<PAGE> 1
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 2, 1999 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 4, 1999, based on the last sale price of $19.25 per
share for the Common Stock on the New York Stock Exchange on such date, was
approximately $674,840,782. As of March 4, 1999, the Registrant had 48,591,313
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 27, 1999 III
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Established in 1953, Champion Enterprises, Inc. and its subsidiaries
(collectively, the Registrant, Champion or the Company) operate in the
manufactured housing industry. Champion has been principally a producer of
manufactured homes, with 58 manufacturing plants throughout the United States
and 2 plants in western Canada as of January 2, 1999. During 1998, Champion
significantly expanded its manufactured housing retail operations through
acquisitions and openings of new sales centers. As of January 2, 1999, the
Company operated 246 retail sales centers, up from 22 at the beginning of the
year. 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 prior four years. At January 2, 1999 the Registrant had
approximately 14,000 employees.
The Registrant led the U.S. manufactured housing industry in wholesale
sales revenues for the last three years and led the industry in the number of
wholesale homes sold in 1998, based on data obtained from industry members'
filings with the Securities and Exchange Commission (SEC), and data from an
annual survey by Manufactured Home Merchandiser (MHM), an industry trade
publication.
During the past five years the Registrant significantly expanded its
manufactured housing production operations through acquisitions, internal growth
and, in 1996, its merger with Redman Industries, Inc.(Redman), a publicly held
company. As a result of this growth, Champion's manufactured housing wholesale
revenues have increased from $266 million in 1993 (excluding Redman sales) to
almost $1.9 billion in 1998.
The Registrant acquired eight manufactured housing companies since 1994
including: 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; Grand Manor, Inc. in
Georgia and Homes of Legend, Inc. in Alabama in 1996; Fleming County Industries,
Inc. in Kentucky in 1998; and Homes of Merit, Inc. in Florida in January 1999.
In addition, during the past three years the Company opened 15 new production
facilities, including four new plants in 1998. As of February 10, 1999 the
Company had 65 home building facilities in 18 states and western Canada,
including six Homes of Merit plants, but excluding a New York facility that was
destroyed by fire in January 1999 and which is expected to be rebuilt later this
year.
At the end of 1997 the Registrant operated 22 manufactured housing retail
sales centers primarily in the northwestern U.S. During 1998 and January 1999
the Company significantly expanded its retail operations by completing the
acquisitions of 15 retail organizations which operated 172 sales centers. Among
those acquired were Southern Showcase Housing, Inc. and Accent Homes, Inc., both
headquartered in North Carolina; Advantage Homes, Inc. in California; Iseman
Homes, Inc. headquartered in South Dakota; Manufactured Home Buyers Group in
Texas; Homes America Group headquartered in Nevada; Manufactured Housing of
Louisiana; A-1 Homes in Texas; Tom Terry Enterprises, Inc. in Nevada; Oklahoma
Lifestyle; Trading Post Mobile Homes, Inc. in Kentucky; and Heartland Homes
Group in Texas, which was acquired in January 1999. During 1998 and through
February 10, 1999, 70 sales centers were added through internal expansions,
bringing the total company-operated retail sales
<PAGE> 3
centers to 264 in 28 states. As a result, Champion is now the third largest
retailer of manufactured housing in the U.S. based on the number of retail
locations reported by industry members in SEC filings or press releases.
The Registrant's long-term goal is for a minimum 15% compound annual growth
in earnings per share. The Registrant's retail strategy is to continue to expand
retail operations with a goal of exceeding $1 billion in retail sales by the
year 2000. These goals are based on growth in the manufactured housing industry
from 1991 to 1998 as reported in data 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. These goals are 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
these goals.
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 1998 were HUD code homes. The remaining 3% of homes
produced were manufactured in Canada or were "modular homes". Homes produced in
Canada are constructed in accordance with applicable Canadian building
standards. Modular homes are designed to meet local building codes.
The Registrant produces a broad range of single-section and multi-section
homes under various trade names and brand names and in a variety of floor plans
and price ranges. 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. In 1998 the
Registrant sold 70,359 homes of which 63% were multi-section, up from 58% in
1997. According to NCSBCS data, the industry's U.S. multi-section mix was 61% in
1998, compared to 58% in 1997.
During 1998 the Registrant's average wholesale home price was $27,000, 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 $150,000,
depending upon size, floor plan, features and options. During 1998 the
Registrant's average retail new home selling price was $45,100.
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, kitchen appliances, 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, insulation, and
drywall 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
<PAGE> 4
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
coverings, window treatments, 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 on a foundation 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 1997
data reported by the U.S. Department of Commerce, manufactured housing costs
approximately $28.94 per square foot, compared to $61.47 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. Retailers place orders for retail stocking (inventory) purposes or for
customer specified orders. Before scheduling homes for production, orders and
availability of financing are confirmed with the retailer and floor plan lender.
Orders are generally filled within 90 days of receipt, depending upon the level
of unfilled orders and requested delivery dates. As of the end of December 1998,
unfilled orders for housing totaled an estimated $73 million, excluding Homes of
Merit, compared to $42 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 the manufacturing plants do not carry finished goods
inventories except for homes awaiting delivery. Typically a 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 stores
for a manufacturer's homes are located within a 250 to 500 mile radius of its
manufacturing plants.
Independent Retailers
During 1998, 89% 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
<PAGE> 5
may sell manufactured homes produced by other manufacturers in addition to those
produced by the Registrant. In 1998, no single independent retailer or
distributor accounted for more than 10% of the Registrant's manufacturing sales.
The majority of independent retailer home purchases are financed by lending
institutions on a floor plan basis secured by a lien on such homes. The
manufacturing facilities generally receive payment from the lending institutions
7 to 15 days after homes are sold to independent retailers. In accordance with
trade practice, 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. During the second half of
1998 the Registrant commenced its "Alliance of Champions" marketing program for
selected Champion independent retailers with a record of success and a
commitment to grow. The Alliance program was introduced to help assure the
continued growth of well managed, independent retailers of the Registrant's
homes. The program assures supply of a broad range of quality products from
Champion's family of home producers and provides training in sales, management
and home installation. Additional benefits available to Alliance members are
access to wholesale and retail finance packages from third-party lenders and
availability of enhanced marketing programs. As of March 9, 1999, over 600
independent retail locations had joined the Alliance program.
Company-Operated Retail Sales Centers
As a result of the acquisition of 15 retail organizations in 1998 and
January 1999, as well as internal expansions, the Company had 264 retail
locations in 28 states as of February 10, 1999, compared to 22 sales locations
at January 3, 1998. The Company's retail sales in 1998 totaled $562 million,
compared to $61 million in 1997. Purchases by company-operated retailers
accounted for 11% of the wholesale home shipments made by the Registrant's
manufacturing operations in 1998. Of the total new homes sold by
company-operated retailers in 1998, 49% were Champion produced.
The Company's retail operations are primarily conducted through 13 core
retail organizations. Some of the retailers acquired in 1998 sold primarily
homes produced by Champion. Other acquired companies sold primarily or
exclusively non-Champion homes. Each of the Registrant's owned retail companies
does business autonomously under its own name and carries and sells homes based
on availability from suppliers and marketability for their local area. The
Registrant encourages its owned retail companies to source appropriate home
models on a competitive basis from a variety of manufacturers, including the
Registrant and others.
During 1998 an independent supplier discontinued home sales to some
retailers acquired by Champion. As a result, these acquired retailers found
other manufacturers, primarily the Registrant, to supply comparable products
with similar price, delivery and service terms. Purchases from this supplier in
1998 subsequent to the respective acquisition dates totaled approximately $180
million.
Each retail sales center operated by the Registrant has a sales office,
most of which are manufactured homes, and 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
<PAGE> 6
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 on a main road or
highway for high visibility. Model homes may be displayed in a residential
setting with sidewalks and landscaping. Each sales center usually employs a
manager and three or four commissioned salespersons. 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 is to continue to expand retail operations
with a goal of exceeding $1 billion in retail sales by the year 2000. Related
goals are to improve the retail buying experience for the home buyer, and to
enhance profits through better merchandising techniques and improved
efficiencies including purchasing synergies, 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
23% of all single-family housing starts and 30% of all new single-family homes
sold in 1998. Industry wholesale shipments of manufactured housing increased
5.5% in 1998 to 372,843 homes, according to data reported by NCSBCS. The
Registrant believes that industry retail home sales were flat from 1997 levels
based on data reported by Statistical Surveys, Inc.
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 single
persons and married couples, as well as elderly or retired persons. These
consumers are attracted by the comparatively low cost of fully or partially
furnished housing, together with the low down payment requirements and the
relative ease of financing. Persons in rural areas, where fewer housing
alternatives exist, and those who presently live in manufactured homes make up
<PAGE> 7
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 fewer
restrictions on locations.
Competition
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, depth of
field inventory, promotion, merchandising and the terms of retailer and retail
customer financing.
According to NCSBCS, in 1998 there were approximately 89 producers of
manufactured homes operating an estimated 320 production facilities in the U.S.
This total compares to 323 plants a year ago and 216 plants in 1991. In 1998 the
top four companies had combined market share of approximately 54%, according to
data from a survey by MHM. Capital requirements for entry into the manufactured
housing industry are relatively low. Based on industry data reported by NCSBCS,
in 1998 the Registrant's U.S. wholesale market share of HUD code homes sold was
18.3%, up from 17.7% in 1997.
On the retail side, there are an estimated 7,500 retail locations
throughout the U.S. The Registrant sells its homes through approximately 3,500
independent retail locations as well as through its owned retail organizations,
which totaled 264 sales centers at February 10, 1999.
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, could be construed to be 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 (wholesale and
retail) may be affected by: (1) the relative cost of manufactured housing
<PAGE> 8
versus other forms of housing; (2) general economic trends, including inflation
and unemployment rates, consumer confidence, job growth and interest rates; (3)
changes in demographics, including new household formations and the number of
Americans on fixed income; (4) the availability and cost of financing for
manufactured homes; (5) changes in government regulations and policies,
including HUD regulations, local building codes and zoning regulations; and (6)
changes in regional markets and the U.S. economy as a whole. Short-term sales
could be affected by inclement weather and inventory levels of manufactured
housing retailers. Fluctuations in interest rates may affect the demand for
manufactured housing to the extent that those changes reduce job growth, slow
the U.S. economy, or cause a loss in consumer confidence.
The profitability of the Registrant may also be affected by: (1) its
ability to efficiently expand operations and to utilize production capacity; (2)
its ability to pass increased raw material costs, particularly lumber costs, on
to its customers; (3) market share position; (4) growth in the manufactured
housing industry as a whole; (5) the results of its acquisitions; and (6) the
strength of retail distribution.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages, and the position or
office held by each, are as follows:
Name Age Position or Office
Walter R. Young 54 Chairman of the Board of Directors,
President and Chief Executive Officer
Joseph H. Stegmayer 48 Executive Vice President, Chief
Strategic and Financial Officer
Philip C. Surles 57 Chief Operating Officer
M. Mark Cole 37 President, Retail Operations
John J. Collins, Jr. 47 Vice President, General Counsel
and Secretary
Richard P. Hevelhorst 51 Vice President and Controller
Carmel E. Thomas 39 Treasurer
The executive officers serve at the pleasure of the Registrant's Board of
Directors except for Mr. Young, who is currently serving a three-year term
ending April 30, 2002, 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.
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.
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.
Mr. Cole joined the Company in January 1998 upon the acquisition of
Southern Showcase Housing, Inc., a manufactured housing retailer, where he was
<PAGE> 9
President for eight years. He was promoted Champion's President, Retail
Operations in September 1998.
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 1998,
and was the Resident Director of one of its offices.
In May 1995 Mr. Hevelhorst joined the Company as Controller and was
promoted to the position of Vice President and Controller in February 1999.
Previously, he served as Treasurer and Chief Financial Officer of Evans
Industries, Inc., a privately held manufacturer, where he was employed for five
years.
Ms. Thomas joined the Company in July 1998. For the previous five years
she was Director of Finance/Assistant Treasurer of Difco Laboratories, Inc., a
manufacturer of microbiology reagents.
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 2, 1999
with respect to the Registrant's home building facilities, all of which are
assembly-line operations.
Approximate
Location 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 142,000
Idaho Weiser (2 plants) 289,000
Indiana LaGrange (4 plants) 326,000
Ridgeville 105,000
Topeka (4 plants) 388,000
Kentucky Flemingsburg 60,000
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 (3 plants) 348,000
<PAGE> 10
Maxton 132,000
Pembroke 140,000
Sanford (2 plants) 226,000
Oregon Silverton 128,000
Woodburn 110,000
Pennsylvania Claysburg 140,000
Ephrata 131,000
Tennessee Henry 125,000
Texas Athens (2 plants) 290,000
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.
***Destroyed by fire in January 1999. Replacement facility of
approximately 140,000 square feet expected to be constructed in 1999.
As of February 10, 1999 the Registrant operated 264 retail sales centers in
28 states, most of which were leased under terms that range from monthly to five
years. Aggregate lease payments for these facilities total approximately $10
million annually. The Company's retail locations generally range in size from
one and one-half acre to four acres, although some locations are up to ten
acres.
The following table sets forth the number of company-operated retail
locations by state as of February 10, 1999.
Number of Number of
Retail Retail
State Locations State Locations
Arizona 6 Nevada 11
California 5 New Mexico 2
Colorado 2 North Carolina 32
Florida 1 North Dakota 1
Georgia 3 Oklahoma 7
Idaho 12 Oregon 12
Indiana 4 South Carolina 21
Iowa 2 South Dakota 4
Kansas 4 Tennessee 4
Kentucky 13 Texas 72
Louisiana 6 Utah 9
Mississippi 4 Virginia 7
Missouri 1 Washington 12
Nebraska 2 Wyoming 5
The Registrant leases its executive offices, which are located in Auburn
Hills, Michigan, with lease payments averaging approximately $450,000 annually
through 2007. Other miscellaneous properties are also owned or leased, including
the offices for nine of the Registrant's core retail organizations' corporate
headquarters.
<PAGE> 11
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 1998.
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
1998
1st Quarter $29 3/8 $18 7/16
2nd Quarter 30 24 7/16
3rd Quarter 29 3/4 21 5/8
4th Quarter 27 3/8 17 1/2
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
(b) There were approximately 6,000 shareholders of record and 19,000
beneficial holders on March 4, 1999.
(c) The Registrant has not paid cash dividends during the past three 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.
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
Seven-year highlights (unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts and other statistical information)
1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net sales
<S> <C> <C> <C> <C> <C> <C> <C>
Manufacturing $1,898,596 $1,652,229 $1,572,427 $1,346,685 $1,088,381 $ 729,842 $593,151
Retail 561,659 60,624 33,202 27,200 34,702 30,661 27,241
Less intercompany (206,000) (37,800) (22,800) (18,800) (22,600) (20,900) (18,800)
- ------------------------------------------------------------------------------------------------------------------------
Net sales 2,254,255 1,675,053 1,582,829 1,355,085 1,100,483 739,603 601,592
Cost of sales 1,852,676 1,423,595 1,338,800 1,151,012 942,259 636,159 522,972
- ------------------------------------------------------------------------------------------------------------------------
Gross margin 401,579 251,458 244,029 204,073 158,224 103,444 78,620
Selling, general and
administrative expenses 231,295 135,028 130,629 112,396 89,289 74,732 62,617
Nonrecurring merger and
other charges -- -- 22,000 -- 2,700 572 1,308
- ------------------------------------------------------------------------------------------------------------------------
Operating income 170,284 116,430 91,400 91,677 66,235 28,140 14,695
- ------------------------------------------------------------------------------------------------------------------------
Net interest income
(expense) (13,486) 941 525 298 673 (1,770) (4,985)
- -----------------------------------------------------------------------------------------------------------------------
Pretax income-continuing
operations 156,798 117,371 91,925 91,975 66,908 26,370 9,710
- ------------------------------------------------------------------------------------------------------------------------
Income-continuing operations 94,198 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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $ 94,198 $ 75,271 $ 53,586 $ 56,285 $ 47,038 $ 12,967 $ 3,710
=============================================================================================================================
Basic earnings per share
Income-continuing
operations $ 1.97 $ 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 $ 1.97 $ 1.59 $ 1.13 $ 1.18 $ 0.99 $ 0.31 $ 0.10
=============================================================================================================================
Diluted earnings per share
Income-continuing
operations $ 1.91 $ 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 $ 1.91 $ 1.54 $ 1.09 $ 1.14 $ 0.96 $ 0.30 $ 0.10
==============================================================================================================================
Basic weighted shares
outstanding 47,780 47,483 47,515 47,886 47,601 42,182 37,080
Diluted weighted shares
outstanding 49,284 48,875 49,327 49,389 48,900 42,954 37,820
Depreciation and
amortization $ 26,911 $ 17,091 $ 14,463 $ 11,294 $ 8,088 $ 6,363 $ 6,749
Capital expenditures $ 49,120 $ 38,266 $ 50,094 $ 19,854 $ 18,762 $ 10,601 $ 4,840
FINANCIAL POSITION
Net property, plant
and equipment $ 190,963 $ 143,519 $ 119,994 $ 75,271 $ 59,783 $ 44,578 $ 41,480
Total assets 1,021,672 501,250 461,222 367,872 290,090 204,490 177,349
Long-term debt 121,629 1,813 1,158 1,685 2,536 3,440 42,018
Shareholders' equity 405,246 280,416 226,634 176,142 133,266 81,741 22,316
Per share $ 8.40 $ 6.02 $ 4.75 $ 3.73 $ 2.79 $ 1.76 $ 0.60
Return on average equity 27% 30% 27% 36% 44% 25% 19%
</TABLE>
<PAGE> 14
OTHER STATISTICAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Number of employees
at year end 14,000 11,300 10,700 8,700 7,600 6,200 5,200
Homes sold
Wholesale 70,359 64,285 61,796 53,955 44,453 32,607 29,249
Retail-new 11,738 983 541 477 644 637 580
Retail-used 2,867 87 28 36 51 62 74
Wholesale multi-section mix 63% 58% 56% 54% 54% 51% 46%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1996 merger with Redman Industries, Inc. required all prior years to be
restated to include Redman's results. See accompanying Notes to Consolidated
Financial Statements for information regarding the merger with Redman,
discontinued operations and earnings per share calculations.
Certain amounts have been reclassified to conform to current period
presentation.
*Includes nonrecurring merger and other charges of $0.35 in basic earnings per
share and $0.34 in diluted earnings per share.
<PAGE> 15
Item 7. Manaqement's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations 1998 Versus 1997
Overview
Champion Enterprises, Inc. ("Champion" or "Company") is the leading producer and
third largest retailer of manufactured housing in the U.S. In 1998 Champion led
the U.S. manufactured housing industry in wholesale revenues and wholesale
shipments of homes. As of February 10, 1999, the Company had 65 home building
facilities in 18 states and western Canada and operated 264 retail sales centers
in 28 states.
Champion reported record sales, income and earnings per share in 1998. Operating
income from continuing operations rose 46% to $170 million and net sales rose
35% to approximately $2.3 billion, both historic highs. Income from continuing
operations reached $94 million, or $1.91 per share, up 32% compared to $71
million, or $1.45 per share in 1997. Net income per share for 1998 of $1.91 was
24% higher than $1.54 in 1997, which included $0.09 per share of income from
discontinued operations. Growth in 1998 was driven by higher manufacturing
volume and the results of the Company's 1998 retail acquisitions.
During 1998 Champion continued implementing its retail strategy, started in the
second half of 1997, of acquiring key manufactured housing retailers and rapidly
expanding their operations with a goal of at least $1 billion in annual retail
sales by the year 2000. Related goals are to improve the retail buying
experience for the home buyer and to enhance profits through better
merchandising techniques, improved efficiencies, control of costs and improved
home installation to reduce service costs.
During 1998 Champion completed 15 retail acquisitions, including Heartland Homes
Group, with nine sales centers in Texas, which was acquired on January 5, 1999.
These acquired businesses operated a total of 172 sales centers. On January 4,
1999 Champion completed the acquisition of Homes of Merit, Inc., Florida's
largest producer of manufactured homes, with six manufacturing facilities. The
financial results of Homes of Merit and Heartland Homes are not included in
Champion's 1998 financial statements or in this discussion.
In February 1998 the Company completed its sale of the assets and business of
Champion Motor Coach, Inc., its commercial vehicles business which manufactured
mid-size buses. As a result, the commercial vehicles business is classified and
discussed as discontinued operations for all periods reported in this Annual
Report.
All earnings per share amounts referred to in this discussion are based on
diluted earnings per share calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Fiscal years 1998 and 1996
were each comprised of 52 weeks while 1997 was comprised of 53 weeks.
<TABLE>
<CAPTION>
Consolidated
(In millions)
1998 1997 % Change
<S> <C> <C> <C>
Net sales
Manufacturing $1,898 $1,652 15%
Retail 562 61
Less: intercompany (206) (38)
Total net sales $2,254 $1,675 35%
Gross margin $ 401 $ 251 60%
SG&A 231 135 71%
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Operating income $ 170 $ 116 46%
As a percent of sales
Gross margin 17.8% 15.0%
SG&A 10.3% 8.1%
Operating income 7.6% 7.0%
</TABLE>
Gross margins in 1998 benefited from higher wholesale volume, expanded retail
operations, and the effects on margins of Champion owned retailers selling
Champion produced homes. Selling, general and administrative expenses ("SG&A")
increased due primarily to expanded retail operations. Margins in 1997 were
unfavorably impacted by the restructuring of the product line at Redman's
Indiana facilities, as well as low levels of unfilled orders in the first half
of the year which also affected results at plants that started up in 1997.
In 1997 the Company's retail segment was not material. Operating income in 1998
was comprised of the following:
<TABLE>
<CAPTION>
(In millions) Percent of
related sales
<S> <C> <C>
Manufacturing segment $165 8.7%
Retail segment 47 8.4%
General corporate expenses (23)
Intercompany profit elimination (10)
Amortization of goodwill (9)
Operating income $170 7.6%
</TABLE>
In 1998 non-cash accounting charges of $10.2 million were recorded to eliminate
the manufacturing profits in inventories of Champion produced homes at
company-operated sales centers. These charges are levied on pre-acquisition
inventory that is sold and replaced by Champion produced homes, as well as any
increases in Champion products, primarily due to opening new retail sales
centers.
