trends by serving
particular market niches with broad geographic coverage, using innovative home
designs, maintaining a decentralized organization, making selective
acquisitions and expansions, and implementing its retail strategy.
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. The Company plans
to be a major consolidator of manufactured housing retailers. One of the
Company's related goals is to improve the retail buying experience for the
home buyer. Another goal is to enhance profits through better merchandising
techniques, improved efficiencies and control of costs.
RESULTS OF OPERATIONS 1996 VERSUS 1995
Overview
Champion's 1996 net sales reached $1.6 billion, resulting in operating income
of $91 million. Earnings per share were $1.40 before nonrecurring merger
charges of $0.34 per share. Champion underwent considerable change in 1996 by
acquiring two manufactured housing companies, combining corporate staffs,
expanding operations and merging with Redman. In the first quarter, Champion
acquired Grand Manor, Inc., which operated one plant in Georgia. In the
second quarter, the Company acquired Homes of Legend, Inc., a three plant
operation in Alabama. Grand Manor and Homes of Legend are referred to in this
discussion as the "1996 acquisitions".
On October 24, 1996, Champion issued 16.5 million shares of its common stock
in exchange for all the issued and outstanding common stock of Redman, a
publicly held company whose shares were traded on the NASDAQ. Redman was then
merged into and became a wholly owned subsidiary of Champion. Prior to the
merger Champion was the second largest producer of manufactured homes in the
U.S. and Redman was the third largest. The merger was accounted for as a
pooling of interests.
During the fourth quarter of 1996, the Company 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. These charges included $9 million
for severance costs associated with the planned closing of the Redman
corporate headquarters and stock based compensation costs triggered by the
change in control, $8 million for investment banking, legal and other fees and
$5 million for adjusting the carrying value of certain facilities and other
assets.
Operations
(Dollars in millions,
except average home price) 1996 1995 % change
- ------------------------------------------------------------
Net sales $ 1,583 $ 1,355 16.8%
Gross margin 244 204 19.6%
SG&A 131 112 16.2%
Nonrecurring merger charges 22 --
Operating income $ 91 $ 92 (0.3%)
As a percent of sales:
Gross margin 15.4% 15.1%
SG&A 8.3% 8.3%
Nonrecurring merger charges 1.4% --
Operating margin 5.8% 6.8%
Homes sold 61,796 53,955 14.5%
Average home price $25,600 $25,100 2.0%
Multi-section mix 55.5% 54.3%
Floors sold 96,839 83,775 15.6%
- ------------------------------------------------------------
Excluding nonrecurring merger charges, 1996 results for Champion were
significantly greater than 1995 results due to internal growth, acquisitions,
manufacturing efficiencies and growth in the manufactured housing industry.
During the year the Company increased the number of manufactured home plants
to 49 from 40. Five new facilities were opened by existing operations and
four were added by the 1996 acquisitions.
Based on sales revenues, Champion became the largest producer of manufactured
homes in the U.S. with a 17% increase in sales to $1.6 billion. Sales,
excluding the 1996 acquisitions, grew 11% on an 8% rise in homes sold. The
1996 acquisitions added sales of $80 million and accounted for 6.5 percentage
points of the increase in homes sold. The average price of a house sold
increased 2%, primarily because of greater sales of multi-section homes. The
Company's multi-section mix rose from 54.3% to 55.5%. The Company's 1996
wholesale market share of HUD code homes sold, based on data reported by
NCSBCS, increased to 16.5% from 15.4% in 1995, largely the result of the 1996
acquisitions. Champion's 1996 U.S. wholesale shipments of homes increased
14.1% compared to 1995. Industry U.S. wholesale shipments in 1996 rose 7% to
363,411 homes.
Before nonrecurring merger charges, operating income rose 24% to $113 million
because of higher sales volume, the 1996 acquisitions and improved margins.
Gross margin and operating margin percentages, excluding nonrecurring merger
charges, improved because of greater manufacturing efficiencies and the
effects on fixed costs of higher volumes which resulted from greater demand
for the Company's products and plant capacity additions. The 1996
acquisitions added operating income of $7.1 million for the year.
SG&A rose in dollars but remained at 8.3% of sales. The favorable effects of
higher volumes on SG&A expenses were offset by higher incentive bonuses
related to increased profits.
Other Matters
(Dollars in millions) 1996 1995
- ------------------------------------------------------------
Net interest income $ 0.5 $ 0.3
Income taxes $39.7 $37.5
Effective income tax rate 43% 41%
Income from discontinued operations $ 1.4 $ 1.8
- ------------------------------------------------------------
Discontinued operations include the results of the commercial vehicles
business. Commercial vehicles 1996 sales increased 8% to $61 million on a
unit shipment decrease of 5% to 1,227 mid-size buses. Operating income
declined 20% to $2.4 million from $3.0 million as excessive costs were
incurred on a large municipal order in the fourth quarter of 1996.
Net interest income increased due to higher cash balances and lower debt
balances in 1996. Income tax expense in 1996 increased due to a higher
effective income tax rate resulting from the nondeductible portion of the
nonrecurring merger charges.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances totaled $60 million at January 3, 1998, compared to $19 million
at December 28, 1996. In 1997 cash of $99 million was generated from
continuing operations and $10 million from stock option exercises and related
tax benefits. Cash of $38 million was used for capital improvements and $37
million for repurchases of 2.25 million shares of common stock. The common
stock repurchases were made under a 4 million share program authorized by the
Board of Directors. The Company's current ratio was 1.3 to 1 at January 3,
1998, compared to 1.1 to 1 at December 28, 1996, primarily as a result of the
increased cash balances. At year end in both 1997 and 1996, the Company had
virtually no debt. Earnings before interest, taxes, depreciation and
amortization increased to $134 million in 1997.
At January 3, 1998 accounts receivable and accounts payable were lower than
last year due to the later year end date and additional production down time
resulting from the timing of the holidays in relation to the fiscal year end.
Inventories increased as a result of six additional Lamplighter retail
locations, additional manufacturing facilities, and the acquisition of Alpine
Homes, Inc. Accrued warranty increased in line with higher sales and more
homes under warranty.
At year end the Company had a $70 million unsecured line of credit, which
expires in September 1998, and includes $20 million of availability to cover
letters of credit. The revolving credit agreement was amended in January 1998
to increase the borrowing limit to $125 million. At January 3, 1998 the
Company had $15 million of letters of credit outstanding, generally to support
insurance obligations and licensing and service bonding required by various
states. The Company had no bank borrowings outstanding at January 3, 1998 and
did not require any borrowings during 1997.
In 1998 through April 1, the Company committed to pay approximately $290
million for the acquisitions of six retailers having aggregate 1997 sales of
approximately $370 million. The total purchase price consists of
approximately $170 million in cash and $12 million in Company common stock to
be paid in 1998, and the remaining portion over five years.
The Company plans to spend up to $39 million in 1998 on capital projects,
expansions and improvements at its manufactured housing facilities, including
the opening of up to four new manufacturing plants. Borrowings will be
required during 1998 for capital improvements, retail acquisitions and
expansion, and to meet seasonal working capital needs.
The Company's return on average equity for 1997 was 30%. Consistent with its
plan to improve shareholder value through investments in its operating
businesses, the Company does not plan to pay cash dividends in the near term.
The Company believes that existing cash balances, cash flow from operations
and availability under its line of credit are adequate to meet its anticipated
financing needs, operating requirements, capital expenditures, retail
expansion plans and common stock repurchases in the foreseeable future.
However, management is considering other opportunities to raise capital to
finance the growth of the Company.
Bar chart showing Capital Expenditures (in millions)
1995 $ 19.9
1996 $ 50.1
1997 $ 38.3
Bar chart showing Return on Average Equity
1995 36%
1996 27%
1997 30%
Bar chart showing Cash Flow from Operations (in millions)
1995 $ 68.1
1996 $ 73.8
1997 $ 99.2
Impact of Inflation
Inflation has not had a material effect on the Company's operations during the
last three years. Lumber prices fluctuate, however during periods of rising
lumber prices the Company has been able to pass the increased costs to its
customers in the form of surcharges and base price increases.
Year 2000 Issue
The Company will be required to modify or replace a small portion of the
computer systems that it uses in order to prepare for the year 2000. The
Company has completed an assessment of the costs of making its computer
systems year 2000 compliant and has determined that such costs will not be
material. The Company expects to complete the required changes by the end of
1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and schedules filed herewith are set forth on
the Index to Financial Statements and Financial Statement Schedules on page
F-1 of the separate financial section of this Report and are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth in the first part of the section entitled
"Election of Directors" in the Registrant's Proxy Statement for the Annual
Shareholders' Meeting to be held April 28, 1998 (the "Proxy Statement") is
incorporated herein by reference. Each of the nominees for election as
directors has been engaged for five years or more in the principal occupation
shown, except for Messrs. Feraco, Mrkonic and Stark as discussed in the Proxy
Statement.
There are no family relationships among any of the Registrant's executive
officers.
The information set forth under the caption "Compliance with Section
16(a) of The Exchange Act" in the section entitled "Additional Information" in
the Registrant's Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the section entitled "Executive
Compensation" in the Registrant's Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Principal Shareholders" and
"Security Ownership of Management" in the section entitled "Additional
Information" in the Registrant's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The financial statements, supplementary financial information, and
financial statement schedules filed herewith are set forth on the Index to
Financial Statements and Financial Statement Schedules on page F-1 of the
separate financial section of this Report, which is incorporated herein by
reference.
The following exhibits are filed as part of this Report. Those exhibits
with an asterisk(*) designate the Registrant's management contracts or
compensation plans or arrangements for its executive officers.
Exhibit No. Description
3.1 Restated Articles of Incorporation of the Registrant, filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
3.2 Amendment to Restated Articles of Incorporation of the Registrant,
filed with the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997 and incorporated herein by reference.
3.3 Bylaws of the Registrant filed as Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
4.1 Article III of the Registrant's Restated Articles of Incorporation
(increasing number of authorized shares of capital stock), included in the
Registrant's Amendment to Restated Articles of Incorporation filed as Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997 and incorporated herein by reference.
4.2 The Registrant has issued certain receivable-backed notes (the
"Notes") pursuant to a Trust Indenture dated as of August 1, 1987 between CAC
Funding Corporation, as issuer, and First of America Bank-Detroit, N.A., as
trustee. The Notes do not exceed 10 percent of the total assets of the
Registrant and the Registrant agrees to furnish a copy of the Trust Indenture
to the Commission upon request.
4.3 Form of Rights Certificate filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A dated January 12, 1996 and incorporated
herein by reference.
4.4 Rights Agreement by and between the Registrant and Harris Trust and
Savings Bank filed as Exhibit 2 to the Registrant's Registration Statement on
Form 8-A dated January 12, 1996 and incorporated herein by reference.
10.1 Lease Agreement dated November 21, 1991 between the Registrant and
University Development Company relating to the premises located at 2701
University Drive, Auburn Hills, Michigan, filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1992 and incorporated herein by reference.
10.2 First Amendment dated December 29, 1997 to the Lease Agreement dated
November 21, 1991 between the Registrant and University Development Company
relating to the premises located at 2701 University Drive, Auburn Hills,
Michigan.
10.3 Credit Agreement dated September 29, 1995 between the Registrant,
Comerica Bank and The First National Bank of Chicago, filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 and incorporated herein by reference.
10.4 First Amendment dated October 27, 1995 to the Credit Agreement dated
September 29, 1995 between the Registrant, Comerica Bank and The First
National Bank of Chicago, filed as Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.5 Second Amendment dated September 17, 1996 to the Credit Agreement
dated September 29, 1995 between the Registrant, Comerica Bank and The First
National Bank of Chicago, filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.6 Third Amendment dated December 2, 1996 to the Credit Agreement dated
September 29, 1995 between the Registrant, Comerica Bank and The First
National Bank of Chicago, filed as Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.7 Fourth Amendment dated May, 1997 to the Credit Agreement dated
September 29, 1995 between the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.8 Fifth Amendment dated January 8, 1998 to the Credit Agreement dated
September 29, 1995 between the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.9 *Champion Enterprises, Inc. 1987 Stock Option Plan, as amended, filed
as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1992 and incorporated herein by reference.
10.10 *Champion Enterprises, Inc. 1990 Nonqualified Stock Option Program,
as amended through the Second Amendment, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
30, 1995 and incorporated herein by reference.
10.11 *Third Amendment dated June 18, 1996 to the Champion Enterprises,
Inc. 1990 Nonqualified Stock Option Program, filed as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 28,
1996 and incorporated herein by reference.
10.12 *Fourth Amendment dated December 3, 1996 to the Champion
Enterprises, Inc. 1990 Nonqualified Stock Option Program, filed as Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 and incorporated herein by reference.
10.13 *Champion Enterprises, Inc. Stock Plan for Directors, as amended,
filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 and incorporated herein by reference.
10.14 *Champion Enterprises, Inc. 1993 Middle Management Stock Option Plan,
filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 and incorporated herein by reference.
10.15 *First Amendment to the Champion Enterprises, Inc. 1993 Middle
Management Stock Option Plan, filed as Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.16 *Second Amendment dated June 18, 1996 to the Champion Enterprises,
Inc. 1993 Middle Management Stock Option Plan, filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 28,
1996 and incorporated herein by reference.
10.17 *Champion Enterprises, Inc. 1995 Stock Option and Incentive Plan,
filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-8
dated May 1, 1995 and incorporated herein by reference.
10.18 *First Amendment to the Champion Enterprises, Inc. 1995 Stock Option
and Incentive Plan, filed as Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.19 *Champion Enterprises, Inc. 1995 Stock Retainer Plan for Non-employee
Directors, filed as Exhibit 10.2 to the Registrant's Registration Statement
on Form S-8 dated May 1, 1995 and incorporated herein by reference.
10.20 *Letter Agreement dated April 27, 1990 between the Registrant and
Walter R. Young, Jr., filed as Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended March 2, 1990 and incorporated herein
by reference.
10.21 *Amendment dated August 31, 1995 to the Letter Agreement dated April
27, 1990 between the Registrant and Walter R. Young, Jr., filed as Exhibit
10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 and incorporated herein by reference.
10.22 *Nonqualified Stock Option Agreement dated August 31, 1995 between
the Registrant and Walter R. Young, Jr., filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
10.23 *Nonqualified Stock Option Agreement dated August 31, 1995 between
the Registrant and Walter R. Young, Jr., filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
10.24 *Performance Share Award Agreement dated August 31, 1995 between the
Registrant and Walter R. Young, Jr.,filed as Exhibit 10.18 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.25 *Letter Agreement dated March 15, 1994 between the Registrant and A.
Jacqueline Dout, filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein
by reference.
10.26 *Nonqualified Stock Option Agreements dated April 18, 1994 between
the Registrant and A. Jacqueline Dout, filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference.
10.27 *Letter Agreement dated February 12, 1997 between the Registrant and
John J. Collins, Jr., filed as Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 28, 1996 and incorporated
herein by reference.
10.28 *Change in Control Severance Agreement dated March 3, 1997 between
the Registrant and John J. Collins, Jr.
10.29 *Redman Industries, Inc. 1993 Stock Option Plan, filed as Exhibit
10.1 to the Registrant's Registration Statement on Form S-8 dated October 24,
1996 and incorporated herein by reference.
10.30 *Redman Industries, Inc. 1993 Incentive Holders' Stock Option Plan,
filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-8
dated October 24, 1996 and incorporated herein by reference.
10.31 *Letter Agreement dated May 1, 1997 between the Registrant and Philip
C. Surles.
10.32 *Change in Control Severance Agreement dated June 13, 1997 between
the Registrant and Philip C. Surles.
10.33 *Confidentiality and Noncompetition Agreement dated June 13, 1997
between the Registrant and Philip C. Surles.
10.34 *Letter Agreement dated December 15, 1997 between the Registrant and
Joseph H. Stegmayer.
10.35 *Non-Qualified Stock Option Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer.
10.36 *Change in Control Severance Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst & Young, LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
27.3 Restated Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1998 Annual Meeting of
Shareholders, filed by the Registrant pursuant to Regulation 14A and
incorporated herein by reference.
(b) No reports on Form 8-K were filed during the last quarter of fiscal
year ended January 3, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHAMPION ENTERPRISES, INC.
By: /s/ JOSEPH H. STEGMAYER
Joseph H. Stegmayer
Dated: March 20, 1998 President, Retail Operations
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/WALTER R. YOUNG, JR. Chairman of the Board
of Directors, March 20, 1998
Walter R. Young, Jr. President and Chief
Executive Officer
(Principal Executive
Officer)
/s/JOSEPH H. STEGMAYER President, Retail
Operations March 20, 1998
Joseph H. Stegmayer and Chief Financial
Officer
(Principal Financial
Officer)
/s/RICHARD HEVELHORST Controller March 20, 1998
Richard Hevelhorst (Principal Accounting
Officer)
/s/ROBERT W. ANESTIS Director March 20, 1998
Robert W. Anestis
/s/FRANK J. FERACO Director March 20, 1998
Frank J. Feraco
/s/SELWYN ISAKOW Director March 20, 1998
Selwyn Isakow
/s/GEORGE R. MRKONIC Director March 20, 1998
George R. Mrkonic
/s/JOHNSON S. SAVARY Director March 20, 1998
Johnson S. Savary
/s/ROBERT W. STARK Director March 20, 1998
Robert W. Stark
/s/CARL L. VALDISERRI Director March 20, 1998
Carl L. Valdiserri
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
Description Page
Report of Independent Accountants F-2
Report of Independent Auditors F-3
Consolidated Statements of Income for the Periods
Ended January 3, 1998, December 28, 1996 and
December 30, 1995 F-4
Consolidated Balance Sheets as of January 3, 1998
and December 28, 1996 F-5
Consolidated Statements of Cash Flows for the
Periods Ended January 3, 1998, December 28, 1996
and December 30, 1995 F-6
Consolidated Statements of Shareholders' Equity
for the Periods Ended January 3, 1998, December 28,
1996 and December 30, 1995 F-7
Notes to Consolidated Financial Statements F-8
All financial statement schedules are omitted either because they are not
applicable or the required information is immaterial or is shown in the Notes
to Consolidated Financial Statements.
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Champion Enterprises, Inc.
In our opinion, based upon our audits and the report of other auditors, the
financial statements listed in the index appearing under item 14(a) on page
F-1 present fairly, in all material respects, the financial position of
Champion Enterprises, Inc. and its subsidiaries at January 3, 1998 and
December 28, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended January 3, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Redman Industries, Inc. for the year
ended March 29, 1996, which statements reflect total revenues of $614 million
and total assets of $156 million. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Redman
Industries, Inc., is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Detroit, Michigan
February 6, 1998 except as to Note 12,
which is as of February 23, 1998
PAGE
<PAGE>
Report of Ernst & Young, LLP Independent Auditors
Shareholders and Board of Directors
Redman Industries, Inc.
We have audited the consolidated balance sheet of Redman Industries,
Inc., as of March 29, 1996, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the year then ended (not
presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Redman Industries, Inc. at March 29, 1996, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young, LLP
Dallas, Texas
May 17, 1996
PAGE
<PAGE>
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
=============================================================================
(in thousands, except per share amounts)
Year ended
January 3, 1998 December 28, 1996 December 30, 1995
_____________________________________________________________________________
NET SALES $1,675,053 $1,582,829 $1,355,085
Cost of sales 1,423,595 1,338,800 1,151,012
_____________________________________________________________________________
GROSS MARGIN 251,458 244,029 204,073
Selling, general and
administrative expenses 135,028 130,629 112,396
Nonrecurring merger
and other charges -- (22,000) --
____________________________________________________________________________
OPERATING INCOME 116,430 91,400 91,677
Interest income 2,139 2,699 2,966
Interest expense (1,198) (2,174) (2,668)
____________________________________________________________________________
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 117,371 91,925 91,975
Income taxes 46,600 39,700 37,500
____________________________________________________________________________
INCOME FROM CONTINUING
OPERATIONS 70,771 52,225 54,475
Income from discontinued
operations, net of taxes 4,500 1,361 1,810
____________________________________________________________________________
NET INCOME $ 75,271 $ 53,586 $ 56,285
============================================================================
BASIC EARNINGS PER SHARE
Income from continuing
operations $ 1.49 $ 1.10 $ 1.14
Income from discontinued
operations 0.10 0.03 0.04
____________________________________________________________________________
Net income $ 1.59 $ 1.13 $ 1.18
============================================================================
DILUTED EARNINGS PER SHARE
Income from continuing
operations $ 1.45 $ 1.06 $ 1.10
Income from discontinued
operations 0.09 0.03 0.04
____________________________________________________________________________
Net income $ 1.54 $ 1.09 $ 1.14
============================================================================
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
========================================================================
(in thousands, except par value) January 3, 1998 December 28, 1996
________________________________________________________________________
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 60,280 $ 19,357
Accounts receivable, trade 49,574 65,694
Inventories 73,291 66,036
Short-term assets of
discontinued operations, net 6,772 14,546
Deferred taxes and other current assets 39,601 39,890
________________________________________________________________________
Total current assets 229,518 205,523
________________________________________________________________________
PROPERTY AND EQUIPMENT
Land and improvements 26,015 21,500
Buildings and improvements 109,447 89,655
Machinery and equipment 67,287 58,615
________________________________________________________________________
202,749 169,770
Less-accumulated depreciation 59,230 49,776
________________________________________________________________________
143,519 119,994
________________________________________________________________________
GOODWILL 134,865 135,912
Less-accumulated amortization 15,193 11,423
________________________________________________________________________
119,672 124,489
________________________________________________________________________
Non-current assets of discontinued
operations, net 2,604 2,608
OTHER ASSETS 5,937 8,608
________________________________________________________________________
$ 501,250 $ 461,222
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 24,646 $ 30,506
Accrued dealer discounts 42,927 42,468
Accrued warranty obligations 40,819 34,796
Accrued compensation and payroll taxes 25,014 24,426
Accrued insurance 15,503 14,682
Other current liabilities 34,515 37,166
________________________________________________________________________
Total current liabilities 183,424 184,044
________________________________________________________________________
LONG-TERM LIABILITIES
Long-term debt 1,813 1,158
Deferred portion of purchase price 5,400 10,927
Other long-term liabilities 30,197 38,459
________________________________________________________________________
37,410 50,544
________________________________________________________________________
SHAREHOLDERS' EQUITY
Preferred stock, no par value,
5,000 authorized, none issued -- --
Common stock, $1 par value,
1997-120,000 authorized,
46,600 issued and outstanding
1996-75,000 authorized, 47,695
issued and outstanding 46,600 47,695
Capital in excess of par value 14,338 34,465
Retained earnings 220,742 145,471
Foreign currency translation adjustments (1,264) (997)
________________________________________________________________________
Total shareholders' equity 280,416 226,634
________________________________________________________________________
$ 501,250 $ 461,222
========================================================================
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================
Year ended
______________________________________________________________________________
(in thousands) January 3, 1998 December 28, 1996 December 30, 1995
______________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing
operations $ 70,771 $ 52,225 $ 54,475
______________________________________________________________________________
Adjustments to reconcile income
from continuing operations to net
cash provided by operating activities
Depreciation and
amortization 17,091 14,463 11,294
Deferred income taxes (1,000) (11,500) (5,000)
Increase/decrease, net
of acquisitions
Accounts receivable 16,190 (5,672) (7,137)
Inventories (6,036) (8,876) (5,233)
Accounts payable (5,865) 3,454 (4,287)
Accrued liabilities 10,925 14,120 14,228
Merger reserve (6,759) 11,221 --
Other, net 3,931 4,372 9,760
______________________________________________________________________________
Total adjustments 28,477 21,582 13,625
______________________________________________________________________________
Net cash provided by continuing
operating activities 99,248 73,807 68,100
______________________________________________________________________________
CASH FLOWS FROM DISCONTINUED OPERATIONS
Income from discontinued
operations 4,500 1,361 1,810
(Increase)decrease in net
assets of discontinued
operations 3,278 (5,129) (2,745)
______________________________________________________________________________
Net cash provided by (used for)
discontinued operations 7,778 (3,768) (935)
______________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property
and equipment (38,266) (50,094) (19,854)
Proceeds from disposal of
property and equipment 2,174 881 747
Purchases of short-term
investments -- (25,660) (25,467)
Maturities of short-term
investments -- 36,000 22,000
Acquisitions -- (18,778) (41,303)
Deferred purchase price
payment (4,200) (8,900) (2,600)
Other 707 18 (1,356)
______________________________________________________________________________
Net cash used for investing
activities (39,585) (66,533) (67,833)
______________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued, net 6,736 2,735 1,106
Common stock repurchased (36,732) (13,222) (17,102)
Net increase (decrease)
in long-term debt 516 (2,796) (991)
Tax benefit of stock options
exercised 2,962 1,800 1,738
______________________________________________________________________________
Net cash used for financing
activities (26,518) (11,483) (15,249)
______________________________________________________________________________
Net increase (decrease) in
cash and cash equivalents 40,923 (7,977) (15,917)
Cash and cash equivalents
at beginning of period* 19,357 27,334 28,199
______________________________________________________________________________
Cash and cash equivalents
at end of period $ 60,280 $ 19,357 $ 12,282
==============================================================================
ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest $ 666 $ 2,280 $ 2,233
Cash paid for income taxes $ 42,938 $ 53,276 $ 38,400
______________________________________________________________________________
CASH FLOWS FROM ACQUISITIONS
Purchase price $ 35,500 $ 50,777
Less: Deferred portion of purchase price (14,500) (9,635)
Less: Cash acquired (4,435) (827)
Plus: Acquisition costs and mortgage payoffs 2,213 988
______________________________________________________________________________
$ 18,778 $ 41,303
==============================================================================
*The beginning cash balance for 1996 does not agree to the ending balance
for 1995 due to the different accounting period used for Redman.
