10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 3, 2009 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 incorporation or organization)	(I.R.S. Employer Identification No.)
755 W. Big Beaver, Suite 1000, Troy, Michigan (Address of principal executive offices)	48084 (Zip Code)

Registrant’s telephone number, including area code:

(248) 614-8200

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

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o  Yes  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o  Yes     þ  No

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.  þ  Yes     o  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.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  o  Yes     þ  No

The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of June 27, 2008, based on the last sale price of $6.13 per share for the Common Stock on the New York Stock Exchange on such date, was approximately $468,100,721. As of February 16, 2009, the Registrant had 77,633,804 shares of Common Stock outstanding. For purposes of this computation, all officers and directors of the Registrant as of February 16, 2009 are assumed to be affiliates. Such determination should not be deemed an admission that such officers and directors are, in fact, affiliates of the Registrant.

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 May 29, 2009	III

Champion Enterprises, Inc.
Form 10-K
Fiscal Year End January 3, 2009

Table of Contents

PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	16
	Item 2.	Properties	16
	Item 3.	Legal Proceedings	18
	Item 4.	Submission of Matters to a Vote of Security Holders	18
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities	19
	Item 6.	Selected Financial Information	21
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7	22
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	42
	Item 8.	Financial Statements and Supplementary Data	42
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
	Item 9A.	Controls and Procedures	43
	Item 9B.	Other Information	43
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	44
	Item 11.	Executive Compensation	44
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
	Item 14.	Principal Accountant Fees and Services	44
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	45
		Signatures
Management’s Responsibility for Financial Statements			49
Management’s Report on Internal Control over Financial Reporting			49
FINANCIAL SECTION
Index to Financial Statements and Financial Statement Schedules			F-1
Reports of Independent Registered Public Accounting Firm			F-2
Consolidated Statements of Operations			F-4
Consolidated Balance Sheets			F-5
Consolidated Statements of Cash Flows			F-6
Consolidated Statements of Shareholders’ Equity			F-7
Notes to Consolidated Financial Statements			F-8
Schedule II — Valuation and Qualifying Accounts			F-33
EX-10.7
EX-10.10
EX-10.16
EX-10.18
EX-10.27
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

PART I

Item 1.   Business

General

Established in 1953, Champion Enterprises, Inc. and its subsidiaries (collectively, “we,” “Champion,” or the “Company”) are a leading producer of factory-built housing in the United States and western Canada. We are also a leading producer of steel-framed modular buildings in the United Kingdom (“U.K.”) for uses such as prisons, military accommodations, hotels and residential units, among other applications. As of January 3, 2009, our North American manufacturing operations (the “manufacturing segment”) consisted of 26 homebuilding facilities in 14 states and three provinces in western Canada. As of January 3, 2009, our homes were sold through approximately 1,600 independent sales centers, builders and developers across the U.S. and western Canada and also through our retail segment that operates 14 sales offices in California.

Factory-built housing in the United States is generally comprised of manufactured housing (also known as “HUD-code homes”) and modular homes. During the past five years, the HUD-code industry has been negatively affected by limited availability of consumer financing, tight consumer credit standards and other factors. The effects of the severe credit crisis and deepening U.S. recession further curtailed the industry and our business in 2008. Industry shipments of HUD-code homes in 2006 and 2005 included an estimated 4,000 homes and 21,000 homes, respectively, which were sold to the Federal Emergency Management Agency (“FEMA”) in connection with hurricane relief efforts. Excluding homes sold to FEMA, annual industry shipments of HUD-code homes have averaged 109,500 homes during the last five years as compared to 373,000 homes in 1998. Industry shipments of HUD-code homes totaled 81,900 in 2008 compared to 95,800 in 2007, representing the lowest industry volume in nearly 50 years. Champion’s sales of HUD-code homes in 2008 were 66% lower than in 2004, while industry shipments were down 38% for the same period. Industry HUD-code shipments in our core markets of California, Florida and Arizona were down 70% during this four year period and industry shipments in the Midwest states, another of our core markets, were down 68% in the period.

During 2008 and 2007, the broader U.S. housing market declined considerably, with 2008 registering a 41% decline in new single-family housing starts and a 38% decline in new home sales versus 2007 levels. In addition, average selling prices in many U.S. markets saw significant declines, and inventories of unsold homes continued to increase. Industry shipments of modular homes, which are more directly impacted by conditions in the traditional housing market, totaled an estimated 17,100 homes in the first nine months of 2008, a decrease of 31% versus the same period in 2007. Champion’s sales of modular homes in 2008 were 32% lower than its sales of modular homes in 2007 and 23% lower than its modular sales in 2004.

Since the beginning of 2004, we have closed, idled, sold, or consolidated 14 manufacturing facilities and all of our retail operations except for our California-based retail segment, eliminating under-performing operations and rationalizing our operations and capacity for industry conditions. During 2005, we exited traditional manufactured housing retail operations by completing the sale of our remaining 42 traditional retail sales centers.

In July 2006 we acquired certain of the assets and the business of North American Housing Corp. and an affiliate (“North American”). North American is a modular homebuilder in Virginia. This acquisition expanded our presence in the modular construction industry, particularly in the mid-Atlantic region of the U.S. In March 2006, we acquired Highland Manufacturing Company, LLC (“Highland”), a manufacturer of modular and HUD-code homes that operates one plant in Minnesota. This acquisition further expanded our presence in the modular construction industry and increased our manufacturing and distribution in several states previously under-served by us in the north central U.S.

On December 21, 2007, we acquired substantially all of the assets and the business of western Canada-based SRI Homes Inc. (“SRI”). SRI is a leading producer of homes in western Canada that operates three manufacturing plants in the provinces of Alberta, British Columbia and Saskatchewan. This acquisition expanded our presence in one of the strongest housing markets in North America and led to strong growth in our Canadian sales in 2008 despite a 27% decline in sales at our existing Canadian operations.

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During the last several years, the housing market in western Canada experienced strong growth. While 2008 saw a modest tempering of the market, conditions remained robust throughout most of the year. Sales of homes produced by our Canadian plants increased 61% in 2008 over 2007 after increasing 17% in 2007 over 2006. The increase in 2008 was the result of our acquisition of SRI.

In April 2006, we acquired Calsafe Group (Holdings) Limited and its operating subsidiary Caledonian Building Systems Limited (“Caledonian”), a leading modular manufacturer in the U.K. Caledonian operates four manufacturing facilities in Newark, Nottinghamshire.

On February 29, 2008, we acquired 100% of the capital stock of United Kingdom based ModularUK Building Systems Limited (“ModularUK”), a producer of steel-framed modular buildings serving the healthcare, education and commercial sectors. ModularUK is located in Driffield, East Yorkshire, where we have three leased buildings available to provide production capacity to ModularUK and Caledonian.

Our international manufacturing segment (the “international segment”) is currently comprised of the operations of Caledonian and ModularUK.

In 2007 our international segment experienced significant growth resulting from a high volume of orders from the custodial (prison) and military segments of their market. In 2008 our operations in the U.K. experienced modest growth over 2007, before the effects of foreign exchange rates, as we experienced significant growth in the first half of the year resulting from a high volume of orders from the custodial (prison) and military segments of the market. However, as 2008 progressed and economic conditions in the U.K. worsened, driven in part by the credit crisis, our second half sales declined. Despite a strong order book, project delays and a lack of project financing negatively impacted our business.

Segment Information

Financial information about Champion’s manufacturing, international and retail segments is included in Note 16 of “Notes to Consolidated Financial Statements” in Item 8 of this Report. All of our manufacturing segment operations are located in the United States except for five homebuilding facilities in western Canada. Our international segment is solely comprised of the Caledonian and ModularUK operations in the U.K.

Manufacturing segment

Products

In 2008, our manufacturing segment sold 11,406 homes and units compared to 15,346 in 2007. Approximately 56.1% of the homes we produced in 2008 were 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” or “manufactured homes”) compared to 65.0% in 2007. The HUD Code regulates manufactured home design and construction, strength and durability, fire resistance and energy efficiency. The remaining homes and units we produced consisted of modular homes and units (22.0% in 2008 and 23.9% in 2007), homes sold and primarily manufactured in Canada (20.4% in 2008 and 10.7% in 2007) or were park models (1.5% in 2008 and 0.4% in 2007). Modular homes and units are designed and built to meet local building codes. Homes sold in Canada are constructed in accordance with applicable Canadian building standards. The acquisition of SRI in December 2007 resulted in a significant increase in sales in Canada in 2008.

Champion produces a broad range of homes under various trade names and brand names and in a variety of floor plans and price ranges. While most of the homes we build are single-family, multi-section, ranch-style homes, we also build two-story, single-section, and Cape Cod style homes as well as multi-family units such as town homes, apartments, duplexes and triplexes. The single-family homes that we manufacture generally range in size from 400 to 4,000 square feet and typically include two to four bedrooms, a living room and/or family room, a dining room, a kitchen and two full bathrooms. During the past three years, we also produced commercial modular structures including two- and three-story buildings, barracks and other housing for U.S. military bases and other non-residential buildings.

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We regularly introduce homes with new floor plans, exterior designs and elevations, decors and features. Our corporate marketing and engineering departments work with our manufacturing facilities to design homes that appeal to consumers’ changing tastes at appropriate price points for local markets. We design and build homes with a traditional residential or site-built appearance through the use of dormers and higher pitched roofs, among other features. We also design and build energy efficient homes, and most of our U.S. manufacturing facilities are qualified to produce “Energy Star^®” rated homes.

Champion homes have won numerous awards during the past five years. One of our homes won the 2008 award for “Excellence in Systems Building for a Modular Home under 2,300 Square Feet,” awarded by the Building Systems Council of the National Association of Home Builders. This home also won the 2008 award for “Best New Modular Home Design Under 2,200 Square Feet,” awarded by the National Modular Housing Council (“NMHC”). In 2006, one of our homes won the NMHC award for “Best New Home Design for a Production Modular Home Over 1,800 Square Feet.” In 2005, one of our HUD-code concept models won the Manufactured Housing Institute (“MHI”) award for “Best New Home Design for a Concept Manufactured Home 1,800 Square Feet or Less.” Additionally, we were selected by Country Living magazine to build its Home of the Year in both 2006 and 2005.

During 2008, the average net selling price for our factory-built homes was $56,100, excluding delivery, and manufacturing sales prices ranged from $20,000 to over $150,000. Retail sales prices of the homes, without land, generally ranged from $25,000 to over $200,000, depending upon size, floor plan, features and options. During 2008, the average retail selling price for new homes sold to consumers by our retail segment was $162,500, including delivery, setup, accessories and site improvements.

The components and products used in factory-built housing are generally of the same quality as those used by other housing builders, including conventional site-builders. The primary components include lumber, plywood, OSB, drywall, steel, floor coverings, insulation, exterior siding (vinyl, composites, wood and metal), doors, windows, shingles, kitchen appliances, furnaces, plumbing and electrical fixtures and hardware. These components are presently available from a variety of sources and we are not dependent upon any single supplier. Prices of certain materials such as lumber, insulation, steel and drywall can fluctuate significantly due to changes in demand and supply. Additionally, availability of certain materials such as drywall and insulation has sometimes been limited, resulting in higher prices and/or the need to find alternative suppliers. We generally have been able to pass higher material costs on to the retailers and builders/developers in the form of surcharges and price increases.

Most completed factory-built homes have cabinets, wall coverings and electrical, heating and plumbing systems. HUD-code homes also generally contain factory installed floor coverings, appliances and window treatments. Optional factory installed features include fireplaces, dormers, entertainment centers and skylights. Upon completion of the home at the factory, homes sold to retailers are transported to a retail sales center (stock orders) or directly to the home site (retail sold orders). Homes sold to builders and developers are generally transported directly to the home site. After the retail sale of a stock home to the consumer, the home is transported to the home site. At the home site, the home is placed on a foundation and readied for occupancy typically by setup contractors. The sections of a multi-section home are joined and the interior and exterior seams are finished at the home site. The consumer purchase of the home may also include retailer or contractor supplied items such as additional appliances, air conditioning, furniture, porches, decks and garages.

Production

We construct homes in indoor facilities using an assembly-line process employing generally 100 to 200 production employees at each facility. Manufactured homes are constructed in one or more sections (also known as floors) on a permanently affixed steel support frame that allows the section(s) to be moved through the assembly line and transported upon sale. The sections of many of the modular homes we produce are built on wooden floor systems and transported on carriers that are removed upon placement of the home at the home site. Each section or floor is assembled in stages, beginning with the construction of the frame and the floor, then adding the walls, ceiling and roof assembly, and other constructed and purchased components, and ending with a final quality control inspection. The efficiency of the assembly-line process, protection from the weather, and favorable pricing of materials resulting from our substantial purchasing power enables us to produce homes more quickly and often at a lower cost than a conventional site-built home of similar quality.

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The production schedules of our homebuilding facilities are based upon customer (retailer and builder/ developer) orders, which can fluctuate from week to week. Orders from retailers are generally 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 and for homebuyer orders. Before scheduling homes for production, orders and availability of financing are confirmed with our customer and, where applicable, their lender. Orders are generally filled within 90 days of receipt, depending upon the level of unfilled orders and requested delivery dates.

Although factory-built 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. We produce homes to fill existing orders and, therefore, our manufacturing plants generally do not carry finished goods inventories except for homes awaiting delivery. Typically, a one to three-week supply of raw materials is maintained. Charges to transport homes increase with the distance from the factory to the retailer or home site. As a result, most of the retailers and builders/developers we sell to are located within a 500-mile radius of our manufacturing plants.

Distribution

Our factory-built homes are distributed through independent retailers, builders and developers, and our California-based retail segment. During 2008, approximately 94% of our manufacturing shipments were to approximately 1,200 independent retail locations throughout the U.S. and western Canada. As of January 3, 2009, approximately 725 of these independent retail locations were part of our Champion Home Center (“CHC”) retailer program. Sales to independent CHC retailers accounted for approximately 56% of the homes we sold to independent retailers. We continually seek to increase our manufacturing shipments by expanding sales at our existing independent retailers and by finding new independent retailers to sell our homes.

As is common in the industry, our independent retailers may sell homes produced by other manufacturers in addition to those produced by the Company. Some independent retailers operate multiple sales centers. In 2008, no single independent retailer or distributor accounted for more than 2% of our manufacturing sales.

We also sell our homes directly to approximately 500 builders and developers through our Genesis Homes division and certain of our other homebuilding plants. In this distribution channel the builder/developer generally acquires the land, obtains the appropriate zoning, develops the land and builds the foundation for the home. We design, engineer and build the home. We, or the builder/developer, contract a crew to set or place the home on the foundation and to finish the home on site. The builder/developer may construct the garage, patio, and porches at the site and either sell the home directly to the consumer or through a realtor. The homes sold through builders/developers may be placed in planned communities or subdivisions in suburban areas and rural markets. Certain of our builder/developer projects involve multi-family housing units.

Market

Factory-built housing competes with other forms of new housing such as site-built housing, panelized homes and condominiums and with existing housing such as pre-owned homes, apartments and condominiums. According to statistics published by the Institute for Building Technology and Safety (“IBTS”) and the U.S. Department of Commerce, Bureau of the Census, for 2008 and for the five year period from 2004 through 2008, industry shipments of HUD-code homes accounted for an estimated 13% and 9%, respectively, of all new single-family housing starts and 15% and 11%, respectively, of all new single-family homes sold. Based on data reported by Statistical Surveys, Inc., total industry retail sales of new HUD-code homes through November 2008 totaled approximately 68,000 homes, down 15% from the comparable period in 2007. Based on industry data published by the NMHC, wholesale shipments of modular homes through September 2008 fell 30% compared to the same period in 2007. Additionally, modular homes sold in 2007 and 2006 were approximately 25% of the factory-built housing market.

The market for factory-built housing is affected by a number of factors, including the availability, cost and credit underwriting standards of consumer financing, consumer confidence, employment levels, general housing market and other economic conditions and the overall affordability of factory-built housing versus other forms of housing. In addition, demographic trends such as changes in population growth and competition affect demand for

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housing products. Interest rates and the availability of financing also influence the affordability of factory-built housing.

We believe the segment of the housing market in which manufactured housing is most competitive includes consumers with household incomes under $60,000. This segment has a high representation of young single persons and married couples, first time home buyers and elderly or retired persons. The comparatively low cost of manufactured homes attracts these consumers. People in rural areas, where fewer housing alternatives exist, and those who presently live in factory-built homes, also make up a significant portion of the demand for new factory-built housing. We believe higher-priced, multi-section manufactured and modular homes are attractive to households with higher incomes as an alternative to rental housing and condominiums, and are well suited to meet the needs of the retiree buyer in many markets.

In the past, a number of factors have restricted demand for factory-built housing, including, in some cases, less-favorable financing terms 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. Certain of these adverse factors have lessened considerably in recent years with the improved quality and appearance of factory-built housing.

Competition

The factory-built 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, and retail customer financing. Capital requirements for entry into the industry are relatively low.

According to MHI, in November 2008, there were 65 producers of manufactured homes in the U.S. operating an estimated 185 production facilities. For the first eleven months of 2008 and for all of 2007 the top 5 companies had a combined market share of HUD-code homes of approximately 63.5% and 64.5%, respectively, according to data published by Statistical Surveys, Inc. We estimate that there were approximately 4,000 industry retail locations throughout the U.S in 2008.

Based on industry data reported by IBTS, in 2008 our U.S. wholesale market share of HUD-code homes sold was 7.8%, compared to 10.4% in 2007. Based on industry data published by NMHC, we estimate our share of the modular home market for the first nine months of 2008 and for the entire year of 2007 to be approximately 11.7% and 11.4%, respectively.

Retailer Inventory Financing

Independent retailers of factory-built homes generally finance their inventory purchases from manufacturers with floor plan financing provided by third party lending institutions and secured by a lien on the homes. The availability and cost of floor plan financing can affect the amount of retailer new home inventory, the number of retail sales centers and related wholesale demand. During the past five years, there has been consolidation among the major national floor plan lenders, and a number of local and regional banks have entered the market or increased lending volumes.

During 2008, approximately 42% of our sales to independent retailers were financed by retailers under floor plan agreements with national lenders, while the remaining 58% were financed under various arrangements with local or regional banks or paid in cash. In accordance with trade practice, we have entered into repurchase agreements with each of the national lenders and with a small number of local and regional banks providing floor plan financing, as is more fully described in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Report and in “Contingent Repurchase Obligations — Manufacturing Segment” in Item 7 of this Report. We generally receive payment from the lending institution three to fifteen days after a home is sold and invoiced to an independent retailer.

As a result of the credit crisis, during the fourth quarter of 2008 each of the national floor plan lenders substantially curtailed their lending activities, and one announced its intention to exit the business in 2009. Many of our retailers have arranged or are in the process of arranging to replace this floor plan financing with working capital

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lines of credit or floor plan financing through local banking relationships. It is not yet clear what effect, if any, these changes will have on our business.

Consumer Financing

The number of factory-built homes that are sold to consumers and related wholesale demand are significantly affected by the availability, credit underwriting standards, loan terms and cost of consumer financing. Two basic types of consumer financing are available to purchasers of factory-built homes: home-only or personal property loans for purchasers of only the home (generally HUD-code homes), and real estate mortgages for purchasers of the home and land on which the home is placed. The majority of modular homes are financed with conventional real estate mortgages. Loose credit standards for home-only loans in the mid to late 1990s led to poor performance of portfolios of manufactured housing home-only consumer loans in subsequent years making it difficult for industry consumer finance companies to obtain long-term capital. As a result, consumer finance companies that didn’t exit the business entirely curtailed their industry lending by tightening credit underwriting standards, restricting loan terms and increasing interest rates. While the result of this tightening has vastly improved portfolio performance for remaining lenders, for the past several years it has driven industry demand sharply lower because financing for manufactured home buyers was not competitive with the easy credit available for traditional mortgages.

During 2008, as the credit crisis deepened, credit terms and pricing for traditional mortgages were tightened substantially resulting in a more challenging lending environment for most home buyers. While the credit crisis persists, credit availability for major purchases of all kinds will likely be limited.

International segment

Products

Our international manufacturing segment (the “international segment”) is comprised of Caledonian, which was acquired in April 2006, and its subsidiary ModularUK, which was acquired in February 2008. We currently operate five manufacturing facilities at two locations in the U.K. Caledonian is a leading modular manufacturer in the U.K. that constructs steel-framed modular buildings for uses such as prisons, military accommodations, hotels and residential units, among other things. Caledonian’s steel-framed modular technology allows for multi-story construction, which is a key advantage over wood-framed construction techniques. We believe that Caledonian is the largest off-site producer of permanent modular buildings in the U.K. as measured by annual revenues.

Caledonian specializes in the design, manufacture and construction of permanent, multi-story buildings using off-site modular construction and may operate as the general contractor for a project or as a sub-contractor. Most Caledonian projects involve total revenue from $2 million to $50 million. Caledonian has key framework agreements in place with its major customers, which include Her Majesty’s Prison Service and, through a third-party prime contractor, the U.K. Ministry of Defence (“MoD”), among others.

During 2008, Caledonian supplied nearly 800 prison cells across 14 different locations in addition to a wide range of other ancillary buildings for prison use. In addition, over 1,500 military bed spaces, 640 hotel rooms and 500 other residential units were constructed in locations throughout the U.K. Product development has focused on the sustainability and environmental performance of the modular building process as well as the design of ancillary and non — residential structures such as kitchens and health care facilities.

Projects are designed to maximize the amount of work that can be performed at the factory thereby minimizing the amount of work at the construction site. This allows for rapid construction of the building with less manpower and material at the site and in about one-half the time versus traditional construction. Reduced site time and manpower is especially important to clients with higher security requirements such as prisons and military bases.

The structures are engineered to provide a 60 to 100-year design life. The buildings are compliant with required codes and regulations including U.K. and Irish building regulations and fire certification, Part “E” (sound insulation), and Part “L” (thermal performance). Some structures also comply with Counter Terrorist Measures and MoD Standards. Caledonian has also obtained LANTAC (local authority type approval), Zurich and NHBC (National House Builders Confederation) accreditations.

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Production and construction

Caledonian’s four facilities on its main site employ approximately 250 production workers, while the one facility comprised of three plants on its second site, which commenced operations in 2008, employ a total of approximately 65 production workers. Subcontractors are used for various production functions, including electrical and plumbing work, both in the factory and at construction sites.

The modules produced are created from welded steel frames using hot rolled steel beams to create the basic frame (top, bottom and vertical supports) and cold rolled steel elements for the joists and wall studs. The frames are manufactured with lifting points to facilitate craning the modules into place at the construction site and “fixing” points, if required, to facilitate the attachment of exterior cladding at the site. After completion of the frame the unit is moved to a position in the plant where it will be completed without further movement. The steel floor is clad with either wood boards, cement particle boards or concrete and the ceilings and interior walls are clad with sheetrock. Insulation, plumbing, wiring, windows, doors, bathroom components and cabinets are added as required. Each module may contain up to four living units (bedrooms or cells). Each factory at the main site can complete up to four modules per day. The completed modules are wrapped in protective plastic sheeting for shipment to the building site.

Site groundwork and foundation work are planned and coordinated with the production schedule to minimize the total length of the construction process. Completed modules are delivered to the building site and erected with a mobile crane. Individual modules are welded or bolted together to ensure correct positioning and structural continuity. Modules can generally be erected at a rate of eight per day. Central corridors are created during this process. Once inter-connected, the modules form the full structure of the building. Wiring and plumbing between modules is connected on site and interiors are finished by completing the flooring and decors. Traditional steel and concrete construction techniques may be employed for non-modular areas to meet design specifications. Exterior cladding or brick work and the roof are added on site to complete the building structure.

Market and competition

Caledonian competes in the U.K. custom modular industry, which also competes with traditional commercial builders in the construction of permanent, multi-story buildings. The custom modular market in the U.K. has estimated total annual sales of over £1 billion (approximately $1.5 billion at January 3, 2009). There are several large competitors in the U.K. custom modular market, but Caledonian is the only modular builder that focuses solely on the custom market. Caledonian primarily competes in six segments of this market: prisons, military accommodations, hotels, high-density residential, health care and education. Caledonian establishes key relationships in these segments and generally trades under long-term framework agreements. Under these framework agreements Caledonian is a principal supplier of modular prison units to Her Majesty’s Prison Service and currently the sole supplier of modular military accommodations to MoD’s Single Living Accommodation Modernization (“SLAM”) program. Caledonian is one of five or more suppliers of modular accommodation to MoD outside of SLAM. Caledonian has also developed key relationships in the hotel and residential segments. Funding for projects in the prison, military and education segments is generally dependent on government programs and budgets. Hotel, residential and health care projects are generally dependent upon private sector funding that is influenced by general economic and other factors. The current credit crisis has caused certain delays both for government and private sector funded projects.

Retail segment

During 2005, we divested our remaining traditional retail sales centers. Our ongoing retail operations currently consist of 14 sales offices in California that specialize in replacing older homes within manufactured housing communities with new manufactured homes. Our sales agents locate vacant spaces and available spaces to be renovated in local communities, secure the space and order a new home from a manufacturer, primarily Champion plants. This can be done either on a speculative basis, as a customer trade-in, or a custom order for an approved buyer. The homes are placed on the leased sites and independent contractors are engaged to set up the home and make site and home improvements such as decks, porches, landscaping and air conditioning. Of the total new homes sold by the retail segment in 2008, 88.5% were Champion-produced, compared to 88.0% in 2007. Champion-

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produced homes purchased by our retail segment in 2008 and 2007 accounted for 1.4% and 2.0%, respectively, of the total homes sold by our manufacturing segment.

The retail segment sales offices are located in leased premises from which the home acquisition, site preparation, set up, improvements and sales processes are managed. Our sales agents meet with and show potential buyers the homes. During the sale process our sales offices may assist the homebuyer with finding financing for the purchase and with insurance needs. The sales offices may also arrange for any special improvements, add-ons and amenities required by the homebuyer.

Sales in the retail segment have been slowed considerably by current housing market conditions in California. Our business model has traditionally targeted the retiree buyer with an affordable home relative to owned real estate, but at a high price point relative to manufactured housing in other markets. The retiree market has been hard hit by the slow market and declining prices for existing home re-sales. As a result, we have shifted our business mix more toward family communities with a lower price point home, but this market does not offer the same revenue and gross margin opportunity that the retiree market has offered in the past.

Buyers of our homes generally need to finance the purchase. For the past several years consumer financing has been harder to obtain and has been more expensive than traditional mortgage lending. (See “Consumer Financing” above). During 2008, a lender that provided financing for a significant number of buyers of our homes in California ceased operations. We are currently seeking other local and national lenders to finance our retail sales. However the current credit crisis has restricted financing availability.

Relationship with our Employees

As of January 3, 2009, we had approximately 4,100 employees. We deem our relationship with our employees to be generally good. Currently, our five manufacturing facilities in Canada employ approximately 820 workers, of which 600 are subject to collective bargaining agreements, one that expired in November 2008 and the others that expire in June 2009, June 2010, November 2010 and June 2011. Negotiations are progressing on replacing the agreement that expired in November 2008. Caledonian entered into a voluntary recognition agreement with a labor union during the second quarter of 2006 covering approximately 200 production employees.

Executive Officers of the Company

Our executive officers, their ages, and the position or office held by each, are as follows:

Name	Age		Position or Office
William C. Griffiths		57	Chairman of the Board of Directors, President and Chief Executive Officer
Phyllis A. Knight		46	Executive Vice President, Treasurer and Chief Financial Officer
Roger K. Scholten		54	Senior Vice President, General Counsel and Secretary
Richard P. Hevelhorst		61	Vice President and Controller

The executive officers serve at the pleasure of our Board of Directors.

Mr. Griffiths became President and Chief Executive Officer of Champion Enterprises, Inc. on August 1, 2004 and was elected Chairman of the Board of Directors in March 2006. Previously, since 2001 Mr. Griffiths was employed by SPX Corporation, a global multi-industry company, located in Charlotte, North Carolina, where he was President-Fluid Systems Division. From 1998 to 2001, Mr. Griffiths was President-Fluid Systems Division at United Dominion Industries, Inc., which was acquired by SPX Corporation in 2001.

Mrs. Knight joined Champion in 2002 after leaving Conseco Finance Corp. where since 1994 she served in various executive positions, including Senior Vice President and Treasurer and, most recently, was President of its Mortgage Services Division.

Mr. Scholten joined the Company in October 2007. Mr. Scholten was employed by Maytag Corporation since 1981, where most recently he was General Counsel and Senior Vice President.

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Mr. Hevelhorst joined Champion in 1995 as Controller and was promoted to the position of Vice President and Controller in 1999.

Available Information

Champion’s main website is www.championhomes.com. Champion’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to all such reports and statements are made available via its website free of charge as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

Champion’s Code of Ethics, Corporate Governance Guidelines, Lead Independent Director Charter, Audit and Financial Resources Committee Charter, Compensation and Human Resources Committee Charter and Nominating and Corporate Governance Committee Charter are also posted on its website. The information on the Company’s website is not part of this or any other report that Champion files with, or furnishes to, the SEC.

Additionally, the public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Item 1A.   Risk Factors

Forward-Looking Statements

Certain statements contained in this Report, including our ability to introduce new homes and new floor plans, our ability to pass various costs on to our customers, the availability and cost of raw materials, expanding shipments and sales, our relationship with our employees, the outcome of legal proceedings or claims, our strategy to diversify, compliance with the covenants in our credit facilities and the impact of our inability to do so, changes to our capital structure, our expected capital expenditures, the impact of contingent repurchase obligations and other contingent liabilities or obligations on the results of our operations and the adequacy of our cash flow from operations to fund capital expenditures, could be construed to be forward-looking statements within the meaning of U.S. federal securities laws. In addition, Champion or persons acting on our behalf may from time to time publish or communicate other items that could also be construed to be forward-looking statements. Statements of this sort are, or will be, based on the Company’s then current estimates, assumptions and projections and are subject to risks and uncertainties, including those specifically listed below that could cause actual results to differ materially from those included in the forward-looking statements. The Company does not undertake to update its forward-looking statements or risk factors to reflect future events or circumstances. The following risk factors could affect the Company’s operating results.

The credit crisis — The credit crisis has significantly affected the financial markets and the economies in the U.S., Canada and the U.K., the countries in which we operate.

The current global credit crisis has significantly affected the financial markets and the economies in the U.S., Canada and the U.K., the countries in which we operate. The housing markets in the U.S. have also been significantly impacted by the credit crisis. Conditions in the U.S. are likely to affect the availability and cost of financing for the retailers and builder-developers who buy our homes and for individual home buyers. Additionally, the selling prices of homes that we market in the U.S. may be pressured due to competition from excess inventories of new and pre-owned homes and from foreclosures. The credit crisis and its impact on the world economies could also affect the availability and cost of financing and selling prices in our markets in western Canada.

A substantial portion of our revenue in the U.K is from two large public sector customers who rely on public (government) and private funding. The credit crisis and its impact on the British economy could affect the availability and cost of financing in the U.K. and could result in loss of funding or delays for projects that we have been awarded. In addition, it could negatively affect our ability to gain new contracts for future projects. Therefore, the current credit crisis could negatively affect our operations and result in lower sales, income and cash flows.

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Further, our significant negative working capital position in the U.K. is highly correlated with our revenues and, as such, a further decline in revenues could result in a significant reduction in our operating cash flow.

We have a significant amount of debt outstanding that contains financial covenants with which we must comply. Without improvements in the current housing and credit markets, it is possible that we will not be in compliance with covenants which take effect in the first quarter of our 2010 fiscal year, absent a significant reduction in our senior debt. Further, if our markets deteriorate further in 2009 there can be no assurance that we will maintain compliance with our 2009 financial covenants, which were modified in October 2008. These covenants are measured at each quarter end and require that we attain minimum levels of EBITDA and liquidity as defined by our Credit Agreement.

As a result, we may need to refinance all or a portion of our debt before maturity. If conditions in the credit market were to persist throughout 2009, there can be no assurance that we will be able to refinance any or all of this indebtedness.

New York Stock Exchange — We have received notice from the New York Stock Exchange (NYSE) that we are not in compliance with the exchange’s continued listing standards because the average closing share price of Champion’s common stock for a consecutive 30-day trading period fell below $1.00.

The listing of our common stock on the NYSE is at risk as a result of our average stock price falling below $1.00 per share over a consecutive 30-day trading period. While the Company has a period of six months from the date it received notice to cure this non-compliance, and we have a number of options to cure under consideration, there can be no assurance that we will be able to cure this deficiency in the time permitted. In addition, there can be no guarantee that the Company will remain in compliance with other continued listing requirements related to market capitalization and stockholder’s equity.

We also maintain a listing for our common stock on the Chicago Stock Exchange (“CHX”), and are currently in compliance with all of its applicable listing maintenance requirements.

In the current environment there can be no assurance that we will not be in violation of other NYSE listing standards or CHX maintenance requirements, some of which may not be curable.

Our convertible debt requires that our common stock be listed on a U.S. national or regional securities exchange. Our failure to be so listed may constitute a fundamental change whereby the holders of our convertible notes could require us to purchase with cash their notes at face value. In the event the Company’s common stock is delisted from the stock exchanges there are additional risks such as the impact on the market liquidity of our common stock, the impact on our ability to raise capital or issue certain types of debt, and general issues regarding our perception in the marketplace.

Significant debt — Our significant debt could limit our ability to obtain additional financing, require us to dedicate a substantial portion of our cash flows from operations for debt service and prevent us from fulfilling our debt obligations. If we are unable to pay our debt obligations when due, we could be in default under our debt agreements and our lenders could accelerate our debt or take other actions which could restrict our operations.

As discussed in Note 5 of the “Notes to Consolidated Financial Statements” in Item 8 of this Report, we have a significant amount of debt outstanding, consisting primarily of Term Loans due in 2012 and Convertible Senior Notes (the “Convertible Notes”) due in 2037. Holders of the Convertible Notes may require us to repurchase the Notes in the event we are involved in certain types of corporate transactions or other events constituting a fundamental change and, in addition, holders have the right to require us to repurchase all or a portion of their Notes on November 1 of 2012, 2017, 2022, 2027 and 2032. We have the right to redeem the Convertible Notes, in whole or in part, for cash at any time after October 31, 2012. We may incur additional debt to finance acquisitions or for other purposes. This indebtedness could, among other things:

•  limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements, surety bonds, or other requirements;

•  require us to dedicate a substantial portion of our cash flows from operations to the payment of principal and interest on our indebtedness and reduce our ability to use our cash flows for other purposes;

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•  limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete;

•  place us at a competitive disadvantage to competitors with less indebtedness; and

•  make us more vulnerable in the event of a further downturn in our business or in general economic conditions.

Our business may not generate cash flows from operations in amounts sufficient to pay our debt or to fund other liquidity needs. The factors that affect our ability to generate cash can also affect our ability to raise additional funds through the sale of equity securities, the refinancing of debt or the sale of assets.

We may need to refinance all or a portion of our debt on or before maturity. We may not be able to refinance any of our debt on commercially reasonable terms or at all. If we are unable to refinance our debt obligations, we could be in default under our debt agreements and our lenders could accelerate our debt or take other actions that could restrict our operations.

Fluctuations in operating results — The cyclical and seasonal nature of our construction businesses has caused our sales and operating results to fluctuate. These fluctuations, which have caused operating losses in the past, may continue to occur in the future, which could result in additional operating losses during future downturns.

The North American housing market is highly cyclical and is influenced by many national and regional economic and demographic factors, including:

•  terms and availability of financing for homebuyers and retailers;

•  consumer confidence;

•  interest rates;

•  population and employment trends;

•  income levels;

•  housing demand; and

•  general economic conditions, including inflation, and recessions.

The factory-built housing industry is also affected by seasonality. Sales during the period from March to November are traditionally higher than in other months. As a result of the foregoing factors, our sales and operating results fluctuate, and we expect that they will continue to fluctuate in the future.

In addition, our U.K. commercial modular construction business is highly cyclical and it, too, is influenced by numerous national and regional economic factors, including:

•  availability of project financing;

•  availability of government funding for prison, military and education construction projects;

•  population and employment trends; and

•  general economic conditions, including inflation and recessions.

Moreover, we may experience operating losses during future cyclical and seasonal downturns in our markets as we are now and have in the past.

Consumer financing availability — Tight credit standards and loan terms, curtailed lending activity, and increased interest rates among consumer lenders could reduce our sales. If consumer financing were to become further curtailed, our sales could decline and our operating results and cash flows could suffer.

The consumers who buy our homes have historically secured consumer financing from third party lenders. The availability, terms and costs of consumer financing depend on the lending practices of financial institutions, government regulations and economic and other conditions, all of which are beyond our control. A consumer

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seeking to finance the purchase of a manufactured home without land will generally pay a higher interest rate and have a shorter loan term than a consumer seeking to finance the home along with the real estate on which it will be placed. Manufactured home consumer financing is at times more difficult to obtain than financing for site-built and modular homes. Between 1999 and 2003, consumer lenders tightened the credit underwriting standards and loan terms and increased interest rates for loans to purchase manufactured homes, which reduced lending volumes and caused our sales to decline. During 2008 one of the national lenders exited the market. In addition, the current credit crisis has caused certain lenders to further tighten underwriting guidelines and increase pricing and may result in further curtailment of lending or additional lenders exiting the market.

The poor performance of portfolios of manufactured housing consumer loans in past years has made it more difficult for industry consumer finance companies to obtain long-term capital. As a result, consumer finance companies have curtailed their industry lending and many have exited the manufactured housing market. Additionally, the industry has seen certain traditional real estate mortgage lenders tighten terms or discontinue financing for manufactured housing.

If consumer financing for manufactured homes were to be further curtailed, we would likely experience sales declines and our operating results and cash flows would suffer.

Floor plan financing availability — A reduction in floor plan credit availability or tighter loan terms to our independent retailers could cause our manufacturing sales to decline. As a result, our operating results and cash flows could suffer.

Many independent retailers of our manufactured homes finance their inventory purchases with floor plan financing provided by lending institutions. Reduced availability of floor plan lending or tighter floor plan terms, both of which occurred in late 2008, may affect our independent retailers’ inventory levels of new homes, the number of retail sales centers and related wholesale demand. As a result, we could experience manufacturing sales declines or a higher level of retailer defaults and our operating results and cash flows could suffer.

Contingent liabilities — We have, and will continue to have, significant contingent repurchase obligations and other contingent obligations, some of which could become actual obligations that we must satisfy. We may incur losses under these contingent repurchase obligations or be required to fund these or other contingent obligations that would reduce our cash flows.

In connection with a floor plan arrangement for our manufacturing shipments to independent retailers, the financial institution that provides the retailer financing customarily requires us to enter into a separate repurchase agreement with the financial institution. Under this separate agreement, generally for a period up to 18 months from the date of our sale to the retailer, upon default by the retailer and repossession of the home by the financial institution, we are generally obligated to repurchase the home from the lender at a price equal to the unpaid principal amount of the loan, plus certain administrative and handling expenses, reduced by the cost of any damage to the home and any missing parts or accessories. Our estimated aggregate contingent repurchase obligation at January 3, 2009 was significant and included significant contingent repurchase obligations relating to our largest independent retail customers. For additional discussion see “Contingent Repurchase Obligations — Manufacturing Segment” in Item 7 and Note 13 of “Notes to Consolidated Financial Statements” in Item 8 of this Report. We may be required to honor some or all of our contingent repurchase obligations in the future, which would result in operating losses and reduced cash flows.

At January 3, 2009, we also had contingent obligations related to surety bonds and letters of credit. For additional detail and discussion, see “Liquidity and Capital Resources” in Item 7 of this Report. If we were required to fund a material amount of these contingent obligations, we would have reduced cash flows and could incur losses.

Dependence upon independent retailers — If we are unable to establish or maintain relationships with independent retailers who sell our homes, our sales could decline and our operating results and cash flows could suffer.

During 2008, approximately 94% of our manufacturing shipments of homes were made to independent retail locations throughout the United States and western Canada. As is common in the industry, independent retailers may sell manufactured homes produced by competing manufacturers. We may not be able to establish relationships

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with new independent retailers or maintain good relationships with independent retailers that sell our homes. Even if we do establish and maintain relationships with independent retailers, these retailers are not obligated to sell our manufactured homes exclusively, and may choose to sell our competitors’ homes instead. The independent retailers with whom we have relationships can cancel these relationships on short notice. In addition, these retailers may not remain financially solvent, as they are subject to the same industry, economic, demographic and seasonal trends that we face. If we do not establish and maintain relationships with solvent independent retailers in the markets we serve, sales in those markets could decline and our operating results and cash flows could suffer.

Cost and availability of raw materials — Prices of certain materials can fluctuate significantly and availability of certain materials may be limited at times.

Prices of certain materials such as lumber, insulation, steel, drywall, oil based products and fuel can fluctuate significantly due to changes in demand and supply. Additionally, availability of certain materials such as drywall and insulation may be limited at times resulting in higher prices and/or the need to find alternative suppliers. We generally have been able to maintain adequate supplies of materials and to pass higher material costs on to our customers in the form of surcharges and base price increases. However, it is not certain that future price increases can be passed on to our customers without affecting demand or that limited availability of materials will not impact our production capabilities. The current credit crisis and its impact on the financial and housing markets may also impact our suppliers and affect the availability or pricing of materials.

Effect on liquidity — Industry conditions and our operating results have limited our sources of capital in the past. If we are unable to locate suitable sources of capital when needed we may be unable to maintain or expand our business.

