10-K
Champion Homes, Inc. (SKY)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2020
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD FROM TO
Commission File Number 001-04714
Skyline Champion Corporation
(Exact name of registrant as specified in its charter)
| Indiana | 35-1038277 |
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| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| 755 West Big Beaver Road, Suite 1000 | |
| Troy, Michigan | 48084 |
| (Address of Principal Executive Offices) | (Zip Code) |
| (248) 614-8211 | |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock | SKY | 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. Yes [X ] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
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 for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:):
| Large accelerated filer [X] | Accelerated filer [ ] | Non-accelerated filer [ ] |
|---|---|---|
| Smaller reporting company [ ] | Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 27, 2019, the aggregate market value of the Registrant’s common stock, par value $0.0277 per share, held by non-affiliates was $1,238,607,662 (computed by reference to the closing sales price of the Registrant’s common stock as of September 27, 2019). For this computation, the Registrant has excluded the market value of all shares of common stock reported as beneficially owned by executive officers and directors of the Registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Number of shares of common stock outstanding as of May 13, 2020: 56,665,681
FORM 10-K
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement used in connection with its 2020 Annual Meeting of Shareholders to be held on July 29, 2020 and which will be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13, and 14.
TABLE OF CONTENTS
| PART I | ||
|---|---|---|
| Item 1. | Business | 3 |
| Item 1A. | Risk Factors | 10 |
| Item 1B. | Unresolved Staff Comments | 18 |
| Item 2. | Properties | 18 |
| Item 3. | Legal Proceedings | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| PART II | ||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 20 |
| Item 6. | Selected Financial Data | 22 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 44 |
| Item 8. | Financial Statements and Supplementary Data | 44 |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 44 |
| Item 9A. | Controls and Procedures | 44 |
| Item 9B. | Other Information | 45 |
| PART III | ||
| Item 10. | Directors, Executive Officers, and Corporate Governance | 46 |
| Item 11. | Executive Compensation | 46 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 46 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 47 |
| Item 14. | Principal Accountant Fees and Services | 47 |
| PART IV | ||
| Item 15. | Exhibits and Financial Statement Schedules | 48 |
| (a) Financial Statements | 48 | |
| Financial Statement Schedules | 48 | |
| Item 16. | 10-K Summary | 49 |
Cautionary Statement About Forward-Looking Statements
Some of the statements in this Annual Report on Form 10-K (this “Annual Report”) that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:
| • | The COVID-19 pandemic, which has had, and could continue to have, significant adverse effects on us; |
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| • | the cyclicality and seasonality of the housing industry and its sensitivity to changes in general economic or other business conditions; |
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| • | demand fluctuations in the housing industry; |
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| • | supply-related issues; |
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| • | labor-related issues; |
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| • | the possible unavailability of additional capital when needed; |
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| • | competition and competitive pressures; |
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| • | changes in consumer preferences for our products or our failure to gauge those preferences; |
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| • | quality problems, including the quality of parts sourced from suppliers and related liability and reputational issues; |
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| • | data security breaches, cybersecurity attacks, and other information technology disruptions, exacerbated by the COVID-19 pandemic; |
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| • | the extensive regulation affecting the production and sale of factory-built housing and the effects of possible changes in laws with which we must comply; |
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| • | the potential impact of natural disasters on sales and raw material costs; |
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| • | the risks associated with possible mergers and acquisitions; |
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| • | the prices and availability of materials; |
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| • | periodic inventory adjustments by, and changes to relationships with, independent retailers; |
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| • | changes in interest and foreign exchange rates; |
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| • | insurance coverage and cost issues; |
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| • | the possibility that all or part of our goodwill might become impaired; |
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| • | the possibility that our risk management practices may leave us exposed to unidentified or unanticipated risks; and |
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| • | other risks described in Part I — Item 1A, "Risk Factors," as well as the risks and information provided from time to time in our other periodic reports filed with the Securities and Exchange Commission (the “SEC”). |
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If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.
ITEM 1. BUSINESS
General
On June 1, 2018, Skyline Champion Corporation (formerly known as Skyline Corporation), an Indiana corporation, and Champion Enterprises Holdings, LLC (“Champion Holdings”) combined their operations pursuant to the Share Contribution & Exchange Agreement (the “Exchange Agreement”), dated as of January 5, 2018, by and between Skyline Corporation and Champion Holdings. Pursuant to the Exchange Agreement, Champion Holdings contributed to Skyline Corporation all of the issued and outstanding shares of capital stock of Champion Holdings’ wholly owned operating subsidiaries, Champion Home Builders, Inc. (“CHB”), and CHB International B.V. (“CIBV”) (the shares of stock of CHB and CIBV contributed to Skyline Corporation, the “Contributed Shares”), and in exchange for the Contributed Shares, Skyline Corporation issued to the members of Champion Holdings, in the aggregate, 47,752,008 shares of Skyline Corporation common stock, $0.0277 par value per share (such issuance, the “Shares Issuance”). The contribution of the Contributed Shares by Champion Holdings to the Corporation, and the Shares Issuance by Skyline Corporation to the members of Champion Holdings are collectively referred to herein as the “Exchange.”
The Exchange was treated as a purchase of the Company by Champion Holdings for accounting and financial reporting purposes. As a result, the financial results for all periods presented prior to the Exchange are comprised solely of the results of Champion Holdings.
The terms "Skyline Champion," "us," "we," "our," the "Company," and any other similar terms refer to Skyline Champion Corporation and its consolidated subsidiaries, unless otherwise indicated in this Annual Report.
We are the largest independent publicly traded factory-built housing company in North America with net sales for the year ended March 28, 2020 (“fiscal 2020”) of $1.4 billion. We have more than 65 years of homebuilding experience, approximately 6,600 employees and 38 manufacturing facilities located in 18 states across the United States and three provinces in western Canada. We offer a leading portfolio of manufactured and modular homes, park model RVs, and modular buildings for the multi-family, hospitality, senior and workforce housing sectors. Our facilities are strategically located to serve strong markets in the United States and western Canada. We operated 13 manufacturing facilities in the top ten states with the highest number of manufactured homes shipped in fiscal 2020, as well as 16 manufacturing facilities in the ten states with the greatest growth in the number of manufactured homes shipped in the last ten years. We believe that we maintain the following leading positions in the factory-built housing industry in the United States and western Canada (based on units) in calendar year 2019:
| • | Number two position in the manufactured housing market segment in the United States |
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| • | Number one modular builder in the United States |
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| • | A leading position in western Canada |
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| • | A leading position in park model RV sales |
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We believe our market leading positions are driven by our comprehensive product offering, strong brand reputation, broad manufacturing footprint, and our complementary retail and logistics businesses. Our market share in the United States manufactured housing market segment has increased from 8% in the beginning of fiscal 2011 to approximately 17% in fiscal 2020 based on total number of units produced. We design and build a range of manufactured and modular homes, park model RVs, Accessory Dwelling Units (“ADUs”), and commercial structures. We believe that the high quality and broad scope of our product and service offerings provide us a competitive advantage relative to other factory-built and certain site-built homes. With our award-winning product designs, we seek to meet the needs of our localized customers, while also providing them with customizable options. Our leading brands are marketed and distributed through a network of independent and company-owned retailers, community operators, government agencies, and commercial developers. We build homes under some of the most well-known brand names in the factory-built housing industry including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada.
In addition to our core home building business, we operate a factory-direct manufactured-home retail business, Titan Factory Direct, with 21 sales centers spanning the southern United States, and Star Fleet Trucking, which provides transportation services to the manufactured housing and other industries from several dispatch locations across the United States.
Corporate Information
Skyline Champion Corporation was originally incorporated in Indiana as Skyline Corporation. Following the completion of the Exchange, we changed our name to Skyline Champion Corporation. Our principal executive offices are located at 755 West Big Beaver Road, Suite 1000, Troy, MI 48084. Our website is located at www.skylinechampion.com. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report.
Business Strategies
We intend to continue to pursue opportunities to profitably grow our revenue, as well as improve our operating margins by executing on our strategic initiatives. However, we feel that the COVID-19 pandemic will slow this progress during fiscal 2021 and possibly fiscal 2022, depending on the trajectory of the virus and its impact on the broader U.S. and Canadian economies including consumer confidence, unemployment and other home-buying trends. Our long-term business strategy is to grow our revenue and earnings by constructing quality-built, sustainable, and innovatively designed homes and other modular structures in an environmentally friendly factory setting.
Capitalize on Market Trends and Other Key Drivers
In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including the need for affordable housing, the underlying growth trends in key homebuyer groups, such as the population over 65 years of age, the population of first-time home buyers, and the population of households earning less than $50,000 per year. More recently, we see a number of market trends pointing to increased sales of ADUs and urban to rural migration as customers accommodate working from home patterns as well as people seeking rent-to-own single-family options. We intend to capitalize on these trends and drivers to grow our business over the medium to long-term. We believe that there is an opportunity for continued manufactured and modular construction market with medium term expansion driven by the foregoing trends and demand drivers, as well as construction labor shortages in certain regions (which tend to adversely and disproportionally impact supply and cost of site-built homes when compared to manufactured housing) and increased affordability of factory-built homes relative to site-built homes.
As the U.S. economy recovers to pre-COVID-19 levels, we will seek to capture additional demand from manufactured housing communities that increase spending on expansion and development projects. In addition, if financing availability continues to improve and related regulation continues to ease, we believe that there will be an increase in the number of prospective customers who qualify for home loans for manufactured and modular homes. Finally, we are one of a limited number of manufactured homebuilders who have been approved for contracts with the Federal Emergency Management Agency (“FEMA”) and have historically provided housing assistance requirements following natural disasters and other housing emergencies.
Expand Products and Distribution Channels through Product Innovation
We design, produce, market, and transport a range of manufactured and modular homes, park model RVs, ADUs and commercial solutions through a variety of channels. We strive to grow our distribution through enhancing our digital offerings and our relationships with community operators, builder/developers, park model operators, and retailers. Through our newly launched Genesis brand, we are expanding our relationships with developers to meet pent-up demand for standardized homes that can be costed effectively and quickly constructed.
We plan to continue to innovate our home designs, home products, and commercial designs to meet the needs of existing and new customers. We have received numerous awards from the Manufactured Housing Institute (“MHI”), the National Association of Home Builders, and others for our leadership in manufactured and modular home designs, craftsmanship and quality. Most recently in calendar year 2020, MHI recognized us as an industry leader with three Excellence in Manufactured and Modular Home Design awards that spanned multiple categories including multi-section, single-section, and modular homes. These awards reflect the unparalleled homes, customer experiences and innovative solutions that we consistently bring to a competitive and dynamic market. We were awarded the Excellence in Home Design for Modular Homes over 4,000 Square Feet as well as recognized for our work on a hotel commercial project by the National Association for Home Builders. We maintain an active dialogue with residential and commercial developers to identify demand trends and anticipate the needs of customers. We also plan to continue to work closely with our suppliers to pilot new products and amenities, such as configurable smart living space ADU designs, in-home smart technologies and luxury interior finishes.
Continue to Implement Operational Initiatives to Enhance Margins Longer Term
We have been able to expand our operating margins over time as a result of increased volume, Exchange synergies, reduction of our material cost inputs, and company-wide efforts focused on standardization and simplification of our operations. We are currently focused on a number of ongoing operational initiatives to further enhance our long-term operating margins and construction innovation, including:
| • | refining our product floor plan designs and options to offer “designed flexibility” to our customers; |
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| • | improving our internal processes as well as externally facing systems to enhance the customer’s experience from initial introduction all the way through home ownership; |
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| • | executing on continuous improvement initiatives related to identified procurement, operational and labor cost saving opportunities as well as streamlining overlapping functions; |
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| • | enhancing the efficiency and sustainability of our products to the customer through value-adding material substitution; and |
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| • | focusing on operational excellence and production efficiency through further simplification of our manufacturing process. |
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Among other initiatives, we plan to further develop our national product line under the Genesis brand, continue development of our modular platform, and standardize our engineering and design platform. We have a proven ability to distribute orders efficiently across our manufacturing footprint based on market demand, workforce availability, and our surrounding distribution capabilities. We are standardizing our manufacturing processes and employing metrics-driven accountability measures across all of our facilities to achieve these strategic initiatives.
Continue a Balanced Organic and Acquisition-Based Growth Strategy
We have demonstrated our ability to broaden our manufacturing and retail presence through the successful execution of a balanced organic growth and acquisition-based strategy. As demand for affordable housing grows and the global economy returns to pre-pandemic volumes, we will continue to execute on this growth strategy. We believe our idle manufacturing plants provide us with the ability to grow with demand over the longer term. We also intend to explore opportunities to acquire value enhancing retail locations, manufacturing facilities, and factory-built housing competitors to supplement our organic growth initiatives. We have a proven track-record of executing and integrating acquisitions.
Factory-Built Housing
A majority of our manufactured products are constructed in accordance with the regulations and rules of the U.S. Department of Housing and Urban Development (“HUD”) and the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended ("HUD code"). We produce a broad range of manufactured and modular homes under a variety of 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 or family room, a dining room, a kitchen and typically two full bathrooms. We also build park model RVs for resorts and campgrounds, ADUs for backyard or recreational living, and commercial modular structures, including hotels, and student and workforce housing.
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 their respective markets. We design and build homes with a traditional residential or site-built appearance through the use of, among other features, dormers and higher pitched roofs. In fiscal 2020, we introduced our Genesis brand of homes which have features similar to site-built home amenities such as porches and garages, and are eligible for recently launched financing programs with terms similar to traditional mortgages. We also are very active in the design and construction of energy-efficient homes. Many of our U.S. manufacturing facilities are certified to produce “Energy Star®” rated homes through a special EPA program for manufactured housing.
The components and products used in factory-built housing are generally of the same quality as those used by other home 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 have sometimes
been limited, resulting in higher prices and/or the need to find alternative suppliers. Typically, a one to three-week supply of raw materials is maintained. We generally have been able to pass higher material costs on to customers 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 or directly to the home site. Homes sold to builders and developers are generally transported directly to the home site. At the home site, the home is placed on a foundation or otherwise affixed to the property and readied for occupancy typically by setup contractors. The sections (also referred to as floors) 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.
We construct homes in indoor facilities using an assembly-line process employing approximately 100 to 200 production employees at each facility. Factory-built HUD code homes are constructed in one or more sections affixed to a steel support frame that allows the sections 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.
The production schedules of our homebuilding facilities are based upon customer orders, which can fluctuate from week to week. Orders from retailers are generally subject to cancellation at any time up to the commencement of production 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. Because we produce homes to fulfill wholesale orders, our factories generally do not carry finished goods inventories, except for homes awaiting delivery. We manage our production levels, capacity and workforce size based upon current market demands. At March 28, 2020, we had a backlog of home orders with wholesale sales value of approximately $127.5 million. After production of a particular home has commenced, the order becomes noncancelable and the retailer is obligated to take delivery of the home.
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. 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.
We offer a wide selection of manufactured and modular homes as well as park model RVs at company-owned retail locations marketed under the Titan Factory Direct brand. We maintain our company-owned retail presence through 21 retail sales centers in Florida, Georgia, Louisiana, North Carolina, Oklahoma, Texas, and Virginia. We have benefited from the strategic expansion of our captive distribution to enhance the reach of our factory-built housing products directly to the homebuyer.
Each of our full-service retail sales centers has a sales office and a variety of display model homes of various sizes, floor plans, features, and prices that are displayed in a residential setting with sidewalks and landscaping. Customers may purchase a home from an inventory of homes maintained at the location, including a model home, or may order a home that will be built at a manufacturing facility. The collective benefits of our retail organization provide industry leadership with the expertise to be proactive to local economic conditions and ultimately provide affordable homes to value-conscious homebuyers.
During fiscal 2020, the average selling price was $61,000 for our U.S. factory-built homes and $84,000 for our homes sold through our Canadian housing segment. Manufactured home sales prices ranged from $20,000 to over $250,000. Retail sales prices of the homes, without land, generally ranged from $25,000 to over $300,000, depending upon size, floor plan, features, and options.
Logistics
We operate a logistics business, Star Fleet Trucking, specializing in the transportation of manufactured homes and recreational vehicles from manufacturing facilities to retailers. Star Fleet’s delivery logistics are coordinated through dispatch terminals located in Idaho, Indiana, Oklahoma, Pennsylvania, and Texas. Star Fleet has strong relationships with its customer base, which includes some of the largest manufactured housing companies (including our own factory-built housing operations), and recreational vehicle manufacturers in the U.S.
Market Overview
General. Factory-built housing provides an affordable alternative to other types of housing such as site-built housing and condominiums, and to existing housing such as pre-owned homes and apartments. According to statistics published by the Institute for Building Technology and Safety ("IBTS") and the United States Department of Commerce, Bureau of the Census, for the 2019 calendar year, manufactured housing wholesale shipments of homes constructed in accordance with the HUD code accounted for an estimated 10.7% of all new single-family homes starts.
According to data reported by MHI, industry home shipments were 97,553; 93,265 and 90,729 units (excluding FEMA units) during fiscal 2020, 2019, and 2018, respectively. Industry shipments of HUD-code FEMA units were 112 and 4,315 in fiscal 2019 and 2018, respectively. There were no industry shipments of HUD-coded FEMA units in fiscal 2020 or 2019. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually.
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, interest rates and other economic conditions and the overall affordability of factory-built housing versus other forms of housing. 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.
Home Buyer Demographics. 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 homebuyers age 55 and older. 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.
The two largest manufactured housing consumer demographics, Millennials (generally defined as those born between 1981 – 1996) and Baby Boomers (generally defined as those born between 1946 – 1964), comprise the fastest growing populations. Millennials are generally first-time home buyers who may be attracted by the affordability, and diversity of style choices of factory-built homes. Baby Boomers are similarly interested in the value proposition; however, they are also motivated by the energy efficiency and low maintenance requirements of factory-built homes, and by the lifestyle offered by planned communities that are specifically designed for homeowners that fall into this age group.