See Note 2 in accompanying Notes.
See accompanying Notes to Consolidated Financial Statements.
PAGE
<PAGE>
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
============================================================================================================
Foreign
Common stock Capital in currency
____________________ excess of Retained translation
Shares Amount par value earnings adjustments Total
____________________________________________________________________________________________________________
BALANCE DECEMBER 31, 1994 16,356 $ 16,356 $ 76,392 $ 41,587 $ (1,069) $ 133,266
Net income -- -- -- 56,285 -- 56,285
Stock option and benefit plans 358 358 1,504 -- -- 1,862
Common stock repurchases (1,401) (1,401) (15,701) -- -- (17,102)
Two-for-one stock split 7,629 7,629 (7,629) -- -- --
Redman 100% stock dividend 8,927 8,927 (8,927) -- -- --
Tax benefit of stock options -- -- 1,738 -- -- 1,738
Translation adjustments -- -- -- -- 93 93
____________________________________________________________________________________________________________
BALANCE DECEMBER 30, 1995 31,869 31,869 47,377 97,872 (976) 176,142
Net income -- -- -- 53,586 -- 53,586
Less: net income of Redman
for the quarter ended
March 29, 1996 -- -- -- (5,987) -- (5,987)
Stock option and benefit plans 538 538 4,031 -- -- 4,569
Common stock repurchases (179) (179) (3,276) -- -- (3,455)
Two-for-one stock split 15,467 15,467 (15,467) -- -- --
Tax benefit of stock options -- -- 1,800 -- -- 1,800
Translation adjustments -- -- -- -- (21) (21)
____________________________________________________________________________________________________________
BALANCE DECEMBER 28, 1996 47,695 47,695 34,465 145,471 (997) 226,634
Net income -- -- -- 75,271 -- 75,271
Stock option and benefit plans 1,159 1,159 11,389 -- -- 12,548
Common stock repurchases (2,254) (2,254) (34,478) -- -- (36,732)
Tax benefit of stock options -- -- 2,962 -- -- 2,962
Translation adjustments -- -- -- -- (267) (267)
____________________________________________________________________________________________________________
BALANCE JANUARY 3, 1998 46,600 $ 46,600 $ 14,338 $ 220,742 $ (1,264) $ 280,416
============================================================================================================
See accompanying Notes to Consolidated Statements.
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Champion
Enterprises, Inc. and its wholly owned subsidiaries (the Company). All
significant intercompany transactions have been eliminated. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Business
The Company is the leading producer of manufactured housing with operations
and markets located throughout the U.S. and in western Canada.
Revenue Recognition
Sales revenue is recognized when wholesale floor plan financing or dealer
credit approval is received and the home is shipped to an independent retailer
or, for Company owned retail sales locations, upon transfer of title to the
retail home buyer.
Cash and Cash Equivalents
Cash and cash equivalents include investments which have original maturities
less than 90 days at the time of their purchase. These investments are
carried at cost which approximates market value because of their short
maturities.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method.
Depreciation
Property and equipment are stated at cost. Depreciation is provided
principally on the straight-line method over the following estimated useful
lives: land improvements - 3 to 15 years; buildings and improvements - 8 to 33
years; and machinery and equipment - 3 to 15 years.
Year End
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
year 1997 was comprised of 53 weeks and fiscal years 1996 and 1995 were each
comprised of 52 weeks.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized on the straight-line method over the
expected periods to be benefited, generally 40 years. Amortization expense was
$3.8 million, $3.5 million and $2.8 million in 1997, 1996 and 1995,
respectively. The recoverability of goodwill is evaluated annually, primarily
based on each business' projected undiscounted cash flows.
Warranty Obligations
The Company provides the retail home buyer with a twelve-month warranty from
the date of retail purchase. Estimated warranty costs are accrued at the time
of sale.
Long-term Liabilities
Long-term liabilities consist of the non-current portion of self-insurance and
warranty reserves, compensation programs and other reserves.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences
between the financial statement amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Stock Based Compensation Programs
The Company accounts for its stock based employee compensation programs under
APB Opinion No. 25. The additional disclosures and pro forma information
required by FASB Statement No. 123 are included in Note 11.
NOTE 2 - BUSINESS COMBINATIONS AND BASIS OF PRESENTATION
1996 Merger
On October 24, 1996, Redman Industries, Inc. (Redman) was merged with and into
the Company, and 16.5 million shares of the Company's common stock were issued
in exchange for all of the outstanding common stock of Redman. The merger was
accounted for as a pooling of interests, and accordingly, the accompanying
1996 and 1995 financial statements have been restated to include the financial
position and results of operations of Redman for all periods presented.
Prior to the merger, Redman used a fiscal year ending on the Friday nearest
March 31. The 1996 financial statements combine each company's year ended
December 28, 1996. The restated financial statements for 1995 combine the
Company's financial statements for year ended December 30, 1995 with Redman's
financial statements for year ended March 29, 1996. Due to the different
fiscal year ends, Redman's results for the three months ended March 29, 1996
are included in the restated financial statements for both 1996 and 1995. For
the three months ended March 29, 1996 Redman had net sales of $150 million and
net income of $6 million. Redman's net income for this period is deducted
from the opening balance of retained earnings at December 30, 1995 in the
accompanying statement of shareholders' equity. Redman's net cash flow for
this period is eliminated from the 1996 beginning cash balance in the
statement of cash flows.
In connection with the merger, the Company recorded charges of $22 million in
the quarter ended December 28, 1996. These charges include $9 million of
severance costs associated with the planned closing of the Redman corporate
headquarters and stock based compensation costs triggered by the change in
control, and $8 million for investment banking, legal, accounting and other
fees. In addition, the following valuation reserves were recorded: $3 million
to adjust the carrying value of assets at one Redman manufacturing operation
which had sustained operating losses; $1 million for the disposal of one
Redman facility that produced component parts for the manufacturing operation
and which was sold in the first quarter of 1997; and $1 million for other
assets including leasehold improvements, equipment and furnishings at the
Redman corporate headquarters which was closed. Cash costs of $6.8 million
and $10.7 million were paid in 1997 and 1996, respectively. The determination
of fair value of assets used in the business was calculated using projected
cash flows and the fair value of assets held for disposal was determined based
on an offer from a third party or estimated liquidation value.
1996 Acquisitions
On March 29, 1996 the Company purchased the assets and assumed certain
liabilities of Grand Manor, Inc., a privately-held corporation with
manufactured housing operations in Georgia. On April 26, 1996 the Company
purchased the outstanding common stock of Homes of Legend, Inc., a
privately-held corporation with manufactured housing operations in Alabama,
and purchased the assets and assumed certain liabilities of a related company.
Under the terms of the purchase agreements, the total purchase price of these
acquired companies was $35.5 million. The acquisitions were accounted for
using the purchase method and resulted in $26 million of goodwill. The
results of operations of the acquired companies are included with those of the
Company commencing on the respective acquisition dates.
NOTE 3 - INVENTORIES
A summary of inventories by component at January 3, 1998 and December 28, 1996
follows:
(in thousands) 1997 1996
---- ----
Raw materials $ 42,417 $ 39,029
Work-in-process 7,328 6,411
Finished goods 23,546 20,596
-------- --------
$ 73,291 $ 66,036
======== ========
NOTE 4 - DEBT
During 1997 the Company had an agreement with two banks for an unsecured line
of credit for $70 million, including $20 million of availability to cover
letters of credit. In January 1998 the line of credit agreement was amended
to increase the borrowing limit to $125 million. At the Company's option,
borrowings are subject to interest at either the bank's prime rate or the
bank's Eurodollar rate plus 0.4% to 1.15%. In addition, the Company pays a
commitment fee ranging from 0.125% to 0.4% on the unused portion of the
facility and a letter of credit fee. The agreement expires on September 29,
1998, but may be extended for additional one year periods, subject to approval
by the banks. The agreement contains covenants which, among other things,
require maintenance of certain financial ratios and limit additional
indebtedness and the payment of dividends without the prior consent of the
banks. Letters of credit outstanding at year end totaled $15 million,
generally to support insurance obligations and licensing and service bonding
required by various states.
There were no bank borrowings during 1997 or at December 28, 1996 or December
30, 1995. The maximum amount of aggregate short-term bank borrowings
outstanding at any month end was $30 million and $31 million during 1996 and
1995, respectively. During 1996 and 1995, aggregate short-term borrowings
averaged $14 million and $15 million, with average interest rates of 6.2% and
7.4%, respectively.
NOTE 5 - SHAREHOLDERS' EQUITY
On April 29, 1997 the shareholders approved a proposal to increase the number
of authorized shares of common stock to 120 million from 75 million.
In 1997, the Company expended $37 million to acquire 2.25 million shares of
its common stock under a Board of Directors authorized share repurchase
program for up to 4 million shares. In 1996 and 1995 the Company repurchased
shares under previously authorized programs that were rescinded in 1996,
subsequent to the Redman merger.
There are 5 million authorized but unissued shares of preferred stock, without
par value, the issuance of which is subject to approval by the Board of
Directors. The Board of Directors has authority to fix the number, rights,
preferences and limitations of the shares of each series, subject to
applicable laws and the provisions of the Articles of Incorporation. The Board
of Directors has reserved 750,000 preferred shares for issuance in connection
with the Shareholders Rights Plan (Rights Plan).
The Rights Plan was adopted on January 9, 1996. Pursuant to the Rights Plan,
the Board of Directors declared a distribution of one Preferred Stock Purchase
Right on each outstanding share of common stock on February 5, 1996, the
record date. Each Right entitles shareholders to buy one one-hundredth share
of preferred stock for $140 and becomes exercisable only if a third party
acquires or announces an intention to acquire 20% or more of the Company's
common stock. The Rights expire on February 5, 2006 unless redeemed or
exercised.
NOTE 6 - RETIREMENT PLANS
The Company and certain of its subsidiaries sponsor defined contribution
retirement and savings plans covering most employees. Full time employees of
participating companies are eligible to participate in a plan after completing
one year of service. Participating employees may contribute from 1% to 18% of
their compensation to the plans. The Company makes matching contributions of
35% of the first 4% or 50% of the first 6% of employees' contributions.
Company contributions vest either when made or ratably over five years.
Amounts expensed under these plans were $2.4 million in 1997, $2.8 million in
1996 and $2.3 million in 1995.
NOTE 7 - EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
became effective for fiscal years ending after December 15, 1997.
Accordingly, the earnings per share ("EPS") amounts presented for all periods
in these financial statements have been calculated in accordance with
Statement No. 128.
The numerators used in the Company's EPS calculations are income from
continuing operations, income or loss from discontinued operations,
extraordinary gain or loss and net income as reported in the financial
statements.
The denominators used in the Company's EPS calculations are as follows.
Weighted average shares outstanding are used in calculating basic EPS.
Weighted average shares outstanding plus the effect of dilutive securities are
used in calculating diluted EPS. The Company's dilutive securities consist of
its outstanding stock options. A reconciliation of the denominators follows:
(in thousands) 1997 1996 1995
---- ---- ----
Weighted average shares outstanding 47,483 47,515 47,886
Effect of dilutive securities-options 1,392 1,812 1,503
------ ------ ------
Shares for diluted EPS 48,875 49,327 49,389
====== ====== ======
NOTE 8 - INCOME TAXES
Pretax income from continuing operations for the fiscal years ended January 3,
1998, December 28, 1996 and December 30, 1995 was taxed under the following
jurisdictions:
(in thousands) 1997 1996 1995
---- ---- ----
Domestic $116,105 $ 90,165 $ 89,855
Foreign 1,266 1,760 2,120
-------- -------- --------
Total $117,371 $ 91,925 $ 91,975
======== ======== ========
The provisions for income taxes from continuing operations were as follows:
(in thousands) 1997 1996 1995
---- ---- ----
Current:
Federal $ 40,000 $ 44,500 $ 35,000
Foreign 600 900 1,700
State 7,000 5,800 5,800
-------- -------- --------
Total current 47,600 51,200 42,500
-------- -------- --------
Deferred:
Federal (800) (10,500) (5,000)
Foreign (100) (100) 100
State (100) (900) (100)
-------- -------- --------
Total deferred (1,000) (11,500) (5,000)
-------- -------- --------
Total provision $ 46,600 $ 39,700 $ 37,500
======== ======== ========
The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
(dollars in thousands) 1997 1996 1995
---- ---- ----
Statutory U.S. tax rate $ 41,100 $ 32,200 $ 32,200
Increase in rate
resulting from:
Higher rates on earnings
of foreign operations 100 100 1,100
Merger costs - 3,100 -
State taxes, net of
federal benefit 4,500 3,100 3,700
Other 900 1,200 500
-------- -------- --------
Total provision $ 46,600 $ 39,700 $ 37,500
======== ======== ========
Effective tax rates 40% 43% 41%
======== ======== ========
Deferred tax assets and liabilities are comprised of the following as of
January 3, 1998 and December 28, 1996:
(in thousands) 1997 1996
---- ----
Assets:
Warranty reserve $ 19,800 $ 16,200
Insurance accruals 7,900 8,400
Environmental 1,300 1,300
Dealer discounts 1,400 1,100
Employee compensation 5,200 4,700
Reserve for repurchase 1,300 1,200
Loss carryforwards 400 400
Merger costs 1,400 4,500
Other 6,200 4,000
-------- --------
Gross deferred tax assets 44,900 41,800
-------- --------
Liabilities:
Depreciation 3,300 2,500
Canadian withholding 500 400
Safe harbor leases 4,100 3,800
Goodwill 4,300 3,000
Other 1,800 300
-------- --------
Gross deferred tax liabilities 14,000 10,000
-------- --------
Net assets $30,900 $31,800
======== ========
NOTE 9 - DISCONTINUED OPERATIONS
Income from discontinued operations is comprised of the following:
(in thousands) 1997 1996 1995
---- ---- ----
Champion Motor Coach, Inc.
Income from operations $ 800 $ 1,361 $ 1,810
Loss on disposal (800) - -
Income from prior disposal 4,500 - -
------- ------- -------
$ 4,500 $ 1,361 $ 1,810
======= ======= =======
In December 1997 the Company entered into an agreement to sell the assets of
Champion Motor Coach, Inc., its commercial vehicles business which
manufactures mid-size buses. The sale was completed in February 1998. The
buyer paid approximately $10 million in cash and assumed certain liabilities
of the business. The loss on disposal was triggered by certain valuation and
other reserves established in connection with the sale of the business. Net
sales of the business were $60 million, $61 million and $57 million for 1997,
1996, and 1995, respectively. Income from operations is net of taxes of $0.5
million, $0.9 million, and $1.1 million for 1997, 1996 and 1995, respectively.
The loss on disposal is net of a tax benefit of $0.5 million.
Income from prior disposal is related to 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.
NOTE 10 - CONTINGENT LIABILITIES
It is customary practice for companies in the manufactured housing industry to
enter into repurchase agreements with lending institutions which provide
wholesale floor plan financing to retailers. A majority of the Company's
sales are made pursuant to these agreements, which generally provide for
repurchase of the Company's products from the lending institutions for the
balance due them in the event of repossession upon a retailer's default. In
addition, the Company has guaranteed, on a limited basis, obligations of
certain retailers to a lending institution under a Company sponsored floor
plan financing program. The contingent liabilities under these agreements are
spread over many retailers and financial institutions and are reduced by the
resale value of the homes which are required to be repurchased or repossessed.
Losses incurred in connection with these agreements have been immaterial and
estimated losses are provided for currently. The maximum potential repurchase
obligation is approximately $700 million at January 3, 1998, excluding any
resale value.
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law. The Company
retains a significant portion of risk of certain losses related primarily to
medical benefits, workers' compensation and general, product and auto
liability.
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Management believes the ultimate
liability with respect to these actions will not materially affect the
financial condition or results of operations of the Company.
The Company is a party to environmental investigations and remediations and,
along with other companies, has been named a potentially responsible party at
one site. In 1994, the Company accrued $3 million for its estimated share of
remediation costs. The recorded liability has not been reduced by potential
insurance recoveries. The Company has established accruals for matters that
are in its view probable and reasonably estimable. Based on information
presently available, management believes that existing accruals are sufficient
to satisfy any known environmental liabilities. Further, any additional
liability that may ultimately result from the resolution of these matters is
not expected to have a material effect on the Company's financial position or
results of operations.
NOTE 11 - STOCK OPTION AND INCENTIVE PLANS
The Company has various stock option and incentive plans and agreements
whereby stock options are made available to key employees and directors.
Stock options may be granted below, at or above fair market value and
generally expire six or ten years from the grant date. Some options become
exercisable immediately and others over a period of up to five years. Under
the Company's 1995 Stock Option and Incentive Plan, grants may be made of
stock options, stock awards, stock appreciation rights and other stock based
incentives. In addition to these plans, other nonqualified stock options and
awards have been granted to executive officers and key employees and in
connection with acquisitions.
Amounts charged to expense in connection with the grants and awards under
these plans and agreements totaled $4.4 million in 1997, $1.2 million in 1996,
excluding amounts included in nonrecurring merger costs, and $0.8 million in
1995. There were 731,000 and 1,525,000 shares reserved for future grants and
awards at January 3, 1998 and December 28, 1996, respectively.
The following table summarizes the changes in outstanding stock options during
the last three years:
Weighted
average
Number of exercise
shares price
------ -----
Outstanding at December 31, 1994 3,373,551 $ 4.84
Granted 2,785,442 8.50
Exercised (848,063) 2.37
Canceled (367,590) 4.80
---------
Outstanding at December 30, 1995 4,943,340 7.33
Granted 719,396 15.08
Exercised (716,329) 6.33
Canceled (253,403) 7.56
---------
Outstanding at December 30, 1996 4,693,004 8.65
Granted 788,000 13.76
Exercised (1,128,144) 7.89
Canceled (236,000) 12.26
---------
Outstanding at January 3, 1998 4,116,860 $ 9.62
=========
The following table summarizes information about stock options outstanding at
January 3, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average Average
average exercise exercise
Range of Number life price per Number price per
exercise prices outstanding (years) share exercisable share
----------- -------- --------- ----------- ---------
$1.38-$6.00 727,840 5.7 $ 4.18 510,880 $ 3.76
$6.01-$10.00 2,149,900 7.3 7.99 303,500 6.60
$10.01-$15.00 744,420 7.9 13.64 255,400 14.48
$15.01-$22.63 494,700 9.2 18.69 41,600 20.11
--------- --- ------ --------- ------
4,116,860 7.3 $ 9.62 1,111,380 $ 7.15
========= === ====== ========= ======
</TABLE>
As of December 28, 1996, exercisable shares totaled 1,570,084 with a weighted
average exercise price of $7.63 per share.