We depend on our cash balances, our cash flows from operations and our senior secured credit agreement, as amended, (the “Credit Agreement”) to finance our operating requirements, capital expenditures and other needs. The downturn in the manufactured housing industry, combined with our operating results and other changes, has limited our sources of financing in the past. If our cash balances, cash flows from operations, and availability under our Credit Agreement are insufficient to finance our operations and alternative capital is not available, we may not be able to expand our business and make acquisitions, or we may need to curtail or limit our existing operations.

We have a significant amount of surety bonds and letters of credit representing collateral for our casualty insurance programs and for general operating purposes. The letters of credit are issued under our Credit Agreement. For additional detail and information concerning the amounts of our surety bonds and letters of credit, see Note 13 of “Notes to Consolidated Financial Statements” in Item 8 of this Report. The inability to retain our current letter of credit and surety bond providers, to obtain alternative bonding or letter of credit sources or to retain our current Credit Agreement to support these programs could require us to post cash collateral, reduce the amount of cash available for our operations or cause us to curtail or limit existing operations.

Competition — The factory-built housing industry is very competitive. If we are unable to effectively compete, our growth could be limited, our sales could decline and our operating results and cash flows could suffer.

The factory-built housing industry is highly competitive at both the manufacturing and retail levels, with competition based, among other things, on price, product features, reputation for service and quality, merchandising, terms of retailer promotional programs and the terms of consumer financing. Numerous companies produce factory-built homes in our markets. Some of our manufacturing competitors have captive retail distribution systems and consumer finance operations. In addition, there are independent factory-built housing retail locations in most areas where independent retailers sell our homes and in California where we have retail operations. Because barriers to entry to the industry at both the manufacturing and retail levels are low, we believe that it is relatively easy for new competitors to enter our markets. In addition, our products compete with other forms of low to moderate-cost housing, including site-built homes, panelized homes, apartments, townhouses and condominiums. If we are unable to effectively compete in this environment, our manufacturing shipments and retail sales could be reduced. As a result, our sales could decline and our operating results and cash flows could suffer.

Zoning — If the factory-built housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our operating results and cash flows could suffer.

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Limitations on the number of sites available for placement of manufactured homes or on the operation of manufactured housing communities could reduce the demand for manufactured homes and our sales. Manufactured housing communities and individual home placements are subject to local zoning ordinances and other local regulations relating to utility service and construction of roadways. In the past, some property owners have resisted the adoption of zoning ordinances permitting the use of manufactured homes in residential areas, which we believe has restricted the growth of the industry. Manufactured homes may not receive widespread acceptance and localities may not adopt zoning ordinances permitting the development of manufactured home communities. If the manufactured housing industry is unable to secure favorable local zoning ordinances, our sales could decline and our operating results and cash flows could suffer.

Dependence upon executive officers and other key personnel — The loss of any of our executive officers or other key personnel could reduce our ability to manage our businesses and achieve our business plan, which could cause our sales to decline and our operating results and cash flows to suffer.

We depend on the continued services and performance of our executive officers and other key personnel. If we lose the service of any of our executive officers or other key personnel, it could reduce our ability to manage our businesses and achieve our business plan, which could cause our sales to decline and our operating results and cash flows to suffer.

Restrictive covenants — The terms of our debt place operating restrictions on us and contain various financial performance and other covenants with which we must remain in compliance. If we do not remain in compliance with these covenants, certain of our debt facilities could be terminated and the amounts outstanding thereunder could become immediately due and payable.

The documents governing the terms of our Credit Agreement contain financial and non-financial covenants that place restrictions on us. The terms of this agreement include covenants that, for the four quarters in 2009, require that we attain minimum levels of EBITDA and liquidity, and beginning in the first quarter of our 2010 fiscal year, allow for a maximum leverage limit and require minimum levels of interest coverage and fixed charge coverage. These and other non-financial covenants, to varying degrees, restrict our ability to:

•  make capital investments;

•  engage in new lines of business;

•  incur indebtedness, contingent liabilities, guarantees, and liens;

•  pay dividends or issue common stock;

•  redeem or refinance existing indebtedness;

•  redeem or repurchase common stock and redeem, repay or repurchase subordinated debt;

•  make investments in subsidiaries that are not subsidiary guarantors;

•  enter into joint ventures;

•  sell certain assets or enter into sale and leaseback transactions;

•  transfer cash between U.S. and foreign affiliates;

•  acquire, consolidate with, or merge with or into other companies; and

•  enter into transactions with affiliates.

If we fail to comply with any of these covenants, the lenders could cause our debt to become due and payable prior to maturity, or result in refinancing the related indebtedness under unfavorable terms. If our debt were accelerated, our assets might not be sufficient to repay our debt in full. As of January 3, 2009, we were in compliance with all Credit Agreement covenants.

For additional detail and discussion concerning these financial covenants see “Liquidity and Capital Resources” in Item 7 of this Report.

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Our potential inability to integrate acquired operations could have a negative effect on our expenses and results of operations.

In the past, we have grown through strategic acquisitions and we may engage in strategic acquisitions in the future to strengthen and expand our operating capabilities and further diversify our revenue base. The full benefits of these acquisitions, however, require integration of manufacturing, administrative, financial, sales, and marketing approaches and personnel. If we are unable to successfully integrate these acquisitions, we may not realize the benefits of the acquisitions, and our financial results may be negatively affected. Completed acquisitions may also lead to significant unexpected liabilities above and beyond the level of available indemnities contained in the purchase agreements.

Potential Dilution — Conversions by holders of our convertible securities and potential capital, debt reduction, or acquisition transactions effected with issuances of our common stock could result in dilution and impair the price of our common stock.

We currently have $180 million of 2.75% Convertible Notes outstanding. The Convertible Notes are convertible into approximately 8.6 million shares or more of our common stock, depending on the market price of our common stock near the conversion date. To the extent that holders convert their Convertible Notes into shares of the Company’s common stock, other common shareholders would experience dilution in their percentage ownership interests.

To the extent we decide to reduce debt obligations or finance investments through the issuance of common stock or instruments convertible into common stock, our then existing common shareholders could experience dilution in their percentage ownership interests. We may seek additional sources of capital and financing in the future or issue securities in connection with retiring our outstanding indebtedness or making acquisitions, the terms of which could result in additional dilution. In addition, to remain in compliance with the continued listing standards of the NYSE, the Company may elect a reverse stock split. In the event of such action, there can be no guarantee the price of our stock will remain constant or proportional to the split and additional risks may exist related to market liquidity and market capitalization, among others.

Potential impairment charges — We have a significant amount of goodwill, amortizable intangible assets and property, plant and equipment which are subject to periodic review and testing for impairment.

A significant portion of our total assets at January 3, 2009 were comprised of goodwill, amortizable intangible assets, and property, plant and equipment. Under generally accepted accounting principles each of these assets is subject to periodic review and testing to determine whether the asset is recoverable or realizable. These tests require projections of future cash flows and estimates of fair value of the assets. Unfavorable trends in the industries in which we operate or in our operations, not unlike those we are currently experiencing, can affect these projections and estimates. Significant impairment charges, although not affecting cash flow, could have a material effect on our operating results and financial position. In addition, because our stock price has declined significantly, our current equity market capitalization has fallen below our book value. This situation, were it to continue, could result in impairment charges.

Operations in the U.K. — We have a significant investment in the U.K. We depend upon a few individually significant customers in our international segment. If we are unable to maintain relationships with our significant customers, our sales could decline and our operating results and cash flows could suffer. A reduction in government funding to our major customers, our inability to effectively compete in the U.K. or unfavorable changes in exchange rates could adversely affect the value of our investment in the U.K. and could significantly impact our U.K. revenues and earnings.

During 2008, approximately 64% of our international segment sales were, either directly or indirectly, to two large public sector (government) customers. If we are unable to maintain relationships with these customers or establish suitable replacement customer relationships, our operating results and cash flows could suffer. Caledonian’s two major customers rely on government funding for construction projects. Reduction in government funding to either of these two customers or unfavorable changes in the markets for hotels and residential structures could significantly impact Caledonian’s revenues and earnings.

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The commercial construction market in the U.K. is very competitive. If we are unable to effectively compete in this environment our revenues and earnings could suffer.

Foreign exchange rates — Changes in foreign exchange rates could adversely affect the value of our investments in Canada and the U.K. and cause foreign exchange losses related to intercompany loans.

We have substantial investments in businesses in Canada and the U.K. Unfavorable changes in foreign exchange rates could adversely affect the value of our investment in these businesses.

We use intercompany loans between our U.S. and foreign subsidiaries to provide funds for acquisitions and other purposes. Fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound could result in foreign exchange transaction losses that will be reported in our statement of operations until such loans are repaid.

Item 1B.   Unresolved Staff Comments

None

Item 2.   Properties

All of our North American manufacturing facilities are one story with concrete floors and wood and steel superstructures and generally range from 80,000 to 150,000 square feet. Our five manufacturing facilities in the U.K. are comprised of seven plants that range from 48,000 to 100,000 square feet. We own all of our manufacturing facilities except as noted in the table below. We also own substantially all of the machinery and equipment used in our manufacturing facilities. We believe our plant facilities are generally well maintained and provide ample capacity to meet expected demand.

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The following table sets forth certain information with respect to the 26 homebuilding facilities we were operating as of January 3, 2009 in the United States and Canada and the five manufacturing facilities in the U.K. All of the North American facilities are assembly-line operations.

United States
Arizona	Chandler*
California	Corona** Lindsay Woodland**
Colorado	Berthoud
Florida	Bartow* Lake City ***
Idaho	Weiser
Indiana	Topeka (2 plants)
Minnesota	Worthington
Nebraska	York
New York	Sangerfield****
North Carolina	Lillington Salisbury
Pennsylvania	Claysburg Ephrata Strattanville
Tennessee	Dresden**
Texas	Burleson
Virginia	Front Royal
Canada
Alberta	Medicine Hat Lethbridge*
British Columbia	Penticton Winfield*
Saskatchewan	Estevan
United Kingdom
Nottinghamshire	Newark (4 plants, 2 owned and 2 leased**)
East Yorkshire	Driffield**

*	Includes leased land.
**	Operating lease.
***	Includes facility leased under a capital lease and leased land.
****	Facility leased under a capital lease.

Substantially all of the U.S. manufacturing facilities we own are encumbered under first mortgages securing our Credit Agreement. Two of the facilities are encumbered under industrial revenue bond financing agreements and one facility is encumbered under a capital lease.

At January 3, 2009, we also owned 17 idle manufacturing facilities in 8 states. Eight of these idle facilities are permanently closed and are generally for sale.

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At January 3, 2009, our retail segment headquarters and 14 retail sales offices in California were leased under operating leases. Sales office lease terms generally range from monthly to five years. Our corporate offices, which are located in Troy, Michigan, and other miscellaneous offices and properties, are also leased under operating leases. The lease term for our corporate offices is ten years ending in 2017.

Item 3.   Legal Proceedings

In the ordinary course of business, we are involved in routine litigation incidental to our business. This litigation arises principally from the sale of our 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 management, none of these matters presently pending are expected to have a material adverse effect on our 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 Champion’s security holders during the fourth quarter of 2008.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities

Champion’s common stock is listed on the New York Stock Exchange as ChampEnt and the Chicago Stock Exchange as Champ Enterprises and has a ticker symbol of “CHB” for both Exchanges. The high and low sale prices per share of the common stock as reported by Yahoo! Finance for each quarter of 2008 and 2007 were as follows:

	High		Low
2008
1st Quarter	$	10.96	$	7.15
2nd Quarter		11.42		5.68
3rd Quarter		7.88		2.84
4th Quarter		6.12		0.40
2007
1st Quarter	$	10.34	$	7.18
2nd Quarter		12.00		8.63
3rd Quarter		12.74		8.80
4th Quarter		14.59		7.84

As of February 16, 2009, the Company had approximately 3,600 shareholders of record and approximately 8,100 beneficial holders.

We have not paid cash dividends on our common stock since 1974 and do not plan to pay cash dividends on our common stock in the near term. Our Credit Agreement contains a covenant that limits our ability to pay dividends.

The graph below compares the cumulative five-year shareholder returns on Company Common Stock to the cumulative five-year shareholder returns for (i) the S&P 500 Stock Index and (ii) an index of peer companies selected by the Company. The peer group is composed of seven publicly traded manufactured housing companies, which were selected based on similarities in their products and their competitive position in the industry. The companies comprising the peer group are Cavalier Homes, Inc., Cavco Industries, Inc., Fleetwood Enterprises, Inc., Nobility Homes, Inc., Palm Harbor Homes, Inc., Skyline Corporation and Coachmen Industries, Inc.

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	Base Period
Company Name / Index	Dec. 03		Dec. 04		Dec. 05		Dec. 06		Dec. 07		Dec. 08
Champion Enterprises, Inc	$	100.00	$	168.62	$	194.29	$	133.52	$	133.38	$	8.99
S&P 500 Index	$	100.00	$	109.33	$	112.61	$	127.95	$	133.18	$	84.06
Peer Group	$	100.00	$	121.44	$	117.71	$	96.73	$	70.40	$	30.56

Equity Compensation Plan Information

The following table contains information about our common stock that may be issued upon the exercise of options, warrants, and rights under all of our equity compensation plans and agreements as of January 3, 2009 (shares in thousands):

					Number of Shares
					Remaining Available
					for Future Issuance
	Number of Shares to				Under Equity
	be Issued upon		Weighted-Average		Compensation Plans
	Exercise of		Exercise Price of		(Excluding
	Outstanding Options,		Outstanding Options,		Outstanding Options,
Plan Category	Warrants, and Rights		Warrants, and Rights		Warrants, and Rights)
Equity Compensation Plans Approved by Shareholders		2,011	$	2.06		2,683
Equity Compensation Plans and Agreements not Approved by
Shareholders(1)		39	$	21.00		—
Total		2,050				2,683

(1) Included in this Plan Category are the following:

1993 Management Stock Option Plan — This plan is no longer in effect other than for stock options that were previously granted and remain outstanding. Options representing 34,432 shares of common stock remain outstanding under this plan. The weighted-average exercise price of these options is $21.04.

Acquisitions — We granted stock options to certain employees of acquired businesses. Options representing 4,000 shares of common stock remain outstanding under these agreements and were granted at fair market value and vested over time. The weighted-average exercise price of these options is $20.63.

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Item 6.   Selected Financial Information

Five-Year Highlights

	2008			2007			2006			2005			2004
	(Dollars and weighted average shares in thousands,
	except per share amounts)
Operations
Net sales
Manufacturing	$	727,331		$	941,945		$	1,195,834		$	1,190,819		$	1,002,164
International		279,641			280,814			90,717			—			—
Retail		36,521			73,406			117,397			135,371			110,024
Less: Intercompany		(10,300	)		(22,700	)		(39,300	)		(53,600	)		(97,900	)
Total net sales		1,033,193			1,273,465			1,364,648			1,272,590			1,014,288
Cost of sales		906,685			1,083,601			1,147,032			1,055,749			843,261
Gross margin		126,508			189,864			217,616			216,841			171,027
Selling, general and administrative expenses		130,756			158,142			154,534			151,810			129,096
Restructuring charges		10,683			3,780			1,200			—			3,300
Foreign currency transaction losses (gains)		10,536			(1,008	)		—			—			—
Amortization of intangible assets		9,251			5,727			3,941			—			—
Mark-to-market (credit) charge for common stock warrant		—			—			—			(4,300	)		5,500
Operating (loss) income		(34,718	)		23,223			57,941			69,331			33,131
Loss on debt retirement		(608	)		(4,543	)		(398	)		(9,857	)		(2,776	)
Net interest expense		(16,692	)		(14,731	)		(14,446	)		(13,986	)		(17,219	)
(Loss) income from continuing operations before income taxes		(52,018	)		3,949			43,097			45,488			13,136
Income tax expense (benefit)		147,442	(a)		(3,243	)		(95,211	)(b)		3,300			(10,000	)(c)
(Loss) income from continuing operations		(199,460	)		7,192			138,308			42,188			23,136
Loss from discontinued operations(d)		—			—			(16	)		(4,383	)		(6,125	)
Net (loss) income	$	(199,460	)	$	7,192		$	138,292		$	37,805		$	17,011
Diluted earnings (loss) per share:
(Loss) income from continuing operations	$	(2.57	)	$	0.09		$	1.78		$	0.54		$	0.29
Loss from discontinued operations(d)		—			—			—			(0.06	)		(0.08	)
Diluted (loss) income per share	$	(2.57	)	$	0.09		$	1.78		$	0.48		$	0.21
Weighted shares for diluted EPS		77,700			77,719			77,578			76,034			71,982
Financial Information
Cash flows (used for) provided by continuing operating activities	$	(16,030	)	$	80,305		$	59,874		$	38,406		$	(7,319	)
Cash flows provided by (used for) discontinued operations		124			62			1,201			15,438			(1,976	)
Depreciation and amortization		22,478			20,063			17,943			10,738			10,209
Capital expenditures		12,179			10,201			17,582			11,785			8,440
Net property, plant and equipment		96,863			116,984			112,527			91,173			80,957
Total assets		645,009			1,022,223			800,615			566,654			517,042
Long-term debt		300,851			342,897			252,449			201,727			200,758
Redeemable convertible preferred stock		—			—			—			—			20,750
Shareholders’ equity		86,823			319,846			301,762			147,305			77,300
Per outstanding share (unaudited)	$	1.12		$	4.14		$	3.95		$	1.94		$	1.07
Other Statistical Information (Unaudited)
Number of employees at year end		4,100			6,500			7,000			7,400			6,800
Homes sold
Manufacturing		11,406			15,346			21,126			23,960			22,978
Retail — new		218			375			629			748			687
Manufacturing multi-section mix		68	%		77	%		80	%		79	%		85	%

Certain amounts have been reclassified to conform to current period presentation.

(a)	Included a non-cash tax charge of $164.5 million to provide a valuation allowance for 100% of our U.S. deferred tax assets.
(b)	Included a non-cash tax benefit of $101.9 million from the reversal of the deferred tax asset valuation allowance.
(c)	As a result of the finalization of certain tax examinations, the allowance for tax adjustments was reduced by $12 million.
(d)	Discontinued operations consisted of 66 retail lots that were closed or sold in 2004 and 2005.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a leading producer of factory-built housing in the United States and western Canada. As of January 3, 2009, we operated 21 homebuilding facilities in 14 states in the U.S. and five facilities in three provinces in western Canada. As of January 3, 2009, our homes were sold through more than 1,600 independent sales centers, builders, and developers across the U.S. and western Canada. Approximately 725 of our independent retailer locations were members of our Champion Home Centers (“CHC”) retail distribution network. As of January 3, 2009, our homes were also sold through 14 Company-owned sales offices in California. We are also a leading modular builder in the United Kingdom, where we operate five manufacturing facilities and construct steel-framed modular buildings for use as prisons, military accommodations, hotels and residential units, among other applications.

We made one acquisition during both 2008 and 2007 and three acquisitions during 2006. These acquisitions were part of our strategy to grow and diversify our revenue base with a focus on increasing our modular homebuilding presence in the U.S. and to seek factory-built construction opportunities outside of the U.S. Results of operations for these acquisitions are included in our consolidated results for periods subsequent to their respective acquisition dates.

On February 29, 2008, we acquired 100% of the capital stock of U.K. based ModularUK Building Systems Limited (“ModularUK”) for a nominal initial cash payment and the assumption of approximately $4.2 million of debt. ModularUK is located in East Yorkshire, U.K. and is a producer of steel-framed modular buildings serving the healthcare, education and commercial sectors. The results of operations of ModularUK are included in our results from operations and in our international segment for periods subsequent to its acquisition date.

On December 21, 2007, we acquired substantially all of the assets and the business of SRI Homes Inc., (“SRI”) for cash payments of approximately $96.2 million, a note payable of $24.5 million (CAD) (approximately $24.5 million USD at acquisition date) and assumption of the operating liabilities of the business. SRI is a leading producer of homes in western Canada that operates three manufacturing plants in the provinces of Alberta, British Columbia and Saskatchewan. The results of operations of SRI are included in our results from operations and in our manufacturing segment for periods subsequent to its acquisition date.

On April 7, 2006, we acquired 100% of the capital stock of U.K. based Calsafe Group (Holdings) Limited and its operating subsidiary Caledonian Building Systems Limited (“Caledonian”), for approximately $100 million in cash, plus potential contingent purchase price up to approximately $6.4 million and additional potential contingent consideration to be paid over four years. Caledonian and ModularUK together with their five manufacturing facilities in the U.K. comprise our international manufacturing segment (the “international segment”).

On July 31, 2006, we acquired certain of the assets and the business of North American Housing Corp. and an affiliate (“North American”) for approximately $31 million in cash plus assumption of certain operating liabilities. North American is a modular homebuilder that operates manufacturing facilities in Virginia. On March 31, 2006, we acquired 100% of the membership interests of Highland Manufacturing Company, LLC (“Highland”), a manufacturer of modular and HUD-code homes that operates one plant in Minnesota, for cash consideration of approximately $23 million. North American and Highland are included in our manufacturing segment.

Adverse conditions have existed in the manufactured housing industry and the broader housing market in the U.S. for several years, including limited availability of consumer financing, excess inventories of new and pre-owned homes, increasing foreclosure rates and pressure on selling prices. Our manufacturing and retail segments continue to be affected by these challenging conditions in the U.S. Since the beginning of 2006 we have closed twelve U.S. manufacturing plants, including three plants in 2008, and reduced headcount at most of our operating plants. Since the beginning of 2007 our retail operations in California have reduced the number of sales centers operated by three and reduced inventories by approximately 17%, excluding the effects of inventory write downs. During the third and fourth quarters of 2008, as the credit crisis deepened, conditions in the housing and financial markets worsened and negatively impacted the overall economy in the U.S. and elsewhere. These conditions led to lower sales throughout our U.S. operations for the year ended January 3, 2009. As a result of falling home prices and competitive conditions in the California housing market, in 2008 we wrote down our retail inventories of park spaces and homes by $14.1 million, including $6.3 million in the fourth quarter of 2008. In addition, since October 2008 we have reduced our corporate office headcount by 53 positions, or over 40%, and curtailed or eliminated

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various marketing and information technology projects and other expenditures, resulting in projected annualized cost savings of approximately $13 million.

Excluding homes sold to FEMA in 2006 and 2005, annual industry shipments of HUD-code homes averaged 109,500 homes during the last five years as compared to 373,000 homes in 1998. Industry shipments of HUD-code homes totaled 81,900 homes in 2008, a decline of 14.5% from 95,800 homes in 2007, and the lowest annual volume in 50 years. Industry shipments of modular homes in the U.S. for the first 9 months of 2008 totaled 17,100 homes, a 30.8% reduction from shipments in the comparable period of 2007. Our total shipments of homes in the U.S. in 2008 were down 33.8% from shipments in 2007. Meanwhile, our manufacturing segment’s Canadian operations, with the acquisition of SRI, enjoyed strong sales volumes and relatively high levels of unfilled orders during the first half of 2008. However, incoming order rates and sales volume weakened in Canada during the second half of the year. Total homes sold in Canada in 2008, including those produced in the U.S., increased 42.5% over the number sold in 2007, while homes sold by our Canadian operations increased 61.4% over the number sold in 2007.

Our international segment experienced a strong first half in 2008 with revenues totaling $181 million driven by prison projects with a significant amount of site-work. Second half sales volume declined to $99 million, following substantial completion of many of the prison projects and a weakening economy in the U.K. that was impacted by the global credit crisis. International segment income in 2008 of $16.3 million was 6% lower than in 2007. Segment income in 2007 was reduced by $6.4 million of expense in connection with the earn out provisions of the 2006 Caledonian acquisition while 2008 included no such earn out expense. This decline in segment income before earn out expense was driven primarily by higher general and administrative expenses.

Our loss before income taxes for the year ended January 3, 2009 was $52.0 million versus income of $3.9 million in 2007. Compared to 2007, our 2008 manufacturing segment income declined $27.1 million or nearly 67% on a 23% decline in sales despite the inclusion of SRI. Results in 2008 also included $10.7 million of restructuring charges, primarily in the manufacturing segment, retail inventory write downs totaling $14.1 million and foreign currency transaction losses of $10.5 million related to intercompany loans. Results in 2007 included manufacturing segment restructuring charges totaling $3.8 million, a loss on debt retirement of $4.5 million and a compensation charge of $6.4 million in the international segment as a result of a contingent purchase price or “earn out” arrangement related to the acquisition of Caledonian.

Effective September 27, 2008, we provided a valuation allowance for 100% of our U.S. deferred tax assets, resulting in a non-cash tax charge of approximately $150.8 million in the third quarter and $164.5 million for the full year.

In February 2008, our manufacturing facility in Henry, TN was destroyed by fire. The net book value of plant, equipment and inventory of the Henry plant at February 2, 2008 was approximately $3.3 million. We are fully insured through our property insurance coverage, subject to a $250,000 deductible. In August 2008, we commenced operations in a leased facility in Dresden, TN, as a temporary replacement of the destroyed plant.

We continue to focus on matching our factory-built housing manufacturing capacity to industry and local market conditions and improving or eliminating under-performing manufacturing facilities. We continually review our manufacturing capacity and will make further adjustments as deemed necessary.

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Results of Operations

Consolidated Results

										08 vs 07			07 vs 06
	2008			2007			2006			% Change			% Change
	(Dollars in thousands)
Net sales
Manufacturing segment	$	727,331		$	941,945		$	1,195,834			(23	)%		(21	)%
International segment		279,641			280,814			90,717			—			210	%
Retail segment		36,521			73,406			117,397			(50	)%		(37	)%
Less: intercompany		(10,300	)		(22,700	)		(39,300	)		(55	)%		(42	)%
Total net sales	$	1,033,193		$	1,273,465		$	1,364,648			(19	)%		(7	)%
Gross margin	$	126,508		$	189,864		$	217,616			(33	)%		(13	)%
Selling, general and administrative expenses		130,756			158,142			154,534			(17	)%		2	%
Restructuring charges		10,683			3,780			1,200			183	%		215	%
Foreign currency transaction losses (gains)		10,536			(1,008	)		—			—			—
Amortization of intangible assets		9,251			5,727			3,941			62	%		45	%
Operating (loss) income		(34,718	)		23,223			57,941			(249	)%		(60	)%
Loss on debt retirement		608			4,543			398			(87	)%		1041	%
Interest expense, net		16,692			14,731			14,446			13	%		2	%
(Loss) income before income taxes	$	(52,018	)	$	3,949		$	43,097			—			(91	)%
As a percent of net sales Gross margin		12.2	%		14.9	%		15.9	%
SG&A		12.7	%		12.4	%		11.3	%
Operating (loss) income		(3.4	%)		1.8	%		4.2	%
(Loss) income before income taxes		(5.0	%)		0.3	%		3.2	%

Consolidated results of operations 2008 versus 2007 analysis

Consolidated net sales for the year ended January 3, 2009 decreased $240.3 million from the comparable period of 2007 due to lower manufacturing and retail segment sales, despite the inclusion of SRI in 2008. International segment sales in 2008, measured in British pounds, increased 6.6% over sales in 2007, but due to changes in exchange rates, sales are down slightly as expressed in U.S. dollars in 2008.

Gross margin for the year ended January 3, 2009 decreased $63.4 million from 2007 primarily as a result of lower sales in the manufacturing segment, excluding SRI, lower retail segment sales and the $14.1 million write-down of inventory in the retail segment. These decreases were partially offset by gross margin from SRI in 2008. Selling, general and administrative expenses (“SG&A”) for the year ended January 3, 2009 decreased $27.4 million from 2007, due to lower SG&A at the manufacturing segment, excluding SRI, resulting from decreased sales and fewer plants in operation and lower SG&A at the retail segment and in general corporate expenses. These SG&A reductions were partially offset by the SG&A at SRI.

Restructuring charges are discussed below in the section titled “Restructuring Charges”. Interest expense, net is discussed below in the section titled “Interest Income and Interest Expense”.

Foreign currency transaction gains and losses are related to intercompany loans between certain of our U.S. and foreign subsidiaries that are expected to be repaid and result from the effects of changes in exchange rates on loans that are denominated in Canadian dollars and British pounds.

Amortization expense for the year ended January 3, 2009 increased $3.5 million from the comparable period of 2007 due to amortization expense related to intangible assets from the SRI acquisition, partially offset by the effects

24

of foreign exchange rate changes on amortizable intangible assets in the U.K. The loss on debt retirement in 2008 is primarily due to the prepayment of $13.1 million and $10.4 million of borrowings under the Sterling Term Loan and the Term Loan, respectively. The loss on debt retirement in 2007 was primarily due to the early redemption of $75.6 million of our Senior Notes due 2009 (the “Senior Notes”).

The inclusion of SRI’s results for the year ended January 3, 2009 contributed sales and operating income to our consolidated results for the period. On a proforma basis, assuming we had owned SRI as of the beginning of 2007, consolidated net sales and operating income for the year ended December 29, 2007, would have been $1,375.2 million and $41.8 million, respectively.

Consolidated results of operations 2007 versus 2006 analysis

Consolidated net sales for 2007 decreased $91.2 million from 2006 primarily due to lower sales volumes from the manufacturing and retail segments, partially offset by a $190.1 million increase in sales at our international segment. Consolidated net sales for 2007 included a full year of sales from the 2006 acquisitions whereas sales in 2006 included only five months of sales for North American and nine months of sales for Caledonian and Highland. In 2006, manufacturing segment results also included non-recurring sales of approximately $23.0 million to FEMA.

Gross margin for 2007 decreased $27.8 million versus the comparable period in 2006 primarily as a result of lower gross margin in the manufacturing and retail segments due to lower sales, which was partially offset by increased gross margin from higher sales in the international segment. A large portion of the decreased manufacturing segment gross margin occurred in the first and fourth quarters of 2007. In the first quarter of 2007 the manufacturing segment saw a significant reduction in sales and gross margin versus the first quarter of 2006 resulting from low incoming order rates and levels of unfilled orders driven by difficult housing market conditions in the U.S. and weather conditions in many parts of the country and non-recurring FEMA sales in 2006. Our U.S. plants operated at only 44% of capacity in the first quarter and 50% of capacity in the fourth quarter of 2007, resulting in manufacturing inefficiencies and lower coverage of fixed costs.

SG&A for 2007 increased slightly compared to 2006 primarily as a result of incremental SG&A from full year results of the 2006 acquisitions and the effects of higher sales in the international segment, partially offset by reduced variable SG&A in the manufacturing and retail segments due to lower sales. Additionally, in 2007 the international segment SG&A included a compensation charge of $6.4 million related to a contingent purchase price or “earn out” arrangement for the acquisition of Caledonian. In 2007, SG&A was reduced by net gains of $1.2 million, primarily from the sale of two idle plants. In 2006, SG&A was reduced by net gains of $4.7 million, primarily from the sale of investment property and five idle plants.

Results in 2007 included amortization expense of $5.7 million compared to $3.9 million in 2006, as a result of recording a full year of amortization of intangible assets relating to the 2006 and 2005 acquisitions. The loss on debt retirement in 2007 was primarily due to the early redemption of $75.6 million of our Senior Notes due 2009.

In comparing 2007 consolidated results to 2006 results, net sales and operating income for the 2006 acquisitions were included in 2006 consolidated results based on their respective acquisition dates and not for an entire year. On a proforma basis, assuming we had owned these acquisitions during the entire year ended December 30, 2006, consolidated net sales and operating income in 2007 would have decreased by 11% and 65%, respectively, versus the prior year proforma amounts, as compared to decreases of 7% and 60%, respectively, reported in the table above.

Restructuring Charges

During 2008, we incurred charges totaling $11.0 million from the closure of two U.S. manufacturing plants, the restructuring of the manufacturing segment, which included the elimination of two regional offices, and the reduction of our corporate headcount by 45 positions. Restructuring charges in 2008 totaling $10.7 million consisted of fixed asset impairment charges of $7.0 million and severance costs of $3.7 million. Other plant closing charges in the period, which are included in cost of sales, consisted of $0.3 million for the write down of closed plant inventories. Of the total charges, $1.1 million of the severance costs are included in general corporate expenses and $9.9 million of the costs and charges are included in the results of the manufacturing segment.

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During 2008, we paid $3.1 million of accrued restructuring costs. As of January 3, 2009, accrued but unpaid restructuring costs totaled $1.0 million and consisted of severance costs totaling $0.9 million and warranty costs totaling $0.1 million.

During 2007, we incurred charges totaling $4.9 million from the closure of two U.S. homebuilding plants. Restructuring charges totaling $3.8 million consisted of fixed asset impairment charges of $2.0 million and severance costs totaling $1.8 million. Other plant closing charges that are included in cost of sales consisted of inventory write downs of $0.6 million and additional warranty accruals of $0.5 million. During 2006, we recorded restructuring charges for the closure of one U.S. manufacturing plant consisting of a $1.2 million fixed asset impairment charge. Also in 2006, the accrual for closed plant warranty costs was reduced by $1.0 million due to favorable experience for plants previously closed. See additional discussion of restructuring charges in Note 6 of “Notes to Consolidated Financial Statements” in Item 8 of this Report.

Impairment Tests for Goodwill

For the years ended January 3, 2009, December 29, 2007 and December 30, 2006, we performed our annual impairment tests for goodwill in the fourth quarter of each year and concluded no impairment existed for the carrying value of goodwill.

(Loss) income before income taxes

The segment components of (loss) income before income taxes are as follows:

				% of						% of					% of
	2008			Related Sales			2007			Related Sales		2006			Related Sales
	(Dollars in thousands)
Manufacturing segment income	$	13,054			1.8%		$	40,106			4.3%	$	81,600			6.8%
International segment income		16,266			5.8%			17,393			6.2%		5,634			6.2%
Retail segment (loss) income		(18,163	)		(49.7	)%		1,911			2.6%		7,636			6.5%
General corporate expenses		(26,788	)					(31,799	)				(32,488	)
Amortization of intangible assets		(9,251	)					(5,727	)				(3,941	)
Foreign currency translation (losses) gains		(10,536	)					1,008					—
Loss on debt retirement		(608	)					(4,543	)				(398	)
Interest expense, net		(16,692	)					(14,731	)				(14,446	)
Intercompany profit elimination		700						331					(500	)
(Loss) income before income taxes	$	(52,018	)		(5.0	)%	$	3,949			0.3%	$	43,097			3.2%

Segment results, general corporate expenses, interest expense, net, and income taxes are discussed below. Amortization of intangible assets, foreign currency transaction losses, loss on debt retirement and restructuring are discussed above.

Manufacturing segment sales to the retail segment and related manufacturing profits are included in the manufacturing segment. Retail segment results include retail profits from the sale of homes to consumers but do not include any manufacturing segment profits associated with the homes sold. Intercompany transactions between the operating segments are eliminated in consolidation, including intercompany profit in inventory, which represents the amount of manufacturing segment gross margin in Champion-produced inventory at the retail segment.

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Manufacturing Segment

We evaluate the performance of our manufacturing segment based on income before interest, income taxes, amortization of intangible assets, foreign currency transaction gains and losses on intercompany indebtedness and general corporate expenses. Results of the manufacturing segment for the years ended January 3, 2009, December 29, 2007 and December 30, 2006 are summarized as follows:

										08 vs 07			07 vs 06
										%			%
	2008			2007			2006			Change			Change
Manufacturing segment net sales (in thousands)	$	727,331		$	941,945		$	1,195,834			(23	)%		(21	)%
Manufacturing segment income (in thousands)	$	13,054		$	40,106		$	81,600			(67	)%		(51	)%
Manufacturing segment margin%		1.8	%		4.3	%		6.8	%
HUD-code home shipments		6,399			9,971			15,341			(36	)%		(35	)%
U.S. modular home and unit shipments		2,507			3,670			4,574			(32	)%		(20	)%
Canadian home shipments		2,332			1,637			1,132			42	%		45	%
Other shipments		168			68			79			147	%		(14	)%
Total homes and units sold		11,406			15,346			21,126			(26	)%		(27	)%
Floors sold		20,177			29,233			40,521			(31	)%		(28	)%
Multi-section mix		68	%		77	%		80	%
Average unit selling price, excluding delivery	$	56,100		$	55,100		$	51,800			2	%		6	%
Manufacturing facilities at year end		26			29			30

Manufacturing segment 2008 versus 2007 analysis

Manufacturing net sales for the year ended January 3, 2009 decreased 23% from net sales in the year ended December 29, 2007 primarily driven by a reduction in the number of homes we sold due to seven plant closures in the U.S. since the beginning of 2007, the loss of our Henry, TN plant from a fire in February 2008 and lower sales at the same plants operated a year ago. Partially offsetting these decreases was the inclusion in 2008 of sales from SRI. Average manufacturing selling prices increased in 2008 as compared to 2007 as a result of product mix, including the impact of higher priced SRI homes. In July 2008 a plant was temporarily reopened in Topeka, IN to fill the large seasonal backlog in the Midwest. This plant was idled again at the end of October 2008. In August 2008 we commenced operations in a leased facility in Dresden, TN as a temporary replacement for the Henry, TN plant that was lost to a fire in February 2008. In December 2008, we temporarily idled a plant in Boones Mill, VA. Overall, difficult U.S. housing market conditions continued throughout 2008 and resulted in lower sales volumes at most of our plants.

Manufacturing segment income for the year ended January 3, 2009 decreased 67% from the year ended December 29, 2007 primarily from lower sales at our same plants operating a year ago and charges totaling $9.3 million in the first quarter of 2008 resulting from the announced closure of two manufacturing facilities and two regional offices. Partially offsetting these decreases were the inclusion of income from SRI and plant cost reduction initiatives including headcount reductions. Market conditions during the period resulted in low levels of unfilled orders at most of our plants and production inefficiencies caused by under utilized factory capacity. Our plants operated at 43% of capacity for the year ended January 3, 2009 compared to 54% for the year ended December 29, 2007. Results for year ended December 29, 2007 included charges totaling $4.7 million for the closure of two plants and a net gain of $0.6 million, primarily from the sale of one idle plant.

The plant closures announced in the first quarter of 2008 included one in Oregon and one in Indiana. Operations at the closed Indiana plant were consolidated at our other Indiana homebuilding complex. The Indiana closure was the final of four plants at a complex where the other three plants had been previously idled. Charges for the plant closures in the first quarter of 2008 totaling $9.3 million consisted of fixed asset impairment charges of $7.0 million, severance costs totaling $2.0 million and an inventory write-down of $0.3 million. Severance costs

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included certain payments required under the Worker Adjustment and Retraining Notification Act and were related to the termination of approximately 330 employees consisting of substantially all employees at the Oregon plant and those terminated as a result of the Indiana plant closure and consolidation of operations. During the year ended December 29, 2007 we closed one plant in Pennsylvania and our one remaining plant in Alabama. The plant closings in 2007 resulted in severance costs totaling $1.8 million, fixed asset impairment charges of $1.8 million, inventory write-downs of $0.4 million and additional warranty charges of $0.5 million. Severance costs were related to the termination of substantially all 356 employees at the two closed plants and included payments required under the Worker Adjustment and Retraining Notification Act.

Although orders from retailers can be cancelled at any time without penalty and unfilled orders are not necessarily an indication of future business, our unfilled manufacturing orders for homes at January 3, 2009 totaled approximately $7 million for the 26 plants in operation compared to $40 million at September 27, 2008 for the 26 plants in operation and $56 million at December 29, 2007 for the 29 plants in operation. Other than one location, our plants are currently operating with one week or less of unfilled orders.

The inclusion of SRI’s results for the year ended January 3, 2009 contributed sales and segment income to our manufacturing segment results. On a proforma basis, assuming we had owned SRI as of the beginning of 2007, manufacturing net sales and segment income for the year ended December 29, 2007, would have been $1,043.7 million and $63.2 million, respectively.

Manufacturing segment 2007 versus 2006 analysis

Manufacturing net sales for the year ended December 29, 2007 decreased 21% from net sales in the year ended December 30, 2006 driven by a reduction in the number of homes we sold. Partially offsetting these decreases were higher average selling prices in 2007 and the inclusion of incremental full year sales from Highland and North American in 2007 results. Sales in 2006 included approximately $23.0 million of non-recurring revenue from the sale of 627 homes to FEMA in the first quarter. Difficult U.S. housing markets throughout 2007 contributed to lower sales volumes at most of our U.S. plants. Average manufacturing selling prices increased in 2007 as compared to 2006 as a result of product mix and the inclusion of sales to FEMA at a lower average selling price in 2006. Product mix in 2007 included a greater proportion of sales of higher priced modular homes and Canadian homes, partially offset by the sales of fewer large, higher priced military housing units.

Manufacturing segment income for the year ended December 29, 2007 decreased $41.5 million from the year ended December 30, 2006 primarily driven by poor results in the first and fourth quarters of 2007 when manufacturing segment income declined $25.9 million and $11.6 million, respectively, from the comparable quarters of 2006. Our plants operated at only 46% of capacity for the first quarter and 52% of capacity in the fourth quarter of 2007, resulting in production inefficiencies and an increase in production downtime. These conditions prompted the closure of four manufacturing plants in the U.S. during 2007, resulting in plant closing charges totaling $4.9 million for two of the closures. Results for the year ended December 29, 2007 included a net gain of $0.6 million, primarily from the sale of two idle plants. Results for the year ended December 30, 2006 included net gains of $4.7 million, primarily from the sale of investment property in Florida and five idle plants and restructuring charges of $1.2 million related to the closure of one plant.