<TABLE>
<CAPTION>
Manufacturing Operations
1998 1997 % Change
<S> <C> <C> <C>
Net sales (in millions) $ 1,898 $1,652 15%
Homes sold 70,359 64,285 9%
Floors sold 115,519 102,468 13%
Multi-section mix 63% 58%
Average home price $27,000 $25,700 5%
Manufacturing facilities
-year end 60 55 9%
</TABLE>
Manufacturing revenues increased due to higher volume to independent and
company-operated retailers, with wholesale home shipments and floors(1) sold up
9% and 13%, respectively, from 1997 levels. Sales of multi-section homes rose
19%, comprising 63% of total homes sold compared to 58% last year, contributing
to a higher average selling price per home. Wholesale shipments of
single-section homes decreased 3% from a year ago. Wholesale shipments to
company-operated home centers accounted for 11% of total homes sold in 1998.
Champion's U.S. wholesale shipments of HUD code homes(2) rose 9.2% from a year
earlier, which resulted in a U.S. market share improvement to 18.3% from 17.7%
in 1997. According to data reported by the National Conference of States on
Building Codes and Standards ("NCSBCS"), U.S. industry wholesale shipments of
HUD code homes and floors increased 5.5% and 7.8%, respectively, from 1997
levels. Industry sales of multi-section homes rose 12% and single-section
shipments decreased 3%.
<PAGE> 17
<TABLE>
<CAPTION>
Bar chart showing Net Sales (in millions)
<S> <C>
1996 $1,583
1997 $1,675
1998 $2,254
Bar chart showing Operating Income (in millions)
1996 $ 91
1997 $ 116
1998 $ 170
Bar chart showing Wholesale Homes Sold (in thousands)
1996 62
1997 64
1998 70
</TABLE>
Segment margins were 8.7% of related sales as a result of higher volume and
product mix and pricing. Higher levels of unfilled orders throughout 1998
allowed for production efficiencies. Margins in 1997 were hurt by restructuring
at Redman's Indiana facility and low levels of unfilled orders in the first half
of the year.
Although dealer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, the
Company's unfilled wholesale orders for housing at January 2, 1999 totaled
approximately $73 million, excluding Homes of Merit, compared to $42 million a
year ago. Strong order activity around the country resulted in the increase.
During 1998 the Company constructed four manufacturing facilities and acquired
one other. As of February 10, 1999, Champion had 65 home building facilities,
including the six Homes of Merit plants and excluding a New York facility that
was destroyed by a fire in January 1999.
<TABLE>
<CAPTION>
Retail Operations
1998 1997
<S> <C> <C>
Net sales (in millions) $ 562 $ 61
New homes sold 11,738 983
Used homes sold 2,867 87
% Champion produced-
new homes sold 49% 100%
Average new home price $45,100 $60,400
Company-operated sales
centers-year end 246 22
</TABLE>
Retail sales substantially increased in 1998 due to the retail acquisitions
completed throughout the year. The average selling price per home was higher in
1997 because of the large percentage of multi-section homes sold by Champion's
single retail operation.
Retail margins, excluding floor plan financing costs, were 8.4% of sales, and
were the result of high volume, controlled fixed costs and inventory levels, and
finance related and insurance income. Margins in 1998 were affected by startup
and expansion costs, primarily in the second half of the year. During 1998 and
through February 10, 1999, 70 new sales centers were added, of which 37 were
greenfield start ups.
<TABLE>
<CAPTION>
Other Matters
<S> <C> <C>
(In millions) 1998 1997
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
Net interest expense (income) $13.5 $(0.9)
Income taxes $62.6 $46.6
Effective income tax rate 40% 40%
Income from discontinued operations - $4.5
</TABLE>
Interest expense was higher in 1998 due to amounts outstanding on Champion's
revolving line of credit and interest on floor plan obligations. Line of credit
borrowings were used to finance retail acquisitions. The floor plan liabilities
were used to finance retail inventories. In 1997 there were no borrowings on the
Company's line of credit.
Income tax expense increased in 1998 due to higher taxable income, with the
effective tax rate comparable to last year.
Discontinued operations in 1997 include the results of operations and the sale
of the commercial vehicles business, and income from a previously disposed
business.
- ---------------
(1) 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.
(2) 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 sold in Canada.
<TABLE>
<CAPTION>
Results of Fourth Quarter 1998 Versus 1997
Consolidated
(Dollars in millions) 1998 1997 % Change
<S> <C> <C> <C>
Net sales
Manufacturing $ 485 $ 424 14%
Retail 178 18
Less: intercompany (69) (12)
Total net sales $ 594 $ 430 38%
Gross margin $ 108 $ 66 65%
SG&A 66 35 89%
Operating income $ 42 $ 31 37%
As a percent of sales
Gross margin 18.2% 15.3%
SG&A 11.2% 8.2%
Operating income 7.1% 7.1%
Wholesale
Homes sold 17,718 16,201 9%
Floors sold 29,286 26,472 11%
Multi-section mix 64% 61%
Retail
New homes sold 3,617 298
Used homes sold 1,015 28
% Champion produced-
new homes sold 54% 100%
</TABLE>
Overview
<PAGE> 19
Champion reported record fourth quarter net sales and income from continuing
operations of $594 million and $23 million, respectively. Income from continuing
operations for the quarter was $0.46 per share, compared to
$0.39 in 1997. Sales, gross margins and SG&A all increased significantly due to
results of the retail acquisitions. SG&A costs also rose due to retail
expansions during the second half of 1998. The fourth quarter of 1998 was
comprised of 13 weeks while the comparable quarter of 1997 was comprised of 14
weeks.
Operations
Manufacturing revenues increased 14% to $485 million on a 9.4% increase in homes
sold. Manufacturing segment margins were 8.0% of related revenues for the
quarter. Champion's wholesale shipments of multi-section homes rose 15% over
last year's fourth quarter, while sales of single-section homes were up 1%. As a
result, floors sold increased 10.6%. For the quarter, U.S. industry wholesale
shipments of HUD code homes and floors were up 8.6% and 10.3%, respectively,
from last year.
Retail sales rose to $178 million from $18 million a year ago due to retail
acquisitions. Segment quarterly margins were 7.1% of retail sales and were
affected by expansions in late 1998. Of the 3,617 total new homes sold, 54% were
Champion produced.
Other Matters
Discontinued operations in 1997 include the results of operations and the sale
of the commercial vehicles business, and income from a previously disposed
business.
Manufactured Housing Industry Outlook
The industry's retail home sales were flat in 1998 from 1997 levels, according
to data reported by Statistical Surveys, Inc. Industry wholesale shipments of
HUD code homes increased 5.5% in 1998, following a decrease of 3% in 1997 and
increases of 7% in 1996, 12% in 1995 and 20% in 1994, according to data reported
by NCSBCS. Analysts' estimates for 1999 industry U.S. wholesale home shipments
range from approximately equal to 1998 levels to a 7% increase. Management
believes that 1999 wholesale shipments could suffer from the buildup of retail
inventories that occurred during 1998.
The economic fundamentals that affect the industry continue to remain favorable.
Employment levels and consumer confidence are strong, financing remains
available despite some recent tightening, and interest rates are stable.
Improved product quality and design enables manufactured homes to compete
directly with site built homes, resulting in a broader market for manufactured
housing. Changing demographics and lifestyles have increased consumer interest
in high value, low maintenance manufactured homes. U.S. industry wholesale
shipments of HUD code homes totaled 372,843 in 1998, representing an estimated
30% of all new single-family homes sold in the U.S. Management believes that
moderate changes in interest rates will not have a significant direct impact on
demand for manufactured housing. However, to the extent that increased interest
rates reduce job growth, slow the U.S. economy, or cause a loss in consumer
confidence, demand for manufactured housing may be adversely affected.
Long-term industry growth will be affected by, among other things, the relative
cost of manufactured housing versus other forms of housing, including rental
housing, general economic trends, changes in demographics including new
household formation, the number of Americans on fixed incomes, and the
availability and cost of financing. Changes in regional markets and the U.S.
economy as a whole will continue to affect overall housing industry cycles.
The retail segment of the industry is currently undergoing significant change,
including consolidation (vertical integration) by large housing manufacturers as
well as by other professionally managed organizations. The Company is a major
consolidator of manufactured
<PAGE> 20
housing retailers. One of the Company's related goals is to improve the retail
buying experience for the home buyer.
Results of Operations 1997 Versus 1996
Overview
In 1997 Champion led the manufactured housing industry in wholesale revenues and
wholesale multi-section homes sold. In 1996 Champion merged with Redman
Industries, Inc. ("Redman") in a combination that was accounted for as a pooling
of interests. Therefore, the Financial Statements and Management's Discussion
and Analysis for 1996 are presented on a combined basis with Redman. Fiscal year
1997 was comprised of 53 weeks while 1996 was comprised of 52 weeks.
Operating income from continuing operations rose 27% to $116 million and net
sales rose 6% to approximately $1.7 billion. Income from continuing operations
reached $71 million, or $1.45 per share, compared to $69 million, or $1.40 per
share, before nonrecurring charges in 1996.
During the second half of 1997, Champion announced its strategy to expand its
manufactured housing operations by seeking acquisitions of key housing retailers
in growth areas around the country. During 1997 Champion expanded its
Lamplighter retail operations in the Northwest by acquiring or opening six new
sales centers resulting in a year end total of 21 retail locations. In December
1997 Champion acquired Alpine Homes, Inc., a retailer in Colorado. The Company's
1997 retail sales rose to $61 million from $33 million in the prior year.
<TABLE>
<CAPTION>
Consolidated
(Dollars in millions, except average home price)
1997 1996 % Change
Net sales
<S> <C> <C> <C>
Manufacturing $1,652 $1,573 5%
Retail 61 33
Less: intercompany (38) (23)
Total net sales $1,675 $1,583 6%
Gross margin $ 251 $ 244 3%
SG&A 135 131 3%
Nonrecurring merger charges - 22
Operating income $ 116 $ 91 27%
As a percent of sales
Gross margin 15.0% 15.4%
SG&A 8.1% 8.3%
Operating income 7.0% 5.8%
Wholesale
Home shipments 64,285 61,796 4%
Floors sold 102,468 96,839 6%
Multi-section mix 58% 56%
Average price $25,700 $25,400 1%
New retail homes sold 983 541
</TABLE>
In 1997, Champion's U.S. wholesale shipments of HUD code homes increased 4.5%
over 1996, while industry U.S. wholesale shipments were down 2.8% to 353,377
homes. Champion's HUD code floor shipments increased 6.6% in 1997 compared to a
1.0% increase for the U.S.
<PAGE> 21
industry. Net sales revenues increased by almost 6%, equivalent to the increase
in floors sold. Increased shipments of multi-section homes contributed to the
higher average selling price per home. The Company's multi-section mix for the
year was comparable to the industry's 57.9%. Champion's U.S. wholesale market
share in 1997 rose to 17.7% from 16.5% in 1996, based on data reported by
NCSBCS.
Gross margin and operating income percentages, excluding nonrecurring charges,
slipped slightly as manufacturing costs rose, partially offset by lower material
costs and SG&A expenses. 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.
<TABLE>
<CAPTION>
Other Matters
(In millions) 1997 1996
<S> <C> <C>
Net interest income $ 0.9 $ 0.5
Income taxes $46.6 $39.7
Effective income tax rate 40% 43%
Income from discontinued operations $ 4.5 $ 1.4
</TABLE>
Net interest income increased in 1997 because of higher cash balances and no
borrowings during the year on the Company's line of credit. Income tax expense
increased in 1997 due to higher taxable income. The effective tax rate in 1996
was higher due to the nondeductible portion of the nonrecurring merger charges.
Discontinued operations include the results of operations and the sale of the
commercial vehicles business, and income from a previous disposed business.
Commercial vehicles sales for 1997 were $ 60 million, resulting in operating
income of $1.4 million. This income was offset by pretax charges of $1.3
million, which were recorded for certain valuation and other reserves
established in connection with the sale of the business. In 1996 sales were $61
million and operating income was $2.4 million.
In the fourth quarter of 1997, after tax income of $4.5 million, or $0.09 per
share, was recognized from the collection of installment notes receivable and
settlement of certain reserves that were established in connection with the 1993
disposal of a former Redman subsidiary.
Liquidity and Capital Resources
Cash balances totaled $24 million at January 2, 1999, a reduction of $36 million
from the balances at January 3, 1998. In 1998 cash of $106 million was generated
from operations, $9 million from discontinued operations, and $12 million from
stock option exercises and related tax benefits. During the year, bank
borrowings increased $118 million. Floor plan liabilities rose $134 million,
including $105 million assumed with the Company's retail
<PAGE> 22
acquisitions. Net cash of $255 million was used for acquisitions, $49 million
for capital improvements, and $5 million for deferred purchase price payments.
Assets and liabilities substantially increased during 1998 due to the retail
acquisitions and higher wholesale revenues in December 1998 compared to December
1997. At January 2, 1999 debt was 39% of total capital. Earnings before
interest, taxes, depreciation and amortization increased to $197 million in 1998
from $134 million in 1997.
In May 1998 the Company entered into a five-year revolving credit agreement for
an unsecured line of credit totaling $325 million. The Company had $118 million
of bank borrowings outstanding at January 2, 1999, compared to no bank
borrowings outstanding a year ago.
In January 1999 the Company paid net cash of approximately $40 million for the
acquisitions of Homes of Merit and Heartland Homes, with an additional $6
million due later in the year. In February 1999 the Company announced and
commenced a stock repurchase program for up to 3.0 million shares of common
stock.
The Company plans to spend up to $50 million in 1999 on capital expenditures,
including the construction of three new manufacturing plants and further
internal expansions of retail operations. In addition, the New York
manufacturing facility destroyed by fire in January 1999 will be rebuilt.
Further borrowings may be required during 1999 for capital improvements, retail
acquisitions and expansion, common stock repurchases, and seasonal working
capital needs.
The Company's return on average equity for 1998 was 27.5%. Consistent with its
plan to improve shareholder value through investments in its operating
businesses and share repurchases, 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 may explore other opportunities to raise capital to finance the
growth of the Company.
Impact of Inflation
Inflation has not had a material effect on the Company's operations during the
last three years. Commodity prices, including lumber, fluctuate; however, during
periods of rising commodity prices the Company has been able to pass the
increased costs to its customers in the form of surcharges and base price
increases.
<TABLE>
<CAPTION>
Bar chart showing Capital Expenditures (in millions)
<C> <C>
1996 $ 50
1997 $ 38
1998 $ 49
Bar chart showing Total Equity (in millions)
1996 $ 227
1997 $ 280
1998 $ 405
Bar chart showing Cash Provided by Continuing Operations (in millions)
1996 $ 74
1997 $ 99
1998 $ 106
</TABLE>
<PAGE> 23
Year 2000 Issue
The Company began assessments in prior years to identify the work required to
assure that its computer systems successfully operate after January 1, 2000.
This review included analyzing software internally developed, software licensed
from third parties and the Year 2000 status of significant suppliers, including
wholesale and retail financing companies. It has been determined that a small
portion of Champion's computer systems could be affected by the Year 2000 Issue.
The process of replacing or modifying such software and hardware has been
started and remaining changes are expected to be completed by mid-1999. Costs
incurred to date by the Company related to the Year 2000 Issue have been
immaterial and were charged to expense as incurred. Remaining costs to make
Champion's computer systems Year 2000 compliant are not expected to have a
material effect on results of operations, liquidity or capital resources.
Champion is dependent upon licensed software for a significant portion of its
computer applications. It has been represented by these suppliers that such
third-party software is Year 2000 compliant. The Company's operations are also
dependent on an adequate supply of raw materials, energy and utilities, delivery
services, and wholesale and retail financing. A variety of vendors are used for
these products and services, and the Company is reviewing its major vendors to
determine the potential impact of the Year 2000 Issue. Management is not aware
of any significant problems with these vendors relating to this issue. In the
event that certain suppliers are not Year 2000 compliant, the Company could be
adversely affected.
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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 27, 1999 (the "Proxy Statement") is
incorporated herein by reference.
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
<PAGE> 25
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 Certificate of Correction to Articles of Incorporation of the
Registrant.
3.4 Bylaws of the Registrant as amended through February 22, 1999.
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, filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998 and incorporated herein by reference.
10.3 Credit Agreement dated May 5, 1998 by and among Champion Enterprises,
Inc.; the guarantors party; the banks party; PNC Bank, National Association, as
Administrative Agent; Comerica Bank, as Documentation Agent; National City
<PAGE> 26
Bank, Harris Trust and Savings Bank, Keybank National Association, Nationsbank,
N.A., and Wachovia Bank and Trust Company, N.A., as co-Agents, filed as Exhibit
10 to the Registrant's Form 10-Q for the fiscal quarter ended April 4, 1998 and
incorporated herein by reference.
10.4 First Amendment dated December 22, 1998 to the Credit Agreement dated
May 5, 1998 between the Registrant, NBD Bank; Comerica Bank; National City Bank,
Harris Trust and Savings Bank, Keybank National Association, Nationsbank, N.A.,
Wachovia Bank, N.A., and PNC Bank, National Association.
10.5 *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.
10.6 *Champion Enterprises, Inc. 1993 Management Stock Option Plan as
amended and restated as of October 27, 1998.
10.7 *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.
10.8 *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.
10.9 *Second Amendment dated April 28, 1998 to the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan.
10.10 *Third Amendment dated October 27, 1998 to the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan.
10.11 *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.
10.12 *Letter Agreement dated April 27, 1990 between the Registrant and
Walter R. Young, 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.
10.13 *Amendment dated August 31, 1995 to the Letter Agreement dated April
27, 1990 between the Registrant and Walter R. Young, 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.
10.14 *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.
10.15 *Change in Control Severance Agreement dated March 3, 1997 between
the Registrant and John J. Collins, Jr., filed as Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.16 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and John J. Collins, Jr.
10.17 *Letter Agreement dated May 1, 1997 between the Registrant and Philip
<PAGE> 27
C. Surles, filed as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998 and incorporated herein by reference.
10.18 *Change in Control Severance Agreement dated June 13, 1997 between
the Registrant and Philip C. Surles, filed as Exhibit 10.32 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998 and
incorporated herein by reference.
10.19 *Confidentiality and Noncompetition Agreement dated June 13, 1997
between the Registrant and Philip C. Surles, filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.20 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and Philip C. Surles.
10.21 *Letter Agreement dated December 15, 1997 between the Registrant and
Joseph H. Stegmayer, filed as Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.22 *Non-Qualified Stock Option Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer, filed as Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.23 *Letter Agreement dated September 10, 1998 between the Registrant and
Joseph H. Stegmayer releasing the Registrant of its obligation related to the
option in the Second Part of the January 12, 1998 Agreement.
10.24 *Change in Control Severance Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer, filed as Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.25 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and Joseph H. Stegmayer.
10.26 *Employment and Noncompetition Agreement dated January 8, 1998
between the Registrant and M. Mark Cole.
10.27 *Nonqualified Stock Option Agreement dated January 8, 1998 between
the Registrant and M. Mark Cole.
10.28 *Letter Agreement dated September 11, 1998 between the Registrant and
M. Mark Cole.
10.29 *Non-Qualified Stock Option Agreement dated September 10, 1998
between the Registrant and M. Mark Cole.
10.30 *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated herein by
reference.
10.31 *Deferred Compensation Plan, filed as Exhibit 4.2 to the Registrant's
Form S-8 dated September 17, 1998 and incorporated herein by reference.
10.32 *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated February 26, 1999 and incorporated herein by
reference.
<PAGE> 28
10.33 *Consent in Lieu of a Special Meeting of the Deferred Compensation
Committee dated January 1, 1999 to amend the Corporate Officer Stock Purchase
Plan.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1999 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 2, 1999.
<PAGE> 29
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 19, 1999 Executive Vice President, Chief Strategic
and 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 Chairman of the Board of Directors, March 19, 1999
Walter R. Young President and Chief Executive Officer
(Principal Executive Officer)
/s/JOSEPH H. STEGMAYER Executive Vice President, Chief March 19, 1999
Joseph H. Stegmayer Strategic and Financial Officer
(Principal Financial Officer)
/s/RICHARD HEVELHORST Vice President and Controller March 19, 1999
Richard Hevelhorst (Principal Accounting Officer)
/s/ROBERT W. ANESTIS Director March 19, 1999
Robert W. Anestis
/s/SELWYN ISAKOW Director March 19, 1999
Selwyn Isakow
/s/BRIAN D. JELLISON Director March 19, 1999
Brian D. Jellison
/s/ELLEN R. LEVINE Director March 19, 1999
Ellen R. Levine
/s/GEORGE R. MRKONIC Director March 19, 1999
George R. Mrkonic
/s/JOHNSON S. SAVARY Director March 19, 1999
Johnson S. Savary
/s/ROBERT W. STARK Director March 19, 1999
Robert W. Stark
/s/CARL L. VALDISERRI Director March 19, 1999
Carl L. Valdiserri
<PAGE> 30
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
Description Page
Report of Independent Accountants F-2
Consolidated Statements of Income for
the Periods Ended January 2, 1999,
January 3, 1998, and December 28, 1996 F-3
Consolidated Balance Sheets as of January 2, 1999
and January 3, 1998 F-4
Consolidated Statements of Cash Flows for the
Periods Ended January 2, 1999, January 3, 1998,
and December 28, 1996 F-5
Consolidated Statements of Shareholders' Equity
for the Periods Ended January 2, 1999,
January 3, 1998, and December 28, 1996 F-6
Notes to Consolidated Financial Statements F-7
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> 31
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Champion Enterprises, Inc.