As permitted by FASB Statement No. 123, the Company has elected to continue to
account for its stock based plans under APB Opinion No. 25. If compensation
cost for the Company's stock based compensation plans had been determined
based on the fair value at the grant dates consistent with the method of
Statement No. 123, the Company's pro forma net income and earnings per share
would have been the amounts indicated below:
1997 1996 1995
---- ---- ----
Net income (000's) $ 73,171 $ 50,601 $ 55,252
Diluted EPS $ 1.50 $ 1.02 $ 1.13
In determining the pro forma amounts in accordance with Statement 123, the
fair value of each stock option grant or award is estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Risk free interest rate 6.1% 5.6% 6.5%
Expected life (years) 3.2 3.3 5.5
Expected volatility 42% 43% 51%
Expected dividend -- -- --
The weighted average per share fair value of stock options granted during
1997, 1996 and 1995 were $6.75, $6.90 and $4.81, respectively, for options
granted at market value, and $9.37, $10.17 and $4.84, respectively, for
options granted at less than market value. Total stock based compensation
cost that would have been charged to income under Statement No. 123 was $7.5
million, $5.8 million and $2.2 million for 1997, 1996 and 1995, respectively,
excluding amounts included in nonrecurring charges in 1996.
The number of shares granted through stock awards in 1997, 1996 and 1995 were
154,400, 29,010 and 124,800, respectively, with grant date fair values per
share of $18.10, $19.22 and $8.38, respectively.
NOTE 12 - SUBSEQUENT EVENTS
In January and February 1998, the Company acquired four manufactured housing
retail companies. The aggregate purchase price for these acquisitions totaled
approximately $135 million, consisting of cash payments of $76 million,
deferred payments of $47 million and issuance of 550,000 shares of Company
common stock valued at $12 million.
In connection with these acquisitions, stock options for 725,000 shares were
granted. These acquisitions will be accounted for using the purchase method.
Therefore, the results of operations of these acquisitions will be included
with those of the Company commencing on the respective acquisition dates. The
aggregate 1997 sales of these acquisitions were approximately $220 million.
<PAGE>
<PAGE>
NOTE 13-QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
____________________________________________________
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
quarter quarter quarter quarter Total
1997
Net sales $ 362,957 $ 442,360 $ 440,018 $ 429,718 $1,675,053
Cost of sales 308,756 378,535 372,243 364,061 1,423,595
Gross margin 54,201 63,825 67,775 65,657 251,458
Selling, general and
administrative expenses 31,617 33,730 34,552 35,129 135,028
Operating income 22,584 30,095 33,223 30,528 116,430
Interest income (expense), net 70 112 157 602 941
Pretax income-continuing operations 22,654 30,207 33,380 31,130 117,371
Income-continuing operations 13,654 18,107 20,080 18,930 70,771
Income-discontinued operations 185 93 481 3,741 4,500
Net income 13,839 18,200 20,561 22,671 75,271
Basic earnings per share:
Income-continuing operations 0.28 0.38 0.43 0.41 1.49
Income-discontinued operations 0.01 0.00 0.01 0.08 0.10
Net income 0.29 0.38 0.44 0.49 1.59
Diluted earnings per share:
Income-continuing operations 0.27 0.37 0.42 0.39 1.45
Income-discontinued operations 0.01 0.00 0.01 0.08 0.09
Net income $ 0.28 $ 0.37 $ 0.43 $ 0.47 $ 1.54
Homes sold:
Single-section 6,440 7,741 6,617 6,327 27,125
Multi-section 7,807 9,561 9,918 9,874 37,160
Total 14,247 17,302 16,535 16,201 64,285
Floors sold 22,223 27,052 26,721 26,472 102,468
____________________________________________________________________________________________________________
1996
Net sales $ 328,624 $ 413,963 $ 430,528 $ 409,714 $1,582,829
Cost of sales 278,655 347,745 363,296 349,104 1,338,800
Gross margin 49,969 66,218 67,232 60,610 244,029
Selling, general and
administrative expenses 27,987 35,278 34,290 33,074 130,629
Nonrecurring merger and other charges -- -- -- (22,000) (22,000)
Operating income 21,982 30,940 32,942 5,536 91,400
Interest income (expense), net 266 (111) 28 342 525
Pretax income-continuing operations 22,248 30,829 32,970 5,878 91,925
Income-continuing operations 13,348 18,729 19,970 178 52,225
Income-discontinued operations 394 417 504 46 1,361
Net income 13,742 19,146 20,474 224 53,586
Basic earnings per share:
Income-continuing operations 0.28 0.39 0.42 0.00 1.10
Income-discontinued operations 0.01 0.01 0.01 0.00 0.03
Net income 0.29 0.40 0.43 0.00 1.13
Diluted earnings per share:
Income-continuing operations 0.27 0.38 0.41 0.00 1.06
Income-discontinued operations 0.01 0.01 0.01 0.00 0.03
Net income $ 0.28 $ 0.39 $ 0.42 $ 0.00 $ 1.09
Homes sold:
Single-section 5,749 7,255 7,602 6,891 27,497
Multi-section 7,213 9,046 9,222 8,818 34,299
Total 12,962 16,301 16,824 15,709 61,796
Floors sold 20,308 25,541 26,252 24,738 96,839
____________________________________________________________________________________________________________
</TABLE>
<PAGE>
<PAGE>
Prior amounts have been restated to classify the commercial vehicles business
as discontinued operations. Fourth quarter 1997 discontinued operations
includes $4.5 million ($0.09 per diluted share) of income related to the
collection of notes receivable and the settlement of certain reserves
established in connection with the 1993 disposal of a former Redman
subsidiary.
Fourth quarter 1996 includes nonrecurring and other charges totaling $22
million for the merger with Redman.
Per share amounts are based on the weighted average shares outstanding for
each period. Quarterly amounts may not add to annual amounts due to changes
in shares outstanding.
Certain amounts have been reclassified to conform to current period
presentation.
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Articles of Incorporation of the Registrant, filed
with the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and incorporated herein
by reference.
3.2 Amendment to Restated Articles of Incorporation of the
Registrant, filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 28, 1997 and
incorporated herein by reference.
3.3 Bylaws of the Registrant filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference.
4.1 Article III of the Registrant's Restated Articles of
Incorporation (increasing number of authorized shares of
capital stock), included in the Registrant's Amendment to
Restated Articles of Incorporation filed as Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997 and incorporated herein by
reference.
4.2 The Registrant has issued certain receivable-backed notes
(the "Notes") pursuant to a Trust Indenture dated as of
August 1, 1987 between CAC Funding Corporation, as issuer,
and First of America Bank-Detroit, N.A., as trustee. The
Notes do not exceed 10 percent of the total assets of the
Registrant and the Registrant agrees to furnish a copy of
the Trust Indenture to the Commission upon request.
4.3 Form of Rights Certificate filed as Exhibit 1 to the
Registrant's Registration Statement on Form 8-A dated
January 12, 1996 and incorporated herein by reference.
4.4 Rights Agreement by and between the Registrant and Harris
Trust and Savings Bank filed as Exhibit 2 to the
Registrant's Registration Statement on Form 8-A dated
January 12, 1996 and incorporated herein by reference.
10.1 Lease Agreement dated November 21, 1991 between the
Registrant and University Development Company relating to
the premises located at 2701 University Drive, Auburn Hills,
Michigan, filed as Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1992 and incorporated herein by reference.
10.2 First Amendment dated December 29, 1997 to the Lease
Agreement dated November 21, 1991 between the Registrant and
University Development Company relating to the premises
located at 2701 University Drive, Auburn Hills, Michigan.
10.3 Credit Agreement dated September 29, 1995 between the
Registrant, Comerica Bank and The First National Bank of
Chicago, filed as Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
10.4 First Amendment dated October 27, 1995 to the Credit
Agreement dated September 29, 1995 between the Registrant,
Comerica Bank and The First National Bank of Chicago, filed
as Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.5 Second Amendment dated September 17, 1996 to the Credit
Agreement dated September 29, 1995 between the Registrant,
Comerica Bank and The First National Bank of Chicago, filed
as Exhibit 10.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.6 Third Amendment dated December 2, 1996 to the Credit
Agreement dated September 29, 1995 between the Registrant,
Comerica Bank and The First National Bank of Chicago, filed
as Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.7 Fourth Amendment dated May, 1997 to the Credit Agreement
dated September 29, 1995 between the Registrant, Comerica
Bank and The First National Bank of Chicago.
10.8 Fifth Amendment dated January 8, 1998 to the Credit
Agreement dated September 29, 1995 between the Registrant,
Comerica Bank and The First National Bank of Chicago.
10.9 *Champion Enterprises, Inc. 1987 Stock Option Plan, as
amended, filed as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1992 and incorporated herein by reference.
10.10 *Champion Enterprises, Inc. 1990 Nonqualified Stock Option
Program, as amended through the Second Amendment, filed as
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.11 *Third Amendment dated June 18, 1996 to the Champion
Enterprises, Inc. 1990 Nonqualified Stock Option Program,
filed as Exhibit 10.8 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.12 *Fourth Amendment dated December 3, 1996 to the Champion
Enterprises, Inc. 1990 Nonqualified Stock Option Program,
filed as Exhibit 10.9 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.13 *Champion Enterprises, Inc. Stock Plan for Directors, as
amended, filed as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994 and incorporated herein by reference.
10.14 *Champion Enterprises, Inc. 1993 Middle Management Stock
Option Plan, filed as Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
1, 1994 and incorporated herein by reference.
10.15 *First Amendment to the Champion Enterprises, Inc. 1993
Middle Management Stock Option Plan, filed as Exhibit 10.13
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and incorporated herein
by reference.
10.16 *Second Amendment dated June 18, 1996 to the Champion
Enterprises, Inc. 1993 Middle Management Stock Option Plan,
filed as Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996 and
incorporated herein by reference.
10.17 *Champion Enterprises, Inc. 1995 Stock Option and Incentive
Plan, filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8 dated May 1, 1995 and incorporated
herein by reference.
10.18 *First Amendment to the Champion Enterprises, Inc. 1995
Stock Option and Incentive Plan, filed as Exhibit 10.12 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995 and incorporated herein by
reference.
10.19 *Champion Enterprises, Inc. 1995 Stock Retainer Plan for
Non-employee Directors, filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-8 dated May 1,
1995 and incorporated herein by reference.
10.20 *Letter Agreement dated April 27, 1990 between the
Registrant and Walter R. Young, Jr., filed as Exhibit 10.3
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 2, 1990 and incorporated herein by
reference.
10.21 *Amendment dated August 31, 1995 to the Letter Agreement
dated April 27, 1990 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 and incorporated herein by reference.
10.22 *Nonqualified Stock Option Agreement dated August 31, 1995
between the Registrant and Walter R. Young, Jr., filed as
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.23 *Nonqualified Stock Option Agreement dated August 31, 1995
between the Registrant and Walter R. Young, Jr., filed as
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.24 *Performance Share Award Agreement dated August 31, 1995
between the Registrant and Walter R. Young, Jr., filed as
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.25 *Letter Agreement dated March 15, 1994 between the
Registrant and A. Jacqueline Dout, filed as Exhibit 10.12 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference.
10.26 *Nonqualified Stock Option Agreements dated April 18, 1994
between the Registrant and A. Jacqueline Dout, filed as
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
10.27 *Letter Agreement dated February 12, 1997 between the
Registrant and John J. Collins, Jr., filed as Exhibit 10.25
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 and incorporated herein
by reference.
10.28 *Change in Control Severance Agreement dated March 3, 1997
between the Registrant and John J. Collins, Jr.
10.29 *Redman Industries, Inc. 1993 Stock Option Plan, filed as
Exhibit 10.1 to the Registrant's Registration Statement on
Form S-8 dated October 24, 1996 and incorporated herein by
reference.
10.30 *Redman Industries, Inc. 1993 Incentive Holders' Stock
Option Plan, filed as Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8 dated October 24, 1996
and incorporated herein by reference.
10.31 *Letter Agreement dated May 1, 1997 between the Registrant
and Philip C. Surles.
10.32 *Change in Control Severance Agreement dated June 13, 1997
between the Registrant and Philip C. Surles.
10.33 *Confidentiality and Noncompetition Agreement dated June 13,
1997 between the Registrant and Philip C. Surles.
10.34 *Letter Agreement dated December 15, 1997 between the
Registrant and Joseph H. Stegmayer.
10.35 *Non-Qualified Stock Option Agreement dated January 12, 1998
between the Registrant and Joseph H. Stegmayer.
10.36 *Change in Control Severance Agreement dated January 12,
1998 between the Registrant and Joseph H. Stegmayer.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst & Young, LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
27.3 Restated Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1998 Annual Meeting of
Shareholders, filed by the Registrant pursuant to Regulation
14A and incorporated herein by reference.
Champion Enterprises, Inc. will , for a nominal charge, provide a copy
of any of the above exhibits to any shareholder upon written request addressed
to the Public Relations Department, Champion Enterprises, Inc., 2701
University Drive, Suite 300, Auburn Hills, Michigan 48326.
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE, entered into this 29th day of December,
1997, by and between University Development Company, a Michigan partnership,
whose address is 3221 W. Big Beaver Road, Troy, Michigan 48084, as Landlord
and Champion Enterprises, Inc., whose address is 2701 University Drive, Auburn
Hills, Michigan 48326, as Tenant.
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Lease dated
November 21, 1991, covering certain premises situated in the City of Auburn
Hills, County of Oakland, State of Michigan, as is more particularly described
in said Lease; and,
WHEREAS, the parties are now desirous of amending the said Lease in the
manner set forth;
NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties hereto as follows:
1. Tenant presently occupies 15,946 rentable square feet, commonly known as
Suites 300 and 320, Existing Premises, as delineated in red on the site plan
attached, and Tenant desires to lease 6,528 rentable square feet, commonly
known as Suites 323 and 325, and the common areas on the third (3rd) floor,
Addition, all as delineated in green on the site plan attached, for a revised
rentable square footage of 22,474 rentable square feet, which Existing
Premises and Addition shall hereinafter be known as the Leased Premises for
all purposes of the Lease. Such Leased Premises are located within the
Building commonly known as 2701 University Drive. Lessee's Leased Premises, as
delineated in blue on the site plan attached, for all purposes of the Lease
effective upon the later of January 1, 1998, or the date of substantial
completion of Tenant's renovation of the Leased Premises but in no event later
than January 31, 1998, and continuing throughout the unexpired term of this
Lease as amended shall be 22,474 square feet.
2. Lessor shall deliver possession of the Addition to Lessee in an "as is"
condition, broom-clean and free of any occupant or right of any occupancy.
Lessee will accept same in an "as is" condition without any representations or
warranties as to the condition thereof by Lessor.
3. Pursuant to Section 2 of this Lease, Term, the Lease Term is hereby
extended for a period of five (5) years eight (8) months commencing May 1,
2002 and terminating December 31, 2007, such Lease term as extended, April 6,
1992, through December 31, 2007, shall be called the initial term of this
Lease.
4. The Annual Rental, as provided for in Section 3 of the Lease, shall be
modified and Tenant shall pay such revised Annual Rental to Landlord as
follows:
Commencing the April 1, 1995, and continuing through September 30, 1997,
Tenant shall pay to Landlord as Annual Rental, the annual sum of Three Hundred
Two Thousand One Hundred Seventy-Six and 80/100 Dollars ($302,176.80) in equal
monthly installments in advance of Twenty-Five Thousand One Hundred Eighty-One
and 40/100 Dollars ($25,181.40) each.
Commencing October 1, 1997, and continuing through December 30, 1997,
Tenant shall not pay to Landlord any Annual Rental.
Commencing January 1, 1998, and continuing through April 30, 1998,
Tenant shall not pay to Landlord any Annual Rental.
Commencing May 1, 1998, and continuing through May 31, 1998, Tenant
shall pay to Landlord as Annual Rental, the sum of Twenty-Five Thousand Four
Hundred Eighty-Nine and 35/100 Dollars ($25,489.35) payable in advance on the
first day of May 1, 1998. This dollar value is based on the assumption of
Tenant's Leased Premises being 22474 rentable square feet as of January 1,
1998, which may need to be adjusted based on paragraph 1 above which may
postpone Tenant's rentable square feet of 22,474 to be no later than January
31, 1998.
Commencing June 1, 1998, and continuing through December 31, 2002,
Tenant shall pay to Landlord as Annual Rental, the annual sum of Four Hundred
Sixty Thousand Seven Hundred Seventeen and 00/100 Dollars ($460,717.00) in
equal monthly installments in advance of Thirty-Eight Thousand Three Hundred
Ninety-Three and 08/100 Dollars ($38,393.08) each.
Commencing January 1, 2003, and continuing through December 31, 2007,
Tenant shall pay to Landlord as Annual Rental, the annual sum of Five Hundred
Five Thousand Six Hundred Sixty-Five and 00/100 Dollars ($505,665.00) in equal
monthly installments in advance of Forty-Two Thousand One Hundred Thirty-Eight
and 75/100 Dollars ($42,138.75) each.
All such monthly rental shall be payable in advance on the first day of
each and every month at the office of the Building Manager, or such other
place as Landlord may designate in writing without any prior demand therefore
and without any deductions or setoffs whatsoever, except as otherwise
permitted under the Lease or any Amendments thereto.
5. Tenant shall at its sole cost and expense, pursuant to plans and
specifications dated August 20, 1997, by Ghafari Associates, construct and
alter the Leased Premises to conform to said plans and specifications.
Landlord shall not be obligated to make any alterations or improvements to the
Existing Premises, the Addition, or the Leased Premises, the full cost of
which, including architectural fees, permits, demolition and all of the
construction shall be at the sole expense of Tenant.
Landlord hereby approves the plans dated August 20, 1997, by Ghafari
Associates for the renovation of the Leased Premises. Landlord hereby approves
the construction of the Leased Premises by Walbridge Aldinger at the sole
expense of Tenant. Substantially, all such construction will be performed
between the hours of 5:00 P.M. and 5:00 A.M. Approval of such plans and
specifications by Landlord shall not constitute the assumption of any
responsibility by Landlord for their accuracy or sufficiency, and Tenant shall
be solely responsible for such matters.
Tenant shall perform all such alterations and improvements to the Leased
Premises as expeditiously as possible, commencing no later than September
29th, 1997, and without unreasonable interference or nuisance to any other
occupant of Cambridge Court. All material shall be stored within the Leased
Premises and all debris shall be removed from the Leased Premises and stored
within a fully enclosed dumpster in a location agree upon by Landlord and
Tenant and Tenant shall provide for the regular pick-up of such dumpster and
keep the area surrounding such dumpster reasonably clean at all times.
Tenant's use of elevators shall not unreasonably conflict with or interfere
with other occupants of Cambridge Court's use of the elevators during normal
business hours; the use of one elevator shall predominantly be used after the
hour of 5:00 P.M. and before the hour of 7:00 A.M. and Tenant shall only use
one (1) elevator. Tenant shall keep Cambridge Court clean and neat and free
from construction debris as much as possible.
6. Landlord and Tenant both acknowledge that the free rent for the period
October 1, 1997, through April 30, 1998, and the discounted rent for the month
of May 1998, in the amount of Twelve Thousand Nine Hundred Three and 73/00
Dollars ($12,903.73) is an inducement to Tenant to expand their Leased
Premises and extend the Lease term and includes the Forty-Eight Thousand and
00/100 Dollars ($48,000.00) refurbishment allowance, Three and 00/100 Dollars
($3.00) per rentable square foot, to be provided to Tenant during the first
thirty (30) days of the sixth (6th) Lease Year of the initial term of this
Lease, pursuant to Section 44(a) of this Lease.
Within a reasonable time frame after final completion of all of the
Tenant improvements, Tenant shall provide to Landlord (a) a fully-completed
and executed Contractor's Statement from Tenant's general contractor
delineating all contractors, subcontractors and material suppliers and full
unconditional waivers of lien from all; (b) a final unconditional Certificate
of Occupancy from the appropriate municipal agency; and (c) a certificate from
Tenant's architect certifying that all Tenant alterations and improvements
have been completed in full compliance with the final working drawings and
specifications. Tenant shall indemnify and hold harmless Landlord from any and
all claims, lawsuits, or damages directly arising out of or attributable to
such Tenant alterations and improvements, and Tenant shall promptly pay all
costs and expenses attributable to such alterations and improvements. In no
event will Tenant allow a lien or claim to be filed against the Landlord or
Cambridge Court, and if such claim or lien is filed, Tenant shall promptly
discharge any such claim or lien and indemnify Landlord for any costs or
damages directly incurred by Landlord as a result of such lien or claim.
7. Section 42, option to Extend, shall be modified specifically only as
follows:
42. (a) Tenant shall have the option to renew the term of this
Lease for a maximum of two (2) additional periods of either one (1) year or
five (5) years each as follows:
(1) Upon the expiration of the initial term of this Lease as extended
herein to December 31, 2007, by this First Amendment to Lease,
Tenant shall have the option to renew the term of this Lease for a
period of either one (1) year or five (5) years (the "First
Renewal Term") , by delivering written notice to Landlord of
Tenant's exercise of such option not less than twelve (12) months
prior to the expiration of the initial term of this Lease as
extended to December 31, 2007.
(2) Upon the expiration of the First Renewal Term, Tenant shall have
the option to renew the term of this Lease for a consecutive
period of either one (1) year or five (5) years (the "Second
Renewal Term") by delivering written notice to Landlord of Tenant
exercising of such option not less than twelve (12) months prior
to the expiration of the First Renewal Term.
All other terms and conditions of Section 42, option to Extend, shall remain
as is and shall not be modified or altered and shall remain in full force and
effect.
8. Section 44, Refurbishment Allowance, shall be modified specifically only
as follows:
Landlord agrees to pay Tenant a refurbishment allowance in accordance with the
following schedule:
(a) during the first thirty (30) days of calendar year 2003, upon
written demand by Tenant, three and 00/100 Dollars ($3.00) per rentable square
foot shall be paid to Tenant within thirty (30) days of receipt of said
written notice from Tenant to Landlord;
(b) during the first thirty (30) days of the First Renewal Term, if
applicable, provided such First Renewal Term is for a full five (5) years,
upon written demand by Tenant, Three and 50/100 Dollars ($3.50) per rentable
square foot shall be paid to Tenant within thirty (30) days of receipt of said
written notice from Tenant to Landlord;
(c) during the first thirty (30) days of the Second Renewal Term, if
applicable, provided such Second Renewal Term is for a full five (5) years,
upon written demand by Tenant, Four and 00/100 Dollars ($4.00) per rentable
square foot shall be paid to Tenant within thirty (30) days of receipt of said
written notice from Tenant to Landlord.
The refurbishment allowance shall only be paid by Landlord to Tenant if
Tenant or any permitted subtenant or assignee (including, without limitation,
any successive corporation by way of consolidation, merger , or otherwise), is
occupying an area of the Leased Premises which is equal to or greater than
seventy-five percent (75%) of the total Leased Premises at the time the
allowance is required to be paid. The balance of this paragraph shall remain
as is and shall not be modified.