The inclusion of the 2006 acquisitions in manufacturing segment results since their respective acquisition dates contributed to an increase in net sales and segment income during the year ended December 29, 2007 over the year ended December 30, 2006. On a proforma basis, assuming we had owned these companies for all of 2006, manufacturing segment net sales and segment income for the year ended December 29, 2007 would have decreased by 23% and 52%, respectively, versus proforma amounts for the year ended December 30, 2006, compared to decreases of 21% and 51%, respectively, reported in the table above.

Although orders from retailers can be cancelled at any time without penalty and unfilled orders are not necessarily an indication of future business, our unfilled manufacturing segment orders for homes at December 29, 2007 totaled approximately $56 million for the 29 plants in operation (including the acquired SRI plants) compared to $36 million at December 30, 2006 for the 30 plants in operation. Unfilled orders were concentrated primarily at nine manufacturing locations. The majority of our other plants were operating with one week or less of unfilled orders.

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International Segment

We evaluate the performance of our international segment based on income before interest, income taxes, amortization of intangible assets, foreign currency transaction gains and losses on intercompany indebtedness and general corporate expenses. Results of the international segment for the years ended January 3, 2009 and December 29, 2007 and the period from April 7, 2006 (date of acquisition) to December 30, 2006 are summarized as follows:

										08 vs 07			07 vs 06
										%			%
	2008			2007			2006			Change			Change
International segment net sales (in thousands)	$	279,641		$	280,814		$	90,717			—			210	%
International segment income (in thousands)	$	16,266		$	17,393		$	5,634			(6	)%		209	%
International segment margin		5.8	%		6.2	%		6.2	%

International segment 2008 versus 2007 analysis

International segment net sales for the year ended January 3, 2009 decreased by $1.2 million from the comparable period of 2007. The weakening of the British pound versus the U.S. dollar during the last five months of 2008 resulted in a reduction in sales and segment income totaling $17.7 million and $1.0, respectively, as compared to 2007. Results in 2008 included ten months of operations from ModularUK, which was acquired on February 29, 2008. In 2008, approximately 64% of revenue was derived from prison and military accommodations projects. Segment gross margin as a percent of sales in 2008 was slightly higher than in 2007 on similar revenue. SG&A in 2008 increased over 2007. During 2008, investments in SG&A to support and grow the business impacted segment income, in addition to $0.6 million of compensation expense for contingent consideration related to the ModularUK acquisition. During 2007, compensation expense of $6.4 million was recorded related to contingent “earn out” provisions of the Caledonian purchase agreement. Also in 2007, income of $2.1 million was recognized in SG&A for the settlement of business interruption and property damage claims related to a flood that occurred in June 2007. These changes, in addition to the foreign exchange rate effect, resulted in a decrease in segment income in 2008 of $1.1 million versus 2007.

In connection with the acquisition of ModularUK, we entered into a lease agreement for three additional buildings near Driffield, East Yorkshire, which is approximately 60 miles from Caledonian’s existing operations. ModularUK relocated its operations to Driffield during the third quarter and is operating in two of the buildings. The Driffield facility will also provide additional manufacturing capacity for Caledonian.

Firm contracts and orders pending contracts under framework agreements totaled approximately $150 million at January 3, 2009, compared to $235 million at September 27, 2008. Approximately half of the reduction was due to the change in foreign exchange rates, while the other half was the result of project completions in the fourth quarter and minimal incoming orders. Approximately 42% of these orders are scheduled to be built after 2009. It is not currently known the extent to which current financial and economic conditions in the U.K. will affect the availability of public and private funding, the lack of which could result in the delay or cancellation of current or pending contracts.

International segment 2007 versus 2006 analysis

Sales for 2007 increased over 2006 primarily due to increased prison projects, which generally include a higher proportion of revenues from non-factory site-work than other projects. Increased military projects and the effects of the strengthening British pound versus the U.S. dollar also contributed to the sales increase in 2007. The international segment results for 2006 included only nine months due to the acquisition date of April 7, 2006. Approximately $17 million of the revenue increase resulted from changes in foreign exchange rates. For 2007, approximately 82% of international segment revenue was derived from prison and military projects. The balance of revenue was attributable to residential and hotel projects. During the second half of 2007, revenues from site-work exceeded revenues from factory production.

During the fourth quarter of 2007, upon the attainment of certain levels of performance, the segment accrued a $13.3 million obligation relating to contingent purchase price or “earn out” provisions of the Caledonian purchase

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agreement. Under U.S. generally accepted accounting principles, $6.9 million was recorded as additional purchase price thereby increasing goodwill, and $6.4 million was recorded as compensation expense.

A flood damaged a large number of completed and in-process modules in June 2007, resulting in the loss of approximately $4.0 million of revenue in the second quarter. During the third quarter of 2007 most of the damaged modules were repaired or replaced. The related insurance claim was settled and paid in the fourth quarter resulting in income of $2.1 million being recognized for the business interruption and property damage claims.

Segment income in 2007, as a percent of sales, was equal to 2006. However, excluding the “earn out” compensation charge the segment income percent for 2007 would have been 8.5%. This improvement resulted from higher production levels, favorable product mix, the mix of factory production revenue versus site-work revenue and the stage of completion of the projects. Approximately $1.1 million of the increase in segment income resulted from changes in foreign exchange rates. Firm contracts and orders pending contracts under framework agreements totaled approximately $250 million at December 29, 2007, compared to approximately $225 million at December 30, 2006.

Retail Segment

The retail segment sells manufactured houses to consumers throughout California. We evaluate the performance of our retail segment based on income before interest, income taxes, amortization of intangible assets and general corporate expenses. Results of the retail segment for the years ended January 3, 2009, December 29, 2007 and December 30, 2006 are summarized as follows:

										08 vs 07			07 vs 06
										%			%
	2008			2007			2006			Change			Change
Retail segment net sales (in thousands)	$	36,521		$	73,406		$	117,397			(50	)%		(37	)%
Retail segment (loss) income (in thousands)	$	(18,163	)	$	1,911		$	7,636			(1050	)%		(75	)%
Retail segment margin %		(49.7	%)		2.6	%		6.5	%
New homes retail sold		218			375			629			(42	)%		(40	)%
% Champion-produced new homes sold		89	%		88	%		86	%
New home multi-section mix		98	%		98	%		97	%
Average new home retail selling price	$	162,500		$	191,700		$	184,600			(15	)%		4	%
Sales centers at period end		14			17			16

Retail segment 2008 versus 2007 analysis

The current global credit crisis has significantly affected the financial markets, which in turn has exacerbated weak conditions in the California housing market in which we operate. Retail segment sales for the year ended January 3, 2009 decreased 50% versus the comparable period of 2007 primarily due to these conditions. Additionally, a company that provided financing to a significant number of buyers of our homes in California ceased operations at the beginning of the second quarter. As a result, our retail operations and its customers were unable to find suitable financing for many potential transactions. We are currently seeking other local and national lenders to finance our retail sales. However the current credit crisis has restricted financing availability. Market conditions have resulted in a shift away from sales of higher priced homes to the retiree market and toward sales of more moderately priced homes in family communities. These factors have resulted in selling fewer homes and in sales at a lower average selling price per home. Additionally, during 2008, we have been liquidating aged inventory at lower prices.

The retail segment loss for the year ended January 3, 2009 was caused by lower gross profit from lower sales and from inventory write downs totaling $14.1 million. These write downs were driven by declining housing prices and park space values and competitive conditions in California. In addition we have lowered selling prices in an effort to reduce inventories and inventory carrying costs.

SG&A costs in 2008 have declined proportionally less than the significant decrease in sales because of the fixed nature of certain SG&A costs. During the year ended January 3, 2009, we closed three sales offices to reduce costs and are servicing the related inventory from other sales locations.

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Retail segment 2007 versus 2006 analysis

Retail segment sales for 2007 decreased 37% versus 2006 primarily due to selling 40% fewer homes as a result of the difficult housing market conditions in California. Average selling prices increased in 2007 as many high-end homes were liquidated at reduced margins in an effort to reduce aged inventory.

Retail segment income for 2007 decreased compared to 2006 as gross margin was reduced due to lower sales volume and a lower gross margin rate, partially offset by lower SG&A costs. Gross margin as a percent of sales for 2007 was lower than the gross margin percentage in 2006 due to liquidating high-end homes and aged inventory at reduced margins combined with pricing pressure from generally difficult market conditions. SG&A costs declined in 2007 versus 2006 primarily resulting from lower sales commissions and incentive compensation.

General Corporate Expenses

General corporate expenses for 2008 declined approximately $5.0 million as compared to 2007 primarily as a result of lower incentive and stock based compensation costs, and to a lesser degree, as a result of headcount reductions and other cost cuts implemented in October 2008.

General corporate expenses for 2007 declined $0.9 million, or 3%, from the amount in 2006, primarily as a result of lower information technology costs, partially offset by higher financing related costs and professional fees.

Interest Income and Interest Expense

Interest expense in 2008 was comparable to 2007 as a result of higher average debt balances but lower average interest rates resulting from the issuance of $180 million of 2.75% convertible debt in November 2007 and a net reduction of $90 million of debt in the fourth quarter of 2007 with interest rates that averaged 7.7%. Interest expense for 2008 also included interest at 8.33% on the $24.0 million (CAD) note issued in connection with our SRI acquisition that was paid in full in June 2008. Interest income for 2008 was lower than in 2007 due to lower average invested cash balances and lower interest rates.

Interest expense in 2007 was higher than in 2006 primarily due to higher interest rates and slightly higher average debt in 2007. Interest income for 2007 was slightly higher than the comparable period of 2006 due to lower cash investment balances offset by higher interest rates.

Income Taxes

Income taxes 2008 versus 2007 analysis

During the third quarter of 2008, we provided a valuation allowance for 100% of our U.S. deferred tax assets. SFAS No. 109 “Accounting for Income Taxes,” requires the recording of a valuation allowance when it is “more likely than not that some portion or all of the deferred tax assets will not be realized.” SFAS No. 109 further states “forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years,” and places considerably more weight on historical results and less weight on future projections. Although we had U.S. pretax income in 2005 and 2006 totaling approximately $71 million, we have cumulative U.S. pretax losses totaling approximately $78 million for the years 2006 through 2008. Current conditions in the housing and credit markets and the general economy in the U.S. continue to present significant challenges to returning our U.S. operations to profitability. In the absence of specific favorable factors, application of SFAS No. 109 requires a valuation allowance for deferred tax assets in a tax jurisdiction when a company has cumulative financial accounting losses over several years. Accordingly, after consideration of these factors, effective September 27, 2008, we provided a valuation allowance for 100% of our U.S. deferred tax assets resulting in a non-cash tax charge of approximately $150.8 million in the third quarter and $164.5 million for the full year.

In addition to the $164.5 million tax charge related to the valuation allowance, the tax provision for the year ended January 3, 2009, also included the tax benefit of the U.S. loss and foreign income tax expense of $9.6 million related to the our operations in Canada and the United Kingdom.

During periods when we have a valuation allowance for 100% of our U.S. deferred tax assets, our income tax provisions will be comprised of income taxes on results of our foreign operations and no tax expense or benefit for our U.S. results except for state income taxes payable in cash and a deferred tax expense related to amortization of certain goodwill for tax purposes.

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As of January 3, 2009, we had available U.S. federal net operating loss (“NOL”) carryforwards of approximately $346 million for tax purposes to offset certain future federal taxable income that expire in 2023 through 2028. As of January 3, 2009, we had state NOL carryforwards of approximately $270 million available to offset future state taxable income that expire primarily in 2016 through 2028.

Income taxes 2007 versus 2006 analysis

The effective tax rate for 2007 was (82%) and was impacted by the mix of our pretax earnings among jurisdictions and the respective tax rates in those jurisdictions. As a result, the tax benefit from our U.S. loss exceeded the tax expense on foreign income. Also impacting the effective tax rate is the effect of permanent differences and state tax benefits. Due to the low level of consolidated pretax income, these factors had a significant impact on the effective tax rate.

Effective July 1, 2006, we reversed substantially all of the previously recorded valuation allowance for deferred tax assets after determining that realization of the deferred tax assets was more likely than not. This determination was based upon our achieving historical profitability and our outlook for ongoing profitability, among other factors. Subsequent to this reversal our earnings are fully taxed for financial reporting purposes. During the periods prior to this reversal of the valuation allowance, no tax expense or benefit was recorded for our U.S. taxable income or loss for financial reporting purposes except for unusual items. The 2006 income tax provision includes a $101.9 million non-cash tax benefit from the reversal of the valuation allowance.

As of December 29, 2007, we had NOL carryforwards of approximately $233 million for U.S. federal tax purposes available to offset certain future U.S. taxable income that expire in 2023 through 2027. As of December 29, 2007, we had state net NOL carryforwards of approximately $211 million available to offset future state taxable income that expire primarily in 2016 through 2027.

Results of Fourth Quarter 2008 Versus 2007

							%
	2008			2007			Change
	(Dollars in thousands,
	except average selling prices)
Net sales:
Manufacturing segment	$	139,511		$	223,951			(37.7	)%
International segment		41,886			92,110			(54.5	)%
Retail segment		7,464			15,749			(52.6	)%
Less: intercompany		(1,000	)		(6,200	)		—
Total net sales	$	187,861		$	325,610			(42.3	)%
Gross margin	$	16,401		$	45,083			(63.6	)%
Selling, general and administrative expenses		25,803			45,534			(43.3	)%
Foreign currency transaction losses (gains)		8,685			(1,008	)		—
Amortization of intangible assets		2,054			1,454			41.3	%
Restructuring charges		1,212			2,659			(54.4	)%
Operating loss		(21,353	)		(3,556	)		500.5	%
Loss on debt retirement		608			4,543			(86.6	)%
Interest expense, net		4,633			3,115			48.7	%
Loss before income taxes	$	(26,594	)	$	(11,214	)		137.1	%
Manufacturing segment (loss) income	$	(271	)	$	2,565			(110.6	)%
International segment income		1,315			3,449			(61.9	)%
Retail segment loss		(7,172	)		(316	)		—
General corporate expenses		(4,986	)		(8,439	)		(40.9	)%
Amortization of intangible assets		(2,054	)		(1,454	)		41.3	%

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							%
	2008			2007			Change
	(Dollars in thousands,
	except average selling prices)
Loss on debt retirement		(608	)		(4,543	)		(86.6	)%
Interest expense, net		(4,633	)		(3,115	)		48.7	%
Foreign currency transaction (losses) gains		(8,685	)		1,008			—
Intercompany profit elimination		500			(369	)		—
Loss before income taxes	$	(26,594	)	$	(11,214	)		137.1	%
As a percent of net sales
Gross margin		8.7	%		13.8	%
SG&A		13.7	%		14.0	%
Loss before income taxes		(14.2	%)		(3.4	)%
Manufacturing segment margin%		(0.2	%)		1.1	%
International segment margin%		3.1	%		3.7	%
Retail segment margin%		(96.1	%)		(2.0	)%
Manufacturing segment
HUD-code home shipments		1,411			2,251			(37.3	)%
U.S. modular home and unit shipments		502			921			(45.5	)%
Canadian home shipments		414			422			(1.9	)%
Other shipments		38			17			123.5	%
Total homes and units sold		2,365			3,611			(34.5	)%
Floors sold		4,126			6,697			(38.4	)%
Mutli-section mix		67	%		75	%		(10.7	)%
Average unit selling price, excluding delivery	$	53,900		$	55,700			(3.2	)%
Retail segment
New homes retail sold		50			80			(37.5	)%
% Champion-produced new homes sold		84	%		93	%
New home multi-section mix		94	%		98	%
Average new home retail selling price	$	147,800		$	194,600			(24.0	%)

Net sales for the fourth quarter of 2008 decreased by 42% from the fourth quarter of 2007 due to sales reductions in each of the segments, despite the inclusion of SRI and ModularUK that were not in 2007’s fourth quarter results because of their acquisition dates. The manufacturing and retail segments were impacted significantly by the financial and economic crises and the effects on the housing and credit markets. In the fourth quarter of 2007, the international segment was building for a large number of prison projects that were subsequently completed in 2008. In addition, changes in foreign exchange rates caused a reduction in international sales of approximately $12 million for the quarter.

Gross margin for the fourth quarter of 2008 decreased $28.7 million or 64% from the comparable period of 2007, due primarily to the decline in sales and to an inventory write down of $6.3 million at the retail segment due to falling home prices and park space values and challenging housing market conditions in California. In the fourth quarter of 2008, our manufacturing segment plants operated at only 36% of capacity resulting in production inefficiencies, an increase in production downtime and lower coverage of fixed costs which negatively impacted the manufacturing segment’s gross margin. For the same period in 2007, our manufacturing segment plants operated at 52%.

SG&A for the fourth quarter of 2008 decreased $19.7 million or 43% from the fourth quarter of 2007. Manufacturing segment SG&A in the 2008 quarter was significantly lower due to operating fewer plants and reduced headcounts. The international segment SG&A was significantly lower in the fourth quarter of 2008 because

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the fourth quarter of 2007 included a $6.4 million compensation charge resulting from a contingent purchase price or “earn out” arrangement, partially offset by income of $2.1 million that was recognized for the settlement of business interruption and property damage claims related to a flood the occurred in June 2007. Retail SG&A for the fourth quarter of 2008 was lower than the prior year due to lower sales and fewer sales offices. General corporate expenses, which are also included in SG&A, were lower in the fourth quarter of 2008 primarily due to lower incentive and stock compensation expenses, including reversals of amounts previously expensed, and also lower professional fees. Partially offsetting these decreases was SG&A from SRI.

Foreign currency transaction gains and losses are related to intercompany loans between certain of our U.S. and foreign subsidiaries that are expected to be repaid and result from the effects of changes in exchange rates on loans that are denominated in Canadian dollars and British pounds.

Amortization of intangible assets in the fourth quarter of 2008 increased over the similar period of 2007 as a result of the SRI acquisition, partially offset by the effect of changes in exchange rates.

Restructuring charges totaling $1.2 million were incurred in the fourth quarter of 2008, consisting of severance charges from reducing corporate office headcount by 45 positions. Charges totaling $3.6 million were incurred in the fourth quarter of 2007 from the closure of one manufacturing plant. Restructuring charges totaling $2.7 million consisted of a fixed asset impairment charge of $1.8 million and severance costs of $0.9 million. Other plant closing charges that are included in cost of sales consisted of inventory write downs of $0.4 million and an additional warranty accrual of $0.5 million.

The loss on debt retirement in 2008 is primarily due to the prepayment of $13.1 million and $10.4 million of borrowings under the Sterling Term Loan and the Term Loan, respectively, in October 2008. The loss on debt retirement in 2007 resulted primarily from the early redemption of $75.6 million of Senior Notes due 2009. Net interest expense for the fourth quarter of 2008 increased $1.5 million from the fourth quarter of 2007 primarily due to reduced interest income from lower invested cash balances and lower interest rates.

Manufacturing segment

Manufacturing segment net sales for the fourth quarter of 2008 decreased by $84.4 million or 38% compared to 2007, on the sale of 35% fewer homes, substantially driven by the weak housing market in the U.S. and a weakening market in Canada. Partially offsetting these decreases was the inclusion in 2008 of sales from SRI.

Manufacturing segment income for the fourth quarter of 2008 decreased by $2.8 million versus the comparable quarter of 2007, despite the inclusion of SRI in 2008, due to decreased sales and production inefficiencies from under utilized factory capacity. Market conditions during the fourth quarter of 2008 resulted in low levels of unfilled orders at most of our plants and a decreased number of production days. In response to market conditions during the fourth quarter of 2008 we idled one manufacturing plant. In the fourth quarter of 2007, we closed a plant in Alabama resulting in severance costs totaling $0.9 million, a fixed asset impairment charge of $1.8 million, an inventory write-down of $0.2 million, and additional warranty charges of $0.5 million. Severance costs were related to the termination of substantially all 196 employees at the closed plant and included payments required under the Worker Adjustment and Retraining Notification Act. Also in the fourth quarter of 2007, additional casualty self-insurance charges of $2.8 million were recorded as a result of increases in several large claims and the results of our annual actuarial valuation.

International segment

International segment sales in the fourth quarter of 2008 decreased by $50.2 million or 55% from sales in the comparable quarter of 2007. Sales volume in the fourth quarter of 2008 were lower than in the fourth quarter of 2007 due to a large number of prison projects that were in process in the 2007 quarter that were substantially completed during the first half of 2008. Approximately $12.4 million of the sales reduction in the quarter was due to changes in foreign exchange rates.

International segment income in the 2008 quarter was $2.1 million lower than in the 2007 quarter. Gross margin was significantly lower in the 2008 quarter due to the large reduction in sales, partially offset by reduced SG&A. Results in the fourth quarter of 2008 included $0.6 million of compensation expense for contingent consideration related to the ModularUK acquisition. Additionally, exchange rates caused $0.6 million of the decline in segment income. During the fourth quarter of 2007, upon attainment of certain levels of performance, the

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segment accrued a $13.3 million obligation relating to contingent purchase price or “earn out” provisions of the purchase agreement. Under U.S. generally accepted accounting principles, $6.9 million was recorded as additional purchase price thereby increasing goodwill, and $6.4 million was recorded as compensation expense in SG&A. Fourth quarter 2007 results also included income of $2.1 million that was recognized for the settlement of business interruption and property damage claims related to a flood the occurred in June 2007.

Retail segment

Retail segment net sales for the fourth quarter of 2008 decreased 53% versus the comparable period of 2007 primarily due to selling 38% fewer homes in a difficult California housing market that has been significantly impacted by the financial and economic crises. The lower average selling prices in the 2008 quarter were caused by selling aged inventory and by a shift in the market to more moderately priced homes from higher priced homes previously targeted at the retiree market. Retail segment gross profit for the fourth quarter of 2008 declined and the segment loss increased due to lower gross margin from decreased sales and from a charge of $6.3 million to write down inventory to lower of cost or market, partially offset by lower SG&A.

Contingent Repurchase Obligations — Manufacturing Segment

We are contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to our independent retailers. Upon default by a retailer under a floor plan financing agreement subject to an associated repurchase agreement, the manufacturer is generally required to repurchase the home for the unpaid balance of the floor plan loan, subject to certain adjustments. In the event of such repurchases, our loss represents the difference between the repurchase price and the estimated net proceeds we realize from the resale of the home, less any related reserves or accrued volume rebates that will not be paid.

Each quarter we review our contingent wholesale repurchase obligations to assess the adequacy of our reserves for repurchase losses. This analysis is based on a review of current and historical experience, reports received from the primary national floor plan lenders that provide floor plan financing for approximately 42% of our manufacturing sales, and information regarding the performance of our retailers obtained from our manufacturing facilities. We do not retain repurchase risk for cash sales and we do not always enter into repurchase agreements with floor plan lenders that provide financing for the balance of our manufacturing sales to independent retailers.

The estimated repurchase obligation is calculated as the total amount that would be paid upon the default of all of our independent retailers whose inventories are subject to repurchase agreements, without reduction for the resale value of the repurchased homes. As of January 3, 2009, our largest independent retailer had approximately $4.4 million of inventory subject to repurchase for up to 18 months from date of invoice. As of January 3, 2009 our next 24 largest independent retailers had an aggregate of approximately $31.9 million of inventory subject to repurchase for generally up to 18 months from date of invoice, with individual amounts ranging from approximately $0.2 million to $4.3 million per retailer.

A summary of actual repurchase activity for the last three years follows:

	2008		2007		2006
	(Dollars in millions)
Estimated repurchase obligation at end of year	$	134	$	200	$	250
Number of retailer defaults		19		12		8
Number of homes repurchased		49		23		22
Total repurchase price	$	2.6	$	1.2	$	1.2
Losses incurred on homes repurchased	$	0.5	$	0.1	$	0.1

Off Balance Sheet Arrangements

Our off balance sheet arrangements at January 3, 2009 consist of the contingent repurchase obligation totaling approximately $134 million, surety bonds and letters of credit totaling $63.5 million and guarantees of $2.5 million of debt of unconsolidated affiliates.

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Liquidity and Capital Resources

At January 3, 2009, unrestricted cash balances totaled $52.8 million. During 2008, operating activities used $16.0 million of net cash. During the year ended January 3, 2009, accounts receivable and accounts payable decreased $42.7 million and $28.3 million, respectively, primarily due to decreased fourth quarter volume in the international and manufacturing segments. In 2008, inventories decreased by $21.6 million, excluding $14.1 million of retail segment write-downs. Other current liabilities and accruals decreased during the year primarily due to reductions in accrued rebates, warranty and compensation due to lower manufacturing segment sales and lower accruals for income taxes and valued added taxes due to the timing of payments. Other cash provided during the period included $3.6 million of property sales proceeds that included proceeds from the sale of two idle plants and $7.5 million of insurance receipts related to the Henry, TN plant fire. During the year, we borrowed $25.0 million under our Revolving Credit Facility (“Revolver”) and $61.2 million of cash was used to retire debt, primarily the $24 million note payable issued in the SRI acquisition, $10.0 million on the Revolver and $23.5 million on the Sterling Term Loan and the Term Loan. Other cash used during the period included $12.2 million for capital expenditures, and $14.8 million of acquisition related payments. Acquisition related payments included $12.3 million of contingent consideration that was earned and accrued for in 2007 related to Caledonian’s 2007 performance.

We have a senior secured credit agreement, as amended, (the “Credit Agreement”) with various financial institutions under which the Sterling Term Loan and the Term Loan were issued. Under the Credit Agreement, at January 3, 2009, we also have a revolving line of credit (“Revolver”) in the amount of $40 million and a $43.5 million letter of credit facility. The Credit Agreement is secured by a first security interest in substantially all of the assets of our domestic operating subsidiaries. As of January 3, 2009, letters of credit issued under the facility totaled $55.7 million, including $12.2 million under the Revolver. The maturity date for the Revolver is October 31, 2010. The maturity date for each of the Term Loan, the Sterling Term Loan and the letter of credit facility is October 31, 2012.

As a result of deteriorating operating results throughout 2008, we would not have been in compliance with certain of our debt covenants as of September 27, 2008. During October 2008, an amendment to the Credit Agreement (the “Amendment”) was completed. The Amendment covers the period from September 27, 2008 through January 2, 2010 (our 2009 fiscal year end) and provides for, among other things, changes to certain covenants in exchange for certain repayments and prepayments, as well as revised pricing.

During the period covered by the Amendment, the maximum senior leverage ratio, minimum interest coverage ratio and minimum fixed charge ratio covenants have been eliminated in exchange for new covenants requiring minimum liquidity and minimum twelve-month EBITDA measured quarterly and as defined by the Credit Agreement, as amended. The minimum liquidity requirement is measured each quarter end and is based upon the level of cash and unused Revolver availability and required levels range from $35 million to $45 million per quarter. The minimum twelve-month EBITDA requirement is measured at the end of each quarter and ranges from approximately $6 million to $15 million for the twelve month periods. The minimum EBITDA requirement is subject to certain adjustments during 2009, including the impact of disposals of any operating assets.

Management believes these required minimum levels of liquidity and EBITDA, as defined, are achievable based upon the Company’s current operating plan. Management has also identified other actions within their control that could be implemented, if necessary, to help the Company meet these quarterly requirements. However, there can be no assurance that these actions will be successful.

Pursuant to the Amendment, in October 2008 we repaid $10.0 million of the Revolver and prepaid $23.5 million of borrowings under the Sterling Term Loan and the Term Loan. During the Amendment period, the interest rates for borrowings under the Credit Agreement were increased to LIBOR plus 6.5%, with a LIBOR floor of 3.25% for the Term Loans and prime plus 5.5%, with a prime rate floor of 4.25% for the Revolver. Interest of LIBOR plus 5.0% is payable in cash and the remaining interest of 1.5% may be paid in kind (deferred and added to the respective loan balances). In addition, the Amendment revised the letter of credit facility annual fee to 6.6%.

The Amendment provides for interest rate reductions on all remaining borrowings under the Credit Agreement and the fees for the letter of credit facility if we make additional term loan prepayments during the effected period. For cumulative prepayments between $10 and $20 million the interest rate will be reduced to LIBOR plus 5.5% (of which 0.5% percent may be paid in kind); for cumulative prepayments between $20 and $30 million the interest rate

36

will be reduced to LIBOR plus 5.0%; and for cumulative prepayments of $30 million or more the interest rate will be reset to LIBOR plus 4.5%. Those respective aggregate prepayments will result in reducing the letter of credit annual fee to 5.6%, 5.1% and 4.6%, respectively.

The Amendment also reduced the letter of credit facility to $43.5 million from $60 million previously, by canceling approximately $4.3 million of unused capacity and moving approximately $12.2 million of outstanding undrawn letters of credit to the Revolver. As a result, while the total size of the Revolver remains at $40 million, its unused capacity at January 3, 2009 was approximately $12.8 million.

The Amendment requires quarterly principal payments for the Term Loan and the Sterling Term Loan totaling $5.0 million for 2009. Thereafter the Credit Agreement requires quarterly principal payments for the Term Loan and the Sterling Term Loan totaling approximately $0.9 million annually.

The interest rate at January 3, 2009 for borrowings under the Term Loan and the Sterling Term was a base rate of 3.25% plus 6.5%. The interest rate at January 3, 2009 for borrowings under the Revolver was a base rate of 4.25% plus 5.5%. The letter of credit facility was subject to a 6.6% annual fee and the unused portion of the letter of credit facility and Revolver was subject to an annual fee of 0.75%.

The following table represents the maximum Senior Leverage Ratio, minimum Interest Coverage Ratio and minimum Fixed Charge Ratio that we are required to maintain under the Credit Agreement for periods after January 2, 2010:

	Maximum		Minimum		Minimum
	Senior		Interest		Fixed
	Leverage		Coverage		Charge
Fiscal Quarter	Ratio		Ratio		Ratio
First quarter of 2010 — Third quarter of 2010		2.75:1		2.50:1		1.25:1
Fourth quarter of 2010 — Third quarter of 2011		2.50:1		2.75:1		1.25:1
Fourth quarter of 2011 — Second quarter of 2012		2.25:1		3.00:1		1.25:1
Third quarter of 2012		2.00:1		3.00:1		1.25:1

In the fourth quarter of 2007, we issued $180 million of 2.75% Convertible Notes (the “Convertible Notes”) that provided $174.1 million of net proceeds. In connection therewith, we completed a tender offer for our Senior Notes and used cash of $79.7 million to redeem $75.6 million of the Senior Notes. In addition, we prepaid $14.5 million of our Term Loan due 2012. These transactions extended the average maturity of our indebtedness and also reduced the average interest rate on our indebtedness.

The Convertible Notes are convertible into approximately 47.7 shares of our common stock per $1,000 of principal. The conversion rate can exceed 47.7 shares per $1,000 of principal when the closing price of our common stock exceeds approximately $20.97 per share for one or more days in the 20 consecutive trading day period beginning on the second trading day after the conversion date. Holders of the Convertible Notes may require us to repurchase the Notes if we are involved in certain types of corporate transactions or other events constituting a fundamental change. Holders of the Convertible Notes have the right to require us to repurchase all or a portion of their Notes on November 1 of 2012, 2017, 2022, 2027 and 2032. We have the right to redeem the Convertible Notes, in whole or in part, for cash at any time after October 31, 2012.

Each of our primary debt instruments contain cross default provisions whereby a default under one instrument, if not cured or waived by the lenders, could cause a default under the other debt instruments.

We expect to spend less than $5 million on capital expenditures in 2009. We do not plan to pay cash dividends on our common stock in the near term. We may use a portion of our cash balances to repay indebtedness. We have debt pay down requirements through 2010 totaling approximately $28.7 million, consisting primarily of $6.7 million of Senior Notes due May 2009, $15.0 million of Revolver debt due and scheduled installment payments on the Term Loans totaling $6.0 million.

Contingent Liabilities and Obligations

We had significant contingent liabilities and obligations at January 3, 2009, including surety bonds and letters of credit totaling $63.5 million and guarantees of $2.5 million of debt of unconsolidated affiliates. Additionally, we are contingently obligated under repurchase agreements with certain lending institutions that provide floor plan

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financing to our independent retailers. We estimate our contingent repurchase obligation as of January 3, 2009 was approximately $134 million, without reduction for the resale value of the homes. See “Contingent Repurchase Obligations-Manufacturing Segment” discussed above in Item 7 of this Report.

We have provided various representations, warranties and other standard indemnifications in the ordinary course of our business, in agreements to acquire and sell business assets and in financing arrangements. We are also subject to various legal proceedings and claims that arise in the ordinary course of our business.

Management believes the ultimate liability with respect to these contingent liabilities and obligations will not have a material effect on our financial position, results of operations or cash flows.

Summary of Liquidity and Capital Resources

At January 3, 2009, our total liquidity was $65.6 million, consisting of unrestricted cash balances totaling $52.8 million and availability under our Revolver of $12.8 million. We expect that our cash balances and cash flow from operations for the next two years will be adequate to fund capital expenditures as well as the approximately $28.7 million of scheduled debt payments due during that period. Except as described below, the level of cash availability is projected to be in excess of cash needed to operate our businesses for the next two years. In the event that our operating cash flow is inadequate and one or more of our capital resources were to become unavailable, we would revise our operating strategies accordingly.

The Amendment eliminated financial covenants for the quarter ended September 27, 2008 and provided revised financial covenants for the five quarter period ending January 2, 2010. Management believes the minimum liquidity and minimum twelve-month EBITDA requirements, as defined, are achievable based upon the Company’s current operating plan. Management has also identified other actions within their control that could be implemented, if necessary, to help the Company meet these quarterly requirements. However, there can be no assurance that these actions will be successful. Additionally, in light of current market conditions and absent further unscheduled reductions of our indebtedness under the Credit Agreement, it is possible that we will not be in compliance with the pre-Amendment financial covenants which take effect as of the end of the first quarter of our 2010 fiscal year. Further, if current credit market conditions were to persist throughout 2009, there can be no assurance that we will be able to refinance all or a sufficient portion of this indebtedness.

While we will explore asset sales, divestitures and other types of capital raising alternatives in order to reduce indebtedness under the Credit Agreement prior to expiration of the Amendment, there can be no assurance that such activities will be successful or generate cash resources adequate to retire or sufficiently reduce this indebtedness. In this event, there can be no assurance that a majority of the lenders that are party to our Credit Agreement will consent to a further amendment of the Credit Agreement.

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Contractual Obligations

The following table presents a summary of payments due by period for our contractual obligations for long-term debt, capital leases and operating leases as of January 3, 2009:

	Payments due by period: After January 3, 2009
	Total		< 1 Year		1 to 3 Years		3 to 5 Years		> 5 Years
	(In thousands)
Long-term debt:
Convertible Senior Notes due 2037	$	180,000	$	—	$	—	$	180,000	$	—
Revolving line of credit		15,040		—		15,040		—		—
7.625% Senior Notes due May 2009		6,716		6,716		—		—		—
Term Loans due 2012		97,063		5,000		1,841		90,222		—
Obligations under industrial revenue bonds due 2029		12,430		—		—		—		12,430
ModUK debt		1,101		266		513		322		—
Capital leases and other debt		730		247		483		—		—
Interest payments		59,365		15,515		28,119		11,440		4,291
Operating leases		34,983		5,784		9,690		6,537		12,972
Total	$	407,428	$	33,528	$	55,686	$	288,521	$	29,693

The Convertible Notes are listed as being due in 2012 in the table above based on the repurchase and redemption features, which first become available in 2012. Interest payments are calculated through the respective maturity dates of the debt assuming that only required installment payments are made. Required interest payments for the Term Loans and the Revolver are based on the 9.75% interest rate in effect as of January 3, 2009. Interest payments for the Convertible Notes and Senior Notes due 2009 are based on the fixed rates of 2.75% and 7.625%, respectively. Interest payments for obligations under industrial revenue bonds are based on 2.25%, which is the average rate paid during 2008.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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. Assumptions and estimates of future earnings and cash flow are used in the periodic analyses of the recoverability of goodwill, intangible assets, deferred tax assets and property, plant and equipment. Historical experience and trends are used to estimate reserves, including reserves for self-insured risks, warranty costs and wholesale repurchase losses. Following is a description of each accounting policy requiring significant judgments and estimates:

Reserves for Self-Insured Risks

We are self-insured for a significant portion of our workers’ compensation, general and products liability, auto liability, health and property insurance. Under our current self-insurance programs, we are generally responsible for up to $0.5 million per claim for workers’ compensation claims ($0.5 million or $0.75 million per claim in California, depending on the policy year under which the claim is made), up to $0.5 million for automobile liability claims, up to $0.5 million, $1.5 million or $1.75 million per claim for product liability and general liability claims, depending on the policy year under which the claim is made, and up to $250,000 per claim for property insurance claims including business interruption losses. We maintain excess liability and property insurance with independent insurance carriers to minimize our risks related to catastrophic claims. Under our current self-insurance program we are responsible for up to $150,000 of health insurance claims per contract per year. Estimated casualty and health insurance costs are accrued for incurred claims and estimated claims incurred but not yet reported. Factors

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considered in estimating our insurance reserves are the nature of outstanding claims including the severity of the claims, estimated costs to settle existing claims, loss history and inflation, as well as estimates provided by our third party actuaries. Significant changes in the factors described above could have a material adverse impact on future operating results.

Warranty Reserves

Our manufacturing operations generally provide the retail homebuyer or the builder/developer with a twelve-month warranty. Estimated warranty costs are accrued as cost of sales at the time of sale. Our warranty reserve is based on estimates of the amounts necessary to settle existing and future claims on homes sold by the manufacturing operations as of the balance sheet date. Factors used to calculate the warranty obligation are the estimated number of homes still under warranty, including homes in retailer inventories and homes purchased by consumers still within the twelve-month warranty period and the historical average costs incurred to service a home. Significant changes in these factors could have a material adverse impact on future operating results.

Amortizable Intangible Assets and Property, Plant and Equipment

Amortizable intangible assets are related to both our manufacturing and international segments. We test for impairment of amortizable intangible assets and property, plant and equipment (“PP&E”) in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The recoverability of amortizable intangible assets and PP&E is evaluated whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, primarily based on projected undiscounted cash flows and for PP&E, appraised values or estimated selling prices. Our cash flow estimates are based on historical results adjusted for estimated current industry trends, the economy and operating conditions. Additionally, we use estimates of fair market values to establish impairment reserves for permanently closed facilities that are held for sale. Past evaluations of property, plant and equipment have resulted in significant impairment charges primarily for closed manufacturing facilities. Significant changes in these estimates and assumptions could result in additional impairment charges in the future.

Income Taxes and Deferred Tax Assets

Deferred tax assets and liabilities are determined based on temporary differences between the financial statement balances 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. We periodically evaluate the realizability of our deferred tax assets based on the requirements established in SFAS No. 109, “Accounting for Income Taxes,” which requires the recording of a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. SFAS No. 109 further states “forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years,” and places considerably more weight on historical results and less weight on future projections. Although the Company had U.S. pretax income in 2005 and 2006 totaling approximately $71 million, it has cumulative U.S. pretax losses totaling approximately $78 million for the years 2006 through 2008. Current conditions in the housing and credit markets and the general economy in the U.S. continue to present significant challenges to returning the Company’s U.S. operations to profitability. In the absence of specific favorable factors, application of SFAS No. 109 requires a valuation allowance for deferred tax assets in a tax jurisdiction when a company has cumulative financial accounting losses over several years. Accordingly, after consideration of these factors, effective September 27, 2008, the Company provided a valuation allowance for 100% of its U.S. deferred tax assets resulting in a non-cash tax charge of approximately $150.8 million in the third quarter and $164.5 million for the full year. Deferred tax assets will continue to require a 100% valuation allowance until we have demonstrated their realizability through sustained profitability and/or from other factors. The valuation allowance will be reversed to income in future periods to the extent that the related deferred tax assets are realized as a reduction of taxes otherwise payable on any future earnings or a portion or all of the valuation allowance is otherwise no longer required.

Goodwill

Goodwill is related to both our manufacturing and international segments. We test for impairment of goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” We evaluate the fair value of our manufacturing and international segments versus their carrying value as of each fiscal year end or more frequently if

40

events or changes in circumstances indicate that the carrying value may exceed the fair value. When estimating the segment’s fair value, we calculate the present value of future cash flows based on forecasted sales volumes and profit margins, the number of manufacturing facilities in operation, current industry and economic conditions, historical results and inflation. The discount factors used in present value calculations are updated annually. We also use available market value information to evaluate fair value. The total fair values of the segments less net debt was reconciled to end of year total market capitalization.

The discount factors used in the 2008 goodwill impairment tests were 16.0% and 17.0% compared to 8.5% used in the 2007 tests. The current credit crisis has significantly affected the financial markets and economies in the countries in which we operate. Our current fair value calculations for the manufacturing segment assumes modest revenue growth beginning in 2010 through 2013 after industry HUD-code shipments reached a 50-year low in 2008. The assumed long-term annual growth rate after 2013 is 2%. This assumed growth rate results in forecasted sales, including sales from SRI that was acquired in December 2007, being approximately 11% less in 2013 than our manufacturing segment sales were in 2006. Our current fair value calculations for the international segment assumes slight revenue growth in 2010 and modest growth beginning in 2011 through 2013. The assumed long-term annual growth rate after 2013 is 2%. This assumed growth rate results in forecasted sales, including sales from ModularUK that was acquired in February 2008, being approximately 20% greater in 2013 than our international segment sales were in 2007, its first full year of operations subsequent to our acquisition.

Significant changes in the estimates and assumptions used in calculating the fair value of the segments and the recoverability of goodwill or differences between estimates and actual results could result in impairment charges in the future.