In our opinion, based upon our audits, 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 2, 1999 and January 3, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
January 2, 1999, 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 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 provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
February 5, 1999
<PAGE> 32
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
=======================================================================================================================
(in thousands, except per share amounts)
Year ended
-------------------------------------------------------
JANUARY 2, 1999 January 3, 1998 December 28, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $2,254,255 $1,675,053 $1,582,829
Cost of sales 1,852,676 1,423,595 1,338,800
- -----------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 401,579 251,458 244,029
Selling, general and administrative expenses 231,295 135,028 130,629
Nonrecurring merger and other charges -- -- 22,000
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 170,284 116,430 91,400
Interest income 2,347 2,139 2,699
Interest expense (15,833) (1,198) (2,174)
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 156,798 117,371 91,925
Income taxes 62,600 46,600 39,700
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 94,198 70,771 52,225
Income from discontinued operations, net of taxes -- 4,500 1,361
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 94,198 $ 75,271 $ 53,586
=======================================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ 1.97 $ 1.49 $ 1.10
Income from discontinued operations -- 0.10 0.03
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 1.97 $ 1.59 $ 1.13
=======================================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 1.91 $ 1.45 $ 1.06
Income from discontinued operations -- 0.09 0.03
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1.91 $ 1.54 $ 1.09
=======================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 33
CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
============================================================================
(in thousands, except par value) January 2, 1999 January 3, 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 23,828 $ 60,280
Accounts receivable, trade 61,043 49,574
Inventories 244,142 73,291
Deferred taxes and other current assets 56,627 46,373
- ------------------------------------------------------------------------
Total current assets 385,640 229,518
- ------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 32,010 26,015
Buildings and improvements 146,811 109,447
Machinery and equipment 87,023 67,287
- ------------------------------------------------------------------------
265,844 202,749
Less-accumulated depreciation 74,881 59,230
- ------------------------------------------------------------------------
190,963 143,519
- ------------------------------------------------------------------------
GOODWILL 449,821 134,865
Less-accumulated amortization 24,071 15,193
- ------------------------------------------------------------------------
425,750 119,672
- ------------------------------------------------------------------------
OTHER ASSETS 19,319 8,541
- ------------------------------------------------------------------------
$1,021,672 $ 501,250
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Floor plan payable $ 135,332 $ 1,112
Accounts payable 47,762 24,646
Accrued dealer discounts 52,225 42,927
Accrued warranty obligations 46,032 40,819
Accrued compensation and payroll taxes 45,007 25,014
Other current liabilities 67,347 48,906
- ------------------------------------------------------------------------
Total current liabilities 393,705 183,424
- ------------------------------------------------------------------------
LONG-TERM LIABILITES
Long-term bank debt 118,000 --
Deferred portion of purchase price 47,200 5,400
Other long-term liabilities 57,521 32,010
- ------------------------------------------------------------------------
222,721 37,410
- ------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value,
5,000 authorized, none issued -- --
Common stock, $1 par value,
120,000 authorized,
1998-48,270 issued and outstanding
1997-46,600 issued and outstanding 48,270 46,600
Capital in excess of par value 43,649 14,338
Retained earnings 314,940 220,742
Foreign currency translation adjustments (1,613) (1,264)
- ------------------------------------------------------------------------
Total shareholders' equity 405,246 280,416
- ------------------------------------------------------------------------
$1,021,672 $ 501,250
========================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 34
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
==============================================================================
Year ended
--------------------------------------------------------
(in thousands) January 2, 1999 January 3, 1998 December 28, 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing
operations $ 94,198 $ 70,771 $ 52,225
- ------------------------------------------------------------------------------
Adjustments to reconcile income
from continuing operations to net
cash provided by operating activities
Depreciation and
amortization 26,911 17,091 14,463
Deferred income taxes (400) (1,000) (11,500)
Increase/decrease, net of acquisitions
Accounts receivable 1,312 16,190 (5,672)
Inventories (51,244) (6,036) (8,876)
Accounts payable 14,471 (5,865) 3,454
Accrued liabilities 26,212 10,925 14,120
Merger reserve (302) (6,759) 11,221
Other, net (5,369) 3,931 4,372
- ------------------------------------------------------------------------------
Total adjustments 11,591 28,477 21,582
- ------------------------------------------------------------------------------
Net cash provided by continuing
operating activities 105,789 99,248 73,807
- ------------------------------------------------------------------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS
Income from discontinued
operations -- 4,500 1,361
Proceeds on disposal 9,710 -- --
(Increase) decrease in net
assets of discontinued
operations (459) 3,278 (5,129)
- ------------------------------------------------------------------------------
Net cash provided by (used for)
discontinued operations 9,251 7,778 (3,768)
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property
and equipment (49,120) (38,266) (50,094)
Purchases of short-term
investments -- -- (25,660)
Maturities of short-term
investments -- -- 36,000
Acquisitions (255,083) -- (18,778)
Deferred purchase price
payments (5,100) (4,200) (8,900)
Other -- 2,881 899
- ------------------------------------------------------------------------------
Net cash used for investing
activities (309,303) (39,585) (66,533)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in
long-term bank debt 118,000 -- --
Increase (decrease) in
other long-term debt (1,884) 516 (2,796)
Net increase in floor
plan payable 29,555 -- --
Common stock issued, net 7,040 6,736 2,735
Common stock repurchased -- (36,732) (13,222)
Tax benefit of stock options
exercised 5,100 2,962 1,800
- ------------------------------------------------------------------------------
Net cash provided by
(used for) financing
activities 157,811 (26,518) (11,483)
- ------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (36,452) 40,923 (7,977)
Cash and cash equivalents
at beginning of period 60,280 19,357 27,334
- ------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 23,828 $ 60,280 $ 19,357
==============================================================================
ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest $ 14,919 $ 666 $ 2,280
Cash paid for income taxes $ 53,259 $ 42,938 $ 53,276
- ------------------------------------------------------------------------------
CASH FLOWS FROM ACQUISITIONS
Guaranteed purchase price $ 285,675 -- $ 35,500
Less: Deferred portion of
guaranteed purchase price (17,577) -- (14,500)
Less: Cash acquired (15,193) -- (4,435)
Plus: Acquisition costs
and mortgage payoffs 2,178 -- 2,213
- ------------------------------------------------------------------------------
$ 255,083 -- $ 18,778
==============================================================================
</TABLE>
See accompanying Notes to Consolidates Financial Statements.
<PAGE> 35
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
============================================================================================================
Foreign
Common stock Capital in currency
-------------------- excess of Retained translation
(in thousands) Shares Amount par value earnings adjustments Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Net income -- -- -- 94,198 -- 94,198
Stock option and benefit plans 1,208 1,208 12,579 -- -- 13,787
Tax benefit of stock options -- -- 5,100 -- -- 5,100
Issuance for acquisition 462 462 11,632 -- -- 12,094
Translation adjustments -- -- -- -- (349) (349)
- ------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 2, 1999 48,270 $ 48,270 $ 43,649 $ 314,940 $ (1,613) $ 405,246
============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Statements.
<PAGE> 36
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. The Company is also a
leading retailer of manufactured housing with 264 sales centers in 28 states.
Revenue Recognition
For wholesale shipments to independent retailers, sales revenue is recognized
when wholesale floor plan financing or retailer credit approval has been
received and the home is shipped. For Company owned retail sales centers, sales
revenue is recognized when funds have been released by the finance company
(financed deals) or when cash has been received from the home buyer (cash
deals), and title has been transferred 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.
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.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method for manufacturing operations and the
specific identification method for retail operations.
Year End
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years
1998 and 1996 were each comprised of 52 weeks and fiscal year 1997 was comprised
of 53 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
$9.2 million, $3.8 million and $3.5 million in 1998, 1997 and 1996,
respectively. The recoverability of goodwill is evaluated annually, primarily
based on each business' projected undiscounted cash flows.
Warranty Obligations
The Company's manufacturing operations provide 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.
Other Long-Term Liabilities
<PAGE> 37
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-Earninqs per Share
Earnings per share ("EPS") amounts presented for all periods in these financial
statements have been calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share."
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:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
<S> <C> <C> <C>
Weighted average shares outstanding 47,780 47,483 47,515
Effect of dilutive securities-options 1,504 1,392 1,812
Shares for diluted EPS 49,284 48,875 49,327
</TABLE>
Note 3-Business Combinations
1998 Acquisitions
During 1998 the Company purchased 14 manufactured housing retail organizations
and one manufactured home building facility. The aggregate purchase price for
these acquisitions consisted of guaranteed purchase price of $295 million and
contingent purchase price of up to $160 million, potentially payable over the
next five years based upon the future performance of the acquired businesses.
These retailers had floor plan liabilities of $105 million at the time of
acquisition. During 1998 the Company made guaranteed purchase price payments of
cash totaling $265 million and shares of common stock valued at $12 million. The
remaining portion of the guaranteed purchase price payments will be paid over
the next three years. In addition, the Company paid $3 million during 1998 for
other retail businesses.
These acquisitions were accounted for using the purchase method and resulted in
the recognition of $315 million of goodwill, including $35 million of contingent
purchase price recorded. Recognition of additional purchase price related to
contingent amounts will result in the recording of a corresponding amount of
goodwill. The results of operations of the acquired companies are included with
those of the Company commencing on the respective acquisition dates.
<PAGE> 38
Following are the summarized unaudited pro forma combined results of operations
for the years ended January 2, 1999 and January 3, 1998, assuming the
acquisitions had taken place at the beginning of each of those fiscal years. The
unaudited pro forma results are not necessarily indicative of future earnings or
earnings that would have been reported had the acquisitions been completed when
assumed.
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1998 1997
<S> <C> <C>
Net sales $2,406 $2,154
Income from continuing operations
before income taxes 160 134
Income taxes 64 54
Income from continuing operations 96 80
Per diluted share $1.95 $1.64
</TABLE>
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
financial statements and prior year information have been restated to include
the financial position and results of operations of Redman. In connection with
the merger, the Company recorded nonrecurring charges of $22 million ($16.8
million after tax or $0.34 per share) in the quarter ended December 28, 1996.
Note 4-Inventories
During 1998 inventories substantially increased due to retail acquisitions.
A summary of inventories by component at January 2, 1999 and January 3, 1998
follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Raw materials and work-in-process $ 60,259 $49,745
Manufactured homes 183,883 23,546
$244,142 $73,291
</TABLE>
Note 5-Debt
In May 1998 the Company entered into a five-year revolving credit agreement with
a group of banks for an unsecured line of credit for $325 million, including $60
million of availability to cover letters of credit. At the Company's option,
borrowings are subject to interest at either the bank's prime rate or the bank's
Eurodollar rate plus 0.575% to 1.0%. The Company is subject to an annual
commitment fee ranging from 0.15% to 0.25% on the entire facility and a fee for
outstanding letters of credit.
The agreement provides for annual reductions in the line of credit in September
of each year, reducing the line to the following amounts: $275 million in 1999,
$200 million in 2000 and $175 million in 2001.
The agreement contains covenants which, among other things, limit additional
indebtedness and require maintenance of certain financial ratios and minimum net
worth. The amount of unrestricted retained earnings at January 2, 1999 was $134
million. The weighted average interest rate on amounts borrowed at January 2,
1999 was 6.2%. Letters of credit outstanding at January 2, 1999 totaled $14
million, to support insurance requirements.
<PAGE> 39
Floor plan liabilities are borrowings from various financial institutions
secured principally by retail inventories of manufactured homes. Interest on
these liabilities generally ranges from the prime rate minus 0.5% to the prime
rate plus 1.5%.
Note 6-Shareholders' Equity
The Company currently has 120 million shares of common stock authorized. In
February 1999 the Board of Directors authorized a common stock repurchase
program for up to 3.0 million shares, replacing the 1997 repurchase
authorization.
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 4.0 million shares.
There are five 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), which was adopted on
January 9, 1996. Pursuant to the Rights Plan, each outstanding share of common
stock is entitled to one Preferred Stock Purchase Right. Each Right entitles
shareholders to buy one two-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 7-Income Taxes
Pretax income from continuing operations for the fiscal years ended January 2,
1999, January 3, 1998 and December 28, 1996 was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
<S> <C> <C> <C>
Domestic $155,716 $116,105 $90,165
Foreign 1,082 1,266 1,760
Total $156,798 $117,371 $91,925
<CAPTION>
The provisions for income taxes from continuing operations were as follows:
(in thousands) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $54,400 $40,000 $44,500
Foreign 600 600 900
State 8,000 7,000 5,800
Total current 63,000 47,600 51,200
Deferred:
Federal (300) (800) (10,500)
Foreign (50) (100) (100)
State (50) (100) (900)
Total deferred (400) (1,000) (11,500)
Total provision $62,600 $46,600 $39,700
</TABLE>
<PAGE> 40
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:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
<S> <C> <C> <C>
Statutory U.S. tax rate $54,900 $41,100 $32,200
Increase in rate resulting from:
Higher rates on earnings of
foreign operations 200 100 100
Merger costs - - 3,100
State taxes, net of
federal benefit 5,200 4,500 3,100
Other 2,300 900 1,200
Total provision $62,600 $46,600 $39,700
Effective tax rate 40% 40% 43%
<CAPTION>
Deferred tax assets and liabilities are comprised of the following as of January
2, 1999 and January 3, 1998:
(in thousands) 1998 1997
<S> <C> <C>
Assets:
Warranty reserve $21,800 $19,800
Insurance accruals 9,200 7,900
Environmental reserves 200 1,300
Dealer discounts 1,200 1,400
Employee compensation 6,200 5,200
Reserve for repurchase 5,500 1,300
Loss carryforwards 300 400
Merger costs 1,300 1,400
Retail reserves 3,000 -
Other 7,000 6,200
Gross deferred tax assets 55,700 44,900
Liabilities:
Depreciation 3,600 3,300
Canadian withholding 400 500
Safe harbor leases 3,100 4,100
Goodwill 7,400 4,300
Other 1,300 1,800
Gross deferred tax liabilities 15,800 14,000
Net assets $39,900 $30,900
</TABLE>
Note 8-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 17% of
their compensation to the plans. The Company generally makes matching
contributions of 50% of the first 6% of employees' contributions.
Company contributions vest when made. Amounts expensed under these plans
were $3.4 million in 1998, $2.4 million in 1997 and $2.8 million in 1996
Note 9-Discontinued Operations
<PAGE> 41
Income from discontinued operations was comprised of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Champion Motor Coach, Inc.
Income from operations $ 800 $1,361
Loss on disposal (800) -
Income from prior disposal 4,500 -
$4,500 $1,361
</TABLE>
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 and $61 million for 1997 and 1996, respectively.
Income from operations is net of taxes of $0.5 million and $0.9 million for 1997
and 1996, 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
manufacturing 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 $760 million at January 2, 1999, 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 various environmental investigations and
remediations. During 1998 $3 million was paid to settle an environmental matter
which had been previously accrued. Potential insurance recoveries have not been
recorded. 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
<PAGE> 42
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.
The Company is contingently obligated for approximately $20 million under surety
bonds, generally to support insurance, licensing and service bonding
requirements.
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 $6.8 million in 1998, $4.4 million in 1997, and
$1.2 million in 1996, excluding amounts included in nonrecurring merger costs.
There were 745,000 and 731,000 shares reserved for future grants and awards at
January 2, 1999 and January 3, 1998, respectively.
The following table summarizes the changes in outstanding stock options during
the last three years:
<TABLE>
<CAPTION>
Weighted average
Number of shares exercise price
<S> <C> <C>
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 28, 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
Granted 3,898,600 20.54
Exercised (1,304,843) 7.75
Canceled (783,523) 19.13
Outstanding at January 2, 1999 5,927,094 $15.95
</TABLE>
The following table summarizes information about stock options outstanding at
January 2, 1999:
<TABLE>
<CAPTION>
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
- --------------- ----------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.38-$7.00 592,900 4.7 $ 4.46 592,900 $ 4.46
$7.01-$14.00 1,598,266 6.3 8.86 715,866 9.39
$14.01-$21.00 2,121,699 8.9 18.86 234,160 17.02
$21.01-$29.38 1,614,229 9.6 23.38 4,000 22.63
--------- --- ------ --------- ------
5,927,094 8.0 $15.95 1,546,926 $ 8.69
========= === ====== ========= ======
</TABLE>
<PAGE> 43
As of January 3, 1998, exercisable shares totaled 1,111,380 with a weighted
average exercise price of $7.15 per share.
The number of shares granted through stock awards in 1998, 1997 and 1996 were
34,400, 154,400 and 29,010, respectively, with grant date fair values per share
of $24.63, $18.10 and $19.22, respectively.
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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (in 000's): $90,818 $73,171 $50,601
Diluted EPS $ 1.84 $ 1.50 $ 1.02
</TABLE>
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 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk free interest rate 5.2% 6.1% 5.6%
Expected life (years) 4.4 3.2 3.3
Expected volatility 38% 42% 43%
Expected dividend - - -
</TABLE>
The weighted average per share fair value of stock options granted during 1998,
1997 and 1996 were $9.01, $6.75 and $6.90, respectively, for options granted at
market value, and $13.11, $9.37 and $10.17, 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 $12.4 million, $7.5 million and
$5.8 million for 1998, 1997 and 1996, respectively, excluding amounts included
in nonrecurring charges in 1996.
Note 12-Segment Information
In 1998 the Company adopted Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company operates
principally in two segments in the manufactured housing industry: (1) production
and wholesale distribution, and (2) retail selling. Prior to 1998, the Company's
retail segment was immaterial. Therefore, prior year segment information is not
being reported. The accounting policies of the segments are the same as
those described in the Note 1 "Summary of Significant Accounting Policies."
Segment data includes intersegment revenues and corporate office costs that are
directly and exclusively incurred for each segment. The Company evaluates the
performance of its segments and allocates resources to them primarily based on
earnings before interest, taxes, goodwill amortization and corporate office
costs (EBITA) and return on net capital employed (working capital plus net fixed
assets).
<PAGE> 44
Expenditures during 1998 for long-lived assets were $38 million for the
manufacturing segment and $325 million for the retail segment, including
goodwill for each segment. In addition, corporate expenditures for long-lived
assets totaled $1 million.
Reconciliations of segment sales to consolidated sales and segment EBITA to
consolidated operating income for 1998, and segment assets to consolidated
assets as of January 2, 1999, were as follows:
(in thousands)
<TABLE>
<S> <C>
Net sales
Manufacturing $1,898,596
Retail 561,659
Less: intercompany (206,000)
Consolidated net sales $2,254,255
Operating income
Manufacturing EBITA $164,863
Retail EBITA 47,259
General corporate expenses (22,419)
Intercompany profit elimination (10,200)
Goodwill amortization (9,219)
Consolidated operating income $170,284
Total assets
Manufacturing $421,670
Retail 546,460
Corporate 74,346
Intercompany elimination (20,804)
Consolidated total assets $1,021,672
</TABLE>
Note 13-Leases
Most of the Company's retail sales locations are leased under terms that range
from monthly to five years. Aggregate rentals for these leased facilities
approximate $9 million annually.
Note 14-Subsequent Events
In early January 1999 the Company completed its acquisition of the outstanding
common stock of Homes of Merit, Inc. and Heartland Homes Group. Homes of Merit
is the largest producer of manufactured housing in Florida. Heartland Homes is a
Texas retailer of manufactured homes. The aggregate guaranteed purchase price
was cash of $62 million. The acquisitions were accounted for using the purchase
method and resulted in the recording of $40 million of goodwill. The Company is
contingently obligated for additional purchase price payments of up to $61.5
million over the next four years depending on future performance of the acquired
businesses. The aggregate 1998 sales of these acquisitions were $185 million.
In January 1999 the Company's manufacturing facility in New York was
destroyed by fire. The effect on the Company should be immaterial. A
newly-constructed facility should be completed this spring at the same location.
In February 1999 the Board of Directors authorized a common stock repurchase
program for up to 3.0 million shares.
<PAGE> 45
NOTE 15-QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter Total
<S> <C> <C> <C> <C> <C>
1998
Net sales
Manufacturing $ 424,426 $ 494,392 $ 495,285 $ 484,493 $1,898,596
Retail 66,599 144,108 172,660 178,292 561,659
Less: intercompany (28,000) (56,000) (53,000) (69,000) (206,000)
Total net sales 463,025 582,500 614,945 593,785 2,254,255
Cost of sales 389,364 477,542 500,236 485,534 1,852,676
Gross margin 73,661 104,958 114,709 108,251 401,579
Selling, general and
administrative expenses 43,288 58,394 63,257 66,356 231,295
Operating income 30,373 46,564 51,452 41,895 170,284
Interest expense, net (956) (3,634) (4,643) (4,253) (13,486)
Pretax income-continuing operations 29,417 42,930 46,809 37,642 156,798
Income-continuing operations 17,617 25,830 28,109 22,642 94,198
Net income 17,617 25,830 28,109 22,642 94,198
Basic earnings per share .37 .54 .59 .47 1.97
Diluted earnings per share $ .36 $ .52 $ .57 $ .46 $ 1.91
Homes sold
Wholesale 16,175 18,456 18,010 17,718 70,359
Retail-new 1,484 3,061 3,576 3,617 11,738
Retail-used 346 659 847 1,015 2,867
Wholesale multi-section mix 60% 62% 64% 64% 63%
Locations at period end
Home building facilities 56 57 59 60 60
Home centers 143 188 233 246 246
- ------------------------------------------------------------------------------------------------------------
1997
Net sales
Manufacturing $ 359,238 $ 434,230 $ 435,090 $ 423,671 $1,652,229
Retail 7,811 17,446 17,316 18,051 60,624
Less: intercompany (4,092) (9,316) (12,388) (12,004) (37,800)
Total 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, 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
Wholesale 14,247 17,302 16,535 16,201 64,285
Retail-new 123 277 285 298 983
Retail-used 10 21 28 28 87
Wholesale multi-section mix 55% 55% 60% 61% 58%
Locations at period end
Home building facilities 50 53 53 55 55
Home centers 15 16 21 22 22
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Per share amounts are based on the weighted average shares outstanding for each
period. Quarterly amounts may not add to annual amounts due to the changes in
shares outstanding.