9. Section 41, Right of First Refusal, shall be modified specifically only as
follows:
Provided Tenant is not in default under the terms of this Lease, Tenant
shall have the right of first refusal through December 31, 2006, and through
December 31, 2011, if Tenant exercises its First Renewal Term for the full
five (5) year period, and through December 31, 2016, if Tenant exercises it
Second Renewal Term for the full five (5) year period): (a) to lease
additional space on the first, second, fourth, or fifth floors of the Building
subject to any current existing rights of any existing occupant or its
successor or assigns of expansion rights or current existing rights of first
refusal; or (b) to lease additional space on any floor in any future other
office building in Cambridge Court owned by University Development Company,
subject to any right or any future right of any occupant or its successors or
assigns of such building of expansion rights or right of first refusal. If at
any time Landlord receives an offer from any third person other than the
existing occupant or its successors or assigns, to lease space on the first,
second, fourth or fifth floors of the Building subject to any current existing
rights of any existing occupant or its successors or assigns of expansion
rights or current existing rights of first refusal; or any floor in any other
building in Cambridge Court owned by University Development Company subject to
any right or any future right of any present or future occupant or its
successors or assigns of such building of expansion rights or rights of first
refusal which offer Landlord intends to accept ("Offer"), Landlord shall
promptly deliver to Tenant a summary of all material terms and conditions of
the summary and Tenant may, within five (5) business days of Tenant's receipt
of the Offer, elect to lease the premises described in the offer on the same
terms as those set forth in the offer; provided, however, any occupant of the
Building or any future building of Cambridge Court owned by University
Development Company or its successor or assigns shall have the first right to
renew or modify their Lease to extend their occupancy within the premises they
lease without regard to any right of Tenant to such premises.
At the Lease expiration of any occupant or its successors or assigns of
any space within this Building or any other building of Cambridge Court owned
by University Development Company and such occupant or its successors or
assigns has an existing option to extend and/or expand for this Building or
such occupant has any present or future right to extend or expand in any other
building in Cambridge Court owned by University Development Company, such
occupant shall have the right to exercise such option to extend and/or expand,
and Tenant shall have no rights to such space if occupant exercises such
option to extend or expand, provided, however, if such occupant or its
successors or assigns has no existing option to extend, then if comparable
space is otherwise immediately available in either this Building or any other
building within Cambridge Court owned by University Development Company, and
if requested by Tenant, then Landlord shall try to relocate such occupant to
such comparable space. If Landlord is successful in relocating said occupant
and if the comparable space has previously been occupied, then Tenant,
Champion Enterprises, shall pay the full cost of all alterations to the
comparable space to satisfy the occupant's requirements; and, in addition,
Tenant, Champion Enterprises, shall reimburse occupant all other reasonable
costs of such relocation. If, however, such comparable space has previously
never been occupied, then Landlord and Tenant, Champion Enterprises shall
share 50/50 the full cost of all alterations to the comparable space to
satisfy the occupant's requirement, and, in addition, Landlord and Tenant,
Champion Enterprises, shall share 50/50 all other reasonable costs of such
relocation. If Landlord is not successful in relocating said occupant, then
said occupant shall have the right to extend its Lease within said occupant's
existing premises without regard to any right to Tenant, Champion Enterprises.
If Tenant fails to exercise its right of first refusal and Landlord fails to
lease the premises described in the summary to the third party submitting the
Offer on substantially the same terms as contained in the Offer, then Tenant's
right of first refusal shall remain applicable to subsequent offers for such
premises (including material modifications, if any, to the Offer). If Tenant
does not timely exercise its right of first refusal, then Landlord shall be
free to lease the premises to the third party on substantially the same terms
and conditions as contained in the Offer. If Tenant exercises its right of
first refusal under this paragraph, then Landlord and Tenant shall, within ten
(10) days of the date of such exercise, execute a written amendment to the
Lease in order to incorporate the Offer into the terms of this Lease. If:
(a) Tenant assigns this Lease or sublets all of the Leased Premises for
the balance of the Term in accordance with Section 10 of the Lease, and
(b)under the terms Of such assignment or sublease, Tenant grants such
assignee or subtenant the right to exercise Tenant's right of first refusal,
then such assignee or subtenant shall have the right to exercise such right of
first refusal. Except as provided in the preceding sentence, Tenant's rights
under this Section 41 shall be deemed personal to Tenant and shall not be
exercised by any assignee or subtenant.
10. Section 1, paragraph 3, shall be modified specifically only as follows:
The words "one hundred ten (110)" shall be substituted for the words
"seventy (70)" in the first (1st) and fifth (5th) lines of this paragraph, and
the word "vehicle" shall be substituted for the word "car" in the second (2nd)
and fifth (5th) line of this paragraph.
11. Section 32, Fixtures and Equipment. Paragraph 2 shall be modified
specifically only as follows:
All furnishings, equipment and fixtures, including all furniture
(excluding built-in furniture), work stations, computers, and
telecommunications equipment, other than those specified above which are paid
for and placed in the Leased Premises by Tenant from time to time (other than
those which are replacements for fixtures or equipment originally paid for by
Landlord), shall remain the property of the Tenant and may be removed at any
time during this Lease term by Tenant provided Tenant shall be responsible for
any and all damage resulting from such removal.
12. Section 33, Compliance with Laws. Paragraph (b) shall be modified
specifically only as follows:
(b) Tenant's Compliance. Tenant shall comply at its sole cost and
expense with all Applicable Laws (1) regarding the physical condition of the
Leased Premises, but only to the extent that the Applicable Laws pertain to
the particular manner in which Tenant uses the leased Premises, or relate to
any construction or alterations performed by or for Tenant within the Leased
Premises; or (ii) that do not relate to the physical condition of the Leased
Premises, but relate to the lawful use of the Leased Premises and with which
only the occupant can comply, such as laws governing maximum occupancy,
workplace smoking, and illegal business operations, such as gambling.
13. Section 15, Increased Real Property Taxes and Operational and
Maintenance Expenses.
The last paragraph on page 20 shall be modified specifically only as
follows:
Tenant's pro rata share of any increase in the operational and
maintenance expenses, excluding insurance, utilities and Taxes, in any
one calendar year over the base calendar year 1992 for such amounts
shall be limited to any increase in the operational and maintenance
expenses but not more than seven percent (7%) from the prior year
through the calendar year 1998 and ten percent (10%) from the prior year
through the calendar year 2002, and fifteen percent (l5%) from the prior
year through calendar year 2007; provided, however, the seven percent
(7%), ten percent (10%), and fifteen percent (15%) limitation shall not
apply to insurance, utilities, or Taxes, and Tenant shall be obligated
to pay its full pro rata share of any increase in insurance, utilities,
and Taxes over the 1992 base calendar year for such insurance, utilities
and Taxes.
Tenant shall continue to pay its full pro rata share of increased
insurance utilities and Taxes over base calendar year 1992 however, the
seven percent (7%) cap through December 31, 1998, ten percent (10%) cap
from January 1, 1999, through December 31, 2002, and fifteen percent
(15%) cap from January 1, 2003, through December 31, 2007, for all other
increases in operational and maintenance expenses ("AOOME) over the base
calendar year 1992 shall be applied as follows:
For example: assume that Tenant's pro rata share equals one hundred percent
(100%) Tenant's pro rata share for such increase over 1992 base calendar year
shall be computed as follows:
1992 "Base AOOME" $1,000.00
1993 "AOOME" $1,500.00
1993 -increase over "Base AOOME" $500.00
-capped portion of "increased" AOOME"
($1000.00 x 107%) $1,070.00
-pro rata share of such increase
($1,070.00 - $1,000.00) x % pro rata share $70.00
=========
1994 -"AOOME" $1,700.00
-increase over "Base AOOME" 700.00
-capped portion of increased "AOOME"
($1,070.00 x 107%) $1,145.00
-pro rata share of such increase
($1145.00 - $1000.00) x % pro rata share $145.00
=========
1995 -"AOOME" $1,600.00
-increase over "Base AOOME" 600.00
-capped portion of increased "AOOME"
($1,145.00 x 107%) $1,225.00
-pro rata share of such increase
($1225.00 - $1000.00) x % pro rata share $225.00
=========
14. Section 46, Security. The following paragraph shall be added as new
Section 46, Security, as follows:
Tenant shall have permission to install monitoring cameras in the lobby
of the third floor to monitor the third floor. Tenant shall also have
permission to install card access devices at each suite entrance door
from the third floor lobby; provided, however, Landlord, its personnel,
cleaning contractor and emergency service contractors shall have access
through the card access doorways at all times in order to have complete
access to the third floor so that Landlord, its personnel, cleaning
contractor, and emergency service contractors can perform their
obligations pursuant to the Lease. Both the camera and card access
systems shall not be connected to the Building alarm system and Tenant
shall connect such systems to its own alarm system and be responsible
for monitoring same.
Tenant shall have permission to install on the east third floor
stairwell door an alarm and locking device similar to the one on the
west third floor stairwell door in order to signal access from the
stairwell to the third floor. No such alarm or locking device shall be
permitted to be installed on the third floor stairwell center door. The
stairwell alarms may be connected to the Tenant alarm system.
Landlord shall install, at its own cost and expense, lock guards, if
available, on the first floor east, west, and center Building entrance
doors.
Tenant shall have permission to rekey the third-floor lavatory doors so
that they shall be separately keyed; Tenant to supply keys to Landlord.
15. Section 7, Repairs. The second (2nd) sentence of the second (2nd)
paragraph of Section 7, Repairs, shall be modified only as follows:
Notwithstanding anything contained in this Lease to the contrary, in the
event that the Leased Premises become untenantable for three (3)
consecutive days as a result of actions taken by Landlord, its agents,
or contractors under this Section, which are beyond Landlord's
reasonable control, then commencing on the fourth (4th) day, Tenant
shall be entitled to an equitable abatement of base and additional rent.
The abatement shall end when the Leased Premises are no longer
untenantable.
16. The following paragraphs or portions thereof of this Lease shall be
deleted in total as having been previously fully satisfied and complied with:
a) Section 2, Term
first paragraph of Section 2, Term, starting with the third
(3rd)sentence: "On the day..." and continuing through the entire
balance of the paragraph, "... a Purchase Agreement dated November
___, 1991,(the Purchase Agreement)."
b) Section 2, Term
the entire second (2nd)paragraph of Section 2, Term.
c) Section 2, Term
the entire third (3rd) paragraph of Section 2, Term.
d) Section 3, Annual Rental
the entire fourth (4th) , last paragraph of Section 3, Annual
Rental.
e) Section 40, Moving Expense Allowance
the entire paragraph of Section 40, Moving Expense Allowance.
f) Section 45, Computer Room Allowance
the entire paragraph of Section 45, Computer Room Allowance.
17. Landlord and Tenant represent and warrant to each other that neither has
dealt with a broker regarding the expansion of the Leased Premises and
extension of the Lease for the Leased Premises in Cambridge Court, and
Landlord and Tenant agree to indemnify and hold the other harmless from any
claims for brokerage commissions or finders fees which may be claimed arising
out of the expansion and/or extension of Lease for the Leased Premises in
Cambridge Court.
18.Except as expressly amended herein, all other terms and conditions of said
Lease as amended shall remain in full force and effect.
19.This Amendment shall be binding upon the parties hereto, their respective
successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have caused their presence to be
duly executed the day and year first above written.
WITNESSES:
/s/ Ann M. Krause
Landlord: University Development Company,
a Michigan Partnership
By:/s/ Stuart Frankel
Stuart Frankel
Tenant: Champion Enterprises, Inc.
By:/s/ Walter R. Young, Jr.
<PAGE>
<PAGE>
COMPUTATION OF FREE RENT
October - December 1997
$27,174.65 x 3 = $81,523.95
15,946 square feet x $20.45 per square foot=
$326,095.70
---------- =$27,174.65
12
January April 1998
$38.393.08 x 4 = $153,572.32
22,474 square feet x $20.50 per square foot=
$460,717.00
---------- =$38,393.08
12
Portion of May 1998 $12,903.73
---------
$248,000.00
===========
FOURTH AMENDMENT TO
CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of May ____, 1997
(this "Fourth Amendment"), to the Credit Agreement dated as of September 29,
1995, as amended by the First Amendment dated as of October 27, 1995, the
Second Amendment dated as of September 17, 1996 and the Third Amendment dated
as of December 2, 1996 (the "Credit Agreement"), among Champion Enterprises,
Inc. (the "Company"), Comerica Bank and The First National Bank of Chicago
(the "Banks"), and Comerica Bank as agent for the Banks (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the
Credit Agreement; and
WHEREAS, the Company wishes to amend the Credit Agreement to
increase the amount of permitted redemptions of the Company's common stock;
and
WHEREAS, the Banks and the Agent have agreed to amend the Credit
Agreement on the terms and subject to the conditions set forth below;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, it is hereby agreed as follows:
ARTICLE I -- DEFINITIONS AND AMENDMENTS
1.1 Defined Terms. Capitalized terms used herein which are defined
in the Credit Agreement are used herein with such defined meanings.
1.2 Amendment to Section 7.1. Section 7.1 of the Credit Agreement
is amended by deleting the figure "$10,000,000" where it appears therein and
replacing it with the figure "$80,000,000."
ARTICLE II -- REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT
2.1 Representations; No Default. On and as of the date hereof
and after giving effect to this Fourth Amendment, the Company hereby (a)
confirms, reaffirms and restates the representations and warranties set forth
in Section 5 of the Credit Agreement, except to the extent that such
representations and warranties relate solely to an earlier date in which case
the Company confirms, reaffirms and restates such representations and
warranties for such early date, provided that the references to the Credit
Agreement therein shall be deemed to be to the Credit Agreement as amended by
this Fourth Amendment, and (b) represents that no Event of Default has
occurred and is continuing.
2.2 Effective Date. This Fourth Amendment shall become
effective on the first date upon which the Agent shall have received
counterparts of this Fourth Amendment executed by the Company, the Banks and
the Agent.
ARTICLE III - MISCELLANEOUS
3.1 Limited Effect. Except as expressly amended hereby, all of
the provisions, covenants, terms and conditions of the Credit Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms.
3.2 Expenses. The Company shall reimburse the Agent for all of
its reasonable costs and expenses (including legal expenses) incurred in
connection with the preparation, execution and delivery of this Fourth
Amendment.
3.3 Guarantors. Each Guarantor, by its execution of this Fourth
Amendment, hereby consents to all transactions contemplated hereby and
reaffirms and ratifies all of its obligations to the Agent and the Banks under
the Guaranty.
3.4 Counterparts. This Fourth Amendment may be executed by
one or more parties hereto on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed and delivered by their proper and duly authorized
officers or other agents as of the date first above written.
COMPANY:
CHAMPION ENTERPRISES, INC.
By
Its
AGENT AND BANKS:
COMERICA BANK, as Agent and as a
Bank
By
Its
THE FIRST NATIONAL BANK OF CHICAGO
By
Its
GUARANTORS:
CHAMPION MOTOR COACH, INC.
By
Its
CHAMPION HOME BUILDERS CO.
By
Its
MODULINE INTERNATIONAL, INC.
By
Its
LAMPLIGHTER HOMES, INC.
By
Its
DUTCH HOUSING, INC.
By
Its
CHANDELEUR HOMES, INC.
By
Its
CREST RIDGE HOMES, INC.
By
Its
BUILDERS CREDIT CORPORATION
By
Its
CHAMPION FINANCIAL CORPORATION
By
Its
FIFTH AMENDMENT TO
CREDIT AGREEMENT AND WAIVER
FIFTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER, dated as of January
8, 1998 (this "Fifth Amendment"), to the Credit Agreement dated as of
September 29, 1995, as amended by the First Amendment dated as of October 27,
1995, the Second Amendment dated as of September 17, 1996, the Third Amendment
dated as of December 2, 1996 and the Fourth Amendment dated as of May ,
1997 (the "Credit Agreement"), among Champion Enterprises, Inc. (the
"Company"), Comerica Bank and The First National Bank of Chicago (the
"Banks"), and Comerica Bank as agent for the Banks (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the
Credit Agreement; and
WHEREAS, the Company wishes to amend the Credit Agreement to
increase the Maximum Commitment and to revise certain of the financial
covenants; and
WHEREAS, the Company has requested the Banks to waive any breach by
the Company of Section 6.13 of the Credit Agreement for the period ending on
September 29, 1998; and
WHEREAS, two Guarantors have requested the Banks to release them
from the Guaranty, and terminate the Guaranty as to them; and
WHEREAS, the Banks and the Agent have agreed to amend the Credit
Agreement, waive any such breach and release such Guarantors on the terms and
subject to the conditions set forth below;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, it is hereby agreed as follows:
ARTICLE I -- DEFINITIONS AND AMENDMENTS
1.1 Defined Terms. Capitalized terms used herein which are defined
in the Credit Agreement are used herein with such defined meanings.
1.2 Amendment to Section 1. Section 1 of the Credit Agreement is
amended by deleting the definitions of "Maximum Commitment" and "Percentage"
and substituting therefor the following new definitions:
"Maximum Commitment" shall mean One Hundred Twenty-Five Million
Dollars ($125,000,000).
"Percentage" shall mean sixty-four percent (64%) with respect to
Comerica Bank and thirty-six percent (36%) with respect to The First National
Bank of Chicago, as adjusted from time to time to account for assignments
permitted by Section 12.8.
1.3 Amendment to Section 6.11. Section 6.11 is amended to read in
its entirety as follows:
"6.11 Consolidated Funded Debt Ratio. Maintain, as of the last day
of each fiscal quarter, a Consolidated Funded Debt Ratio of not more than 2.75
to 1."
1.4 Amendment to Section 7.4(d). Section 7.4(d) is amended by
deleting the figure "$3,000,000" where it appears therein and substituting
therefor the figure "225,000,000".
ARTICLE II - WAIVER; RELEASE OF TWO GUARANTORS
2.1 Waiver. The Banks hereby waive any default by the Company
under Section 6.13 (Consolidated Tangible Net Worth) of the Credit Agreement
for the period from December 19, 1997 to (and including) September 29, 1998.
Such waiver is given pursuant to Section 12.11 of the Credit Agreement. In
particular, and without limitation, such waiver shall be strictly limited to
its terms and shall not act as a waiver of or consent to any other
transaction, default or Event of Default, whether related or unrelated to the
foregoing.
2.2 Release of Guarantors. The Banks hereby release Champion
Motor Coach, Inc. and Builders Credit Corporation from all of their
obligations under the Guaranty, and terminate the Guaranty as to them only.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT
3.1 Representations; No Default. On and as of the date hereof and
after giving effect to this Fifth Amendment, the Company hereby (a) confirms,
reaffirms and restates the representations and warranties set forth in Section
5 of the Credit Agreement, except to the extent that such representations and
warranties relate solely to an earlier date in which case the Company
confirms, reaffirms and restates such representations and warranties for such
early date, provided that the references to the Credit Agreement therein shall
be deemed to be to the Credit Agreement as amended by this Fifth Amendment,
and (b) represents that no Event of Default has occurred and is continuing.
3.2 Effective Date. This Fifth Amendment shall become effective on
the first date prior to February 1, 1998 upon which all of the following
conditions shall have been satisfied:
(a) the Agent shall have received counterparts of this Fifth
Amendment, duly executed by the Company, the Agent and the Banks;
(b) the Agent shall have received the Company's non-refundable loan
origination fee in the amount of $38,500, to be distributed $24,640 to
Comerica Bank and $13,860 to The First National Bank of Chicago;
(c) the Agent shall have received a certified copy of resolutions
of the Board of Directors of the Company authorizing the increase in the
Maximum Commitment to $125,000,000 and approving the execution and delivery of
this Fifth Amendment and new Revolving Credit Notes;
(d) the Agent shall have received the opinion of John J. Collins,
Jr., the Company's general counsel, in form and substance satisfactory to the
Agent;
(e) the Company shall have executed and delivered to the Agent, for
the account of each Bank, new Revolving Credit Notes in the amount of each
Bank's Percentage of the increased Maximum Commitment; and
(f) no default or Event of Default shall have occurred and be
continuing.
ARTICLE IV - MISCELLANEOUS
4.1 Limited Effect. Except as expressly amended hereby, all of the
provisions, covenants, terms and conditions of the Credit Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms.
4.2 Expenses. The Company shall reimburse the Agent for all of its
reasonable costs and expenses (including legal expenses) incurred in
connection with the preparation, execution and delivery of this Fifth
Amendment.
4.3 Guarantors. Each Guarantor (other than Champion Motor Coach,
Inc. and Builders Credit Corporation), by its execution of this Fifth
Amendment, hereby consents to all transactions contemplated hereby and
reaffirms and ratifies all of its obligations to the Agent and the Banks under
the Guaranty.
4.4 Counterparts. This Fifth Amendment may be executed by one or
more parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be executed and delivered by their proper and duly authorized
officers or other agents as of the date first above written.
COMPANY:
CHAMPION ENTERPRISES, INC.
By:
Its:
AGENT AND BANKS:
COMERICA BANK, as Agent and as
a Bank
By:
Its:
THE FIRST NATIONAL BANK OF
CHICAGO
By:
Its:
GUARANTORS:
CHAMPION HOME BUILDERS CO.
By:
Its:
MODULINE INTERNATIONAL, INC.
By:
Its:
LAMPLIGHTER HOMES, INC.
By:
Its:
DUTCH HOUSING, INC.
By:
Its:
CHANDELEUR HOMES, INC.
By:
Its:
CREST RIDGE HOMES, INC.
By:
Its:
CHAMPION FINANCIAL CORPORATION
By:
Its:
REDMAN INDUSTRIES, INC.
By:
Its:
CHAMPION ENTERPRISES, INC.
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of March 3, 1997, is between Champion
Enterprises, Inc. (the "Company") and John J. Collins, Jr., who is currently
employed by the Company in the position of General Counsel (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that it is in the best interests of the
Company and its Shareholders if the Executive is assured that he will receive
appropriate financial protection in the event of a Change in Control (as
defined in Section 4 below), thus ensuring that the Executive will have an
incentive to perform valuable services for the Company and will not be
distracted in the event of an actual or threatened Change in Control; and
WHEREAS, the Company believes that the assurance of appropriate
financial protection to the Executive in the event of a Change in Control will
encourage the Executive to remain in the employ of the Company through the
transition period following a Change in Control, which is in the best
interests of the Company and its Shareholders; and
WHEREAS, the Executive is willing to provide dedicated services to the
Company on the condition that he receives adequate assurance that he will
receive appropriate financial protection in the event of a Change in Control;
NOW THEREFORE, in consideration of the premises and mutual covenants,
the parties hereto agree as follows:
AGREEMENT
1. Operation of Agreement. This Agreement sets forth the severance
compensation that the Company shall pay the Executive if the Executive's
employment with the Company terminates under one of the applicable provisions
set forth herein following a Change in Control.