Wholesale Repurchase Reserves

In 2008, approximately 42% of our manufacturing sales to independent retailers were made pursuant to repurchase agreements with the national providers of floor plan financing. We determine our repurchase reserves based on the greater of (1) the fair value of the “guaranty” made under the repurchase agreements and (2) an estimate of losses for homes expected to be repurchased based on historical repurchase experience. An additional reserve is established for estimated losses related to specific retailer defaults that are deemed to be probable. Losses under repurchase obligations are determined by calculating the difference between the repurchase price and the estimated net resale value of the homes, less accrued rebates which will not be paid. Estimated losses under repurchase agreements are based on the historical number of homes repurchased, the cost of such repurchases and the historical losses incurred, as well as the current inventory levels held at our independent retailers. In addition, we monitor the risks associated with our independent retailers and consider these risks in identifying probable retailer defaults. Significant changes in these factors could have a material adverse impact on future operating results.

Revenue Recognition

The percentage of completion method of revenue recognition is used for certain construction contracts. This method of accounting requires estimates and assumptions as to total costs and profitability for each contract. Actual results could vary significantly from these estimates resulting in significant adjustments to reported income.

Foreign currency transaction losses (gains)

Commencing in 2007, the Company used intercompany loans between its U.S. and foreign subsidiaries to provide funds for acquisitions and other purposes. Until these loans are repaid, the foreign exchange impact on these transactions will be reported in the statement of operations under foreign currency transaction losses (gains) and will be based on fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound.

Impact of Inflation

Inflation has not had a material effect on our operations during the last three years. Commodity prices, including lumber, fluctuate; however, during periods of rising commodity prices we have generally been able to pass the increased costs to our customers in the form of surcharges and price increases.

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Impact of Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard Number 157 (“SFAS 157”), Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP FAS 157-2 that delayed, by one year, the effective date of SFAS 157 for the majority of non-financial assets and non-financial liabilities. Effective December 30, 2007, we adopted SFAS 157 for certain assets and liabilities, which were not included in FSP FAS 157-2. The adoption of SFAS 157 had no significant impact on our financial position or results of operations for the year ended January 3, 2009.

In February 2007, the FASB issued Financial Accounting Standard Number 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115, which permits an entity to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to provide entities with an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities that choose to measure eligible items at fair value will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected at specified election dates on an instrument-by-instrument basis, with few exceptions. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective at the beginning of the first fiscal year beginning after November 15, 2007. We have decided not to adopt SFAS 159 for any existing financial instruments.

In December 2007, the FASB issued Financial Accounting Standard Number 141(R) (“SFAS 141R”), Business Combinations and Financial Accounting Standard Number 160 (“SFAS 160”), Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 141R and SFAS 160 expand the scope of acquisition accounting to all transactions and circumstances under which control of a business is obtained. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years, with early adoption prohibited and these standards must be adopted concurrently. These standards will impact us for any acquisitions subsequent to the adoption date. The most significant effect of adoption of SFAS 141R on our results of operations is that success fees and due diligence, legal, accounting, valuation and similar costs incurred in connection with acquisitions (acquisition-related costs) are required to be expensed as incurred. Current practice is that such costs are capitalized as part of the cost of the acquisition.

In December 2007, the FASB issued Financial Accounting Standard Number 160 (“SFAS 160”), Non-controlling Interest in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS 160 requires all entities to report non-controlling (minority) interests in subsidiaries as equity in the consolidated financial statements. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and non-controlling interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material effect on our financial position or results of operations.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

Our debt obligations under the Credit Agreement are currently subject to variable rates of interest based on U.S. and U.K. LIBOR and the U.S. prime rate. A 100 basis point increase in the underlying interest rate would result in an additional annual interest cost of approximately $1.1 million, assuming average related debt of $112.1 million, which was the amount of outstanding borrowings at January 3, 2009.

Our obligations under industrial revenue bonds are subject to variable rates of interest based on short-term tax-exempt rate indices. A 100 basis point increase in the underlying interest rates would result in additional annual interest cost of approximately $0.1 million, assuming average related debt of $12.4 million, which was the amount of outstanding borrowings at January 3, 2009.

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Our approach to interest rate risk is to balance our borrowings between fixed rate and variable rate debt. At January 3, 2009, we had $180 million of Convertible Notes and $6.7 million of Senior Notes at fixed rates and $124.5 million of Term Loans, Revolver and industrial revenue bonds at variable rates.

We are exposed to foreign exchange risk with our factory-built housing operations in Canada and our international segment in the U.K. Our Canadian operations had 2008 net sales totaling $170 million (CAD). Assuming future annual Canadian sales equal to 2008 sales, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $1.4 million. Our international segment had 2008 sales of £148 million (pounds Sterling). Assuming future annual U.K. sales equal to 2008 sales, a change of 1.0% in exchange rates between the U.S. dollar and the British pound Sterling would change consolidated sales by $2.2 million. Net income of the Canadian and U.K. operations would also be affected by changes in exchange rates. We also have foreign exchange risk for cash balances we maintain in U.S. dollars, Canadian dollars and U.K. pounds that are subject to fluctuating values when exchanged into another currency.

We borrowed £45 million in the U.S. to finance a portion of the Caledonian purchase price, which totaled approximately £62 million. This Sterling denominated borrowing was designated as an economic hedge of our net investment in the U.K. Therefore a significant portion of foreign exchange risk related to our Caledonian investment in the U.K. is offset. Repayment of any portion of this loan will result in realized foreign exchange transaction gains and losses based on the exchange rate at the time of repayment. We do not hedge our investment in the Canadian operations.

We use intercompany loans between our U.S. and foreign subsidiaries to provide funds for acquisitions and other purposes. At January 3, 2009 the total of such intercompany loans was $52.8 million. Until these loans are repaid, foreign exchange transaction gains and losses will be reported in our statement of operations based on fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound.

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.

Item 9A.   Controls and Procedures

As of the date of this Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to cause material information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. During the quarter ended January 3, 2009, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance

The information set forth in the sections entitled “Election of Directors” and “Corporate Governance” in the Company’s Proxy Statement for the Annual Shareholders’ Meeting to be held May 29, 2009 (the “Proxy Statement”) and the information set forth in the section entitled “Executive Officers of the Company” in Part 1, Item 1 of this Report is incorporated herein by reference.

The information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the section entitled “Other Information” in the Company’s Proxy Statement is incorporated herein by reference.

Item 11.   Executive Compensation

The information set forth under the sections entitled “Compensation of Directors,” “Compensation Discussion and Analysis” and “Executive Compensation” and the information set forth under the caption “Compensation Committee Report” in the section entitled “Corporate Governance — Compensation and Human Resources Committee” in the Company’s Proxy Statement is incorporated herein by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information set forth under Part II, Item 5 of this Report is incorporated herein by reference. The information set forth under the section entitled “Share Ownership” in the Company’s Proxy Statement is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information set forth under the caption “Related Party Transaction Policy” in the section entitled “Other Information” and the information set forth under the caption “Director Independence” in the section entitled “Corporate Governance” in the Company’s Proxy Statement is incorporated herein by reference.

Item 14.   Principal Accountant Fees and Services

The information set forth under the caption “Independent Auditors” in the section entitled “Other Information” in the Company’s Proxy Statement is incorporated herein by reference.

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PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) The financial statements, supplementary financial information and financial statement schedules filed herewith are set forth on the Index to Financial Statements and Financial Statement Schedules on page F-1 of the separate financial section of this Report, which is incorporated herein by reference.

The following exhibits are filed as part of this Report. Those exhibits with an asterisk (*) designate the Company’s management contracts or compensation plans or arrangements for its executive officers.

Exhibit No.			Description
	2	.1.	Asset Purchase Agreement, dated February 24, 2006, by and among CBS Monaco Limited, Champion Enterprises, Inc. and the shareholders of Calsafe Group (Holdings) Limited, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed March 1, 2006 and incorporated herein by reference.
	2	.2.	Asset Purchase Agreement, dated December 17, 2007, by Champion Enterprises, Inc. and 1367606 Alberta ULC (“Buyer”) with SRI Homes Inc., NGI Investment Corporation, Robert Adria and Brian Holterhus, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed December 21, 2007 and incorporated herein by reference.
	3	.1.	Restated Articles of Incorporation of Champion Enterprises, Inc., as amended, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 19, 2006 and incorporated herein by reference.
	3	.2.	Bylaws of the Company as amended through December 2, 2003, filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004 and incorporated herein by reference.
	4	.1.	Indenture dated as of May 3, 1999 between the Company, the Subsidiary Guarantors and Bank One Trust Company, NA, as Trustee, filed as Exhibit 4.1 to the Company’s Form S-4 Registration Statement No. 333-84227 dated July 30, 1999 and incorporated herein by reference.
	4	.2.	Supplemental Indenture dated as of July 30, 1999 between the Company, the Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, as Trustee, filed as Exhibit 4.2 to the Company’s Form S-4 Registration Statement No. 333-84227 dated July 30, 1999 and incorporated herein by reference.
	4	.3.	Supplemental Indenture dated as of October 4, 1999 between the Company, the Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, filed as Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and incorporated herein by reference.
	4	.4.	Supplemental Indenture dated as of February 10, 2000 between the Company, the Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, filed as Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and incorporated herein by reference.
	4	.5.	Supplemental Indenture dated as of September 5, 2000, among the Company, the Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, filed as Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001 and incorporated herein by reference.
	4	.6.	Supplemental Indenture dated as of March 15, 2002 between the Company, A-1 Champion GP, Inc., the Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, as Trustee, filed as Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.
	4	.7.	Supplemental Indenture dated as of August 7, 2002 among the Company, the Subordinated Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, as Trustee, filed as Exhibit 4.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.
	4	.8.	Supplemental Indenture dated as of January 13, 2003 among HomePride Insurance Agency, Inc., HP National Mortgage Holdings, Inc., Champion Enterprises Management Co., the Company, the Subordinated Subsidiary Guarantors, and Wells Fargo Bank Minnesota, NA, as Trustee, filed as Exhibit 4.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.

45

Exhibit No.			Description
	4	.9.	Supplemental Indenture dated as of January 31, 2003, among Moduline Industries (Canada) Ltd., the Company, the Subordinated Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, as Trustee, filed as Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.
	4	.10.	Supplemental Indenture dated as of October 14, 2005, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 14, 2005 and incorporated herein by reference.
	4	.11.	Supplemental Indenture for Senior Debt Securities dated November 2, 2007, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 2, 2007 and incorporated herein by reference.
	4	.12.	Supplemental Indenture dated November 13, 2007, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 16, 2007 and incorporated herein by reference.
	10	.1.	*1993 Management Stock Option Plan, as amended and restated as of December 3, 2002, filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year end December 28, 2002 and incorporated herein by reference.
	10	.2.	*1995 Stock Option and Incentive Plan, filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 dated May 1, 1995 and incorporated herein by reference.
	10	.3.	*First Amendment to the 1995 Stock Option and Incentive Plan, filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 1995 and incorporated herein by reference.
	10	.4.	*Second Amendment dated April 28, 1998 to the 1995 Stock Option and Incentive Plan, filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 1999 and incorporated herein by reference.
	10	.5.	*Third Amendment dated October 27, 1998 to the 1995 Stock Option and Incentive Plan, filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 1999 and incorporated herein by reference.
	10	.6.	*Fourth Amendment dated April 27, 1999 to the 1995 Stock Option and Incentive Plan, filed as Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended April 3, 1999 and incorporated herein by reference.
	10	.7.	*Nonqualified Deferred Compensation Plan, as amended and restated December 31, 2008 to comply with Section 409A of the Internal Revenue Code.
	10	.8.	*2000 Stock Compensation Plan for Nonemployee Directors, as amended and restated effective December 18, 2002, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year end December 28, 2002 and incorporated herein by reference.
	10	.9.	*Fourth Amendment to the 2000 Stock Compensation Plan for Nonemployee Directors, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004 and incorporated herein by reference.
	10	.10.	*2005 Equity Compensation and Incentive Plan, as amended and restated December 31, 2008 to comply with Section 409A of the Internal Revenue Code.
	10	.11.	*Form of Performance Share Award under the 2005 Equity Compensation and Incentive Plan, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 12, 2006 and incorporated herein by reference.
	10	.12.	*Form of Annual Incentive Award under the 2005 Equity Compensation and Incentive Plan, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 12, 2006 and incorporated herein by reference.
	10	.13.	* Amended and Restated Executive Employment Agreement with William C. Griffiths, dated as of December 17, 2008, filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K dated December 18, 2008 and incorporated herein by reference.
	10	.14.	*Form of Amended and Restated Change in Control Agreement dated December 17, 2008 between the Company and certain executive officers, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated December 18, 2008 and incorporated herein by reference.
	10	.15.	*Form of Amended and Restated Change in Control Agreement dated December 17, 2008 between the Company and William C. Griffiths, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated December 18, 2008 and incorporated herein by reference.

46

Exhibit No.			Description
	10	.16.	*Executive Officer Severance Pay Plan, as amended and restated December 31, 2008 to comply with Section 409A of the Internal Revenue Code.
	10	.17.	*Letter Agreement dated October 17, 2002 between the Company and Phyllis A. Knight, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.
	10	.18.	*Amendment dated December 17, 2008 to Letter Agreement dated October 17, 2002 between the Company and Phyllis A. Knight.
	10	.19.	*Nonqualified Inducement Stock Option Agreement dated October 17, 2002 between the Company and Phyllis A. Knight, filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and incorporated herein by reference.
	10	.20.	*Letter Agreement dated September 21, 2004 between the Company and Jeffrey L. Nugent, filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference.
	10	.21.	Termination Agreement and General Release with Jeffrey P. Nugent, Vice-President, effective December 17, 2008 and filed as Exhibit 99.3 on Form 8-K on December 18, 2008 and incorporated herein by reference.
	10	.22.	Cash Compensation Plan for Non-Employee Directors (the “Plan”), filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 20, 2006 and incorporated herein by reference.
	10	.23.	First Amendment to Amended and Restated Credit Agreement, dated March 22, 2007, by Champion Home Builders Co., a wholly-owned subsidiary of Champion Enterprises, Inc., and certain additional subsidiaries of Champion Enterprises, Inc. with certain financial institutions and other parties thereto as lenders, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 28, 2007 and incorporated herein by reference.
	10	.24.	Second Amendment to Amended and Restated Credit Agreement, dated June 20, 2007, by Champion Home Builders Co., a wholly-owned subsidiary of Champion Enterprises, Inc., and certain additional subsidiaries of the Company with certain financial institutions and other parties thereto as lenders, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 22, 2007 and incorporated herein by reference.
	10	.25.	Third Amendment to Amended and Restated Credit Agreement, dated October 25, 2007, by Champion Home Builders Co., a wholly-owned subsidiary of Champion Enterprises, Inc., and certain additional subsidiaries of Champion Enterprises, Inc. with certain financial institutions and other parties thereto as lenders, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 31, 2007 and incorporated herein by reference.
	10	.26.	Fourth Amendment to Amended and Restated Credit Agreement, dated October 24, 2008, by Champion Home Builders Co., a wholly-owned subsidiary of Champion Enterprises, Inc., and certain additional subsidiaries of Champion Enterprises, Inc. with certain financial institutions and other parties thereto as lenders, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 27, 2008 and incorporated herein by reference.
	10	.27.	Letter Agreement dated October 9, 2007 between the Company and Roger Scholten.
	21	.1.	Subsidiaries of the Company.
	23	.1.	Consent of Ernst & Young LLP.
	31	.1.	Certification of Chief Executive Officer dated February 18, 2009, relating to the Registrant’s Annual Report on Form 10-K for the year ended January 3, 2009.
	31	.2.	Certification of Chief Financial Officer dated February 18, 2009, relating to the Registrant’s Annual Report on Form 10-K for the year ended January 3, 2009.
	32	.1.	Certification of Chief Executive Officer and Chief Financial Officer of Registrant, dated February 18, 2009, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to the Registrant’s Annual Report on Form 10-K for the year ended January 3, 2009.
	99	.1.	Proxy Statement for the Company’s 2008 Annual Meeting of Shareholders, filed by the Company pursuant to Regulation 14A and incorporated herein by reference.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Champion Enterprises, Inc.

By:  /s/  Phyllis A. Knight

Phyllis A. Knight

Executive Vice President, Treasurer and

Chief Financial Officer

Dated: February 18, 2009

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 Company and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  William C. Griffiths William C. Griffiths	Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)	February 18, 2009
/s/  Phyllis A. Knight Phyllis A. Knight	Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer)	February 18, 2009
/s/  Richard Hevelhorst Richard Hevelhorst	Vice President and Controller (Principal Accounting Officer)	February 18, 2009
/s/  Robert W. Anestis Robert W. Anestis	Director	February 18, 2009
/s/  Eric S. Belsky Eric S. Belsky	Director	February 18, 2009
/s/  Selwyn Isakow Selwyn Isakow	Director and Lead Independent Director	February 18, 2009
/s/  Brian D. Jellison Brian D. Jellison	Director	February 18, 2009
/s/  G. Michael Lynch G. Michael Lynch	Director	February 18, 2009
/s/  Thomas Madden Thomas Madden	Director	February 18, 2009
/s/  Shirley D. Peterson Shirley D. Peterson	Director	February 18, 2009

48

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the Company’s consolidated financial statements and related notes. Management believes that the consolidated financial statements present the Company’s financial position and results of operations in conformity with accounting principles that are generally accepted in the United States, using our best estimates and judgments as required.

The independent registered public accounting firm audits the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and provides an objective, independent review of the fairness of reported operating results and financial position.

The Audit Committee of the Board of Directors of the Company is composed of four non-management directors. The Committee meets regularly with management, internal auditors, and the independent registered public accounting firm to review accounting, internal control, auditing, and financial reporting matters.

Formal policies and procedures, including an active Ethics and Business Conduct program, support the internal controls, and are designed to ensure employees adhere to the highest standards of personal and professional integrity. We have an internal audit program that independently evaluates the adequacy and effectiveness of these internal controls.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of January 3, 2009. The effectiveness of our internal control over financial reporting as of January 3, 2009 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

/s/  WILLIAM C. GRIFFITHS
William C. Griffiths
Chairman, President and Chief Executive Officer
February 18, 2009 /s/  PHYLLIS A. KNIGHT
Phyllis A. Knight
Executive Vice President, Treasurer and
Chief Financial Officer
February 18, 2009

49

CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES

Description	Page
Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Operations for the Years Ended January 3, 2009, December 29, 2007 and December 30, 2006		F-4
Consolidated Balance Sheets as of January 3, 2009 and December 29, 2007		F-5
Consolidated Statements of Cash Flows for the Years Ended January 3, 2009, December 29, 2007 and December 30, 2006		F-6
Consolidated Statements of Shareholders’ Equity for the Years Ended January 3, 2009, December 29, 2007 and December 30, 2006		F-7
Notes to Consolidated Financial Statements		F-8
Financial Statement Schedule II, Valuation and Qualifying Accounts, for the Years Ended January 3, 2009, December 29, 2007 and December 30, 2006		F-33

All other 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.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Champion Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of Champion Enterprises, Inc. (the “Company”) as of January 3, 2009 and December 29, 2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 3, 2009. Our audits also included the financial statement schedule listed in the Index for the three years ended January 3, 2009. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Champion Enterprises, Inc. at January 3, 2009 and December 29, 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 3, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth for the three years ended January 3, 2009.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Champion Enterprises, Inc.’s internal control over financial reporting as of January 3, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2009 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Detroit, Michigan

February 17, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Champion Enterprises, Inc.

We have audited Champion Enterprises, Inc.’s internal control over financial reporting as of January 3, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Champion Enterprises Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Champion Enterprises, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 3, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Champion Enterprises, Inc. as of January 3, 2009 and December 29, 2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 3, 2009 of Champion Enterprises, Inc. and our report dated February 17, 2009 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Detroit, Michigan

February 17, 2009

F-3

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended
	January 3, 2009			December 29, 2007			December 30, 2006
	(In thousands, except per share amounts)
Net sales	$	1,033,193		$	1,273,465		$	1,364,648
Cost of sales		906,685			1,083,601			1,147,032
Gross margin		126,508			189,864			217,616
Selling, general and administrative expenses		130,756			158,142			154,534
Restructuring charges		10,683			3,780			1,200
Foreign currency transaction losses (gains)		10,536			(1,008	)		—
Amortization of intangible assets		9,251			5,727			3,941
Operating (loss) income		(34,718	)		23,223			57,941
Loss on debt retirement		(608	)		(4,543	)		(398	)
Interest income		3,709			5,649			5,050
Interest expense		(20,401	)		(20,380	)		(19,496	)
(Loss) income before income taxes		(52,018	)		3,949			43,097
Income tax expense (benefit)		147,442			(3,243	)		(95,211	)
Net (loss) income		(199,460	)		7,192			138,308
Basic (loss) income per share	$	(2.57	)	$	0.09		$	1.81
Weighted shares for basic EPS		77,700			76,916			76,334
Diluted (loss) income per share	$	(2.57	)	$	0.09		$	1.78
Weighted shares for diluted EPS		77,700			77,719			77,578

See accompanying Notes to Consolidated Financial Statements.

F-4

CHAMPION ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

	January 3,			December 29,
	2009			2007
	(In thousands, except par value)
Assets
Current assets
Cash and cash equivalents	$	52,787		$	135,408
Accounts receivable, trade		33,935			89,646
Inventories		52,960			90,782
Deferred tax assets		673			29,746
Other current assets		9,839			14,827
Total current assets		150,194			360,409
Property, plant and equipment
Land and improvements		29,039			30,970
Buildings and improvements		115,447			129,002
Machinery and equipment		81,497			89,742
		225,983			249,714
Less-accumulated depreciation		129,120			132,730
		96,863			116,984
Goodwill		307,760			360,610
Amortizable intangible assets, net of accumulated amortization		67,932			72,541
Deferred tax assets		—			87,983
Other non-current assets		22,260			23,696
	$	645,009		$	1,022,223
Liabilities and Shareholders’ Equity
Current liabilities
Short-term portion of debt	$	12,229		$	25,884
Accounts payable		70,050			119,390
Accrued volume rebates		19,120			29,404
Accrued warranty obligations		20,925			29,246
Accrued compensation and payroll taxes		15,372			25,168
Accrued self-insurance		22,537			27,539
Other current liabilities		27,399			61,695
Total current liabilities		187,632			318,326
Long-term liabilities
Long-term debt		300,851			342,897
Deferred tax liabilities		36,592			7,065
Other long-term liabilities		33,111			34,089
		370,554			384,051
Contingent liabilities (Note 13)
Shareholders’ equity
Common stock, $1 par value, 120,000 shares authorized, 77,780 and 77,346 shares issued and outstanding, respectively		77,780			77,346
Capital in excess of par value		201,919			203,708
(Accumulated deficit) retained earnings		(175,823	)		23,637
Accumulated other comprehensive (loss) income		(17,053	)		15,155
Total shareholders’ equity		86,823			319,846
	$	645,009		$	1,022,223

See accompanying Notes to Consolidated Financial Statements.

F-5

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended
	January 3,			December 29,			December 30,
	2009			2007			2006
				(In thousands)
Cash flows from operating activities
Net (loss) income	$	(199,460	)	$	7,192		$	138,308
Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:
Depreciation and amortization		22,478			20,063			17,943
Stock-based compensation		(476	)		2,975			4,563
Change in deferred taxes		136,186			(17,637	)		(100,125	)
Fixed asset impairment charges		7,000			2,000			1,200
Compensation portion of UK earnout payment		(5,884	)		—			—
Insurance proceeds		7,478			—			—
LCM inventory reserve		14,100			—			—
Gain on disposal of fixed assets		(505	)		(1,199	)		(4,708	)
Loss on debt retirement		608			4,543			398
Foreign currency transaction losses (gains)		10,536			(1,008	)		—
Increase/decrease:
Accounts receivable		42,678			(28,412	)		28,626
Inventories		21,648			24,024			13,129
Accounts payable		(28,295	)		61,230			(16,405	)
Accrued liabilities		(44,370	)		5,733			(24,753	)
Other, net		248			801			1,698
Net cash (used for) provided by operating activities		(16,030	)		80,305			59,874
Cash flows from investing activities
Additions to property, plant and equipment		(12,179	)		(10,201	)		(17,582	)
Acquisitions and related payments		(8,892	)		(96,208	)		(153,845	)
Purchase of short-term investments		(10,000	)		—			—
Redemption of short-term investments		10,000			—			—
Proceeds on disposal of fixed assets		3,557			4,487			7,566
Distributions from unconsolidated affiliates		9			884			—
Net cash used for investing activities		(17,505	)		(101,038	)		(163,861	)
Cash flows from financing activities
Proceeds from Convertible Notes		—			180,000			—
Proceeds from Revolver debt		25,000			—			—
Proceeds from Term Loan		—			—			78,561
Redemption of Senior Notes		—			(79,728	)		(6,901	)
Payments on debt		(61,174	)		(16,329	)		(29,612	)
Increase in deferred financing costs		(2,744	)		(5,939	)		(1,076	)
Decrease in restricted cash		—			15			698
Common stock issued, net		437			3,801			1,974
Net cash (used for) provided by financing activities		(38,481	)		81,820			43,644
Cash flows from discontinued operations		124			62			1,201
Effect of exchange rate changes on cash and cash equivalents		(10,729	)		4,051			2,371
Net (decrease) increase in cash and cash equivalents		(82,621	)		65,200			(56,771	)
Cash and cash equivalents at beginning of period		135,408			70,208			126,979
Cash and cash equivalents at end of period	$	52,787		$	135,408		$	70,208
Additional cash flow information
Cash paid for interest	$	19,807		$	19,888		$	19,394
Cash paid for income taxes		12,764			8,296			5,156

See accompanying Notes to Consolidated Financial Statements.

F-6

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

								Retained			Accumulated
					Capital in			earnings			other
	Common stock				excess of			(accumulated			comprehensive
	Shares		Amount		par value			deficit)			income (loss)			Total
	(In thousands)
Balance at December 31, 2005		76,045	$	76,045	$	192,905		$	(121,863	)	$	218		$	147,305
Net income		—		—		—			138,308			—			138,308
Stock options and benefit plans		405		405		6,692			—			—			7,097
Foreign currency translation adjustments		—		—		—			—			14,552			14,552
Net investment hedge, net of income taxes		—		—		—			—			(5,500	)		(5,500	)
Balance at December 30, 2006		76,450		76,450		199,597			16,445			9,270			301,762
Net income		—		—		—			7,192			—			7,192
Stock options and benefit plans		896		896		4,111			—			—			5,007
Foreign currency translation adjustments		—		—		—			—			7,185			7,185
Net investment hedge, net of income taxes		—		—		—			—			(1,300	)		(1,300	)
Balance at December 29, 2007		77,346		77,346		203,708			23,637			15,155			319,846
Net loss		—		—		—			(199,460	)		—			(199,460	)
Stock options and benefit plans		434		434		(1,789	)		—			—			(1,355	)
Foreign currency translation adjustments		—		—		—			—			(46,637	)		(46,637	)
Pension actuarial gain, net of income taxes		—		—		—			—			441			441
Investment hedge, net of income taxes		—		—		—			—			13,988			13,988
Balance at January 3, 2009		77,780	$	77,780	$	201,919		$	(175,823	)	$	(17,053	)	$	86,823

See accompanying Notes to Consolidated Financial Statements.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Champion Enterprises, Inc. and its wholly owned subsidiaries (“Champion” or 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 operates in three segments. At January 3, 2009, the North American manufacturing segment (the “manufacturing segment”) consisted of 26 manufacturing facilities that primarily construct factory-built manufactured and modular houses throughout the U.S. and in western Canada. The international manufacturing segment (the “international segment”) consists of Caledonian Building Systems Limited (“Caledonian”) and ModularUK Building Systems Limited (“ModularUK”), manufacturers of steel-framed modular buildings for prisons, military accommodations, hotels and residential units, among other applications. At January 3, 2009, Caledonian and ModularUK operated five manufacturing facilities in the United Kingdom. At January 3, 2009, the retail segment operated 14 retail sales centers that sell manufactured houses to consumers throughout California.

Revenue Recognition

For manufacturing shipments to independent retailers and builders/developers, sales revenue is generally recognized when wholesale floor plan financing or retailer credit approval has been received, the home is shipped and invoiced and title is transferred. As is customary in the factory-built housing industry, a significant portion of the Company’s manufacturing sales to independent retailers are financed by the retailers under floor plan agreements with financing companies (lenders). In connection with these floor plan agreements, the Company generally has separate agreements with the lenders that require the Company, for a period of generally up to 18 months from invoice date of the sale of the homes, upon default by the retailer and repossession of the homes by the lender, to repurchase the homes from the lender. The repurchase price is equal to the lesser of (1) the unpaid balance of the floor plan loans or (2) the original loan amount less any curtailments due, plus certain administrative costs incurred by the lender to repossess the homes, less the cost of any damage to the homes or any missing parts or accessories. Estimated losses for repurchase obligations are accrued for currently. See Note 13.

Manufacturing sales to independent retailers are not made on a consignment basis; the Company does not provide financing for sales to independent retailers; retailers do not have the right to return homes purchased from the Company; and retailers are responsible to the floor plan lenders for interest costs. Payment for floor-planned sales is generally received five to fifteen business days from the date of invoice.

For retail sales to consumers from Company-owned retail sales centers, sales revenue is recognized when the home has been delivered, set-up and accepted by the consumer, title has been transferred and either funds have been released by the finance company (financed sales transactions) or cash has been received from the homebuyer (cash sales transactions).

The Company’s international segment recognizes revenue for long-term construction contracts under the percentage of completion method using the cost-to-cost basis.

Restructuring Charges

Restructuring charges are accounted for in accordance with Financial Accounting Standard Number 146, “Accounting for Costs Associated with Exit or Disposal Activities.”

Advertising Costs and Delivery Costs and Revenue

Advertising costs are expensed as incurred and are included in selling, general and administrative expenses (“SG&A”). Total advertising expense was approximately $2.9 million, $4.0 million and $4.2 million in 2008, 2007 and 2006, respectively. Delivery costs are included in cost of sales and delivery revenue is included in net sales.

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

Cash and cash equivalents include investments that have original maturities less than 90 days at the time of their purchase. These investments are carried at cost, which approximates market value because of their short maturities.

Inventories

Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method for raw materials and the specific identification method for finished goods and other inventory. Manufacturing cost includes cost of materials, labor and manufacturing overhead. Retail inventories of new manufactured homes are valued at manufacturing cost or net purchase price if acquired from unaffiliated third parties.

Property, Plant, and Equipment

Property, plant and equipment (“PP&E”) 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. Depreciation expense was $13.2 million, $14.3 million and $14.0 million in 2008, 2007 and 2006, respectively. The recoverability of PP&E is evaluated whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, primarily based on estimated selling price, appraised value or projected future cash flows.

At January 3, 2009, the Company had 17 idle manufacturing facilities with net book value of $9.6 million of which eight of these facilities are permanently closed and generally available for sale and have a net book value of approximately $2.7 million. The Company’s idle manufacturing facilities are accounted for as long-lived assets to be held and used due to uncertainty of completing disposals of the facilities within one year. The net book value of idle manufacturing facilities at January 3, 2009 was net of impairment reserves totaling $12.5 million.

Goodwill

The Company tests for goodwill impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company’s remaining goodwill at January 3, 2009 is related to its manufacturing and international segments. As of the end of each fiscal year, the Company evaluates each segment’s fair value versus its carrying value, or more frequently if events or changes in circumstances indicate that the carrying value may exceed the fair value. When estimating the segment’s fair value, the Company calculates the present value of future cash flows based on forecasted sales volumes, current industry and economic conditions, historical results and inflation. The Company also uses available market value information to evaluate fair value.

Amortizable Intangible Assets

Amortizable intangible assets consist primarily of fair values assigned to customer relationships, trade names, employee agreements and technology for acquired businesses. Trade names and technologies were valued based upon the royalty-saving method, customer relationships were valued based upon the excess earnings method and employment agreements were valued based upon the income method. Amortization is provided over the useful lives of the intangible assets, generally five to fifteen years, using the straight-line method. Amortization expense totaled $9.3 million, $5.7 million, and $3.9 million in 2008, 2007, and 2006 respectively.

The recoverability of amortizable intangible assets is evaluated whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, primarily based on projected future cash flows.

Unconsolidated Affiliates

The Company uses the equity method to account for its minority interests in certain manufactured housing community development companies. The Company’s net investment in its unconsolidated affiliates totaled $2.1 million and $2.2 million at January 3, 2009 and December 29, 2007, respectively. Equity method pretax income or loss from these affiliates totaled a loss of $0.1 million in 2008, income of $0.2 million in 2007 and a loss of $0.3 million in 2006, which were recorded in SG&A.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred Expenses

Debt issuance costs and deferred financing costs are classified as non-current assets on the balance sheet and amortized over the life of the related debt or credit facility using the straight-line method since minimal or no installment payments are required. Original issue discount is amortized using the interest method. Upon retirement of any of the related debt, a proportional share of debt issuance costs and original issue discount is written off.

Warranty Obligations

The Company’s manufacturing segment generally provides the retail homebuyer or the builder/developer with a twelve-month warranty from the date of respective purchase. Estimated warranty costs are accrued as cost of sales at the time of sale. Warranty provisions and reserves are based on estimates of the amounts necessary to settle existing and future claims on homes sold by the manufacturing segment as of the balance sheet date. Factors used to calculate the warranty obligation are the estimated number of homes still under warranty, including homes in retailer inventories, homes purchased by consumers still within the twelve-month warranty period and the historical average costs incurred to service a home.

Dealer Volume Rebates

The Company’s manufacturing segment sponsors volume rebate programs under which sales to retailers and builder/developers can qualify for cash rebates generally based on the level of sales attained during a twelve-month period. Volume rebates are accrued at the time of sale and are recorded as a reduction of net sales.

Accrued Self-Insurance

The Company is self-insured for a significant portion of its workers’ compensation, general and products liability, auto liability, health and property insurance. Insurance coverage is maintained for catastrophic exposures and those risks required to be insured by law. Estimated self-insurance costs are accrued for incurred claims and estimated claims incurred but not yet reported.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary 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. A valuation allowance is provided when the Company determines that it is more likely than not that some or all of the deferred tax asset will not be realized. Effective September 27, 2008, the Company provided a valuation allowance for 100% of its U.S. deferred tax assets. U.S. deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability and/or from other factors.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation Number 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 clarifies accounting for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Under FIN 48, the Company will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on the Company’s estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. The adoption of FIN 48 required no adjustment to opening balance sheet accounts as of December 30, 2006.

Stock-Based Compensation Programs

The Company accounts for stock-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment”. Under SFAS No. 123(R), a public entity is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

award. The Company granted no stock options from 2004 through 2008, but grants were made of restricted stock, including performance-based shares.

Foreign currency transaction gains and losses

Commencing in 2007, the Company used intercompany loans between its U.S. and foreign subsidiaries to provide funds for acquisitions and other purposes. Until these loans are repaid, the foreign exchange impact on these transactions will be reported in the statement of operations under foreign currency transaction gains and losses and will be based on fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound.

Reclassification

Prior to 2007, the Company reported the loss (gain) on debt retirement as a part of operating income. Commencing in 2007, the Company reported the loss (gain) on debt retirement outside of operating income and has reclassified prior results accordingly.

In 2007, the Company reported the loss (gain) on foreign currency transactions related to intercompany loans in SG&A and for segment reporting in the manufacturing segment and general corporate expenses. Beginning in 2008, the Company reported such gains and losses on intercompany loans in a separate category in the Statement of Operations and excluded such amounts from SG&A, the manufacturing segment and general corporate expenses. The Company has reclassified prior results accordingly.

Year End

The Company’s fiscal year is a 52 or 53 week period that ends on the Saturday nearest December 31. Fiscal year 2008 was comprised of 53 weeks while years 2007 and 2006 were each comprised of 52 weeks.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard Number 157 (“SFAS 157”), Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP FAS 157-2 that delayed, by one year, the effective date of SFAS 157 for the majority of non-financial assets and non-financial liabilities. Effective December 30, 2007, we adopted SFAS 157 for certain assets and liabilities, which were not included in FSP FAS 157-2. The adoption of SFAS 157 had no significant impact on the Company’s financial position or results of operations for the year ended January 3, 2009.

In February 2007, the FASB issued Financial Accounting Standard Number 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115, which permits an entity to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to provide entities with an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities that choose to measure eligible items at fair value will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected at specified election dates on an instrument-by-instrument basis, with few exceptions. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective at the beginning of the first fiscal year beginning after November 15, 2007. The Company has decided not to adopt SFAS 159 for any existing financial instruments.

In December 2007, the FASB issued Financial Accounting Standard Number 141(R) (“SFAS 141R”), Business Combinations and Financial Accounting Standard Number 160 (“SFAS 160”), Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 141R and

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS 160 expand the scope of acquisition accounting to all transactions and circumstances under which control of a business is obtained. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years, with early adoption prohibited and these standards must be adopted concurrently. These standards will impact the Company for any acquisitions subsequent to the adoption date. The most significant effect of adoption of SFAS 141R on the Company’s results of operations is that success fees and due diligence, legal, accounting, valuation and similar costs incurred in connection with acquisitions (acquisition-related costs) are required to be expensed as incurred. Current practice is that such costs are capitalized as part of the cost of the acquisition.

In December 2007, the FASB issued Financial Accounting Standard Number 160 (“SFAS 160”), Non-controlling Interest in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS 160 requires all entities to report non-controlling (minority) interests in subsidiaries as equity in the consolidated financial statements. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and non-controlling interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material effect on the Company’s financial position or results of operations.

NOTE 2 — Acquisitions

On February 29, 2008, the Company acquired 100% of the capital stock of United Kingdom based ModularUK Building Systems Limited (“ModularUK”) for a nominal initial cash payment and the assumption of approximately $4.2 million of debt, resulting in intangible assets totaling approximately $3.9 million. The results of operations of ModularUK are included in the Company’s results from operations and in its international segment for periods subsequent to its acquisition date.

On December 21, 2007, the Company acquired substantially all of the assets and the business of western Canada-based SRI Homes Inc. (“SRI”) for cash payments of approximately $96.2 million, a note payable of $24.0 million (CAD) ($24.5 million USD at acquisition date) and assumption of the operating liabilities of the business. SRI produces factory-built homes in three plants that are located in the provinces of Alberta, British Columbia and Saskatchewan. The acquisition of SRI expanded the Company’s presence in one of the strongest housing markets in North America. The results of operations of SRI are included in the Company’s results from operations and in its manufacturing segment for periods subsequent to its acquisition date. The following is a summary of amortizable intangible assets and goodwill arising from the SRI acquisition, together with amortization periods and initial amortization expense, translated at the exchange rate on the acquisition date.

					Initial
			Expected		annual
	Cost		useful life		amortization
	(In thousands)		(In years)		(In thousands)
Goodwill	$	47,607
Amortizable intangible assets:
Customer relationships	$	42,330		14	$	3,024
Trade names		6,955		15		464
Employee agreements		302		3		101
Favorable leases		493		1		493
	$	50,080			$	4,082

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ModularUK is not material to the Company. The following table presents the Company’s 2008 results compared to unaudited proforma combined results as if the Company had acquired SRI on January 1, 2007, instead of the actual acquisition date of December 21, 2007:

				Proforma
	Actual			Unaudited
	Year Ended			Year Ended
	January 3,			December 29,
	2009			2007
	(In thousands, except
	per share data)
Net sales	$	1,033,193		$	1,375,196
Net (loss) income		(199,460	)		15,516
Diluted (loss) income per share	$	(2.57	)	$	0.20

The proforma results include amortization of amortizable intangible assets acquired and valued in the transactions. The proforma results are not necessarily indicative of what actually would have occurred if the transactions had been completed as of the beginning of each of the fiscal periods presented nor are they necessarily indicative of future consolidated results.

NOTE 3 — Income Taxes

Pretax (loss) income for the fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006 was taxed under the following jurisdictions:

	2008			2007			2006
	(In thousands)
Domestic	$	(80,924	)	$	(29,736	)	$	32,886
Foreign		28,906			33,685			10,211
Total pretax (loss) income	$	(52,018	)	$	3,949		$	43,097

The income tax provisions (benefits) by jurisdictions were as follows:

	2008			2007			2006
	(In thousands)
Current:
U.S. Federal	$	—		$	—		$	(800	)
Foreign		10,656			14,394			5,364
State		600			—			350
Total current		11,256			14,394			4,914
Deferred:
U.S. Federal		125,220			(12,800	)		(84,700	)
Foreign		(1,019	)		(3,937	)		(1,275	)
State		11,985			(900	)		(14,150	)
Total deferred		136,186			(17,637	)		(100,125	)
Total tax (benefit) provision	$	147,442		$	(3,243	)	$	(95,211	)

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The income tax provisions (benefits) differ from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before income taxes as a result of the following differences:

	2008			2007			2006
	(In thousands)
Tax at U.S. Federal statutory tax rate	$	(18,200	)	$	1,400		$	15,100
(Decrease) increase in rate resulting from:
Permanent differences		(1,800	)		(2,000	)		(1,100	)
Adjustment of deferred tax valuation allowance		164,500			100			(109,500	)
State taxes, net of U.S. federal benefit		—			(1,000	)		1,000
Foreign tax rate differences		(1,300	)		(900	)		—
Change in U.S. deferred tax liability		3,100			—			—
Other		1,142			(843	)		(711	)
Total income tax expense (benefit)	$	147,442		$	(3,243	)	$	(95,211	)

During the third quarter of 2008, the Company provided a valuation allowance for 100% of its U.S. deferred tax assets. SFAS No. 109 “Accounting for Income Taxes,” requires the recording of a valuation allowance when it is “more likely than not that some portion or all of the deferred tax assets will not be realized.” SFAS No. 109 further states “forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years,” and places considerably more weight on historical results and less weight on future projections. Although the Company had U.S. pretax income in 2005 and 2006 totaling approximately $71 million, its cumulative U.S. pretax losses total approximately $78 million for the years 2006 through 2008. Current conditions in the housing and credit markets and the general economy in the U.S. continue to present significant challenges to returning the Company’s U.S. operations to profitability. In the absence of specific favorable factors, application of SFAS No. 109 requires a valuation allowance for deferred tax assets in a tax jurisdiction when a company has cumulative financial accounting losses over several years. Accordingly, after consideration of these factors, effective September 27, 2008, the Company provided a valuation allowance for 100% of its U.S. deferred tax assets resulting in a non-cash tax charge of approximately $150.8 million in the third quarter and $164.5 million for the full year.