Financing
Commercial 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. Under a typical floor plan financing arrangement, an independent financial institution specializing in this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral. The financial institution customarily requires us, as the manufacturer of the home, to enter into a separate repurchase agreement with the financial institution that, upon default by the retailer and under certain other circumstances, obligates us to repurchase the financed home at declining prices over the term of the repurchase agreement (which, in most cases, is 18 to 36 months). The price at which we may be obligated to repurchase a home under these agreements is based upon the amount financed, plus certain administrative and shipping expenses. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $152.7 million as of March 28, 2020. The risk of loss under these agreements is spread over many retailers and is further reduced by the resale value of the homes. During fiscal 2020, approximately 32% of our sales to independent retailers were financed under floor plan agreements with national lenders, while the remaining 68% were financed under various arrangements with local or regional banks or paid in cash. We generally receive payment from the lending institution 5 to 10 days after a home is sold and invoiced to an independent retailer.
Consumer Financing. Sales of factory-built homes are significantly affected by the availability, credit underwriting standards, and cost of consumer financing. There are three basic types of consumer financing in the factory-built housing industry: 1) conforming mortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Department of Veterans Affairs, Department of Agriculture or Government-Sponsored Enterprise (“GSE”) loans which include Fannie Mae and Freddie Mac agencies; 2) non-conforming mortgages for purchasers of the home and the land on which the home is placed; and 3) personal property loans (often referred to as home-only or chattel loans) for consumers where the home is the sole collateral for the loan (generally HUD-coded homes).
Industry trade associations are working towards favorable legislative and GSE action to address the mortgage financing needs of potential buyers of affordable homes. Many moderate-income families cannot afford to buy a home due to the increasing costs of newly constructed homes and decreasing supply of existing, affordable homes. Federal law required the GSEs to issue a regulation to implement the Duty to Serve (“DTS”) requirements specified in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. FNMA and FHLMC released their final Underserved Markets Plan that describes, with specificity, the actions they will take over a three-year period to fulfill the DTS obligation. These plans became effective on January 1, 2018. The GSEs have obtained feedback from various stakeholders during their outreach efforts on advancing the underserved markets since the DTS plans became effective in 2018. Their DTS plans continue to evolve based on the feedback received and their current areas of focus are as follows: 1) purchase more loans used to finance manufactured homes titled as real property; 2) enhance current products and create new offerings; and 3) provide consumer education to help borrowers navigate both the real property and personal property markets. The GSEs have rolled out new financing programs specifically for homes built to the HUD code, which include CHOICEHome® from Freddie Mac and MH Advantage® from Fannie Mae. HUD-coded homes manufactured for these programs have features comparable to site-built homes, including, drywall throughout, higher-pitch roof line, energy-efficient features, lower profile foundation, plus additional options such as a garage or carport. These products aim to promote quality manufactured homes as an acceptable alternative to site-built homes and will allow moderate-income families to purchase a manufactured home with lending terms similar to those for site-built homes.
The DTS plans also explored the potential for the GSEs to provide liquidity to the chattel lending market, first through a limited pilot and then through an ongoing program. The GSEs could potentially serve as additional source of funding as there is unmet demand in the chattel loan industry, and GSE involvement could increase volume substantially. Freddie Mac has made the decision to suspend activities on pursuing a pilot on manufactured homes titled as personal property and instead allocate resources on pursuing activities including loan purchases of manufactured homes titled as real property. The Fannie Mae DTS plan still includes a provision indicating that they are exploring a pilot to establish a secondary market for chattel or home-only loans. Expansion of the secondary market for home-only lending through the GSEs could provide further demand for housing, as lending options would likely become more available to home buyers. Separate from the GSE involvement in chattel markets, there have been three secondary market chattel private placement offerings in the last twelve months. Although some limited progress has been made in this area, a meaningful positive impact in the form of increased home orders has yet to be realized.
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, depth of distribution, and retail customer financing. Capital requirements for entry into the industry are relatively low.
According to MHI, in March 2020, there were 33 producers of manufactured homes in the U.S. operating an estimated 136 production facilities. For calendar year 2019, the top 3 companies had a combined market share of HUD code homes of approximately 76%, according to data published by MHI. We estimate that there were approximately 4,000 industry retail locations throughout the U.S. during calendar year 2019.
Based on industry data reported by IBTS, in fiscal 2020 our U.S. wholesale market share of HUD code homes sold was 16.5%, compared to 16.6% in fiscal 2019. We compete with the 32 other producers of manufactured homes, as well as companies offering for sale homes repossessed from wholesalers or consumers. In addition, manufactured homes compete with new and existing site-built homes, as well as apartments, townhouses, and condominiums.
There are a number of other national manufacturers competing for a significant share of the manufactured housing market in the U.S., including Clayton Homes, Inc. and Cavco Industries. Certain of these competitors may possess greater financial, manufacturing, distribution, and marketing resources.
Government Regulation
Our manufactured homes are subject to numerous federal, state and local laws, codes and regulations. The majority of our homes are built to comply with the HUD code which include regulations that cover all aspects of manufactured home construction and installation, including structural integrity, fire safety, wind loads, thermal protection and ventilation. To the extent state and local regulations conflict with the HUD code, they are pre-empted. Our modular homes and commercial structures are built to comply with applicable state and local building codes. Our park model RVs are built in conformance with the applicable standards approved by the American National Standards Institute, a private, non-profit organization that administers and coordinates voluntary standards and conformity programs.
A variety of laws affect the financing of the homes we manufacture. The Federal Consumer Credit Protection Act and Regulation Z promulgated thereunder require written disclosure of information relating to such financing, including the amount of the annual percentage interest rate and the finance charge. A variety of state laws also regulate the form of financing documents and the allowable deposits, finance charge and fees charged. Federal laws permit manufactured housing retailers to assist home buyers with securing financing for the purchase of homes; however, they are prohibited from negotiating the financing terms.
Governmental authorities enforcing these numerous laws and regulations can impose fines and/or seek injunctive relief for violations. We believe that our operations are in substantial compliance with the requirements of these applicable laws and regulations.
Seasonality
The housing industry is subject to seasonal fluctuations based on home buyer purchasing patterns. We typically experience decreased home buyer traffic during holidays and popular vacation periods. Demand for our core single-family new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry, although this pattern was partially interrupted during the winter of fiscal 2018, when we produced a limited number of disaster-relief homes for FEMA.
The U.S. has experienced extreme weather events over the past few years resulting in widespread property damage. It has been widely reported that the overall economic toll in the affected market areas that have experienced severe weather events is substantial. There has been somewhat increased consumer demand for replacement of homes lost as a result of these events. This may include demand for additional disaster-relief manufactured home orders from federal and state agencies. We have produced disaster-relief homes for FEMA previously. These homes were built in factories located in unaffected regions of the country, primarily during the winter months, which lessened disruptions to existing order demand from our core customer base.
Employees
We have approximately 6,600 employees. We deem our relationship with our employees to be generally good. Currently, our manufacturing facilities in Canada employ approximately 700 workers, and most of the workers belong to trade associations that operate under collective bargaining agreements. There are five collective bargaining agreements (one for each Canadian plant) and each have separate expiration dates. One agreement expired in November 2019 and is still under renegotiation, two agreements are set to expire in June 2020, one agreement is set to expire in November 2021, and one agreement is set to expire in November 2022.
Available Information
Our website address is www.skylinechampion.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC.
ITEM 1A. RISK FACTORS
Our business involves a number of risks and uncertainties. You should carefully consider the following risks, together with the information provided elsewhere in this Annual Report. The items described below are not the only risks facing us. Additional risks that are currently unknown to us or that we currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.
The COVID-19 pandemic has had, and is expected to continue to have, significant adverse effects on our financial condition, results of operations, cash flows, and business.
The global outbreak of COVID-19 has caused a material adverse effect on the level of economic activity around the world, including in all of the markets that we serve. In response to this outbreak, the governments of many countries, states, cities and regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations. We have implemented numerous measures attempting to manage and mitigate the effects of the virus on our financial condition, results of operations, cash flows, and business, but there can be no assurance that these measures will succeed. We cannot predict the degree to which, or the time period over which, our sales and operations will be affected by this outbreak and the preventative measures. The effects could be highly material.
The COVID-19 pandemic poses many risks, including that we or our employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter-in-place or stay-at-home orders, travel restrictions, and other actions and restrictions that may be requested or mandated by governmental authorities. Beginning in March 2020, we experienced the temporary shutdown of several of our facilities in the U.S. and Canada. Certain government orders related to COVID-19 mitigation efforts may further restrict our ability to operate our business and may impact our financial condition and results of operations. Finally, while certain facilities are considered essential and can remain in operation during the COVID-19 pandemic, there can be no assurance that these facilities will continue to be classified as essential in each of the jurisdictions in which we operate and will remain in operation. In addition, many of our facilities that remain in operation are not utilized as fully as they were before the COVID-19 pandemic. Underutilization of facilities could increase if and as the pandemic persists and spreads further.
Further, we have experienced, and may continue to experience, disruptions or delays in our supply chain as a result of such actions. This is likely to result in higher supply chain costs to us, incurred in order to maintain the supply of component parts needed to produce our products.
Our management of the impacts of COVID-19 has required, and will continue to require, significant investment of time by our management and employees. The focus on managing and mitigating the impacts of COVID-19 on our business may cause us to divert or delay the application of our resources toward other or new initiatives or investments, which in turn may have a material adverse impact on our results of operations.
We may also experience impacts from market downturns and changes in consumer behavior including uncertainty in consumer confidence, increasing unemployment, and reductions in discretionary spending related to pandemic fears as a result of COVID-19. The consequences of the COVID-19 pandemic include widespread unemployment and uncertainty, among other problems, reducing the likelihood of people seeking new or improved housing.
Further, the impacts of COVID-19 have caused significant uncertainty and volatility in the credit markets. We rely on the credit markets to provide us with liquidity to operate and grow our businesses beyond the liquidity that operating cash flows provide. If our access to capital were to become significantly constrained, or if costs of capital were to increase significantly due to the impact of COVID-19, then our financial condition, results of operations, cash flows, and business, could be materially adversely affected.
The extent to which the COVID-19 outbreak continues to impact us will depend on future developments that are highly uncertain and cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19 and the impact of COVID-19 on economic activity. The COVID-19 pandemic also may have the effect of significantly heightening other risks associated with our business and our financial condition, including several of the risks disclosed below.
The factory-built housing industry is cyclical, is affected by seasonality and is sensitive to changes in general economic or other business conditions.
The factory-built housing industry is affected by seasonality. Sales during the period from March to November are typically higher than in other months. As a result, our sales and operating results sometimes fluctuate and may continue to fluctuate in the future.
The factory-built housing industry is also sensitive to changes in economic conditions and other factors, such as pandemics, employment rates, job growth, population growth, consumer confidence, consumer income, availability of financing, interest rate levels, and an oversupply of homes for sale. Changes in any of these conditions generally, or in the markets where we operate, could reduce demand and constrain pricing for new factory-built homes in these areas or result in customer cancellations of pending shipments. Reductions in the number of homes shipped by us or constraints on the prices we can charge, could result in a decrease in our net sales and earnings, which could adversely affect our financial condition.
We are subject to demand fluctuations in the housing industry. Reductions in demand could adversely affect our business, results of operations, and financial condition.
Demand for our homes is subject to fluctuations in the housing market generally. In a housing market downturn, our sales and results of operations could be adversely affected; there might be significant inventory impairments and other write-offs; our gross margins could decline significantly from historical levels; and we might incur losses from operations. We cannot predict the future demand for housing. If it were to decline significantly, our financial condition could be adversely affected.
Future increases in interest rates, more stringent credit standards, tightening of financing terms, or other increases in the effective costs of owning a factory-built home (including those related to regulation or other government actions) could limit the purchasing power of our potential customers and could adversely affect our business and financial results.
A large majority of our customers finance their home purchases through third-party lenders. Interest rates have been near historical lows for several years, which has made purchasing new factory-built homes more affordable. Increases in interest rates or decreases in the availability of consumer financing could adversely affect the market for homes. Potential customers may be less willing or able to pay the increased monthly costs or to obtain financing. Lenders may increase the qualifications needed for financing or adjust their terms to address any increased credit risk. These factors could adversely affect the sales or pricing of our factory-built homes. These developments have historically had, and may once again have, an adverse effect on the overall demand for factory-built housing and its competitiveness with other forms of housing, and could adversely affect our results of operations and financial condition.
The liquidity provided by the GSEs and the FHA is also critical in insuring or purchasing home mortgages and creating or insuring investment securities that are either sold to investors or held in their portfolios. Any limitations or restrictions on the availability of financing by these agencies could adversely affect interest rates, financing, and our sales of new homes.
The availability of wholesale financing for retailers is limited due to a limited number of floor plan lenders and reduced lending limits.
Factory-built housing retailers generally finance their inventory purchases with wholesale floor plan financing provided by lending institutions. The availability of wholesale financing is significantly affected by the number of floor plan lenders and their lending limits. Limited availability of floor plan lending negatively affects the inventory levels of our independent retailers, the number of retail sales center locations and related wholesale demand, and adversely affects the availability of and access to capital on an ongoing basis. As a result, if the availability of wholesale financing is reduced, we could experience sales declines or a higher level of customer defaults and its operating results and cash flows could suffer.
We have contingent repurchase obligations related to wholesale financing provided to industry retailers.
As is customary in the factory-built housing industry, a significant portion of our manufacturing sales to independent retailers are financed under floor plan agreements with financing companies. In connection with the floor plan financing programs, we generally have separate agreements with the financing companies that require us to repurchase homes upon default by the retailer and
repossession of the homes by the financing companies. The impact of COVID-19 may have an adverse impact on the solvency of independent industry retailers, and as a result, we may be required to honor the contingent repurchase agreements if the retailers default under terms of the floor plan financing arrangements. These repurchase agreements are applicable for various periods of time, generally up to 24 months after the sale of the home to the retailer. However, certain homes are subject to repurchase until the home is sold by the retailer. Our contingent repurchase obligation as of March 28, 2020, was estimated to be approximately $152.7 million, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense and reduced cash flows because of these repurchase agreements.
If we are unable to establish or maintain relationships with independent distributors that sell our homes, our sales could decline and our results of operations and cash flows could suffer.
Although we maintain our own factory direct retail business in select markets, we conduct a majority of our business through independent distributors. Over 90% of our shipments of homes in fiscal 2020 were made to independent distributors throughout the United States and western Canada. We may not be able to establish relationships with new independent distributors or maintain good relationships with independent distributors that sell our homes. Even if we establish and maintain relationships with independent distributors, these customers are not obligated to sell our homes exclusively and may choose to sell competitors’ homes instead. The independent distributors with whom we have relationships can cancel these relationships on short notice. In addition, these customers may not remain financially solvent, as they are subject to industry, economic, demographic, and seasonal trends similar to those faced by us. If we do not establish and maintain relationships with solvent independent distributors in the markets we serve, sales in those markets could decline, and if we cannot effect offsetting expansion of our factory-direct retail business, our results of operations and cash flows could suffer.
Prices of certain materials can fluctuate and availability of certain materials may be limited at times, adversely affecting our business.
Prices of certain materials used in the construction of homes, such as lumber, insulation, steel, drywall, oil-based products and fuel, can fluctuate significantly due to changes in demand and supply, adversely affecting our business. Additionally, availability of certain materials such as drywall and insulation may be limited at times, resulting in higher prices or the need to find alternative suppliers. We may attempt to pass the higher material costs on to customers, but it is not certain that we will be able to achieve this without adversely affecting demand. Limited availability of materials may also adversely affect our production capabilities and results of operations.
For some of the components used in production, we depend on a small group of suppliers, the loss of any of which could adversely affect our ability to obtain components in a timely manner or at competitive prices, which would in turn decrease our sales and profit margins. Some components are sourced from foreign sources. Delays in obtaining these components or the imposition of new or additional tariffs could result in increased costs and decreased sales and profit margins.
We depend on timely and sufficient delivery of components from our suppliers. Most components are readily available from a variety of sources. However, a few key components are currently produced by only a small group of quality suppliers that have the capacity to supply large quantities. Some of these components are foreign-sourced. Their supply is subject to disruption by government actions and global events, including the COVID-19 pandemic. If we cannot obtain an adequate supply of these key components our sales could decline and our results of operations and cash flows could suffer.
Our results of operations can be adversely affected by labor shortages and turnover.
The homebuilding industry has from time to time experienced labor shortages and other labor-related issues. A number of factors may adversely affect the labor force available to us and our subcontractors in one or more of our markets, including high employment levels, construction market conditions, and government regulation, which include laws and regulations related to workers’ health and safety, wage and hour practices, and immigration. Our direct labor has historically experienced high turnover rates, which can lead to increased spending on training and retention and, as a result, increased costs of production. An overall labor shortage or a lack of skilled labor could cause significant increases in costs or delays in construction of homes, which could have a material adverse effects on our net sales and results of operations.
Industry conditions and future operating results could limit our sources of capital. 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, cash flows from operations, and our revolving credit facility (the “Credit Facility”) to finance our operating requirements, capital expenditures, and other needs. If our cash balances, cash flows from operations, and availability
under the Credit Facility are insufficient to finance our operations and alternative capital is not available, then we may not be able to expand our business and make acquisitions, or we may need to curtail or limit our existing operations.
Factory-built housing operates in the highly competitive housing industry, and, if other home builders are more successful or offer better value to our customers, then our business could decline.
We operate in a very competitive environment and faces competition from a number of other home builders in each market in which we operate. We compete with large national and regional home building companies and with smaller local home builders for financing, raw materials, and skilled management and labor resources. Some of our manufacturing competitors have captive retail distribution systems and consumer finance and insurance operations. In addition, there are independent factory-built housing retail locations that sell competitors’ products in most areas where our homes are sold and in most areas 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 within the housing industry more broadly with other forms of low to moderate-cost housing, including site-built homes, panelized homes, apartments, townhouses, condominiums, and repossessed homes. We also compete with resale homes, also referred to as “previously owned” or “existing” homes, as well as rental housing.
An oversupply of homes available for sale or the heavy discounting of home prices by our competitors could adversely affect demand for our homes and the results of our operations. An increase in competitive conditions could have any of the following impacts on us: sale of fewer homes or higher cancellations by our home buyers; an increase in selling incentives or reduction of prices; and realization of lower gross margins due to lower selling prices or an inability to increase selling prices to offset increased costs of the homes delivered. If we are unable to compete effectively in our markets, then our business could decline disproportionately to that of our competitors. As a result, our sales could decline and our results of operations and cash flows could suffer.
Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reduced sales.
We cannot be certain that historical consumer preferences for factory-built homes in general, and for our products in particular, will remain unchanged. Our ability to remain competitive depends heavily on our ability to provide a continuing and timely introduction of innovative product offerings. We believe that the introduction of new features, designs, and models will be critical to the future success of our operations. Managing frequent product introductions poses inherent risks. Delays in the introduction or market acceptance of new models, designs, or product features could have a material adverse effect on our business. Products may not be accepted for a number of reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences. Further, we cannot be certain that new product introductions will not reduce net sales from existing models and adversely affect our results of operations. In addition, our net sales may be adversely affected if our new models and products are not introduced to the market on time or are not successful when introduced. Finally, our competitors’ products may obtain better market acceptance despite our efforts to lead the market.
When we introduce new products into the marketplace, we may incur expenses that we did not anticipate, which, in turn, can result in reduced earnings.
The introduction of new models, floor plans, and features are critical to our future success, but we may incur unexpected expenses when we make such introductions. For example, we may experience unexpected engineering or design flaws that may cause increased warranty costs. The costs resulting from these types of problems could be substantial and could have a significant adverse effect on our earnings. Estimated warranty costs are accrued at the time of product sale to reflect our best estimate of the amounts necessary to settle future and existing claims on products. An increase in actual warranty claims costs as compared to our estimates could result in increased warranty reserves and expense, which could have adverse impacts on our earnings.
Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and can harm our reputation.
Our products contain thousands of parts, many of which are supplied by a network of approved vendors. Product defects may occur, including components purchased from material vendors. There is no assurance that all such defects will be detected prior to the distribution of our products. In addition, although we endeavor to compel suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor-supplied part were to occur that the vendor would have the financial ability to rectify the defect. Failure to detect defects in our products, including vendor-supplied parts, could result in lost revenue, increased warranty and related costs, and could harm our reputation.
If the factory-built housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our results of operations and cash flows could suffer.
Limitations on the number of sites available for placement of factory-built homes or on the operation of factory-built housing communities could reduce the demand for factory-built homes and, as a result, our sales. Factory-built 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 factory-built homes in residential areas, which we believe has restricted the growth of the industry. Factory-built homes may not receive widespread acceptance and localities may not adopt zoning ordinances permitting the development of factory-built home communities. If the factory-built housing industry is unable to secure favorable local zoning ordinances, then our sales could decline and our results of operations and cash flows could suffer.
We may not be able to manage our business effectively if we cannot retain current management team members or if we are unable to attract and motivate key personnel.
Our success depends upon the skills, experience, and active participation of our senior management and key employees, many of whom have been with us for a significant number of years. Changes in our senior management team or other key employees may result in operational disruptions and changes to the strategy of our business, and our business might be harmed as a result. Our business could be further disrupted and harmed if we were unable to find appropriate replacements on a timely basis following future departures.
We may not be able to attract or motivate qualified management and operations personnel in the future. Inability to do so would result in constraints that would significantly impede the achievement of our objectives. We may also have difficulty attracting experienced personnel and may be required to expend significant financial resources in our employee recruitment efforts.
Product liability claims and litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our results of operations.
As a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high. There can be no assurance that this coverage will not be restricted and become more costly. If the limits or coverages of our current and former insurance programs prove inadequate, or we are unable to obtain adequate or reasonably-priced insurance against these types of claims in the future, or the amounts currently provided for future warranty or insurance claims are inadequate, then we may experience losses that could negatively impact our results of operations.
We record expenses and liabilities based on the estimated costs required to cover our self-insured liability under our insurance policies, and estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. These estimated costs are based on an analysis of our historical claims and industry data, and include an estimate of claims incurred but not yet reported. Due to the degree of judgment required and the potential for variability in the underlying assumptions when deriving estimated liabilities, our actual future costs could differ from those estimated, and the difference could be material to our results of operations.
Data security breaches, cybersecurity attacks, and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect, use, and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of our customers and employees. We also have outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and other third-party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to cybersecurity attacks by hackers or breached due to employee error, malfeasance, or other disruptions, particularly with employees and others on data networks working increasingly from home because of the COVID-19 pandemic and other such factors. We, our partners, vendors, and other third-party providers could be susceptible to third-party attacks on our and their information security systems, which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
We are subject to extensive regulation affecting the production and sale of factory-built housing, which could adversely affect our business, financial condition, and results of operations.
We are subject to a variety of federal, state, and local laws and regulations affecting the production and sale of factory-built housing. Our failure to comply with such laws and regulations could expose us to a wide variety of sanctions, including closing one or more manufacturing facilities. Regulatory matters affecting our operations are under regular review by governmental bodies and we cannot predict what effect, if any, new laws and regulations would have on us or on the factory-built housing industry. Failure to comply with applicable laws or regulations or the passage in the future of new and more stringent laws, could adversely affect our business, financial condition, and results of operations.
Increases in the after-tax costs of owning a factory-built home could deter potential customers from buying our products and adversely affect our business or results of operations.
Significant expenses of owning a factory-built home, including mortgage interest expenses and real estate taxes, generally were, under prior tax law, deductible expenses for an individual’s federal income taxes and, in some cases, state income taxes, subject to certain limitations. The Tax Cuts and Jobs Act, signed into law in December 2017 (the “Tax Act”), included provisions that impose limitations with respect to these income tax deductions. Increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in home insurance premiums, also can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and in turn can have adverse impacts on our business and results of operations.
The transportation industry is subject to government regulation, and regulatory changes could have a material adverse effect on our results of operations or financial condition.
Our Star Fleet Trucking subsidiary provides transportation services. The transportation industry is subject to legislative or regulatory changes, including potential limits on carbon emissions under climate change legislation and Department of Transportation regulations regarding, among other things, driver breaks, classification of independent drivers, “restart” rules, and the use of electronic logging devices that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services. We may become subject to new or more restrictive regulations relating to fuel emissions or limits on vehicle weight and size. Future laws and regulations may be more stringent and require changes in operating practices, influence the demand for transportation services or increase the cost of providing transportation services, any of which could adversely affect our business and results of operations.
Natural disasters and severe weather conditions could delay deliveries, increase costs, and decrease demand for new factory-built homes in affected areas.
Our operations are located in many areas that are subject to natural disasters and severe weather. The occurrence of natural disasters or severe weather conditions can delay factory-built home deliveries, increase costs by damaging inventories, reduce the availability of materials, and negatively impact the demand for new factory-built homes in affected areas. Furthermore, if our
insurance does not fully cover business interruptions or losses resulting from these events, then our earnings, liquidity, or capital resources could be adversely affected.
Mergers and acquisitions in which we might engage involve risks that could adversely affect our business.
As part of our growth strategy, we may choose to engage in discussions and negotiations regarding transactions, such as mergers, acquisitions and other business combinations within our industry. The purchase price for possible acquisitions of businesses and assets might be paid from cash, borrowings, or through the issuance of common stock or other securities, or a combination of these methods. Business combinations entail numerous risks, including:
| • | difficulties in the integration of acquired operations, services and products, which can impact retention of client accounts; |
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| • | failure to achieve expected synergies; |
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| • | diversion of management's attention from other business concerns; |
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| • | assumption of unknown material liabilities of acquired companies, which could become material or subject us to litigation or regulatory risks; |
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| • | amortization of acquired intangible assets, which could reduce future reported earnings; and |
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| • | potential loss of customers or key employees. |
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We cannot be certain that we will be able to identify, consummate and successfully integrate business combinations, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons. Also, business combinations are typically subject to closing conditions, including regulatory approvals and the absence of a material adverse change. Therefore, if and when we enter into a business combination agreement, there can be no guarantee that the transaction will close when expected, or at all. If a material transaction does not close, then our stock price could decline.
Nevertheless, opportunities arise from time to time that we choose to evaluate. Any transactions that we pursue and consummate would involve these risks and uncertainties, as well as others. The risks of a business combination could result in the failure of the anticipated benefits of that particular combination to be realized, which in turn could have adverse effects on our business, financial condition, results of operations and prospects.
Changes in foreign exchange rates could adversely affect the value of our investments in Canada and cause foreign exchange losses.
We have substantial investments in businesses in Canada. Unfavorable changes in foreign exchange rates could adversely affect the value of our investments in these businesses.
Our failure to maintain effective internal control over financial reporting could harm our business and financial results.
Our management is responsible for maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud.
We anticipate paying no cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. As a result, capital appreciation in the price of our common stock, if any, will be investors’ only source of gain on an investment in our common stock. Any future determination to pay dividends to shareholders will be at the sole discretion of our board of directors and will depend upon many factors, including general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our shareholders or by our subsidiaries to us, and any other factors that the board of directors may deem relevant.
An impairment of all or part of our goodwill could adversely affect our operating results and net worth.
As of March 28, 2020, 22% of our total assets consisted of goodwill, all of which is allocated to reporting units included in the U.S. Factory-built Housing segment. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other ("ASC 350"), we test goodwill at least annually for impairment or more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. If goodwill has become impaired, we charge the impairment as an expense in the period in which the impairment occurs. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies" and Note 1 to the Consolidated Financial Statements. A write-off of all or part of our goodwill could adversely affect our results of operations and financial condition.
The replacement or modification of LIBOR as a reference rate could increase our interest expense in the future.
The London Inter-Bank Offered Rate (“LIBOR”) is expected to be phased out by the end of 2021. LIBOR is currently used as the reference rate on our credit facility, which matures on June 5, 2023. Currently, no replacement rate has been identified. The transition from LIBOR could result in higher interest expense than has historically been recognized.
Our risk management practices may leave us exposed to unidentified or unanticipated risk.
Our management team is responsible for managing risk, subject to oversight by our board of directors. Our risk management methods may not identify all future risk exposures and may not be completely effective in mitigating all key risks. Furthermore, our risk management methods may not properly identify and mitigate the aggregation of risks across the Company or the interdependency of our risk mitigation efforts. In addition, some of our risk management methods may be based on assumptions that will prove to be inaccurate. Failure to manage risk effectively could adversely affect our business, financial condition, and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to our operating facilities as of March 28, 2020:
| Location | Owned/Leased | |
|---|---|---|
| United States | ||
| Chandler, Arizona | Leased * | |
| Corona, California | Leased | |
| Lindsay, California | Owned | |
| San Jacinto, California | Owned | |
| Woodland, California | Owned | |
| Lake City, Florida (two facilities) | Leased * | |
| Ocala, Florida | Owned | |
| Weiser, Idaho | Owned | |
| Topeka, Indiana (three facilities) | Owned | |
| Arkansas City, Kansas | Owned | |
| Benton, Kentucky | Leased | |
| Leesville, Louisiana | Leased | |
| Worthington, Minnesota | Owned | |
| Lillington, North Carolina | Owned | |
| York, Nebraska | Owned | |
| Sangerfield, New York | Owned | |
| Sugar Creek, Ohio | Owned | |
| McMinnville, Oregon | Owned | |
| Claysburg, Pennsylvania | Owned | |
| Ephrata, Pennsylvania | Owned | |
| Leola, Pennsylvania | Owned | |
| Liverpool, Pennsylvania | Owned | |
| Strattanville, Pennsylvania | Owned | |
| Dresden, Tennessee | Leased | |
| Athens, Texas | Owned | |
| Burleson, Texas (two facilities) | Owned | |
| Mansfield, Texas | Owned | |
| Lancaster, Wisconsin | Owned | |
| Canada | ||
| Lethbridge, Alberta | Leased * | |
| Medicine Hat, Alberta | Owned | |
| Penticton, British Columbia | Owned | |
| Kelowna, British Columbia | Leased | |
| Estevan, Saskatchewan | Owned | |
| * -- land only leased; facility owned |
Our corporate headquarters is in Troy, Michigan and we have an administrative office in Elkhart, Indiana. We also have 21 retail sales centers located across seven states in the U.S. and ten terminals for our logistics operations across five states in the U.S. The corporate offices, retail sales centers, and logistics terminals are leased properties. The contractual lease for our Troy, Michigan office expires in December 2022 and for our Elkhart, Indiana office in September 2023. Four of the above manufacturing facilities are encumbered under the revolving credit facility and two of the manufacturing facilities are encumbered by industrial revenue bonds. In the opinion of management, our properties have been well maintained, are in sound operating condition, and contain all equipment and facilities necessary to operate at present levels.
At March 28, 2020, we also own or lease five manufacturing facilities that have been idled since 2017 or prior and could be utilized for additional production capacity.
ITEM 3. LEGAL PROCEEDINGS
We are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Certain of the claims pending against us in these proceedings allege, among other things, breach of express and implied warranties, and in various governmental agency proceedings arising from occupational safety and health, wage and hour, and similar employment and workplace regulations. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, future events or circumstances, currently unknown to us, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity, or results of operations in any future reporting periods.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol SKY.
Holders
As of May 13, 2020, the Company had approximately 512 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.
Dividend Policy
The Company does not currently pay dividends on our common stock and intends to retain all available funds and any future earnings for general corporate purposes. However, in the future, subject to the factors described below and our future liquidity and capitalization, the Company may change this policy and choose to pay dividends. Any future determination to pay dividends to shareholders will be at the sole discretion of the Company’s board of directors and will depend upon many factors, including general economic conditions, our financial position and results of operations, available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by the Company to its shareholders or by the Company’s subsidiaries and any other factors that the board of directors may deem relevant.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the period covered by this Annual Report.
Issuer Purchases of Securities
There were no stock repurchases that were part of a publicly announced plan during the period covered by this Annual Report.
Securities Authorized for Issuance Under Equity Compensation Plans
Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report contains certain information relating to the Company’s equity compensation plans.
Stock Performance
The following graph shows the cumulative total stockholder return on our common stock over the period spanning March 31, 2015 to March 31, 2020, as compared with that of the Russell 3000 Index and a selected peer group of comparable, publicly traded companies in the factory-built housing segment, based on an initial investment of $100 on March 31, 2015.
Total stockholder return is measured by dividing share price change plus dividends, if any, for each period by the share price at the beginning of the respective period and assumes reinvestment of dividends. This stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.
| March 31, 2015 | March 31, 2016 | March 31, 2017 | March 31, 2018 | March 31, 2019 | March 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Skyline Champion Corporation | $ | 100.00 | 261.58 | 266.10 | 621.47 | 536.72 | 442.94 | |||||
| Russell 3000 | 100.00 | 99.66 | 117.66 | 133.92 | 145.66 | 132.36 | ||||||
| Peer Group* | 100.00 | 84.64 | 100.83 | 130.07 | 112.85 | 88.42 |
*The peer group consisted of Beazer Homes USA, Cavco Industries, Century Communities, LGI Homes, MDC Holdings, M/I Homes, Meritage Homes, Quanex Building Products Corp, and Tri Pointe Group.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data regarding Skyline Champion for the fiscal years indicated. The data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the information presented in “Risk Factors,” "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report. The selected financial data set forth below may not be indicative of our future performance.
| Fiscal Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | March 31, 2018 | April 1,<br><br><br>2017 | April 2,<br><br><br>2016 | ||||||||||
| (Dollars in Thousands) | ||||||||||||||
| Statement of Operations Data | ||||||||||||||
| Net Sales | ||||||||||||||
| U.S. Factory-Built Housing | $ | 1,226,393 | $ | 1,177,687 | $ | 860,488 | $ | 678,296 | $ | 573,945 | ||||
| Canadian Factory-Built Housing | 84,196 | 98,567 | 96,603 | 92,631 | 96,881 | |||||||||
| Corporate/Other | 59,141 | 83,789 | 107,631 | 90,392 | 80,877 | |||||||||
| Total net sales | 1,369,730 | 1,360,043 | 1,064,722 | 861,319 | 751,703 | |||||||||
| Cost of sales | 1,090,755 | 1,114,684 | 887,611 | 717,364 | 638,571 | |||||||||
| Gross Margin | 278,975 | 245,359 | 177,111 | 143,955 | 113,132 | |||||||||
| Selling, general, and administrative expenses | 186,855 | 270,158 | 122,582 | 105,175 | 92,394 | |||||||||
| Foreign currency transaction losses (gains) | 235 | 123 | (547 | ) | 3,688 | 3,173 | ||||||||
| Amortization of intangibles | 5,430 | 4,820 | 487 | 442 | 407 | |||||||||
| Operating income (loss) | 86,455 | (29,742 | ) | 54,589 | 34,650 | 17,158 | ||||||||
| Net interest expense | 1,401 | 3,290 | 4,185 | 4,264 | 3,658 | |||||||||
| Other expense | - | 8,271 | 7,288 | 2,380 | 632 | |||||||||
| Income (loss) from continuing operations before income taxes | 85,054 | (41,303 | ) | 43,116 | 28,006 | 12,868 | ||||||||
| Income tax expense (benefit) | 26,894 | 16,905 | 27,316 | (23,321 | ) | 2,640 | ||||||||
| Net income (loss) from continuing operations | 58,160 | (58,208 | ) | 15,800 | 51,327 | 10,228 | ||||||||
| Gain (loss) from discontinued operations | — | — | — | 583 | (10,248 | ) | ||||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | $ | 15,800 | $ | 51,910 | $ | (20 | ) | ||
| Other financial information | ||||||||||||||
| Cash flows provided by continuing operations | $ | 76,743 | $ | 65,228 | $ | 31,623 | $ | 34,289 | $ | 37,258 | ||||
| Cash flows used in discontinued operations | — | — | — | (830 | ) | (16,339 | ) | |||||||
| Depreciation and amortization | 18,546 | 16,079 | 8,260 | 7,245 | 6,258 | |||||||||
| Capital expenditures | 15,389 | 12,092 | 9,442 | 6,955 | 3,712 | |||||||||
| Net property, plant, and equipment | 109,291 | 108,587 | 67,960 | 66,577 | 58,915 | |||||||||
| Total assets | 781,700 | 699,954 | 395,398 | 328,021 | 255,349 | |||||||||
| Long-term debt | 77,330 | 54,330 | 58,927 | 59,331 | 59,749 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Skyline Champion Corporation’s consolidated financial statements and the related notes that appear elsewhere in this Annual Report.