2. Term of the Agreement. This Agreement shall be effective upon its
execution by both parties and shall terminate upon the first of the following
events to occur: (a) five years from the date hereof if a Change in Control
has not occurred within such five-year period; (b) the termination of the
Executive's employment with the Company prior to a Change in Control except
under the circumstances described in Section 6 hereunder; (c) the expiration
of two years following a Change in Control (or two years following the later
of one or more successive Changes in Control that occur within the two year
period immediately following the initial Change in Control); (d) the
termination of the Executive's employment with the Company following a Change
in Control due to the Executive's death, Disability (as defined in Section
3(a) below) or Retirement (as defined in Section 3(b) below); (e) the
termination of the Executive's employment by the Company for Cause (as defined
in Section 3(c) below) following a Change in Control; or (f) termination of
employment by the Executive for other than Good Reason (as defined in Section
5) following the date of a Change in Control. Unless the Agreement has first
terminated under clauses (a) through (f) hereof, commencing on the fifth
anniversary of the date of this Agreement, and each one-year anniversary
thereafter, this Agreement shall be extended for one additional year, unless
at least 30 days prior to each such anniversary, the Company notifies the
Executive in writing that it will not extend the term of this Agreement.
3. Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Disability" shall mean the Executive's total and permanent
disability which prevents the Executive from performing the duties he was
assigned immediately prior to the Change in Control for a continuous period
exceeding 9 months. The determination of Disability shall be made by a
medical board certified physician mutually acceptable to the Company and the
Executive (or the Executive's legal representative, if one has been
appointed), and if the parties cannot mutually agree to the selection of a
physician, then each party shall select such a physician and the two
physicians so selected shall select a third physician who shall make this
determination.
(b) "Retirement" shall mean retirement on or after age 65.
(c) "Cause" shall mean the Executive's willful gross misconduct,
willful and material breach of his duties or an act of fraud or dishonesty by
the Executive that directly or indirectly results in material harm to the
Company.
4. Change in Control. A Change in Control shall be deemed to have
occurred upon the occurrence of any of the following events:
(a) the acquisition of ownership by a person, firm or
corporation, or a group acting in concert, of 51%, or more, of the outstanding
common stock of the Company in a single transaction or a series of related
transactions within a one-year period;
(b) a sale of all or substantially all of the assets of the
Company to any person, firm or corporation through a single transaction or
multiple transactions; or
(c) a merger, consolidation or similar transaction between the
Company and another entity if shareholders of the Company do not own a
majority of the voting stock of the corporation surviving the transaction .
5. Termination of Employment Following a Change in Control. Subject
to Sections 6 and 11(a) hereunder, the Executive shall be entitled to
severance payments under this Agreement only if there has been a Change in
Control and the Executive has incurred a Termination of Employment.
(a) For purposes of this Agreement during the two-year period
following any Change in Control that occurs during the term of this Agreement,
"Termination of Employment" shall be defined as:
(i) The Executive's involuntary termination
by the Company for any reason other than death, Disability, Retirement or
Cause; or
(ii) The Executive's termination for "Good Reason," defined
as the occurrence of any of the following events without the Executive's
written consent:
(A) Any reassignment of the Executive to duties
inconsistent with his position, title, duties, responsibilities and
status with the Company immediately prior to the Change in Control, or a
change in the Executive's reporting responsibilities, including a change
in the identity or the corporate position to which the Executive
reports, or a change in title (except for a promotion) in effect
immediately prior to the Change in Control;
(B) Any reduction in the Executive's base salary in
effect immediately prior to the Change in Control, or failure by the
Company to continue any bonus, stock or incentive plans in effect
immediately prior to the Change in Control (without the implementation
of a comparable successor plan which provides the same benefits), or any
removal of the Executive from participation in such aforementioned
plans;
(C) The discontinuance or reduction in benefits to
the Executive of any qualified or nonqualified retirement or welfare
plan maintained by the
Company immediately prior to the Change in Control, or the
discontinuance of any fringe benefits or other perquisites which the
Executive received immediately prior to the Change in Control;
(D) Required business travelling by the Executive on
a significantly more frequent basis and for significantly longer periods
of time than the Executive was required to travel immediately prior to
the Change in Control unless the increase in required business
travelling is on account of the Executive's promotion;
(E) Any reassignment of the Executive's duties that
would require the Executive to relocate his primary residence outside of
the Detroit metropolitan area; or
(F) The Company's breach of any provision in this
Agreement.
(b) If the Executive believes that he is entitled to a
Termination of Employment for Good Reason as defined in subparagraph (a)(ii)
above, he may apply in writing to the Company for confirmation of such
entitlement prior to the Executive's actual separation from employment, by
following the claims procedure set forth in Section 15 hereof. The submission
of such a request by the Executive shall not constitute "Cause" for the
Company to terminate the Executive as defined under Section 3(c) hereof. If
the Executive's request for a Good Reason Termination of Employment is denied
under both the request and appeal procedures set forth in paragraphs (b) and
(c) of Section 15 hereof, then the parties shall use their best efforts to
resolve the claim within 90 days after the claim is submitted to arbitration
pursuant to Section 15(d).
6. Termination Prior to Change in Control. If within a period of 180
days prior to the first public announcement of a proposed Change in Control
the Company terminates the employment of the Executive for reasons other than
the Executive's death, Disability, Retirement or Cause, and a Change in
Control event subsequently occurs, unless the Company establishes that the
Executive's termination was not in connection with the Change in Control, the
Executive's termination shall be deemed to have been in connection with the
Change in Control, and the Executive shall be entitled to severance payments
under this Agreement, to be paid in cash within 10 days following the Change
in Control.
7. Severance Payment.
(a) Upon satisfaction of the requirements set forth in Sections
5, 6 and 11(a) hereof and with respect to any
one or more Changes in Control that may occur during the term of this
Agreement, the Executive shall be entitled to a cash severance benefit equal
to not less than 18 months of the terminated Executive's then annual base
salary, plus the unpaid prorated portion of his annual bonus (but excluding
commissions and other nonrecurring cash compensation payments), to be
determined at the discretion of the Board of Directors.
(b) In addition to the cash payment described in paragraph (a)
above, upon satisfaction of the requirements set forth in Sections 5, 6 and
11(a) hereof, the Executive shall be entitled to continued participation in
the Company's hospitalization, medical, life insurance and disability
insurance programs until the earlier of the first anniversary of the
Executive's termination of employment or the commencement of comparable
coverage from another corporation or partnership.
(c) The cash value of the severance benefits provided in
paragraphs (a) and (b) above, when aggregated with any other "golden
parachute" amounts (defined under Section 280G of the Internal Revenue Code of
1986, as amended [the "Code"] as compensation that becomes payable or
accelerated due to a Change in Control) payable under any other plans,
agreements or policies of the Company, shall be reduced to the highest amount
permissible under Sections 280G and 4999 of the Code before the Executive
becomes subject to the excess parachute payment excise tax under Section 4999
of the Code and the Company loses all or part of its compensation deduction
for such payments.
8. Time of Payment. Subject to Sections 6 and 11(a) hereof, the
Executive's severance benefit under Section 7(a) shall be paid in a lump sum
cash payment within 10 days following the Executive's Termination of
Employment, as defined in Section 5. Any payment made later than 10 days
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof) for whatever reason, shall include interest
at the prime rate plus two percent, which shall begin accruing on the 10th day
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof). For purposes of this Section 8, "prime
rate" shall be determined by reference to the prime rate established by
Comerica Bank (or its successor), in effect from time to time commencing on
the 10th day following the Executive's Termination of Employment (or
applicable due dates under Sections 6 and 11(a) hereof).
9. No Mitigation or Duty to Seek Reemployment. The Executive shall
be under no duty or obligation to seek or accept other employment after
Termination of Employment and, subject to Section 7(b) hereof, shall not be
required to mitigate the amount of any payments provided for by this Agreement
by seeking employment or otherwise.
10. Tax Withholding. The Company may withhold from any cash amounts
payable to the Executive under this Agreement to satisfy all applicable
Federal, State, local or other income and employment withholding taxes. In
the event the Company fails to withhold such sums for any reason, or
withholding is required for the non-cash payments provided in Section 7(b)
hereof, the Company may require the Executive to promptly remit to the
Company sufficient cash to satisfy all applicable income and employment
withholding taxes.
11. Binding Effect.
(a) This Agreement shall be binding upon the successors and
assigns of the Company. The Company shall take whatever actions are necessary
to ensure that any successor to its operations (whether by purchase, merger,
consolidation, sale of substantially all assets or otherwise) assumes the
obligations under this Agreement and will cause such successor to evidence the
assumption of such obligations in an agreement satisfactory to the Executive.
Notwithstanding any other provisions in this Agreement, if the Company fails
to obtain an agreement evidencing the assumption of the Company's obligations
by any such successor, the Executive shall be entitled to immediate payment of
the severance compensation provided under Section 7, irrespective of whether
his employment has then terminated. For purposes of implementing the
foregoing, the date on which any succession becomes effective shall be deemed
to constitute the date of the Executive's Termination of Employment.
(b) This Agreement shall be binding upon the Executive and shall
inure to the benefit of and be enforceable by his legal representatives and
heirs. However, the rights of the Executive under this Agreement shall not be
assigned, transferred, pledged, hypothecated or otherwise encumbered, except
by operation of law.
12. Amendment of Agreement. This Agreement may not be modified or
amended except by instrument in writing signed by the parties hereto.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall continue in full force and effect.
14. Limitation on Rights.
(a) This Agreement shall not be deemed to create a contract of
employment between the Company and the Executive and shall create no right in
the Executive to continue in the Company's employment for any specific period
of time, or to create any other rights in the Executive or obligations on the
part of the Company, except as set forth herein. This Agreement shall not
restrict the right of the Company to terminate the Executive, or restrict the
right of the Executive to terminate his employment.
(b) This Agreement shall not be construed to exclude the
Executive from participation in any other compensation or benefit programs in
which he is specifically eligible to participate either prior to or following
the execution of this Agreement, or any such programs that generally are
available to other executive personnel of the Company, nor shall it affect the
kind and amount of other compensation to which the Executive is entitled.
(c) The rights of the Executive under this Agreement shall be
solely those of an unsecured general creditor of the Company.
15. Claims Procedure.
(a) The administrator for purposes of this Agreement shall be
the Company ("Administrator"), whose address is Champion Enterprises, Inc.,
2701 University Drive, Suite 320, Auburn Hills, MI 48326 and whose telephone
number is (810) 340-9090. The "Named Fiduciary" as defined in Section
402(a)(2) of ERISA, also shall be the Company. The Company shall have the
right to designate one or more Company employees as the Administrator and the
Named Fiduciary at any time, and to change the address and telephone number of
the same. The Company shall give the Executive written notice of any change
in the Administrator and Named Fiduciary, or in the address or telephone
number of the same.
(b) The Administrator shall make all determinations as to the
right of any person to receive benefits under the Agreement. Any denial by
the Administrator of a claim for benefits by the Executive ("the claimant")
shall be stated in writing by the Administrator and delivered or mailed to the
claimant within 10 days after receipt of the claim, unless special
circumstances require an extension of time for processing the claim. If such
an extension is required, written notice of the extension shall be furnished
to the claimant prior to the termination of the initial 10-day period. In no
event shall such extension exceed a period of 10 days from the end of the
initial period. Any notice of denial shall set forth the specific reasons for
the denial, specific reference to pertinent provisions of this Agreement upon
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect his claim, with an
explanation of why such material or information is necessary, and any
explanation of claim review procedures, written to the best of the
Administrator's ability in a manner that may be understood without legal or
actuarial counsel.
(c) A claimant whose claim for benefits has been wholly or
partially denied by the Administrator may request, within 10 days following
the date of such denial, in a writing addressed to the Administrator, a review
of such denial. The claimant shall be entitled to submit such issues or
comments in writing or otherwise, as he shall consider relevant to a
determination of his claim, and he may include a request for a hearing in
person before the Administrator. Prior to submitting his request, the
claimant shall be entitled to review such documents as the Administrator shall
agree are pertinent to his claim. The claimant may, at all stages of review,
be represented by counsel, legal or otherwise, of his choice. All requests
for review shall be promptly resolved. The Administrator's decision with
respect to any such review shall be set forth in writing and shall be mailed
to the claimant not later than 10 days following receipt by the Administrator
of the claimant's request unless special circumstances, such as the need to
hold a hearing, require an extension of time for processing, in which case the
Administrator's decision shall be so mailed not later than 20 days after
receipt of such request.
(d) A claimant who has followed the procedure in paragraphs (b)
and (c) of this section, but who has not obtained full relief on his claim for
benefits, may, within 60 days following his receipt of the Administrator's
written decision on review, apply in writing to the Administrator for binding
arbitration of his claim before an arbitrator mutually acceptable to both
parties, the arbitration to be held in Detroit, Michigan, in accordance with
the commercial arbitration rules of the American Arbitration Association, as
then in effect. If the parties are unable to mutually agree upon an
arbitrator, then the arbitration proceedings shall be held before three
arbitrators, one of which shall be designated by the Company, one of which
shall be designated by the claimant and the third of which shall be designated
mutually by the first two arbitrators in accordance with the commercial
arbitration rules referenced above. The arbitrator(s) sole authority shall be
to interpret and apply the provisions of this Agreement; the arbitrator(s)
shall not change, add to, or subtract from, any of its provisions. The
arbitrator(s) shall have the power to compel attendance of witnesses at the
hearing. Any court having jurisdiction may enter a judgment based upon such
arbitration. All decisions of the arbitrator(s) shall be final and binding on
the claimant and the Company without appeal to any court. Upon execution of
this Agreement, the Executive shall be deemed to have waived
his right to commence litigation proceedings outside of arbitration without
the express written consent of the Company.
16. Legal Fees and Expenses. In the event any arbitration or
litigation is brought to enforce any provision of this Agreement and the
Executive prevails, then he shall be entitled to recover from the Company his
reasonable costs and expenses of such arbitration or litigation, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings). If the Company prevails, then each party shall be responsible
for its/his respective costs, expenses and attorneys fees, and the costs of
arbitration shall be equally divided. In the event that it is determined that
the Executive is entitled to compensation, legal fees and expenses hereunder,
he also shall be entitled to interest thereon, payable to him at the prime
rate of interest plus two percent. For purposes of this Section 16, "prime
rate" shall be determined by reference to the prime rate established by
Comerica Bank as in effect from time to time during the period from the date
such amounts should have been paid to the date of actual payment. For
purposes of the determining the date when legal fees and expenses are payable,
such amounts are not due until 30 days after notification to the Company of
such amounts.
17. Nonalienation of Benefits. Except in so far as this provision may
be contrary to applicable law, no sale, transfer, alienation, assignment,
pledge, collateralization or attachment of any benefits under this Agreement
shall be valid or recognized by the Company.
18. ERISA. This Agreement is an unfunded compensation arrangement for
a member of a select group of the Company's management and any exemptions
under ERISA, as applicable to such an arrangement shall be applicable to this
Agreement.
19. Reporting and Disclosure. The Company, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the
Company may deem appropriate.
20. Notices. Any notice required or permitted by this Agreement shall
be in writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at the Company's then principal office,
or to the Executive at the Executive's last address on file with the Company,
as the case may be, or to such other address or addresses as any party hereto
may from time to time specify in writing for the purpose of this Agreement in
a notice given
to the other parties in compliance with this Section 20. Notices shall be
deemed given when received.
21. Miscellaneous/Severability. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement
is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. To the
extent that any provision or benefit under this Agreement is not deemed to be
in accordance with any applicable law, ordinance, rule or regulation, the
noncomplying provision shall be construed, or benefit limited, to the extent
necessary to comply with all applicable laws, ordinances and regulations and
any such provision or benefit shall not affect the validity of any other
provision or benefit provided by this Agreement. The headings in this
Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
22. Governing Law. To the extent not preempted by Federal law, this
Agreement shall be governed and construed in accordance with the laws of the
State of Michigan.
23. Entire Agreement. This document represents the entire agreement
and understanding of the parties with respect to the subject matter of the
Agreement and it may not be altered or amended except by an agreement in
writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman of the Board of
Directors, President and
Chief Financial Officer
By:
John J. Collins, Jr.
May 1, 1997
Phil Surles
17 Bayside Drive
Malakoff, Texas 75148
Dear Phil:
This letter is to confirm my offer of a promotion and the major terms of
employment.
1) The position is Chief Operating Officer of Champion Enterprises,
Inc, based in Auburn Hills, MI. reporting to me.
2) The base pay is $240,000 annually, paid monthly.
3) The annual cash incentive plan is attached for 1997, which if we
perform at budgeted levels should provide a cash incentive of
$200,000 when prorated on 8/12 of the year.
4) The equity program will be defined as separate agreements
effective on your date of employment to cover a total of 200,000
shares of Champion Enterprises stock over the next five years as
follows:
A) 20,000 shares at 40% of market price on date of
acceptance to be purchased within 60 days of
employment. There is a two year restriction from date
of exercise on these shares and if you leave the
company during the two year period you lose the
prorated amount remaining. You will have tax
consequences of difference between purchase and market
price. Once you exercise this portion, you will be
eligible for the following:
B) 20,000 share at 40% of market price on date of
acceptance. While the term of these options are ten
years, if you leave the company during the first two
years these options are forfeited on a prorated 24
month period.
C) 160,000 shares at market value on date of acceptance
to be vested and exercisable in equal prorata
proportions (32,000) over five years on the 1st, 2nd,
3rd, 4th and 5th anniversary date.
As a part of the option agreement, there will be a "change of control"
provision that immediately vests the outstanding, unvested options, as
well as confidentiality and noncompete provisions.
5) You will be eligible for the company's normal medical/dental, life
insurance and long term disability benefits. There is no defined
benefits retirement program, but we do have a 401(K) tax deferred
savings program. You will be responsible for paying approximately 20%
of the premium for medical/dental coverage. You will be entitled to
four weeks vacation per year. We do not pay cash in lieu of vacations.
7) For three years from your acceptance, if the company separates you for
any reason (other than gross malfeasance or legal reasons), the company
will provide up to 18 months base salary and benefits. This will be
reduced from 18 months, if less than 18 months remain of the 36 month
period.
8) You will be given a "change of control" agreement which will provide a
minimum 18 months of base salary and incentives.
This offer is effective until today, May 1, 1997 with promotion to begin
no later than Monday, May 12, 1997. If the terms are acceptable, please sign
below and return one copy to me.
I look forward to you joining the team, for I am sure that you will find
it personally and professionally rewarding.
Very truly yours,
Walter R. Young, Jr.
\bj
cc: Jackie Dout
Philip Surles
Dated
<PAGE>
<PAGE>
Chief Operating Officer - Champion Enterprises, Inc.
1997 Fiscal Year Incentive Plan
Eligibility
Must hold position at fiscal year end 1997 (January 3, 1998)
The Plan
The Chief Operating Officer will be paid annually based upon the
following attainment:
Measure Attainment Level Incentive (% of Base Salary)
EPS
Minimum $1.50 75%
Level 1 $1.60 125%
Level 2 $1.76 150%
Maximum $1.92 188%
Upside +.025 +3.0%
Within the two program, the incentive payout will increase between the
attainment levels listed. The "upside" award will be in two year restricted
stock.
Definition and Rules
-Payment will be made after audited year-end results are finalized.
-Payments on this plan are not eligible for benefit calculations.
-This Plan supersedes all other previous plans.
Definitions:
Base Pay: Annualized base pay as of January 3, 1998.
EPS: Annual, audited and publicly reported. EPS adjusted only
for excluding extraordinary gains or losses.
All attainment measures are based on current operations as of December,
1996. Any acquisition or divestitures during the year may require
appropriate modifications to these attainment measures.
CHAMPION ENTERPRISES, INC.
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of June 13, 1997, is between Champion
Enterprises, Inc. (the "Company") and Philip C. Surles, who is currently
employed by the Company in the position of Chief Operating Officer (the
"Executive").
WITNESSETH:
WHEREAS, the Company believes that it is in the best interests of the
Company and its Shareholders if the Executive is assured that he will receive
appropriate financial protection in the event of a Change in Control (as
defined in Section 4 below), thus ensuring that the Executive will have an
incentive to perform valuable services for the Company and will not be
distracted in the event of an actual or threatened Change in Control; and
WHEREAS, the Company believes that the assurance of appropriate
financial protection to the Executive in the event of a Change in Control will
encourage the Executive to remain in the employ of the Company through the
transition period following a Change in Control, which is the best interests
of the Company and its Shareholders; and
WHEREAS, the Executive is willing to provide dedicated services to the
Company on the condition that he receives adequate assurance that he will
receive appropriate financial protection in the event of a Change in Control;
NOW THEREFORE, in consideration of the premises and mutual covenants,
the parties hereto agree as follows:
AGREEMENT
1. Operation of Agreement. This Agreement sets forth the severance
compensation that the Company shall pay the Executive if the Executive's
employment with the Company terminates under one of the applicable provisions
set forth herein following a Change in Control.
2. Term of the Agreement. This Agreement shall be effective upon its
execution by both parties and shall terminate upon the first of the following
events to occur: (a) five years from the date hereof if a Change in Control
has not occurred within such five-year period; (b) the termination of the
Executive's employment with the Company prior to a Change in Control except
under the circumstances described in Section 6 hereunder; (c) the expiration
of two years following a Change in Control (or two years following the later
of one or more successive Changes in Control that occur within the two year
period immediately following the initial Change in Control); (d) the
termination of the Executive's employment with the Company following a Change
in Control due to the Executive's death, Disability (as defined in Section
3(a) below) or Retirement (as defined in Section 3(b) below); (e) the
termination of the Executive's employment by the Company for Cause (as defined
in Section 3(c) below) following a Change in Control; or (f) termination of
employment by the Executive for other than Good Reason (as defined in Section
5) following the date of a Change in Control. Unless the Agreement has first
terminated under clauses (a) through (f) hereof, commencing on the fifth
anniversary of the date of this Agreement, and each one-year anniversary
thereafter, this Agreement shall be extended for one additional year, unless
at least 30 days prior to each such anniversary, the Company notifies the
Executive in writing that it will not extend the term of this Agreement.
3. Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Disability" shall mean the Executive's total and permanent
disability which prevents the Executive from performing the duties he was
assigned immediately prior to the Change in Control for a continuous period
exceeding 9 months. The termination of Disability shall be made by a medical
board certified physician mutually acceptable to the Company and the Executive
(or the Executive's legal representative, if one has been appointed), and if
the parties cannot mutually agree to the selection of a physician, then each
party shall select such a physician and the two physicians so selected shall
select a third physician who shall make this determination.
(b) "Retirement" shall mean retirement on or after age 65.
(c) "Cause" shall mean the Executive's willful gross misconduct,
willful and material breach of his duties or an act of fraud or dishonesty by
the Executive that directly or indirectly results in material harm to the
Company.
4. Change in Control. A Change in Control shall be deemed to have
occurred upon the occurrence of any of the following events:
(a) the acquisition of ownership by a person, firm or corporation, or
a group acting in concert, of 51%, or more, of the outstanding common stock of
the Company in a single transaction or a series of related transactions within
a one-year period;
(b) a sale of all or substantially all of the assets of the Company to
any person, firm or corporation through a single transaction or multiple
transactions; or
(c) a merger, consolidation or similar transaction between the Company
and another entity if shareholders of the Company do not own a majority of the
voting stock of the corporation surviving the transaction.
5. Termination of Employment Following a Change in Control. Subject
to Sections 6 and 11(a) hereunder, the Executive shall be entitled to
severance payments under this Agreement only if there has been a Change in
Control and the Executive has incurred a Termination of Employment.
(a) For purposes of this Agreement during the two-year period
following any Change in Control that occurs during the term of this Agreement,
"Termination of Employment" shall be defined as:
(i) The Executive's involuntary termination by the Company for
any reason other than death, Disability, Retirement or Cause; or
(ii) The Executive's termination for "Good Reason," defined as
the occurrence of any of the following events without the Executive's written
consent:
(A) Any reassignment of the Executive to duties
inconsistent with his position, title, duties, responsibilities and status
with the Company immediately prior to the Change in Control, or a change in
the Executive's reporting responsibilities, including a change in the identity
or the corporate position to which the Executive reports, or a change in title
(except for a promotion) in effect immediately prior to the Change in Control;
(B) Any reduction in the Executive's base salary in effect
immediately prior to the Change in Control, or failure by the Company to
continue any bonus, stock or incentive plans in effect immediately prior to
the Change in Control (without the implementation of a comparable successor
plan which provides the same benefits), or any removal of the Executive from
participation in such aforementioned plans;
(C) The discontinuance or reduction in benefits to the
Executive of any qualified or non-qualified retirement or welfare plan
maintained by the Company immediately prior to the Change in Control, or the
discontinuance of any fringe benefits or other perquisites which the Executive
received immediately prior to the Change in Control:
(D) Required business travelling by the Executive on a
significantly more frequent basis and for significantly longer periods of time
than the Executive was required to travel immediately prior to the Change in
Control unless the increase in required business travelling is on account of
the Executive's promotion;
(E) Any reassignment of the Executive's duties that would
require the Executive to relocate his primary residence; or
(F) The Company's breach of any provision in this
Agreement.
(b) If the Executive believes that he is entitled to a
Termination of Employment for Good Reason as defined in subparagraph (a)(ii)
above, he may apply in writing to the Company for confirmation of such
entitlement prior to the Executive's actual separation from employment, by
following the claims procedure set forth in Section 15 hereof. The submission
of such a request by the Executive shall not constitute "Cause" for the
Company to terminate the Executive as defined under Section 3(c) hereof. If
the Executive's request for a Good Reason Termination of Employment is denied
under both the request and appeal procedures set forth in paragraphs (b) and
(c) of Section 15 hereof, then the parties shall use their best efforts to
resolve the claim within 90 days after the claim is submitted to arbitration
pursuant to Section 15(d).
6. Termination Prior to Change in Control. If within a period of 180
days prior to the first public announcement of a proposed Change in Control
the Company terminates the employment of the Executive for reasons other than
the Executive's death, Disability, Retirement or Cause, and a Change in
Control event subsequently occurs, unless the Company establishes that the
Executive's termination was not in connection with the Change in Control, the
Executive's termination shall be deemed to have been in connection with the
Change in Control, and the Executive shall be entitled to severance payments
under this Agreement, to be paid in cash within 10 days following the Change
in Control.
7. Severance Payment.
(a) Upon satisfaction of the requirements set forth in Sections 5, 6
and 11(a) hereof and with respect to any one or more Changes in Control that
may occur during the term of this Agreement, the Executive shall be entitled
to a cash severance benefit equal to not less than 18 months of the terminated
Executive's then annual base salary, plus the unpaid prorated portion of his
annual bonus (but excluding commissions and other nonrecurring cash
compensation payments), to be determined at the discretion of the Board of
Directors.
(b) In addition to the cash payment described in paragraph (a) above,
upon satisfaction of the requirements set forth in Sections 5, 6 and 11(a)
hereof, the Executive shall be entitled to continued participation in the
Company's hospitalization, medical, life insurance and disability insurance
programs until the earlier of the first anniversary of the Executive's
termination of employment or the commencement of comparable coverage from
another corporation or partnership.
(c) The cash value of the severance benefits provided in paragraphs
(a) and (b) above, when aggregated with any other "golden parachute" amounts
(defined under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") as compensation that becomes payable or accelerated due to a
Change in Control) payable under any other plans, agreements or policies of
the Company, shall be reduced to the highest amount permissible under Sections
280G and 4999 of the Code before the Executive becomes subject to the excess
parachute payment excise tax under Section 4999 of the Code and the Company
loses all or part of its compensation deduction for such payments.
8. Time of Payment. Subject to Sections 6 and 11(a) hereof, the
Executive's severance benefit under Section 7(a) shall be paid in a lump sum
cash payment within 10 days following the Executive's Termination of
Employment, as defined in Section 5. Any payment made later than 10 days
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof) for whatever reason, shall include interest
at the prime rate plus two percent, which shall begin accruing on the 10th day
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof). For purposes of this Section 8, "prime
rate" shall be determined by reference to the prime rate established by
Comerica Bank (or its successor), in effect from time to time commencing on
the 10th day following the Executive's Termination of Employment (or
applicable due dates under Sections 6 and 11(a) hereof).
9. No Mitigation or Duty to Seek Reemployment. The Executive shall
be under no duty or obligation to seek or accept other employment after
Termination of Employment and, subject to Section 7(b) hereof, shall not be
required to mitigate the amount of any payments provided for by this Agreement
by seeking employment or otherwise.
10. Tax Withholdings. The Company may withhold from any cash amounts
payable to the Executive under this Agreement to satisfy all applicable
Federal, State, local or other income and employment withholding taxes. In
the event the Company fails to withhold such sums for any reason, or
withholding is required for the non-cash payments provided in Section 7(b)
hereof, the Company may require the Executive to promptly remit to the Company
sufficient cash to satisfy all applicable income and employment withholding
taxes.
11. Binding Effect.
(a) This Agreement shall be binding upon the successors and assigns of
the Company. The Company shall take whatever actions are necessary to ensure
that any successor to its operations (whether by purchase, merger,
consolidation, sale of substantially all assets or otherwise) assumes the
obligations under this Agreement and will cause such successor to evidence the
assumption of such obligations in an agreement satisfactory to the Executive.
Notwithstanding any other provisions in this Agreement, if the Company fails
to obtain an agreement evidencing the assumption of the Company's obligations
by any such successor, the Executive shall be entitled to immediate payment of
the severance compensation provided under Section 7, irrespective of whether
his employment has then terminated. For purposes of implementing the
foregoing, the date on which any succession becomes effective shall be deemed
to constitute the date of the Executive's Termination of Employment.
(b) This Agreement shall be binding upon the Executive and shall inure
to the benefit of and be enforceable by his legal representative and heirs.
However, the rights of the Executive under this Agreement shall not be
assigned, transferred, pledged, hypothecated or otherwise encumbered, except
by operation of law.
12. Amendment of Agreement. This Agreement may not be modified or
amended except by instrument in writing signed by the parties hereto.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall continue in full force and effect.
14. Limitations on Rights.
(a) This Agreement shall not be deemed to create a contract of
employment between the Company and the Executive and shall create no right in
the Executive to continue in the Company's employment for any specific period
of time, or to create any other rights in the Executive or obligations on the
part of the Company, except as set forth herein. This Agreement shall not
restrict the right of the Company to terminate the Executive, or restrict the
right of the Executive to terminate his employment.
(b) This Agreement shall not be construed to exclude the Executive
from participation in any other compensation or benefit programs in which he
is specifically eligible to participate either prior to or following the
execution of this Agreement, or any such programs that generally are available
to other executive personnel of the Company, nor shall it affect the kind and
amount of other compensation to which the Executive is entitled.
(c) The rights of the Executive under this Agreement shall be solely
those of an unsecured general creditor of the Company.
15. Claims Procedure.
(a) The administrator for purposes of this Agreement shall be the
Company ("Administrator"), whose address is Champion Enterprises, Inc., 2701
University Drive, Suite 320, Auburn Hills, MI 48326 and whose telephone number
is (248) 340-9090. The "Named Fiduciary" as defined in Section 402(a)(2) of
ERISA, also shall be the Company. The Company shall have the right to
designate one or more Company employees as the Administrator and the Named
Fiduciary at any time, and to change the address and telephone number of the
same. The Company shall give the Executive written notice of any change in
the Administrator and Named Fiduciary, or in the address or telephone number
of the same.
(b) The Administrator shall make all determinations as to the right of
any person to receive benefits under the Agreement. Any denial by the
Administrator of a claim for benefits by the Executive ("the claimant") shall
be stated in writing by the Administrator and delivered or mailed to the
claimant within 10 days after receipt of the claim, unless special
circumstances require an extension of time for processing the claim. If such
an extension is required, written notice of the extension shall be furnished
to the claimant prior to the termination of the initial 10-day period. In no
event shall such extension exceed a period of 10 days from the end of the
initial period. Any notice of denial shall set forth the specific reasons for
the denial, specific reference to pertinent provisions of this Agreement upon
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect his claim, with an
explanation of why such material or information is necessary, and any
explanation of claim review procedures, written to the best of the
Administrator's ability in a manner that may be understood without legal or
actuarial counsel.
(c) A claimant whose claim for benefits has been wholly or partially
denied by the Administrator may request, within 10 days following the date of
such denial, in a writing addressed to the Administrator, a review of such
denial. The claimant shall be entitled to submit such issues or comments in
writing or otherwise, as he shall consider relevant to a determination of his
claim, and he may include a request for a hearing in person before the
Administrator. Prior to submitting his request, the claimant shall be
entitled to review such documents as the Administrator shall agree are
pertinent to his claim. The claimant may, at all stages of review, be
represented by counsel, legal or otherwise, of his choice. All requests for
review shall be promptly resolved. The Administrator's decision with respect
to any such review shall be set forth in writing and shall be mailed to the
claimant not later than 10 days following receipt by the Administrator of the
claimant's request unless special circumstances, such as the need to hold a
hearing, require an extension of time for processing, in which case the
Administrator's decision shall be so mailed not later than 20 days after
receipt of such request.
(d) A claimant who has followed the procedure in paragraphs (b) and
(c) of this section, but who has not obtained full relief on his claim for
benefits, may, within 60 days following his receipt of the Administrator's
written decision on review, apply in writing to the Administrator for binding
arbitration of his claim before an arbitrator mutually acceptable to both
parties, the arbitration to be held in Detroit, Michigan, in accordance with
the commercial arbitration rules of the American Arbitration Association, as
then in effect. If the parties are unable to mutually agree upon an
arbitrator, then the arbitration proceedings shall be held before three
arbitrators, one of which shall be designated by the Company, one of which
shall be designated by the claimant and the third of which shall be designated
by the first two arbitrators in accordance with the commercial arbitration
rules referenced above. The arbitrator(s) sole authority shall be to
interpret and apply the provisions of this Agreement; the arbitrator(s) shall
not change, add to, or subtract from, any of its provisions. The
arbitrator(s) shall have the power to compel attendance of witnesses at the
hearing. Any court having jurisdiction may enter a judgment based upon such
arbitration. All decisions of the arbitrator(s) shall be final and binding on
the claimant and the Company without appeal to any court. Upon execution of
this Agreement, the Executive shall be deemed to have waived his right to
commence litigation proceedings outside of arbitration without the express
written consent of the Company.
16. Legal Fees and Expenses. In the event any arbitration or
litigation is brought to enforce any provision of this Agreement and the
Executive prevails, then he shall be entitled to recover from the Company his
reasonable costs and expenses of such arbitration or litigation, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings). If the Company prevails, then each party shall be responsible
for its/his respective costs, expenses and attorneys fees, and the costs of
arbitration shall be equally divided. In the event that it is determined that
the Executive is entitled to compensation, legal fees and expenses hereunder,
he also shall be entitled to interest thereon, payable to him at the prime
rate of interest plus two percent. For purposes of this Section 16, "prime
rate" shall be determined by the reference to the prime rate established by
Comerica Bank as in effect from time to time during the period from the date
such amounts should have been paid to the date of actual payment. For
purposes of the determining the date when legal fees and expenses are payable,
such amounts are not due until 30 days after notification to the Company of
such amounts.
17. Nonalienation of Benefits. Except in so far as this provision may
be contrary to applicable law, no sale, transfer, alienation, assignment,
pledge, collateralization or attachment of any benefits under this Agreement
shall be valid or recognized by the Company.
18. ERISA. This Agreement is an unfunded compensation arrangement for
a member of a select group of the Company's management and any exemptions
under ERISA, as applicable to such an arrangement shall be applicable to this
Agreement.
19. Reporting and Disclosure. The Company, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the
Company may deem appropriate.
20. Notices. Any notice required or permitted by this Agreement shall
be in writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at the Company's then principal office,
or to the Executive at the Executive's last address on file with the Company,
as the case may be, or to such other address or addresses as any party hereto
may from time to time specify in writing for the purpose of this Agreement in
a notice given to the other parties in compliance with this Section 20.
Notices shall be deemed given when received.
21. Miscellaneous/Severability. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement
is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. To the
extent that any provision or benefit under this Agreement is not deemed to be
in accordance with any applicable law, ordinance, rule or regulation, the
noncomplying provision shall be construed, or benefit limited, to the extent
necessary to comply with all applicable laws, ordinances and regulations and
any such provision or benefit shall not affect the validity of any other
provision or benefit provided by this Agreement. The headings in this
Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
22. Governing Law. To the extent not preempted by Federal law, this
Agreement shall be governed and construed in accordance with the laws of the
State of Michigan.
23. Entire Agreement. This document represents the entire agreement
and understanding of the parties with respect to the subject matter of the
Agreement and it may not be altered or amended except by an Agreement in
writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman of the Board of
Directors, President and
Chief Financial Officer
By:
Philip C. Surles
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (the "Agreement") is
made and entered into as of the 13th day of June, 1997, by and among CHAMPION
ENTERPRISES INC., a Michigan corporation (the "Company") and Philip C. Surles
("Employee").
W I T N E S S E T H
WHEREAS, the Company has employed Employee as its Chief Operating
Officer and in that connection agreed to grant Employee certain rights to
acquire stock of Company, subject to requirements of confidentiality and
noncompetition; and
WHEREAS, the Company has executed and delivered to Employee for his
acceptance and signature a Stock Option Agreement (the "Option Agreement")
granting Employee certain rights to acquire common stock of the Company; and
WHEREAS, the parties wish to enter into this Agreement at the same time
and in connection with the granting and execution of the Option Agreement; and
WHEREAS, the Company and Employee agree that the business of the Company
would be greatly reduced in value unless Employee is restricted from competing
with the Company, or any affiliate of the Champion (the "Champion Companies")
as provided herein; and
WHEREAS, it is an express condition precedent to the Company's
obligations under the Option Agreement that Employee execute and deliver this
Agreement, and Employee is executing and delivering this Agreement in
satisfaction of such condition.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the parties hereto agree as follows:
1. Nondisclosure. Except with the prior written consent of the Company in
each instance, Employee shall not disclose, use, publish, or in any other
manner reveal, directly or indirectly, at any time during or after the term of
this Agreement, any confidential information relating to the business or
assets of the Company, or any of the Champion Companies. Such confidential
information shall include, but shall not be limited to, information relating
to (i) operations, services, know-how, trade secrets, dealer, distributor and
customer lists, pricing policies, operational methods, market plans, product
development plans, acquisition plans, design and design projects, inventions
and research projects and all other plans of the Company, or any of the
Champion Companies, and (ii) the business, operations, personnel, activities,
financial affairs, and other information relating to the Company or any of the
Champion Companies and their dealers, distributors, customers, suppliers and
employees.
2. Noncompetition Provision. In recognition of the highly competitive
nature of the Company's business, Employee agrees that (i) as long as Employee
is an employee or officer of the Company and (ii) for two years after
Employee's termination of employment with the Company (unless Employee's
employment is terminated by the Company without cause, in which case this
Section 2 shall not apply to competitive action occurring after the
termination of Employee's employment);
(a) Employee will not, directly or indirectly (other than on behalf of
the Company), as owner, partner, joint venturer, employee, broker, agent,
principal, trustee, corporate officer, licensor, consultant or in any capacity
whatsoever, engage in, become financially interested in, or have any
connection with, any business located in the United States engaged in the
production and marketing of manufactured homes and buses (other than on behalf
of the Company). Employee agrees not to supply competing products or provide
competing services to any customer with whom the Company has done any business
during his employment with the Company, whether as an officer, director,
proprietor, employee, partner, or investor (other than as a holder of less
than 1% of the outstanding capital stock of a publicly traded Company),
consultant, advisor, agent or sales representative.
(b) Employee agrees not to directly or indirectly induce employees of
the Company to engage in any activity hereby prohibited to Employee or to
terminate their employment with the Company.
(c) If any one of more of the terms contained in this Section 2 shall
for any reason be held invalid, illegal or unenforceable, such invalidity,
illegality and or unenforceable, such invalidity, illegality and
unenforceability shall not affect any other term therein, but such term shall
be deemed deleted, and such deletion shall not affect the validity of the
other terms of this Section 2 or any other Section of this Agreement, or
Employee's obligations under any other agreements with the Company.
Alternatively, if any one of more of the terms contained in the Section 2
shall for any reason be held to be excessively broad with regard to time,
duration, geographic scope or activity, that therm shall be construed in a
manner to enable it to be enforced to the extent compatible with applicable
law.
(d) Employee acknowledges that the Company's and its subsidiaries' trade
secrets, private or secret processes as they exist from time to time and
information concerning products, research and development data, market studies
and forecasts, editorial redesign information, editorial source identification
and compensation information, technical information, procurement and sales
activities and procedures, promotion and pricing techniques, marketing
arrangements and plans, business plans, the substance of agreements with
customers or other, service and training programs and arrangements, customer
lists and credit and financial data concerning customers (the "Proprietary
Information") are valuable, special and unique assets of the Company and its
subsidiaries, access to and knowledge of which will have been gained by virtue
of Employee's position and involvement with the Company. In light of the
highly competitive nature of the industry in which the Company conducted its
business Employee further agrees that all Proprietary Information obtained by
Employee as a result of such position or involvement shall be considered
confidential. In recognition of this fact, Employee agrees that he will not
disclose any of such Proprietary Information to any person or other entity for
any reason or purpose whatsoever, and Employee will not make use of any
Proprietary Information for Employee's own purposes of for the benefit of any
person or other entity (except the Company) under any circumstances.
(e) Upon Employee's termination of employment with the Company, Employee
will deliver to the Company all records, data and memoranda of every kind and
character of the Company and copies thereof which are in Employee's possession
or control, and which relate to Employee's employment or to the activities of
the Company or its subsidiaries or to any Proprietary Information, including
but not limited to customer lists, editorial sources, drawings, prints,
manuals, notebooks, reports and correspondence, other than employment related
records and documents which Employee is entitled to keep.
(f) Employee acknowledges and agrees that the Company's remedy at law or
through arbitration for a breach of any of the provisions of Section 2 would
be inadequate, and in recognition of this fact, in the event of a breach or
threatened breach by Employee of any provision of Section 2 of this Agreement,
it is agreed that, in addition to any other remedies it may have the Company
shall be entitled to equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available. Further, Employee acknowledges
that the granting of a temporary injunction, or temporary restraining order
would not be an adequate remedy upon breach or threatened breach of Section 2
hereof and consequently agrees upon any such breach or threatened breach that
the Company shall be entitled to the granting of injunctive relief prohibiting
the sale of products and providing of services of the kind sold or provided by
the Company. Nothing herein contained shall be construed as prohibiting the
Company from pursuing any other additional remedies available to it for such
breach.
3. Survivability; Affiliates. The rights of the Company and the Champion
Companies and the obligations of Employee pursuant to Sections 1, 2, and 3
shall survive the expiration of the term of this Agreement.
4. Assignment. The Company and the Champion Companies shall have the right
to assign its rights under this Agreement in connection with any sale or
disposition of all or substantially all of the assets of any of them or any
merger or consolidation of any of them.
5. Disclosure of Proprietary Information. Employee shall promptly disclose
to the Company in such form and manner as the Company may reasonably require
(i) all operations, systems, services, methods, developments, inventions,
improvements and other information or data pertaining to the business or
activities of the Company as are conceived, originated, discovered or
developed by Employee (whether or not copyrighted or patented) during the term
of his employment with the company (whether before or after the Commencement
Date), and (ii) such information and data pertaining the business, operations,
personnel, activities, financial affairs, and other information relating to
the Company and its dealers, distributors, customers, suppliers and employees
as may be reasonably required for the Company to operate its business. It is
understood that such information is proprietary in nature and shall (as
between the Company and executive) be for the exclusive use and benefit of the
Company and shall be and remain the property of the Company. If so requested
by the Company, Employee shall execute and deliver to the Company any
instrument as the Company may reasonably request to effectuate the assignment
of any such proprietary information to the Company.
6. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, forwarded by overnight express (including but not
limited to Federal Express, Airborne or similar service) and receipted for by
the recipient or any agent of the recipient or mailed by registered or
certified United Sates mail, postage prepaid and return receipt requested, or
sent by facsimile transmission, to the following addresses or facsimile
numbers (or to such other address or facsimile number of a party as shall have
been specified to the other party by notice):
(a) if to the Company, or the Champion Companies, to:
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326-2566
Attention: President and Chief Executive Officer
Facsimile No. (248) 340-9395
(b) if to Employee:
Philip C. Surles
________________
________________
________________
7. Miscellaneous. (a) This Agreement constitutes the sole and entire
agreement between the Company and Employee with respect to the matters
referred to herein and shall not be altered, modified or amended except by
written instrument signed by the party against whom such alteration,
modification or amendment is sought to be enforced.