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
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 Certificate of Correction to Articles of Incorporation of the
Registrant.
3.4 Bylaws of the Registrant as amended through February 22, 1999.
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, filed as Exhibit 10.2
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 3, 1998 and incorporated herein by reference.
10.3 Credit Agreement dated May 5, 1998 by and among Champion
Enterprises, Inc.; the guarantors party; the banks party; PNC
Bank, National Association, as Administrative Agent; Comerica
Bank, as Documentation Agent; National City Bank, Harris Trust
and Savings Bank, Keybank National Association, Nationsbank,
N.A., and Wachovia Bank and Trust Company, N.A., as co-Agents,
filed as Exhibit 10 to the Registrant's Form 10-Q for the fiscal
quarter ended April 4, 1998 and incorporated herein by
reference.
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
10.4 First Amendment dated December 22, 1998 to the Credit Agreement
dated May 5, 1998 between the Registrant, NBD Bank; Comerica
Bank; National City Bank, Harris Trust and Savings Bank, Keybank
National Association, Nationsbank, N.A., Wachovia Bank, N.A.,
and PNC Bank, National Association.
10.5 *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.
10.6 *Champion Enterprises, Inc. 1993 Management Stock Option
Plan as amended and restated as of October 27, 1998.
10.7 *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.
10.8 *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.
10.9 *Second Amendment dated April 28, 1998 to the Champion
Enterprises, Inc. 1995 Stock Option and Incentive Plan.
10.10 *Third Amendment dated October 27, 1998 to the Champion
Enterprises, Inc. 1995 Stock Option and Incentive Plan.
10.11 *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.
10.12 *Letter Agreement dated April 27, 1990 between the Registrant
and Walter R. Young, 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.
10.13 *Amendment dated August 31, 1995 to the Letter Agreement dated
April 27, 1990 between the Registrant and Walter R. Young, 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.
10.14 *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.
10.15 *Change in Control Severance Agreement dated March 3, 1997
between the Registrant and John J. Collins, Jr., filed as
Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.16 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and John J. Collins,
Jr.
10.17 *Letter Agreement dated May 1, 1997 between the Registrant and
Philip C. Surles, filed as Exhibit 10.31 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and
</TABLE>
<PAGE> 48
<TABLE>
<S> <C>
incorporated herein by reference.
10.18 *Change in Control Severance Agreement dated June 13, 1997
between the Registrant and Philip C. Surles, filed as Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.19 *Confidentiality and Noncompetition Agreement dated June 13,
1997 between the Registrant and Philip C. Surles, filed as
Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.20 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and Philip C. Surles.
10.21 *Letter Agreement dated December 15, 1997 between the Registrant
and Joseph H. Stegmayer, filed as Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998 and incorporated herein by reference.
10.22 *Non-Qualified Stock Option Agreement dated January 12, 1998
between the Registrant and Joseph H. Stegmayer, filed as Exhibit
10.35 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.23 *Letter Agreement dated September 10, 1998 between the
Registrant and Joseph H. Stegmayer releasing the Registrant of
its obligation related to the option in the Second Part of the
January 12, 1998 Agreement.
10.24 *Change in Control Severance Agreement dated January 12, 1998
between the Registrant and Joseph H. Stegmayer, filed as Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.25 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and Joseph H.
Stegmayer.
10.26 *Employment and Noncompetition Agreement dated January 8, 1998
between the Registrant and M. Mark Cole.
10.27 *Nonqualified Stock Option Agreement dated January 8, 1998
between the Registrant and M. Mark Cole.
10.28 *Letter Agreement dated September 11, 1998 between the
Registrant and M. Mark Cole.
10.29 *Non-Qualified Stock Option Agreement dated September 10, 1998
between the Registrant and M. Mark Cole.
10.30 *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated
herein by reference.
10.31 *Deferred Compensation Plan, filed as Exhibit 4.2 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated
herein by reference.
10.32 *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to
the Registrant's Form S-8 dated February 26, 1999 and
incorporated herein by reference.
</TABLE>
<PAGE> 49
<TABLE>
<S> <C>
10.33 *Consent in Lieu of a Special Meeting of the Deferred
Compensation Committee dated January 1, 1999 to amend the
Corporate Officer Stock Purchase Plan.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1999 Annual Meeting of
Shareholders, filed by the Registrant pursuant to Regulation 14A
and incorporated herein by reference.
</TABLE>
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.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF CORRECTION TO ARTICLES OF INCORPORATION
CERTIFICATE OF CORRECTION
1. The name of the corporation or limited liability company is CHAMPION
ENTERPRISES, INC.
2. The identification number assigned by the Bureau is: 419-343
3. The corporation or limited liability company is formed under the laws of
the State of Michigan.
4. That a Certificate of Amendment to the Articles of Incorporation was filed
by the Bureau on May 7, 1997 and that said document requires correction.
5. Describe the inaccuracy or defect contained in the above named document:
The number of shares of Series A Preferred Stock, No Par Value, was
incorrectly stated to be 300,000 shares rather than 750,000 shares.
6. The document is corrected as follows:
Replace Article III, Series A Preferred Stock No Par Value, Paragraph
A with the following:
AA. Designation and Amount. The shares of such series shall be
designated "Series A Preferred Stock, no par value, and the
number of shares constituting such series shall be 750,000."
7. This document is hereby executed in the same manner as the Act requires the
document being corrected to be executed.
Signed this 12th day of February, 1999
/s/ JOHN J. COLLINS, JR.
John J. Collins, Jr., Vice
President, General Counsel and Secretary
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
CHAMPION ENTERPRISES, INC.
(As amended through February 22, 1999)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I - Offices 1
1.01 Principal Office 1
1.02 Other Offices 1
ARTICLE II - Seal 1
2.01 Seal 1
ARTICLE III - Capital Stock 1
3.01 Issuance of Shares 1
3.02 Certificates for Shares 1
3.03 Transfer of Shares 2
3.04 Registered Shareholders 2
3.05 Lost or Destroyed Certificates 2
ARTICLE IV - Shareholders and Meetings of Shareholders 3
4.01 Place of Meetings 3
4.02 Annual Meeting 3
4.03 Special Meetings 3
4.04 Notice of Meetings 3
4.05 Record Dates 3
4.06 List of Shareholders 4
4.07 Quorum 4
4.08 Proxies 4
4.09 Inspectors of Election 4
4.10 Voting 5
4.11 Nomination and Shareholder Business Proposal 5
(A) Annual Meetings of Shareholders 5
(B) Special Meetings of Shareholders 6
(C) General 6
ARTICLE V - Directors 7
5.01 Number; Qualifications 7
5.02 Election, Resignation and Removal 7
5.03 Vacancies 7
5.04 Annual Meeting 7
5.05 Regular and Special Meetings 8
5.06 Notices 8
5.07 Quorum 8
5.08 Executive and Other Committees 8
5.09 Dissents 9
5.10 Compensation 9
5.11 Employment of Others 9
ARTICLE VI - Notices, Waivers of Notice and Manner of Acting 10
6.01 Notices 10
6.02 Waiver of Notice 10
6.03 Action Without a Meeting 10
ARTICLE VII - Officers 10
7.01 Number 10
7.02 Term of Office, Resignation and Removal 10
7.03 Vacancies 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
7.04 Authority 11
ARTICLE VIII - Duties of Officers 11
8.01 Chairman of the Board 11
8.02. Vice Chairman of the Board 11
8.03 President 11
8.04 Vice Presidents 11
8.05 Secretary 11
8.06 Treasurer 12
8.07 Assistant Secretaries and Treasurers 12
8.08 Bonds 12
ARTICLE IX - Special Corporate Acts 12
9.01 Orders for Payment of Money 12
9.02 Contracts and Conveyances 12
ARTICLE X - Books and Records 13
10.01 Maintenance of Books and Records 13
10.02 Reliance on Information, Opinions, Reports 13
10.03 Fiscal Year 13
ARTICLE XI - Indemnification 13
11.01 Right to Indemnification 13
11.02 Right of Claimant to Bring Suit 14
11.03 Non-Exclusivity of Rights 15
11.04 Insurance 15
ARTICLE XII - Amendments 15
12.01 Amendments 15
ARTICLE XIII - Control Shares and Control Share Acquisitions 15
13.01 Control Share Acquisitions 15
</TABLE>
<PAGE> 4
BYLAWS
OF
CHAMPION ENTERPRISES, INC.
(As amended through February 22, 1999)
ARTICLE I
Offices
1.01 Principal Office. The principal office of the Corporation shall be
at such place within the State of Michigan as the Board of Directors shall
determine from time to time.
1.02 Other Offices. The Corporation may also have offices at such other
places as the Board of Directors from time to time determines or the business of
the Corporation requires.
ARTICLE II
Seal
2.01 Seal. The Corporation shall have a seal in such form as the Board
of Directors may from time to time determine. The seal may be used by causing it
or a facsimile to be impressed, affixed, reproduced or otherwise.
ARTICLE III
Capital Stock
3.01 Issuance of Shares. The shares of capital stock of the Corporation
shall be issued in such amounts, at such times, for such consideration and on
such terms and conditions as the Board shall deem advisable, subject to the
provisions of the Articles of Incorporation of the Corporation and the further
provisions of these Bylaws, and subject also to any requirements or restrictions
imposed by the laws of the State of Michigan.
3.02 Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by the Chairman of the Board, President or a
Vice President and by the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary of the Corporation, and may be sealed with the seal of the Corporation
or a facsimile thereof. The signatures of the officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or its employee. In case an officer who has
signed or whose facsimile signature has been placed upon a certificate ceases to
be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issuance. A certificate representing shares shall state upon its face that the
Corporation is formed under the laws of the State of Michigan; the name of the
person to whom it is issued; the number and class of shares, and the designation
of the series, if any, which the certificate represents; the par value of each
share represented by the certificate, or a
<PAGE> 5
statement that the shares are without par value; and such other provisions as
may be required by the laws of the State of Michigan.
3.03 Transfer of Shares. The shares of the capital stock of the
Corporation are transferable only on the books of the Corporation upon surrender
of the certificate therefor, properly endorsed for transfer, and the
presentation of such evidences of ownership and validity of the assignment as
the Corporation may require.
3.04 Registered Shareholders. The Corporation shall be entitled to
treat the person in whose name any share of stock is registered as the owner
thereof for purposes of dividends and other distributions in the course of
business, or in the course of recapitalization, consolidation, merger,
reorganization, sale of assets, liquidation or otherwise and for the purpose of
votes, approvals and consents by shareholders, and for the purpose of notices to
shareholders, and for all other purposes whatever, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have notice thereof,
save as expressly required by the laws of the State of Michigan.
3.05 Lost or Destroyed Certificates. Upon the presentation to the
Corporation of a proper affidavit attesting the loss, destruction or mutilation
of any certificate or certificates for shares of stock of the Corporation, the
Board of Directors shall direct the issuance of a new certificate or
certificates to replace the certificates so alleged to be lost, destroyed or
mutilated. The Board of Directors may require as a condition precedent to the
issuance of new certificates any or all of the following:
(a) Presentation of additional evidence or proof of the loss,
destruction or mutilation claimed;
(b) Advertisement of loss in such manner as the Board of
Directors may direct or approve;
(c) A bond or agreement of indemnity, in such form and amount
and with such sureties, or without sureties, as the Board of Directors may
direct or approve;
(d) Payment of any expenses incurred by the Corporation in
processing the claim of loss, or in lieu thereof payment of a lost certificate
processing fee in such amount as the Board of Directors may authorize or
approve;
(e) The order or approval of a court or judge.
ARTICLE IV
Shareholders and Meetings of Shareholders
4.01 Place of Meetings. All meetings of shareholders shall be held at
the principal office of the Corporation or at such other place as shall be
determined by the Board of Directors and stated in the notice of meeting.
4.02 Annual Meeting. The Annual Meeting of Shareholders of the
Corporation shall be held on such business day in the months of April or May
<PAGE> 6
of each year, at such time, as the Board of Directors may fix. Directors shall
be elected at each Annual Meeting and such other business transacted as may
properly come before the meeting in accordance with these Bylaws. The Board of
Directors acting by resolution may postpone and reschedule any previously
scheduled Annual Meeting of Shareholders. Any Annual Meeting of Shareholders may
be adjourned by the Chairman of the meeting or pursuant to a resolution of the
Board of Directors.
4.03 Special Meetings. Special meetings of the shareholders may be
called by the Chairman of the Board, or by the President, or pursuant to
resolution of the Board of Directors. Business transacted at a special meeting
of shareholders shall be confined to the purpose or purposes of the meeting as
stated in the notice of the meeting. The Board of Directors acting by resolution
may postpone and reschedule any previously scheduled special meeting of
shareholders. Any special meeting of shareholders may be adjourned by the
Chairman of the meeting or pursuant to resolution of the Board of Directors.
4.04 Notice of Meetings. Except as otherwise provided by statute,
written notice of the time, place and purposes of a meeting of shareholders
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each shareholder of record entitled to vote at the meeting, either
personally, by mailing such notice to his last address as it appears on the
books of the Corporation or by any other means permitted under the laws of the
State of Michigan. No notice need be given of an adjourned meeting of the
shareholders provided the time and place to which such meeting is adjourned is
announced at the meeting at which the adjournment is taken and at the adjourned
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment, a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice as provided
in this Bylaw.
4.05 Record Dates. The Board of Directors, the Chairman of the Board
(if such office is filled) or the President may fix in advance a date as the
record date for the purpose of determining shareholders entitled to notice of
and to vote at a meeting of shareholders or an adjournment thereof, or to
express consent or to dissent from a proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of a dividend or
allotment of a right, or for the purpose of any other action. The date fixed
shall not be more than 60 nor less than 10 days before the date of the meeting,
nor more than 60 days before any other action. In such case only such
shareholders as shall be shareholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting or adjournment thereof, or to
express consent or to dissent from such proposal, or to receive payment of such
dividend or to receive such allotment of rights, or to participate in any other
action, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation, or otherwise, after any such record date. Nothing in
this Bylaw shall affect the rights of a shareholder and his transferee or
transferor as between themselves.
4.06 List of Shareholders. The Secretary of the Corporation or the
agent of the Corporation having charge of the stock transfer records for shares
of the Corporation shall make and certify a complete list of the shareholders
entitled to vote at a shareholders' meeting or any adjournment thereof. The list
shall be arranged alphabetically within each class and
<PAGE> 7
series, with the address of, and the number of shares held by, each shareholder;
be produced at the time and place of the meeting; be subject to inspection by
any shareholder during the whole time of the meeting; and be prima facie
evidence as to who are the shareholders entitled to examine the list or vote at
the meeting.
4.07 Quorum. Unless a greater or lesser quorum is required in the
Articles of Incorporation or by the laws of the State of Michigan, the
shareholders present at a meeting in person or by proxy who, as of the record
date for such meeting, were holders of a majority of the outstanding shares of
the Corporation entitled to vote at the meeting shall constitute a quorum at the
meeting. Whether or not a quorum is present, a meeting of shareholders may be
adjourned by a vote of the shares present in person or by proxy. When the
holders of a class or series of shares are entitled to vote separately on an
item of business, this Bylaw applies in determining the presence of a quorum of
such class or series for transaction of such item of business.
4.08 Proxies. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
other persons to act for him by proxy. A shareholder may authorize another
person or persons to act for him or her as proxy in any manner permitted under
the laws of the State of Michigan. A proxy shall not be valid after the
expiration of three years from its date unless otherwise provided in the proxy.
A proxy is revocable at the pleasure of the shareholder executing it except as
otherwise provided by the laws of the State of Michigan.
4.09 Inspectors of Election. The Board of Directors, in advance of a
shareholders' meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at the shareholders' meeting may, and on request of a shareholder
entitled to vote thereat shall, appoint one or more inspectors. In case a person
appointed fails to appear or act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the meeting or at the meeting by the
person presiding thereat. If appointed, the inspectors shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum and the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine challenges and questions arising in connection with the right to vote,
count and tabulate votes, ballots or consents determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting or a shareholder
entitled to vote thereat, the inspectors shall make and execute a written report
to the person presiding at the meeting of any of the facts found by them and
matters determined by them. The report shall be prima facie evidence of the
facts stated and of the vote as certified by the inspectors.
4.10 Voting. Each outstanding share is entitled to one vote on each
matter submitted to a vote, unless otherwise provided in the Articles of
Incorporation. Votes may be cast orally, in writing or by any other means
permitted under the laws of the State of Michigan as the Chairman of the meeting
may choose, except that upon the written request of a shareholder served on the
President or Secretary not less than forty-eight (48) hours prior to the time
fixed for the meeting, votes shall be cast in writing. Votes taken orally shall
be cast by, and votes cast in writing shall be signed by, the shareholder or his
proxy. Votes made by any other means shall be cast
<PAGE> 8
in a manner which is reasonably designed to ensure authenticity. When an action,
other than the election of directors, is to be taken by a vote of the
shareholders, it shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater plurality is
required by the Articles of Incorporation or by the laws of the State of
Michigan. Except as otherwise provided by the Articles of Incorporation,
directors shall be elected by a plurality of the votes cast at any election.
4.11 Nomination and Shareholder Business Proposal.
(A) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the direction of
the Board of Directors or (c) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Bylaw.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (c) of
paragraph (A)(1) of this Bylaw, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholders' notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the shareholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; (c) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such shareholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence
of paragraph (A)(2) of this Bylaw to the contrary, in the event that the number
of directors to be elected to the Board of Directors of the Corporation is
<PAGE> 9
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholders' notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided hereunder, who shall be entitled
to vote at the meeting and who complies with the notice procedures set forth in
this Bylaw. Nominations by shareholders of persons for election to the Board of
Directors may be made at such a special meeting of shareholders if the
shareholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special meeting
or the 10th day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(C) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve as
directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Bylaw. The Chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in this
Bylaw and, if any proposed nomination or business is not in compliance with this
Bylaw, to declare that such defective proposal shall be disregarded.
(2) For purposes of this Bylaw, "public announcement"
shall mean disclosures in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14, or 15(d) of the Exchange Act.
ARTICLE V
Directors
5.01 Number; Qualifications. The business and affairs of the
Corporation shall be managed by a Board of not less than three nor more than
nine directors as shall be fixed from time to time by the Board of Directors.
Directors need not be residents of Michigan or shareholders of the
<PAGE> 10
Corporation. No person who has reached age 70 shall be eligible for election to
the Board of Directors (but an incumbent director who reaches age 70 during his
term of office shall continue to serve until the next Annual Meeting of
Shareholders and until his successor is elected and shall have qualified).
5.02 Election, Resignation and Removal. Directors shall be elected at
each annual meeting of the shareholders, each to hold office until the next
annual meeting of shareholders and until his successor is elected and qualified,
or until his resignation or removal. A director may resign by written notice to
the Corporation. The resignation is effective upon its receipt by the
Corporation or a subsequent time as set forth in the notice of resignation. A
director or the entire Board of Directors may be removed, with or without cause,
by vote of the holders of a majority of the shares entitled to vote at an
election of directors.
5.03 Vacancies. Vacancies in the Board of Directors occurring by reason
of death, resignation, removal, increase in the number of directors or otherwise
shall be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless filled by proper
action of the shareholders of the Corporation. Each person so elected shall be a
director for a term of office continuing only until the next election of
directors by the shareholders.
5.04 Annual Meeting. The Board of Directors shall meet each year
immediately after the Annual Meeting of the Shareholders, or within three days
of such time excluding Sundays and legal holidays if such later time is deemed
advisable, at the place where such meeting of the shareholders has been held or
such other place as the Board may determine, for the purpose of election of
officers and consideration of such business that may properly be brought before
the meeting; provided, that if less than a majority of the directors appear for
an annual meeting of the Board of Directors the holding of such annual meeting
shall not be required and the matters which might have been taken up therein may
be taken up at any later special or annual meeting, or by consent resolution.
5.05 Regular and Special Meetings. Regular meetings of the Board of
Directors may be held at such times and places as the majority of the directors
may from time to time determine at a prior meeting or as shall be directed or
approved by the vote or written consent of all the directors. Special meetings
of the Board may be called by the Chairman of the Board (if such office is
filled) or the President and shall be called by the President or Secretary upon
the written request of any two directors.
5.06 Notices. No notice shall be required for annual or regular
meetings of the Board or for adjourned meetings, whether regular or special.
Three days written notice shall be given for special meetings of the Board, and
such notice shall state the time, place and purpose or purposes of the meeting.
5.07 Quorum. When the Board of Directors or any committee thereof
consists of seven or less persons, a majority of the Board of Directors then in
office, or of the members of a committee thereof, constitutes a quorum for the
transaction of business. When the Board of Directors or any committee thereof
consists of eight or more persons, less than a majority but in no event less
than one-third of the members may constitute a quorum. The vote of a majority of
the directors present at any meeting at which there is a quorum
<PAGE> 11
shall be the acts of the Board or of the committee, except as a larger vote may
be required by the laws of the State of Michigan. A member of the Board or of a
committee designated by the Board may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting in this manner constitutes presence in person at the meeting.
5.08 Executive and Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, appoint two or more members
of the Board as an executive committee to exercise all powers and authorities of
the Board in management of the business and affairs of the Corporation;
provided, however, that such committee shall not have power or authority to:
(a) amend the Articles of Incorporation;
(b) adopt an agreement of merger or consolidation;
(c) recommend to shareholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) recommend to shareholders a dissolution of the Corporation
or revocation of dissolution;
(e) amend these Bylaws;
(f) fill vacancies in the Board;
(g) fix the compensation of the directors for serving on the
Board or on a committee; or
(h) unless expressly authorized by the Board, declare a
dividend or authorize the issuance of stock.
The Board of Directors from time to time may, by like resolution,
appoint such other committees of one or more directors to have such authority as
shall be specified by the Board in the resolution making such appointments. The
Board of Directors may designate one or more directors as alternate members of
any committee who may replace an absent or disqualified member at any meeting
thereof.