Certain statements set forth below under this caption constitute forward-looking statements. See Part I, “Cautionary Statement About Forward-Looking Statements,” of this Annual Report on Form 10-K for additional factors relating to such statements, and see Item 1A, “Risk Factors,” of this Annual Report for a discussion of certain risks applicable to our business, financial condition, results of operations and cash flows.
Overview
Champion Enterprises Holding, LLC (“Champion Holdings”) was formed as a Delaware limited liability company in 2010. Skyline Corporation (“Skyline”) was originally incorporated in Indiana. On June 1, 2018, Skyline Champion Corporation (the “Company”) was formed by Skyline and Champion Holdings combining their operations pursuant to the Exchange Agreement.
The Company is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, and transportation logistics services. The Company is the largest independent publicly traded factory-built solutions provider in North America based on revenue, and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, Shore Park, Silvercrest, and Titan Homes in the U.S. and Moduline and SRI Homes in western Canada. At March 28, 2020, the Company operates 33 manufacturing facilities throughout the U.S. and 5 manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 21 sales centers that sell manufactured homes to consumers primarily in the southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.
Acquisitions and Expansions
Over the last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve. As a result, the Company has focused on operational improvements to make existing manufacturing facilities more profitable as well as executing measured expansion of its manufacturing and retail footprint.
The Company has increased capacity through strategic acquisitions and expansions of its manufacturing footprint. The Company is focused on growing in strong HUD markets across the U.S. as well as further expanding into the Northeast and Midwest U.S. modular housing markets. The Company began production at its newest manufactured housing facility in Leesville, Louisiana in June 2019. During fiscal 2019, the Company completed its expansion of the Corona, California facility by adding a second production line and expanded its Leola, Pennsylvania campus by adding an additional plant. Production at the Leola facility began in April 2019. The Exchange added eight plants to the Company’s manufacturing footprint in fiscal 2019.
The Company has also focused on expansion of its company-owned retail operations, opening three additional retail sales centers during fiscal 2018. Management believes retail expansion provides an opportunity to increase the Company’s presence in market segments that are not currently served through its independent retail network, while also providing for increased utilization of existing manufacturing operations.
These acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations. These acquisitions and investments are included in the consolidated results for periods subsequent to their respective acquisition dates.
Combination with Skyline
On January 5, 2018, Champion Holdings and Skyline entered into an Exchange Agreement pursuant to which the two companies agreed to combine their operations. The Exchange was completed on June 1, 2018 and was accounted for as a reverse acquisition under the acquisition method of accounting as provided by FASB ASC 805, Business Combinations (“ASC 805”). Champion Holdings was determined to be the acquirer for accounting and financial reporting purposes. The assets acquired and liabilities assumed by Champion Holdings as a result of the Exchange were recorded at their respective fair values and added to the carrying value of Champion Holdings existing assets and liabilities. As Champion Holdings is the accounting acquirer, reported financial results for Skyline Champion Corporation for fiscal 2019 are comprised of: 1) the results of Champion Holdings through June 1, 2018 and 2) the combined operations of the Company, after giving effect to the Exchange, from June 1, 2018 through March 30, 2019. All annual periods presented prior to the effective date of the Exchange are comprised solely of the results of Champion Holdings and all annual periods presented subsequent to fiscal 2019 are comprised solely of the results of the Company.
Industry and Company Outlook
In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including underlying growth trends in key homebuyer groups, such as the population over 65 years of age, the population of first-time home buyers, and the population of households earning less than $50,000 per year. More recently, we see a number of market trends pointing to increased sales of ADUs and urban to rural migration as customers accommodate working-from-home patterns and protocols, as well as people seeking rent-to-own single-family options. We intend to capitalize on these trends and drivers to grow our business over the medium to long-term. We believe that there is an opportunity for continued manufactured and modular construction market with medium term expansion driven by the foregoing trends and demand drivers, as well as construction labor shortages in certain regions (which tend to adversely and disproportionally impact supply and cost of site-built homes when compared to manufactured housing) and increased affordability of factory-built homes relative to site-built homes.
For fiscal 2020, approximately 76% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the Federal HUD code construction standard in the U.S. According to data reported by MHI, HUD code industry home shipments were 97,553; 93,265 and 90,729 units (excluding FEMA units) during fiscal 2020, 2019, and 2018, respectively. Industry shipments of HUD-code FEMA units were 112 and 4,315 in fiscal 2019 and 2018, respectively. There were no industry shipments of HUD code FEMA units in fiscal 2020 or 2019. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 16.5%, 16.6%, 13.9% in fiscal 2020, 2019, and 2018. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD code manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD code manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually.
For fiscal 2020, approximately 17% of the Company’s U.S. manufacturing sales were generated from the sale of modular homes. The Company measures and reports on U.S. modular market share three months in arrears. Industry shipments of modular homes in the U.S. of 14,690 during the twelve months ended December 31, 2019 was 5.4% lower than the 15,530 units shipped in the comparable period of calendar year 2018. The Company’s modular market share during these periods was 13.9% and 13.1%, respectively. Modular home sales across the industry have generally been stable since 2009.
COVID-19 Pandemic
The outbreak of COVID-19 has been declared a pandemic by the World Health Organization and continues to spread in the United States and Canada. The COVID-19 pandemic poses the risk that the Company or its employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be requested or mandated by governmental authorities.
In response to dynamics brought on by COVID-19, the Company has prioritized the safety and well-being of its employees and customers. Skyline Champion has carefully managed expenses by reducing non-essential spending and furloughing certain employees with many now taking advantage of benefits provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Beginning in March 2020, the Company temporarily idled several of its manufacturing facilities due to stay-at-home orders, supplier disruptions, and a decline in demand resulting from these restrictions as well as the temporary closure of some of the Company’s independent retailers. Upon initial shelter-in-place orders, Skyline Champion rolled out a temporary emergency sick pay policy which allowed limited pay for employees impacted by COVID-19. During April 2020, the Company reduced its workforce by 5%, to
approximately 6,600 employees and furloughed many more employees due to government stay-at-home orders or reduced demand. During this time, the Company chose to continue to pay its share of the costs associated with providing uninterrupted health care benefits to its furloughed employees.
The Company reopened many of the temporarily idled manufacturing facilities in late April, at reduced production levels due to social distancing protocols and decreased demand. Skyline Champion will continue to manage its manufacturing footprint and be prepared to reopen or idle additional facilities as restrictions change and demand warrants. Further, the Company may experience disruptions in its supply chain which could increase material costs for its products. There is significant uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy and the housing market. As a result, its impact on the Company’s fiscal 2021 results is uncertain. As the U.S. economy gradually recovers from the impacts of COVID-19, the Company will seek to capture additional demand from manufactured housing communities that increase spending on expansion and development projects. In addition, if financing availability continues to improve and related regulation continues to ease, the Company believes that there will be an increase in the number of prospective customers who qualify for home loans for manufactured and modular homes. The Company remains confident in the long-term growth opportunities and believes that it has sufficient cash and cash equivalents to meet its liquidity needs in the next twelve months. As of March 28, 2020, the Company had cash and cash equivalents of $209.5 million.
RESULTS OF OPERATIONS FOR FISCAL 2020 VS. 2019
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||||
| Results of Operations Data: | ||||||
| Net sales | $ | 1,369,730 | $ | 1,360,043 | ||
| Cost of sales | 1,090,755 | 1,114,684 | ||||
| Gross profit | 278,975 | 245,359 | ||||
| Selling, general, and administrative expenses | 192,520 | 275,101 | ||||
| Operating income (loss) | 86,455 | (29,742 | ) | |||
| Interest expense, net | 1,401 | 3,290 | ||||
| Other expense | — | 8,271 | ||||
| Income (loss) from operations before income taxes | 85,054 | (41,303 | ) | |||
| Income tax expense | 26,894 | 16,905 | ||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | |
| Reconciliation of Adjusted EBITDA: | ||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | |
| Income tax expense | 26,894 | 16,905 | ||||
| Interest expense, net | 1,401 | 3,290 | ||||
| Depreciation and amortization | 18,546 | 16,079 | ||||
| Equity-based compensation (for awards granted prior to December 31, 2018) | 4,576 | 101,025 | ||||
| Foreign currency transaction loss | 235 | 123 | ||||
| Transaction costs | — | 8,201 | ||||
| Acquisition integration costs | 2,674 | 7,966 | ||||
| Fair market value adjustment for asset classified as held for sale | 986 | — | ||||
| Property, plant, and equipment impairment charge | 550 | — | ||||
| Restructuring costs | 366 | 1,640 | ||||
| Other | (24 | ) | 70 | |||
| Adjusted EBITDA | $ | 114,364 | $ | 97,091 | ||
| As a percent of net sales: | ||||||
| Gross profit | 20.4 | % | 18.0 | % | ||
| Selling, general and administrative expenses | 14.1 | % | 20.2 | % | ||
| Operating income (loss) | 6.3 | % | (2.2 | %) | ||
| Net income (loss) | 4.2 | % | (4.3 | %) | ||
| Adjusted EBITDA | 8.3 | % | 7.1 | % |
NET SALES
The following table summarizes net sales for fiscal 2020 and 2019:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||
| Net sales | $ | 1,369,730 | $ | 1,360,043 | 0.7 | % | |||
| U.S. manufacturing and retail net sales | $ | 1,226,393 | $ | 1,177,687 | 4.1 | % | |||
| U.S. homes sold | 20,110 | 19,443 | 3.4 | % | |||||
| U.S. manufacturing and retail average home selling price | $ | 61.0 | $ | 60.6 | 0.7 | % | |||
| Canadian manufacturing net sales | $ | 84,196 | $ | 98,567 | ) | (14.6 | %) | ||
| Canadian homes sold | 1,002 | 1,232 | ) | (18.7 | %) | ||||
| Canadian manufacturing average home selling price | $ | 84.0 | $ | 80.0 | 5.0 | % | |||
| Corporate/Other net sales | $ | 59,141 | $ | 83,789 | ) | (29.4 | %) | ||
| U.S. manufacturing facilities in operation at year end | 33 | 31 | 6.5 | % | |||||
| U.S. retail sales centers in operation at year end | 21 | 21 | — | % | |||||
| Canadian manufacturing facilities in operation at year end | 5 | 5 | — | % |
All values are in US Dollars.
Net sales for fiscal 2020 were $1,369.7 million, an increase of $9.7 million, or 0.7% over fiscal 2019. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Sales of homes for the Company’s U.S. manufacturing and retail operations increased by $48.7 million, or 4.1%. The net sales increase was attributable to the following factors including: (i) an increase of 667, or 3.4%, in the number of homes sold and (ii) a 0.7% increase in the average home selling price. The inclusion of the Skyline operations for the full year of fiscal 2020 added $48.2 million of sales, as fiscal 2019 included only ten months of Skyline operations.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales decreased by $14.4 million, or 14.6% for fiscal 2020 compared to the same period in the prior year, primarily due to an 18.7% decrease in homes sold. This decrease was partially offset by a 5.0% increase the average selling price of homes. The number of homes sold decreased due to the decline in factory-built housing demand in the British Columbia and Alberta provinces versus the same period in the prior year. The decline in demand was and is due to oil and energy-related market dynamics in western Canada. Net sales for the Canadian segment were also unfavorably impacted by approximately $1.3 million as the Canadian dollar weakened relative to the U.S. dollar during fiscal 2020 as compared to the same period of the prior year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For fiscal 2020, net sales decreased by $24.6 million, or 29.4%. The decrease was primarily attributable to lower net sales in the Company’s transportation business primarily as a result of lower shipments associated with reduced RV demand in the U.S. and changes in customer mix, partially offset by increased net sales of manufactured housing products.
GROSS PROFIT
The following table summarizes gross profit for fiscal 2020 and 2019:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||||
| Gross profit: | |||||||||||
| U.S. Factory-built Housing | $ | 250,222 | $ | 214,142 | 16.8 | % | |||||
| Canadian Factory-built Housing | 16,512 | 18,309 | ) | (9.8 | %) | ||||||
| Corporate/Other | 12,241 | 12,908 | ) | (5.2 | %) | ||||||
| Total gross profit | $ | 278,975 | $ | 245,359 | 13.7 | % | |||||
| Gross profit as a percent of net sales | 20.4 | % | 18.0 | % |
All values are in US Dollars.
Gross profit as a percent of sales during fiscal 2020 was 20.4% compared to 18.0% during fiscal 2019. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment increased by $36.1 million, or 16.8%, during fiscal 2020 compared to the prior year. The increase in gross profit is due to the increase in sales volume and improved margins resulting from a reduction in manufacturing costs. Gross profit was 20.4% as a percent of segment net sales for fiscal 2020 compared to 18.2% in the prior year. Gross profit expansion was driven by favorable material pricing, procurement and operational synergies related to the Exchange, and plant operating improvements, all of which were partially offset by labor inflation.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment decreased by $1.8 million, or 9.8%, during fiscal 2020 compared to the prior year and increased to 19.6% as a percent of segment net sales from 18.6%. Although the Canadian Factory-built Housing segment saw lower volume compared to the prior period, margins improved due to higher average selling prices on homes sold.
Corporate/Other:
Gross profit for the Corporate/Other segment decreased by $0.7 million, or 5.2%, during fiscal 2020 compared to the same period in the prior year. However, Corporate/Other gross profit improved as a percent of segment net sales to 20.7% from 15.4%. Gross margins for the Company’s transportation business improved as a percent of sales due to a change in revenue mix and lower variable expenses. A portion of the change in revenue mix is due in part to changes in the customer base, which included less brokered business to other providers at lower margins in response to the decline in revenue caused by the softening market demand for RVs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SG&A”) expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for fiscal 2020 and 2019:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||||
| Selling, general, and administrative expenses: | |||||||||||
| U.S. Factory-built Housing | $ | 135,329 | $ | 116,379 | 16.3 | % | |||||
| Canadian Factory-built Housing | 8,313 | 9,058 | ) | (8.2 | %) | ||||||
| Corporate/Other | 48,878 | 149,664 | ) | (67.3 | %) | ||||||
| Total selling, general, and administrative expenses | $ | 192,520 | $ | 275,101 | ) | (30.0 | %) | ||||
| Selling, general, and administrative expenses as a percent of net sales | 14.1 | % | 20.2 | % |
All values are in US Dollars.
Selling, general, and administrative expenses were $192.5 million for fiscal 2020, a decrease of $82.6 million compared to the prior year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased by $19.0 million, or 16.3%, during fiscal 2020 as compared to the prior year. Selling, general, and administrative expenses, as a percent of segment net sales, was 11.0% for fiscal 2020 compared to 9.9% during fiscal 2019. SG&A costs increased due to a combination of factors, and was primarily driven by: (i) an increase in salaries and benefits to maintain competitive compensation packages to retain and recruit team members, and (ii) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability. The increase in salaries, benefits, and incentive compensation was approximately $7.7 million in total. In addition, the inclusion of the Skyline operations for all twelve months of fiscal 2020 increased SG&A expenses by $4.7 million compared to fiscal 2019, which included only ten months of Skyline operations. Lastly, the Company recorded additional SG&A costs for the Leesville, LA capacity expansion of $2.0 million and increased spending on marketing and advertising initiatives of $1.0 million during fiscal 2020.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased by $0.7 million, or 8.2%, during fiscal 2020 as compared to fiscal 2019. As a percent of segment net sales, selling, general, and administrative expenses for the Canadian segment was 9.9% for fiscal 2020 compared to 9.2% for fiscal 2019. Selling, general, and administrative expense as a percentage of net sales increased in the current period due to the decrease in net sales and reduced leverage of fixed costs.
Corporate/Other:
Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other decreased by $100.8 million, or 67.3%, during fiscal 2020 as compared to fiscal 2019. The decrease is mainly due to a change in equity-based compensation expense of $93.7 million, primarily related to the Exchange and secondary offerings that occurred in the prior year, as well as a reduction in acquisition integration and restructuring costs of $6.6 million. This decrease was partially offset by a fair market value adjustment charge of $1.0 million related to property acquired in the Exchange.
INTEREST EXPENSE
The following table summarizes the components of interest expense, net for fiscal 2020 and 2019:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||||
| Interest expense | $ | 4,632 | $ | 5,333 | ) | (13.1 | %) | ||||
| Interest income | (3,231 | ) | (2,043 | ) | ) | 58.1 | % | ||||
| Interest expense, net | $ | 1,401 | $ | 3,290 | ) | (57.4 | %) | ||||
| Average outstanding floor plan payable | $ | 31,962 | $ | 32,288 | |||||||
| Average outstanding long-term debt | $ | 48,747 | $ | 58,959 |
All values are in US Dollars.
Interest expense, net was $1.4 million for fiscal 2020, a decrease of $1.9 million compared to the prior year. The decrease was primarily related to higher interest income recognized during the period as a result of higher average cash balances invested in short term facilities. In addition, the Company incurred reduced interest expense due to; (i) a lower weighted average interest rate on its revolving credit facility of 3.5% as compared to 4.7%, and (ii) lower average outstanding balances on its credit facilities as compared to the same period in the prior year.
OTHER EXPENSE
The following table summarizes other expense for fiscal 2020 and 2019:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||
| Other expense | $ | — | $ | 8,271 | ) | (100.0 | %) |
All values are in US Dollars.
Other expense for fiscal 2019 primarily consisted of $8.2 million of expenses for legal, accounting, and advisory services related to the Exchange and four offerings of the Company’s common stock subsequent to the Exchange (“Offerings”), as well as $0.1 million for the deductible on an insured loss at one of the Company’s retail sales centers. The Company incurred no such costs in fiscal 2020.
INCOME TAX EXPENSE
The following table summarizes income tax expense for fiscal 2020 and 2019:
| Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | ||||||
| Income tax expense | $ | 26,894 | $ | 16,905 | 59.1 | % | ||||
| Effective tax rate | 31.6 | % | (40.9 | %) |
All values are in US Dollars.
Income tax expense for fiscal 2020 was $26.9 million, representing an effective tax rate of 31.6%, compared to income tax expense of $16.9 million, representing an effective tax rate of (40.9%), for fiscal 2019.