During the fourth quarter of 2008, the Company recognized in other comprehensive income a tax charge that resulted in a decrease in U.S. net deferred tax assets of $6.2 million. As a result, the Company’s valuation allowance for U.S. deferred tax assets and income tax expense were reduced by $6.2 million.

Included in income tax benefits in 2007 is a $0.5 million benefit from the effects of a reduction in the U.K. income tax rate on deferred tax assets and liabilities and a $0.4 million benefit from the settlement of a tax uncertainty for which no benefit had been provided in the prior year.

The income tax provision in 2006 includes a $101.9 million non-cash tax benefit from the reversal of substantially all of the valuation allowance for deferred tax assets that was established in 2002. This reversal was made as of July 1, 2006, after determining that realization of the deferred tax assets was more likely than not. The balance of the 2006 adjustment of the deferred tax valuation allowance represents the tax effect of U.S. taxable income in the six-month period through July 1, 2006.

The Company has available federal net operating loss (“NOL”) carryforwards of approximately $346 million for tax purposes to offset certain future federal taxable income. These loss carryforwards expire in 2023 through 2028. Approximately $24.7 million of the U.S. federal NOL carryforward is due to tax deductions related to stock option exercises, the benefit of which, when realized, will result in an increase to shareholders’ equity — capital in excess of par value. The Company has available state NOL carryforwards of approximately $270 million for tax purposes to offset future state taxable income and which expire primarily 2016 through 2028. At December 29,

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2007, a deferred tax asset valuation allowance of $1.0 million had been provided for state NOL carryforwards expected to expire unutilized.

Deferred tax assets and liabilities are comprised of the following as of January 3, 2009 and December 29, 2007:

	2008			2007
	(In thousands)
ASSETS
Federal net operating loss carryforwards	$	108,200		$	74,250
Goodwill		5,500			6,100
Warranty reserves		10,400			13,150
Insurance reserves		14,500			16,300
Fixed asset impairments		6,200			4,700
State net operating loss carryfowards		11,200			13,600
Employee compensation		5,500			6,500
Volume rebates		1,500			2,700
Foreign currency translation adjustments		1,500			3,800
Inventory reserves		5,900			1,200
Other		3,419			5,751
Gross deferred tax assets		173,819			148,051
LIABILITIES
Goodwill		37,200			33,800
Foreign currency translation adjustments		5,400			—
Depreciation		800			1,600
Prepaid expenses and other		838			987
Gross deferred tax liabilities		44,238			36,387
Valuation allowance		(165,500	)		(1,000	)
Net deferred tax assets (liabilities)	$	(35,919	)	$	110,664

The Company does not provide U.S. income taxes on the undistributed earnings of its foreign subsidiaries, which totaled approximately $58 million at January 3, 2009. The Company intends to indefinitely reinvest these earnings outside the U.S. It is not practical to determine the amount of U.S. income tax that could be payable in the event of distribution of these earnings since such amount is dependent on foreign tax credits that may be available to reduce U.S. taxes based on tax laws and circumstances at the time of distribution.

The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and foreign tax examinations by tax authorities for years prior to 2004.

Included in the balance sheets at January 3, 2009 and December 29, 2007 are tax accruals of approximately $0.5 million and $0.6 million, respectively, for uncertain tax positions, including $0.3 million of accrued interest and penalties. Recognition of any of the related unrecognized tax benefits would affect the Company’s effective tax rate. The Company classifies interest and penalties on income tax uncertainties as a component of income tax expense.

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — Inventories, Long-term Construction Contracts and Other Current Liabilities

A summary of inventories by component at January 3, 2009 and December 29, 2007 is as follows:

	2008			2007
	(In thousands)
Raw materials	$	27,994		$	38,725
Work-in-process		4,875			8,617
New manufactured homes		14,352			20,235
Other inventory		18,403			23,205
Inventory reserves		(12,664	)		—
	$	52,960		$	90,782

Other inventory consists of payments made by the retail segment for park spaces in manufactured housing communities and related improvements. Inventory lower of cost or market reserves are related to retail segment homes and park spaces.

Included in accounts receivable-trade at January 3, 2009 and December 29, 2007 are uncollected billings of $2.4 million and $22.4 million, respectively, and unbilled revenue of $12.5 million and $37.2 million, respectively, under long-term construction contracts of the Company’s international segment and includes retention amounts totaling $5.3 million and $2.8 million, respectively. Other current liabilities at January 3, 2009 and December 29, 2007 include cash receipts in excess of revenue recognized under these construction contacts of $3.6 million and $9.2 million, respectively.

Also included in other current liabilities at January 3, 2009 and December 29, 2007 are customer deposits of $5.7 million and $9.7 million, respectively.

NOTE 5 — Debt

Long-term debt at January 3, 2009 and December 29, 2007 consisted of the following:

	2008			2007
	(In thousands)
Convertible Senior Notes due 2037	$	180,000		$	180,000
7.625% Senior Notes due May 2009		6,716			6,716
Revolving Line of Credit		15,040			—
Term Loan due 2012		45,273			55,750
Sterling Term Loan due 2012		51,790			88,386
Obligations under industrial revenue bonds due 2029		12,430			12,430
Other debt		1,831			971
Total long-term debt		313,080			344,253
Less: current portion of long-term debt		(12,229	)		(1,356	)
Long-term debt	$	300,851		$	342,897

The Company has a senior secured credit agreement, as amended, (the “Credit Agreement”) with various financial institutions under which the Sterling Term Loan and the Term Loan were issued. The Sterling Term Loan is denominated in British pounds. Under the Credit Agreement, at January 3, 2009, the Company also has a revolving line of credit (“Revolver”) in the amount of $40 million and a $43.5 million letter of credit facility. The Credit Agreement is secured by a first security interest in substantially all of the assets of the domestic operating subsidiaries of the Company. As of January 3, 2009, letters of credit issued under the facility totaled $55.7 million, including $12.2 million under the Revolver. The maturity date for the revolving line of credit is October 31, 2010. The maturity date for the Term Loan, the Sterling Term Loan and the letter of credit facility is October 31, 2012. The

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Credit Agreement also contains affirmative and negative covenants requiring certain maximum senior leverage ratio, minimum interest coverage ratio and minimum fixed charge ratio, all as defined in the Credit Agreement.

As of June 28, 2008, the Company was in compliance with all Credit Agreement covenants. However, as a result of deteriorating operating results throughout 2008, the Company would not have been in compliance with certain of its debt covenants as of September 27, 2008. During October 2008, an amendment to the Credit Agreement (the “Amendment”) was completed. The Amendment covers the period from September 27, 2008 through January 2, 2010 (the Company’s 2009 fiscal year end) and provides for, among other things, changes to certain covenants in exchange for upfront fees, prepayments, and revised pricing.

During the period covered by the Amendment, the maximum senior leverage ratio, minimum interest coverage ratio and minimum fixed charge ratio covenants have been eliminated in exchange for new covenants requiring minimum liquidity and minimum twelve-month EBITDA measured quarterly. Levels for the new covenants were established based on the Company’s then current forecast for the next five quarters less a fixed dollar amount of downward adjustment. Pursuant to the Amendment, in October 2008 the Company repaid $10.0 million of the Revolver and prepaid $13.1 million and $10.4 million of borrowings under the Sterling Term Loan and the Term Loan, respectively. During the Amendment period, the interest rates for borrowings under the Credit Agreement were increased to LIBOR plus 6.5% with a LIBOR floor of 3.25% for the Term Loans and the prime rate plus 5.5% with a prime rate floor of 4.25% for the Revolver. Interest of LIBOR plus 5.0% is payable in cash and payment of the remaining interest of 1.5% may be paid in kind (deferred and added to the respective loan balances). In addition, the Amendment revised the letter of credit facility annual fee to 6.6%.

The Amendment provides for interest rate reductions on all remaining borrowings under the Credit Agreement and a reduction of fees for the letter of credit facility if the Company makes additional term loan prepayments during the Amendment period. For aggregate prepayments between $10 and $20 million the interest rate will be reduced to LIBOR plus 5.5% (of which 0.5% percent may be paid in kind); for aggregate prepayments between $20 and $30 million the interest rate will be reduced to LIBOR plus 5.0%; and for aggregate prepayments of $30 million or more the interest rate will be reduced to LIBOR plus 4.5%. Those respective aggregate prepayments will result in reducing the letter of credit annual fee to 5.6%, 5.1% and 4.6%, respectively.

The interest rate at January 3, 2009 for borrowings under the Term and Sterling Term Loan was a base rate of 3.25% plus 6.5%. The interest rate at January 3, 2009 for borrowings under the Revolver was a base rate of 4.25% plus 5.5%. As of January 3, 2009, the letter of credit facility was subject to a 6.6% annual fee and the unused portion of the letter of credit facility and Revolver was subject to an annual fee of 0.75%.

The Amendment also reduced the letter of credit facility to $43.5 million from $60 million previously, by canceling approximately $4.3 million of unused capacity and moving approximately $12.2 million of outstanding undrawn letters of credit to the Revolver. As a result, while the total size of the Company’s Revolver remains at $40 million, its unused capacity at January 3, 2009 was approximately $12.8 million.

The Amendment requires quarterly principal payments for the Term Loan and the Sterling Term Loan totaling $5.0 million for 2009. Thereafter the Credit Agreement requires quarterly principal payments for the Term Loan and the Sterling Term Loan totaling approximately $0.9 million annually.

The following table summarizes the maximum Senior Leverage Ratio, minimum Interest Coverage Ratio and minimum Fixed Charge Ratio that the Company is required to maintain under the Credit Agreement for periods after January 2, 2010:

	Maximum		Minimum		Minimum
	Senior		Interest		Fixed
	Leverage		Coverage		Charge
Fiscal Quarter	Ratio		Ratio		Ratio
First quarter of 2010 — Third quarter of 2010		2.75:1		2.50:1		1.25:1
Fourth quarter of 2010 — Third quarter of 2011		2.50:1		2.75:1		1.25:1
Fourth quarter of 2011 — Second quarter of 2012		2.25:1		3.00:1		1.25:1
Third quarter of 2012		2.00:1		3.00:1		1.25:1

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following provides brief definitions of the Credit Agreement covenants: Liquidity is the Company’s total cash and cash equivalents plus availability under the Revolver. EBITDA is the Company’s consolidated earnings before net interest expense, income taxes, and depreciation and amortization expense, adjusted for various items pursuant to the provisions of the Credit Agreement and amendments. The Senior Leverage Ratio is the ratio of Total Senior Debt (as defined) of the Company on the last day of a fiscal quarter to its consolidated EBITDA for the four-quarter period then ended. The Interest Coverage Ratio is the ratio of the Company’s consolidated EBITDA to its Cash Interest Expense (as defined) for the four-quarter period then ended. The Fixed Charge Ratio is the ratio of the Company’s consolidated EBITDA to its Fixed Charges (as defined) for the four-quarter period then ended.

The Amendment eliminated financial covenants for the quarter ended September 27, 2008 and provided revised financial covenants for the five quarter period ending January 2, 2010. Management believes the minimum liquidity and minimum twelve-month EBITDA requirements, as defined, are achievable based upon the Company’s current operating plan. Management has also identified other actions within their control that could be implemented, if necessary, to help the Company meet these quarterly requirements. However, there can be no assurance that these actions will be successful. Additionally, in light of current market conditions and absent further unscheduled reductions of indebtedness under the Credit Agreement, it is possible that the Company will not be in compliance with the pre-Amendment financial covenants which take effect as of the end of the first quarter of our 2010 fiscal year. Further, if current credit market conditions were to persist throughout 2009, there can be no assurance that the Company will be able to refinance all or a sufficient portion of this indebtedness.

While the Company will explore asset sales, divestitures and other types of capital raising alternatives in order to reduce indebtedness under the Credit Agreement prior to expiration of the Amendment, there can be no assurance that such activities will be successful or generate cash resources adequate to retire or sufficiently reduce this indebtedness. In this event, there can be no assurance that a majority of the lenders that are party to the Credit Agreement will consent to a further amendment of the Credit Agreement.

On November 2, 2007, the Company issued $180 million of 2.75% Convertible Senior Notes due 2037 (the “Convertible Notes”). Interest on the Convertible Notes is payable semi-annually on May 1 and November 1 of each year. The Convertible Notes are convertible into approximately 47.7 shares of the Company’s common stock per $1,000 of principal. The conversion rate can exceed 47.7 shares per $1,000 of principal when the closing price of the Company’s common stock exceeds approximately $20.97 per share for one or more days in the 20 consecutive trading day period beginning on the second trading day after the conversion date. Holders of the Convertible Notes may require the Company to repurchase the Notes if the Company is involved in certain types of corporate transactions or other events constituting a fundamental change and have the right to require the Company to repurchase all or a portion of their Notes on November 1 of 2012, 2017, 2022, 2027 and 2032. The Company has the right to redeem the Convertible Notes, in whole or in part, for cash at any time after October 31, 2012.

The Senior Notes due 2009 are secured equally and ratably with obligations under the Credit Agreement, but contain no significant restrictive covenants. Interest is payable semi-annually at an annual rate of 7.625%. In June 2008, the Company elected to repay the $24.0 million (CAD) note issued in connection with the December 2007 acquisition of SRI ahead of the scheduled maturity date of January 5, 2009.

At January 3, 2009, short-term portion of debt consisted of the Senior Notes due May 2009 totaling $6.7 million; quarterly installment payments totaling $5.0 million due within one year on the Term Loans; and payments totaling $0.5 million due within one year on other debt.

Each of the Company’s primary debt instruments contain cross default provisions whereby a default under one instrument, if not cured or waived by the lenders, could cause a default under its other debt instruments.

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future maturities of long-term debt as of January 3, 2009 are as follows:

	(In thousands)
2009	$	12,229
2010		16,459
2011		1,418
2012		270,483
2013		61
Thereafter		12,430
	$	313,080

NOTE 6 — Restructuring Charges

During the year ended January 3, 2009, charges totaling $11.0 million were incurred primarily in connection with the Company’s decision to close a manufacturing facility in Oregon, close the final of four plants at an Indiana complex where the other three plants had been previously idled, reduce the number of North American regional offices from four to two and reduce corporate headcount by 45 people. The operations at the closed Indiana plant were consolidated at the Company’s other Indiana homebuilding complex. Total 2008 restructuring charges consisted of severance costs of $3.7 million and fixed asset impairment charges of $7.0 million. An inventory write-down of $0.3 million was included in cost of sales.

Charges totaling $4.9 million were recorded in 2007 in connection with the closure of two manufacturing plants, one in Pennsylvania in the first quarter and one in Alabama in the fourth quarter. Restructuring charges totaling $3.8 million consisted of severance costs totaling $1.8 million and fixed asset impairment charges of $2.0 million. Other plant closing charges that are included in cost of sales consisted of inventory write-downs of $0.6 million and an additional warranty accrual of $0.5 million.

Severance costs for the year ended January 3, 2009 included certain payments required under the Worker Adjustment and Retraining Notification Act and were related to the termination of approximately 330 employees, consisting of substantially all employees at the Oregon plant and those terminated as a result of the Indiana plant closure and consolidation of operations. Severance costs for the year ended December 29, 2007 were related to the termination of substantially all 160 employees at the closed plant in Pennsylvania and included payments required under the Worker Adjustment and Retraining Notification Act.

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides information regarding activity for restructuring reserves during 2008, 2007 and 2006 and relates primarily to closures of manufacturing plants.

	2008			2007			2006
	(In thousands)
Balance at beginning of year	$	942		$	1,018		$	4,330
Additions:
Severance		3,683			1,745			—
Warranty		—			500			—
Reversals:
Warranty		—			—			(1,000	)
Severance		(512	)		—			—
Other closing costs		—			(86	)		—
Cash payments:
Warranty		(416	)		(932	)		(1,900	)
Severance		(2,716	)		(1,303	)		(412	)
Balance January 3, 2009	$	981		$	942		$	1,018
Period end balance comprised of:
Warranty costs	$	84		$	500		$	932
Severance		897			442			—
Other closing costs		—			—			86
	$	981		$	942		$	1,018

The majority of warranty costs are expected to be paid over a three-year period after the related closures. Severance costs are generally paid within one year of the related closures or termination of employment.

NOTE 7 — Goodwill and other intangible assets

The Company tests for impairment of goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company evaluates the manufacturing and international segments’ fair value versus their carrying value annually as of the end of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying value may exceed the fair value. The provisions of SFAS No. 142 require that a two-step evaluation be performed to assess goodwill and for impairment. First, the fair value of the reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill and other intangible assets are not impaired and no further steps are required. If the carrying value of the reporting unit exceeds its fair value, then the implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of its goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment charge equal to the difference is recorded.

When estimating fair value, the Company calculates the present value of future cash flows based on forecasted sales volumes, the number of manufacturing facilities in operation, current industry and economic conditions, historical results and inflation. The Company also uses available market value information to evaluate fair value. Significant changes in the estimates and assumptions used in calculating the fair value of goodwill or differences between estimates and actual results could result in additional impairment charges in the future. During the fourth quarter of 2008, the Company performed its annual impairment test for goodwill and other intangible assets and concluded no impairment existed at January 3, 2009.

At December 29, 2007, the purchase accounting for the SRI acquisition was not finalized and, therefore, values assigned to goodwill and amortizable intangible assets were estimates. During 2008, the valuation of amortizable intangible assets was completed and the SRI purchase accounting was finalized. As a result, the values assigned to amortizable intangibles were increased and goodwill was decreased.

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The change in the carrying amount of goodwill for the fiscal years ended January 3, 2009 and December 29, 2007 is as follows:

	Total
	(In thousands)
Balance at December 30, 2006	$	287,789
SRI acquisition, estimated goodwill		63,076
Caledonian contingent purchase price earned		6,900
Foreign currency translation changes		2,845
Balance at December 29, 2007	$	360,610
ModUK acquisition		3,944
SRI purchase price adjustments		(15,471	)
Foreign currency translation changes		(41,323	)
Balance at January 3, 2009	$	307,760

Amortizable intangible assets as of January 3, 2009 and December 29, 2007 consisted of the following:

	2008			2007
	(In thousands)
Customer relationships	$	56,613		$	26,832
Trade names		19,945			16,736
Employee agreements		3,981			4,858
Technology		3,393			4,118
Estimated SRI intangibles		—			30,000
		83,932			82,544
Less accumulated amortization		(16,000	)		(10,003	)
Total amortizable intangible assets, net	$	67,932		$	72,541

Amortization of intangible assets for the next five years is as follows:

	(In thousands)
2009	$	6,867
2010		6,833
2011		5,897
2012		5,517
2013		5,358
	$	30,472

NOTE 8 — Discontinued Operations

Included in the consolidated balance sheet at January 3, 2009 and December 29, 2007 were the assets and liabilities of discontinued operations that consisted of other current assets totaling $0.1 million in 2008 and $0.4 million in 2007, other non-current assets totaling $0.3 million in 2008 and 2007, and other current liabilities totaling $1.2 million in 2008 and $1.3 million in 2007.

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9 —  Total Comprehensive (Loss) Income

Total comprehensive (loss) income for the years ended January 3, 2009, December 29, 2007 and December 30, 2006 consists of the following:

				December 29,			December 30,
	January 3, 2009			2007			2006
				(In thousands)
Net (loss) income	$	(199,460	)	$	7,192		$	138,308
Other comprehensive (loss) income:
Foreign currency translation adjustments		(46,637	)		7,185			14,552
Pension actuarial gain, net of income taxes		441			—			—
Net investment hedge, net of income taxes		13,988			(1,300	)		(5,500	)
Total comprehensive (loss) income	$	(231,668	)	$	13,077		$	147,360

NOTE 10 — Earnings per Share

For the years ended January 3, 2009 and December 29, 2007, the Company’s potentially dilutive securities consisted of convertible debt, stock options and performance share awards. For the year ended December 30, 2006, the Company’s potentially dilutive securities consisted of stock options and performance share awards. For the year ended January 3, 2009, potentially dilutive securities were not considered in determining the denominator for diluted earnings per share (“EPS”) because the effect would have been anti-dilutive. For the year ended December 27, 2007, convertible debt was not considered in determining the denominator for diluted EPS because the effect would have been anti-dilutive. A reconciliation of the numerators and denominators used in the Company’s basic and diluted EPS calculations is as follows:

	2008			2007		2006
	(In thousands)
Numerator:
Net (loss) income available to common shareholders for for basic and diluted shares	$	(199,460	)	$	7,192	$	138,324
Denominator:
Shares for basic EPS — weighted average shares outstanding		77,700			76,916		76,334
Plus effect of dilutive securities:
Convertible debt		—			—		—
Stock options and performance awards		—			803		1,244
Shares for diluted EPS		77,700			77,719		77,578

NOTE 11 — Shareholders’ Equity

The Company has 120 million shares of common stock authorized. In addition, there are 5 million authorized shares of preferred stock, without par value, the issuance of which is subject to approval by the Board of Directors. The Board has the 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.

NOTE 12 — Fair Value of Financial Instruments

The Company estimates the fair value of its financial instruments in accordance with Financial Accounting Standard Number 107, “Disclosure About Fair Value of Financial Instruments.” Fair value estimates are made at a specific point in time, based on relevant market data and information about the financial instrument. The estimated fair values of the Convertible Notes, Senior Notes and Term Loans were valued based upon trading activity. The estimated fair values of the Revolving Line of Credit and other financial instruments are based upon market information and management’s estimates.

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The book value and estimated fair value of the Company’s financial instruments are as follows:

	2008				2007
	Book		Estimated		Book		Estimated
	Value		Fair Value		Value		Fair Value
	(In thousands)
Cash and cash equivalents	$	52,787	$	52,787	$	135,408	$	135,408
Convertible Notes due 2037		180,000		27,000		180,000		160,200
Revolving Line of Credit		15,040		6,768		—		—
Term Loan due 2012		45,273		20,373		55,750		54,078
SRI Note Payable		—		—		24,528		24,528
Sterling Term Loan due 2012		51,790		23,306		88,386		85,734
Senior Notes due 2009		6,716		6,716		6,716		6,850
Other long-term debt		14,261		14,261		13,402		13,402
Earnout obligations		—		—		13,252		13,252

In 2006 the Company borrowed £45 million in the U.S. to finance a portion of the Caledonian purchase price totaling approximately £62 million. This Sterling denominated borrowing was designated as an economic hedge of the Company’s net investment in the U.K. Therefore a significant portion of foreign exchange risk related to the Caledonian investment in the U.K. is eliminated. During 2008 and 2007, the Company recorded an accumulated translation gain of $23.0 million ($14.0 million, net of tax) and a loss of $2.2 million ($1.3 million, net of tax), respectively, in other comprehensive income for this hedging arrangement.

NOTE 13 — Contingent Liabilities

As is customary in the manufactured housing industry, a significant portion of the manufacturing segment’s sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Pursuant to these agreements, generally for a period of up to 18 months from invoice date of the sale of the homes and upon default by the retailers and repossession by the financial institution, the Company is obligated to repurchase the homes from the lender. The contingent repurchase obligation at January 3, 2009 was estimated to be approximately $134 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and the estimated net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Annual losses incurred on homes repurchased totaled $0.5 million in 2008 and $0.1 million in 2007 and 2006.

The Company lowered its wholesale repurchase reserves by $1.2 million in 2006 as a result of reduced repurchases and improved financial condition of its largest retailers.

At January 3, 2009 the Company was contingently obligated for approximately $55.7 million under letters of credit, primarily comprised of $41.5 million to support insurance reserves and $12.6 million to support long-term debt. Champion was also contingently obligated for $7.8 million under surety bonds, generally to support license and service bonding requirements. Approximately $54.2 million of the letters of credit support insurance reserves and debt that are reflected as liabilities in the consolidated balance sheet.

At January 3, 2009 certain of the Company’s subsidiaries were contingently obligated under reimbursement agreements for approximately $2.5 million of debt of unconsolidated affiliates, none of which was reflected in the consolidated balance sheet. These obligations are related to indebtedness of certain manufactured housing community developments, which are collateralized by the properties.

The Company has provided various representations, warranties and other standard indemnifications in the ordinary course of its business, in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.

Management believes the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s financial position, results of operations or cash flows.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On February 8, 2008, the Company’s manufacturing facility in Henry, TN was destroyed by fire. The net book value of plant, equipment and inventory at the Henry plant at February 2, 2008, was approximately $3.3 million. The plant was fully insured through our property insurance coverage, subject to a $250,000 deductible.

NOTE 14 — Retirement Plans

The Company and certain of its domestic subsidiaries sponsor defined contribution retirement and savings plans covering most U.S. employees. Full-time employees of participating companies are eligible to participate in a plan after completing three months 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 for employees with at least one full year of service. Company contributions made on behalf of employees with less than one full year of service vest on the employee’s first anniversary. In February 2009, the Company temporarily suspended its matching contributions to the U.S. plans.

Full-time employees of the Company’s subsidiaries in Canada are generally covered by employer sponsored defined contribution plans that require employee contributions and employer matching contributions.

One of the Company’s U.K. subsidiaries is the sponsor of a frozen defined benefit pension plan under which no additional benefits are being earned. At January 3, 2009, the plan’s accumulated benefit obligation totaled approximately $1.7 million and total plan assets were approximately $1.4 million. Annual pension cost recognized for this plan was less than $0.1 million for each of the last three years.

Amounts expensed for all these plans were $2.7 million in 2008, $3.3 million in 2007 and $3.7 million in 2006.

NOTE 15 — Stock Option and Stock-Based Incentive Plans

The Company has various stock option and stock-based incentive plans and agreements whereby stock options, performance share awards, restricted stock awards and other stock-based incentives were made available to certain employees, directors and others. Stock options were granted below, at, or above fair market value and generally expire six, seven or ten years from the grant date. Some options become exercisable immediately and others over a period of up to five years. In addition to these plans, other nonqualified stock options and awards have been granted to executive officers and certain employees and in connection with acquisitions.

The following table summarizes the changes in outstanding stock options during the last three years:

				Weighted		Intrinsic value
	Number			average exercise		of options
	of shares			price per share		exercised
	(In thousands)					(In thousands)
Outstanding at December 31, 2005		2,263		$	9.35
Exercised		(375	)		5.26	$	3,807
Forfeited or expired		(156	)		13.76
Outstanding at December 30, 2006		1,732			9.84
Exercised		(698	)		5.43	$	3,664
Forfeited or expired		(366	)		16.49
Outstanding at December 29, 2007		668			10.81
Exercised		(157	)		2.77	$	1,177
Forfeited or expired		(92	)		19.95
Outstanding at January 3, 2009		419		$	11.83

As of December 29, 2007, all outstanding stock options were vested and exercisable. The total fair value of stock options that vested during 2007 and 2006 was $0.2 million and $0.6 million, respectively. Cash in the amount of $0.4 million and $3.8 million was received from the exercise of stock options in 2008 and 2007, respectively. No tax benefit was realized from these stock option exercises due to the Company’s NOL carryforwards.

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes information regarding stock options outstanding at January 3, 2009:

			Weighted		Average
			average		exercise
Range of	Number of		life		price per
exercise prices	shares		remaining		share
	(In thousands)		(In years)
$5.01 — $10.00		327		1.8	$	8.78
$10.01 — $15.00		5		3.1		12.25
$15.01 — $26.81		87		0.2		23.35
		419		1.5	$	11.83

As of December 29, 2007, exercisable shares totaled 668,000 with a weighted average exercise price of $10.81 per share. As of December 30, 2006, exercisable shares totaled 1,698,000 with a weighted average exercise price of $9.84 per share.

At January 3, 2009, none of the stock options were in-the-money, resulting in no aggregate intrinsic value (excess of market value at January 3, 2009 over the option exercise price).

Performance awards will vest and be issued only if the participants remain employed by the Company through the vesting date and the number of shares earned will be based on the proportion of certain three-year performance targets that are attained for 2006 through 2008, 2007 through 2009 and 2008 through 2010. During the year ended January 3, 2009, a total of 425,000 performance shares vested pursuant to the attainment of 100% of the three-year target for 2005 through 2007, of which 298,826 shares were issued, net of shares withheld for the payment of participants’ taxes and 62,125 other stock awards vested. In addition, during the year ended January 3, 2009, a total of 395,000 performance shares were granted for the 2008 through 2010 three-year program.

During the year ended January 3, 2009, a total of 610,000 performance-based restricted shares were granted with a 2008 through 2012 five-year performance period. Such restricted shares may be earned after three, four or five years only if certain threshold targets are first attained and then based on the degree to which the performance targets are attained. Earned shares will vest over two years from the date earned. Restricted stock awards totaling 9,000 shares remain from an issuance in November 2004 and will vest in 2009. During February 2008, a restricted stock award of 15,000 shares was granted that vests in February 2009. Vesting of these grants of restricted shares is subject to continued employment with the Company. Additionally, there remains 18,550 restricted shares issued as part of annual grants to Directors that vest in May 2009, subject to continued service as a Company Director, and deferred stock awards of 58,950 shares that will be issued upon the Director’s retirement or other events.

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the changes in outstanding performance awards, restricted stock and other stock awards during the last three years:

				Weighted		Performance		Total fair
	Number			average grant		awards earned		value of
	of shares			date fair value		not vested		vested shares
	(In thousands)					(In thousands)		(In thousands)
Outstanding at December 31, 2005		1,107					515
Granted		607		$	13.28
Vested		(108	)					$	1,039
Forfeited		(138	)
Outstanding at December 30, 2006		1,468					813
Granted		604		$	8.09
Vested		(395	)					$	4,258
Forfeited		(229	)
Outstanding at December 29, 2007		1,448					761
Granted		1,079		$	8.28
Vested		(487	)					$	5,608
Forfeited		(409	)
Outstanding at January 3, 2009		1,631					336
Summary of outstanding awards at January 3, 2009
Performance shares		1,530
Restricted stock awards		101
		1,631

For the year ended January 3, 2009, stock based compensation credits totaled $0.5 million, due to reducing the number of performance shares expected to vest as a result of the Company’s net loss in 2008. For the years ended December 29, 2007 and December 30, 2006, stock based compensation expense totaled $3.0 million and $4.6 million, respectively. As of January 3, 2009, compensation costs relating to non-vested awards not yet recognized totaled $0.5 million. The weighted average period over which this compensation cost is expected to be recognized is 6 months. There were 2.7 million, 3.3 million and 3.7 million shares reserved for stock-based compensation grants and awards at January 3, 2009, December 29, 2007 and December 30, 2006, respectively.

NOTE 16 — Segment Information

The Company currently operates principally in three segments: (1) manufacturing, (2) international and (3) retail. The manufacturing segment consists of the Company’s North American manufacturing operations that produce factory-built housing in the U.S. and western Canada. The international segment consists of the Company’s operations in the United Kingdom that produces steel-framed modular buildings for prisons, military accommodations, hotels and residential units. The retail segment consists of the Company’s retail operations that sell factory-built housing to homebuyers with sales centers located throughout California. The 66 traditional retail sales centers closed or sold prior to 2006, along with their related administrative offices, are reported as discontinued operations for all periods presented.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The accounting policies of the segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.” Manufacturing segment sales to the retail segment and related manufacturing profits are included with the manufacturing segment. Retail segment results include retail profits from the sale of homes to consumers but do not include any manufacturing segment profits associated with the homes sold. Intercompany transactions between reportable operating segments are eliminated in consolidation. Each segment’s results include corporate office costs that are directly and exclusively incurred for the segment. General corporate expenses include the costs and equity method losses from development operations. In reconciling results by segment, the intercompany profit elimination represents the change in manufacturing segment gross profit in Champion-produced inventory at Company-owned retailers.

The Company evaluates the performance of its manufacturing, international and retail segments and allocates resources to them based on income before amortization of intangible assets, interest, income taxes, foreign currency transaction gains and losses on intercompany indebtedness, losses on debt retirements and general corporate expenses (“segment income (loss)”).

Reconciliations of segment sales to consolidated net sales, segment income (loss) to consolidated income (loss) before income taxes, segment depreciation expense to consolidated depreciation expense and segment capital

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expenditures to consolidated capital expenditures in fiscal years 2008, 2007 and 2006, and segment assets to consolidated total assets as of January 3, 2009, December 29, 2007 and December 30, 2006 were as follows:

	2008			2007			2006
	(In thousands)
Net sales:
Manufacturing segment	$	727,331		$	941,945		$	1,195,834
International segment		279,641			280,814			90,717
Retail segment		36,521			73,406			117,397
Less: intercompany		(10,300	)		(22,700	)		(39,300	)
Consolidated net sales	$	1,033,193		$	1,273,465		$	1,364,648
(Loss) income before income taxes:
Manufacturing segment income	$	13,054		$	40,106		$	81,600
International segment income		16,266			17,393			5,634
Retail segment (loss) income		(18,163	)		1,911			7,636
General corporate expenses		(26,788	)		(31,799	)		(32,488	)
Amortization of intangible assets		(9,251	)		(5,727	)		(3,941	)
Loss on debt retirement		(608	)		(4,543	)		(398	)
Foreign currency transaction (losses) gains		(10,536	)		1,008			—
Interest expense, net		(16,692	)		(14,731	)		(14,446	)
Intercompany profit (loss) elimination		700			331			(500	)
(Loss) income before income taxes	$	(52,018	)	$	3,949		$	43,097
Total Assets:
Manufacturing segment	$	412,503		$	597,534		$	483,386
International segment		140,295			219,757			179,255
Retail segment		17,939			40,539			42,970
Corporate and developments		79,584			171,246			96,373
Discontinued operations		410			1,661			1,590
Intercompany elimination		(5,722	)		(8,514	)		(2,959	)
Consolidated total assets	$	645,009		$	1,022,223		$	800,615
Depreciation expense:
Manufacturing segment	$	10,332		$	11,435		$	12,419
International segment		1,719			1,476			911
Retail segment		125			78			97
Corporate and developments		1,048			1,349			578
Consolidated depreciation expense	$	13,224		$	14,338		$	14,005
Capital expenditures:
Manufacturing segment	$	5,767		$	4,692		$	16,096
International segment		5,832			2,812			825
Retail segment		272			177			57
Corporate and developments		308			2,520			604
Consolidated capital expenditures	$	12,179		$	10,201		$	17,582

F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All cash balances are classified as corporate assets.

Geographic information regarding revenues and long-lived assets at January 3, 2009, December 29, 2007 and December 30, 2006 were as follows:

	2008		2007		2006
	(In thousands)
Revenues:
United States	$	591,142	$	890,500	$	1,201,737
United Kingdom		279,641		280,814		90,717
Canada		162,410		102,151		72,194
Consolidated revenues	$	1,033,193	$	1,273,465	$	1,364,648
Long-lived assets:
United States	$	266,731	$	284,500	$	296,833
United Kingdom		115,373		154,358		147,575
Canada		90,451		111,277		3,583
Consolidated long-lived assets	$	472,555	$	550,135	$	447,991

NOTE 17 — Leases

The Company’s retail sales locations, ten of its manufacturing facilities, its corporate offices, certain of its other facilities and certain equipment and vehicles are leased under operating leases with terms that generally range from five to ten years. Rent expense was $8.6 million, $7.8 million and $6.1 million for the years ended January 3, 2009, December 29, 2007 and December 30, 2006, respectively. Some of the real property leases have renewal options or escalation clauses.

Future minimum lease payments under operating leases at January 3, 2009 are as follows:

	(In thousands)
2009	$	5,784
2010		5,141
2011		4,549
2012		3,757
2013		2,780
Thereafter		12,972
	$	34,983

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 18 — Accrued Product Warranty Obligations

The following table summarizes the changes in accrued product warranty obligations during the last three years.