(b) This Agreement shall insure to the benefit of, and be binding upon
(i) the parties hereto and the Champion Companies, (ii) the successors and
assigns of Employee and (iii) the successors and assigns of the Company and
the Champion Companies.
(c) The section headings appearing in the Agreement are for purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, amend or affect its provisions.
(d) It is agreed that a waiver by any party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by that same party.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan (other than conflicts of laws principles).
Any and all actions concerning any dispute arising under this agreement shall
be filed and maintained only in the Oakland County Circuit Court, Pontiac,
Michigan or U.S. District Court for the Eastern District of Michigan (Southern
Division). If any provisions of this Agreement as applied to any part or to
any circumstances shall be adjudged by a court to be invalid or unenforceable,
the same shall in no way affect any other provision of this Agreement, the
application of such provision in any other circumstances or the validity or
enforceability of this Agreement.
Agreed to as of the date above first written.
CHAMPION ENTERPRISES, INC.
Walter R. Young, Jr.
Chairman of the Board, President
and Chief Executive Officer
Employee:
Philip C. Surles
December 15, 1997
Joseph H. Stegmayer
724 Hampton Roads Drive
Knoxville, TN 37922
Dear Joe:
This letter is to confirm our offer to join Champion Enterprises, Inc.
and the major terms of employment.
1) The position is President, Retail Operations and Chief Financial
Officer of Champion Enterprises, Inc. based in Auburn Hills, MI.
You will be reporting directly to me.
2) The base salary is $300,000 annually, paid monthly.
3) Attached is the annual incentive program for fiscal and calendar
1998. You will be guaranteed a minimum $150,000 annual incentive
for 1998 only. As long as you join us before February 1, 1998,
there will be no proration of the 1998 incentive.
4) The equity program is formalized in a separate attached non-qualified
stock option agreement effective on your date of
employment to cover a total of 600,000 shares of Champion
Enterprises stock over the next five years. The general terms of
the equity program will be as follows:
a) 120,000 shares at 40% of market price on date of acceptance
to be purchased within 60 days of employment. There is a two year
restriction from date of exercise on these shares. If you elect
to leave the company during the two year period you will lose the
prorated gain amount remaining. You will have tax consequences of
the difference between purchase and market price. Once you
exercise this portion, you will be eligible for the following:
b) 480,000 shares at market price value on date of acceptance
to be vested and exercisable in equal prorated proportions
(96,000) over five years on the 1st, 2nd, 3rd, 4th and 5th
anniversary date.
As part of this option agreement, there is a change of control provision
that immediately vests the outstanding, unvested options, as well as
confidentiality and noncompete provisions.
5) You will be eligible for the company's normal medical, dental, life
insurance and long term disability benefits at the first of the month
following your start date. In case of your death, Champion's obligation
under this agreement will terminate but any amount owed you under this
agreement or bonus plan plus all vested options at time of your death
will be paid to your estate. There is no defined benefits retirement
program, but we do have a 401(k) tax deferred savings program. You will
be entitled to four weeks vacation per year. We do not pay cash in lieu
of vacations.
6) In order to expedite and assist your family's move before April 1998
from Tennessee to Michigan, we will :
* Employ a relocation management firm to market and sell your
Tennessee home. If required, they will purchase your home if not
sold in 90 days. In either case, normal, real estate fees for
selling your Tennessee home will be paid.
* Pay for normal closing costs for purchasing your home in Michigan.
* Pay for physical moving of all household goods from Tennessee to
Michigan.
* Pay for temporary housing and transportation expenses during the
"converting" period, up to three months.
7) You will be an "at will" employee which means that your employment may
be terminated at any time, by you or Champion, for any reason, with or
without cause. For three years from your acceptance, if the company
terminates your employment for any reason (other than gross malfeasance
or cause), the company will provide 24 months of base salary, incentives
and benefits.
8) You will be given a "change of control" agreement which will provide 24
months base salary and incentives.
9) Your start date should be as close as possible to Monday, January 19,
1998.
This offer is only contingent on completion of a physical examination.
If the terms are acceptable, please sign below and return one copy to me.
Joe, I look forward to working with you and your joining the Champion
team.
Very truly yours,
Walter R. Young, Jr.
\bj
Attachment
Joseph H. Stegmayer
<PAGE>
<PAGE>
President-Retail Operations and Chief Financial Officer,
Champion Enterprises, Inc.
1998 Fiscal Year Incentive Plan
Eligibility
Must hold position at fiscal year end 1998 (January 2, 1999)
The Plan
This position will be paid annually based upon the following attainment:
Measure Attainment Level Incentive (% of Base Pay)
EPS
Minimum $1.51 60%
Level 1 $1.59 90%
Level 2 $1.70 120%
Maximum cash $1.83 150%
Upside +.03 +2.5%
Within the two programs, the incentive payout will increase between the
attainment levels listed. The "upside" award will be in two year restricted
stock.
Definition and Rules
- -Payment will be made after audited year-end results are finalized.
- -Payments from this plan are not eligible for benefit calculations.
- -This Plan supersedes all other previous plans.
Definitions:
Base Pay: Annualized base pay as of January 2, 1999
EPS: Annual, audited and publicly reported. EPS adjusted only for
excluding extraordinary gains or losses.
All attainment measures are based on current operations as of December, 1997.
Any acquisition or divestitures during the year may require appropriate
modifications to these attainment measures.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into this
January 12, 1998, (the "Grant Date"), by and between Champion Enterprises,
Inc., a Michigan corporation ("the Company"), and Joseph Stegmayer (the
"Optionee").
WITNESSETH:
WHEREAS, Optionee is employed as President, Retail Operations and Chief
Financial Officer of the Company; and
WHEREAS, the Company wishes to provide additional incentive to Optionee,
to encourage stock ownership by Optionee, and to encourage Optionee to remain
in the employ of the Company or its subsidiaries; and
WHEREAS, the Company desires that Optionee keep certain information that
Optionee has acquired during Optionee's employment with the Company
confidential, and that Optionee not compete with the Company for at least two
years after Optionee's employment with the Company is terminated.
NOW, THEREFORE, the Company and Optionee hereby agree as follows:
1. Definitions. For the purposes of this Agreement, certain words
and phrases have the following definitions:
a) "Change in Control" means the occurrence of any of the
following events: (1) the acquisition of ownership by a person, firm or
corporation, or a group acting in concert, of fifty-one percent or more of the
outstanding Common Stock of the Company in a single transaction or a series of
related transactions within a one-year period; (2) a sale of all or
substantially all of the assets of the Company to any person, firm or
corporation; or (3) a merger or similar transaction between the Company and
another entity if shareholders of the Company do not own a majority of the
voting stock of the corporation surviving the transaction and a majority in
value of the total outstanding stock of such surviving corporation after the
transaction;
b) "Code" means the Internal Revenue Code of 1986, as amended;
c) "Committee" means the Compensation Committee of the Company;
d) "Common Stock" means the common stock of the Company, par
value $1.00;
e) "Disability" means "disability" as defined under Section
22(e) of the Code;
f) "Employment" (whether or not capitalized) means employment
with the Company or any Parent or Subsidiary of the Company;
g) "Good Cause" means Optionee's willful gross misconduct,
willful and material breach of his duties or an act of fraud or dishonesty by
the Optionee that directly or indirectly results in harm to the Company;
h) "Parent" means any "parent corporation" as defined in
Section 424(e) of the Code;
i) "Subsidiary" means any "subsidiary corporation" as defined
in Section 424(f) of the Code.
2. First Part. The Company grants Optionee the right and option to
purchase from the Company 120,000 shares of the Company's Common Stock at a
price equal to 40% of the closing price of the Company's Common Stock on the
New York Stock Exchange on January 12, 1998, as reported in "The Wall Street
Journal" (the "First Part"). The First Part must be exercised in its entirety
within 60 days of the Grant Date. This grant of the First Part is conditioned
upon the agreement by Optionee not to sell or otherwise transfer the shares
acquired under this First Part until at least two (2) years from the date of
exercise. In addition, if prior to the second anniversary of the Grant Date,
Optionee terminates his employment with the Company or the Company terminates
the Optionee's employment for Good Cause, Optionee shall retain only the
following shares:
Date Employment Terminated Shares Retained
Prior to 6 months from Grant Date 0
Prior to 12 months from Grant Date 30,000
Prior to 18 months from Grant Date 60,000
Prior to 24 months from Grant Date 90,000
24 months or more after the Grant Date 120,000
Shares not retained by Optionee above shall be forfeited and returned to the
Company in exchange for the exercise price paid by Optionee for the forfeited
shares.
3. Second Part. If Optionee exercises the First Part within 60 days from
the Grant Date, the Company grants Optionee the right and option to purchase
from the Company 480,000 shares of the Company's Common Stock at a price equal
to 100% of the closing price of the Company's Common Stock on the New York
Stock Exchange on January 12, 1998, as reported in "The Wall Street Journal"
(the "Second Part"). The Options granted under this Second Part shall not be
immediately exercisable, but shall be exercisable according to the following
schedule:
Number of Option Shares Date Exercisable
96,000 1st anniversary of Grant Date
96,000 2nd anniversary of Grant Date
96,000 3rd anniversary of Grant Date
96,000 4th anniversary of Grant Date
96,000 5th anniversary of Grant Date
In addition, if prior to the fifth anniversary of the Grant Date, the Company
terminates the Optionee's employment for any reason other than Good Cause,
one-half of the Options granted under this Second Part which as of the date of
termination are not exercisable shall then be and become immediately
exercisable. This grant of the Second Part is conditioned upon the agreement
by Optionee not to sell or otherwise transfer the shares acquired under this
Second Part until at least six (6) months from the date of exercise. No
portion of this Second Part shall be exercisable after the tenth anniversary
of the Grant Date. The Second Part may be exercised in installments.
Notwithstanding anything to the contrary contained in this Section 3, if the
Optionee exercises the First Part within 60 days of the Grant Date, the Second
Part shall be immediately exercisable in full upon any Change in Control.
4. Termination of Employment.
a) Before Exercise of the First Part. If Optionee's employment with
the Company shall terminate for any reason prior to Optionee's exercise in
full of the First Part, Optionee's right to exercise any option under this
Agreement shall terminate and all exercise rights hereunder shall immediately
cease.
b) Death or Disability. If, on or after the first anniversary of the
Grant Date (the first date that any portion of the Second Part becomes
exercisable), Optionee shall die or become Disabled, Optionee (or the executor
or administrator of the estate of Optionee, or the person or persons to whom
the option shall have been transferred by will or by the laws of descent and
distribution, or the legal guardian of Optionee, or the individual designated
in Optionee's durable power of attorney in the event of Disability) shall have
the right, within one year from the date of Optionee's death or Disability, to
exercise the Second Part to the extent that it is exercisable and unexercised
on the date of Optionee's death or Disability. This one-year period may be
extended at the discretion of the Committee, but not beyond the tenth
anniversary of the Grant Date.
c) Other Termination. If, on or after the Optionee's exercise of the
first part, Optionee's employment shall be terminated for any reason other
than death or Disability, Optionee shall have the right, within three months
after such termination of employment, to exercise the Second Part to the
extent that it is exercisable and unexercised on the date of such termination
of employment. This three-month period may be extended at the discretion of
the Committee, but not beyond the tenth anniversary of the Grant Date.
d) Events Not Constituting a Termination. A change of job title, a
leave of absence with the written consent of the Company, or a transfer of
Optionee from one corporation to another among the Company, its Parent, or any
of its Subsidiaries shall not be deemed a termination of employment for
purposes of this Agreement.
5. Exercise of Option. Optionee may exercise any exercisable option
granted pursuant to this Agreement by completing the following steps.
(a) Written Notice. Delivery to the Company of a written notice
signed by the Optionee: (1) for the First Part, in the form attached as
Exhibit A; or (2) for the Second Part, in the form attached as Exhibit B. In
addition, at the request of the Company, Optionee may be required to provide a
written representation that Optionee is acquiring the shares for investment
purposes only, and not for resale.
(b) Purchase Price. Delivery to the Company of cash, a personal
check, bank draft, money order, or Common Stock (or any combination thereof)
equal to the purchase price of the shares then to be purchased. Any Common
Stock tendered shall be valued at the closing price of the Company's Common
Stock on the first business day prior to the exercise date, as reported in
"The Wall Street Journal." After receipt of the above and subject to Section
8 below, the company shall issue the shares in the name of Optionee.
6. Confidentiality and Non-Competition. As consideration for the
options granted by this Agreement, Optionee hereby agrees as follows:
a) Confidentiality Agreement. Except with the prior written
consent of the Company, Optionee shall not at any time during or after the
term of this Agreement: (a) disclose, publish, or in any other manner reveal
to any third party any Confidential Information (as defined below) relating to
the business or assets of the Company or its Subsidiaries; or (b) make use of
any Confidential Information (as hereinafter defined) for the Optionee's own
purposes, or for the benefit of any person or entity other than the Company
and its Subsidiaries.
b) Confidential Information Defined. "Confidential
Information" shall mean any and all nonpublic information and documentation
relating to the Company and its Subsidiaries, including but not limited to
information relating to the operations, services, trade secrets, dealer,
distributor and customer lists, promotion and pricing practices, operational
methods, market plans, studies, and forecasts, product development plans,
acquisition plans, design and design projects, inventions and research
projects, compensation information, procurement and sales activities and
procedures, the existence or substance of any agreements between Company (or
any Subsidiary) and any third party, and any and all other information and
documentation relating to the plans and operations of the Company or its
Subsidiaries.
c) Non-Competition. Because of the highly competitive nature
of the Company's business, Optionee agrees that as long as Optionee is an
employee or officer of the Company, and for two years following Optionee's
termination of employment with the Company:
(1) Optionee will not, directly or indirectly (other than on
behalf of the Company), as owner, partner, joint venturer, employee, broker,
agent, principal, trustee, corporate officer, licensor, consultant, or in any
capacity whatsoever, engage in, become financially interested in, or have any
connection with, any business located in the United States or Canada engaged
in the production, sales, or marketing of manufactured homes;
(2) Optionee will not to supply any competing products or
provide any competing services to any customer with whom the Company or its
Subsidiaries have done any business during his employment with the Company;
and
(3) Optionee will not, directly or indirectly, induce any
employee of the Company or its affiliates to engage in any activity hereby
prohibited to the Optionee by this Agreement, or to terminate their employment
with the Company or its affiliates.
If any one of more of the terms contained in this Section or in this Agreement
shall for any reason be held to be excessively broad with regard to time,
duration, geographic scope, or activity, that term shall be construed in a
manner to enable it to be enforced to the maximum extent compatible with
applicable law.
d) Disclosure of Proprietary Information. Optionee shall
promptly disclose to the Company, in such form and manner as the Company may
reasonably require, all operations, systems, services, methods, developments,
inventions, improvements and other information or data pertaining to the
business or activities of the Company as are conceived, originated, discovered
or developed by Optionee (whether or not copyrighted or patented) during the
term of his employment with the Company, whether before or after the execution
of this Agreement. It is understood that such information is proprietary in
nature and shall be, as between the Company and Optionee, for the exclusive
use and benefit of the Company and shall be and remain the property of the
Company. If so requested by the Company, Optionee shall execute and deliver
to the Company any instrument as the Company may reasonably request to
effectuate the assignment of any such proprietary information to the Company.
e) Termination of Employment. Upon the termination of
Optionee's employment with the Company, Optionee shall deliver to the Company
all records, data and memoranda of every kind and character relating to the
Company and its affiliates, including all copies thereof, which are in
Optionee's possession or control.
f) Remedies for Breach. Optionee acknowledges and agrees that
the Company's remedies at law for any breach of the agreements contained in
this Section 6 would be inadequate. Optionee therefore agrees that in the
event of Optionee's breach of the agreements contained in this Section 6, the
Company shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent
injunction, or any other equitable remedy or relief which may then be
available. Nothing in this Section shall be construed as prohibiting the
Company from pursuing any other remedies available to it for any such breach,
whether in law, equity, or otherwise.
7. No Right to Continued Employment. This Agreement does not give
the Optionee any right to be retained or to continued employment with the
Company or any Subsidiary of the Company.
8. Compliance with Securities Laws. Company's obligations under this
Agreement are subject to compliance with federal and state laws, rules and
regulations applying to the authorization, issuance or sale of securities, and
any applicable stock exchange requirements, and Company may require Optionee
to provide proof of compliance with those laws, rules, and regulations.
9. Investment Intent and Registration. The Optionee represents and
warrants to the Company that he or she is acquiring all shares of Common Stock
under this option for investment purposes only and not with a view to resale.
The Optionee acknowledges and agrees that such shares of Common Stock have not
yet been registered under the Act or the securities laws of any state and may
not be sold, transferred, assigned, offered, pledged or otherwise distributed
unless there is an effective registration statement under the Act and any
applicable securities laws covering such shares or the Company receives an
opinion of counsel from Optionee (and concurred to by counsel for the Company)
stating that such sale, transfer, assignment, offer, pledge or other
distribution is exempt from registration and prospectus delivery requirements
of the Act, any applicable state securities laws, or the listing requirements
of any stock exchange. Optionee further acknowledges and agrees that any
certificate for such shares shall contain an appropriate legend to the
foregoing effect and that a stop transfer order shall be placed with the
Company's transfer agent. The Company represents and warrants that as soon as
practical after the Optionee exercises any of the options granted pursuant to
this Agreement, the Company shall take any and all steps that are necessary or
required in order to register the Common Stock pursuant to the Act.
10. Non-assignability. The options granted by this Agreement shall
not be transferable by Optionee, other than by will or the laws of descent and
distribution. Any transferee of these options by will or the laws of descent
and distribution shall take them subject to the terms and conditions of this
Agreement, and no such transfer shall be effective to bind the Company unless
the Company is furnished with written notice of the transfer and a copy of the
will or any other evidence the Company deems necessary to establish the
validity of the transfer. The term "Optionee", as used in this Agreement,
shall include any person or entity to whom any option is transferred.
11. Withholding of Taxes. Optionee must pay to Company within
fourteen (14) days from the date of any exercise any amounts necessary to
satisfy any requirements for withholding of income or employment taxes in
connection with that exercise.
12. Disputes. As a condition to the granting the options contained in
this Agreement, Optionee and Optionee's successors and assigns agree that any
dispute or disagreement which shall arise under or as a result of this
Agreement shall be determined by the Committee in its sole discretion and
judgment. Any such determination or interpretation by the Committee of the
terms of this Agreement shall be final and shall be binding and conclusive for
all purposes.
13. Notices. Every notice relating to this Agreement shall be in
writing, any notice given by mail shall be by registered or certified mail
with return receipt requested. All notices to the Company shall be delivered
to the following address:
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, MI 48326-9090
Attn: Secretary of the Company
All notices by the Company to Optionee shall be delivered to Optionee
personally, or addressed to Optionee at Optionee's last residence address as
then contained in the records of the Company, or such other address as
Optionee may designate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
President and Chief
Executive Officer
OPTIONEE:
Joseph H. Stegmayer
PAGE
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF FIRST PART
(NONQUALIFIED STOCK OPTION SHARES)
Secretary
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326
Dear Sir:
A stock option was granted to me which permits me to purchase 120,000
shares of Champion Enterprises, Inc. Common Stock at a price of $8.00 per
share. I elect to exercise this part of the option to purchase 120,000
nonqualified stock option shares. A personal check [or cash, bank draft,
money order, or common stock] for the purchase price is enclosed with this
letter.
I acknowledge and agree that the shares of Common Stock that I am
purchasing may not currently be registered under the Securities Act of 1933
(the "Act") or the securities laws of any state. I understand and agree that
if these shares are not currently registered, the Company will register these
shares under the Act as soon as practicable after this exercise.
Notwithstanding the foregoing, I acknowledge and agree that these shares may
not be sold, transferred, assigned, offered, pledged or otherwise distributed
until they are registered under the Act or unless the Company receives an
opinion of counsel from me (and concurred to by counsel for the Company)
stating that such sale, transfer, assignment, offer, pledge or other
distribution is exempt from registration and prospectus delivery requirements
of the Act, any applicable state securities laws, or the listing requirements
of any stock exchange.
In addition, I represent that I will not sell or otherwise transfer any
shares that I purchase pursuant to this letter for a period of two years. I
also understand that if I terminate my employment with the Company or if the
Company terminates my employment for "Good Cause" within two years of the
grant date of this option, a portion of the shares, pro-rated semi-annually,
shall be forfeited and returned to the Company in exchange for the exercise
price relating to those shares.
Joseph H. Stegmayer
Address:
SSN:
Dated:
PAGE
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF SECOND PART
(NONQUALIFIED STOCK OPTION SHARES)
Secretary
Champion Enterprises, Inc.
2701 University Drive
Suite 320
Auburn Hills, Michigan 48326
Dear Sir:
A stock option was granted to me which permits me, upon the exercise of
the first part of the option within 60 days of the grant date, and subject to
a five-year graded vesting schedule, to purchase 480,000 stock option shares
of Champion Enterprises, Inc. Common Stock at a price of $20.00 per share.
I hereby elect to exercise this part of the option to purchase stock
option shares. A personal check [or cash, bank draft, money order, or common
stock] for the purchase price is enclosed with this letter.
I acknowledge and agree that the shares of Common Stock that I am purchasing
may not currently be registered under the Securities Act of 1933 (the "Act")
or the securities laws of any state. I understand and agree that if these
shares are not currently registered, the Company will register these shares
under the Act as soon as practicable after this exercise. Notwithstanding the
foregoing, I acknowledge and agree that these shares may not be sold,
transferred, assigned, offered, pledged or otherwise distributed until they
are registered under the Act or unless the Company receives an opinion of
counsel from me (and concurred to by counsel for the Company) stating that
such sale, transfer, assignment, offer, pledge or other distribution is exempt
from registration and prospectus delivery requirements of the Act, any
applicable state securities laws, or the listing requirements of any stock
exchange.
In addition, I represent that I will not sell or otherwise transfer any shares
that I purchase pursuant to this letter for a period of six months.
Joseph H. Stegmayer
Address:
SSN:
Dated:
CHAMPION ENTERPRISES, INC.