The Company’s effective tax rate for fiscal 2020 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, changes in valuation allowances, and results in foreign jurisdictions. The Company’s effective tax rate for fiscal 2019 differed from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, many of which were a result of the Exchange, state and local income taxes, and results in foreign jurisdictions.
ADJUSTED EBITDA
The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2020 and 2019:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | Change | %<br><br><br>Change | |||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | 199.9 | % | ||||
| Income tax expense | 26,894 | 16,905 | 59.1 | % | |||||||
| Interest expense, net | 1,401 | 3,290 | ) | (57.4 | %) | ||||||
| Depreciation and amortization | 18,546 | 16,079 | 15.3 | % | |||||||
| Equity-based compensation (for awards granted prior to December 31, 2018) | 4,576 | 101,025 | ) | (95.5 | %) | ||||||
| Foreign currency transaction loss | 235 | 123 | 91.1 | % | |||||||
| Transaction costs | — | 8,201 | ) | (100.0 | %) | ||||||
| Acquisition integration costs | 2,674 | 7,966 | ) | (66.4 | %) | ||||||
| Fair market value adjustment for asset classified as held for sale | 986 | — | * | ||||||||
| Property, plant, and equipment impairment charge | 550 | — | * | ||||||||
| Restructuring costs | 366 | 1,640 | ) | (77.7 | %) | ||||||
| Other | (24 | ) | 70 | ) | (134.3 | %) | |||||
| Adjusted EBITDA | $ | 114,364 | $ | 97,091 | 17.8 | % |
All values are in US Dollars.
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for fiscal 2020 was $114.4 million, an increase of $17.3 million over fiscal 2019. The increase is primarily a result of increased operating income after adjusting for the effect of increased depreciation and amortization, transaction, integration and restructuring costs, and non-cash equity-based compensation incurred in connection with the Exchange, and the Offerings and the integration of Skyline. The increase in operating income is primarily due to improvements in sales volumes and gross profit margins as a percent of net sales partially offset by higher selling, general, and administrative costs. See the definition of Adjusted EBITDA under “Non-GAAP Financial Measures” below for additional information regarding the definition and use of this metric in evaluating the Company’s results.
RESULTS OF OPERATIONS FOR FISCAL 2019 VS. 2018
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||
| Results of Operations Data: | ||||||
| Net sales | $ | 1,360,043 | $ | 1,064,722 | ||
| Cost of sales | 1,114,684 | 887,611 | ||||
| Gross profit | 245,359 | 177,111 | ||||
| Selling, general, and administrative expenses | 275,101 | 122,522 | ||||
| Operating (loss) income | (29,742 | ) | 54,589 | |||
| Interest expense, net | 3,290 | 4,185 | ||||
| Other expense | 8,271 | 7,288 | ||||
| (Loss) income from operations before income taxes | (41,303 | ) | 43,116 | |||
| Income tax expense | 16,905 | 27,316 | ||||
| Net (loss) income | $ | (58,208 | ) | $ | 15,800 | |
| Reconciliation of Adjusted EBITDA: | ||||||
| Net (loss) income | $ | (58,208 | ) | $ | 15,800 | |
| Income tax expense | 16,905 | 27,316 | ||||
| Interest expense, net | 3,290 | 4,185 | ||||
| Depreciation and amortization | 16,079 | 8,260 | ||||
| Equity-based compensation (for awards granted prior to December 31, 2018) | 101,025 | 642 | ||||
| Foreign currency transaction loss (gain) | 123 | (548 | ) | |||
| Transaction costs | 8,201 | 7,267 | ||||
| Acquisition integration costs | 7,966 | 406 | ||||
| Restructuring costs | 1,640 | — | ||||
| Gain on sale of non-operating facilities | — | (106 | ) | |||
| Lower of cost or market adjustment of development inventory | — | 1,165 | ||||
| Other | 70 | 221 | ||||
| Adjusted EBITDA | $ | 97,091 | $ | 64,608 | ||
| As a percent of net sales: | ||||||
| Gross profit | 18.0 | % | 16.6 | % | ||
| Selling, general and administrative expenses | 20.2 | % | 11.5 | % | ||
| Operating (loss) income | (2.2 | %) | 5.1 | % | ||
| Net (loss) income | (4.3 | %) | 1.5 | % | ||
| Adjusted EBITDA | 7.1 | % | 6.1 | % |
NET SALES
The following table summarizes net sales for fiscal 2019 and 2018:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | |||||
| Net sales | $ | 1,360,043 | $ | 1,064,722 | 27.7 | % | |||
| U.S. manufacturing and retail net sales | $ | 1,177,687 | $ | 860,488 | 36.9 | % | |||
| U.S. homes sold | 19,443 | 16,140 | 20.5 | % | |||||
| U.S. manufacturing and retail average home selling price | $ | 60.6 | $ | 53.3 | 13.6 | % | |||
| Canadian manufacturing net sales | $ | 98,567 | $ | 96,603 | 2.0 | % | |||
| Canadian homes sold | 1,232 | 1,266 | ) | (2.7 | %) | ||||
| Canadian manufacturing average home selling price | $ | 80.0 | $ | 76.3 | 4.8 | % | |||
| Corporate/Other net sales | $ | 83,789 | $ | 107,631 | ) | (22.2 | %) | ||
| U.S. manufacturing facilities in operation at year end | 31 | 23 | 34.8 | % | |||||
| U.S. retail sales centers in operation at year end | 21 | 21 | — | % | |||||
| Canadian manufacturing facilities in operation at year end | 5 | 5 | — | % |
All values are in US Dollars.
Net sales for fiscal 2019 were $1,360.0 million, an increase of $295.3 million, or 27.7% over fiscal 2018. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
The U.S. Factory-built Housing segment accounted for the majority of the overall growth in net sales for fiscal 2019 compared to the same period in the prior year. Sales of homes for the Company’s U.S. manufacturing and retail operations increased by $317.2 million, or 36.9%. The number of homes sold during fiscal 2019 increased by 3,303 units, or 20.5%. The net sales increase was attributable to the following factors including: (i) the inclusion of net sales of $218.8 million for the Skyline operations for the period following the completion of the Exchange; and (ii) a 13.6% increase in the average home selling price as a result of product mix and pricing actions to offset the impact of fluctuating material and labor costs.
The Company’s U.S. HUD market share for fiscal 2019 grew to 16.6% from 13.9% in the prior year due primarily to the inclusion of Skyline operations. U.S. HUD industry units shipped during fiscal 2019 were 93,377 which represented a slight decrease from the 95,044 units shipped in the prior year. U.S. HUD industry shipments for fiscal 2019 did not include any FEMA disaster relief homes, according to data published by MHI. Fiscal 2019 industry shipments include the sale of 112 disaster relief homes produced for FEMA compared to 4,415 in fiscal 2018.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales increased by $2.0 million, or 2.0%, for fiscal 2019 compared to the same period in the prior year, primarily due to a 4.8% increase in average selling price, which was a result of pricing actions taken by the Company to offset the impact of rising material and labor costs. This increase was offset by a 2.7% decrease in homes sold. Net sales were unfavorably impacted by approximately $1.9 million as the Canadian dollar weakened compared to the U.S. dollar during fiscal 2019 as compared to the same period of the prior year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For fiscal 2019, net sales decreased by $23.8 million, or 22.2%. The decrease was primarily attributable to lower net sales in the Company’s transportation business primarily as a result of lower shipments associated with reduced RV demand in the U.S.
GROSS PROFIT
The following table summarizes gross profit for fiscal 2019 and 2018:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | |||||||
| Gross profit: | |||||||||||
| U.S. Factory-built Housing | $ | 214,142 | $ | 143,632 | 49.1 | % | |||||
| Canadian Factory-built Housing | 18,309 | 18,415 | ) | (0.6 | %) | ||||||
| Corporate/Other | 12,908 | 15,064 | ) | (14.3 | %) | ||||||
| Total gross profit | $ | 245,359 | $ | 177,111 | 38.5 | % | |||||
| Gross profit as a percent of net sales | 18.0 | % | 16.6 | % |
All values are in US Dollars.
Gross profit as a percent of sales during fiscal 2019 was 18.0% compared to 16.6% during fiscal 2018. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment increased by $70.5 million, or 49.1%, during fiscal 2019 compared to the prior year. Gross profit was 18.2% as a percent of segment net sales for fiscal 2019 compared to 16.7% in the prior year. The 150 basis point increase in gross profit as a percent of sales is due to a combination of factors. The Company has benefited from the synergy capture from the Exchange with Skyline and continues to standardize its core product design and material purchases which allow for more efficient production for its supply chain and helps to mitigate material commodity fluctuations. The Company also continues to focus on better understanding its cost structure and discontinuing models and options that customers do not value.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment decreased by $0.1 million, or 0.6%, during fiscal 2019 compared to the prior year and decreased to 18.6% as a percent of segment net sales from 19.1%. The decrease is primarily due to lower sales volume.
Corporate/Other:
Gross profit for the Corporate/Other segment decreased by $2.2 million, or 14.3%, during fiscal 2019 compared to the same period in the prior year. However, Corporate/Other gross profit improved as a percent of segment net sales to 15.4% from 14.0%. Although overall the transportation business activity was lower than the prior year, gross margins improved as a percent of sales due to product mix.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
The following table summarizes selling, general, and administrative expenses for fiscal 2019 and 2018:
| Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | ||||||
| Selling, general, and administrative expenses: | ||||||||||
| U.S. Factory-built Housing | $ | 116,379 | $ | 83,486 | 39.4 | % | ||||
| Canadian Factory-built Housing | 9,058 | 8,768 | 3.3 | % | ||||||
| Corporate/Other | 149,664 | 30,268 | 394.5 | % | ||||||
| Total selling, general, and administrative expenses | $ | 275,101 | $ | 122,522 | 124.5 | % | ||||
| Selling, general, and administrative expenses as a percent of net sales | 20.2 | % | 11.5 | % |
All values are in US Dollars.
Selling, general, and administrative expenses were $275.1 million for fiscal 2019, an increase of $152.6 million compared to the prior year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased by $32.9 million, or 39.4%, during fiscal 2019 as compared to the prior year. The increase was primarily a result of an increase of $14.5 million related to the inclusion of the Skyline operations subsequent to the Exchange, an increase of $8.7 million related to higher sales commissions and incentive compensation (which is generally based on sales volume or a measure of profitability), an increase of $4.3 million for additional amortization related to the Exchange, an increase of approximately $1.0 million related to investments in plant ramp up of previously idled facilities, and $1.9 million of other administrative and marketing costs. As a result of the increases above, selling, general, and administrative expenses, as a percent of segment net sales, was 9.9% for fiscal 2019 compared to 9.7% during fiscal 2018.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased by $0.3 million, or 3.3%, during fiscal 2019 as compared to fiscal 2018. As a percent of segment net sales, selling, general, and administrative expenses for the Canadian segment was 9.2% for fiscal 2019 compared to 9.1% for fiscal 2018.
Corporate/Other:
Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other increased by $119.4 million during fiscal 2019 as compared to fiscal 2018. The increase is primarily a result of an increase of $101.4 million in non-cash, equity-based compensation expense, an increase of $7.6 million increase for Skyline integration costs, an increase of $3.1 million of costs related to the inclusion of the Skyline corporate departments subsequent to the Exchange, an increase of $2.4 million in legal and professional fees, and an increase of $1.6 million of restructuring costs primarily related to redundant corporate and administrative costs subsequent to the Exchange.
INTEREST EXPENSE, NET
The following table summarizes the components of interest expense, net for fiscal 2019 and 2018:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | |||||||
| Interest expense | $ | 5,333 | $ | 5,133 | 3.9 | % | |||||
| Interest income | (2,043 | ) | (948 | ) | ) | 115.5 | % | ||||
| Interest expense, net | $ | 3,290 | $ | 4,185 | ) | (21.4 | %) | ||||
| Average outstanding floor plan payable | $ | 32,288 | $ | 21,739 | |||||||
| Average outstanding long-term debt | $ | 58,959 | $ | 59,604 |
All values are in US Dollars.
Interest expense, net was $3.3 million for fiscal 2019, a decrease of $0.9 million compared to the prior year. The decrease was primarily related to higher interest income recognized during the period as a result of higher average cash balances invested in short term facilities.
OTHER EXPENSE
The following table summarizes other expense for fiscal 2019 and 2018:
| Year Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | ||||
| Other expense | $ | 8,271 | $ | 7,288 | 13.5 | % |
All values are in US Dollars.
Other expense for fiscal 2019 primarily consisted of $8.2 million of expenses for legal, accounting, and advisory services related to the Exchange and four offerings of the Company’s common stock subsequent to the Exchange (“Offerings”), as well as $0.1 million for the deductible on an insured loss at one of the Company’s retail sales centers. During fiscal 2018, the Company incurred $7.3 million of expenses related to legal and accounting services associated with the Exchange.
Income Tax Expense
The following table summarizes income tax expense for fiscal 2019 and 2018:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | |||||||
| Income tax expense | $ | 16,905 | $ | 27,316 | ) | (38.1 | %) | ||||
| Effective tax rate | (40.9 | %) | 63.4 | % |
All values are in US Dollars.
Income tax expense for fiscal 2019 was $16.9 million, representing an effective tax rate of (40.9)%, compared to income tax expense of $27.3 million, representing an effective tax rate of 63.4%, for fiscal 2018.
The Company’s effective tax rate for fiscal 2019 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, many of which were a result of the Exchange, state and local income taxes, and results in foreign jurisdictions. The Company’s effective tax rate for fiscal 2018 differed from the blended federal statutory rate of 31.5% primarily due to the remeasurement of U.S. deferred tax assets and liabilities at the new corporate income tax rate of 21%, from 35% due to the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act ”) as well as the effect of non-deductible expense, state and local income taxes, and results of operations in foreign jurisdictions and non-taxable entities.
Adjusted EBITDA
The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2019 and 2018:
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | Change | %<br><br><br>Change | |||||||
| Net income (loss) | $ | (58,208 | ) | $ | 15,800 | ) | * | ||||
| Income tax expense | 16,905 | 27,316 | ) | (38.1 | %) | ||||||
| Interest expense, net | 3,290 | 4,185 | ) | (21.4 | %) | ||||||
| Depreciation and amortization | 16,079 | 8,260 | 94.7 | % | |||||||
| Equity-based compensation (for awards granted prior to December 31, 2018) | 101,025 | 642 | * | ||||||||
| Foreign currency transaction loss (gain) | 123 | (548 | ) | (122.4 | %) | ||||||
| Transaction costs | 8,201 | 7,267 | 12.9 | % | |||||||
| Acquisition integration costs | 7,966 | 406 | * | ||||||||
| Restructuring costs | 1,640 | — | * | ||||||||
| Gain on sale of non-operating facilities | — | (106 | ) | * | |||||||
| Lower of cost or market adjustment of development inventory | — | 1,165 | ) | * | |||||||
| Other | 70 | 221 | ) | (68.3 | %) | ||||||
| Adjusted EBITDA | $ | 97,091 | $ | 64,608 | 50.3 | % |
All values are in US Dollars.
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for fiscal 2019 was $97.1 million, an increase of $32.5 million over fiscal 2018. The increase is primarily a result of increased operating income after adjusting for the effect of increased depreciation and amortization, transaction, integration, restructuring costs and non-cash equity-based compensation incurred in connection with the Exchange, and the Offerings and the
integration of Skyline. The increase in operating income is primarily due to improvements in sales volumes and gross profit margins as a percent of net sales partially offset by higher selling, general and administrative costs. See the definition of Adjusted EBITDA under “Non-GAAP Financial Measures” below for additional information regarding the definition and use of this metric in evaluating the Company’s results.
Pro Forma Results of Operations
In addition to the analysis of historical results of operations, this Management’s Discussion and Analysis of Financial Condition and Results of Operations includes unaudited supplemental pro forma results of operations for fiscal 2019 and 2018. The unaudited pro forma results of operations reflect pro forma adjustments to the results of the Company to give effect to the Exchange and the related financing transactions (the “Financing”) as if they had occurred on April 2, 2017, the beginning of fiscal 2018.
The unaudited pro forma condensed combined financial information of the Company combines the accounting periods of Champion Holdings and Skyline Corporation. Champion Holdings and Skyline had different fiscal year ends. Regulation S-X, Rule 11-02(c)(3) allows the combination of financial information for companies if their fiscal years end within 93 days of each other. Skyline’s results for these periods were derived from their unaudited consolidated income statements. Champion Holdings’ historical results are derived from Champion Holdings’ consolidated statements of operations for fiscal 2019 and 2018.