	Accrued Warranty Obligation
	2008			2007			2006
	(In thousands)
Beginning balance	$	35,746		$	36,923		$	40,009
Warranty expense provided		29,591			39,781			50,257
Warranty reserves from acquisition		—			1,930			513
Reserve adjustment for closed plants		—			(100	)		(1,000	)
Cash warranty payments		(37,912	)		(42,788	)		(52,856	)
Ending balance		27,425			35,746			36,923
Less non-current portion		(6,500	)		(6,500	)		(6,500	)
Total current portion	$	20,925		$	29,246		$	30,423

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 19 — Quarterly Financial Information (Unaudited)

	2008
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Total
	(Dollars in thousands, except per share amounts)
Net sales:
Manufacturing net sales	$	181,485		$	211,273		$	195,062		$	139,511		$	727,331
International net sales		110,366			70,513			56,876			41,886			279,641
Retail net sales		9,047			9,398			10,612			7,464			36,521
Less: intercompany		(4,200	)		(2,000	)		(3,100	)		(1,000	)		(10,300	)
Total net sales		296,698			289,184			259,450			187,861			1,033,193
Cost of sales		260,130			246,722			228,373			171,460			906,685
Gross margin		36,568			42,462			31,077			16,401			126,508
Selling, general and adminstrative expenses		39,303			33,015			32,635			25,803			130,756
Restructuring charges		9,471			—			—			1,212			10,683
Foreign currency transaction losses (gains)		2,351			(576	)		76			8,685			10,536
Amortization of intangible assets		2,469			2,382			2,346			2,054			9,251
Operating (loss) income		(17,026	)		7,641			(3,980	)		(21,353	)		(34,718	)
Loss on debt retirement		—			—			—			608			608
Interest expense, net		3,873			4,089			4,097			4,633			16,692
(Loss) income before income taxes		(20,899	)		3,552			(8,077	)		(26,594	)		(52,018	)
Income tax (benefit) expense		(415	)		202			153,444			(5,789	)		147,442
Net (loss) income	$	(20,484	)	$	3,350		$	(161,521	)	$	(20,805	)	$	(199,460	)
Basic (loss) income per share	$	(0.26	)	$	0.04		$	(2.08	)	$	(0.27	)	$	(2.57	)
Diluted (loss) income per share	$	(0.26	)	$	0.04		$	(2.08	)	$	(0.27	)	$	(2.57	)
Manufacturing segment (loss) income	$	(9,023	)	$	13,595		$	8,753		$	(271	)	$	13,054
International segment income	$	8,389		$	3,889		$	2,673		$	1,315		$	16,266
Retail segment loss	$	(2,764	)	$	(1,043	)	$	(7,184	)	$	(7,172	)	$	(18,163	)
General corporate expenses	$	(8,608	)	$	(7,094	)	$	(6,100	)	$	(4,986	)	$	(26,788	)
Manufacturing segment homes and units sold		2,821			3,154			3,066			2,365			11,406
Retail segment new homes sold		52			56			60			50			218
Manufacturing segment multi-section mix		66	%		69	%		69	%		67	%		68	%
Manufacturing segment facilities at period end		26			26			28			26			26
Retail sales centers at period end		17			15			14			14			14

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2007
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Total
	(Dollars in thousands, except per share amounts)
Net sales:
Manufacturing net sales	$	199,296		$	258,319		$	260,379		$	223,951		$	941,945
International net sales		46,531			56,887			85,286			92,110			280,814
Retail net sales		18,070			21,354			18,233			15,749			73,406
Less: intercompany		(4,100	)		(6,200	)		(6,200	)		(6,200	)		(22,700	)
Total net sales		259,797			330,360			357,698			325,610			1,273,465
Cost of sales		227,784			278,488			296,802			280,527			1,083,601
Gross margin		32,013			51,872			60,896			45,083			189,864
Selling, general and adminstrative expenses		36,907			35,619			40,082			45,534			158,142
Restructuring charges		1,121			—			—			2,659			3,780
Foreign currency transaction gains		—			—			—			(1,008	)		(1,008	)
Amortization of intangible assets		1,402			1,417			1,454			1,454			5,727
Operating (loss) income		(7,417	)		14,836			19,360			(3,556	)		23,223
Loss on debt retirement		—			—			—			4,543			4,543
Interest expense, net		4,040			3,723			3,853			3,115			14,731
(Loss) income before income taxes		(11,457	)		11,113			15,507			(11,214	)		3,949
Income tax (benefit) expense		(3,090	)		2,527			2,582			(5,262	)		(3,243	)
Net (loss) income	$	(8,367	)	$	8,586		$	12,925		$	(5,952	)	$	7,192
Basic (loss) income per share	$	(0.09	)	$	0.10		$	0.17		$	(0.08	)	$	0.09
Diluted (loss) income per share	$	(0.09	)	$	0.10		$	0.17		$	(0.08	)	$	0.09
Manufacturing segment income	$	96		$	17,217		$	20,228		$	2,565		$	40,106
International segment income	$	3,124		$	4,458		$	6,362		$	3,449		$	17,393
Retail segment income (loss)	$	872		$	666		$	689		$	(316	)	$	1,911
General corporate expenses	$	(9,279	)	$	(7,416	)	$	(6,665	)	$	(8,439	)	$	(31,799	)
Manufacturing segment homes and units sold		3,283			4,194			4,258			3,611			15,346
Retail segment new homes sold		96			99			100			80			375
Manufacturing segment multi-section mix		79	%		79	%		77	%		75	%		77	%
Manufacturing segment facilities at period end		28			28			28			29			29
Retail sales centers at period end		16			17			16			17			17

F-32

CHAMPION ENTERPRISES, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Deferred tax asset valuation allowance:	(In thousands)
Balance at December 31, 2005	$	116,000
Net change in deferred tax assets		(13,200	)
Reversal of valuation allowance		(101,900	)
Balance at December 30, 2006	$	900
Net change in deferred tax assets		100
Balance at December 29, 2007	$	1,000
Net change in deferred tax assets		164,500
Balance at January 3, 2009	$	165,500
Inventory reserves
Balance at December 29, 2007	$	—
Lower of cost or market provision		14,100
Adjustment for inventory sold or disposed		(1,436	)
Balance at January 3, 2009	$	12,664

F-33

EX-10.7

Exhibit 10.7

CHAMPION ENTERPRISES, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN

(As Amended December 31, 2008)

TABLE OF CONTENTS

	Page
ARTICLE I ESTABLISHMENT AND PURPOSE		1
1.1 Establishment		1
1.2 Purpose		1
1.3 Applicability		1
1.4 Impact of Code Section 409A		1
ARTICLE II DEFINITIONS		2
2.1 Account Balance		2
2.2 Annual Bonus		2
2.3 Beneficiary		2
2.4 Change in Control		2
2.5 Code		2
2.6 Company		2
2.7 Compensation		2
2.8 Deferred Compensation Committee		2
2.9 Disability		3
2.10 Effective Date		3
2.11 Employee		3
2.12 ERISA		3
2.13 Fiscal Year		3
2.14 Participant		3
2.15 Plan		3
2.16 Plan Year		3
2.17 Quarterly Bonus		3
2.18 Separation from Service		3
2.19 Spouse		3
2.20 Specified Employee		3
2.21 Unforeseeable Emergency		4
ARTICLE III ELIGIBILITY AND PARTICIPATION		5
3.1 Eligibility and Participation		5

-i-

TABLE OF CONTENTS
(continued)

	Page
3.2 Duration		5
3.3 Revocation of Future Participation		5
3.4 Notification		5
ARTICLE IV DEFERRAL ELECTIONS AND EARNINGS		6
4.1 Deferral Elections in General		6
4.2 Salary Deferral Elections		6
4.3 Annual Bonus and Quarterly Bonus Deferral Elections		6
4.4 Modifications to Deferral Elections		6
4.5 Adjustments to Account Balances		7
ARTICLE V PAYMENT OF BENEFITS		8
5.1 Distributable Event		8
5.2 Form of Distribution		8
5.3 Separation From Service		8
5.4 Payment at a Specified Time or Pursuant to a Fixed Schedule		9
5.5 Disability Benefit		9
5.6 Death Benefit		9
5.7 Hardship Withdrawal		9
ARTICLE VI ADMINISTRATION		10
6.1 Beneficiary Designation		10
6.2 Plan Administration		10
6.3 Deduction of Taxes from Amounts Payable		10
6.4 Indemnification		10
6.5 Expenses		10
6.6 Delegation of Authority		10
6.7 Binding Decisions or Actions		10
ARTICLE VII AMENDMENT AND TERMINATION		11
7.1 Amendment and Termination		11
7.2 Constructive Receipt Termination		11
ARTICLE VIII Funding		12
8.1 General Assets		12

-ii-

TABLE OF CONTENTS
(continued)

	Page
8.2 Rabbi Trust		12
8.3 Change in Control		12
ARTICLE IX GENERAL CONDITIONS		13
9.1 Anti-assignment Rule		13
9.2 Domestic Relations Order		13
9.3 No Legal or Equitable Rights or Interest		14
9.4 Applicable Plan Provisions		14
9.5 No Employment Contract		14
9.6 Headings		14
9.7 Invalid or Unenforceable Provisions		14
9.8 Governing Law		14
EXHIBIT A-SEPARATION OF SERVICE.		15

-iii-

CHAMPION ENTERPRISES, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
(Effective January 1, 2006
As Amended December 31, 2008)

ARTICLE I
Establishment and Purpose

1.1	Establishment. Champion Enterprises, Inc. and its designated subsidiaries (the “Company”) previously established and maintained the Champion Enterprises, Inc. Deferred Compensation Plan, last amended and restated effective January 1, 1998 (the “Prior Plan”). The Prior Plan was frozen effective December 31, 2004. The Company hereby adopts the Champion Enterprises, Inc. Nonqualified Deferred Compensation Plan (the “Plan”), effective as of January 1, 2006 (the “Effective Date”), and amended as of December 31, 2008.
1.2	Purpose. The purpose of the Plan is to provide each Participant with an opportunity to defer the receipt of salary and/or annual or periodic bonuses. The Plan is intended to benefit a select group of management or highly compensated employees of the Company within the meaning of Sections 201, 301 and 401 of ERISA, and to therefore be exempt from the requirements of Parts 2, 3, and 4 of Title I of ERISA.
1.3	Applicability. The provisions of the Plan shall only apply to amounts earned and vested on or after January 1, 2006, and shall not apply to deferred amounts that were earned and vested on or before December 31, 2004. No deferrals were made in 2005.
1.4	Impact of Code Section 409A. Between January 1, 2008, and December 31, 2008, the Plan was administered in good faith compliance with Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. It is intended that Plan benefits shall be in compliance with Code Section 409A, and the provisions of the Plan are to be construed accordingly. However, unless specifically provided herein, in no event shall the Corporation or a Subsidiary be responsible for any tax or penalty owed by a Participant or Beneficiary with regard to Plan payments.

ARTICLE II
Definitions

          As used in this Plan, the following terms shall have the meanings hereinafter set forth. The masculine pronoun shall be deemed to include the feminine, and the singular number shall be deemed to include the plural, unless a different meaning is plainly required by the context.

2.1	Account Balance. Account Balance means the value of each Participant’s deferred Compensation account balance under the Plan. Earnings on a Participant’s Account Balance shall be determined in accordance with Section 4.5.
2.2	Annual Bonus. Annual Bonus means the discretionary compensation that is “performance-based” within the meaning of Section 409A(a)(4)(B)(iii) of the Code, and that is paid to Employees of the Company’s corporate office. “Performance-based” refers to compensation for which the amount of, or entitlement to, the compensation is contingent on the satisfaction of pre-established Company, business unit or individual performance criteria relating to a period of at least twelve (12) consecutive months and shall not include any amount that will be paid regardless of performance, or based on a level of performance that is substantially certain to be met at the time the criteria are established. Performance criteria shall be established in writing no later than ninety (90) days after the commencement of the performance period.
2.3	Beneficiary. Beneficiary means a natural person, estate, or trust designated by a Participant in accordance with Section 6.1 to receive benefits under and in accordance with provisions of the Plan.
2.4	Change in Control. Change in Control means the occurrence of any of the following events: (1) the acquisition of ownership by a person, firm or corporation, or a group acting in concert, of fifty-one percent or more of the outstanding common stock of the Company in a single transaction or a series of related transactions with a one-year period; (2) a sale of all or substantially all of the assets of the Company to any person, firm or corporation; or (3) a merger or similar transaction between the Company and another entity if shareholders of the Company do not own a majority of the voting stock of the corporation surviving the transaction and a majority in value of the total outstanding stock of such surviving corporation after the transaction.
2.5	Code. Code means the Internal Revenue Code of 1986, as amended, including Treasury Regulations promulgated thereunder.
2.6	Company. Company means Champion Enterprises, Inc., and its designated subsidiaries.
2.7	Compensation. Compensation, for purposes of this Plan, means base salary, Annual Bonuses and Quarterly Bonuses.
2.8	Deferred Compensation Committee. Deferred Compensation Committee (or “Committee”) means the Chief Financial Officer (“CFO”), Chief Human Resources Officer and General Counsel, who shall serve until the earlier of termination of employment or appointment of a replacement by the Chief Executive Officer.

2

2.9	Disability. Disability means any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months: (i) which renders an Employee unable to engage in any substantial gainful activity or (ii), which enables an Employee to receive income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Employees of the Employee’s Employer, provided that this definition shall be interpreted in accordance with Code Section 409A(a)(2)(A)(v) and regulations and other guidance thereunder. Notwithstanding (i) and (ii), a Participant shall be deemed to have a Disability when determined to be totally disabled by the Social Security Administration.
2.10	Effective Date. Effective date means January 1, 2006.
2.11	Employee. Employee means an active employee of the Company who is a member of a select group of management or is a highly compensated employee as determined by the Deferred Compensation Committee.
2.12	ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
2.13	Fiscal Year. Fiscal Year means January 1 through December 31.
2.14	Participant. Participant means an Employee who meets the requirements for eligibility under Section 3.1.
2.15	Plan. Plan means the Champion Enterprises, Inc. Nonqualified Deferred Compensation Plan, as documented herein and as may be amended thereafter.
2.16	Plan Year. Plan Year means January 1 through December 31.
2.17	Quarterly Bonus. Quarterly Bonus means the discretionary compensation paid to those Employees working at the Company’s plant and regional offices and who are selected by the Deferred Compensation Committee to receive such bonus, earned every January 1st, April 1st, July 1st, and October 1st.
2.18	Separation from Service. The date upon which a Participant is no longer an Employee of the Company, determined under the rules and procedures described in attached Exhibit A.
2.19	Spouse. Spouse means the person married to the Participant on the date that benefits become payable under the Plan.
2.20	Specified Employee. An Employee who (i) owns at least 5 percent of the stock of the Company; (ii) owns at least 1 percent of the stock of the Company and has compensation from the Company in excess of $150,000 a year (not indexed); or (iii) is an officer of the Company with compensation in excess of $130,000 a year (indexed in $5,000 increments), but not to exceed fifty (50) Employees (or if lesser, the greater of three (3) Employees or ten (10) percent of the Company’s Employees).

3

2.21 Unforeseeable Emergency. A severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s Spouse, or a dependent (as defined in Section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The foregoing requirements shall be met only if, as determined under regulations of the U.S. Secretary of the Treasury, the amounts distributed with respect to such an emergency do not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

4

ARTICLE III
Eligibility and Participation

3.1	Eligibility and Participation. Employees eligible to participate in this Plan are limited to Employees who are selected by the Deferred Compensation Committee to participate in this Plan and who timely elect to participate in this Plan.
3.2	Duration. Any person who becomes a Participant shall continue to be a Participant as long as he is entitled to receive benefits hereunder.
3.3	Revocation of Future Participation. The Deferred Compensation Committee may revoke a Participant’s eligibility so that such Participant cannot make future compensation deferrals under this Plan. Such revocation will not affect in any manner a Participant’s Account Balance or other terms of this Plan.
3.4	Notification. A Participant shall be notified by the Deferred Compensation Committee, in writing, of his eligibility to participate in this Plan, and/or of the revocation of his eligibility.

5

ARTICLE IV
Deferral Elections and Earnings

4.1	Deferral Elections in General. Deferral elections shall be made in writing on a deferral election form provided by the Deferred Compensation Committee. A deferral election shall be made with respect to each Plan Year that Compensation is deferred and a separate election shall be made with respect to salary, Annual Bonuses and Quarterly Bonuses as described in sections 4.2 and 4.3 below. A deferral election shall designate the amount to be deferred in whole percentages of Compensation and shall specify the time and form of distribution as described in sections 5.1 and 5.2 below. An election to distribute at a Specified Time (as defined in Section 5.1) shall apply to any portion or all of his annual deferred amounts and shall specify a year for distribution that is at least twelve (12) months from the year such Compensation would otherwise be earned. To be effective, a deferral election form must be timely received and approved by the Deferred Compensation Committee.
4.2	Salary Deferral Elections. Salary deferral elections shall be made no later than the December 31st, preceding the Plan Year for which the salary will be earned. Notwithstanding the foregoing, an Employee who becomes a Participant during any Plan Year may make a salary deferral election for such Plan Year within 30 days of becoming a Participant, provided that (i) deferrals may be made only with respect to amounts earned subsequent to the initial election, and (ii) such initial election shall not be available to a Participant who is already participating (or previously participated) in another non-qualified deferred compensation plan of the Company which is an account balance plan. Salary deferrals shall be withheld on a pro rata basis each pay period during the Plan Year.
4.3	Annual Bonus and Quarterly Bonus Deferral Elections. Annual Bonus deferral elections shall be made no later than the June 30th of the Fiscal Year to which such bonus relates, and in no event after such Annual Bonus has become both substantially certain to be paid and readily ascertainable in amount, and shall only be valid if the Participant performs services continuously from no later than the date the performance criteria are established through the date of the Annual Bonus deferral election. Quarterly bonus deferral elections shall be made no later than December 31st of the Fiscal Year prior to which such bonus relates. Notwithstanding the foregoing, an Employee who becomes a Participant during any Plan Year may make a deferral election for such Plan Year within thirty (30) days of becoming a Participant, provided that (i) the election will only apply to the portion of the bonus equal to the total amount of the bonus for the performance period multiplied by the ratio of the number of days remaining in the performance period after the election, over the total number of days in the performance period; and (ii) such initial election shall not be available to a Participant who is already participating (or previously participated) in another non-qualified deferred compensation plan of the Company which is an account balance plan.
4.4	Modifications to Deferral Elections. A Participant may make a one-time modification to his deferral election that may apply to elections with respect to salary and/or bonus compensation for a particular Plan Year(s) or to all deferrals made by the Participant. Such modification shall delay payment and may also change the form of payment for distributions; provided that: (i) such modified election may not take effect until at least twelve (12) months after the modified election is made; (ii) the payment (or first

6

installment) with respect to which such election is made must be deferred for a period of five (5) years from the date such payment (or first installment) would otherwise have been made, except in the case of death, Disability or Unforeseeable Emergency; and (iii) in the case of a distribution made on account of a Specified Time, such election may not be made less than twelve (12) months prior to the date of such first scheduled payment.

4.5

Adjustments to Account Balances.

(i) A Participant’s Account Balance shall be credited with amounts deferred pursuant to deferral elections, and further credited or debited in an amount equal to the hypothetical return on such Account Balance from the date on which such deferred compensation would otherwise have been paid as Compensation to the Participant through the later of (a) the end of the month of such Participant’s Separation from Service, or (b) the end of the last installment period, if applicable, assuming for such purpose that such Account Balance had been actually invested during such period in one or more of a number of investments, as provided in this Section 4.5.

(ii) The Deferred Compensation Committee shall provide each Participant with a list of available hypothetical investments which may be designated by such Participant (as provided below) for purposes of determining the adjustments to such Participant’s Account Balance. Earnings on a Participant’s Account Balance shall be determined based on the investment return (gain or loss) received on the deemed hypothetical investment of each separate account. The Company may, in its sole discretion, add new hypothetical funds or eliminate existing hypothetical funds to or from the list.

(iii) A Participant may elect the hypothetical funds in which their deferrals are deemed to be hypothetically invested. Such election will be made in a manner prescribed by the Deferred Compensation Committee. A Participant may elect to periodically transfer existing deemed balances in the separate accounts between such separate accounts as prescribed by the Deferred Compensation Committee.

(iv) Notwithstanding anything in this Subsection 4.5(iv) to the contrary, the Company shall have sole and exclusive authority to invest any or all Account Balances in any manner, regardless of any hypothetical investment election by a Participant. A Participant’s hypothetical investment election is used only to compute the deemed investment yield credited or debited to the Participant’s Account Balance. The actual investment yield may be greater or less than the deemed investment yield credited to the Participant’s Account Balance.

7

ARTICLE V
Payment of Benefits

5.1 Distributable Event. Deferred amounts shall be distributed or will commence to be distributed in the form elected in Section 5.2 below (i.e., lump sum or annual installments) upon the occurrence of any of the following events:

(a) at a specified time or pursuant to a fixed schedule designated by the Participant (“Specified Time”);
or, if earlier

(b) the Participant’s Separation from Service;

(c) the Participant’s death; or

(d) the Participant’s Disability.

No Participant shall have any right to receive payment of his benefit under the Plan at any other time, except in the event of an Unforeseen Emergency in accordance with the provisions of Section 5.7. Amounts are payable at a specified time or pursuant to a fixed schedule if objectively determinable amounts are payable at a date or dates that are objectively determinable at the time the amount is deferred.

5.2

Form of Distribution. A Participant may timely elect to have benefits paid: (a) in a single lump sum; or (b) in five (5) or ten (10) annual installments with respect to distributions made upon Disability or a Separation from Service, or in five (5) annual installments in the case of distributions made at a Specified Time. Distributions made on account of death or an Unforeseeable Emergency shall be made only in a lump sum payment. If a Participant elects to have benefits paid in annual installments, the annual payment will be determined by dividing the Account Balance prior to such payment by the number of remaining installments. The Account Balance will continue to be adjusted in accordance with Section 4.5 during the installment payment period.

5.3

Separation From Service. A Participant who has a Separation from Service with the Company shall receive or commence receiving a deferred compensation benefit equal to his Account Balance payable in the form elected by the Participant in Section 5.2 (i.e., lump sum or annual installments) on the 15th day of the month following the month of Separation from Service. Notwithstanding the foregoing provisions, a distribution (or commencement of annual installments) to a Specified Employee shall be delayed until the first day of the seventh month following the month containing the date of Separation from Service (or until death, if earlier). Upon expiration of the restricted period, any delayed payment shall be paid in a lump sum, with remaining payments paid on regular payment dates.

8

5.4	Payments at a Specified Time or Pursuant to a Fixed Schedule. A Participant who has elected to receive distributions at a Specified Time, shall receive or commence receiving a deferred compensation benefit equal to the portion or all of his Account Balance designated to be paid at such time on the 15th day of the month following the month containing the specified date or time. Provided, however, that if a time or date is not specified, payment shall be made or commence by December 31st of the calendar year in which payment(s) are designated to be made or commence.
5.5	Disability Benefit. A Participant who receives a Disability deferred compensation benefit equal to his Account Balance, payable in the same form (i.e., lump sum or annual installments) elected by the Participant pursuant to Section 4.5 on the 15th day of the month following the month that the Disability is determined to have occurred by the Deferred Compensation Committee, notwithstanding a modified election made by the Participant under Section 4.4.
5.6	Death Benefit. In the event of the death of a Participant, the Participant’s Beneficiary shall receive a lump sum benefit equal to the Participant’s Account Balance on the 15th day of the month following the month that the death occurs.
5.7	Hardship Withdrawal. A Participant, while still an Employee of the Company, may request a distribution of his Account Balance, or any portion thereof, in the event of an Unforeseeable Emergency. The request to take a distribution shall be made by completing a form provided by and filed with the Deferred Compensation Committee. Such Committee will first require that the Participant cancel all outstanding elective deferrals, deferred pursuant to Article IV. If the Committee determines that the requested distribution is for the purpose of meeting an Unforeseeable Emergency in accordance with Section 2.21 of the Plan, and that the requested distribution is necessary to relieve the Unforeseeable Emergency even after the cancellation of outstanding deferral election(s), then the amount determined by the Deferred Compensation Committee, sufficient to meet the Unforeseeable Emergency in accordance with Section 2.21 of the Plan, shall be paid in a single cash lump sum within thirty (30) days following the date such request is approved. Once a Participant’s deferral election(s) is cancelled, notwithstanding that a distribution might be granted, a Participant may not elect to again defer, pursuant to Article IV of the Plan until January 1st of the calendar year following the year that the distribution under this Section is made. If a Participant receives a hardship distribution under the Company’s 401(k) Plan, a Participant may request that all outstanding elective deferrals under the Plan be cancelled, without requesting a distribution under the Plan pursuant to this Section 5.7.

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ARTICLE VI
Administration

6.1	Beneficiary Designation. A Participant shall have the right to designate a Beneficiary and to amend or revoke such designation at any time in writing. Such designation, amendment or revocation shall be effective upon receipt by the Administrator. The Participant’s estate shall be the Beneficiary if either the Participant has not designated a natural person or trust as Beneficiary, or the designated Beneficiary has predeceased the Participant.
6.2	Plan Administration. This Plan shall be administered by the Deferred Compensation Committee, which shall have authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan.
6.3	Deduction of Taxes from Amounts Payable. The Company shall deduct from the amount to be distributed under the Plan such amount as the Company, in its sole discretion, deems proper for the payment of income, employment, death, succession, inheritance, or other taxes with respect to benefits under the Plan.
6.4	Indemnification. The Company shall indemnify and hold harmless each Employee, officer, or director of the Company to whom is delegated duties, responsibilities, and authority with respect to the Plan against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him (including but not limited to reasonable attorney fees) which arise as a result of his actions or failure to act in connection with the operation and administration of the Plan to the extent his action or inaction is lawful and not the result of his gross negligence or willful misconduct and also to the extent that such claim, liability, fine, penalty, or expense is not paid for by liability insurance purchased or paid for by the Company. Notwithstanding the foregoing, the Company shall not indemnify any person for any such amount incurred through any settlement or compromise of any action unless the Company consents in writing to such settlement or compromise.
6.5	Expenses. The expenses of administering the Plan shall be paid by the Company.
6.6	Delegation of Authority. In the administration of this Plan, the Deferred Compensation Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who may be legal counsel to the Company.
6.7	Binding Decisions or Actions. The decision or action of the Deferred Compensation Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations thereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

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ARTICLE VII
Amendment and Termination

7.1

Amendment and Termination. The Deferred Compensation Committee may at any time modify, amend, or terminate the Plan, provided that such modification, amendment or termination shall not cancel, reduce, or otherwise adversely affect the amount of benefits of any Participant accrued (and any form of payment elected) as of the date of any such modification, amendment, or termination, without the consent of the Participant; provided, however, that the Deferred Compensation Committee may amend this Agreement at any time, retroactively or otherwise without the consent of the Participant, as may be necessary to comply with Code Section 409A. Upon Plan termination, no further deferrals shall be made except that upon a Distributable Event the Company shall be responsible to pay any benefit attributable to deferrals made as of the day preceding the effective date of termination plus investment earnings and less investment losses and expenses chargeable to the Participant’s account up to the date of distribution.

7.2

Constructive Receipt Termination. Notwithstanding anything contrary in the Plan, if any Participant receives a deficiency notice from the United States Internal Revenue Service asserting constructive receipt of amounts payable under the Plan, the Deferred Compensation Committee, in its sole discretion, may terminate the Plan or such Participant’s participation in the Plan.

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ARTICLE VIII
Funding

8.1	General Assets. All benefits under this Plan shall be paid directly from the general assets of the Company. No Participant, Spouse or Beneficiary shall have any right, title or interest whatever in or to any investments which the Company may make to aid the Company in meeting its obligation hereunder. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a fiduciary relationship, between the Company and any Participant, Spouse, or Beneficiary.
8.2	Rabbi Trust. To the extent that any person acquires a right to receive payments from the Company hereunder, such rights shall be no greater than the right of an unsecured creditor of the Company. Notwithstanding the foregoing, the Company may, in its sole discretion, establish a grantor trust, commonly known as a Rabbi Trust, as a vehicle for accumulating the assets needed to pay the promised benefit.
8.3	Change in Control. Upon a Change in Control, the Company shall as soon as possible, but in no event later than thirty (30) days following the Change in Control, establish (if not yet established) a Rabbi Trust (referenced in Section 8.2), and make an irrevocable contribution to such Rabbi Trust in an amount that is sufficient to pay each Participant or Beneficiary the promised benefit to which the Participant or Beneficiary would be entitled pursuant to the terms of the Plan as of the date on which the Change in Control occurred.

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ARTICLE IX
General Conditions

9.1

Anti-assignment Rule. No interest of any Participant, Spouse or Beneficiary under this Plan and no benefit payable hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any such interest or any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through an Employee, retired employee, Spouse or Beneficiary. If any attempt is made to alienate, pledge or charge any such interest or any such benefit for any debt, liabilities in tort or contract, or otherwise, of any Participant, Spouse, or Beneficiary, contrary to the prohibitions of the preceding sentence, then the Deferred Compensation Committee in its discretion may suspend or forfeit the interests of such person and during the period of such suspension, or in case of forfeiture, the Deferred Compensation shall hold such interest for the benefit of, or shall make the benefit payments to which such person would otherwise be entitled to the designated Beneficiary or to some member of such Employee’s, retired employee’s Spouse’s or Beneficiary’s family to be selected in the discretion of the Deferred Compensation Committee. Similarly, in cases of misconduct, incapacity or Disability, the Deferred Compensation Committee, in its sole discretion, may make payments to some member of the family of any of the foregoing to be selected by it or to whomsoever it may determine is best fitted to receive or administer such payments.

9.2

Domestic Relations Order.

(i) To the extent required under any final judgment, decree or order (including approval of a property settlement agreement), referred to as the “Order,” that (i) relates to the provision of child support, alimony payments, or marital property rights; (ii) is made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended and any regulations issued thereunder; and (iii) is made pursuant to a state domestic relations law, any portion of a Participant’s Account may be paid to a Spouse, former Spouse, child or other dependent of the Participant (the “Alternate Payee”). A separate Account shall be established with respect to the Alternate Payee, in the same manner as the Participant, and any amount so set aside for an Alternate Payee shall be paid out in a lump sum payment within ninety (90) days of the date of the Order. Any payment made to an Alternate Payee pursuant to this paragraph shall be reduced by required income tax withholding.

(ii) The Plan’s liability to pay benefits to a Participant shall be reduced to the extent that amounts have been paid or set aside for payment to an Alternate Payee pursuant to an Order. No such transfer shall be effectuated unless the Plan Administrator has been provided with such an Order.

(iii) Neither the Company nor the Plan Administrator shall be obligated to defend against or set aside any Order, or any legal order relating to the garnishment of a Participant’s benefits, unless the full expense of such legal action is borne by the Participant. In the event that the Participant’s action (or inaction) nonetheless causes the Company or the Plan Administrator to incur such expense, the amount of the expense may be charged against the Participant’s Account and thereby reduce the Company’s obligation to pay benefits to the Participant. In the course of any proceeding relating to

13

divorce, separation, or child support, the Company or the Plan Administrator shall be authorized to disclose information relating to the Participant’s Account to the Alternate Payee (including the legal representatives of the Alternate Payee), or to a court.

9.3	No Legal or Equitable Rights or Interest. No Participant and no other person shall have any legal or equitable rights or interest in this Plan that are not expressly granted in this Plan. Participation in this Plan does not give any person any right to be retained in the service of the Company. The right and power of the Company to dismiss or discharge any Participant is expressly reserved.
9.4	Applicable Plan Provisions. The rights under this Plan or a Participant who retires or leaves the service of the Company at any time, and the rights of anyone entitled to receive any payments under the Plan by reason of the death of such Participant, shall be governed by the provisions of the Plan in effect on the date such Participant retires or leaves the service of the Company, except as otherwise specially provided in this Plan.
9.5	No Employment Contract. Nothing contained herein shall be construed to constitute a contract of employment between an Employee and the Company.
9.6	Headings. The headings of Sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control.
9.7	Invalid or Unenforceable Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included.
9.8	Governing Law. The laws of the State of Michigan shall govern the construction and administration of the Plan.

          IN WITNESS WHEREOF, the Company has executed this Amended Plan this 17th day of December, 2008, to be effective December 31, 2008.

CHAMPION ENTERPRISES, INC.
By:	/s/  William C. Griffiths
	William C. Griffiths
	Chairman of the Board of Directors, President and Chief Executive Officer

14

Exhibit A
Separation from Service

A Separation from Service occurs on the date upon which a Participant is no longer an Employee of the Company, as determined in accordance with Code Section 409A and Treasury Regulations promulgated thereunder.

For purposes of this Plan, an Employee separates from service with the Company if the Employee dies, retires or otherwise has a termination of employment with the Company. However, the employment relationship is treated as continuing intact while the Employee is on military leave, sick leave, or other bona fide leave of absence (such as temporary employment by the government) if the period of such leave does not exceed six months, or if longer, so long as the Employee’s right to reemployment with the Company is provided either by statute or by contract. If the period of leave exceeds six months and the Employee’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.

Whether a termination of employment has occurred is determined based on the facts and circumstances. Where an Employee either actually or purportedly continues in the capacity as an Employee, such as through the execution of an employment agreement under which the Employee agrees to be available to perform services if requested, but the facts and circumstances indicate that neither the Company nor the Employee intended for the Employee to provide more than insignificant services to the Company, an Employee will be treated as having a Separation from Service. For purposes of the preceding sentence, the Company and Employee will not be treated as having intended for the Employee to provide insignificant services where the Employee continues to provide services at an annual rate that is at least equal to 20 percent of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is at least equal to 20 percent of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period). Where an Employee continues to provide services to the Company in a capacity other than as an Employee, a Separation from Service will not be deemed to have occurred if such former Employee is providing services at an annual rate that is 50 percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is 50 percent or more of the annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period). For purposes of this paragraph, the annual rate of providing services is determined based upon the measurement used to determine the Company’s base compensation (for example, amounts of time required to earn salary, hourly wages, or payments for specific projects).

15

EX-10.10

Exhibit 10.10

CHAMPION ENTERPRISES, INC.

2005 EQUITY COMPENSATION AND INCENTIVE PLAN

(As Amended December 31, 2008)

Table of Contents

			Page
I GENERAL PROVISIONS				1
	1.1	Establishment		1
	1.2	Purpose		1
	1.3	Definitions		1
	1.4	Administration		8
	1.5	Participants		9
	1.6	Stock		9
	1.7	Repricing		10
II STOCK OPTIONS				11
	2.1	Grant of Options		11
	2.2	Incentive Stock Options		11
	2.3	Option Price		12
	2.4	Payment for Option Shares		12
III STOCK APPRECIATION RIGHTS				12
	3.1	Grant of Stock Appreciation Rights		12
	3.2	Exercise Price		13
	3.3	Exercise of Stock Appreciation Rights		13
	3.4	Stock Appreciation Right Entitlement		13
	3.5	Maximum Stock Appreciation Right Amount Per Share		13
IV RESTRICTED STOCK AND UNITS				14
	4.1	Grant of Restricted Stock and Restricted Stock Units		14
	4.2	Restricted Stock Agreement		14
	4.3	Transferability		14
	4.4	Other Restrictions		14
	4.5	Voting Rights		14
	4.6	Dividends and Dividend Equivalents		14
	4.7	Settlement of Restricted Stock Units		15
V PERFORMANCE AWARDS				15
	5.1	Grant of Performance Awards		15
	5.2	Terms of Performance Awards		15
VI ANNUAL INCENTIVE AWARDS				16
	6.1	Grant of Annual Incentive Awards		16
	6.2	Payment of Annual Incentive Awards		17
VII CODE SECTION 162(m) PERFORMANCE MEASURE AWARDS				17
	7.1	Awards Granted Under Code Section 162(m)		17
	7.2	Attainment of Code Section 162 Goals		18
	7.3	Individual Participant Limitations		18
VIII NON-EMPLOYEE DIRECTOR STOCK RETAINERS				18
	8.1	In General		18
	8.2	Stock Retainers		18
	8.3	Stock Retainer Election		19
	8.4	Deferred Stock Grant		20
IX TERMINATION OF EMPLOYMENT OR SERVICES				20

i

Table of Contents
(Continued)

			Page
	9.1	Options and Stock Appreciation Rights		20
	9.2	Restricted Stock and Restricted Stock Units		21
	9.3	Performance Awards		22
	9.4	Annual Incentive Awards		22
	9.5	Stock Retainers		23
	9.6	Other Provisions		23
X ADJUSTMENTS AND CHANGE IN CONTROL				23
	10.1	Adjustments		23
	10.2	Change in Control		23
XI MISCELLANEOUS				25
	11.1	Partial Exercise/Fractional Shares		25
	11.2	Rights Prior to Issuance of Shares		25
	11.3	Non-Assignability; Certificate Legend; Removal		25
	11.4	Securities Laws		26
	11.5	Withholding Taxes		26
	11.6	Termination and Amendment		27
	11.7	Effect on Employment or Services		27
	11.8	Use of Proceeds		28
	11.9	Repurchase Rights		28
	11.10	Severability		28
	11.11	Beneficiary Designation		28
	11.12	Unfunded Obligation		28
	11.13	Approval of Plan		29

ii

CHAMPION ENTERPRISES, INC.
2005 EQUITY COMPENSATION AND INCENTIVE PLAN
(Effective May 3, 2005
as Amended December 31, 2008)

I GENERAL PROVISIONS

     1.1 Establishment. On December 7, 2004, the Board of Directors (“Board”) of Champion Enterprises, Inc. (“Corporation”) adopted the Champion Enterprises, Inc. 2005 Equity Compensation and Incentive Plan (“Plan”), as an amendment and restatement of the 1995 Stock Option and Incentive Plan, as approved by shareholders at the Corporation’s Annual Meeting on May 3, 2005. On September 26, 2008, the Board approved amendments to the Plan, to be effective December 31, 2008.

     1.2 Purpose. The purpose of the Plan is to (a) promote the best interests of the Corporation and its shareholders by encouraging Employees, Non-Employee Directors, and Consultants of the Corporation and its Subsidiaries to acquire an ownership interest in the Corporation through the granting of stock-based Awards and Non-Employee Director Stock Retainers, thus identifying their interests with those of shareholders, and (b) enhance the ability of the Corporation to attract and retain qualified Employees, Non-Employee Directors and Consultants. It is the further purpose of the Plan to permit the granting of Awards that will constitute performance based compensation, as described in Code Section 162(m) and regulations promulgated thereunder.

     1.3 Definitions. As used in this Plan, the following terms have the meaning described below:

          (a) “Agreement” means the written document that sets forth the terms of a Participant’s Award.

          (b) “Annual Incentive Award” means an Award that is granted in accordance with Article VI of the Plan.

          (c) “Annual Meeting” means the Corporation’s annual meeting of shareholders.

          (d) “Award” means any form of Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Annual Incentive Award or other incentive award granted under the Plan.

          (e) “Board” means the Board of Directors of the Corporation.

          (f) “Change in Control”

          (i) In the context of Awards exempt from Code Section 409A means the occurrence of any of the following Change in Control events:

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          (A) any “person” (as defined in Section 13(d) and 14(d) of the Exchange Act), excluding for this purpose, the Corporation or any Subsidiary of the Corporation, or any employee benefit plan of the Corporation or any subsidiary of the Corporation, or any person or entity organized, appointed or established by the Corporation for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Corporation, which is or becomes the beneficial owner, directly or indirectly of securities of the Corporation representing more than 50% of the combined voting power of the Corporation’s then outstanding securities; provided, however, that no Change in Control shall be deemed to have occurred (x) as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Corporation, or (y) if a person inadvertently acquires an ownership interest in more than 50% but then promptly reduces that ownership interest to 50% or less;

          (B) during any two (2) consecutive years (not including any period beginning prior to May 3, 2005), individuals who at the beginning of such two-year period constitute the Board and any new Director (except for a Director designated by a person who has entered into an agreement with the Corporation to effect a transaction described elsewhere in this definition of Change in Control), whose election by the Board or nomination for election by the Corporation’s shareholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new Director, an “Incumbent Director” and, collectively, the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” (as defined in Section 13(d) and 14(d) of the Exchange Act) other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest of solicitation, shall not be considered an Incumbent Director;

          (C) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a “Business Combination”), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, by reason of such ownership of the Corporation’s voting securities immediately before the Business Combination, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote

2

generally in the election of directors of the company resulting from such Business Combination (including, without limitation, a company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more Subsidiaries in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding voting securities of the corporation; (y) no person (excluding any company resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such company resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then combined voting power of the then outstanding voting securities of such company except to the extent that such ownership existed prior to the Business Combination; and (z) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

          (D) the shareholders of the Corporation approve a complete liquidation or dissolution of the Corporation; or

          (E) any other event that the Board, in its sole discretion, shall determine constitutes a Change in Control.

          (ii) In the context of Awards not exempt from Code Section 409A, means the occurrence of any of the following Change in Control events:

          (A) If any one person, or more than one person acting as a group (as defined in Code Section 409A and IRS guidance issued thereunder), acquires ownership of Common Stock of the Corporation that, together with stock held by such person or group, constitutes more than fifty (50) percent of the total fair market value or total voting power of the Common Stock of the Corporation. However, if any one person or more than one person acting as a group, is considered to own more than fifty (50) percent of the total fair market value or total voting power of the Common Stock of the Corporation, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control, or to cause a Change in the Effective Control of the Corporation (within the meaning of Code Section 409A and IRS guidance issued thereunder). An increase in the percentage of Common Stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Corporation acquires its stock in exchange for property shall be treated as an acquisition of stock for purposes of this Section. This paragraph applies only when there is a transfer of stock of the Corporation (or issuance of stock of the Corporation), and stock in such Corporation remains outstanding after the transaction. This Subsection (A) shall constitute a “Change in Ownership” of the Corporation.

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          (B) If a majority of members on the Corporation’s Board of Directors (the “Board”) is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Corporation’s Board prior to the date of the appointment or election (provided that for purposes of this paragraph, the term Corporation refers solely to the “relevant” Corporation, as defined in Code Section 409A and IRS guidance issued thereunder), for which no other Corporation is a majority shareholder. The Subsections (B) shall constitute a “Change in Effective Control” of the Corporation.

          (C) If there is a change in the ownership of a substantial portion of the Corporation’s assets, which shall occur on the date that any one person, or more than one person acting as a group (within the meaning of Code Section 409A and IRS guidance issued thereunder) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Corporation that have a total gross fair market value equal to or more than forty (40) percent of the total gross fair market value of all of the assets of the Corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. This Subsection (C) shall constitute a “Change in Ownership of a Substantial Portion of Assets” of the Corporation.

          (g) “Code” means the Internal Revenue Code of 1986, as amended.

          (h) “Committee” means the Compensation and Human Resources Committee of the Board.

          (i) “Common Stock” means shares of the Corporation’s authorized common stock.

          (j) “Consultant” means a consultant or advisor (other than as an Employee or member of the Board) to the Corporation or a Subsidiary; provided that such person (1) renders bona fide services that are not in connection with the offer and sale of the Corporation’s securities in a capital-raising transaction, and (2) does not promote or maintain a market for the Corporation’s securities.

          (k) “Corporation” means Champion Enterprises, Inc., a Michigan corporation.

          (l) “Deferred Stock Grant” means a Stock Retainer that a Non-Employee Director has elected to defer until Retirement, death, or other termination of services on the Board, whichever occurs first.

          (m) “Director” means an individual who has been elected or appointed to serve as a Director of the Corporation.

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          (n) “Disability” means total and permanent disability, as defined in Code Section 22(e).

          (o) “Dividend Equivalent” means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividend paid on one share of Common Stock for each share of Common Stock represented by an Award held by such Participant.

          (p) “Employee” means an individual 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.

          (q) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time and any successor thereto.

          (r) “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 for the Grant Date. In the event that there are 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.

          (s) “Grant Date” means the date on which the Committee authorizes an Award, or such later date as shall be designated by the Committee.

          (t) “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code.

          (u) “Non-Employee Director” means a member of the Corporation’s Board of Directors who is not an Employee.

          (v) “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

          (w) “Option” means either an Incentive Stock Option or a Nonqualified Stock Option.

          (x) “Participant” means an Employee (including an Employee who is a Director), Non-Employee Director or Consultant who is designated by the Committee to participate in the Plan.

          (y) “Performance Award” means any Award of Performance Shares or Performance Units granted pursuant to Article V.

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          (z) “Performance Measures” means the measures of performance of the Corporation and its Subsidiaries used to determine a Participant’s entitlement to an Award under the Plan. Performance Measures shall have the same meanings as used in the Corporation’s financial statements, or, if such terms are not used in the Corporation’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Corporation’s industry. Performance measures shall be calculated with respect to the Corporation and each Subsidiary consolidated therewith for financial reporting purposes or such division or other business unit as may be selected by the Committee. For purposes of the Plan, the Performance Measures shall be calculated in accordance with generally accepted accounting principles, but, unless otherwise determined by the Committee, prior to the accrual or payment of any Award under this Plan for the same performance period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the performance goals. Performance Measures shall be one or more of the following, or a combination of any of the following, as determined by the Committee:

• earnings (as measured by net income, operating income, operating income before interest, EBIT, EBITA, EBITDA, pre-tax income, or cash earnings, or earnings as adjusted by excluding one or more components of earnings, including each of the above on a per share and/or segment basis);

• sales/net sales;

• return on net sales (as measured by net income, operating income, operating income before interest, EBIT, EBITA, EBITDA, pre-tax income, operating cash flow or cash earnings as a percentage of net sales);

• sales growth;

• cash flow;

• operating cash flow;

• inventory levels;

• working capital;

• market capitalization;

• cash return on investment — CRI;

• shareholder value;

• return on equity;

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• return on investment;

• return on assets/net assets;

• stock trading multiples (as measured vs. investment, net income, operating income, operating income before interest, EBIT, EBITA, EBITDA, pre-tax income, cash earnings or operating cash flow);

• stock price;

• attainment of strategic or operational initiatives.

          (aa) “Performance Share” means any grant pursuant to Article V and Section 5(b)(i).

          (bb) “Performance Unit” means any grant pursuant to Article V and Section 5(b)(ii).

          (cc) “Plan” means the Champion Enterprises, Inc. 2005 Equity Compensation and Incentive Plan, the terms of which are set forth herein, and any amendments thereto.