5.09 Dissents. A director who is present at a meeting of the Board of
Directors, or a committee thereof of which he is a member, at which action on a
corporate matter is taken is presumed to have concurred in that action unless
his dissent is entered in the minutes of the meeting or unless he files his
written dissent to the action with the person acting as secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation promptly after the adjournment of the
meeting. Such right to dissent does not apply to a director who voted in favor
of such action. A director who is absent from a meeting of the Board, or a
committee thereof of which he is a member, at which any such action is taken is
presumed to have concurred in the action unless he files his written dissent
with the Secretary of the Corporation within a reasonable time after he has
knowledge of the action.
<PAGE> 12
5.10 Compensation. The Board of Directors, by affirmative vote of a
majority of directors in office and irrespective of any personal interest of any
of them, may establish reasonable compensation of directors for services to the
Corporation as directors or officers.
5.11 Employment of Others. To assist in the performance of its duties,
the Board of Directors or any committee thereof may employ any other corporation
or any association, syndicate, trust, firm or individual, or any group or
combination thereof, to serve, assist, advise or inform it, and may confer
thereon such powers and authorities as it may deem advisable, and make or
contract to make such payments, fees or other remuneration for services rendered
as the Board may deem desirable.
ARTICLE VI
Notices, Waivers of Notice and Manner of Acting
6.01 Notices. All notices of meetings required to be given to
shareholders, directors or any committee of directors may be given by mail,
telegram, cablegram or any other means permitted under the laws of the State of
Michigan to any shareholder, director or committee member at his or her last
address as it appears on the books of the Corporation.
6.02 Waiver of Notice. Notice of the time, place and purpose of any
meeting of shareholders, directors or committee of directors may be waived by
telegram, facsimile transmission, cablegram or other writing, either before or
after the meeting, or in such other manner as may be permitted by the laws of
the State of Michigan. Attendance of a person at any meeting of directors or a
committee of directors, constitutes a waiver of notice of the meeting except
when the person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called and convened.
6.03 Action Without a Meeting. Any action required or permitted at any
meeting of shareholders or directors or committee of directors may be taken
without a meeting, without prior notice and without a vote, if all of the
shareholders or directors or committee members entitled to vote thereon consent
thereto in writing.
ARTICLE VII
Officers
7.01 Number. The Board of Directors shall elect or appoint a President,
a Secretary and a Treasurer, and may elect a Chairman of the Board, a Vice
Chairman of the Board, and one or more Vice Presidents, Assistant Secretaries
and/or Assistant Treasurers and such other officers as it shall deem advisable.
Any two or more of the above offices may be held by the same person, but no
officer shall execute, acknowledge or verify an instrument in more than one
capacity. The Board of Directors shall designate a chief executive officer and
may, from time to time, but shall not be required to do so, designate a chief
operating officer, a chief financial officer and/or a chief administrative
officer.
<PAGE> 13
7.02 Term of Office, Resignation and Removal. An officer shall hold
office for the term for which he is elected or appointed and until his successor
is elected or appointed and qualified, or until his resignation or removal. An
officer may resign by written notice to the Corporation. The resignation is
effective upon its receipt by the Corporation or at a subsequent time specified
in the notice of resignation. An officer may be removed by the Board with or
without cause. The removal of an officer shall be without prejudice to his
contract rights, if any. The election or appointment of an officer does not of
itself create contract rights.
7.03 Vacancies. The Board of Directors may fill any vacancies in any
office occurring for whatever reason.
7.04 Authority. All officers, employees and agents of the Corporation
shall have such authority and perform such duties in the conduct and management
of the business and affairs of the Corporation as may be designated by the Board
of Directors and these Bylaws.
ARTICLE VIII
Duties of Officers
8.01 Chairman of the Board. The Chairman of the Board, if such office
is filled, shall preside at all meetings of the shareholders and of the Board of
Directors at which he is present. The Chairman of the Board shall perform such
other duties as the Board of Directors may from time to time prescribe. The
Chairman of the Board shall serve as the chief executive officer unless
designated otherwise by the Board of Directors. Subject to the direction of the
Board of Directors, the chief executive officer shall have the general powers of
supervision and management usually vested in the chief executive officer of a
corporation, including the authority to vote all securities of other
corporations and business organizations which are held by the Corporation.
8.02. Vice Chairman of the Board. The Vice Chairman of the Board, if
such office is filled, shall perform such duties as the Board of Directors may
from time to time prescribe.
8.03 President. The President shall perform such duties as the Board of
Directors may from time to time prescribe, and shall have authority to execute
on behalf of the Corporation any and all contracts, agreements, bonds, deeds,
mortgages, leases or other obligations of the Corporation.
8.04 Vice Presidents. The Vice Presidents shall perform such duties as
the Board of Directors or the President may from time to time prescribe, and
shall have authority to execute on behalf of the Corporation any and all
contracts, agreements, bonds, deeds, mortgages, leases or other obligations of
the Corporation.
8.05 Secretary. The Secretary shall attend all meetings of the Board of
Directors and of shareholders and shall record all votes and minutes of all
proceedings in a book to be kept for that purpose. He shall give or cause to be
given notice of all meetings of the shareholders and of the Board of Directors.
He shall keep in safe custody the seal of the Corporation, and, when authorized
by the Board, affix the same to any instrument requiring it, and when so affixed
it shall be attested by his signature, or by the signature
<PAGE> 14
of the Treasurer or an Assistant Secretary. The Secretary may delegate any of
his duties, powers and authorities to one or more Assistant Secretaries, unless
such delegation is disapproved by the Board.
8.06 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities; shall keep full and accurate accounts of receipts and
disbursements in books of the Corporation; and shall deposit all moneys and
other valuable affects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall render to
the President and Directors, whenever they may require it, an account of his
transactions as Treasurer and of the financial condition of the Corporation. The
Treasurer may delegate any of his duties, powers and authorities to one or more
Assistant Treasurers unless such delegation be disapproved by the Board of
Directors.
8.07 Assistant Secretaries and Treasurers. The Assistant Secretaries,
in order of their seniority, shall perform the duties and exercise the powers
and authorities of the Secretary in case of his absence or disability. The
Assistant Treasurers, in the order of their seniority, shall perform the duties
and exercise the powers and authorities of the Treasurer in case of his absence
or disability. The Assistant Secretaries and Assistant Treasurers shall also
perform such duties as may be delegated to them by the Secretary and Treasurer,
respectively, and also such duties as the Board of Directors may from time to
time prescribe.
8.08 Bonds. The Board of Directors may require any officer, agent or
employee of the Corporation to give bond for the faithful discharge of his duty
and for the protection of the Corporation, in such sum and with such surety or
sureties as the Board may deem advisable.
ARTICLE IX
Special Corporate Acts
9.01 Orders for Payment of Money. All checks, drafts, notes, bonds,
bills of exchange and orders for payment of money of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
9.02 Contracts and Conveyances. The Board of Directors of the
Corporation may in any instance designate the officer and/or agent who shall
have authority to execute any contract, conveyance, mortgage or other instrument
on behalf of the Corporation, or may ratify or confirm any execution. When the
execution of any instrument has been authorized without specification of the
executing officers or agents, the Chairman of the Board, the President or any
Vice President, and the Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer, may execute the same in the name and on behalf of this
Corporation and may affix the corporate seal thereto.
<PAGE> 15
ARTICLE X
Books and Records
10.01 Maintenance of Books and Records. The proper officers and agents
of the Corporation shall keep and maintain such books, records, and accounts of
the Corporation's business and affairs, minutes of the proceedings of its
shareholders, Board and committees, if any, and such stock ledgers and lists of
shareholders, as the Board of Directors shall deem advisable, and as shall be
required by the laws of the State of Michigan and other states or jurisdictions
empowered to impose such requirements. Books, records and minutes may be kept
within or without the State of Michigan in a place which the Board shall
determine.
10.02 Reliance on Information, Opinions, Reports. In discharging his or
her duties, a director or officer is entitled to rely on information, opinions,
reports, or statements, including financial statements and other financial data,
if prepared or presented by any of the following:
(a) one or more directors, officers, or employees of the
Corporation, or of a business organization under joint or common control, whom
the director or officer reasonably believes to be reliable and competent in the
matters presented;
(b) legal counsel, public accountants, engineers, or other
persons as to matters the director or officer reasonably believes are within the
person's professional or expert competence; and
(c) a committee of the Board of which he or she is not a
member if the director or officer reasonably believes the committee merits
confidence.
A director or officer is not entitled to rely on the information set forth in
this Section 10.02 if he or she has knowledge concerning the matter in question
that makes reliance otherwise permitted by this Section 10.02 unwarranted.
10.03 Fiscal Year. The fiscal year of the Corporation shall be on a
"52-53 week" basis. This fiscal year shall end with the Saturday which is
closest to the last day of December of each year and the next fiscal year shall
begin with the Sunday immediately following the Saturday on which the preceding
fiscal year ended.
ARTICLE XI
Indemnification
11.01 Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the
<PAGE> 16
fullest extent authorized by the Michigan Business Corporation Act, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said Act permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith; provided, however, that the Corporation shall indemnify
any such person seeking indemnity in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if such action, suit
or proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. Such right shall be a contract right and shall include the right to
be paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Section or otherwise.
11.02 Right of Claimant to Bring Suit. If a claim under Section 11.01
is not paid in full by the Corporation within ninety days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking has been tendered to the Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Michigan Business Corporation Act for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Michigan Business Corporation
Act, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or it shareholders) that the claimant had
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant had not met the applicable standard of
conduct.
11.03 Non-Exclusivity of Rights. The right conferred on any person by
Sections 11.01 and 11.02 shall not be exclusive or any other rights which such
person may have or hereafter acquire under any statute, provision of the
Articles of Incorporation, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise.
11.04 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself or any such director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
<PAGE> 17
other enterprise, or both, against any such expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Michigan Business Corporation Act.
ARTICLE XII
Amendments
12.01 Amendments. The Bylaws of the Corporation may be amended, altered
or repealed, in whole or in part, by the shareholders or by the Board of
Directors at any meeting duly held in accordance with these Bylaws, provided
that notice of the meeting includes notice of the proposed amendment, alteration
or repeal.
ARTICLE XIII
Control Shares and
Control Share Acquisitions
13.01 Control Share Acquisitions. The Corporation is subject to Chapter
7B, "Control Share Acquisitions," of the Michigan Business Corporation Act. The
Corporation became subject to Chapter 7B effective as of May 31, 1988, pursuant
to the adoption of a resolution by the Board of Directors that was filed with
the Michigan Department of Commerce. Under Chapter 7B, shares of capital stock
of the Corporation constituting "control shares" acquired in "control share
acquisitions" (as defined in Chapter 7B) have the same voting rights as were
accorded the shares before the "control share acquisition" only to the extent
granted by resolution approved by the shareholders of the Corporation in
accordance with Chapter 7B.
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (the "Amendment") dated
as of December 22, 1998 by and among CHAMPION ENTERPRISES, INC., a Michigan
corporation (the "Borrower"), the Banks set forth therein, NBD BANK, as
Syndication Agent, COMERICA BANK, as Documentation Agent and NATIONAL CITY BANK,
HARRIS TRUST AND SAVINGS BANK, KEYBANK NATIONAL ASSOCIATION, NATIONSBANK, N.A.
and WACHOVIA BANK, N.A., as Co-Agents, and PNC BANK, NATIONAL ASSOCIATION, in
its capacity as Administrative Agent for the Banks (the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Banks, the Syndication Agent, the
Documentation Agent, the Co-Agents and the Agent are parties to that certain
Credit Agreement dated as of May 5, 1998 (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement
as herein provided.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Definitions.
Defined terms used herein unless otherwise defined herein shall have
the meaning ascribed to them in the Credit Agreement as amended by this
Amendment.
2. Amendment of Credit Agreement.
A. Section 2.9.1 [Issuance of Letters of Credit] of the Credit
Agreement is hereby amended by deleting "$20,000,000" in the last sentence
thereof and inserting in lieu thereof "$60,000,000."
B. Section 7.2.1 [Indebtedness] of the Credit Agreement is hereby
amended by deleting clause (viii) in its entirety and inserting in lieu thereof
the following:
(viii) "Indebtedness of a Loan Party or a Subsidiary of a Loan Party
under an interest rate swap, cap, collar or floor agreement or other interest
rate management device with any Bank referencing an aggregate notional amount
not to exceed (i) with respect to then-outstanding Indebtedness, the sum of
Indebtedness permitted under Section 7.2.1 which constitutes interest-bearing
indebtedness for borrowed money and interest-bearing Earn Out Obligations and
(ii) with respect to future interest-bearing indebtedness for borrowed money
anticipated to be incurred within twelve (12) months after any date of
determination and otherwise permitted pursuant to Section 7.2.1, $100,000,000,
provided, in each case, such interest rate swap, cap, collar or floor agreement,
or interest rate management device is entered into for hedging purposes only and
not for speculation, as determined in accordance with Statement of Financial
Accounting Standards No. 133 (Accounting for Derivative Instruments and Hedging
Activities); and
(ix) Indebtedness (other than as set forth above) of the Borrower and
its Subsidiaries in an amount not to exceed fifteen percent (15%) of
Consolidated Net Worth in the aggregate at any one time outstanding."
C. Section 7.2.5(2)(vi) [Liquidations, Mergers, Consolidations,
Acquisitions] of the Credit Agreement is hereby amended by (a) deleting
"$5,000,000" in the second line thereof and inserting in lieu thereof
"$15,000,000" and (b) deleting "five (5)" in the eighth (8th) line thereof and
inserting in lieu thereof "one (1)."
<PAGE> 2
D. Exhibit 7.2.5 [Acquisition Compliance Certificate] to the
Credit Agreement is hereby amended and restated in the form attached hereto as
Exhibit 7.2.5.
E. Exhibit 7.3.3 [Quarterly Compliance Certificate) to the Credit
Agreement is hereby amended by deleting Section 5(D) in its entirety and
inserting the following in lieu thereof:
(D)Indebtedness under an interest rate swap, cap, collar or floor
arrangement or other interest rate management device with any Bank (aggregate
notional amount may not exceed (i) with respect to then-outstanding
Indebtedness, the sum of interest-bearing indebtedness for borrowed money and
interest-bearing Earn Out Obligations and (ii) with respect to future
interest-bearing indebtedness for borrowed money anticipated to be incurred
within twelve (12) months after the Report Date and otherwise permitted by
Section 7.2.1, $100,000,000) $ ___________________
(E)Indebtedness (other than set forth in Sections 7.2.1 (i) through
(viii) of the Credit Agreement) (may not exceed $ ______________ which is
fifteen percent (15%) of the Consolidated Net Worth) $ ___________________
3. Conditions of Effectiveness of this Agreement.
The effectiveness of this Amendment No. 1 is expressly conditioned upon
satisfaction of each of the following conditions precedent:
(a) Representations and Warranties; No Defaults. The representations
and warranties of the Loan Parties contained in Section 5 of the Credit
Agreement shall be true and accurate on the date hereof with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein); the Loan Parties shall have
performed and complied with all covenants and conditions of the Credit
Agreement; and no Event of Default or Potential Default under the Credit
Agreement shall have occurred and be continuing or shall exist.
(b) Counterparts. The Agent shall have received counterparts of this
Amendment No. 1 duly executed by the Borrower and the Banks, and the Agent shall
have received all such other counterpart originals or certified or other copies
of such documents and proceedings in connection with such transactions, in form
and substance satisfactory to the Agent. This Amendment No. 1 may be executed by
the parties hereto in any number of separate counterparts, each of which when
taken together and duly executed and delivered shall together constitute one and
the same instrument.
(c) Borrower Certificate. The Agent shall have received a certificate
signed by the Secretary or Assistant Secretary of the Borrower certifying as to
all action taken by the Borrower to authorize the execution, delivery and
performance of this Amendment No. 1.
4. Force and Effect. Except as expressly modified by this Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect on and after the date
hereof.
5. Governing Law. This Amendment No. 1 shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
6. Effective Date. This Amendment No. 1 shall be dated as of and shall
be effective as of the date and year first above written, which date shall be
the date of the
<PAGE> 3
satisfaction of all conditions precedent to effectiveness set forth in this
Amendment No. 1.
[SIGNATURE PAGE FOLLOWS]
(SIGNATURE PAGE 1 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: CHAMPION ENTERPRISES, INC.
By:
Name:
Title:
(Seal)
ATTEST: CHAMPION HOME BUILDERS CO.
By:
Name:
Title:
(Seal)
ATTEST: REDMAN HOMES, INC.
By:
Name:
Title:
(Seal)
ATTEST: DUTCH HOUSING, INC.
By:
Name:
Title:
(Seal)
ATTEST: ACCENT MOBILE HOMES, INC.
By:
Name:
<PAGE> 4
Title:
(Seal)
(SIGNATURE PAGE 2 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
ATTEST: SOUTHERN SHOWCASE HOUSING, INC.
By:
Name:
Title:
(Seal)
ATTEST: AUBURN CHAMP, INC.
By:
Name:
Title:
(Seal)
ATTEST: REDMAN BUSINESS TRUST
By:
Name:
Title:
(Seal)
ATTEST: CHANDELEUR HOMES, INC.
By:
Name:
Title:
(Seal)
ATTEST: HOMES OF LEGEND, INC.
By:
Name:
Title:
<PAGE> 5
(Seal)
(SIGNATURE PAGE 3 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
ATTEST: GRAND MANOR, INC.
By:
Name:
Title:
(Seal)
ATTEST: CREST RIDGE HOMES, INC.
By:
Name:
Title:
(Seal)
ATTEST: LAMPLIGHTER HOMES, INC.,
a Washington corporation
By:
Name:
Title:
(Seal)
ATTEST: LAMPLIGHTER HOMES, INC.,
an Oregon corporation
By:
Name:
Title:
(Seal)
(SIGNATURE PAGE 4 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
PNC BANK, NATIONAL ASSOCIATION,
Individually and as Administrative
Agent
<PAGE> 6
By:
Name:
Title:
NBD BANK, individually and as
Syndication Agent
By:
Name:
Title:
COMERICA BANK, individually and as
Documentation Agent
By:
Name:
Title:
NATIONAL CITY BANK, individually
and as Co-Agent
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
individually and as Co-Agent
By:
Name:
Title:
<PAGE> 7
(SIGNATURE PAGE 5 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
KEYBANK NATIONAL ASSOCIATION,
individually and as Co-Agent
By:
Name:
Title:
NATIONSBANK, N.A., individually
and as Co-Agent
By:
Name:
Title:
WACHOVIA BANK, N.A., individually
and as Co-Agent
By:
Name:
Title:
STANDARD FEDERAL BANK
By:
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By:
Name:
Title:
(SIGNATURE PAGE 6 OF 6 OF AMENDMENT NO. 1 TO CREDIT AGREEMENT)
MICHIGAN NATIONAL BANK
By:
<PAGE> 8
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
Name:
Title:
BANK ONE, N.A.
By:
Name:
Title:
HIBERNIA NATIONAL BANK
By:
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.6
CHAMPION ENTERPRISES, INC.
1993 MANAGEMENT STOCK OPTION PLAN
(As Amended and Restated as of October 27, 1998)
I. GENERAL PROVISIONS
1.1 Establishment and Restatement. On December 9, 1993, the Board of
Directors ("Board") of Champion Enterprises, Inc. ("Corporation") adopted the
Champion Enterprises, Inc. 1993 Middle Management Stock Option Plan, which was
amended on August 29, 1995 and June 18, 1996. The Plan subsequently has been
amended, restated and renamed the "Champion Enterprises, Inc. 1993 Management
Stock Option Plan" ("Plan") on October 27, 1998 to (a) increase the number of
shares available for grants under the Plan, and (b) more closely conform the
administration of the Plan with the Corporation's other stock option programs.
1.2 Purpose. The purpose of the Plan is to promote the best interests
of the Corporation and its shareholders by encouraging Employees of the
Corporation and its Subsidiaries to acquire an ownership interest in the
Corporation, thus identifying their interests with those of shareholders and
encouraging Participants to make greater efforts on behalf of the Corporation.
1.3 Definitions. As used in this Plan, the following terms have the
meaning described below:
(a) "Agreement" means the written agreement that sets forth
the terms of a Participant's Option grant.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Change in Control" means the occurrence of any of the
following events: (i) 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 Corporation in a single transaction or a series
of related transactions within a one-year period; (ii) a sale of all or
substantially all of the assets of the Corporation to any person, firm or
corporation; or (iii) a merger or similar transaction between the Corporation
and another entity if shareholders of the Corporation do not own a majority of
the voting stock of the corporation surviving the transaction.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Common Stock" means shares of the Corporation's
authorized common stock.
(f) "Corporation" means Champion Enterprises, Inc., a Michigan
corporation.
(g) "Disability" and "Disabled" means total and permanent
disability, as defined in Code Section 22(e).
<PAGE> 2
(h) "Employee" means an employee of the Corporation or
Subsidiary, who has an "employment relationship" with the Corporation or a
Subsidiary, as defined in Treasury Regulation 1.421-7(h), and the term
"employment" means employment with the Corporation, or a Subsidiary of the
Corporation. An Employee who is subject to the short swing profit restrictions
of Section 16(b) of the Exchange Act is not entitled to receive an Option grant
under the Plan; provided however, that an Employee who receives an Option grant
hereunder and later becomes subject to Section 16(b) of the Exchange Act may
retain any Options previously granted hereunder, as long as the exercise of any
such Option does not violate Section 16(b) of the Exchange Act.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time and any successor thereto.
(j) "Fair Market Value" means for purposes of determining the
value of Common Stock on the Grant Date, the Stock Exchange closing price of the
Corporation's Common Stock as reported in The Wall Street Journal for the Grant
Date. In the event that there were no Common Stock transactions on such date,
the Fair Market Value shall be determined as of the immediately preceding date
on which there were Common Stock transactions. Unless otherwise specified in the
Plan, "Fair Market Value" for purposes of determining the value of Common Stock
on the date of exercise means the Stock Exchange closing price of the
Corporation's Common Stock on the last date preceding the exercise on which
there were Common Stock transactions, as reported in The Wall Street Journal.