The unaudited pro forma adjustments, for activities up to the date of the Exchange, include:
| • | Adjustments to depreciation expense for the stepped-up basis of property, plant, and equipment; | |||||
|---|---|---|---|---|---|---|
| • | Adjustments to the amortization of intangible assets recognized in connection with the Exchange; | |||||
| --- | --- | |||||
| • | Adjustments to interest expense for the elimination of historical interest expense and amortization of deferred financing fees on retired debt; | |||||
| --- | --- | |||||
| • | Recognition of interest expense and amortization of deferred financing fees on the new revolving credit agreement; | |||||
| --- | --- | |||||
| • | Adjustments to eliminate expenses incurred directly related to the Exchange; | |||||
| --- | --- | |||||
| • | Adjustments to eliminate one-time equity-based compensation incurred directly related to the Exchange; | |||||
| --- | --- | |||||
| • | Adjustments to eliminate the net currency translation gains and losses on certain intercompany debt; | |||||
| --- | --- | |||||
| • | Adjustments to eliminate the management fee, plus reimbursable expenses, paid by Champion Holdings to its primary investors under a management service agreement; and | |||||
| --- | --- | |||||
| • | Adjustments to reflect tax expense for the unaudited pro forma adjustments | |||||
| --- | --- | |||||
| Year Ended | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| (Dollars in thousands) | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||
| (unaudited) | ||||||
| Pro Forma Results of Operations Data: | ||||||
| Net sales | $ | 1,405,847 | $ | 1,297,159 | ||
| Cost of sales | 1,152,772 | 1,090,349 | ||||
| Gross profit | 253,075 | 206,810 | ||||
| Selling, general and administrative expenses | 272,277 | 148,475 | ||||
| Operating (loss) income | (19,202 | ) | 58,335 | |||
| Interest expense, net | 3,175 | 3,797 | ||||
| Other expense | 1,858 | 94 | ||||
| (Loss) income from operations before income taxes | (24,235 | ) | 54,444 | |||
| Income tax expense | 19,225 | 28,789 | ||||
| Net (loss) income | $ | (43,460 | ) | $ | 25,655 | |
| Reconciliation of Pro Forma Adjusted EBITDA: | ||||||
| Net (loss) income | $ | (43,460 | ) | $ | 25,655 | |
| Income tax expense | 19,225 | 28,789 | ||||
| Interest expense, net | 3,175 | 3,797 | ||||
| Depreciation and amortization | 17,244 | 16,065 | ||||
| Equity-based compensation (for awards granted prior to December 31, 2018) | 93,132 | 916 | ||||
| Foreign currency transaction loss (gain) | 123 | (176 | ) | |||
| Transaction costs | 1,788 | — | ||||
| Acquisition integration costs | 7,966 | 386 | ||||
| Restructuring costs | 1,640 | 1,132 | ||||
| Gain on sale of non-operating facilities | — | (2,104 | ) | |||
| Lower of cost or market adjustment of development inventory | — | 1,165 | ||||
| Other | 70 | 328 | ||||
| Adjusted EBITDA | $ | 100,903 | $ | 75,953 | ||
| As a percent of net sales: | ||||||
| Gross profit | 18.0 | % | 15.9 | % | ||
| Selling, general and administrative expenses | 19.4 | % | 11.4 | % | ||
| Operating (loss) income | (1.4 | %) | 4.5 | % | ||
| Net (loss) income | (3.1 | %) | 2.0 | % | ||
| Adjusted EBITDA | 7.2 | % | 5.9 | % |
Pro Forma Net Sales: Pro forma net sales for fiscal 2019 were $1,405.8 million compared to $1,297.2 million in the prior year, an increase of $108.6 million. The increase was attributable to an increase in number of units sold, and an increase in the average home selling price as a result of product mix and pricing actions to offset the impact of fluctuating material and labor costs and plant operating improvements.
Pro Forma Gross Profit: Pro forma gross profit increased by $46.3 million during fiscal 2019 the compared to the same period of the prior year and improved as a percent of net sales to 18.0% from 15.9%. The increase in gross profit as a percent of net sales is consistent with the synergy capture, operational improvements and product rationalization actions taken by the Company as discussed above. The continued standardization of product design and material purchases has allowed for more efficient production for the Company and its supply chain and helped to mitigate the effects of commodity and labor fluctuations occurring in the market place.
Pro Forma Selling, General, and Administrative Expenses: Pro forma selling, general, and administrative expenses were $272.3 million for fiscal 2019 as compared to $148.5 million for fiscal 2018. The increase was primarily the result of increased non-cash, equity-based compensation expense of $92.2 million, increased sales commissions and incentive compensation of $9.4 million (which is generally based on sales volume or a measure of profitability), and increased costs incurred with the integration of the Skyline operations of $7.6 million.
Pro Forma Interest Expense, Net: Pro forma interest expense, net was $3.2 million for fiscal 2019, a decrease of $0.6 million from the same period of the prior year. The overall decrease was primarily attributable to additional interest income earned from higher average cash balances invested in short-term facilities.
Pro Forma Other Expense: Other expense for fiscal 2019 primarily consisted of expenses for legal, accounting and advisory services attributable to the Exchange and the Offerings.
Pro Forma Income Tax Expense: During fiscal 2019, the Company had pro forma income tax expense of $19.2 million and an effective tax rate of (79.3%), compared to income tax expense of $28.8 million at an effective tax rate of 52.9% during fiscal 2018. Prior to the completion of the Exchange, Skyline recognized no income tax expense or benefit as a result of historical operating loss carryforwards which had a full valuation allowance. A portion of the valuation allowance was reversed upon completion of the Exchange, however, that reversal did not have an impact on the pro forma results of operations. The pro forma income tax effects were a result of the income tax effects of the Company discussed above plus the tax impact of the pro forma adjustments.
BACKLOG
Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders for homes at March 28, 2020 totaled $127.5 million compared to $142.7 million at March 30, 2019. Approximately one-third of the year-over-year decline in backlog is concentrated at the Company’s Canadian operations, which were impacted by softness in the western Canada housing markets. U.S. backlogs are down due to added capacity and increased production rates at certain plants.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents summary cash flow information for fiscal 2020, 2019 and 2018:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||||
| Net cash provided by (used in): | |||||||||
| Operating activities | $ | 76,743 | $ | 65,228 | $ | 31,623 | |||
| Investing activities | (14,093 | ) | (2,030 | ) | (8,621 | ) | |||
| Financing activities | 21,569 | (72,518 | ) | 10,336 | |||||
| Effect of exchange rate changes | (1,398 | ) | (662 | ) | 586 | ||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 82,821 | (9,982 | ) | 33,924 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 126,634 | 136,616 | 102,692 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 209,455 | $ | 126,634 | $ | 136,616 |
The Company’s primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flow from operations for the next year are expected to be adequate to cover working capital requirements, fund capital expenditures, and floor plan payment obligations. The Company does not have any scheduled long term debt maturities in the next twelve months. The Company’s revolving credit facility includes a leverage ratio covenant that requires the Company’s first lien debt levels to remain less than 2.75x consolidated trailing twelve month EBITDA. The Company anticipates compliance with its leverage ratio debt covenant and projects its level of cash availability to be in excess of cash needed to operate the business for the next year. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise operating strategies accordingly.
Cash provided by operating activities was $76.7 million in fiscal 2020 compared to $65.2 million in fiscal 2019. Cash was generated by operating income (before non-cash charges) from higher sales and operating margins compared to the prior year. Additionally, there were no transaction expenses incurred for the Skyline acquisition or secondary offering costs in fiscal 2020 compared to $8.2 million in the same period of the prior year. The increase was partially offset by cash used for other working capital items. Cash provided by operating activities in fiscal 2019 increased to $65.2 million from $31.6 million in fiscal 2018. The increase was primarily due to an increase in operating income after adding back non-cash related expenses such as equity-based compensation, depreciation and amortization, which increased due to the Exchange with Skyline and overall operating improvement. The increase was partially offset by costs associated with the integration of the Skyline operations of $8.0 million.
Cash used in investing activities was $14.1 million in fiscal 2020 versus $2.0 million in 2019. The increase is primarily related to the benefit of $9.7 million of cash acquired in the Exchange in fiscal 2019, and an increase in capital expenditures of $3.3 million, partially offset by proceeds of $1.1 million from the disposition of a held for sale property. The expenditures for capital items are part of the Company’s focus on safety and operating efficiency initiatives as well as the expansion of production capacity with the investment in the new Leesville, Louisiana manufacturing facility. Cash used in investing activities was $2.0 million in fiscal 2019 versus $8.6 million in 2018. The $6.6 million decrease was mainly due to the benefit of $9.7 million of cash assumed in the Exchange, offset by an increase in capital expenditures of $2.6 million.
In fiscal 2020, cash provided by financing activities was $21.6 million, versus the prior year which had net cash used in financing activities of $72.5 million. The increase in cash provided by financing activities is primarily a result of the increase in net borrowings on the credit facility. Additionally, there were no capital distributions, payments of deferred financing fees, or repayments of term loans in fiscal 2020. Cash used in financing activities in fiscal 2019 was mainly related to Champion Holdings members’ capital distribution of $65.2 million, completed in conjunction with the Exchange with Skyline and a paydown on revolving debt of $5.0 million. Cash provided by financing activities in fiscal 2018 was primarily the result of increased net borrowings on floor plan payables.
On June 5, 2018, the Company entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement provides for a revolving credit facility of up to $100.0 million, including a letter of credit sub-facility of not less than $45.0 million. Initial borrowings in fiscal 2019 under the Credit Agreement were used to repay the Company’s prior $46.9 million term loans and replace the Company’s prior cash collateralized stand-alone letter of credit facility. The interest rate on borrowing under the Credit Agreement is based on LIBOR and was 2.4% at March 28, 2020. The Company borrowed $38.0 million under the Credit Agreement in March 2020 to maximize financial flexibility in response to the impact of COVID-19. The Company had $6.4 million available to borrow against the Credit Agreement at March 28, 2020.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table presents a summary of payments due by period for the Company’s contractual obligations for long-term debt and operating leases as of March 28, 2020:
| Payments due by period: After March 28, 2020 ^(1)(2)^ | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Total | <1 Year | 1 to 3<br><br><br>Years | 3 to 5<br><br><br>Years | >5 Years | |||||
| Revolving credit facility maturing in 2023 | $ | 64,900 | $ | — | $ | — | $ | 64,900 | $ | — |
| Obligations under industrial revenue bonds due 2029 | 12,430 | — | — | — | 12,430 | |||||
| Operating Leases | 17,171 | 5,411 | 7,791 | 2,198 | 1,771 | |||||
| Total | $ | 94,501 | $ | 5,411 | $ | 7,791 | $ | 67,098 | $ | 14,201 |
| (1) | The variable interest on outstanding debt obligations is not included in the repayment information. | |||||||||
| --- | --- | |||||||||
| (2) | Based on the outstanding debt obligations and variable rates in effect at March 28, 2020, the estimated annual interest expense on the revolving credit facility and industrial revenue bonds would be $2.4 million. | |||||||||
| --- | --- |
Credit Facility
The Credit Agreement matures on June 5, 2023 and has no scheduled amortization. The interest rate under the Credit Agreement will adjust based on the first lien net leverage of the Company which will range from a high of LIBOR plus 2.25% and ABR plus 1.25% when first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when first lien net leverage is below 0.50:1.00. In addition, the Company is obligated to pay a commitment fee ranging between 0.25% and 0.40% (depending on first lien net leverage) in respect of unused commitments under the Credit Agreement.
Letter of Credit Facility
The Company has a letter of credit sub-facility under the Credit Agreement. At March 28, 2020, letters of credit issued under the sub-facility totaled $28.7 million.
Industrial Revenue Bonds
Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
Floor Plan Payable
At March 28, 2020, the Company had outstanding borrowings on floor plan financing arrangements of $33.9 million. The Company’s retail operations utilize floor plan financing to fund the acquisition of manufactured homes for display or resale. The arrangements provide for borrowings up to $48.0 million. Borrowings are secured by the homes acquired and are required to be repaid when the Company sells the financed home to a customer.
Contingent Obligations
The Company has contingent liabilities and obligations at March 28, 2020, including surety bonds and letters of credit totaling $23.6 million and $28.7 million, respectively. Additionally, the Company is contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to independent retailers. The contingent repurchase obligation as of March 28, 2020 is approximately $152.7 million, without reduction for the resale value of the homes. The impact of COVID-19 may have an adverse impact on the solvency of independent industry retailers and, as a result, the Company may experience higher levels of repurchase commitments if the retailers default under terms of the floor plan financing arrangements. The Company has the ability to resell the repurchased collateral to other retailers, and losses incurred on repurchased homes have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $1.0 million at March 28, 2020. See “Critical Accounting Polices – Reserve for Repurchase Commitments” below.
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.
In the normal course of business, the Company’s subsidiaries historically provided certain parent company guarantees to two U.K. customers. These guarantees provided contractual liability for proven construction defects up to 12 years from the date of delivery of the units. The guarantees remain a contingent liability subsequent to the fiscal 2017 disposition of the U.K. operations, which declines over time through October 2027. As of the date of this report, no claims have been reported under the terms of the guarantees.
Management believes the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
NON-GAAP FINANCIAL MEASURES - ADJUSTED EBITDA
The Company defines Adjusted Earnings Before Interest Taxes and Depreciation and Amortization (“Adjusted EBITDA ”) as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) foreign currency gains and losses; (f) equity based compensation awards granted prior to December 31, 2018; (g) non-cash restructuring charges and impairment of assets; and (h) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP and should not be considered an alternative to, or more meaningful than, net income or loss prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
Adjusted EBITDA is presented as a supplemental measure of the Company’s financial performance that management believes is useful to investors, because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company’s operating activities across reporting periods. Management believes Adjusted EBITDA is useful to an investor in evaluating operating performance for the following reasons: (i) Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest income and expense, taxes, depreciation and amortization and equity-based compensation, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired; and (ii) analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry.
Management uses Adjusted EBITDA for planning purposes, including the preparation of internal annual operating budget and periodic forecasts: (i) in communications with the board of directors and investors concerning financial performance; (ii) as a factor in determining bonuses under management’s annual incentive compensation program; and (iii) as a measure of operating performance used to determine the ability to provide cash flows to support investments in capital assets, acquisitions and working capital requirements for operating expansion.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are more fully described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements included in this Report. Certain of our accounting policies require 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. The Company considers an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations. The Company believes that the following discussion addresses the Company’s critical accounting estimates.
Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.
Reserves for Self-Insured Risks
The Company is self-insured for a significant portion of its general insurance, product liability, workers’ compensation, auto, health, and property insurance. Insurance coverage is maintained for catastrophic exposures and those risks required to be insured by law. The Company is liable for the first $150,000 of incurred losses for each workers’ compensation and auto liability claim and is responsible for losses up to the first $500,000 per occurrence for general, product liability, and property insurance. Generally catastrophic losses are insured up to $100 million. The health plan is subject to a stop-loss limit of $300,000 per occurrence. Estimated self-insurance costs are accrued for all expected future expenditures for reported and unreported claims based on historical experience.
Warranty Reserves
The Company’s factory-built housing operations generally provide each retail homebuyer or builder/developer with a 12-month assurance warranty from the date of retail purchase. Estimated warranty costs are accrued as cost of sales at the time of sale. Warranty provisions and reserves are based on various factors, including estimates of the amounts necessary to settle existing and future claims on homes sold as of the balance sheet date. Factors used in the estimation of the warranty liability include the estimated amount of warranty and customer service costs incurred for homes that remain in retailers’ inventories before delivery to the consumer, homes purchased by consumers still within the warranty period, the timing in which work orders were completed, and the historical average costs incurred to service a home.
Impairment of Long-Lived Assets
It is the Company’s policy to evaluate the recoverability of property, plant, and equipment whenever events and changes in circumstances indicate that the carrying amount of assets may not be recoverable, primarily based on estimated selling price, appraised value, or projected undiscounted future cash flows.
Impairment of Goodwill
Goodwill is not amortized but is tested for impairment at least annually. Impairment testing is required more often if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. As the analysis depends upon judgments, estimates and assumptions, such testing is subject to inherent uncertainties, which could cause the fair value to fluctuate from period to period.
In fiscal 2020, the Company performed qualitative assessments of its reporting units. The annual assessment was completed on of the first day of March and an additional assessment was performed the last day of the fiscal year due to a decrease in the Company’s share price and in response to the changes in business operating conditions from COVID-19. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
Income Taxes and Deferred Tax Assets
Deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis 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 assets will not be realized.
Reserve for Repurchase Commitments
As is customary in the factory-built housing industry, a significant portion of the manufacturing operations’ sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Certain homes sold pursuant to repurchase agreements are subject to repurchase, generally up to 24 months after the sale of the home to the retailer. Certain other homes sold pursuant to repurchase agreements are subject to repurchase until the home is sold by the retailer. For those homes with an unlimited repurchase period, the Company’s risk of loss upon repurchase declines due to required monthly principal payments by the retailer. After 24 or 30 months from the date of the Company’s sale of the home, the risk of loss on these homes is low, and by the 46th month, most programs require that the home be paid in full, at which time the Company no longer has risk of loss. Pursuant to these agreements, during the repurchase period, generally upon default by the retailer and repossession by the financial institution, the Company is obligated to repurchase the homes from the Floor Plan Lender. The contingent repurchase obligation as of March 28, 2020, is estimated to be approximately $152.7 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Losses incurred on homes repurchased have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $1.0 million at March 28, 2020.
Off Balance Sheet Arrangements
Off balance sheet arrangements at March 28, 2020 consist of the contingent repurchase obligation totaling approximately $152.7 million, letters of credit totaling $28.7 million, and surety bonds totaling $23.6 million. See “Contractual Obligations and Commitments – Contingent Obligations” and “Critical Accounting Policies – Reserve for Repurchase Commitments” above for more information related to these off balance sheet arrangements.
OTHER MATTERS
Inflation
Inflation has not had a material effect on profitability during the past three years. Commodity prices, including lumber, have fluctuated in recent years, but increases have generally been passed on to customers or mitigated through working with supply chain partners. However, sudden increases in specific costs, as well as price competition, can affect the ability to pass on costs and adversely impact results of operations. Therefore, there is no assurance that inflation or the impact of rising material costs will not have a significant impact on revenue or results of operations in the future.
Seasonality
The housing industry is affected by seasonality, which includes factory-built homes. Sales during the period from March to November are traditionally higher than other months. As a result, quarterly results of a particular period are not necessarily representative of the results expected for the year.
Recently Issued Accounting Standards
Refer to Note 1, “Summary of Significant Accounting Policies,” in our accompanying Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Debt obligations under the Credit Agreement are subject to variable rates of interest based on LIBOR, the administrative agent’s prime rate or the U.S. federal funds rate. A 100 basis point increase in the underlying interest rate would result in an additional annual interest expense of approximately $0.6 million, assuming related debt of $64.9 million, which is the amount of outstanding borrowings under the Credit Agreement at March 28, 2020.
Obligations under industrial revenue bonds are subject to variable rates of interest based on a municipal bond index rate. A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.1 million, assuming related debt of $12.4 million, which is the amount of outstanding borrowings on industrial revenue bonds at March 28, 2020.
Obligations under floor plan financing arrangements are subject to variable rates of interest based on terms negotiated with the floor plan lenders. A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.3 million, assuming related floor plan borrowings of $33.9 million, which is the amount of outstanding borrowings on floor plan financing at March 28, 2020.