          (dd) “Restriction Period” means the period of time during which a Participant’s Restricted Stock or Restricted Stock Unit is subject to restrictions and is nontransferable.

          (ee) “Restricted Stock” means Common Stock granted pursuant to Articles IV and VIII that is subject to a Restriction Period.

          (ff) “Restricted Stock Unit” means a right granted pursuant to Article IV to receive Restricted Stock or an equivalent value in cash.

          (gg) “Retirement” means termination of employment on or after the attainment of age 65.

          (hh) “Securities Act” means the Securities Act of 1933, as amended.

          (ii) “Stock Account” means the bookkeeping account established to record the Stock Retainer shares that each Non-Employee Director has elected to defer pursuant to Article VIII. The Stock Account shall be used solely for purposes of determining the number of shares to be paid to a Non-Employee Director under the Plan and shall not constitute or be treated as a trust fund of any kind.

          (jj) “Stock Appreciation Right” means the right to receive a cash or Common Stock payment from the Corporation, in accordance with Article III of the Plan.

          (kk) “Stock Exchange” means the principal national securities exchange on which the Common Stock is listed for trading, or, if the Common Stock is

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not listed for trading on a national securities exchange, such other recognized trading market or quotation system upon 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.

          (ll) “Stock Retainer” means the payment of Common Stock pursuant to Article VIII as the annual equity retainer for services as a Non-Employee Director.

          (mm) “Subsidiary” means a corporation or other entity defined in Code Section 424(f).

          (nn) “Substitute Awards” shall mean Awards granted or shares issued by the Corporation in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Corporation or any Subsidiary or with which the Corporation or any Subsidiary combines.

          (oo) “Tandem Stock Appreciation Right” means a Stock Appreciation Right granted in tandem with an Option.

          (pp) “Vested” means the extent to which an Award or Stock Retainer granted or issued hereunder has become exercisable or any applicable restriction period has terminated in accordance with the Plan and the terms of any respective Agreement pursuant to which such Award or Stock Retainer was granted or issued.

     1.4 Administration.

          (a) The Plan shall be administered by the Committee. At all times, it is intended that the Directors appointed to serve on the Committee shall be (i) “non-employee directors “ (within the meaning of Rule 16b-3 promulgated under the Exchange Act); (ii) “outside directors” (within the meaning of Code Section 162(m)); and (iii) “independent directors” for purposes of the rules and regulations of the Stock Exchange (if applicable). However, the fact that a Committee member shall fail to qualify under any of these requirements shall not invalidate any Award or Stock Retainer made by the Committee, if the Award or Stock Retainer is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time, at the discretion of the Board.

          (b) The Committee 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 Committee on any question concerning the interpretation of the Plan or its administration with respect to any Award or Stock Retainer granted under the Plan shall be final and binding upon all Participants. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Stock Retainer hereunder.

          (c) In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, but, in the case of Awards designated as Awards under Code

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Section 162(m), subject to the requirements of Code Section 162(m), the Committee shall have the full and final power and authority, in its discretion to:

          (i) amend, modify, extend, cancel or renew any Award or Stock Retainer, or to waive any restrictions or conditions applicable to any Award or Stock Retainer or any shares acquired pursuant thereto;

          (ii) accelerate, continue, extend or defer the exercisability or Vesting of any Award or Stock Retainer or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of employment with the Corporation;

          (iii) authorize, in conjunction with any applicable deferred compensation plan of the Corporation, that the receipt of cash or Common Stock subject to any Award under this Plan may be deferred under the terms and conditions of such deferred compensation plan;

          (iv) determine the terms and conditions of Awards and Stock Retainers granted to Non-Employee Directors; and

          (v) establish such other Awards, besides those specifically enumerated in the Plan, which the Committee determines are consistent with the Plan’s purposes.

          (d) To the extent permitted by applicable law, the Committee may delegate to the Chief Executive Officer of the Corporation the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify, waive rights with respect to, alter, discontinue or terminate any of the foregoing, held by Participants who are not officers or Directors of the Corporation for purposes of Section 16 of the Exchange Act.

     1.5 Participants. Participants in the Plan shall be such Employees (including Employees who are Directors), Non-Employee Directors and Consultants of the Corporation and its Subsidiaries as the Committee in its sole discretion may select from time to time. The Committee may grant Awards to an individual upon the condition that the individual become an Employee of the Corporation or of a Subsidiary, provided that the Award shall be deemed to be granted only on the date that the individual becomes an Employee.

     1.6 Stock.

          (a) The Corporation has reserved 4,000,000 shares of the Corporation’s Common Stock for issuance pursuant to stock-based Awards (all of which may be granted as Incentive Stock Options) and Stock Retainers under the Plan. All provisions in this Section 1.6 shall be adjusted, as applicable, in accordance with Article X.

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          (b) If any shares subject to an Award or Stock Retainer are forfeited, cancelled, expire or otherwise terminate without issuance of such shares, or any Award or Stock Retainer is settled for cash or otherwise does not result in the issuance of all or a portion of the shares subject to such Award, the shares shall, to the extent of such forfeiture, cancellation, expiration, termination, cash settlement or non-issuance, again be available for Awards and Stock Retainers under the Plan.

          (c) In the event that (i) any Option, other Award or Stock Retainer granted hereunder is exercised through the tendering of shares or by the withholding of shares by the Corporation, or (ii) withholding tax liabilities arising from such Option, other Award or Stock Retainer are satisfied by the tendering of shares or by the withholding of shares by the Corporation, then only the number of shares issued net of the shares tendered or withheld shall be counted for purposes of determining the maximum number of shares available for issuance under the Plan.

          (d) Substitute Awards shall not reduce the shares reserved for issuance under the Plan or authorized for grant to a Participant in any fiscal year. Additionally, in the event that a company acquired by the Corporation or any Subsidiary or with which the Corporation or any Subsidiary combines has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors or any Affiliate prior to such acquisition or combination.

     1.7 Repricing. Without the affirmative vote of holders of a majority of the shares of Common Stock cast in person or by proxy at a meeting of the shareholders of the Corporation at which a quorum representing a majority of all outstanding shares of Common Stock is present or represented by proxy, the Board shall not approve a program providing for either (a) the cancellation of outstanding Options and/or Stock Appreciation Rights and the grant in substitution therefore of any new Awards under the Plan having a lower exercise price, or (b) the amendment of outstanding Options and/or Stock Appreciation Rights to reduce the exercise price thereof. This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

     1.8 Code Section 409A. Between May 3, 2005, and December 31, 2008, the Plan was administered in good faith compliance with Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. It is intended that Awards granted under the Plan shall be exempt from or in compliance with Code Section 409A,

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and the provisions of the Plan are to be construed accordingly. However, unless specified otherwise herein, in no event shall the Corporation or a Subsidiary be responsible for any tax or penalty owed by a Participant or Beneficiary with regard to Award payments. Notwithstanding anything in the Plan to the contrary, all or part of an Award payment to a Participant who is determined to constitute a Code Section 409A “Specified Employee” at the time of separation from service, shall be delayed (if then required) under Code Section 409A, and paid in an aggregated lump sum on the first day of the seventh month following the Participant’s separation from service, or the date of the Participant’s death, if earlier. Any remaining payments shall be paid on their regularly scheduled payment dates.

II STOCK OPTIONS

          2.1 Grant of Options. The Committee, at any time and from time to time, subject to the terms and conditions of the Plan, may grant Options to such Participants and for such number of shares of Common Stock as it shall designate. Any Participant may hold more than one Option under the Plan and any other plan of the Corporation or Subsidiary. The Committee shall determine the general terms and conditions of exercise 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 Committee may designate any Option granted as either an Incentive Stock Option or a Nonqualified Stock Option, or the Committee may designate a portion of an Option as an Incentive Stock Option or a Nonqualified Stock Option. At the discretion of the Committee, an Option may be granted in tandem with a Stock Appreciation Right. Unless otherwise provided in a Participant’s Agreement, Options are intended to satisfy the requirements of Code Section 162(m) and the regulations promulgated thereunder, to the extent applicable.

          2.2 Incentive Stock Options. Any Option intended to constitute an Incentive Stock Option shall comply with the requirements of this Section 2.2. An Incentive Stock Option only may be granted to an Employee. No Incentive Stock Option shall be granted with an exercise price below the Fair Market Value of Common Stock on the Grant Date nor with an exercise term that extends beyond ten (10) years from the Grant Date. An Incentive Stock Option shall not be granted to any Participant who owns (within the meaning of Code Section 424(d)) stock of the Corporation or any Subsidiary possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or a Subsidiary unless, at the Grant Date, the exercise price for the Option is at least 110% of the Fair Market Value of the shares subject to the Option and the Option, by its terms, is not exercisable more than five (5) years after the Grant Date. The aggregate Fair Market Value of the underlying Common Stock (determined at the Grant Date) as to which Incentive Stock Options granted under the Plan (including a plan of a Subsidiary) may first be exercised by a Participant in any one calendar year shall not exceed $100,000. To the extent that an Option intended to constitute an Incentive Stock Option shall violate the foregoing $100,000 limitation (or any other limitation set forth in Code Section 422), the portion of the Option that exceeds the $100,000 limitation (or violates any other Code Section 422 limitation) shall be deemed to constitute a Nonqualified Stock Option.

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     2.3 Option Price. The Committee shall determine the per share exercise price for each Option granted under the Plan. No Option shall have an exercise price below 100% of the Fair Market Value of Common Stock on the Grant Date.

     2.4 Payment for Option Shares.

          (a) 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, unless otherwise provided in a Participant’s Agreement, payment may be made by (i) delivery to the Corporation of outstanding shares of Common Stock on such terms and conditions as may be specified in the Participant’s Agreement; (ii) 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; (iii) delivery of other consideration approved by the Committee having a Fair Market Value on the exercise date equal to the total purchase price; (iv) other means determined by the Committee; or (v) any combination of the foregoing. 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, and the certificate(s) for such shares, duly endorsed for transfer or accompanied by appropriate stock powers, shall be surrendered to the Corporation.

          (b) Notwithstanding the foregoing, an Option may not be exercised by delivery to or withholding by the Corporation of shares of Common Stock to the extent that such delivery or withholding (i) would constitute a violation of the provisions of any law or regulation (including the Sarbanes-Oxley Act of 2002), or (ii) if there is a substantial likelihood that the use of such form of payment would result in adverse accounting treatment to the Corporation under generally accepted accounting principles. Until a Participant has been issued a certificate or certificates for the shares of Common Stock so purchased, he or she shall possess no rights as a record holder with respect to any such shares.

III STOCK APPRECIATION RIGHTS

     3.1 Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted, held and exercised in such form and upon such general terms and conditions as determined by the Committee on an individual basis. A Stock Appreciation Right may be granted to a Participant with respect to such number of shares of Common Stock of the Corporation as the Committee may determine. A Stock Appreciation Right may be granted on a stand-alone basis or as a Tandem Stock Appreciation Right. If granted as a Tandem Stock Appreciation Right, the number of shares covered by the Stock Appreciation Right shall not exceed the number of shares of stock which the Participant could purchase upon the exercise of the related Option. Unless otherwise provided in a Participant’s Agreement, Stock Appreciation Rights are intended to satisfy the

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requirements of Code Section 162(m) and the regulations promulgated thereunder, to the extent applicable. No Stock Appreciation Right shall be granted with an exercise term that extends beyond ten (10) years from the Grant Date.

     3.2 Exercise Price. The Committee shall determine the per share exercise price for each Stock Appreciation Right granted under the Plan; provided, however, that (a) the exercise price of a Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the shares of Common Stock covered by the Stock Appreciation Right on the Grant Date; and (b) the per share exercise price subject to a Tandem Stock Appreciation Right shall be the per share exercise price under the related Option.

     3.3 Exercise of Stock Appreciation Rights. A Stock Appreciation Right shall be deemed exercised upon receipt by the Corporation of written notice of exercise from the Participant. A Tandem Stock Appreciation Right shall be exercisable only at such times and in such amounts as the related Option may be exercised. Upon the exercise of a Tandem Stock Appreciation Right with respect to some or all of the shares subject to such Stock Appreciation Right, the related Option shall be cancelled automatically as to the number of shares with respect to which the Tandem Stock Appreciation Right was exercised. Upon the exercise of an Option related to a Tandem Stock Appreciation Right as to some or all of the shares subject to such Option, the related Tandem Stock Appreciation Right shall be cancelled automatically as to the number of shares with respect to which the related Option was exercised. The Committee, in a Participant’s Agreement, shall specify whether payment upon exercise of a Stock Appreciation Right shall be made in cash, shares of Common Stock or other property, or any combination thereof.

     3.4 Stock Appreciation Right Entitlement.

          (a) Upon exercise of a stand-alone Stock Appreciation Right, a Participant shall be entitled to payment from the Corporation, in cash, shares, or partly in each (as determined by the Committee in accordance with any applicable terms of the Agreement), of an amount equal to the difference between (i) the aggregate Fair Market Value on the exercise date for the specified number of shares being exercised, and (ii) the aggregate exercise price for the specified number of shares being exercised.

          (b) If the Stock Appreciation Right is granted in tandem with a Option, the payment shall be equal to the difference between (i) the Fair Market Value of the number of shares subject to the Stock Appreciation Right on the exercise date, and (ii) the Option price of the associated Option multiplied by the number of shares available under the Option.

     3.5 Maximum Stock Appreciation Right Amount Per Share. The Committee may, at its sole discretion, establish (at the time of grant) a maximum amount per share which shall be payable upon the exercise of a Stock Appreciation Right, expressed as a dollar amount or as a percentage or multiple of the Option price of a related Option.

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IV RESTRICTED STOCK AND UNITS

     4.1 Grant of Restricted Stock and Restricted Stock Units. Subject to the terms and conditions of the Plan, the Committee, at any time and from time to time, may grant shares of Restricted Stock and Restricted Stock Units under the Plan to such Participants and in such amounts as it shall determine.

     4.2 Restricted Stock Agreement. Each grant of Restricted Stock or Restricted Stock Units shall be evidenced by an Agreement that shall specify the terms of the restrictions, including the Restriction Period, or periods, the number of Common Stock shares subject to the grant, or units, the purchase price for the shares of Restricted Stock, if any, the form of consideration that may be used to pay the purchase price of the Restricted Stock, including those specified in Section 2.4, and such other general terms and conditions, including performance goals, as the Committee shall determine.

     4.3 Transferability. Except as provided in this Article IV and Section 11.3 of the Plan, the shares of Common Stock subject to an Award of Restricted Stock or Restricted Stock Units granted hereunder may not be transferred, pledged, assigned, or otherwise alienated or hypothecated until the termination of the applicable Restriction Period or for such period of time as shall be established by the Committee and specified in the applicable Agreement, or upon the earlier satisfaction of other conditions as specified by the Committee in its sole discretion and as set forth in the applicable Agreement.

     4.4 Other Restrictions. The Committee shall impose such other restrictions on any shares of Common Stock subject to an Award of Restricted Stock Award or Restricted Stock Units under the Plan as it may deem advisable including, without limitation, restrictions under applicable Federal or State securities laws, and the issuance of a legended certificate of Common Stock representing such shares to give appropriate notice of such restrictions. The Committee shall have the discretion to waive the applicable Restriction Period with respect to all or any part of the Common Stock subject to an Award of Restricted Stock or Restricted Stock Units that has not been granted under Code Section 162(m).

     4.5 Voting Rights. During the Restriction Period, Participants holding shares of Common Stock subject to a Restricted Stock Award may exercise full voting rights with respect to the Restricted Stock.

     4.6 Dividends and Dividend Equivalents.

          (a) Except as set forth below or in a Participant’s Agreement, during the Restriction Period, a Participant shall be entitled to receive all dividends and other distributions paid with respect to shares of Common Stock subject to an Award of Restricted Stock. If any dividends or distributions are paid in shares of Common Stock during the Restriction Period applicable to an Award of Restricted Stock, the dividend or other distribution shares shall be subject to the same restrictions on transferability as the shares of Common Stock with respect to which they were paid.

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          (b) The Committee, in its discretion, may provide in the Agreement evidencing any Restricted Stock Unit that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Common Stock having a record date prior to the date on which Restricted Stock Units held by such Participant are settled. Such Dividend Equivalents, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Common Stock. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (i) the amount of cash dividends paid on such date with respect to the number of shares of Common Stock represented by the Restricted Stock Units previously credited to the Participant, by (ii) the Fair Market Value per share of Common Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Restricted Stock Units originally subject to the Restricted Stock Unit. In the event of a dividend or distribution paid in shares of Common Stock or any other adjustment made upon a change in the capital structure of the Corporation as described in Article 10, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the shares of Common Stock issuable upon settlement of the Restricted Stock Unit, and all such new, substituted or additional securities or other property shall be immediately subject to the same restrictions as are applicable to the Restricted Stock Unit.

     4.7 Settlement of Restricted Stock Units. If a Restricted Stock Unit is payable in Common Stock, the Corporation shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Vest or on such other date determined by the Committee, in its discretion, and set forth in the Agreement, one (1) share of Common Stock and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 10.1 for each Restricted Stock Unit then becoming Vested or otherwise to be settled on such date, subject to the withholding of applicable taxes.

V PERFORMANCE AWARDS

     5.1 Grant of Performance Awards. The Committee, at its discretion, may grant Performance Awards to Participants and may determine, on an individual or group basis, the performance goals to be attained pursuant to each Performance Award.

     5.2 Terms of Performance Awards.

          (a) Performance Awards shall consist of rights to receive cash, Common Stock, other property or a combination of each, if designated performance goals are achieved. The terms of a Participant’s Performance Award shall be set forth in a Participant’s individual Agreement. Each Agreement shall specify the performance goals, which may include the Performance Measures, applicable to a particular Participant or group of Participants, the period over which the targeted goals are to be

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attained, the payment schedule if the goals are attained, and any other general terms as the Committee shall determine and conditions applicable to an individual Performance Award. The Committee, at its discretion, may waive all or part of the conditions, goals and restrictions applicable to the receipt of full or partial payment of a Performance Award that has not been granted pursuant to Code Section 162(m).

          (b) Performance Awards may be granted as Performance Shares or Performance Units, at the discretion of the Committee.

          (i) In the case of Performance Shares, the Participant shall receive a legended certificate of Common Stock, restricted from transfer prior to the satisfaction of the designated performance goals and restrictions, as determined by the Committee and specified in the Participant’s Agreement. Prior to satisfaction of the performance goals and restrictions, the Participant shall be entitled to vote the Performance Shares. Further, any dividends paid on such shares during the performance period automatically shall be reinvested on behalf of the Participant in additional Performance Shares under the Plan, and such additional shares shall be subject to the same performance goals and restrictions as the other shares under the Performance Share Award.

          (ii) In the case of Performance Units, the Participant shall receive an Agreement from the Committee that specifies the performance goals and restrictions that must be satisfied before the Corporation shall issue the payment, which may be cash, a designated number of             shares of Common Stock, other property or a combination thereof.

          (iii) Payment of a Performance Award shall be made following a determination by the Committee that the performance targets were attained and shall be paid within 2¹/2 months after the end of the calendar year in which the performance goals were satisfied.

VI ANNUAL INCENTIVE AWARDS

     6.1 Grant of Annual Incentive Awards.

          (a) The Committee, at its discretion, may grant Annual Incentive Awards to such Participants as it may designate from time to time. The terms of a Participant’s Annual Incentive Award shall be set forth in the Participant’s individual Agreement. Each Agreement shall specify such general terms and conditions as the Committee shall determine.

          (b) The determination of Annual Incentive Awards for a given year may be based upon the attainment of specified levels of Corporation or Subsidiary performance as measured by pre-established, objective performance criteria determined at the discretion of the Committee, including any or all of the Performance Measures.

          (c) The Committee shall (i) select those Participants who shall be eligible to receive an Annual Incentive Award, (ii) determine the performance period,

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(iii) determine target levels of performance, and (iv) determine the level of Annual Incentive Award to be paid to each selected Participant upon the achievement of each performance level. The Committee generally shall make the foregoing determinations prior to the commencement of services to which an Annual Incentive Award relates (or within the permissible time-period established under Code Section 162(m)), to the extent applicable, and while the outcome of the performance goals and targets is uncertain.

     6.2 Payment of Annual Incentive Awards.

          (a) Annual Incentive Awards shall be paid in cash, shares of Common Stock or other property, at the discretion of the Committee. Payments shall be made within thirty (30) days following (i) a determination by the Committee that the performance targets were attained, but not later than 2¹/2 months after the end of the calendar year in which the performance targets were attained, and (ii) a determination by the Committee that the amount of an Annual Incentive Award shall not be decreased in light of pay practices of competitors, or performance of the Corporation, a Subsidiary or a Participant relative to the performance of competitors, or performance with respect to the Corporation’s strategic business goals.

          (b) The amount of an Annual Incentive Award to be paid upon the attainment of each targeted level of performance shall equal a percentage of a Participant’s base salary for the fiscal year, a fixed dollar amount, or such other formula, as determined by the Committee.

VII CODE SECTION 162(m) PERFORMANCE MEASURE AWARDS

     7.1 Awards Granted Under Code Section 162(m). The Committee, at its discretion, may designate that a Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit or Annual Incentive Award shall be granted pursuant to Code Section 162(m). Such an Award must comply with the following additional requirements, which shall control over any other provision that pertains to such Award under Articles IV, V and VI.

          (a) Each Code Section 162(m) Award shall be based upon the attainment of specified levels of pre-established, objective Performance Measures that are intended to satisfy the performance based compensation requirements of Code Section 162(m) and the regulations promulgated thereunder. Further, at the discretion of the Committee, an Award also may be subject to goals and restrictions in addition to the Performance Measures.

          (b) For each Code Section 162(m) Award, the Committee shall (i) select the Participant who shall be eligible to receive a Code Section 162(m) Award, (ii) determine the applicable performance period, (iii) determine the target levels of the Corporation or Subsidiary Performance Measures, and (iv) determine the number of shares of Common Stock or cash or other property (or combination thereof) subject to an Award to be paid to each selected Participant. The Committee shall make the foregoing determinations prior to the commencement of services to which an Award relates (or

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within the permissible time period established under Code Section 162(m)) and while the outcome of the performance goals and targets is uncertain.

     7.2 Attainment of Code Section 162 Goals.

          (a) After each performance period, the Committee shall certify, in writing: (i) if the Corporation has attained the performance targets, and (ii) the number of shares pursuant to the Award that are to become freely transferable, if applicable, or the cash or other property payable under the Award. The Committee shall have no discretion to waive all or part of the conditions, goals and restrictions applicable to the receipt of full or partial payment of an Award except in the case of the death or Disability of a Participant.

          (b) Notwithstanding the foregoing, the Committee may, in its discretion, reduce any Award based on such factors as may be determined by the Committee, including, without limitation, a determination by the Committee that such a reduction is appropriate in light of pay practices of competitors, or the performance of the Corporation, a Subsidiary or a Participant relative to the performance of competitors, or performance with respect to the Corporation’s strategic business goals.

     7.3 Individual Participant Limitations. Subject to adjustment as provided in Section 10.1, no Participant in any one fiscal year of the Corporation may be granted (a) Options or Stock Appreciation Rights with respect to more than 750,000 shares of Common Stock; (b) Restricted Stock or Restricted Stock Units that are denominated in shares of Common Stock with respect to more than 250,000 shares; (c) Performance Awards that are denominated in shares of Common Stock with respect to more than 250,000 shares; and (d) an Annual Incentive Award denominated in shares of Common Stock with respect to more than 250,000 shares. The maximum dollar value payable to any Participant in any one fiscal year of the Corporation with respect to Restricted Stock Units, Performance Awards or Annual Incentive Awards that are valued in property other than Common Stock is the lesser of $5,000,000 or five times the Participant’s base salary for the fiscal year. If an Award is cancelled, the cancelled Award shall continue to be counted towards the applicable limitations.

VIII NON-EMPLOYEE DIRECTOR STOCK RETAINERS

     8.1 In General. In addition to eligibility for certain other Awards under the Plan, Non-Employee Directors shall receive the following stock compensation.

     8.2 Stock Retainers. Effective after the 2005 Annual Meeting of the Corporation’s shareholders, Stock Retainers shall be granted under the Plan to any Non-Employee Director who is first appointed or elected to the Board following the 2005 Annual Meeting.

          (a) Except as provided in paragraph (b) of this Section 8.2, effective on the date of the 2006 Annual Meeting and on each Annual Meeting date thereafter through and including the Annual Meeting date for the year 2014, each individual elected or reelected as a Non-Employee Director at an Annual Meeting shall be paid a Stock

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Retainer consisting of 7,000 shares of Restricted Stock for his or her services as a Non-Employee Director until the next Annual Meeting. Any Non-Employee Director who is appointed to serve (i) as the chairperson of a Board committee during such year shall receive an additional 1,050 shares of Common Stock (subject to the election in Section 8.3 below), or (ii) as the Chairman of the Board of Directors during such year shall receive an additional 1,000 shares of Common Stock (subject to the election in Section 8.3 below).

          (b) Any new Non-Employee Director who is appointed by the Board to fill a vacancy on the Board or who becomes a committee chairperson prior to any such Annual Meeting shall receive a Stock Retainer consisting of a prorated number of shares of Restricted Stock for such interim term (subject to the election in Section 8.3 below).

          (c) The Restriction Period for Restricted Stock granted pursuant to a Stock Retainer shall lapse on 50% of the shares upon a Non-Employee Director’s completion of six (6) months of service on the Board following the grant of the Stock Retainer, and shall lapse on 100% of the shares upon a Non-Employee Director’s completion of one (1) year of service on the Board following the grant of the Stock Retainer. A Non-Employee Director who terminates his or her services on the Board prior to the lapse of such restrictions shall forfeit the Restricted Stock still subject to a Restriction Period as of the date of his or her termination of Board services. Except as permitted under Section 11.3, shares that are subject to a Restriction Period may not be transferred, pledged, assigned or otherwise alienated or hypothecated until the restrictions have lapsed. Prior to the lapse of restrictions, a Non-Employee Director holding Restricted Stock granted hereunder may exercise full voting rights with respect to the Restricted Stock. Also during the Restriction Period, a Director shall be entitled to receive all dividends and other distributions paid with respect to the Restricted Stock. If any dividends or distributions are paid in shares of Common Stock during the Restriction Period, the dividend or other distribution shares shall be subject to the same restrictions on transferability as the Restricted Stock with respect to which they were paid. In the event of a Change in Control, any remaining restrictions on an outstanding Stock Retainer Award automatically shall lapse.

          (d) A Non-Employee Director who is appointed by the Board to fill a new position or to assume new responsibilities not included within the then existing committee structure and responsibilities shall be eligible to receive further Stock Retainers as may be determined by the Board.

     8.3 Stock Retainer Election. Within thirty (30) days following the date on which a Non-Employee Director is first elected or appointed to the Board, the Non-Employee Director may submit an irrevocable written election form requesting that his or her initial Stock Retainer be paid in the form of a Deferred Stock Grant. For each subsequent year, a Non-Employee Director may submit an election form prior to the end of the calendar year immediately preceding the Annual Meeting to which the election relates. Pursuant to the election form, each Non-Employee Director may elect to receive his or her Stock Retainer in the form of a Deferred Stock Grant, to be paid in the form of

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shares of the Common Stock within sixty (60) days following the first to occur of the Non-Employee Director’s Retirement, death or termination of services on the Board.

     8.4 Deferred Stock Grant. A Non-Employee Director who elects to receive his or her Stock Retainer in the form of a Deferred Stock Grant shall have such Deferred Stock Grant allocated to the Non-Employee Director’s Stock Account, a bookkeeping account in the name of the Non-Employee Director, which shall be adjusted in accordance with Section 10.1 for certain corporate events, including stock splits, subdivisions, combinations or reclassifications of Common Stock, and increased from time to time by dividends on the hypothetical shares held in the Stock Account. For such purposes, at the time cash or stock dividends are declared by the Corporation, each Stock Account shall be increased by the number of shares that corresponds to the cash or stock dividend amount that would have been payable on the number of hypothetical shares held in the bookkeeping account had such shares been outstanding at the time the dividend was declared. Stock Account shares shall be subject to the same restrictions as are applicable to Restricted Stock granted pursuant to a Stock Retainer. Restrictions on Stock Account shares shall lapse on 50% of each Deferred Stock Grant upon a Non-Employee Director’s completion of six (6) months of service on the Board following the grant of the Deferred Stock Grant and shall lapse on 100% of the Deferred Stock Grant upon a Non-Employee Director’s completion of one (1) year of service on the Board following the date of the Deferred Stock Grant. In the event of a Change in Control, all remaining restrictions on an outstanding Deferred Stock Grant automatically shall lapse. A Non-Employee Director who terminates his or her services on the Board prior to the lapse of such restrictions shall forfeit the Deferred Stock Grant shares for which the restrictions have not lapsed, as of the date on which his or her Board services are terminated. Except as permitted under Section 11.3, Deferred Stock Grant shares may not be transferred, pledged, assigned or otherwise alienated or hypothecated until the restrictions have lapsed.

IX TERMINATION OF EMPLOYMENT OR SERVICES

     9.1 Options and Stock Appreciation Rights.

          (a) If, prior to the date that an Option or Stock Appreciation Right first becomes Vested, a Participant terminates employment or services for any reason, the Participant’s right to exercise the Option or Stock Appreciation Right shall terminate and all rights thereunder shall cease, unless provided otherwise in a Participant’s Agreement.

          (b) If, on or after the date that an Option or Stock Appreciation Right first becomes Vested, a Participant terminates employment or services for any reason other than death or Disability, the Participant shall have the right, within the earlier of (i) the expiration of the Option or Stock Appreciation Right, and (ii) three (3) months after termination of employment or services, as applicable, to exercise the Option or Stock Appreciation Right to the extent that it was exercisable and unexercised on the date of the Participant’s termination of employment or services, subject to any other limitation on the exercise of the Option or Stock Appreciation Right in effect on the date of exercise. The

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Committee may designate in a Participant’s Agreement that an Option or Stock Appreciation Right shall terminate at an earlier or later time than set forth above.

          (c) If, on or after the date that an Option or Stock Appreciation Right first becomes Vested, a Participant terminates employment or services due to death while an Option or Stock Appreciation Right is still exercisable, the person or persons to whom the Option or Stock Appreciation Right shall have been transferred by will or the laws of descent and distribution, shall have the right within the exercise period specified in the Participant’s Agreement to exercise the Option or Stock Appreciation Right to the extent that it was exercisable and unexercised on the Participant’s date of death, subject to any other limitation on exercise in effect on the date of exercise. Provided, however, that the beneficial tax treatment of an Incentive Stock Option may be forfeited if the Option is exercised more than one (1) year after a Participant’s date of death.

          (d) If, on or after the date that an Option or Stock Appreciation Right first becomes Vested, a Participant terminates employment or services due to Disability, the Participant shall have the right, within the exercise period specified in the Participant’s Agreement, to exercise the Option or Stock Appreciation Right to the extent that it was exercisable and unexercised on the date of the Participant’s termination of employment or services due to Disability, subject to any other limitation on the exercise of the Option or Stock Appreciation Right in effect on the date of exercise. If the Participant dies after termination of employment or services, as applicable, while the Option or Stock Appreciation Right is still exercisable, the Option or Stock Appreciation Right shall be exercisable in accordance with the terms of paragraph (c), above.

          (e) The Committee, at the time of a Participant’s termination of employment or services, may accelerate a Participant’s right to exercise an Option or extend the exercise period of an Option or Stock Appreciation Right (subject to Code Section 409A), but in no event past the tenth anniversary of the Grant Date; provided, however, that the extension of the exercise period for an Incentive Stock Option may cause such Option to forfeit its preferential tax treatment.

          (f) Shares subject to Options and Stock Appreciation Rights that are not exercised in accordance with the provisions of (a) through (e) above shall expire and be forfeited by the Participant as of their expiration date and shall become available for new Awards under the Plan as of such date.

     9.2 Restricted Stock and Restricted Stock Units. If a Participant terminates employment for any reason, the Participant’s right to shares of Common Stock subject to a Restricted Stock or Restricted Stock Unit Award that are still subject to a Restriction Period automatically shall terminate and be forfeited by the Participant (or, if the Participant was required to pay a purchase price for the Restricted Stock, other than for the performance of services, the Corporation shall have the option to repurchase any shares acquired by the Participant which are still subject to the Restriction Period for the purchase price paid by the Participant) and, subject to Section 1.6, said shares shall be available for new Awards or Stock Retainers under the Plan as of such termination date. Provided, however, that the Committee, in its sole discretion, may provide in a

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Participant’s Agreement or otherwise for the continuation of a Restricted Stock Award or Restricted Stock Unit after a Participant terminates employment or services or may waive or change the remaining restrictions or add additional restrictions, as it deems appropriate. The Committee shall not waive any restrictions on a Code Section 162(m) Restricted Stock or Restricted Stock Unit Award, but the Committee may provide in a Participant’s Code Section 162(m) Restricted Stock or Restricted Stock Unit Agreement or otherwise that prior to the termination of the Restriction Period, the performance goals and restrictions shall be deemed to have been satisfied on terms determined by the Committee, upon the Employee’s termination of employment due to (a) death, (b) Disability, or (c) for Awards with performance periods commencing before January 1, 2009, involuntary termination by the Corporation without cause (as determined by the Committee).

     9.3 Performance Awards. Performance Awards shall expire and be forfeited by a Participant upon the Participant’s termination of employment or services for any reason, and, subject to Section 1.6, shall be available for new Awards or Stock Retainers under the Plan as of such termination date. Provided, however, that the Committee, in its discretion, may provide in a Participant’s Agreement or otherwise for the continuation of a Performance Award after a Participant terminates employment or services or may waive or change all or part of the conditions, goals and restrictions applicable to such Performance Award. Notwithstanding the foregoing, the Committee shall not waive any restrictions on a Code Section 162(m) Performance Award, but the Committee may provide in an Employee’s Code Section 162(m) Performance Share Agreement or otherwise that prior to the attainment of the associated performance goals and restrictions, the performance goals and restrictions shall be deemed to have been satisfied on the terms determined by the Committee, upon the Employee’s termination of employment due to (a) death; (b) Disability; or (c) for Awards with performance periods commencing before January 1, 2009, involuntary termination by the Corporation without cause (as determined by the Committee).

     9.4 Annual Incentive Awards.

          (a) A Participant who has been granted an Annual Incentive Award and terminates employment or services due to Retirement, Disability or death prior to the end of the Corporation’s fiscal year shall be entitled to a pro-rated payment of the Annual Incentive Award, based on the number of full months of employment or services, as applicable during the fiscal year. Any such prorated Annual Incentive Award shall be paid at the same time as regular Annual Incentive Awards and, in the event of the Participant’s death, to the Participant’s designated beneficiary.

          (b) Except as otherwise determined by the Committee in its discretion, a Participant who has been granted an Annual Incentive Award and resigns or is terminated for any reason (other than Retirement, Disability or death), before the end of the Corporation’s fiscal year for which the Annual Incentive Award is to be paid, shall forfeit the right to the Annual Incentive Award payment for that fiscal year.

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     9.5 Stock Retainers. If a Non-Employee Director terminates services on the Board for any reason other than a Change in Control of the Corporation, the Non-Employee Director’s Restricted Stock and Stock Account shares still subject to restrictions automatically shall be forfeited by the Non-Employee Director and, subject to Section 1.6, shall be available for new Awards or Stock Retainers 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 Restricted Stock and Stock Account shares and add such new restrictions to Restricted Stock and Stock Account shares as it deems appropriate.

     9.6 Other Provisions. 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. For purposes of Code Section 409A, a leave of absence shall not be considered a termination of employment if the leave duration either is six (6) months or less (up to twenty-nine (29) months for disability) or reemployment upon expiration of such leave is guaranteed by statute or contract.

X ADJUSTMENTS AND CHANGE IN CONTROL

     10.1 Adjustments. In the event of a merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Common Stock or the value thereof, such adjustments and other substitutions shall be made to the Plan and Awards and Stock Retainers as the Committee, in its sole discretion, deems equitable or appropriate, including adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan and, in the aggregate or to any one Participant, in the number, class, kind and option or exercise price of securities subject to outstanding Awards and Stock Retainers granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company, as the Committee may determine to be appropriate in its sole discretion).

     10.2 Change in Control.

          (a) Notwithstanding anything contained herein to the contrary, the Committee, in its discretion, may provide in a Participant’s Agreement or otherwise that upon a Change in Control, or such other events as determined by the Committee, any or all of the following shall occur: (i) any outstanding Option or Stock Appreciation Right granted hereunder immediately shall become fully Vested and exercisable, regardless of any installment provision applicable to such Option or Stock Appreciation Right; (ii) the remaining Restriction Period on any Shares of Common Stock subject to a Restricted Stock or Restricted Stock Unit Award granted hereunder immediately shall lapse and the shares shall become fully transferable, subject to any applicable Federal or State securities laws; (iii) all performance goals and conditions shall be deemed to have been

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satisfied and all restrictions shall lapse on any outstanding Performance Awards, which immediately shall become payable (either in full or pro-rata based on the portion of the applicable performance period completed as of the Change in Control); (iv) all performance targets and performance levels shall be deemed to have been satisfied for any outstanding Annual Incentive Awards, which immediately shall become payable (either in full or pro-rata based on the portion of the applicable performance period completed as of the Change in Control); or (v) such other treatment as the Committee may determine.

          (b) The Committee may, in its sole discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Option or Stock Appreciation Right outstanding immediately prior to the Change in Control shall be cancelled in exchange for a payment with respect to each Vested share of Common Stock subject to such cancelled Option or Stock Appreciation Right in (i) cash, (ii) stock of the Corporation or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Common Stock in the Change in Control over the exercise price per share under such Option or Stock Appreciation Right (the “Spread”). In the event such determination is made by the Committee, the Spread (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of their cancelled Options and Stock Appreciation Rights as soon as practicable following the date of the Change in Control.

          (c) Notwithstanding the foregoing, the Committee, in its discretion, may provide in a Participant’s Agreement or otherwise that, if in the event of a Change in Control the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit payable in shares of Common Stock, Performance Award payable in shares of Common Stock or Annual Incentive Award payable in shares of Common Stock, then each such outstanding Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or Annual Incentive Award shall not be accelerated as described in Section 10.2(a). For the purposes of this Section 10.2(c), such an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or Annual Incentive Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase or receive, for each share of Common Stock subject to such Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or Annual Incentive Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of shares of Common Stock for each share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of such Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or

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Annual Incentive Award, for each share of Common Stock subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per share consideration received by holders of shares of Common Stock in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.

XI MISCELLANEOUS

     11.1 Partial Exercise/Fractional Shares. The Committee may permit, and shall establish procedures for, the partial exercise of Options and Stock Appreciation Rights granted under the Plan. No fractional shares shall be issued in connection with the exercise of a Stock Appreciation Right or payment of a Performance Award, Restricted Stock Award, Restricted Stock Unit, Annual Incentive Award or Stock Retainer; instead, the Fair Market Value of the fractional shares shall be paid in cash, or at the discretion of the Committee, the number of shares shall be rounded down to the nearest whole number of shares and any fractional shares shall be disregarded.

     11.2 Rights Prior to Issuance of Shares. No Participant shall have any rights as a shareholder with respect to shares covered by an Award 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 except as otherwise provided in the Plan or a Participant’s Agreement or by the Committee.

     11.3 Non-Assignability; Certificate Legend; Removal.

          (a) Except as described below or as otherwise determined by the Committee in a Participant’s Agreement, no Award or Stock Retainer shall be transferable by a Participant except by will or the laws of descent and distribution, and an Option or Stock Appreciation Right shall be exercised only by a Participant during the lifetime of the Participant. Notwithstanding the foregoing, a Participant may assign or transfer an Award or Stock Retainer with the consent of the Committee (each transferee thereof, a “Permitted Assignee”); provided that such Permitted Assignee shall be bound by and subject to all of the terms and conditions of the Plan and any Agreement relating to the transferred Award or Stock Retainer and shall execute an agreement satisfactory to the Corporation evidencing such obligations; and provided further that such Participant shall remain bound by the terms and conditions of the Plan.

          (b) Each certificate representing shares of Common Stock subject to an Award or Stock Retainer shall bear the following legend:

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the Champion Enterprises, Inc. 2005 Equity Compensation and Incentive Plan (“Plan”), rules and administrative guidelines adopted pursuant to such Plan [and an

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Agreement dated         ,    ]. A copy of the Plan, such rules [and such Agreement] may be obtained from the Secretary of Champion Enterprises, Inc.

          (c) Subject to applicable Federal and State securities laws, issued shares of Common Stock subject to an Award or Stock Retainer shall become freely transferable by the Participant after all applicable restrictions, limitations, performance requirements or other conditions have terminated, expired, lapsed or been satisfied. Once such issued shares of Common Stock are released from such restrictions, limitations, performance requirements or other conditions, the Participant shall be entitled to have the legend required by this Section 11.3 removed from the applicable Common Stock certificate.

     11.4 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 or Stock Appreciation Right or deliver Common Stock pursuant to a Restricted Stock Award, Restricted Stock Unit, Performance Award, Annual Incentive Award or Stock Retainer 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 Securities Exchange Act of 1934, 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 Committee may impose such restrictions on any shares of Common Stock acquired pursuant to the exercise of an Option or Stock Appreciation Right or the grant of Restricted Stock or Restricted Stock Units or the payment of a Performance Award, Annual Incentive Award or Stock Retainer 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 other securities exchange or recognized trading market or quotation system 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.