(k) "Grant Date" means the date on which the Chief Executive
Officer of the Corporation authorizes an individual Option grant, or such later
date as he shall designate.
(l) "Option" means a Nonqualified Stock Option that is not
intended to constitute an incentive stock option under Section 422 of the Code.
(m) "Participant" means an Employee who has received an Option
grant under the Plan.
(n) "Plan" means the Champion Enterprises, Inc. 1993
Management Stock Option Plan, the terms of which are set forth herein, and
amendments thereto.
(o) "Stock Exchange" means the New York Stock Exchange or, if
the Common Stock is not listed for trading on the New York Stock Exchange, such
other material securities exchange on which the largest number of shares of
Common Stock has been traded in the aggregate during the last 20 days before a
Grant Date or date on which an Option is exercised, whichever is applicable.
(p) "Subsidiary" means a Subsidiary of the Corporation, as
defined in Code Section 424(f).
1.4 Administration. The Plan shall be administered by the Board. The
Board shall interpret the Plan, prescribe, amend, and rescind rules and
regulations relating to the Plan, and make all other determinations necessary or
advisable for its administration. The decision of the Board on any question
<PAGE> 3
concerning the interpretation of the Plan or its administration with respect to
any Option granted under the Plan shall be final and binding upon all
Participants. No member of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any grant
hereunder.
1.5 Stock. The Board may reserve shares of the Corporation's Common
Stock, and increase the number of shares reserved, for issuance under the Plan.
Shares subject to any unexercised portion of a terminated, canceled or expired
Right of Option granted hereunder shall be available for future grants under the
Plan. All provisions in this Section 1.5 shall be adjusted, as applicable, in
accordance with Article IV.
II. STOCK OPTIONS
2.1 Grant of Options. The Chief Executive Officer of the Corporation at
any time and from time to time, in accordance with the terms of the Plan and
subject to Section 5.7, may grant Options to such Employees and for such number
of shares of Common Stock as he shall designate. An Option may be granted to an
individual upon the condition that the individual becomes an Employee of the
Corporation or a Subsidiary, provided that an Option shall be deemed to be
granted only on or after the date on which the individual becomes an Employee.
Any Participant may hold more than one Option under the Plan and any other stock
option plan of the Corporation or Subsidiary. The date on which an Option is
granted shall be the date of authorization of the Option or such later date as
shall be specified in a Participant's Option Agreement. The Chief Executive
Officer of the Corporation shall determine the general terms and conditions of
exercise, including any applicable vesting requirements and transfer
restrictions, which shall be set forth in a Participant's Agreement. No Option
granted hereunder may be exercised after the tenth anniversary of the Grant
Date. The Option price for any grant hereunder shall be stated in a
Participant's Agreement, determined by the Corporation's Chief Executive
Officer, and may be set below Fair Market Value.
2.2 Payment for Options.
(a) Payment Through Corporation. The purchase price for shares
of Common Stock to be acquired upon exercise of an Option granted hereunder
shall be paid in full in cash or by personal check, bank draft or money order at
the time of exercise; provided, however, that in lieu of such form of payment a
Participant may pay such purchase price in whole or in part by tendering shares
of Common Stock that have been held by the Participant for a minimum of six
months, which are freely owned and held by the Participant independent of any
restrictions, hypothecations or other encumbrances, duly endorsed for transfer
(or with duly executed stock powers attached), or in any combination of the
above. Shares of Common Stock surrendered upon exercise shall be valued at the
Stock Exchange closing price for the Corporation's Common Stock on the day prior
to exercise, as reported in The Wall Street Journal, and the certificate(s) for
such shares, duly endorsed for transfer or accompanied by appropriate stock
powers, shall be surrendered to the Corporation. Participants who become subject
<PAGE> 4
to the short swing profit restrictions under the Exchange Act may exercise an
Option by tendering previously-acquired shares only if permitted by the Board.
(b) Payment Through Broker. Any Option granted hereunder may
be deemed exercised by delivery to the Corporation of a properly executed
exercise notice, acceptable to the Corporation, together with irrevocable
instructions to the Participant's broker to deliver to the Corporation
sufficient cash to pay the exercise price and any applicable income and
employment withholding taxes, in accordance with a written agreement between the
Corporation and the brokerage firm; provided, however that Participants who
become subject to the short swing profit restrictions under Section 16(b) of the
Exchange Act may exercise an Option pursuant to this paragraph (b) only if
permitted by the Corporation.
III. TERMINATION OF EMPLOYMENT
3.1. Options Rights Upon Death, Disability or Termination of
Employment.
(a) Before Part of Option is Exercisable. If, prior to the
date that any part of an Option first becomes exercisable, a Participant's
employment is terminated for any reason, that part of the Option shall terminate
and all of the Participant's rights thereunder shall cease, and those Option
shares shall be returned to the Corporation for future Option grants under the
Plan.
(b) Termination Other Than Death or Disability. If, on or
after the date that an Option first becomes exercisable, a Participant's
employment is terminated for any reason other than death or Disability, the
Participant shall have the right, within the earlier of (i) the expiration of
the Option, and (ii) three months after termination of employment, to exercise
the Option to the extent that it was exercisable and unexercised on the date of
the Participant's termination of employment, subject to any other limitation on
the exercise of the Option in effect on the date of exercise. A Participant's
Agreement may designate that an Option shall terminate at an earlier time than
set forth above.
(c) Death and Disability. If, on or after the date that an
Option first becomes exercisable, a Participant terminates employment due to
death or Disability, the Participant, or the person or persons who whom the
Option shall have been transferred by will or the laws of descent and
distribution, shall have the right, within the earlier of (i) the expiration of
the Option, and (ii) one year after termination of employment, to exercise the
Option to the extent that it was exercisable and unexercised on the date of the
Participant's termination of employment, subject to any other limitation on the
exercise of the Option in effect on the date of exercise.
(d) Discretionary Acceleration or Extension Upon Termination.
The Chief Executive Officer, at the time of a Participant's termination of
employment, may accelerate a Participant's right to exercise an Option or extend
the exercise period of an Option.
(e) Unexercised Shares. Shares subject to Options that are not
exercised in accordance with the provisions of (a) through (d) above shall
expire
<PAGE> 5
and be forfeited by the Participant as of their expiration date and shall
become available for new grants under the Plan as of such date.
3.2 Events Not Constituting a Termination. The transfer of an Employee
from one corporation to another among the Corporation and any of its
Subsidiaries, or a leave of absence under the leave policy of the Corporation or
any of its Subsidiaries shall not be a termination of employment for purposes of
the Plan, unless a provision to the contrary is expressly stated by the
Committee in a Participant's Agreement issued under the Plan.
IV. ADJUSTMENTS AND CHANGE IN CONTROL
4.1 Adjustments. The total amount of Common Stock for which Options may
be issued under the Plan, and the number of shares subject to any such grants
(both as to the number of shares of Common Stock and the Option price), shall be
adjusted pro rata for any increase or decrease in the number of outstanding
shares of Common Stock resulting from payment of a stock dividend on Common
Stock, a subdivision or combination of shares of Common Stock, or a
reclassification of Common Stock. The foregoing adjustments shall be made by the
Board. Any such adjustment shall provide for the elimination of any fractional
share which might otherwise become subject to an Option.
4.2 Change in Control. At the discretion of the Corporation's Chief
Executive Officer, an Agreement may contain a provision that, upon a Change in
Control of the Corporation, any or all outstanding Options granted hereunder
immediately may become exercisable in full, regardless of any installment
provision applicable to such Option.
V. MISCELLANEOUS
5.1 Partial Exercise/Fractional Shares. A Participant's Agreement may
permit the partial exercise of Options granted under the Plan. No fractional
shares shall be issued in connection with the exercise of an Option. The number
of shares purchased pursuant to an Option shall be rounded down to the nearest
whole number of shares and any fractional shares shall be disregarded.
5.2 Short Swing Profit Restrictions. Notwithstanding any other
provision of the Plan, the Corporation may impose such conditions on the
exercise of an Option (including, without limitation, the right of the
Corporation to limit the time of exercise to specified periods), as may be
required to avoid short swing profit liability.
5.3 Rights Prior to Issuance of Shares. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option until the
issuance of a stock certificate for such shares. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date the certificate is issued.
<PAGE> 6
5.4 Non-Assignability. No Option shall be transferable by a Participant
except by will or the laws of descent and distribution. During the lifetime of a
Participant, an Option shall be exercised only by the Participant. No transfer
of an Option by will or the laws of descent and distribution shall be effective
to bind the Corporation unless the Corporation shall have been furnished with
written notice thereof and a copy of the will or such evidence as the
Corporation may deem necessary to establish the validity of the transfer and the
acceptance by the transferee of the terms and conditions of the Option. At the
discretion of the Corporation's Chief Executive Officer, an Agreement may
contain additional forfeiture provisions or restrictions on the transfer of
shares of Common Stock acquired pursuant to an Option granted hereunder.
5.5. Securities Laws.
(a) Anything to the contrary herein notwithstanding, the
Corporation's obligation to sell and deliver Common Stock pursuant to the
exercise of an Option is subject to such compliance with federal and state laws,
rules and regulations applying to the authorization, issuance or sale of
securities as the Corporation deems necessary or advisable. The Corporation
shall not be required to sell and deliver or issue Common Stock unless and until
it receives satisfactory assurance that the issuance or transfer of such shares
shall not violate any of the provisions of the Securities Act of 1933 or the
Exchange Act, or the rules and regulations of the Securities Exchange Commission
promulgated thereunder or those of the Stock Exchange or any stock exchange on
which the Common Stock may be listed, the provisions of any state laws governing
the sale of securities, or that there has been compliance with the provisions of
such acts, rules, regulations and laws.
(b) The Corporation may impose such restrictions on any shares
of Common Stock acquired pursuant to the exercise of an Option under the Plan as
it may deem advisable, including, without limitation, restrictions (i) under
applicable federal securities laws, (ii) under the requirements of the Stock
Exchange or any stock exchange or other recognized trading market upon which
such shares of Common Stock are then listed or traded, and (iii) under any blue
sky or state securities laws applicable to such shares. No shares shall be
issued until counsel for the Corporation has determined that the Corporation has
complied with all requirements under appropriate securities laws.
5.6 Withholding Taxes.
(a) An Employee who exercises an Option shall receive a letter
from the Corporation stating the amount of income and employment taxes incurred
pursuant to the exercise that must be remitted to the Corporation within a
specified time period. If such amount is not received by the Corporation within
the stated time period, the Corporation shall have the right to withhold
sufficient funds from a Participant's compensation to satisfy the applicable
withholding for income and employment taxes. A former Employee, or beneficiary
of a former Employee, only may exercise an Option hereunder upon tender of the
applicable income and employment taxes to the Corporation at the time of
exercise. To satisfy the withholding tax requirements, a Participant may make a
written election to tender previously-acquired shares of Common Stock that have
been held for a minimum of six months or have shares of stock withheld from the
<PAGE> 7
exercise, provided that the shares have an aggregate Fair Market Value, in
combination with cash, if applicable, sufficient to satisfy the applicable
withholding taxes. The exercise procedure set forth in Section 2.2(b) may be
utilized to satisfy the withholding requirements related to the exercise of an
Option. At no point shall the Corporation withhold from the exercise an Option
more shares than are necessary to meet the established tax withholding
requirements of federal, state and local obligations.
(b) A Participant who becomes subject to the insider trading
restrictions of Section 16(b) of the Exchange Act may use Common Stock to
satisfy the applicable withholding requirements only if such transaction shall
not violate the short swing profit restrictions of Section 16(b). Any election
by a Participant to utilize Common Stock for withholding purposes is subject to
the discretion of the Corporation.
5.7 Termination and Amendment.
(a) The Board may terminate the Plan, or the granting of
Options, under the Plan, at any time. No new grants shall be made under the Plan
after December 8, 2003.
(b) The Board may amend or modify the Plan at any time and
from time to time, but no amendment or modification shall in any manner affect
any outstanding Option without the written consent of the impacted Participant.
5.8 Effect on Employment. Neither the adoption of the Plan nor the
granting of any Option pursuant to the Plan shall be deemed to create any right
in any individual to be retained or continued in the employment of the
Corporation or a Subsidiary.
5.9 Use of Proceeds. The proceeds received from the sale of Common
Stock pursuant to the Plan shall be used for general corporate purposes of the
Corporation.
This amendment and restatement of the 1993 Management Stock Option Plan
has been executed on behalf of the Corporation on this the day of , 1998.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.9
SECOND AMENDMENT TO THE 1995 STOCK OPTION
AND INCENTIVE PLAN
(As previously amended and restated as of August 11, 1995)
This SECOND AMENDMENT TO THE 1995 STOCK OPTION AND INCENTIVE PLAN is
made and approved as of this 28th day of April, 1998, by the Shareholders of
Champion Enterprises, Inc.
WITNESSETH:
WHEREAS the Shareholders of Champion Enterprises, Inc. desire to amend
the 1995 Stock Option and Incentive Plan (as previously amended and restated as
of August 11, 1995) as set forth below.
NOW, THEREFORE, the 1995 Stock Option and Incentive Plan is amended as
follows:
1. Section 1.6 is hereby amended by replacing the figure "1,375,000"
with "4,650,000."
2. Each reference in the 1995 Stock Option and Incentive Plan to the
"Plan," "herein," "hereunder," or "hereof" or words of like import shall
hereafter mean and be a reference to the 1995 Stock Option and Incentive Plan
(as amended and restated as of August 11, 1995) as amended hereby.
Except as specifically amended hereby, the 1995 Stock Option and
Incentive Plan as amended and restated as of August 11, 1995, and each provision
thereof, remains in full force and effect.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman, President and Chief
Executive Officer
Attest:
John J. Collins, Jr.
Secretary
<PAGE> 1
EXHIBIT 10.10
THIRD AMENDMENT
TO THE CHAMPION ENTERPRISES, INC.
1995 STOCK OPTION AND INCENTIVE PLAN
In accordance with Board resolutions adopted by the Board of Directors
of Champion Enterprises, Inc. (the "Corporation"), the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan is hereby amended effective July 1,
1998 as set forth below:
I . Sub-section 1.3(q) "Participant" is amended and restated to read as follows:
(q) "Participant" means an Employee designated by the Committee to
participate in the Plan. Provided, however, that for purposes of Restricted
Stock that is granted by the Committee on behalf of an Employee's services to
the Corporation and pursuant to the terms of the Corporation's Corporate Officer
Stock Purchase Plan (the "Corporate Officer Stock Purchase Plan"), once the
Restricted Stock Agreement on behalf of such Employee has been executed by the
Trustee of the Trust under the Champion Enterprises, Inc. Management Stock
Purchase Plan and Corporate Officer Stock Purchase Plan (the "Rabbi Trust"),
"Participant" shall mean the Rabbi Trust for purposes of the Plan.
2. Section 1.5 "Participants" is amended by the addition of the
following sentence at the end of the Section:
Restricted Stock granted by the Committee on behalf of an Employee's
services to the Corporation and pursuant to the terms of the Corporation's
Officer Stock Purchase Plan, may be issued in the name of the Trustee of the
Rabbi Trust, in which case "Participant" shall mean the Rabbi Trust during the
Restriction Period.
Section 4.1 "Grant of Restricted Stock" is amended and restated in its
entirety to read as follows:
4.1 Grant of Restricted Stock. Subject to the terms of the Plan, the
Committee, at any time and from time to time, may grant shares of Restricted
Stock under this Plan on behalf of services rendered by such Employees and in
such amounts as it shall determine. Upon the approval of the Committee,
Employees participating in the Corporate Officer Stock Purchase Plan may defer
compensation under the terms of such plan that will be issued in the form of
Restricted Stock under this Plan.
4. Section 4.3 "Transferability" is amended by the addition of the
following sentence at the end of the Section:
Restricted Stock granted at the Committee's discretion in connection
with Employee deferrals under the Corporate Officer Stock Purchase Plan shall be
issued in the name of the Trustee of the Rabbi Trust, which shall not be deemed
to constitute a "transfer" for purposes of this Section.
5. The first sentence in Section 7.2 "Restricted Stock" is replaced by
a new first sentence to read as follows:
If Restricted Stock has been granted on behalf of an Employee and the
Employee terminates employment prior to the end of the Restriction Period for
any reason other than a Change in Control, the Restricted Stock issued on behalf
of such Employee automatically shall expire and be forfeited and, subject to
Section 1.6, shall be available for new grants under the Plan as of such
termination date; provided, however, that the Committee, in its sole discretion,
may waive the restrictions remaining on any or all shares of Restricted Stock
and add such new restrictions to such shares of Restricted Stock as it deems
appropriate.
<PAGE> 2
6. The following sentence is added to the end of Section 9.4
"Non-Assignability" to read as follows:
Restricted Stock granted by the Committee on behalf of an Employee's
services to the Corporation and pursuant to the terms of the Corporate Officer
Stock Purchase Plan shall be issued in the name of the Trustee of the Rabbi
Trust, which shall not be deemed to constitute a "transfer" for purposes of this
Section.
7. Section 9.6 "Withholding Taxes" is amended and restated in its
entirety to read as follows:
9.6 Withholding Taxes.
(a) The Corporation shall have the right to withhold from an
Employee's compensation or require an Employee to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an Option or Stock Appreciation Right or the lapse of the Restriction Period
on a Restricted Stock grant or the payment of a Performance Share Award or
Annual Incentive Award. An Employee may make a written election to tender
previously-acquired shares of Common Stock or have shares of stock withheld from
the exercise, provided that the shares have an aggregate Fair Market Value
sufficient to satisfy in whole or in part the applicable withholding taxes. The
cashless exercise procedure of Section 2.4 may be utilized to satisfy the
withholding requirements related to the exercise of an Option. At no point shall
the Corporation withhold from the exercise of an Option more shares than are
necessary to meet the established tax withholding requirements of federal, state
and local obligations.
(b) Except as permitted under Rule 16b-3 of the Exchange Act,
an Employee subject to the insider trading restrictions of Section 16(b) of the
Exchange Act may use Common Stock to satisfy the applicable withholding
requirements only if notice of election to exercise is given to the Committee
within the 10-day "window periods" set forth in Rule 16b-3, or such election is
made at least six months prior to the date on which the exercise of the Option
or Stock Appreciation Right, or the receipt of the Restricted Stock grant,
Performance Share Award or Annual Incentive Award becomes taxable. Any election
by an Employee to utilize Common Stock for withholding purposes is subject to
the discretion of the Committee.
THIS THIRD AMENDMENT to the Champion Enterprises, Inc. 1995 Stock
Option and Incentive Plan is executed on the 27th day of 0ctober, 1998.
CHAMPION ENTERPRISES, INC.
By:
Walter R. Young, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.16
CHAMPION ENTERPRISES, INC.
AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AMENDMENT, dated February 18, 1999, is between Champion
Enterprises, Inc. (the "Company") and John J. Collins, Jr., who is currently
employed by the Company in the position of Vice President, General Counsel and
Secretary (the "Executive").
WITNESSETH:
WHEREAS, on March 3, 1997 the Company and Executive entered
into a Change of Control Severance Agreement (the "Agreement"); and
WHEREAS, the Company believes that it is in the best interests
of the Company and its Shareholders that the Agreement be amended to provide
additional financial incentive to encourage Executive to remain in the employ of
the Company in the event of a Change in Control; and
WHEREAS, the Executive will continue to provide dedicated
services to the Company with the additional financial incentives in the event of
a Change in Control.
NOW THEREFORE, the parties agree that the Agreement be amended
as follows:
1. Section 7(a) of the Agreement is amended to read:
(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 two times the highest
annual cash compensation (including base salary and incentive
compensation or similar award) paid or payable to the Executive by the
Company for any of the three fiscal years ended immediately prior to
the date of termination of Executive's employment, plus the unpaid
prorated portion of his annual bonus (but excluding commissions and
other nonrecurring cash compensation payments).
2. All of the definitions contained in the Agreement shall apply to
this amendment and the remaining terms and conditions of the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this amendment 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 Executive Officer
By:
John J. Collins, Jr.
<PAGE> 1
EXHIBIT 10.20
CHAMPION ENTERPRISES, INC.
AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AMENDMENT, dated February 18, 1999, 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, on June 13, 1997 the Company and Executive entered
into a Change of Control Severance Agreement (the "Agreement"); and
WHEREAS, the Company believes that it is in the best interests
of the Company and its Shareholders that the Agreement be amended to provide
additional financial incentive to encourage Executive to remain in the employ of
the Company in the event of a Change in Control; and
WHEREAS, the Executive will continue to provide dedicated
services to the Company with the additional financial incentives in the event of
a Change in Control.
NOW THEREFORE, the parties agree that the Agreement be amended
as follows:
1. Section 7(a) of the Agreement is amended to read:
(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 two times the highest
annual cash compensation (including base salary and incentive
compensation or similar award) paid or payable to the Executive by the
Company for any of the three fiscal years ended immediately prior to
the date of termination of Executive's employment, plus the unpaid
prorated portion of his annual bonus (but excluding commissions and
other nonrecurring cash compensation payments).
2. All of the definitions contained in the Agreement shall apply to
this amendment and the remaining terms and conditions of the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this amendment 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 Executive Officer
By:
Philip C. Surles
<PAGE> 1
EXHIBIT 10.23
CHAMPION LETTERHEAD
September 10, 1998
Secretary
Champion Enterprises, Inc.
2701 University Drive
Suite 300
Auburn Hills, Michigan 48326
Dear Sir:
On January 12, 1998, I entered into a Non-Qualified Stock Option
Agreement with Champion Enterprises, Inc. (the "January 12, 1998 Agreement"). In
the section of the January 12, 1998 Agreement entitled "Second Part", I was
granted a stock option permitting me, subject to a five-year graded vesting
schedule, to purchase 480,000 shares of Champion Enterprises, Inc. Common Stock
at a price of $20.00 per share.