The Company’s approach to interest rate risk is to balance borrowings between fixed rate and variable rate debt as management deems appropriate. At March 28, 2020, the Company’s borrowings under the Credit Agreement, industrial revenue bonds and floor plan financing arrangements are all at variable rates.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk with its factory-built housing operations in Canada. The Canadian operations had fiscal 2020 net sales of $111.8 million Canadian dollars. Assuming future annual Canadian net sales equivalent to fiscal 2020, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $1.1 million. The Company also has foreign exchange risk for cash balances maintained in Canadian dollars that are subject to fluctuating values when exchanged into U.S. dollars. The Company does not financially hedge its investment in the Canadian operations or in Canadian denominated bank deposits.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures |
|---|
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 28, 2020. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 28, 2020.
| (b) | Management’s Report on Internal Control over Financial Reporting |
|---|
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As part of the integration of certain business and corporate activities from the Exchange, the Company instituted changes to systems and processes to expand controls and increase efficiency, while ensuring that an effective internal control environment was maintained across the organization. Changes included such activities as implementing additional processes, automating manual processes, standardizing controls, and increasing monitoring controls. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 28, 2020.
Given their inherent limitations, the Company's controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. In light of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
| (c) | Attestation Report of the Independent Registered Public Accounting Firm |
|---|
Ernst & Young LLP, the Company’s independent registered public accounting firm, audited the Company’s consolidated financial statements set forth in this Annual Report and issued an attestation report regarding the effectiveness of our internal control over financial reporting as of March 28, 2020, and the attestation report is set forth in Item 15, "Consolidated Financial Statements and Supplementary Data," under the caption "Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting" and is incorporated herein by reference.
| (d) | Changes in Internal Control over Financial Reporting |
|---|
Other than as described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended March 28, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item concerning the Company’s directors, director nominees and Section 16 beneficial ownership reporting compliance will be set forth in the definitive Proxy Statement for our 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”), which will be filed within 120 days after the end of the registrant’s fiscal year, under the captions "Election of Directors," "Share Ownership of Certain Beneficial Owners," "Executive Officers" and "Corporate Governance” and is incorporated herein by reference.
The Company has adopted a written code of business conduct and ethics (“Code of Conduct”), which applies to all of its directors, officers, and employees. Our Code of Conduct is available on our website, www.skylinechampion.com, and can be obtained by writing to Investor Relations at 755 West Big Beaver Rd., Suite 1000, Troy, MI 48084, or by sending an email to investorrelations@championhomes.com. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the 2020 Proxy Statement under the captions “Compensation Discussion and Analysis,” “How We Make Compensation Decisions,” “What We Pay and Why: Elements of Compensation,” “Compensation Tables,” “Summary Compensation Table for 2020,” “Grants of Plan-Based Awards in Fiscal 2020,” “Outstanding Equity Awards at Fiscal 2020 Year End,” “Option Exercises and Stock Vested in Fiscal 2020,” “Potential Payments Upon Termination or Change in Control,” “Director Compensation,” “Director Compensation Program,” “Non-Employee Director Compensation in Fiscal 2020,” “CEO Pay Ratio,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report,” and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the 2020 Proxy Statement under the caption " Share Ownership of Certain Beneficial Owners " and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about the Company’s equity compensation plans as of March 28, 2020:
| Plan Category | Number of Securities to be<br><br><br>Issued Upon Exercise of<br><br><br>Outstanding Options,<br><br><br>Warrants and Rights^^^(1)^<br><br><br>(A) | Weighted-Average<br><br><br>Exercise<br><br><br>Price of Outstanding<br><br><br>Options,<br><br><br>Warrants and Rights^^^(2)^<br><br><br>(B) | Number of Securities<br><br><br>Remaining Available for<br><br><br>Future Issuance Under<br><br><br>Equity Compensation Plans<br><br><br>(Excluding Securities<br><br><br>Reflected<br><br><br>in Column (A))<br><br><br>(C) | |
|---|---|---|---|---|
| Equity compensation plans approved by<br><br><br>Stockholders | 827,185 | $ | 26.29 | 4,740,835 |
| Equity compensation plans not approved by<br><br><br>Stockholders | — | — | — | |
| Total | 827,185 | $ | 26.29 | 4,740,835 |
| ^(1)^ | This amount represents the following: (a) 403,086 shares subject to the vesting and/or exercise of outstanding options; (b) 229,790 shares subject to vesting of outstanding performance-based restricted stock units; and (c) 194,309 shares subject to vesting of outstanding restricted stock units. The options, performance-based restricted stock units and restricted stock units were all granted under our 2018 Equity Incentive Plan. Restricted shares outstanding under our equity plans have already been reflected in our total outstanding common stock balance. | |||
| --- | --- | |||
| ^(2)^ | The weighted-average exercise price is calculated solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of performance-based restricted stock units and time-based restricted stock units, which have no exercise price. | |||
| --- | --- |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the 2020 Proxy Statement under the captions “Proposal One: Election of Directors,” “Board Composition and Director Independence,” “Meetings and Committees,” “Corporate Governance Overview,” “Compensation Committee Interlocks and Insider Participation,” and “Certain Relationships and Related Person Transactions,” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in the 2020 Proxy Statement under the captions “Auditor Fees and Pre-Approval Policy,” “Auditor Fees and Services,” and “Pre-Approval of Auditor Fees and Services,” and is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
| (a) | Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this Annual Report. |
|---|
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules are not required, or the information required has been presented in the aforementioned financial statements.
Exhibits
The documents listed below are being filed or have previously been filed on behalf of the Company and are incorporated herein by reference from the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith.
ITEM 16. FORM 10-K SUMMARY
Not applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| SKYLINE CHAMPION CORPORATION | ||
|---|---|---|
| Date: | May 21, 2020 | /s/ Mark Yost |
| Mark Yost |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
|---|---|---|
| /s/ Mark Yost | President and Chief Executive Officer | May 21, 2020 |
| Mark Yost | (Principal Executive Officer) | |
| /s/ Laurie Hough | Executive Vice President, Chief Financial Officer, and Treasurer | May 21, 2020 |
| Laurie Hough | (Principal Financial Officer) | |
| /s/ Timothy Burkhardt | Vice President and Controller | May 21, 2020 |
| Timothy Burkhardt | (Principal Accounting Officer) | |
| /s/ Keith Anderson | Director | |
| Keith Anderson | May 21, 2020 | |
| /s/ Michael Berman | Director | |
| Michael Berman | May 21, 2020 | |
| /s/ Timothy Bernlohr | Director | |
| Timothy Bernlohr | May 21, 2020 | |
| /s/ Eddie Capel | Director | |
| Eddie Capel | May 21, 2020 | |
| /s/ John C. Firth | Director | |
| John C. Firth | May 21, 2020 | |
| /s/ Michael Kaufman | Director | |
| Michael Kaufman | May 21, 2020 | |
| /s/ Erin Mulligan Nelson | Director | |
| Erin Mulligan Nelson | May 21, 2020 | |
| /s/ Gary E. Robinette | Director | |
| Gary E. Robinette | May 21, 2020 |
SKYLINE CHAMPION CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm | F-2 |
|---|---|
| Consolidated Balance Sheets as of March 28, 2020 and March 30, 2019 | F-5 |
| Consolidated Statements of Operations for the Fiscal Years Ended March 28, 2020, March 30, 2019, and March 31, 2018 | F-6 |
| Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended March 28, 2020, March 30, 2019, and March 31, 2018 | F-7 |
| Consolidated Statements of Cash Flows for the Fiscal Years Ended March 28, 2020, March 30, 2019, and March 31, 2018 | F-8 |
| Consolidated Statements of Equity for the Fiscal Years Ended March 28, 2020, March 30, 2019, and March 31, 2018 | F-9 |
| Notes to Consolidated Financial Statements | F-10 |
| Schedule II – Valuation and Qualifying Accounts | F-34 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Skyline Champion Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Skyline Champion Corporation (the Company) as of March 28, 2020 and March 30, 2019, and the related consolidated statements of operations, comprehensive (loss) income, equity and cash flows for each of the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 28, 2020 and March 30, 2019, and the results of its operations and its cash flows for the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 21, 2020, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts and disclosures to which it relates.
| Workers’ Compensation Reserve | |
|---|---|
| Description of the Matter | The Company had workers’ compensation reserves of $20.5 million as of March 28, 2020. As described in Note 1 to the consolidated financial statements, the Company is self-insured for a significant portion of its workers’ compensation obligations. Workers’ compensation costs are accrued for incurred claims and estimated claims incurred but not yet reported.<br><br><br>Auditing the Company’s workers’ compensation reserve is complex and required the involvement of actuarial specialists due to the measurement uncertainty associated with the estimate of the ultimate loss projection and the use of various actuarial methods. |
F-1
| How We Addressed the Matter in Our Audit | We evaluated the design and tested the operating effectiveness of the Company’s controls over the workers’ compensation reserve process. For example, we tested controls over management’s review of the workers’ compensation reserve calculations, the appropriateness of the assumptions management used in the calculation and controls pertaining to the completeness and accuracy of the claim data underlying the reserve.<br><br><br><br><br><br>To evaluate the reserve for workers’ compensation, we performed audit procedures that included, among others, testing the completeness and accuracy of the incurred claims underlying the reserve, obtaining legal confirmation letters to evaluate reserves in consideration of litigated matters, and reviewing the Company’s reinsurance contracts to assess the Company’s self-insurance retentions. Furthermore, we involved our actuarial specialists to assist in our evaluation of methodologies and assumptions applied by management to establish the workers’ compensation reserve. We compared the Company’s reserve to a range developed by our actuarial specialists based on assumptions independently developed by our specialists. |
|---|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Detroit, Michigan
May 21, 2020
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Skyline Champion Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Skyline Champion Corporation’s internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Skyline Champion Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 28, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 28, 2020 and March 30, 2019, the related consolidated statements of operations, comprehensive (loss) income, equity and cash flows for each of the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated May 21, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Detroit, Michigan
May 21, 2020
F-3
Skyline Champion Corporation
Consolidated Balance Sheets
(Dollars and shares in thousands, except per share amounts)
| March 30,<br><br><br>2019 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 209,455 | $ | 126,634 | ||
| Trade accounts receivable, net | 45,733 | 57,649 | |||
| Inventories, net | 126,386 | 122,638 | |||
| Other current assets | 17,239 | 11,369 | |||
| Total current assets | 398,813 | 318,290 | |||
| Long-term assets: | |||||
| Property, plant, and equipment, net | 109,291 | 108,587 | |||
| Goodwill | 173,521 | 173,406 | |||
| Amortizable intangible assets, net | 43,357 | 48,936 | |||
| Deferred tax assets | 21,812 | 34,058 | |||
| Other noncurrent assets | 34,906 | 16,677 | |||
| Total assets | 781,700 | $ | 699,954 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Floor plan payable | 33,914 | $ | 33,321 | ||
| Accounts payable | 38,703 | 43,421 | |||
| Other current liabilities | 114,030 | 129,561 | |||
| Total current liabilities | 186,647 | 206,303 | |||
| Long-term liabilities: | |||||
| Long-term debt | 77,330 | 54,330 | |||
| Deferred tax liabilities | 3,264 | 3,422 | |||
| Other | 40,144 | 23,927 | |||
| Total long-term liabilities | 120,738 | 81,679 | |||
| Stockholders' Equity: | |||||
| Common stock, 0.0277 par value, 115,000 shares authorized, 56,665 and 56,657 shares issued (including 145 and 290 shares subject to restriction) as of March 28, 2020 and March 30, 2019, respectively | 1,570 | 1,569 | |||
| Additional paid-in capital | 485,552 | 479,226 | |||
| Accumulated deficit | (48 | ) | (58,208 | ) | |
| Accumulated other comprehensive loss | (12,759 | ) | (10,615 | ) | |
| Total equity | 474,315 | 411,972 | |||
| Total liabilities and stockholders' equity | 781,700 | $ | 699,954 |
All values are in US Dollars.
See accompanying Notes to Consolidated Financial Statements.
F-4
Skyline Champion Corporation
Consolidated Statements of Operations
(Dollars and shares in thousands, except per share amounts)
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | |||||||
| Net sales | $ | 1,369,730 | $ | 1,360,043 | $ | 1,064,722 | |||
| Cost of sales | 1,090,755 | 1,114,684 | 887,611 | ||||||
| Gross profit | 278,975 | 245,359 | 177,111 | ||||||
| Selling, general, and administrative expenses | 186,855 | 270,158 | 122,582 | ||||||
| Foreign currency transaction loss (gain) | 235 | 123 | (547 | ) | |||||
| Amortization of intangible assets | 5,430 | 4,820 | 487 | ||||||
| Operating income (loss) | 86,455 | (29,742 | ) | 54,589 | |||||
| Interest expense | 4,632 | 5,333 | 5,133 | ||||||
| Interest income | (3,231 | ) | (2,043 | ) | (948 | ) | |||
| Other expense | — | 8,271 | 7,288 | ||||||
| Income (loss) before income taxes | 85,054 | (41,303 | ) | 43,116 | |||||
| Income tax expense (benefit) | 26,894 | 16,905 | 27,316 | ||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | $ | 15,800 | ||
| Net income (loss) per share: | |||||||||
| Basic | $ | 1.03 | $ | (1.09 | ) | $ | 0.33 | ||
| Diluted | $ | 1.02 | $ | (1.09 | ) | $ | 0.33 |
See accompanying Notes to Consolidated Financial Statements.
F-5
Skyline Champion Corporation
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
| Year Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | $ | 15,800 | |
| Other comprehensive income (loss), net of tax: | ||||||||
| Foreign currency translation adjustments | (2,144 | ) | (1,322 | ) | 854 | |||
| Total comprehensive income (loss) | $ | 56,016 | $ | (59,530 | ) | $ | 16,654 |
See accompanying Notes to Consolidated Financial Statements.
F-6
Skyline Champion Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | |||||||
| Cash flows from operating activities | |||||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | $ | 15,800 | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||
| Depreciation and amortization | 18,546 | 16,079 | 8,260 | ||||||
| Equity-based compensation | 8,349 | 101,999 | 642 | ||||||
| Deferred taxes | 11,796 | 3,047 | 12,914 | ||||||
| Amortization of deferred financing fees | 510 | 542 | — | ||||||
| Loss (gain) on disposal of property, plant, and equipment | 239 | (37 | ) | (122 | ) | ||||
| Foreign currency transaction loss (gain) | 235 | 123 | (547 | ) | |||||
| Fair market value adjustment to held for sale property | 986 | — | — | ||||||
| Property, plant, and equipment impairment charge | 550 | — | — | ||||||
| Write down of development inventory | — | — | 1,165 | ||||||
| Change in assets and liabilities, net of business acquired: | |||||||||
| Accounts receivable | 11,901 | (2,223 | ) | (13,904 | ) | ||||
| Inventories | (4,491 | ) | (6,044 | ) | (24,807 | ) | |||
| Floor plan receivables | (17 | ) | 157 | 3,386 | |||||
| Other assets | (10,599 | ) | (2,130 | ) | (7,133 | ) | |||
| Accounts payable | (4,606 | ) | (3,105 | ) | 7,691 | ||||
| Accrued expenses and other current liabilities | (14,816 | ) | 15,147 | 28,122 | |||||
| Other | — | (119 | ) | 156 | |||||
| Net cash provided by operating activities | 76,743 | 65,228 | 31,623 | ||||||
| Cash flows from investing activities | |||||||||
| Additions to property, plant, and equipment | (15,389 | ) | (12,092 | ) | (9,442 | ) | |||
| Cash acquired in business acquisition | — | 9,722 | — | ||||||
| Proceeds from disposal of property, plant, and equipment | 196 | 56 | 551 | ||||||
| Proceeds from sale of held for sale property | 1,100 | — | — | ||||||
| Decrease (increase) in note receivable | — | 284 | (167 | ) | |||||
| Distributions from unconsolidated affiliates | — | — | 437 | ||||||
| Net cash used in investing activities | (14,093 | ) | (2,030 | ) | (8,621 | ) | |||
| Cash flows from financing activities | |||||||||
| Changes in floor plan financing, net | 592 | 3,496 | 12,011 | ||||||
| Borrowings on revolving debt facility | 38,000 | 46,900 | — | ||||||
| Payments on revolving debt facility | (15,000 | ) | (5,000 | ) | — | ||||
| Payments on term-loans and other debt | — | (46,900 | ) | (418 | ) | ||||
| Payments for deferred financing fees | — | (2,169 | ) | (369 | ) | ||||
| Members' capital distribution | — | (65,277 | ) | (888 | ) | ||||
| Stock option exercises | 112 | 1,615 | — | ||||||
| Tax payments for equity-based compensation | (2,135 | ) | (5,183 | ) | — | ||||
| Net cash provided by (used in) financing activities | 21,569 | (72,518 | ) | 10,336 | |||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,398 | ) | (662 | ) | 586 | ||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 82,821 | (9,982 | ) | 33,924 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 126,634 | 136,616 | 102,692 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 209,455 | $ | 126,634 | $ | 136,616 | |||
| Supplemental disclosures of cash flow information | |||||||||
| Cash paid for interest | $ | 4,044 | $ | 4,975 | $ | 5,000 | |||
| Cash paid for income taxes | $ | 22,312 | $ | 13,537 | $ | 13,025 |
See accompanying Notes to Consolidated Financial Statements.