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of January 12, 1998, is between Champion
Enterprises, Inc. (the "Company") and Joseph H. Stegmayer, who is currently
employed by the Company in the position of President, Retail Operations and
Chief Financial Officer (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that it is in the best interests of the
Company and its Shareholders if the Executive is assured that he will receive
appropriate financial protection in the event of a Change in Control (as
defined in Section 4 below), thus ensuring that the Executive will have an
incentive to perform valuable services for the Company and will not be
distracted in the event of an actual or threatened Change in Control; and
WHEREAS, the Company believes that the assurance of appropriate
financial protection to the Executive in the event of a Change in Control will
encourage the Executive to remain in the employ of the Company through the
transition period following a Change in Control, which is the best interests
of the Company and its Shareholders; and
WHEREAS, the Executive is willing to provide dedicated services to the
Company on the condition that he receives adequate assurance that he will
receive appropriate financial protection in the event of a Change in Control;
NOW THEREFORE, in consideration of the premises and mutual covenants,
the parties hereto agree as follows:
1. Operation of Agreement. This Agreement sets forth the severance
compensation that the Company shall pay the Executive if the Executive's
employment with the Company terminates under one of the applicable provisions
set forth herein following a Change in Control.
2. Term of the Agreement. This Agreement shall be effective upon its
execution by both parties and shall terminate upon the first of the following
events to occur: (a) five years from the date hereof if a Change in Control
has not occurred within such five-year period; (b) the termination of the
Executive's employment with the Company prior to a Change in Control except
under the circumstances described in Section 6 hereunder; (c) the expiration
of two years following a Change in Control (or two years following the later
of one or more successive Changes in Control that occur within the two year
period immediately following the initial Change in Control); (d) the
termination of the Executive's employment with the Company following a Change
in Control due to the Executive's death, Disability (as defined in Section
3(a) below) or Retirement (as defined in Section 3(b) below); (e) the
termination of the Executive's employment by the Company for Cause (as defined
in Section 3(c) below) following a Change in Control; or (f) termination of
employment by the Executive for other than Good Reason (as defined in Section
5) following the date of a Change in Control. Unless the Agreement has first
terminated under clauses (a) through (f) hereof, commencing on the fifth
anniversary of the date of this Agreement, and each one-year anniversary
thereafter, this Agreement shall be extended for one additional year, unless
at least 30 days prior to each such anniversary, the Company notifies the
Executive in writing that it will not extend the term of this Agreement.
3. Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Disability" shall mean the Executive's total and permanent
disability which prevents the Executive from performing the duties he was
assigned immediately prior to the Change in Control for a continuous period
exceeding 9 months. The termination of Disability shall be made by a medical
board certified physician mutually acceptable to the Company and the Executive
(or the Executive's legal representative, if one has been appointed), and if
the parties cannot mutually agree to the selection of a physician, then each
party shall select such a physician and the two physicians so selected shall
select a third physician who shall make this determination.
(b) "Retirement" shall mean retirement on or after age 65.
(c) "Cause" shall mean the Executive's willful gross misconduct,
willful and material breach of his duties or an act of fraud or dishonesty by
the Executive that directly or indirectly results in material harm to the
Company.
4. Change in Control. A Change in Control shall be deemed to have
occurred upon the occurrence of any of the following events:
(a) the acquisition of ownership by a person, firm or
corporation, or a group acting in concert, of 51%, or more, of the outstanding
common stock of the Company in a single transaction or a series of related
transactions within a one-year period;
(b) a sale of all or substantially all of the assets of the
Company to any person, firm or corporation through a single transaction or
multiple transactions; or
(c) a merger, consolidation or similar transaction between the
Company and another entity if shareholders of the Company do not own a
majority of the voting stock of the corporation surviving the transaction.
5. Termination of Employment Following a Change in Control. Subject
to Sections 6 and 11(a) hereunder, the Executive shall be entitled to
severance payments under this Agreement only if there has been a Change in
Control and the Executive has incurred a Termination of Employment.
(a) For purposes of this Agreement during the two-year period
following any Change in Control that occurs during the term of this Agreement,
"Termination of Employment" shall be defined as:
(i) The Executive's involuntary termination by the Company for
any reason other than death, Disability, Retirement or Cause; or
(ii) The Executive's termination for "Good Reason," defined as
the occurrence of any of the following events without the Executive's
written consent:
(A) Any reassignment of the Executive to duties inconsistent
with his position, title, duties, responsibilities and status with
the Company immediately prior to the Change in Control, or a
change in the Executive's reporting responsibilities, including a
change in the identity or the corporate position to which the
Executive reports, or a change in title (except for a promotion)
in effect immediately prior to the Change in Control;
(B) Any reduction in the Executive's base salary in effect
immediately prior to the Change in Control, or failure by the
Company to continue any bonus, stock or incentive plans in effect
immediately prior to the Change in Control (without the
implementation of a comparable successor plan which provides the
same benefits), or any removal of the Executive from participation
in such aforementioned plans;
(C) The discontinuance or reduction in benefits to the Executive
of any qualified or non-qualified retirement or welfare plan
maintained by the Company immediately prior to the Change in
Control, or the discontinuance of any fringe benefits or other
perquisites which the Executive received immediately prior to the
Change in Control:
(D) Required business travelling by the Executive on a
significantly more frequent basis and for significantly longer
periods of time than the Executive was required to travel
immediately prior to the Change in Control unless the increase in
required business travelling is on account of the Executive's
promotion;
(E) Any reassignment of the Executive's duties that would
require the Executive to relocate the Executive's primary
residence; or
(F) The Company's breach of any provision in this Agreement.
(b) If the Executive believes that the Executive is entitled to a
Termination of Employment for Good Reason as defined in subparagraph (a)(ii)
above, he may apply in writing to the Company for confirmation of such
entitlement prior to the Executive's actual separation from employment, by
following the claims procedure set forth in Section 15 hereof. The submission
of such a request by the Executive shall not constitute "Cause" for the
Company to terminate the Executive as defined under Section 3(c) hereof. If
the Executive's request for a Good Reason Termination of Employment is denied
under both the request and appeal procedures set forth in paragraphs (b) and
(c) of Section 15 hereof, then the parties shall use their best efforts to
resolve the claim within 90 days after the claim is submitted to arbitration
pursuant to Section 15(d).
6. Termination Prior to Change in Control. If within a period of 180
days prior to the first public announcement of a proposed Change in Control
the Company terminates the employment of the Executive for reasons other than
the Executive's death, Disability, Retirement or Cause, and a Change in
Control event subsequently occurs, unless the Company establishes that the
Executive's termination was not in connection with the Change in Control, the
Executive's termination shall be deemed to have been in connection with the
Change in Control, and the Executive shall be entitled to severance payments
under this Agreement, to be paid in cash within 10 days following the Change
in Control.
7. Severance Payment.
(a) Upon satisfaction of the requirements set forth in Sections 5, 6
and 11(a) hereof and with respect to any one or more Changes in Control that
may occur during the term of this Agreement, the Executive shall be entitled
to a cash severance benefit equal to not less than 18 months of the terminated
Executive's then annual base salary, plus the unpaid prorated portion of his
annual bonus (but excluding commissions and other nonrecurring cash
compensation payments), to be determined at the discretion of the Board of
Directors.
(b) In addition to the cash payment described in paragraph (a) above,
upon satisfaction of the requirements set forth in Sections 5, 6 and 11(a)
hereof, the Executive shall be entitled to continued participation in the
Company's hospitalization, medical, life insurance and disability insurance
programs until the earlier of the first anniversary of the Executive's
termination of employment or the commencement of comparable coverage from
another corporation or partnership.
(c) The cash value of the severance benefits provided in paragraphs
(a) and (b) above, when aggregated with any other "golden parachute" amounts
(defined under Section 280G of the Internal Revenue Code of 1986, as amended
[the "Code"] as compensation that becomes payable or accelerated due to a
Change in Control) payable under any other plans, agreements or policies of
the Company, shall be reduced to the highest amount permissible under Sections
280G and 4999 of the Code before the Executive becomes subject to the excess
parachute payment excise tax under Section 4999 of the Code and the Company
loses all or part of its compensation deduction for such payments.
8. Time of Payment. Subject to Sections 6 and 11(a) hereof, the
Executive's severance benefit under Section 7(a) shall be paid in a lump sum
cash payment within 10 days following the Executive's Termination of
Employment, as defined in Section 5. Any payment made later than 10 days
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof) for whatever reason, shall include interest
at the prime rate plus two percent, which shall begin accruing on the 10th day
following the Executive's Termination of Employment (or applicable due dates
under Sections 6 and 11(a) hereof). For purposes of this Section 8, "prime
rate" shall be determined by reference to the prime rate established by
Comerica Bank (or its successor), in effect from time to time commencing on
the 10th day following the Executive's Termination of Employment (or
applicable due dates under Sections 6 and 11(a) hereof).
9. No Mitigation or Duty to Seek Reemployment. The Executive shall
be under no duty or obligation to seek or accept other employment after
Termination of Employment and, subject to Section 7(b) hereof, shall not be
required to mitigate the amount of any payments provided for by this Agreement
by seeking employment or otherwise.
10. Tax Withholdings. The Company may withhold from any cash amounts
payable to the Executive under this Agreement to satisfy all applicable
Federal, State, local or other income and employment withholding taxes. In
the event the Company fails to withhold such sums for any reason, or
withholding is required for the non-cash payments provided in Section 7(b)
hereof, the Company may require the Executive to promptly remit to the Company
sufficient cash to satisfy all applicable income and employment withholding
taxes.
11. Binding Effect.
(a) This Agreement shall be binding upon the successors and
assigns of the Company. The Company shall take whatever actions are necessary
to ensure that any successor to its operations (whether by purchase, merger,
consolidation, sale of substantially all assets or otherwise) assumes the
obligations under this Agreement and will cause such successor to evidence the
assumption of such obligations in an agreement satisfactory to the Executive.
Notwithstanding any other provisions in this Agreement, if the Company fails
to obtain an agreement evidencing the assumption of the Company's obligations
by any such successor, the Executive shall be entitled to immediate payment of
the severance compensation provided under Section 7, irrespective of whether
his employment has then terminated. For purposes of implementing the
foregoing, the date on which any succession becomes effective shall be deemed
to constitute the date of the Executive's Termination of Employment.
(b) This Agreement shall be binding upon the Executive and shall inure
to the benefit of and be enforceable by his legal representative and heirs.
However, the rights of the Executive under this Agreement shall not be
assigned, transferred, pledged, hypothecated or otherwise encumbered, except
by operation of law.
12. Amendment of Agreement. This Agreement may not be modified or
amended except by instrument in writing signed by the parties hereto.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall continue in full force and effect.
14. Limitations on Rights.
(a) This Agreement shall not be deemed to create a contract of
employment between the Company and the Executive and shall create no right in
the Executive to continue in the Company's employment for any specific period
of time, or to create any other rights in the Executive or obligations on the
part of the Company, except as set forth herein. This Agreement shall not
restrict the right of the Company to terminate the Executive, or restrict the
right of the Executive to terminate his employment.
(b) This Agreement shall not be construed to exclude the
Executive from participation in any other compensation or benefit programs in
which he is specifically eligible to participate either prior to or following
the execution of this Agreement, or any such programs that generally are
available to other executive personnel of the Company, nor shall it affect the
kind and amount of other compensation to which the Executive is entitled.
(c) The rights of the Executive under this Agreement shall be
solely those of an unsecured general creditor of the Company.
15. Claims Procedure.
(a) The administrator for purposes of this Agreement shall be
the Company ("Administrator"), whose address is Champion Enterprises, Inc.,
2701 University Drive, Suite 320, Auburn Hills, MI 48326 and whose telephone
number is (248) 340-9090. The "Named Fiduciary" as defined in Section
402(a)(2) of ERISA, also shall be the Company. The Company shall have the
right to designate one or more Company employees as the Administrator and the
Named Fiduciary at any time, and to change the address and telephone number of
the same. The Company shall give the Executive written notice of any change
in the Administrator and Named Fiduciary, or in the address or telephone
number of the same.
(b) The Administrator shall make all determinations as to the
right of any person to receive benefits under the Agreement. Any denial by
the Administrator of a claim for benefits by the Executive ("the claimant")
shall be stated in writing by the Administrator and delivered or mailed to the
claimant within 10 days after receipt of the claim, unless special
circumstances require an extension of time for processing the claim. If such
an extension is required, written notice of the extension shall be furnished
to the claimant prior to the termination of the initial 10-day period. In no
event shall such extension exceed a period of 10 days from the end of the
initial period. Any notice of denial shall set forth the specific reasons for
the denial, specific reference to pertinent provisions of this Agreement upon
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect his claim, with an
explanation of why such material or information is necessary, and any
explanation of claim review procedures, written to the best of the
Administrator's ability in a manner that may be understood without legal or
actuarial counsel.
(c) A claimant whose claim for benefits has been wholly or
partially denied by the Administrator may request, within 10 days following
the date of such denial, in a writing addressed to the Administrator, a review
of such denial. The claimant shall be entitled to submit such issues or
comments in writing or otherwise, as he shall consider relevant to a
determination of his claim, and he may include a request for a hearing in
person before the Administrator. Prior to submitting his request, the
claimant shall be entitled to review such documents as the Administrator shall
agree are pertinent to his claim. The claimant may, at all stages of review,
be represented by counsel, legal or otherwise, of his choice. All requests
for review shall be promptly resolved. The Administrator's decision with
respect to any such review shall be set forth in writing and shall be mailed
to the claimant not later than 10 days following receipt by the Administrator
of the claimant's request unless special circumstances, such as the need to
hold a hearing, require an extension of time for processing, in which case the
Administrator's decision shall be so mailed not later than 20 days after
receipt of such request.
(d) A claimant who has followed the procedure in paragraphs (b)
and (c) of this section, but who has not obtained full relief on his claim for
benefits, may, within 60 days following his receipt of the Administrator's
written decision on review, apply in writing to the Administrator for binding
arbitration of his claim before an arbitrator mutually acceptable to both
parties, the arbitration to be held in Detroit, Michigan, in accordance with
the commercial arbitration rules of the American Arbitration Association, as
then in effect. If the parties are unable to mutually agree upon an
arbitrator, then the arbitration proceedings shall be held before three
arbitrators, one of which shall be designated by the Company, one of which
shall be designated by the claimant and the third of which shall be designated
by the first two arbitrators in accordance with the commercial arbitration
rules referenced above. The arbitrator(s) sole authority shall be to
interpret and apply the provisions of this Agreement; the arbitrator(s) shall
not change, add to, or subtract from, any of its provisions. The
arbitrator(s) shall have the power to compel attendance of witnesses at the
hearing. Any court having jurisdiction may enter a judgment based upon such
arbitration. All decisions of the arbitrator(s) shall be final and binding on
the claimant and the Company without appeal to any court. Upon execution of
this Agreement, the Executive shall be deemed to have waived his right to
commence litigation proceedings outside of arbitration without the express
written consent of the Company.
16. Legal Fees and Expenses. In the event any arbitration or
litigation is brought to enforce any provision of this Agreement and the
Executive prevails, then he shall be entitled to recover from the Company his
reasonable costs and expenses of such arbitration or litigation, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings). If the Company prevails, then each party shall be responsible
for its/his respective costs, expenses and attorneys fees, and the costs of
arbitration shall be equally divided. In the event that it is determined that
the Executive is entitled to compensation, legal fees and expenses hereunder,
he also shall be entitled to interest thereon, payable to him at the prime
rate of interest plus two percent. For purposes of this Section 16, "prime
rate" shall be determined by the reference to the prime rate established by
Comerica Bank as in effect from time to time during the period from the date
such amounts should have been paid to the date of actual payment. For
purposes of the determining the date when legal fees and expenses are payable,
such amounts are not due until 30 days after notification to the Company of
such amounts.
17. Nonalienation of Benefits. Except in so far as this provision may
be contrary to applicable law, no sale, transfer, alienation, assignment,
pledge, collateralization or attachment of any benefits under this Agreement
shall be valid or recognized by the Company.
18. ERISA. This Agreement is an unfunded compensation arrangement for
a member of a select group of the Company's management and any exemptions
under ERISA, as applicable to such an arrangement shall be applicable to this
Agreement.
19. Reporting and Disclosure. The Company, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the
Company may deem appropriate.
20. Notices. Any notice required or permitted by this Agreement shall
be in writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at the Company's then principal office,
or to the Executive at the Executive's last address on file with the Company,
as the case may be, or to such other address or addresses as any party hereto
may from time to time specify in writing for the purpose of this Agreement in
a notice given to the other parties in compliance with this Section 20.
Notices shall be deemed given when received.
21. Miscellaneous/Severability. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement
is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. To the
extent that any provision or benefit under this Agreement is not deemed to be
in accordance with any applicable law, ordinance, rule or regulation, the
noncomplying provision shall be construed, or benefit limited, to the extent
necessary to comply with all applicable laws, ordinances and regulations and
any such provision or benefit shall not affect the validity of any other
provision or benefit provided by this Agreement. The headings in this
Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
22. Governing Law. To the extent not preempted by Federal law, this
Agreement shall be governed and construed in accordance with the laws of the
State of Michigan.
23. Entire Agreement. This document represents the entire agreement
and understanding of the parties with respect to the subject matter of the
Agreement and it may not be altered or amended except by an Agreement in
writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman of the Board of
Directors, President and
Chief Financial Officer
By:
Joseph H. Stegmayer
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
(in 000's, except per share amounts)
<S> <C> <C> <C> <C>
Fourth Quarter Ended Year Ended
Jan. 3, 1998 Dec. 28, 1996 Jan. 3, 1998 Dec. 28, 1996
Weighted average
shares outstanding 46,673 47,564 47,483 47,515
Effect of dilutive
securities 1,375 1,840 1,392 1,812
------------- ------------- ----------- -------------
Shares for
diluted EPS 48,048 49,404 48,875 49,327
============= ============= =========== =============
Income from
continuing operations $18,930 $178 $70,771 $52,225
============= ============= =========== =============
Per share amounts:
Basic $0.41 $0.00 $1.49 $1.10
============= ============= =========== =============
Diluted $0.39 $0.00 $1.45 $1.06
============= ============= =========== =============
</TABLE>
Name of Subsidiary(s) Names under which
[state of incorporation or organization] business done (b)
Champion Home Builders Co. [Michigan] -
Dutch Housing, Inc. [Michigan] -
Chandeleur Homes, Inc. [Michigan] -
Redman Industries, Inc. [Delaware] -
Redman Homes, Inc. [Delaware] -
Western Homes Corporation [Delaware] Silvercrest Homes
(a) Each subsidiary is wholly-owned by the Registrant, or by the
subsidiary of the Registrant which is its immediate parent and under
which it is listed in the above table.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-93052, 2-93052-99, 33-36511, 33-38470,
33-41957, 33-41959, 33-75244, 33-58973, 333-03439 and 333-14797) and the
Prospectus constituting part of the Registration Statements on Form S-3 (Nos.
33-54192 and 33-82544) of Champion Enterprises, Inc. of our report dated
February 6, 1998 except as to Note 12, which is as of February 23, 1998,
appearing on page F-2 of this Form 10-K.
/s/ Price Waterhouse LLP
Detroit, Michigan
March 27, 1998
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-93052, 2-93052-99, 33-36511, 33-38470, 33-41957, 33-41959,
33-75244, 33-58973, 333-03439 and 333-14797 and the Prospectus constituting
part of the Registration Statements on Form S-3 Nos. 33-54192 and 33-82544) of
Champion Enterprises, Inc. of our report dated May 17, 1996, appearing on Page
F-3 of this Form 10-K, with respect to the consolidated financial statements
of Redman Industries, Inc.
/s/ Ernst & Young LLP
Dallas, Texas
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
AUDITED FINANCIAL STATEMENTS AS OF AND
FOR THE PERIOD ENDED JANUARY 3, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-03-1998
<CASH> 60,280
<SECURITIES> 0
<RECEIVABLES> 50,086
<ALLOWANCES> 512
<INVENTORY> 73,291
<CURRENT-ASSETS> 229,518
<PP&E> 202,749
<DEPRECIATION> 59,230
<TOTAL-ASSETS> 501,250
<CURRENT-LIABILITIES> 183,424
<BONDS> 1,813
0
0
<COMMON> 46,600
<OTHER-SE> 233,816
<TOTAL-LIABILITY-AND-EQUITY> 501,250
<SALES> 1,675,053
<TOTAL-REVENUES> 1,675,053
<CGS> 1,423,595
<TOTAL-COSTS> 1,423,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,198
<INCOME-PRETAX> 117,371
<INCOME-TAX> 46,600
<INCOME-CONTINUING> 70,771
<DISCONTINUED> 4,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,271
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
AUDITED RESTATED FINANCIAL STATEMENTS AS OF AND
FOR THE PERIOD ENDED DECEMBER 28, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 19,357
<SECURITIES> 0
<RECEIVABLES> 66,211
<ALLOWANCES> 517
<INVENTORY> 66,036
<CURRENT-ASSETS> 205,523
<PP&E> 169,770
<DEPRECIATION> 49,776
<TOTAL-ASSETS> 461,222
<CURRENT-LIABILITIES> 184,044
<BONDS> 1,158
0
0
<COMMON> 47,695
<OTHER-SE> 178,939
<TOTAL-LIABILITY-AND-EQUITY> 461,222
<SALES> 1,582,829
<TOTAL-REVENUES> 1,582,829
<CGS> 1,338,800
<TOTAL-COSTS> 1,338,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,174
<INCOME-PRETAX> 91,925
<INCOME-TAX> 39,700
<INCOME-CONTINUING> 52,225
<DISCONTINUED> 1,361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,586
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
AUDITED RESTATED FINANCIAL STATEMENTS AS OF AND
FOR THE PERIOD ENDED DECEMBER 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 12,282
<SECURITIES> 9,934
<RECEIVABLES> 68,973
<ALLOWANCES> 510
<INVENTORY> 56,865
<CURRENT-ASSETS> 179,984
<PP&E> 117,657
<DEPRECIATION> 42,386
<TOTAL-ASSETS> 367,872
<CURRENT-LIABILITIES> 153,551
<BONDS> 1,685
0
0
<COMMON> 31,869
<OTHER-SE> 144,273
<TOTAL-LIABILITY-AND-EQUITY> 367,872
<SALES> 1,355,085
<TOTAL-REVENUES> 1,355,085
<CGS> 1,151,012
<TOTAL-COSTS> 1,151,012
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,668
<INCOME-PRETAX> 91,975
<INCOME-TAX> 37,500
<INCOME-CONTINUING> 54,475
<DISCONTINUED> 1,810
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,285
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.14
</TABLE>