A new and different option grant has been offered to me and in
consideration of that new grant, I have been asked to and am willing to release
Champion Enterprises, Inc. from all obligations related to the options in the
Second Part of the January 12, 1998 Agreement. I hereby notify you that I
irrevocably renounce any interest that I had, have or may have in the options
contained in the Second Part of the January 12, 1998 Agreement and I agree and
acknowledge that Champion has no further obligation under that provision of the
January 12, 1998 Agreement.
I also understand and agree that all of the rest and remainder of the
January 12, 1998 Agreement, including the provisions related to the grant
contained in the "First Part", my obligations of confidentiality and
restrictions on my right to compete with Champion Enterprises, Inc., remain in
full force and effect.
Joseph H. Stegmayer
<PAGE> 1
EXHIBIT 10.25
CHAMPION ENTERPRISES, INC.
AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AMENDMENT, dated February 18, 1999, is between Champion
Enterprises, Inc. (the "Company") and Joseph H. Stegmayer, who is currently
employed by the Company in the position of Executive Vice President and Chief
Strategic and Financial Officer (the "Executive").
WITNESSETH:
WHEREAS, on January 12, 1998 the Company and Executive entered
into a Change of Control Severance Agreement (the "Agreement"); and
WHEREAS, the Company believes that it is in the best interests
of the Company and its Shareholders that the Agreement be amended to provide
additional financial incentive to encourage Executive to remain in the employ of
the Company in the event of a Change in Control; and
WHEREAS, the Executive will continue to provide dedicated
services to the Company with the additional financial incentives in the event of
a Change in Control.
NOW THEREFORE, the parties agree that the Agreement be amended
as follows:
1. Section 7(a) of the Agreement is amended to read:
(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 two times the highest
annual cash compensation (including base salary and incentive
compensation or similar award) paid or payable to the Executive by the
Company for any of the three fiscal years ended immediately prior to
the date of termination of Executive's employment, plus the unpaid
prorated portion of his annual bonus (but excluding commissions and
other nonrecurring cash compensation payments).
2. All of the definitions, contained in the Agreement shall apply to
this amendment and the remaining terms and conditions of the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this amendment 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 Executive Officer
By:
Joseph H. Stegmayer
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement"), made
and entered into as of this 8th day of January, 1998, by and between M. MARK
COLE (the "Executive") on the one hand and SOUTHERN SHOWCASE HOUSING, INC., a
North Carolina corporation (the "Company") and CHAMPION ENTERPRISES, INC., a
Michigan corporation ("Champion") on the other.
W I T N E S S E T H:
WHEREAS, Executive was a shareholder of, and prior to the date hereof
the Executive has been employed by Company; and
WHEREAS, on the date hereof the shareholders of Company are selling
their stock to Champion Home Centers, Inc., a subsidiary of Champion, pursuant
to the terms of a Stock Purchase Agreement dated December 5, 1997 (the "Purchase
Agreement"); and
WHEREAS, Executive, as a shareholder of Company, will receive a direct
and substantial economic benefit from the sale of his stock to Champion Home
Centers, Inc. pursuant to the Purchase Agreement; and
WHEREAS, the execution and delivery of this Agreement by Executive is
an express condition precedent to the obligations under the Purchase Agreement
and Executive is executing and delivering this Agreement in satisfaction of such
condition precedent; and
WHEREAS, the Executive is expected to make a major contribution to the
growth, profitability and financial strength of the Company; and
WHEREAS, the Company, Champion and the Executive desire to set forth
the terms and conditions of Executive's employment with the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
conditions set forth herein.
2. Term. The term of this Agreement shall be for the period commencing
on the date of this Agreement (the "Commencement Date") and terminating on the
fifth anniversary of the Commencement Date (the "Initial Term"), unless sooner
terminated in the manner hereinafter provided. After the Initial Term, this
Agreement may be extended for such additional period(s), if any, as may be
agreed upon in writing by Executive and the Company.
3. Duties.
(a) During the term of this Agreement, the Executive shall
serve as President and perform the duties of the chief executive officer of the
Company. Subject always to the supervision and direction of the Board of
Directors of the Company, the Executive shall have the duties and
responsibilities customarily associated with such office and as otherwise
provided in the Bylaws of the Company. During the term of this Agreement, the
Executive shall devote his full working time and his best efforts, and apply all
of his skill and experience, to
<PAGE> 2
the proper performance of his duties hereunder and to the business and affairs
of the Company.
(b) During the term of this Agreement, the Executive, without
the prior written approval of the Board of Directors of the Company, shall not,
either directly or indirectly, actively engage in any business other than that
specified herein or accept any employment or office whatsoever (including but
not limited to serving as a director) from any other person, firm, corporation
or entity; provided, however, that the foregoing shall not prohibit the
Executive from serving as a director of another corporation which does not
interfere with the proper performance of Executive's obligations under this
Agreement and which does not otherwise breach any of Executive's covenants under
this Agreement.
4. Compensation and Benefits.
(a) The Company will pay the Executive during the term of this
Agreement a base salary of One Hundred Thousand Dollars ($100,000) per annum
payable monthly or, if more frequent installments are provided under the
Company's regular payroll practices for senior executives, then in such more
frequent installments, in any case less all applicable withholdings.
(b) In addition to the base salary, the Executive shall be
entitled to: (i) a performance bonus each year during the term of this Agreement
determined in accordance with Exhibit A hereto, which bonus shall be payable as
provided in Exhibit A hereto; and (ii) options to acquire common stock of
Champion in accordance with the provisions of Exhibit B hereto.
(c) The Company shall pay or reimburse the Executive for all
reasonable business expenses actually incurred or paid by the Executive during
the term of his employment under this Agreement, in the performance of his
services hereunder. Such payment or reimbursement shall be made upon
presentation of expense statements or vouchers or other supporting information
acceptable to the Company.
(d) The compensation of the Executive provided for by this
Agreement shall not preclude the Executive from participating, to the extent
that he is eligible therefor, in any plans or programs which may be maintained
by the Company for its senior executives generally, providing insurance,
retirement benefits, stock options, or other like fringe benefits.
(e) By execution of this Agreement, Champion hereby
unconditionally guarantees the full, complete and timely payment of any and all
obligations of Company under this Agreement.
5. Resignation or Discharge.
(a) The Company may terminate this Agreement at any time and
for any reason. If the Executive is terminated without "cause" (as defined
below), the Executive shall be entitled to receive: his base salary to the date
of termination, within thirty (30) days of such termination; a performance bonus
for the year in which such termination occurs, prorated as hereinafter provided
in the case of death or disability; immediate vesting of all options described
on Exhibit B, and, within 30 days of such termination, payment of all Earn-Out
Payments pursuant to that certain Stock Purchase Agreement dated December 5,
1997, as if such payments had been earned. In the event Executive's employment
with the Company is terminated prior to the expiration of the term of this
Agreement on account of (y) the Executive's resignation or (z) the Executive's
<PAGE> 3
discharge by the Company for "cause" (as hereinafter defined), all compensation
and benefits described in Section 4 of this Agreement, including the options
described on Exhibit B, shall terminate as of the date of such termination of
employment and a portion of the Earn-Out Payments may be retained by the Company
as liquidated damages as provided in the Stock Purchase Agreement. In the event
such Earn-Out Payment(s) are retained, Company and Champion shall have no other
claim or remedy against Executive hereunder except pursuant to Sections 8 and 9
hereof, which will be construed as ancillary to and independent of any other
provisions of this Agreement as provided below.
(b) For purposes of this Agreement, "cause" shall mean an
omission, act or action or series of omissions, acts or actions of the Executive
which constitute(s), cause(s) or result(s) in:
(i) the Executive's dishonesty in his financial
dealings with the Company;
(ii) the conviction of a crime by the Executive which
constitutes (x) a felony or (y) a misdemeanor involving moral turpitude which
may reasonably be expected to have an adverse effect on the Company, its
business, reputation or interest;
(iii) a breach by the Executive of this Agreement or
any other contract or agreement between the Executive and the Company or a
breach by the Executive of a fiduciary duty or responsibility to the Company; or
(iv) the refusal of the Executive to follow the
lawful policies and directives of the Board of Directors of the Company
consistent with this Agreement;
(v) the Pretax Earnings (as defined in Exhibit A
attached hereto) of the Company falling below Three Million Dollars ($3,000,000)
for any fiscal year of the Company,
Provided that discharge pursuant to clause (iii) or clause (iv) shall
not constitute discharge for "cause" unless the Executive shall have first
received written notice from the Board of Directors of the Company stating the
nature of such breach or refusal and affording the Executive an opportunity to
correct the acts or omissions complained of within thirty (30) days of actual
receipt by the Executive of notice thereof.
6. Death or Disability. The term of employment of the Executive shall
terminate forthwith in the event of the death of the Executive, or, at the
option of the Company, in the event that the Executive shall fail to render and
perform the services required of him under this Agreement because of
"disability" (as hereinafter defined). In the event of such a termination, all
compensation described in Section 4 of this Agreement shall terminate as of the
date of such termination; provided, however, that the Executive (or his estate
or designated beneficiary) shall be entitled to receive the unpaid portion of
the annual bonus provided for in Exhibit A for (x) all Bonus Years which have
ended prior to the date of such death or termination, which such sum shall be
payable within thirty (30) days of such death or termination and (y) the Bonus
Year in which such death or termination shall occur, in which event such Bonus
Year shall be prorated by multiplying the amount of bonus earned with respect to
such year as if such death or disability had not occurred by a fraction, the
numerator of which shall be the number of weeks in such partial Bonus Year and
the denominator of which shall be 52 or 53, depending upon the number of weeks
in the Company's fiscal year. The
<PAGE> 4
bonus as so calculated shall be payable upon the earlier of thirty (30) days
after a final determination of the bonus for the Bonus Year ending on such death
or termination or ninety (90) days after the end of such Bonus Year.
For purposes of this Agreement, "disability" shall mean the inability
of the Executive to perform his duties and obligations for the Company as
required by this Agreement, because of a disability which is not of a temporary
nature, which results from mental or bodily injury, sickness or disease or any
combination thereof, and which has lasted a period of more than one hundred
eighty (180) consecutive days or two hundred forty (240) days within any twelve
(12) month period.
7. Disclosure of Proprietary Information. The Executive 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 Executive (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 to 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, the Executive 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.
8. Noncompetition.
(a) The Executive acknowledges that: the principal business of
the Company is the retail sale and service of manufactured housing, together
with the providing and/or arranging for financing and insurance services in
connection therewith (the "Business"); he is one of the very limited number of
persons who has developed the Business to its present condition; his work for
the Company with respect to the Business has brought and will continue to bring
him into close contact with many confidential affairs not readily available to
the public; and the Company, Champion and subsidiaries of Champion (the
"Champion Companies"), will suffer substantial and irreparable harm in the event
the Executive should enter into competition with any of them or disclose any of
the affairs of any of them to any third parties. The Executive acknowledges that
during the term of this Agreement the Company has agreed to provide and make
available to him, and he shall receive, special training and knowledge from the
Company, which will include confidential and proprietary information of the
Company, including the confidential information identified in Section 9 below.
The Executive acknowledges that this confidential information is valuable to the
Company and, therefore, its protection and maintenance constitutes a legitimate
interest to be protected by the Company by this covenant not to compete.
(b) In view of the foregoing and in order to induce the
Company and Champion to authorize and approve its wholly-owned subsidiary to
enter into the Purchase Agreement and to consummate the transactions
contemplated thereby and thereupon to cause the Company to enter into this
Agreement, the Executive hereby agrees in the event of termination of his
employment for any reason other than termination without "cause" (as defined in
Section 5(b) hereof) that until the
<PAGE> 5
later of (x) the end of the Initial Term of this Agreement (whether or not
termination occurs prior to such time), (y) two years after the effective date
of termination, if termination occurs within the first four years of the Initial
Term, and (z) otherwise one year after the effective date of termination, he:
(i) will not, directly or indirectly, whether as an
officer, director, consultant, agent, employee, partner, shareholder,
participant, owner or otherwise, engage in any aspect or segment of the Business
or any business which competes with the Business, including, without limitation,
manufactured or modular housing or any other type of housing or housing
components manufactured and/or sold (including but not limited to retail sales)
off site in all states where the Company, Champion or the Champion Companies are
from time to time engaged in competing business (either directly or through any
dealer) (the "Covered Area"); provided, however, that the foregoing shall not
preclude (A) investments by the Executive in public companies where the
Executive does not own two percent (2%) or more of the outstanding equity and
does not actively participate in the business in which such investment is made,
or (B) investments by the Executive in any publicly-traded securities of
Champion.
(ii) will not, directly or indirectly, interfere
with, disrupt, or attempt to disrupt, any relationship, contractual or
otherwise, between the Company, Champion or any of the Champion Companies and
any dealer, distributor, customer, supplier or employee of the Company, Champion
or any of the Champion Companies in the Covered Area;
(iii) will not, directly or indirectly, employ or
solicit the employment or engagement by others of any employee of the Company,
Champion or any Champion Company who was such an employee at the time of
termination of the Executive's employment hereunder or within six (6) months
prior thereto.
(c) The Executive acknowledges that the restricted period of
time and geographical area under Section 8(a) hereof are reasonable, in view of
the nature of the Business in which the Company, Champion and the Champion
Companies are engaged and the Executive's knowledge of the Business and the
confidential information that will be made available to the Executive in
connection with this Agreement, as well as the fact that the Executive received
a significant portion of the purchase price when the merger was consummated. The
Executive represents to the Company that the enforcement of the restrictions
contained in this Section 8 would not be unduly burdensome to the Executive, and
in order to induce Champion and its subsidiary to enter into the Purchase
Agreement and to cause the Company after the merger to employ the Executive in
accordance with this Agreement, the Executive further represents and
acknowledges that the Executive is willing and able to compete in other
geographical areas not prohibited by this Section 8. Notwithstanding the
foregoing, if any provision, or any part thereof, of this Section 8 is held to
be unenforceable because of the duration thereof or the area covered thereby,
the parties agree that the court or arbitrators making the determination shall
have the power to reduce the duration or the area of such provision, or to
delete specific words or phrases, and in its reduced or amended form such
provision shall then be enforceable and be enforced.
(d) The Executive intends to, and does hereby, confer
jurisdiction to enforce the covenants contained in this Section 8 upon the
courts of the State of North Carolina.
(e) The representations and covenants contained in this
Section 8 and Section 9 below on the part of the Executive will be construed as
ancillary to and independent of any other provision of the Purchase Agreement
and this
<PAGE> 6
Agreement, and the existence of any claim or cause of action of the Executive
against Champion, the Company or any officer, director, or shareholder of
Champion and/or the Company, whether predicated on the Purchase Agreement, this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of the covenants of the Executive contained in this Section 8 or Section
9. In addition, the provisions of this Section 8 and Section 9 below shall
continue to be binding upon the Executive in accordance with its terms,
notwithstanding the termination of this Agreement.
9. Nondisclosure.
Except with the prior written consent of the Company in each instance
or as may be necessary to perform the Executive's services hereunder or required
by applicable law, the Executive 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 of
the Company, Champion or any of the Champion Companies. Such confidential
information shall include, but shall not be limited to, information relating to
(i) the business, operations, systems, 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,
Champion or any of the Champion Companies and (ii) the business, operations,
personnel, activities, financial affairs, and other information relating to the
Company, Champion or any of the Champion Companies and their dealers,
distributors, customers, suppliers and employees. Such confidential information
shall not include information which is or becomes generally available to the
public other than as a result of a disclosure by the Executive. In the event
that the Executive is required pursuant to, or required by, applicable law,
regulation or legal process to disclose any of the confidential information, he
shall first inform Champion, which may seek a protective order or other
appropriate remedy or, in its sole discretion, waive compliance with the terms
of this Agreement. In the event that no such protective order or other remedy is
obtained, or Champion waives compliance with the terms of this Agreement, the
Executive shall furnish only that portion of the confidential information which
the Executive is advised by counsel is legally required to be disclosed and will
exercise commercially reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the confidential information.
10. Remedies for Certain Breaches.
If the Executive commits a breach, or threatens to commit a breach, of
any of the provisions of Section 8 or Section 9, the Company, Champion and the
Champion Companies shall have the following rights and remedies, each of which
rights and remedies shall be independent of the others, and shall be severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available under law or in equity
to the Company, Champion and the Champion Companies:
(i) the right and remedy to have the provisions of Section 8
and/or Section 9 enforced by any court of competent jurisdiction by injunction,
restraining order, specific performance or other equitable relief in favor of
the Company, Champion and the Champion Companies, it being acknowledged and
agreed that any breach or threatened breach of Section 8 and/or Section 9 by the
Executive will cause irreparable injury to the Company, Champion and the
Champion Companies and that money damages will not provide an adequate remedy to
the Company, Champion and the Champion Companies;
<PAGE> 7
(ii) the right and remedy to require the Executive to account
for and pay over to the Company, Champion and the Champion Companies all
compensation, profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by the Executive as the result of
any transaction constituting a breach of any of the provisions of Section 8
and/or Section 9, and the Executive hereby agrees to account for such Benefits
and pay over all such Benefits to the Company, Champion and the Champion
Companies; and
(iii) the right and remedy to retain, as provided in the
Purchase Agreement, a portion of the (x) Hold Back Amount (as defined in the
Purchase Agreement) and/or (y) Earn-out Payment (as defined in the Purchase
Agreement).
11. Survivability; Affiliates.
The rights of the Company, Champion and the Champion Companies
and the obligations of the Executive pursuant to Sections 8, 9 and 10 shall
survive the termination of the Executive's employment with the Company or the
expiration of the term of this Agreement.
12. Absence of Restrictions.
No provisions of this Agreement shall be deemed to restrict the
absolute right of the Company at any time to sell or dispose of all or any part
of the assets of the Company, or to reconstitute the same in any one or more
other entities, or to merge, consolidate, sell or liquidate or otherwise abandon
or cease the active conduct of its Business, but none of the foregoing shall
relieve the Company of its obligations hereunder and pursuant to that certain
Stock Purchase Agreement dated December 5, 1997, including making adequate and
equitable provisions for the bonuses and options provided for in Section 4(b)
hereof. The Company and Champion shall have any assignee of the Business deliver
a certificate assuming, ratifying and confirming this Agreement in every respect
and without modification.
13. Assignment.
The Company, Champion and the Champion Companies shall have the right
to assign their 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. It shall be a condition precedent to the
closing of any such assignment by the Company and Champion that the assignee
shall, after notice and upon written request of the Executive, deliver a
certificate assuming, ratifying and confirming this Agreement in every respect
and without modification. Such certificate shall, without limitation, confirm
Executive's entitlement to earn performance bonus payments in accordance with
this Agreement and Exhibit A, the options to acquire common stock of Champion in
accordance with Exhibit B, and the right to receive the Earn-Out Payments. The
Executive shall, after notice and upon written request of such assignee, deliver
a certificate ratifying and confirming his obligation under this Agreement, and
acknowledging that the "Company", as used in this Agreement, shall from and
after the date of such assignment be deemed to mean the assignee of the Company.
This Agreement calls for the personal services of the Executive and no part of
its rights or obligations hereunder may be assigned by the Executive.
<PAGE> 8
14. Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, the next business day after forwarded by overnight express (including
but not limited to United Parcel Service, Federal Express, Airborne or similar
service) or three (3) days after mailed by registered or certified United States
mail, postage prepaid and return receipt requested, to the following addresses
to the extent applicable (or to such other address of a party as shall have been
specified to the other party by notice):
(a) if to the Executive, to:
M. Mark Cole
c/o Southern Showcase Housing, Inc.
4604 Dundas Drive
Greensboro, NC 27407
copy to:
J. Alexander S. Barrett, Esq.
Adams Kleemeier Hagan Hannah & Fouts
A Professional Limited Liability Company
701 Green Valley Road, Suite 100 (27408)
P.O. Box 3463 (27402)
Greensboro, NC
(b) if to the Company, Champion or any of the Champion
Companies, to:
2701 University Drive, Suite 300
Auburn Hills, MI 48326-2566
Attention: President and Chief Executive Officer
15. Miscellaneous.
(a) This Agreement constitutes the sole and entire agreement
between the Executive and the Company with respect to the Company's employment
of the Executive and shall not be altered, modified or amended except by a
written instrument signed by the Executive and the Company.
(b) This Agreement shall inure to the benefit of, and be
binding upon (i) the parties hereto, Champion and the Champion Companies, (ii)
the heirs, administrators, executors and personal representatives of the
Executive and (iii) the successors and assigns of the Company, Champion and the
Champion Companies, as provided for herein.
(c) The Section headings appearing in this 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 either 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 North Carolina (other than conflicts of
law principles). Any and all actions concerning any dispute arising under this
<PAGE> 9
Agreement shall be filed and maintained only in the General Court of Justice,
Superior Court Division for Guilford County, North Carolina. If any provisions
of this Agreement as applied to any part or to any circumstance 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.
(f) Company and Executive agree that the Employment Agreement
between them dated September 30, 1997, is hereby rescinded, revoked and
terminated as of the date hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized representative and the Executive has executed
this Agreement on the day and year first above written.
EXECUTIVE:
M. MARK COLE
COMPANY:
SOUTHERN SHOWCASE HOUSING, INC.
By:
Name: Walter R. Young, Jr.
Title: Chairman of the Board
CHAMPION:
CHAMPION ENTERPRISES, INC.
By:
Name: Walter R. Young, Jr.
Title: President
<PAGE> 10
EXHIBIT A
Performance Bonus
The bonus to be paid to the Executive pursuant to Section 4(b) of this
Agreement shall be calculated as follows:
1. Bonus Calculation. Provided Executive is not in default under this
Agreement or any other agreement between Executive and the Company, and provided
that the Executive is employed by the Company as of the last day of the
applicable Bonus Year (as hereafter defined) (except in the case of death,
disability or a separation without "cause" at the behest of the Company, in
which case a bonus shall be prorated as provided in the Agreement), the Company
shall pay to Executive annual bonuses (the "Bonus") calculated as follows:
(a) Calculation.