     11.5 Withholding Taxes.

          (a) The Corporation shall have the right to withhold from a Participant’s compensation or require a Participant 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 Award, Restricted Stock Unit, Stock Retainer, or the payment of a Performance Award or

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Annual Incentive Award. A Participant may in order to fulfill the withholding obligation 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 broker assisted 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) Notwithstanding the foregoing, a Participant may not use shares of Common Stock to satisfy the withholding requirements to the extent that (i) there is a substantial likelihood that the use of such form of payment or the timing of such form of payment would subject the Participant to a substantial risk of liability under Section 16 of the Exchange Act; (ii) such withholding would constitute a violation of the provisions of any law or regulation (including the Sarbanes-Oxley Act of 2002); or (iii) there is a substantial likelihood that the use of such form of payment would result in adverse accounting treatment to the Corporation under generally accepted accounting principles.

     11.6 Termination and Amendment.

          (a) The Board may terminate the Plan, or the granting of Awards or Stock Retainers under the Plan, at any time. No new Incentive Stock Options shall be made under the Plan after December 6, 2014. No other new Awards or Stock Retainers shall be made under the Plan after May 2, 2015.

          (b) The Board may amend or modify the Plan at any time and from time to time, but no amendment or modification, without the approval of the shareholders of the Corporation, shall (i) materially increase the benefits accruing to Participants under the Plan; (ii) increase the amount of Common Stock for which Awards may be made under the Plan, except as permitted under Sections 1.6 and Article 10; (iii) change the provisions relating to the eligibility of individuals to whom Awards or Stock Retainers may be made under the Plan; or (iv) permit the repricing of Options or Stock Appreciation Rights. In addition, if the Corporation’s Common Stock is listed on the Stock Exchange or another stock exchange, the Board may not amend the Plan in a manner requiring approval of the shareholders of the Corporation under the rules of the Stock Exchange or such other stock exchange, without obtaining the approval of the shareholders.

          (c) No amendment, modification, or termination of the Plan shall in any manner affect any then outstanding Award or Stock Retainer under the Plan without the consent of the Participant holding such Award or Stock Retainer, except as set forth in any Agreement relating to an Award or Stock Retainer, or to bring the Plan or an Award or Stock Retainer into compliance with Code Section 409A.

     11.7 Effect on Employment or Services. Neither the adoption of the Plan nor the granting of any Award or Stock Retainer pursuant to the Plan shall be deemed to

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create any right in any individual to be retained or continued in the employment or services of the Corporation or a Subsidiary.

     11.8 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.

     11.9 Repurchase Rights. Shares of Common Stock issued under the Plan may be subject to one (1) or more repurchase options, or other conditions and restrictions, as determined by the Committee in its discretion at the time an Award or Stock Retainer is granted. The Corporation shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one (1) or more persons as may be selected by the Corporation. Upon request by the Corporation, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Common Stock hereunder and shall promptly present to the Corporation any and all certificates representing shares of Common Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

     11.10 Severability. If any one or more of the provisions (or any part thereof) of this Plan or of any Agreement issued hereunder, shall be held to be invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan or of any Agreement shall not in any way be affected or impaired thereby. The Corporation may, without the consent of any Participant, and in a manner determined necessary solely in the discretion of the Corporation, amend the Plan and any outstanding Agreement as the Corporation deems necessary to ensure the Plan and all Awards and Stock Retainers remain valid, legal or enforceable in all respects.

     11.11 Beneficiary Designation. Subject to local laws and procedures, each Participant may file a written beneficiary designation with the Corporation stating who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before receipt of any or all of a Plan benefit. Each designation shall revoke all prior designations by the same Participant, be in a form prescribed by the Corporation, and become effective only when filed by the Participant in writing with the Corporation during the Participant’s lifetime. If a Participant dies without an effective beneficiary designation for a beneficiary who is living at the time of the Participant’s death, the Corporation shall pay any remaining unpaid benefits to the Participant’s legal representative.

     11.12 Unfunded Obligation. A Participant shall have the status of a general unsecured creditor of the Corporation. Any amounts payable to a Participant pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. The Corporation shall not be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Corporation shall retain at all times beneficial ownership of any investments, including

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trust investments, which the Corporation may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or the Corporation and a Participant, or otherwise create any Vested or beneficial interest in any Participant or the Participant’s creditors in any assets of the Corporation. A Participant shall have no claim against the Corporation for any changes in the value of any assets which may be invested or reinvested by the Corporation with respect to the Plan.

     11.13 Approval of Plan. The Plan shall be subject to the approval of the holders of at least a majority of the votes cast at a duly held meeting of shareholders of the Corporation held within twelve (12) months after adoption of the Plan by the Board. No Award granted under the Plan may be exercised or paid in whole or in part unless the Plan has been approved by the shareholders as provided herein. If not approved by shareholders within twelve (12) months after approval by the Board, the Plan and any Awards granted under the Plan shall be null and void, with no further force or effect.

     IN WITNESS WHEREOF, this 2005 Equity Compensation and Incentive Plan as amended and restated has been executed on behalf of the Corporation on this the 17^th day of December, 2008, to be effective December 31, 2008.

CHAMPION ENTERPRISES, INC.
By:	/s/  William C. Griffiths
	William C. Griffiths
	Chairman of the Board of Directors,
	President and Chief Executive Officer

BOARD APPROVAL:	12/7/04; 9/26/08
SHAREHOLDER APPROVAL:	5/3/05

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EX-10.16

Exhibit 10.16

CHAMPION ENTERPRISES, INC.

EXECUTIVE OFFICER SEVERANCE PAY PLAN

(Effective as of December 1, 2004
Amended December 31, 2008)

INTRODUCTION

     The purpose of the Plan is to enable Champion Enterprises, Inc. (the “Company”), to offer certain protections to its executive officers (who are not covered by an employment contract that specifically provides severance), if their employment is terminated by the Company without Cause or by the Participant with Good Reason. Capitalized terms and phrases used herein shall have the meanings ascribed thereto in Article I.

ARTICLE I.
DEFINITIONS

     1.1 Affiliate shall mean each of the following:

     (a) any Subsidiary;

     (b) any Parent;

     (c) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; and

     (d) any other entity in which the Company or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” by resolution of the Committee.

     1.2 Base Salary shall mean the Participant’s annual base compensation rate for services paid by the Company to the Participant at the time immediately prior to the Participant’s termination of employment, as reflected in the Company’s payroll records. Base Salary shall not include commissions, bonuses, overtime pay, incentive compensation, benefits paid under any qualified plan, any group medical, dental or other welfare benefit plan, noncash compensation or any other additional compensation but shall include amounts reduced pursuant to the Participant’s salary reduction agreement under Sections 125, 132(f)(4) or 401(k) of the Code, if any, or a nonqualified elective deferred compensation arrangement, if any, to the extent that in each such case the reduction is to base compensation.

     1.3 Board shall mean the board of directors of the Company from time to time.

     1.4 Cause shall mean

     (a) a Participant’s dishonesty in Participant’s financial dealings with, or on behalf of, the Company;

     (b) a Participant’s commission of, indictment for or pleading guilty or nolo contendere to a crime by the Participant which constitutes:

(i)	a felony (other than a traffic related offense), or
(ii)	a misdemeanor involving moral turpitude which, may reasonably be expected to have an adverse effect on the Company, its business, reputation or interest.

     (c) a Participant’s material breach of the terms of Participant’s employment contract or any other contract or agreement between the Participant and the Company, which breach, if curable, is not cured within 20 days of the giving of written notice thereof to the Participant;

     (d) a Participant’s material violation of the Company’s code of conduct, code of ethics or any other written policy or a material breach by the Participant of a fiduciary duty or responsibility to the Company;

     (e) the refusal of a Participant to follow the lawful policies and directives of the Board or a more senior officer within five days of the giving of written notice thereof to the Participant;

     (f) the willful misconduct or gross negligence of a Participant with regard to the Company or in the performance of Participant’s duties that is materially injurious to the Company; or

     (g) the willful and continued failure of a Participant to attempt to perform the Participant’s duties with the Company (other than for any such failure resulting from the Participant’s incapacity due to physical or mental illness) after written notice of such failure has been give to the Participant.

     1.5 Code shall mean the Internal Revenue Code of 1986, as amended.

     1.6 Committee shall mean the Compensation and Human Resources Committee appointed by the Board from time to time to administer the Plan. Notwithstanding the foregoing, if, and to the extent that no Committee exists which has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board and all references herein to the Committee shall be deemed to be references to the Board.

     1.7 Company shall mean Champion Enterprises, Inc., its Affiliates and any successors as provided in Article VI hereof.

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     1.8 Disability shall mean a Participant’s disability that would qualify as such under the Company’s long-term disability plan without regard to any waiting periods set forth in such plan.

     1.9 Effective Date shall mean December 1, 2004.

     1.10 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

     1.11 Good Reason shall mean the occurrence of any of the following events, without the express written consent of a Participant, unless such events are fully corrected in all material respects by the Company within 30 days following written notification by the Participant to the Company that Participant intends to terminate Participant’s employment hereunder for one of the reasons set forth below:

     (a) any reduction or diminution (except temporarily during any period of physical or mental incapacity) in the Participant’s titles or a material reduction or diminution in the Participant’s authorities, duties or responsibilities or reporting requirements;

     (b) any reduction in the Participant’s Base Salary (other than an across-the-board reduction of not more than 10% of Base Salary applicable to executive officers generally);

     (c) Company’s material breach the terms of Participant’s employment contract or any other contract or agreement between the Participant and the Company; or

     (d) the Participant is required to relocate to a principal place of employment more than 60 miles from Participant’s principal place of employment with the Company.

     1.12 Parent shall mean any parent corporation of the Company within the meaning of Section 424(e) of the Code.

     1.13 Participant shall mean any employee of the Company designated by the Board as an “officer” for purposes of Section 16 of the Securities Exchange Act of 1934, provided, however, the President and Chief Executive Officer shall not be a Participant in this Plan.

     1.14 Plan shall mean the Champion Enterprises, Inc. Executive Officer Severance Pay Plan.

     1.15 Severance Benefit shall mean a severance benefit calculated and paid in accordance with Section 2.1 below.

     1.16 Severance Period shall mean the 18-month period (or such other period specified by the Committee in writing to a Participant at the time such participant first becomes a Participant) following a termination of a Participant’s employment by the Company without Cause or by a Participant for Good Reason.

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     1.17 Subsidiary shall mean any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code.

ARTICLE II.
BENEFITS

     2.1 Eligibility for Benefits. Upon the Participant’s termination of employment by the Company without Cause or by Participant for Good Reason, subject to Sections 2.3, 2.4, 2.5 and 2.6 below, Participant shall receive during the Severance Period salary continuation payments, distributed on normal payroll dates, equal to the Participant’s Base Salary less any other severance payments provided by the Company through any other agreement or other Company-sponsored program. Notwithstanding the foregoing, all or part of the Severance Benefit to a Participant who is determined to constitute a Code Section 409A “Specified Employee” at the time of separation from service, shall be delayed (if then required) under Code Section 409A, and paid in an aggregated lump sum on the first day of the seventh month following the Participant’s separation from service (or the date of the Participant’s death, if earlier). Any remaining payments shall be made on regularly scheduled payment dates. Payment of the Severance Benefit for the 13^th through 18^th months of the Severance Period shall be conditioned on the Participant not having commenced subsequent employment, including self-employment, and shall be subject to the provisions of Section 2.3. The Participant shall give the Company written notice of the Participant’s commencing subsequent employment within 5 days of such commencement date.

     If the Participant is covered by a change in control agreement and becomes entitled to payments or benefits thereunder, no Severance Benefit shall be payable hereunder.

     A Participant shall not be entitled to a Severance Benefit if the Participant’s employment is terminated:

(i)	by the Company for Cause,
(ii)	by the Participant other than for Good Reason, or
(iii)	on account of the Participant’s retirement, death or Disability.

     2.2 COBRA Benefits. Subject to (i) the Participant’s compliance with the obligations in Sections 2.3, 2.4, 2.5 and 2.6 below and (ii) the Participant’s timely election of continuation coverage under the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended (“COBRA”) and the Participant’s continued copayment of contributions at the same level and cost to the Participant as if the Participant were an employee of the Company (excluding, for purposes of calculating cost, an employee’s ability to pay premiums with pre-tax dollars), the Company shall pay the portion of the applicable employer COBRA continuation coverage contributions under the Company’s health insurance plan that generally applies to a Participant entitled to receive a Severance Benefit for a Participant and his or her dependents until the earliest of:

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     (a) a Participant ceasing to be entitled to receive a Severance Benefit;

     (b) for each of a Participant and his or her dependents, when such person ceases to be eligible for COBRA; or

     (c) a Participant commencing other substantially full-time employment, including self-employment, that offers a health care program.

     With regard to (b) above, if a Participant or any of his or her dependents ceases to be eligible for COBRA, the Company’s obligation to pay any contributions for such person shall cease, but the Company’s obligation to pay the premium for the Participant or any dependent who is still eligible for COBRA shall continue. A Participant shall promptly notify the Company if he or she becomes covered by a health care program of a subsequent employer. Notwithstanding the foregoing, if the COBRA coverage is pursuant to a self-insured plan, the Participant (and/or dependents, as applicable), shall be required to pay the full COBRA contribution and shall be reimbursed monthly by the Company for the Company’s portion of the contribution under this Section.

     2.3 No Duty to Mitigate/Set-off. During the first 12 months of the Severance Period, no Participant entitled to receive a Severance Benefit hereunder shall be required to seek other employment or to attempt in any way to reduce any amounts payable to him or her pursuant to this Plan and the amount of the Severance Benefit payable hereunder shall not be reduced by any compensation earned by the Participant as a result of employment by another employer or otherwise. Thereafter, for the remainder of the Severance Period and in order to continue receiving a Severance Benefit, a Participant shall seek in good faith other employment consistent with the Participant’s skills, experience and educational background and any compensation earned by a Participant as a result of such other employment shall be set off against the Severance Benefit otherwise payable to the Participant. In the event of the Participant’s breach of any provision hereunder, including without limitation, Sections 2.5 and 2.6, the Participant shall be obligated to repay, and the Company shall be entitled to recover, any payments previously made to the Participant hereunder.

     2.4 Release Required. Any amounts payable and benefits provided pursuant to this Plan shall only be payable or provided if the Participant delivers to the Company and does not revoke a general release of all claims of any kind whatsoever that the Participant has or may have against the Company and its affiliates and their officers, directors and employees known or unknown as of the date of his or her termination of employment occurring up to the release date in such form as reasonably requested by the Company.

     2.5 Restrictive Covenants. As a condition of the receipt of any Severance Benefit by any Participant, the Participant shall be deemed to have agreed to the following provisions:

     (a) Confidentiality. The Participant agrees that the Participant shall not at any time, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Participant’s assigned duties and for the benefit of the Company, any nonpublic, proprietary or confidential

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information, knowledge or data relating to the Company, any of its subsidiaries, affiliated companies or businesses, which shall have been obtained by the Participant during the Participant’s employment by the Company. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Participant; (ii) becomes generally known to the public subsequent to disclosure to the Participant through no wrongful act of the Participant or any representative of the Participant; or (iii) the Participant is required to disclose by applicable law, regulation or legal process (provided that the Participant provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information).

     (b) Nonsolicitation. During the Participant’s employment with the Company and for the two year period thereafter, the Participant agrees that the Participant will not, except in the furtherance of the Participant’s duties for the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, (i) solicit, aid or induce any employee, representative or agent of the Company or any of its subsidiaries or affiliates to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company or hire or retain any such employee, representative or agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent, (ii) solicit, aid or induce any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer or (iii) solicit, aid or induce any vendor of the Company or any of its subsidiaries or affiliates to provide goods or services then provided to the Company or any of its subsidiaries or affiliates to another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or purchasing goods or services from such vendor. An employee, representative or agent shall be deemed covered by this paragraph while so employed or retained and for six months thereafter. Subpart (ii) shall not be violated by general advertising or solicitation not specifically targeted at activities of the Company.

     (c) Noncompetition. The Participant acknowledges that the Participant performs services of a unique nature for the Company that are irreplaceable, and that the Participant’s performance of such services to a competing business will result in irreparable harm to the Company. Accordingly, during the Participant’s employment and for the two year period thereafter, the Participant agrees that the Participant will not, directly or indirectly, own, manage, operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in the production, sales or marketing of manufactured housing or any other material business in which the Company or any of its subsidiaries or affiliates is engaged on the date of termination (or, if earlier, the date of determination) or in which they have planned, on or prior to such date, to be engaged in on or after such date, in any

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locale of any country in which the Company conducts business. This Section 2.5(c) shall not prevent the Participant from owning not more than two percent of the total shares of all classes of stock outstanding of any publicly held entity engaged in such business.

     (d) Nondisparagement. The Participant shall not make or induce other persons or entities to make any negative statements as to the Company, its affiliates, employees, past or present officers, directors, products, services, businesses or reputation. Notwithstanding the foregoing, truthful statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 2.5(d).

     (e) Reformation. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 2.5 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.

     (f) Further Acknowledgment. The Participant acknowledges that the restrictive covenants (including, without limitation, confidentiality and non-competition) in any other agreement with the Company previously signed by the Participant shall not be affected by this Plan and that the restrictive covenants therein shall continue to apply after a termination of employment in accordance with the terms of such restrictive covenants.

     (g) Survival Of Provisions. The obligations contained in this Section 2.5 shall survive any termination of the Plan and shall be fully enforceable thereafter.

     2.6 Cooperation. As a condition of the receipt of any Severance Benefit by any Participant, the Participant shall be deemed to have agreed to the provisions of this Section 2.6. Upon the receipt of reasonable notice from the Company (including its outside counsel), the Participant agrees that while employed by the Company and thereafter, the Participant will respond and provide information with regard to matters in which the Participant has knowledge as a result of the Participant’s employment with the Company, and will provide reasonable assistance to the Company, its affiliates and their respective representatives in defense of any claims that may be made against the Company or its affiliates, and will assist the Company and its affiliates in the prosecution of any claims that may be made by the Company or its affiliates, to the extent that such claims may relate to the period of the Participant’s employment with the Company. The Participant agrees to promptly inform the Company if the Participant becomes aware of any lawsuits involving such claims that may be filed or threatened against the Company or its affiliates. The Participant also agrees to promptly inform the Company (to the extent the Participant is legally permitted to do so) if the Participant is asked to assist in any investigation of the Company or its affiliates (or their actions), regardless of whether a lawsuit or other proceeding has then been filed against the Company or its affiliates with respect to such investigation, and shall not do so unless legally required. Upon presentation of appropriate documentation, the Company shall pay or reimburse the Participant for all reasonable out-of-

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pocket travel, duplicating or telephonic expenses incurred by the Participant in complying with this Section 2.6.

     2.7 Equitable Relief and Other Remedies.

     (a) Since the Company’s remedies at law for a breach or threatened breach of any of the provisions of Sections 2.5 or 2.6 would be inadequate, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.

     (b) In the event of a material violation of Sections 2.5 or 2.6, any Severance Benefit being paid to the Participant shall immediately cease.

ARTICLE III.
FUNDING

     This Plan shall be funded out of the general assets of the Company as and when benefits are payable under this Plan. All Participants shall be solely unsecured creditors of the Company and, if a bankruptcy proceeding of the Company is pending, the Participants shall be solely unsecured creditors of the Company with administrative priority. If the Company decides in its sole discretion to establish any advance accrued reserve on its books against the future expense of benefits payable hereunder, or if the Company decides in its sole discretion to fund a trust under this Plan, such reserve or trust shall not under any circumstances be deemed to be an asset of this Plan.

ARTICLE IV.
ADMINISTRATION OF THE PLAN

     4.1 Plan Administrator. The general administration of the Plan on behalf of the Company (as plan administrator under Section 3(16)(A) of ERISA) shall be placed with the Committee.

     4.2 Reimbursement of Expenses of Plan Committee. The Company shall pay or reimburse the members of the Committee for all reasonable expenses incurred in connection with their duties hereunder.

     4.3 Action by the Plan Committee. Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law. Subject to the terms of this Plan and provided that the Committee acts in good faith, the Committee shall have the authority to determine a Participant’s participation and benefits under the Plan and to interpret and construe the provisions of the Plan.

     4.4 Delegation of Authority. The Committee may delegate any and all of its powers and responsibilities hereunder to other persons by formal resolution filed with and accepted by

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the Board. Any such delegation shall not be effective until it is accepted by the Board and the persons designated and may be rescinded at any time by written notice from the Committee to the person to whom the delegation is made.

     4.5 Retention of Professional Assistance. The Committee may employ such legal counsel, accountants and other persons as may be required in carrying out its work in connection with the Plan.

     4.6 Accounts and Records. The Committee shall maintain such accounts and records regarding the fiscal and other transactions of the Plan and such other data as may be required to carry out its functions under the Plan and to comply with all applicable laws.

     4.7 Claims/Disputes Procedure.

     (a) Any claim by a Participant or beneficiary (“Claimant”) with respect to eligibility, participation, contributions, benefits or other aspects of the operation of the Plan shall be made in writing to the Committee. The Committee shall provide the Claimant with the necessary forms and make all determinations as to the right of any person to a disputed benefit. If a Claimant is denied benefits under the Plan, the Committee or its designee shall notify the Claimant in writing of the denial of the claim within 90 days (such period may be extended to 180 days) after the Plan receives the claim, provided that in the event of special circumstances such period may be extended.

     (b) If the initial 90 day period is extended, the Committee or its designee shall, within 90 days of receipt of the claim, notify the Claimant in writing of such extension. The written notice of extension will indicate the special circumstances requiring the extension of time and provide the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Claimant’s failure to submit information necessary to decide the claim, the period for making the determination will be tolled from the date on which the extension notice is sent to the Claimant until the earlier of (i) the date on which the Claimant responds to the Plan’s request for information or (ii) expiration of the 45 day period commencing on the date that the Claimant is notified that the requested additional information must be provided.

     (c) If the claim is wholly or partially denied, the notice to the Claimant shall set forth:

(i)	the specific reason or reasons for the denial;
(ii)	specific reference to pertinent Plan provisions upon which the denial is based;
(iii)	a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;

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(iv)	appropriate information as to the steps to be taken and the applicable time limits if the Claimant wishes to submit the adverse determination for review; and
(v)	a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination on review (collectively, the “Notice Requirements”).

     (d) If the claim has been denied, the Claimant may submit the claim for review. Any request for review of a claim must be made in writing to the Committee no later than 60 days after the Claimant receives notification of denial or, if no notification was provided, the date the claim is deemed denied. The claim will then be reviewed by the Committee. The Claimant or his duly authorized representative may:

(i)	upon request and free of charge, be provided with access to, and copies of, relevant documents, records, and other information relevant to the Claimant’s claim; and
(ii)	submit written comments, documents, records, and other information relating to the claim. The review of the claim determination shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial claim determination.

     (e) The decision of the Committee shall be made within 60 days (such period may be extended to 120 days) after receipt of the Claimant’s request for review, unless special circumstances require an extension.

     (f) If the initial 60 day period is extended, the Committee or its designee shall, within 60 days of receipt of the claim, notify the Claimant in writing of such extension. The written notice of extension will indicate the special circumstances requiring the extension of time and provide the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Claimant’s failure to submit information necessary to decide the claim, the period for making the determination will be tolled from the date on which the extension notice is sent to the Claimant until the earlier of (i) the date on which the Claimant responds to the Plan’s request for information or (ii) expiration of the 45 day period commencing on the date that the Claimant is notified that the requested additional information must be provided.

     (g) If an extension of time is required, the Claimant shall be notified in writing of such extension. The written notice of extension will indicate the special circumstances requiring the extension of time and the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Claimant’s failure to submit information necessary to decide the claim on

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review, the period for making the determination will be tolled from the date on which the extension notice is sent to the Claimant until the earlier of (i) the date on which the Claimant responds to the Plan’s request for information or (ii) expiration of the 45-day period commencing on the date that the Claimant is notified that the requested additional information must be provided. In any event, a decision shall be rendered not later than 120 days after receipt of the request for review.

     (h) The Committee’s decision on the Claimant’s claim for review will be communicated to the Claimant in writing. If the claim on review is denied, the notice to the Claimant shall provide a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim, and also set forth the Notice Requirements (other than subsection (c)(iv)).

     (i) The claims procedures set forth in this section are intended to comply with U.S. Department of Labor Regulation § 2560.503-1 and should be construed in accordance with such regulation. In no event shall it be interpreted as expanding the rights of Claimants beyond what is required by U.S. Dept. of Labor § 2560.503-1.

     (j) A Claimant shall be required to exhaust all administrative remedies under this Section 4.7 prior to commencing any action in Federal court.

     4.8 Indemnification. The Committee, its members and any person designated pursuant to Section 4.4 above shall not be liable for any action or determination made in good faith with respect to the Plan. The Company shall, to the extent permitted by law, by the purchase of insurance or otherwise, indemnify and hold harmless each member of the Committee and each director, officer and employee of the Company for liabilities or expenses they and each of them incur in carrying out their respective duties under this Plan, other than for any liabilities or expenses arising out of such individual’s willful misconduct or fraud.

ARTICLE V.
AMENDMENT AND TERMINATION

     The Company reserves the right to amend or terminate, in whole or in part, any or all of the provisions of this Plan at any time, provided that in no event shall any amendment reducing the benefits provided hereunder or any Plan termination be effective prior to the later of the third anniversary of the Effective Date or the date twelve months after the date the Company gives the Participants written notice of such amendment or termination. Notwithstanding anything in this Plan to the contrary, if the Company becomes obligated to make any payment to the Participant pursuant to the terms hereof, then this Plan shall remain in effect for such purposes until all of the Company’s obligations hereunder are fulfilled. Without limiting the generality of the foregoing, the Company may amend the Plan at any time, retroactively or otherwise, as may be necessary to preserve the intended tax characteristics of the Plan, including, without limitation, such amendments necessary to address the requirements of Section 409A of the Code.

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ARTICLE VI.
SUCCESSORS

     For purposes of this Plan, the Company shall include any and all successors and assignees, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company and such successors and assignees shall perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. In such event, the term “Company”, as used in this Plan, shall mean the Company, as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

ARTICLE VII.
MISCELLANEOUS

     7.1 Rights of Participants. Nothing herein contained shall be held or construed to create any liability or obligation upon the Company to retain any Participant in its service. All Participants shall remain subject to discharge or discipline to the same extent as if this Plan had not been put into effect.

     7.2 Governing Law. This Plan shall be governed by the laws of the State of Michigan (without reference to rules relating to conflicts of law).

     7.3 Withholding. The Company shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to this Plan.

     7.4 Severability. In case any provision of this Plan be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions of this Plan unless such determination shall render impossible or impracticable the functioning of this Plan, and in such case, an appropriate provision or provisions shall be adopted so that this Plan may continue to function properly.

     7.5 Assignment and Alienation. The benefits payable to the Participant under the Plan shall not be subject to alienation, transfer, assignment, garnishment, execution or levy of any kind and any attempt to cause any benefits to be so subjected shall not be recognized.

     7.6 Communications. All announcements, notices and other communications regarding this Plan will be made by the Company in writing.

     7.7 ERISA Plan. This Plan constitutes an unfunded compensation arrangement for members of a select group of the Company’s management, and any exemptions under ERISA, as applicable to such an arrangement, shall be applicable to the Plan.

     7.8 Entire Agreement. Except as specified herein and any change in control agreement, this Plan sets forth the entire understanding of the Company with respect to the subject matter hereof and supersedes all existing severance plans, agreements and understandings

12

(whether oral or written) between the Company and the Participants with respect to the subject matter herein.

     7.9 Not An Agreement Of Employment. This is not a Plan or an agreement assuring employment and the Company reserves the right to terminate any Participant’s employment at any time with or without Cause, subject to the payment provisions hereof. Participant’s shall have no claim against the Company hereunder or for deprivation of the right to receive the amounts hereunder as a result of any termination that does not specifically satisfy the requirements hereof or as a result of any other action taken by the Company. Except as provided herein, the foregoing shall not affect a Participant’s rights under any other agreement with the Company.

     7.10 Code Section 409A. Between January 1, 2005 and December 31, 2008, the Plan was administered in good faith compliance with Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. It is intended that Plan benefits shall be exempt from or in compliance with Code Section 409A, and the provisions of the Plan are to be construed accordingly. However, unless specifically designated herein, in no event shall the Company or an Affiliate be responsible for any tax or penalty owed by a Participant or beneficiary with regard to Plan benefits.

     IN WITNESS WHEREOF, this Champion Enterprises, Inc. Executive Officer Severance Pay Plan, as amended and as approved by Champion’s Board of Directors, has been executed on behalf of the Corporation on this the 17^th day of December, 2008, to be effective December 31, 2008.

CHAMPION ENTERPRISES, INC.
By:	/s/  William C. Griffiths
	William C. Griffiths
	Chairman of the Board of Directors, President and Chief Executive Officer

13

EX-10.18

Exhibit 10.18

December 17, 2008

Mrs. Phyllis A. Knight
5145 Old Mill Road
Rochester, MI 48306

     Re:      409A Revision to Employment Letter

Dear Phyllis:

     Champion is in the process of amending its employment, severance, change in control and other nonqualified deferred compensation plans to comply with Section 409A of the Internal Revenue Code. It has come to our attention that the severance provision in Paragraph 10 of your October 17, 2002 employment letter does not comply with Code Section 409A.

     The severance benefit itself can remain as currently written, but due to your status as a highly compensated employee of a publicly traded company, payment of the severance benefit must be delayed for six months, after which it will be paid to you on the first day of the seventh month after your separation from service (or death, if earlier). On the first day of the seventh month, any withheld payments will be aggregated and paid to you in a lump sum, with the remaining payments occurring on normal payment dates.

     Without conforming the benefit to the Code Section 409A payment delay, the tax consequences are egregious. In addition to paying tax at the ordinary rate, you would be subject to a 20% penalty tax and the IRS underpayment rate plus 1%, on the amount of the benefit.

     If you are in agreement with the employment letter modification described in the second paragraph herein, please sign and date the letter where indicated below. Except as modified by this letter and the letter to you from A. A. Koch dated August 14, 2003, the terms and conditions of your October 17, 2002 employment letter remain in full force and effect.

Sincerely,
/s/ William C. Griffiths
William C. Griffiths
 

ACCEPTED:

/s/  Phyllis A. Knight

Phyllis A. Knight

Dated:   December 17, 2008

EX-10.27

Exhibit 10.27

October 9, 2007

CONFIDENTIAL

Roger K. Scholten
4106 John Lynde Road
Des Moines, IA 50312

Dear Roger:

We are pleased to formally offer you employment with Champion in the position of Sr. Vice President, General Counsel & Secretary. In this position you will report directly to William C. Griffiths, Chairman, President & CEO. Your office location will be at Champion’s Corporate office in Auburn Hills, MI until the end of the year. We are planning to move to new offices in Troy, MI at year-end.

BASE SALARY

In this position, your beginning base salary will be $340,000 per year, paid bi-weekly. This salary will be effective as of your employment date. Your salary will be reviewed at least annually with the first review occurring in January 2009.

CORPORATE INCENTIVE

In this position you will be a participant in the Champion Annual Incentive Compensation Plan effective January 2009 with an incentive target of 50% of annual base salary. Your bonus is dependent upon Champion achieving certain financial goals and Plan rules. Your actual bonus earned may be higher than your target bonus, conversely, it could be lower depending on the Company’s actual performance. The annual incentive plan example included is for 2007. A copy of the Board presentation Executive Pay Strategy and Programs covering the Annual Plan, the Performance Share Plan and the new Transformation Growth Plan is enclosed. The Board presentation provides information about the future direction for the 3 plans although these changes have not yet been approved.

PERFORMANCE SHARE AWARD

You will also be eligible to participate in the 2008-2010 Senior Management Equity Compensation Performance Share Award Plan, subject to Board approval. This Plan gives you the opportunity to receive shares of common stock of the Company subject to the Plan and applicable agreements. Grants typically are made; subject to CEO and Board approval during the fourth calendar quarter for the following three (3) year period beginning in January. For the 2008 Plan cycle, we will recommend a grant of 30,000 Performance Shares. Again, please refer to the Executive Pay Strategy and Programs Board presentation.

TRANSFORMATION GROWTH PLAN

Senior management, the Compensation Committee of the Board and an outside consultant are working on a new long-term growth incentive plan. The plan is still in the development stage. Subject of course to Board approval, you will be invited to participate in this new growth focused incentive plan. Details are included in the Executive Pay Strategy and Programs presentation

SAVINGS PLANS

You will have the option to participate in the Champion 401(k) plan (The Retirement Savings (RSP)) on the first of the following month once you have completed three (3) months of continuous employment with Champion. You may defer up to 17 % of your base salary and any future incentive bonus paid to you, subject to IRS limitations. The Company provides a discretionary match equal to $0.50 for each dollar of your savings on the first 6% you contribute. In other words, the maximum match will be 3% for a 6% or higher contribution. Company match contributed to your accounts is vested immediately following one year of continuous employment. We will send information about this program to you by courier.

HEALTH AND WELFARE BENEFITS:

Champion associates enjoy the opportunity of participating in a flexible benefits program that will allow you to select benefit coverage that meets your needs. The benefits program provides you choices for medical/dental; vision; health and dependent care spending accounts; supplemental life insurance for yourself, spouse, and children; and accidental death and dismemberment coverage for you. These benefits will be available to you on the first of the following month once you have completed three (3) months of continuous employment with Champion.

OTHER BENEFITS

Other benefits provided include company paid short-term disability; basic life insurance and AD & D at 2 times base salary, long term disability, business travel accident, retirement benefits, (discussed above) vacation, and holiday pay. Our Corporate HR staff will take care of benefits enrollment prior to the completion of three (3) months of continuous employment.

VACATION

You will be entitled to the greater of fifteen (15) days vacation annually or the normal vacation entitlement provided by Policy.

RELOCATION

The Company will assist you with the costs associated with relocating you to the Troy, MI or surrounding area within the next 12 months. Relocation assistance will be provided through SIRVA. Upon your acceptance of employment, your move will be authorized and a representative from SIRVA will contact you to begin the process. An advance copy of the Executive relocation program is enclosed for your information. Once the move has been authorized, SIRVA will send you a formal copy of this program along with many other forms and information. Because relocations are expensive, we will expect you to sign a document agreeing to repay a portion of the cost on a straight-line declining balance should you decide to leave the Company within the first twenty-four (24) months.

NON-SOLICITATION/CONFIDENTIALITY

Upon your acceptance of this offer, you will be expected to sign a Confidentiality and Non-Solicitation Agreement agreeing not to solicit customers or employees if you decide to leave the company. In addition, you will agree not to disclose confidential or proprietary information during or after your employment with the Company to anyone for any reason. Non-solicitation is in force for one year after termination; non-disclosure is for an indefinite term.

You will be appointed as a 16(b) officer of the Company and as such you will receive the current 16(b) officer severance and change in control agreements, copies of which are attached.

Champion is an “at will” employer. Accordingly, you may terminate your employment at any time and we ask, if you intend to do so, that you provide reasonable advance notice; Champion may also terminate the employment relationship, at any time, with or without cause.

Our offer of employment is contingent upon satisfactorily completing a Background Investigation and successfully passing a pre-employment drug/alcohol screen. We will initiate the Background Investigation once we receive your signed authorization. Please complete the enclosed Background authorization form and Employment Application and return them to HR by fax (248-276-1440) as soon as practical. We’ll arrange the drug/alcohol screen on your first day of work.

Roger, we are excited at the prospect of you joining the Champion team. Your breadth of knowledge should enable you to quickly make a contribution. You can count on our full support.

Please acknowledge you’re acceptance of our offer by countersigning this letter below indicating your start date with the Company, and return one copy to my attention by Wednesday, October 17, 2007.

Sincerely,

/s/  Jeffrey L. Nugent

Jeffrey L. Nugent
Vice President, Human Resources
Champion Enterprises, Inc.

cc:     William C. Griffiths (w/o attachments)

Attachments:
	Confidentiality and Non-Solicitation Agreement
	Relocation Policy
	Executive Pay Strategy and Programs Board presentation
	Employee Benefits Booklets & Summary Plan Descriptions

I accept Champion’s offer of employment as Vice President, General Counsel & Secretary and intend to be available by October 31, 2007

/s/  Roger K. Scholten	10-17-07
Signature	Date Signed
Roger K. Scholten
Print Name

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiary(s)
(State or Country of incorporation or organization)	Names under which business is done
Champion Home Builders Co. [Michigan]	Advantage Homes
	Titan Homes
	Gateway Homes
	Summit Crest Homes
	Redman Home Builders
	Genesis Homes
	Genesis Homes of Colorado
	Champion Homes of Alabama
	Champion Homes of Tennessee
CHB International B.V. [Netherlands]	—
CHB Holdings B.V. [Netherlands]	—
Moduline Industries (Canada) ULC [Alberta, Canada]	New Horizon Homes
SRI Homes ULC [Alberta, Canada]	Regent Home Systems
	Shelter Home Systems
	Winfield Home Systems
Dynamic Modular Homes Ltd [Alberta, Canada]	—
CBS Monaco Limited [United Kingdom]	—
Calsafe Group (Holdings) Limited [United Kingdom]	—
The Calsafe Group Limited [United Kingdom]	—
Caledonian Building Systems Limited [United Kingdom]	—
Accsys Holdings Limited (UK)	—
ModularUK Building Systems Limited (UK)
Champion Enterprises Management Co. [Michigan]	—
Champion Homes of Boaz, Inc. [Michigan]	—
Star Fleet, Inc.	—
Highland Acquisition Corp. [Michigan]	—
Highland Manufacturing Company, LLC [Minnesota]	—
Homes of Merit, Inc. [Florida]	Redman Homes
New Era Building Systems, Inc. [Michigan]	Carolina Buildings Solutions
	Castle Housing of Pennsylvania
	New Image Homes
	Unique Fabrications
North American Housing Corp. [Michigan]

Redman Homes, Inc. [Delaware]	Champion Homes
	Moduline Industries
	Genesis Homes
	Fortune Homes
	Commander Housing
	Champion Housing
	Dutch Housing
	Champion System Built Homes
	Dutch Homes
	Fortune Housing
	Indiana Commercial Solutions
	Champion Home Builders
	Champion Homes of Oregon
	Champion Homes of Richland
	Champion Homes of Alabama
	Champion Homes of Texas
	Summit Crest Homes
	Champion Homes of Sanford
Western Homes Corporation [Delaware]	Silvercrest Homes
	Genesis Homes
Champion Retail, Inc. [Michigan]	—
San Jose Advantage Homes, Inc.	Advantage Homes
Champion Development Corp. [Michigan]	—
2 wholly-owned subsidiaries of this entity operate in the manufactured housing development business in the United States (none in foreign countries)

Companies not included above, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

These are the 2 Champion Development Corp. subsidiaries:

1.	MHCDC, LLC
2.	Covington Estates Limited Partnership

These entities would not in the aggregate constitute a significant subsidiary:

1.	A-1 Champion GP, Inc.
2.	A-1 Liquidating, LP
3.	CFH Liquidating Corp.
4.	Champion Financial Corporation
5.	Champion GP, Inc.
6.	Champion Motor Coach, Inc.
7.	CRH Liquidating Corp.
8.	Fleming County Industries, Inc.
9.	Gateway Acceptance Corp.
10.	Genesis Home Centers, Limited Partnership
11.	GM Liquidating Corp.
12.	HH Liquidating L.P.
13.	HomePride Finance Corp.
14.	Homes of Kentuckiana, LLC
15.	Iseman Corp.
16.	Lamplighter Homes, Inc.
17.	Lemars Investors, Inc. (28%)
18.	Service Contract Corporation
19.	Southern Showcase Finance, Inc.

20.	SSH Liquidating Corp.
21.	TPMH Liquidating Corp.
22.	WM Liquidating Corp.
23.	All the other Champion Development Corp. subsidiaries

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on S-8 (No.s 2-9302, 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, 333-72973, 333-52904, 333-52906, 333-52908, 333-52910, 333-52912, 333-60416 and 333-107499) and in the Registration Statements on Form S-3 (No.s 33-54192, 33-82544, 333-46237, 333-44170, 333-53978, 333-64982, 333-65434, 333-91722, 333-91726, 333-104055 and 333-146980) of Champion Enterprises, Inc. of our reports dated February 17, 2009, with respect to the consolidated financial statements and schedule of Champion Enterprises, Inc. and the effectiveness of internal control over financial reporting of Champion Enterprises, Inc. included in this Annual Report (Form 10-K) for the year ended January 3, 2009.

/s/Ernst & Young LLP  

Detroit, Michigan
February 17, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William C. Griffiths, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Champion Enterprises, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 18, 2009	/s/ WILLIAM C. GRIFFITHS
	William C. Griffiths
	Chairman of the Board of Directors, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Phyllis A. Knight, certify that:

1.	I have reviewed this report on Form 10-K of Champion Enterprises, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 18, 2009	/s/ PHYLLIS A. KNIGHT
	Phyllis A. Knight
	Executive Vice President, Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Champion Enterprises, Inc. (the “Company”) on Form 10-K for the period ending January 3, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William C. Griffiths, Chief Executive Officer of the Company, and Phyllis A. Knight, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ WILLIAM C. GRIFFITHS

William C. Griffiths

Chairman of the Board of Directors,

President and Chief Executive Officer

Champion Enterprises, Inc.

February 18, 2009

/s/ PHYLLIS A. KNIGHT

Phyllis A. Knight

Executive Vice President, Treasurer and

Chief Financial Officer

Champion Enterprises, Inc.

February 18, 2009