(i) If the Pretax Earnings for the applicable fiscal year is
less than $4,500,000, the Bonus shall equal zero percent (0%) of the Pretax
Earnings. If the Pretax Earnings for the applicable fiscal year is $4,500,000 or
more, but less than $6,000,000, the Bonus shall equal five percent (5%) of the
Pretax Earnings. If the Pretax Earnings for the applicable fiscal year is equal
to or greater than $6,000,000, but less than $10,000,000, the Bonus shall equal
ten percent (10%) of Pretax Earnings. If the Pretax Earnings for the applicable
fiscal year is equal to or greater than $10,000,000, the Bonus shall equal
fifteen percent (15%) of Pretax Earnings. As used herein, the terms
"$4,500,000", "$6,000,000" and "$10,000,000" are each a "Threshold Amount".
(ii) With respect to any quarterly estimates, partial Bonus
Year, at the commencement or termination of this Agreement, or any change in the
Bonus Year, the Threshold Amount shall be adjusted to an amount determined by
multiplying each Threshold Amount by a fraction, the numerator of which shall be
the number of weeks in such partial Bonus Year or quarter and the denominator of
which shall be 52 or 53, depending upon the number of weeks in the corporation's
fiscal year, and the foregoing calculation in Section (a) (i) above shall be
applied using such adjusted Threshold Amount.
(b) Definitions.
(i) "Pretax Earnings" shall mean earnings before federal and
state income taxes and before accrual of all bonuses under the Employment
Agreements to be entered into by the Company as referred to in Section 6.1 of
the Purchase Agreement. In computing Pretax Earnings, there shall be no
deduction for allocation of corporate overhead of Champion Home Centers, Inc.
("CHC") or Champion and its affiliates and there shall be no effect given to
amortization of goodwill relating to CHC's acquisition of the Common Stock.
Pretax Earnings shall be determined by the internal accounting staff of Champion
in accordance with GAAP (as hereinafter defined) from the books and records of
the Company; provided, however, for the costs of acquisitions or establishment
of retail lots by the Company after the date hereof, normal amortization shall
be used for up to $150,000 per lot opening or acquisition costs, with any excess
over that amount to be amortized over 5 years for purposes of this calculation,
and, provided further, that capital provided by Champion or its affiliates for
such acquisitions or establishment of retail lots shall be on an interest-free
basis. The Pretax Earnings calculation for the 1998 Bonus Year shall be based on
the time period from the date hereof to December 31, 1998. Any dispute between
the parties regarding such determination shall be resolved by arbitration by an
<PAGE> 11
independent accounting firm mutually agreed upon, which arbitration shall be
conducted as expeditiously as is reasonably possible. The determination of the
arbitrator shall be binding and conclusive upon the matters determined thereby
and may be entered as a judgment by the General Court of Justice, Superior Court
Division for Guilford County, North Carolina. All costs and expenses relating to
the services provided by the arbitrator shall be paid equally by the Executive
and the Company.
(ii) "Bonus Year" shall mean the fiscal year of the Company
and may be changed by the Company upon the adoption of any new fiscal year of
the Company.
(c) Terms of Payment.
The Bonus, if any, shall be payable upon the earlier of thirty (30)
days after the final determination of the Bonus for each Bonus Year or ninety
(90) days after the end of each Bonus Year. Commencing with the 1998 Bonus Year,
the Company shall advance a portion of the Bonus to the Executive not later than
thirty (30) days after the Pretax Earnings for each quarter of each Bonus Year
shall have been determined by the Company's internal accounting staff or sixty
(60) days after the end of such quarterly period (provided that Executive is
employed by the Company as of the last day of such quarterly period), in an
amount equal to seventy-five percent (75%) of the Bonus for such quarterly
period. In no event shall the aggregate of the quarterly distributions exceed
seventy-five percent (75%) of the Bonus for the year to date period. Pretax
Earnings shall be determined in accordance with the definition set forth above
except that it shall be determined on the statement of operations for such
period prepared in accordance with the Company's normal procedures for such
internal interim statements.
<PAGE> 1
EXHIBIT 10.27
NONQUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into this 8th
day of January, 1998 (the "Grant Date"), by and between CHAMPION ENTERPRISES,
INC., a Michigan corporation ("the Company"), and M. MARK COLE (the "Optionee").
WITNESSETH:
WHEREAS, Optionee is to be employed by a retail subsidiary of the
Company; and
WHEREAS, on December 5, 1997 (the "Stock Purchase Agreement Execution
Date"), Optionee, the Company, Champion Home Centers, Inc., a Michigan
corporation and a wholly owned subsidiary of the Company ("Champion Home
Centers"), and others, executed that certain Stock Purchase Agreement (the
"Stock Purchase Agreement") whereby Optionee agreed to sell all of his stock in
Southern Showcase Housing, Inc., a North Carolina corporation ("Southern
Showcase"), to Champion Home Centers; 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
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) "Act" means the Securities Act of 1933;
(b) "Change in Control" shall have the meaning set forth in Section
4(b);
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Committee" means the Compensation Committee of the Company;
(e) "Common Stock" means the common stock of the Company, par value
$1.00;
(f) "Disability" means "disability" as defined under Section 22(e)
of the Code;
(g) "Employment" (whether or not capitalized) means employment with
the Company or any Parent or Subsidiary of 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 46,690 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 for the day prior to the Stock Purchase Agreement Execution Date,
as reported in The Wall Street Journal (the "First Part"). The First Part must
be exercised in its entirety by no later than sixty (60) days after 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 within 2
years from the Grant Date Optionee terminates his employment with the Company or
the
<PAGE> 2
Optionee's employment is terminated for "cause" (as defined below), Optionee
shall retain only the following shares:
Time From Grant Date Shares Retained
less than 6 months 0
less than 12 months 11,672
less than 18 months 23,345
less than 24 months 35,017
24 months or more 46,690
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. For purposes of this Agreement, "cause" shall have the meaning
given to it in that certain Employment Agreement by and between the Optionee,
the Company, and Southern Showcase and executed on or about the date hereof (the
"Employment Agreement").
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 233,310 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 for the day prior to the Stock Purchase Agreement
Execution Date, 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
46,662 1 year after the Grant Date
46,662 2 years after the Grant Date
46,662 3 years after the Grant Date
46,662 4 years after the Grant Date
46,662 5 years after the Grant Date
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 more than ten (10) years after the Grant Date. The
Second Part may be exercised in increments. This Second Part is not intended to
be an incentive stock option within the meaning of Section 422 of the Code.
4. Termination of Employment.
(a) Before Exercise of the First Part. If Optionee terminates
his employment with the Company or if the Optionee is terminated by the Company
for "cause" 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 cease.
(b) Change in Control. If the Optionee's employment is
terminated by the Company due to a Change in Control after the Optionee's
exercise of the First Part, the Second Part shall become fully exercisable and
the Optionee shall have the right to exercise the Second Part within three (3)
months from the date of such termination of employment. This three-month period
may be extended at the discretion of the Committee, but not beyond ten (10)
years from the Grant Date.
<PAGE> 3
For purposes of this Agreement, "Change in Control" shall mean the occurrence of
any of the following events: (i) 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 transactions within a one year period; (ii) a sale of all or substantially
all of the assets of the Company to any person, firm or corporation; or (iii) 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.
(c) Death or Disability. If Optionee shall die or suffer from
a Disability:
(i) Prior to the fifth anniversary of the Grant Date (when
all of the Second Part would be exercisable), a Pro-Rata Percentage (as defined
below) of the options that would be exercisable on the next anniversary of the
Grant Date shall become immediately exercisable. The "Pro-Rata Percentage" shall
be equal to the number of days since the last anniversary of the Grant Date
divided by 365. Any fractional shares pursuant to this calculation shall be
rounded to the nearest whole number of Options; and
(ii) Optionee or the executor or administrator of the
estate of Optionee (as the case may be) 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 of this option to the extent that it is exercisable and
unexercised on the date of Optionee's death or Disability, including any options
that became exercisable pursuant to Paragraph 4(c)(i) above. This one-year
period may be extended at the discretion of the Committee, but not beyond ten
(10) years from the Grant Date.
(d) Other Termination. If Optionee's employment shall be
terminated for any reason other than those stated in Paragraphs 4(a), 4(b), or
4(c) above:
(i) If Optionee is terminated by the Company without
"cause", all of the options granted pursuant to the Second Part that are not
exercisable as of the date of termination shall become immediately exercisable;
and
(ii) Optionee shall have the right, within three months
after such termination of employment, to exercise the Second Part of this option
to the extent that it is exercisable and unexercised on the date of such
termination of employment, including any options that become exercisable
pursuant to Paragraph 4(d)(i) above. This three-month period may be extended at
the discretion of the Committee, but not beyond ten (10) years from the Grant
Date.
(e) Events Not Constituting a Termination. 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
<PAGE> 4
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. No Right to Continued Employment. This Agreement does not give the
Optionee any additional right to be retained or to continued employment with the
Company of any Subsidiary of the Company. Notwithstanding the foregoing, nothing
in this Paragraph 6 shall be interpreted or construed to restrict or limit the
rights of the Optionee pursuant to the Employment Agreement.
7. 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 before
taking any action pursuant to this Agreement.
8. Investment Intent. 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.
9. 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.
10. 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.
<PAGE> 5
11. Rights as Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any of the shares covered by this
option until the issuance of a stock certificate or certificates upon the
exercise of the option in full or in part, and then only with respect to such
shares represented by such certificate or certificates.
12. 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 with a copy to counsel for Optionee.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina (other than conflicts of
law principles). Any and all actions concerning any dispute arising under this
Agreement shall be filed and maintained only in the General Court of Justice,
Superior Court Division for Guilford County, North Carolina. If any provisions
of this Agreement as applied to any part or to any circumstance 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.
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: M. Mark Cole
<PAGE> 6
EXHIBIT A
NOTICE OF EXERCISE OF FIRST PART OF
NONQUALIFIED STOCK OPTION
Secretary
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326
Dear Sir:
A stock option was granted to me on , 199 , which permits
me to purchase 46,690 shares of Champion Enterprises, Inc. Common Stock at a
price of $8.15 per share. I elect to exercise this part of the option to
purchase 46,690 nonqualified stock option shares. A personal check (or cash,
bank draft, or money order) for the purchase price is enclosed with this letter.
If I choose to make an 83(b) election under the Code, I shall pay the
Company within fourteen (14) days from the date of that election the applicable
amount to the Company to satisfy any requirements for withholding of income and
employment taxes arising from this exercise.
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 is obligated to 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.
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 my employment with the Company is terminated 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.
M. Mark Cole
Address:
SSN:
Dated: , 19
<PAGE> 7
EXHIBIT B
NOTICE OF EXERCISE OF SECOND PART OF
NONQUALIFIED STOCK OPTION
Secretary
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326
Dear Sir:
A stock option was granted to me on , 199 , which permits
me, upon the exercise of the first part of the option within 60 days, to
purchase 233,310 shares of Champion Enterprises, Inc. Common Stock at a price of
$20.375 per share. I elect to exercise this part of the option to purchase
nonqualified stock option shares. A personal check (or cash, bank draft, or
money order) for the purchase price is enclosed with this letter.
I shall pay the Company the applicable amount to satisfy any
requirements for withholding of income and employment taxes arising from this
exercise within fourteen days from the determination of said amount by the
Company.
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 is obligated to 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.
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, and each
certificate for such shares shall contain a legend to the foregoing effect.
M. Mark Cole
Address:
SSN:
Dated:
<PAGE> 1
EXHIBIT 10.28
Walter R. Young, Jr. Letterhead
September 11, 1998
Mark Cole
3501 Primrose Avenue
Greensboro, NC 27408
Dear Mark:
This letter confirms our offer and your decision to join Champion
Enterprises, Inc. and the following are major terms of employment.
1) The position is President, Retail Operations of Champion
Enterprises, Inc. based in Greensboro, NC. You will be reporting
directly to Phil Surles, Chief Operating Officer. Your staff in
Greensboro, NC will be less than 10 people and will be comprised of
marketing and analytical support functions. Central cash management,
accounting and internal audit functions will remain in Michigan.
This position will be held in addition to your position as President,
Southern Showcase Housing, Inc. All agreements with you as President
and former owner continue in force with the exception that your
allocable share of the deferred payments under the Stock Purchase
Agreement dated December 5, 1997 will be payable if "Pretax Earnings"
for the 36 month computation period are $25.0 million or are $15.0
million for the 48 month computation period. With this new, additional
responsibility, you will receive the following additional benefits.
2) The incremental base salary is $150,000 annually, paid monthly for a
total $250,000 annually.
3) Attached is the annual incentive program for fiscal and calendar
1999. This is in addition to your Southern Showcase incentive plan.
4) The equity program is formalized in a separate non-qualified stock
option agreement 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) 100,000 shares at 40% of market price on date of grant to
be purchased within 60 days of employment. These shares will
vest at a rate of 25% each six months. If you 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) 500,000 shares at market price value on date of grant to be
vested and exercisable in equal prorated proportions (100,000)
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. The shares granted
above will be registered.
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
<PAGE> 2
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. We have a deferred income program for base
compensation and annual bonuses. You will be entitled to four weeks
vacation per year. We do not pay cash in lieu of vacations.
You will be an "at will" employee, which means that your employment as
President, Retail Operations may be terminated at any time, by you or Champion,
for any reason, with or without cause. If Champion terminates your employment
without cause during the first four years of your employment, Champion will at
that time pay you $250,000.
If this letter confirms the agreed upon major terms of your employment,
please sign below and return one copy to me.
Mark, I look forward to working with you and your joining the Champion
team.
Very truly yours,
Walter R. Young, Jr.
Attch.
Mark Cole
cc: John Collins
Joe Stegmayer
Phil Surles
<PAGE> 3
President-Retail Operations, Champion Enterprises, Inc.
1999 Fiscal Year Incentive Plan
Eligibility
Must hold position at fiscal year end 1999 (January 1, 2000)
The Plan
This position will be paid annually based upon the following
attainment:
<TABLE>
<CAPTION>
Measure Attainment Level Incentive (% of Base Pay)
<S> <C> <C>
EPS
Minimum $2.05 75%
Level 1 $2.24 125%
Level 2 $2.34 150%
Maximum cash $2.44 200%
Upside +.03 +2.5%
</TABLE>
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 total base pay as of January 1, 2000, no less than
$250K
EPS: Annual, audited and publicly reported. EPS adjusted only for
excluding extraordinary gains or losses.
Note: This plan was created on 9/8/98 and could be replaced with a better plan
for 1999.
<PAGE> 1
EXHIBIT 10.29
Non-Qualified Stock Option Agreement
(the "First Part")
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into this 10th
day of September, 1998, (the "Grant Date"), by and between Champion Enterprises,
Inc., a Michigan corporation ("the Company"), and M. Mark Cole (the "Optionee").
WITNESSETH:
WHEREAS, Optionee is to be employed as President, Retail Operations of
the Company; and
WHEREAS, the Company wishes to induce Optionee to accept that position,
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) "Code" means the Internal Revenue Code of 1986, as amended;
(b) "Committee" means the Compensation Committee of the Company;
(c) "Common Stock" means the common stock of the Company, par value
$1.00;
(d) "Employment" (whether or not capitalized) means employment with
the Company or any Parent or Subsidiary of the Company;
(e) "Good Cause" means: (i) Optionee's dishonesty in his financial
dealings with the Company; (ii) the conviction of a crime by Optionee that
constitutes (x) a felony or (y) a misdemeanor involving moral turpitude which
may reasonably be expected to have an adverse effect on the Company, its
business, reputation or interest; (iii) a breach by Optionee of this Agreement
or any other contract or agreement between the Company and Optionee or a breach
by Optionee of a fiduciary duty or responsibility to the Company; or (iv) the
refusal of Optionee to follow the lawful policies and directives of the Board of
Directors of the Company;
(f) "Parent" means any "parent corporation" as defined in Section
424(e) of the Code;
(g) "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 100,000 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 September 10, 1998, as reported in The Wall Street
Journal ($9.025) (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
<PAGE> 2
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 25,000
Prior to 18 months from Grant Date 50,000
Prior to 24 months from Grant Date 75,000
24 months or more after the Grant Date 100,000
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. 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) 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.
4. 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 in the form attached as Exhibit A. 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 7 below, the
company shall issue the shares in the name of Optionee.
5. 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.
<PAGE> 3
(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, financing, insuring, or marketing of manufactured
homes;
(2) Optionee will not 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 or 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 5 would be inadequate. Optionee therefore agrees that in the event of
Optionee's breach of
<PAGE> 4
the agreements contained in this Section 5, 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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:
<PAGE> 5
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: M. Mark Cole
<PAGE> 6
EXHIBIT A
NOTICE OF EXERCISE OF FIRST PART
(NON-QUALIFIED 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 100,000
shares of Champion Enterprises, Inc. Common Stock at a price of $9.025 per
share. I elect to exercise this part of the option to purchase 100,000
non-qualified 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.
M. Mark Cole
Address:
SSN:
Dated: , 1998
<PAGE> 1
EXHIBIT 10.33
CONSENT IN LIEU OF A SPECIAL MEETING OF THE
DEFERRED COMPENSATION COMMITTEE
WHEREAS, the undersigned, being all the members of the Deferred
Compensation Committee established pursuant to the Corporate Officer Stock
Purchase Plan (the "Committee"), desire that the action expressed in the
following resolutions be taken.
NOW, THEREFORE, the undersigned consent to the actions expressed in the
following resolutions as of the date set forth below:
WHEREAS, the Board of Directors of Champion Enterprises Inc., a
Michigan corporation (the "Corporation"), established the Corporation Officer
Stock Purchase Plan (the "Plan") effective as of July 1, 1998; and
WHEREAS, pursuant to the authority granted to it in Section 8.1 of the
Plan, the Deferred Compensation Committee now desires to amend the Plan to
provide that shares of the Corporation's Common Stock payable under Plan need
not be authorized exclusively by the Corporation's 1995 Stock Option and
Incentive Plan.
NOW, THEREFORE, IT IS RESOLVED, that Section 4.2 of the Plan be amended
and restated as follows:
"Payment of Benefits. Benefits are payable in shares of
Champion Enterprises Inc. Common Stock (except fractional shares to be
paid in cash) upon the earlier of termination of employment with the
Employer, retirement, death (see Section 6.2), or Disability (see
Section 6.1), or a Change in Control (see Sections 2.3 and 6.5)."
RESOLVED, FURTHER, that Section 5.2 of the Plan be amended and restated
as follows:
"Stock Purchase. A Participant's compensation deferrals will
be invested by the Company in shares of Champion Enterprises Inc.
Common Stock. At the discretion of the Deferred Compensation Committee,
such Common Stock may or may not be authorized by one of Champion
Enterprises Inc.'s stock option plans. Such stock purchases are
eligible for a 30% discount such that the purchase price of each share
will equal 70% of the stock price as quoted on the New York Stock
Exchange on the purchase date."
This consent is executed as of January 1, 1999.
Chief Financial Officer:
Joseph H. Stegmayer
Chief Human Resources Officer:
Hugh Beswick
General Counsel:
John J. Collins, Jr.
<PAGE> 1
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
(in 000's, except per share amounts) Jan. 2, 1999 Jan 3, 1998 Jan. 2, 1999 Jan 3, 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 48,171 46,673 47,780 47,483
Effect of dilutive securities 1,191 1,375 1,504 1,392
------- ------- ------- -------
Shares for diluted EPS 49,362 48,048 49,284 48,875
======= ======= ======= =======
Income from continuing operations $22,642 $18,930 $94,198 $70,771
======= ======= ======= =======
Per share amounts:
Basic $ 0.47 $ 0.41 $ 1.97 $ 1.49
======= ======= ======= =======
Diluted $ 0.46 $ 0.39 $ 1.91 $ 1.45
======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary(s) Names under which
[state of incorporation or organization] business done (b)
Champion Home Builders Co. [Michigan] Atlantic Homes
Titan Homes
Gateway Homes
Summit Crest Homes
Chandeleur Homes, Inc. [Michigan] -
Crest Ridge Homes, Inc. [Michigan] -
Dutch Housing, Inc. [Michigan] Fortune Homes
Fleming County Industries, Inc. [Kentucky] Bluegrass Housing
Grand Manor, Inc. [Michigan] Grand View Homes
Homes of Legend, Inc. [Michigan] -
Homes of Merit, Inc. [Florida] -
Moduline International, Inc. [Washington] -
Lamplighter Homes, Inc. [Washington] -
Lamplighter Homes (Oregon), Inc. [Oregon] -
Moduline Industries (Canada) Ltd. [British Columbia, Canada] -
Redman Industries, Inc. [Delaware] -
Redman Homes, Inc. [Delaware] -
Western Homes Corporation [Delaware] Silvercrest Homes
Champion Home Centers, Inc. [Michigan] -
39 wholly-owned subsidiaries of this entity operate in
the retail business of manufactured housing in the
United States (none in foreign countries)
Companies not shown by name, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
________________________________________
<PAGE> 1
Exhibit 23.1
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, 333-14797, 333-62427, 333-63431,
333-63545, and 333-72973) and the Prospectus constituting part of the
Registration Statements on Form S-3 (Nos. 33-54192, 33-82544, and 333-46237) of
Champion Enterprises, Inc. of our report dated February 5, 1999, appearing on
page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 22, 1999
<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
2, 1999, 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-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 23,828
<SECURITIES> 0
<RECEIVABLES> 61,545
<ALLOWANCES> 502
<INVENTORY> 244,142
<CURRENT-ASSETS> 385,640
<PP&E> 265,844
<DEPRECIATION> 74,881
<TOTAL-ASSETS> 1,021,672
<CURRENT-LIABILITIES> 393,705
<BONDS> 121,629
0
0
<COMMON> 48,270
<OTHER-SE> 356,976
<TOTAL-LIABILITY-AND-EQUITY> 1,021,672
<SALES> 2,254,255
<TOTAL-REVENUES> 2,254,255
<CGS> 1,852,676
<TOTAL-COSTS> 1,852,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,833
<INCOME-PRETAX> 156,798
<INCOME-TAX> 62,600
<INCOME-CONTINUING> 94,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,198
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.91
</TABLE>