F-7
Skyline Champion Corporation
Consolidated Statement of Equity
(Dollars and shares in thousands)
| Common Stock | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Members' Contributed Capital | Shares | Amount | Additional Paid in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Total | |||||||||||||
| Balance at April 1, 2017 | $ | 140,322 | — | $ | — | $ | — | $ | 6,714 | $ | (10,147 | ) | $ | 136,889 | |||||
| Net income | — | — | — | — | 15,800 | — | 15,800 | ||||||||||||
| Equity-based compensation | 642 | — | — | — | — | — | 642 | ||||||||||||
| Members' capital distributions | (888 | ) | — | — | — | — | — | (888 | ) | ||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | 854 | 854 | ||||||||||||
| Balance at March 31, 2018 | $ | 140,076 | — | $ | — | $ | — | $ | 22,514 | $ | (9,293 | ) | $ | 153,297 | |||||
| Net loss | — | — | — | — | (58,208 | ) | — | (58,208 | ) | ||||||||||
| Equity-based compensation | — | — | — | 101,999 | — | — | 101,999 | ||||||||||||
| Members' capital distributions | (42,763 | ) | — | — | — | (22,514 | ) | — | (65,277 | ) | |||||||||
| Exchange of membership interest for shares of Skyline Champion Corporation | (97,313 | ) | 56,143 | 1,555 | 380,810 | — | — | 285,052 | |||||||||||
| Net common stock issued under equity-based compensation plans | — | 514 | 14 | (3,582 | ) | — | — | (3,568 | ) | ||||||||||
| Foreign currency translation adjustments | — | — | — | (1 | ) | — | (1,322 | ) | (1,323 | ) | |||||||||
| Balance at March 30, 2019 | $ | — | 56,657 | $ | 1,569 | $ | 479,226 | $ | (58,208 | ) | $ | (10,615 | ) | $ | 411,972 | ||||
| Net income | — | — | — | — | 58,160 | — | 58,160 | ||||||||||||
| Equity-based compensation | — | — | — | 8,349 | — | — | 8,349 | ||||||||||||
| Net common stock issued under equity-based compensation plans | — | 8 | 1 | (2,023 | ) | — | — | (2,022 | ) | ||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | (2,144 | ) | (2,144 | ) | ||||||||||
| Balance at March 28, 2020 | $ | — | 56,665 | $ | 1,570 | $ | 485,552 | $ | (48 | ) | $ | (12,759 | ) | $ | 474,315 |
Components of accumulated other comprehensive loss at March 28, 2020, March 30, 2019, and March 31, 2018 consisted solely of foreign currency translation adjustments.
See accompanying Notes to Consolidated Financial Statements.
F-8
Skyline Champion Corporation
Notes to Consolidated Financial Statements
| 1. | Summary of Significant Accounting Policies |
|---|
Basis of Presentation: On June 1, 2018, Skyline Champion Corporation (formerly known as Skyline Corporation), an Indiana corporation (the “Company”) and Champion Enterprises Holdings, LLC (“Champion Holdings”) completed the transactions contemplated by the Share Contribution & Exchange Agreement (the “Exchange Agreement”), dated as of January 5, 2018, by and between the Company and Champion Holdings. Under the Exchange Agreement: (i) Champion Holdings contributed to the Company all of the issued and outstanding equity interests of each of Champion Holdings’ wholly-owned operating subsidiaries (the “Contributed Shares”); and (ii) in exchange for the Contributed Shares, the Company issued to the members of Champion Holdings, in the aggregate, 47,752,008 shares of the Company common stock (“Skyline Common Stock”) (such issuance, the “Shares Issuance”). Immediately following the Shares Issuance, the members of Champion Holdings collectively held 84.5%, and the Company’s pre-closing shareholders collectively held 15.5%, of the issued and outstanding Skyline Common Stock on a fully-diluted basis. The contribution of the Contributed Shares by Champion Holdings to Skyline, and the Shares Issuance by the Company to the members of Champion Holdings are collectively referred to herein as the “Exchange.”
The Exchange was treated as a purchase of the Company by Champion Holdings for accounting and financial reporting purposes. As a result, the financial results for the twelve months ending March 30, 2019 are comprised of: (i) the results of Champion Holdings for the period between April 1, 2018 and May 31, 2018; and (ii) the Company, after giving effect to the Exchange, from June 1, 2018 through March 30, 2019. All annual periods presented prior to the effective date of the Exchange are comprised solely of the results of Champion Holdings and all annual periods presented subsequent to the period ending March 30, 2019 are comprised solely of the results of the Company.
All Company earnings per share and common stock outstanding amounts in this Annual Report on Form 10-K have been calculated as if the Shares Issuance took place on April 2, 2017, at the exchange ratio, as defined in the Exchange Agreement.
Nature of Operations: The Company’s operations consist of manufacturing, retail and transportation activities. At March 28, 2020, the Company operated 33 manufacturing facilities throughout the United States (“U.S.”) and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 21 sales centers that sell manufactured houses to consumers primarily in the Southern U.S. The Company’s transportation business engages independent owners/drivers to transport recreational vehicles throughout the U.S. and Canada and manufactured houses in certain regions of the U.S. The Company also has holding companies located in the Netherlands.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority-owned subsidiaries which it controls. All intercompany balances and transactions have been eliminated in consolidation.
Variable Interest Entities and Joint Ventures: The Company analyzes its investments in non-wholly owned subsidiaries to determine whether they are unconsolidated joint ventures, consolidated joint ventures, or variable interest entities (“VIEs”) and, if so, whether the Company is the primary beneficiary in accordance with ASC 810, Consolidation.
The Company has a 90% equity interest in a consolidated joint venture that was formed in March 2012 to acquire and develop land into a subdivision of modular homes to be sold to homebuyers. The Company is responsible for the development of the subdivision and marketing the lots for sale, and to provide, install, and set up modular homes on the lots. The Company recorded an impairment charge of $1.2 million during fiscal 2018 to reflect the net realizable value of development inventory. The net investment in development inventory was zero for all periods presented.
Accounting Estimates: The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“US. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes thereto. Estimates made in preparing the accompanying consolidated financial statements include, but are not limited to, business combinations, reserves for obsolete inventory, accrued warranty costs, useful lives of fixed and intangible assets, asset impairment analyses, insurance reserves, legal reserves, repurchase reserves, share-based compensation and deferred tax valuation allowances. There is significant uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the demand for our products and our supply chain. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain, including new information that may emerge
F-9
concerning the severity of COVID-19 and the actions taken to contain it or treat its impacts. Actual results could differ from those estimates, making it reasonably possible that a change in these estimates could occur within one year.
Fiscal Year: The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest March 31. Fiscal 2020, 2019 and 2018 include the 52-weeks ended March 28, 2020, March 30, 2019, and March 31, 2018, respectively.
Revenue Recognition: Revenue is recognized when performance obligations under the terms of a contract are satisfied which generally occurs at a point in time through the transfer of control of promised goods to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Sales revenue is reported net of applicable sales tax. See Note 10, Revenue Recognition, for additional information.
Cost of Sales: Cost of sales includes manufacturing costs such as: (i) materials; (ii) compensation and employee benefits for direct and indirect labor; (iii) fixed and variable manufacturing overhead costs; (iv) warranty costs; (v) inbound delivery costs; and (vi) depreciation of buildings and equipment. Manufacturing overhead costs include costs such as: (i) utilities; (ii) workers’ compensation and product liability self-insurance; (iii) real and personal property taxes on buildings and equipment; (iv) manufacturing supplies; (v) repairs and maintenance; and (vi) rents and leases for buildings and equipment. Cost of sales also includes certain post-manufacturing costs, to the extent such costs are the Company’s responsibility. Post-manufacturing costs may include delivery and setup, foundations, craning, roofing, exterior cladding, interior finishing, utility connections and other miscellaneous site costs. Generally, subcontractors are engaged to perform post-manufacturing activities.
Selling, General, and Administrative Expenses: Selling, general, and administrative expenses (“SG&A”) include costs such as (i) salaries, wages, incentives and employee benefits for executive, management, sales, engineering, accounting, information technology (“IT”) and administrative employees; (ii) sales commissions; (iii) marketing and advertising costs; (iv) legal and professional fees; (v) depreciation, rents and leases for administrative facilities, office equipment, IT equipment and computer software; and (vi) postage, office supplies, travel and telephone expenses.
Advertising Costs and Delivery Costs and Revenue: Advertising costs are expensed as incurred and are included in selling, general, and administrative expenses. Total advertising expense was approximately $2.3 million, $1.5 million, and $1.0 million for fiscal 2020, 2019, and 2018, respectively. Delivery costs are included in cost of sales and delivery revenue is included in net sales.
Foreign Currency: The Company had intercompany loans between its U.S. and foreign subsidiaries for financing purposes. The foreign exchange impact on these transactions was reported in the consolidated statements of operations under foreign currency transaction gains and losses.
Translation adjustments of the Company’s international subsidiaries for which the local currency is the functional currency are reflected in the accompanying consolidated balance sheets as a component of accumulated other comprehensive income or loss.
Fair Value: The Company estimates the fair value of its financial instruments in accordance with ASC 820, Fair Value Measurement, which establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As such, the fair value of financial instruments is estimated using available market information and other valuation methods.
The Company groups assets and liabilities at fair value in three levels, based on the inputs and assumptions used to determine fair value. These levels are:
| • | Level 1—Fair value determined based on quoted prices in active markets for identical assets and liabilities. |
|---|---|
| • | Level 2—Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active. |
| --- | --- |
| • | Level 3—Fair value determined using significant observable inputs, such as pricing models, discounted cash flows, or similar techniques. |
| --- | --- |
The Company records accounts receivable, accounts payable and other current liabilities at cost. The carrying value of these instruments approximate their fair value due to their short-term maturities.
F-10
Cash and Cash Equivalents: Cash and cash equivalents include highly liquid 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.
Restricted Cash: Restricted cash primarily represented collateral for letters of credit issued to support industrial revenue bonds, repurchase obligations, self-insurance programs and bonding facilities prior to the Exchange.
Trade Accounts Receivable and Allowance for Doubtful Accounts: The Company extends credit terms on a customer-by-customer basis in the normal course of business and, as such, trade accounts receivable are subject to customary credit risk. The allowance for doubtful accounts represents the Company's best estimate of probable credit losses in accounts receivable. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. At March 28, 2020 and March 30, 2019, the Company had an allowance for doubtful accounts of $0.4 million and $0.6 million, respectively.
Inventories: Inventories are stated at the lower of cost or net realizable value, with cost determined under the first-in, first-out method. Capitalized manufacturing costs include the cost of materials, labor and manufacturing overhead. Retail inventories of new manufactured homes built by the Company are valued at manufacturing cost, including materials, labor and manufacturing overhead, or net purchase price if acquired from unaffiliated third parties.
Property, Plant, and Equipment: Property, plant, and equipment are stated at acquisition date cost. Depreciation is provided principally on the straight-line method, generally over the following estimated useful lives: land improvements—3 to 10 years; buildings and improvements—8 to 25 years; and vehicles and machinery and equipment—3 to 8 years. Depreciation expense was $13.1 million, $11.3 million, and $7.8 million for fiscal 2020, 2019, and 2018, respectively.
At March 28, 2020, the Company owned five idle manufacturing facilities and two idle retail sales centers with a net book value of $8.5 million. These properties are accounted for as long-lived assets to be held and used.
It is the Company’s policy to evaluate the recoverability of property, plant, and equipment whenever events and changes in circumstances indicate that the carrying amount of assets may not be recoverable. If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon a combination of market and cost approaches, as appropriate. An impairment loss of $0.6 million was recorded in selling, general, and administrative expenses in fiscal 2020 related to a decrease in the estimated fair value of the Company’s idle manufacturing facilities. No impairment losses were recorded in fiscal 2019 or 2018.
Assets held for sale: Long-lived assets expected to be sold or otherwise disposed of within one year are classified as assets held for sale and included in other current assets in the consolidated balance sheets. In connection with the Exchange, the Company acquired an office building which was classified as an asset held for sale as of March 30, 2019, valued at $2.1 million. In the first quarter of fiscal 2020, a loss of $1.0 million was recorded in selling, general, and administrative expenses to recognize a decrease in the fair value of the building, which was sold for $1.1 million in the third quarter of fiscal 2020.
Goodwill: The Company tests goodwill for impairment in accordance with ASC 350. Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.
In fiscal 2020, the Company performed qualitative assessments of its reporting units. The annual assessment was completed on of the first day of March and an additional assessment was performed the last day of the fiscal year due to a drop in the share price and in response to the changes in business operating conditions from the COVID-19 pandemic. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
F-11
Business combinations: The Company accounts for its business combinations in accordance with the accounting guidance in ASC 805. The purchase price of an acquired business is allocated to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. Determining the fair values of assets acquired and liabilities assumed requires management’s judgment, the utilization of independent appraisal firms and often involves the use of significant estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, actuarial assumptions, and appropriate discount rates, among other items. Refer to Note 2, Business Combination and Acquisition, for additional information.
Amortizable Intangible Assets: Amortizable intangible assets consist primarily of fair values assigned to customer relationships and trade names. Trade names were valued based upon the royalty-saving method and customer relationships were valued based upon the excess earnings method. Amortization is provided over the useful lives of the intangible assets, generally up to ten years, using the straight-line method. 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 recovered, in accordance with the recognition and measurement provisions of ASC 360.
Warranty Obligations: The Company’s manufactured housing operations generally provides the homebuyer with an assurance 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 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.
Repurchase Agreements: The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on their agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. The Company accounts for the guarantee under its repurchase agreements with the retailers’ financing institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the guarantee.
Accrued Self-Insurance: The Company is self-insured for a significant portion of its workers’ compensation, general and product 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. At March 28, 2020 and March 30, 2019, the Company had gross reserves for estimated losses under its workers’ compensation programs of $20.5 million and $20.4 million, respectively. The Company also recorded expected reimbursements for the portion of those losses above respective program limits of $9.3 million and $8.2 million at March 28, 2020 and March 30, 2019.
Equity-Based Compensation: Stock-based compensation is measured at the grant date based on the fair value of the award and is generally recognized as expense ratably on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are recognized in the period in which they occur.
Comprehensive Income and Loss: Components of comprehensive income and loss are changes in equity other than those resulting from investments by owners and distributions to owners. The aggregate amount of such changes to equity that have not yet been recognized in net income or loss are reported in the equity section of the accompanying consolidated balance sheets as accumulated other comprehensive income or loss, net of tax.
F-12
Income Taxes: The provision for income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required.
Recently Adopted Accounting Pronouncements: In May 2014, FASB issued an amendment on revenue recognition. The amendment created Topic 606, Revenue from Contracts with Customers, (“ASC 606”) and supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendment supersedes the cost guidance in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts, and created new Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers. Under ASC 606 an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services. On April 1, 2018, the Company adopted ASC 606 using the modified retrospective method as applied to customer contracts that were not completed as of March 31, 2018. As a result, financial information for reporting periods beginning after March 31, 2018, are presented in accordance with ASC 606 while prior reporting periods were not adjusted and continue to be reported in accordance with the Company’s revenue recognition policies prior to the adoption of ASC 606. There was no material impact to revenues as a result of applying ASC 606 for the fiscal year ended March 30, 2019 and the post-adoption effects to the Company’s business processes, systems or internal controls were not significant.
On April 1, 2018, the Company adopted ASU 2016-18, Restricted Cash. The standard requires that changes in restricted cash be reflected with changes in cash and cash equivalents on the statement of cash flows and that a reconciliation between cash and cash equivalents presented on the balance sheet and cash, cash equivalents, and restricted cash presented on the statement of cash flows be provided. The provisions of the standard were applied retrospectively, and the effects of adoption were not significant.
In February 2016, FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the consolidated balance sheet a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements. This ASC 842 is effective for fiscal years beginning after December 31, 2018 and modified retrospective application is permitted.
The Company adopted ASC 842 as of March 31, 2019, the first day of fiscal 2020 using the modified retrospective approach and without restating comparative periods. The Company has elected to apply the transition package of three practical expedients which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. The Company did not elect the practical expedient which permits the use of hindsight when determining the lease term and assessing right-of-use assets for impairment. As permitted by the standard, the Company elected to: (i) recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and will not recognize any right of use assets or lease liabilities for those leases, and (ii) not separate lease and non-lease components.
The primary financial statement impact upon adoption was the recognition, on a discounted basis, of the Company's minimum commitments under non-cancelable operating leases as right of use assets and obligations on the consolidated balance sheets. The adoption of ASC 842 resulted in the recognition of lease-related assets and liabilities of $13.7 million. The standard did not have a material impact on the Company's results of operations or cash flows.
Recently Issued Accounting Pronouncements Pending Adoption: In January 2017, FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairments and allows a goodwill impairment charge to be based on the amount of a reporting unit’s carrying value in excess of its fair value. This eliminates the requirement to calculate the implied fair value of goodwill or what is known as “Step 2” under the current guidance. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted.
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. The amendments in this update require measurement of impairment of all financial instruments including accounts receivable, long-term notes receivable, and financial guarantees based on current conditions and forward-looking information, rather than historical experience. The new methodology may result in earlier recognition of credit losses compared to the current standard. The ASU is effective for fiscal years beginning after December 15, 2019. The Company does not expect that the adoption of the standard will have a material impact on the Company's consolidated financial statements.
F-13
There were no other accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.
| 2. | Business Combination |
|---|
Skyline Corporation Transaction
The Exchange between Champion Holdings and Skyline was completed on June 1, 2018 and was accounted for as a reverse acquisition under the acquisition method of accounting as provided by ASC 805. The assets acquired and liabilities assumed as a result of the Exchange were recorded at their respective fair values and added to the carrying value of Champion Holdings’ existing assets and liabilities. The Company incurred Exchange transaction-related costs of approximately $6.9 million and $7.2 million for fiscal 2019 and 2018, respectively, which were recorded as incurred and have been classified as other expense in the consolidated statements of operations. No Exchange transaction-related expenses were recorded in fiscal 2020. Additionally, the Company incurred approximately $6.0 million in stock compensation expense related to former Skyline employees during fiscal 2019, which is recorded in SG&A in the consolidated statements of operations.
The purchase price of the acquisition was determined with reference to the value of equity (common stock) of the Company based on the closing price on June 1, 2018 of $33.39 per share. The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at June 1, 2018, the closing of the Exchange. The purchase price and the allocation have been used to prepare the accompanying consolidated financial statements.
The final allocation of the purchase price was as follows:
| (Dollars in thousands) | |||
|---|---|---|---|
| Cash | $ | 9,722 | |
| Trade accounts receivable | 13,876 | ||
| Inventory | 19,028 | ||
| Assets held for sale | 2,086 | ||
| Property, plant, and equipment | 40,220 | ||
| Deferred tax assets, net | 7,034 | ||
| Other assets | 6,706 | ||
| Accounts payable and accrued liabilities | (36,027 | ) | |
| Intangibles | 52,065 | ||
| Goodwill | 170,342 | ||
| Total purchase price allocation | $ | 285,052 |
Goodwill is primarily attributable to expected synergies from the combination of the companies, including, but not limited to, expected cost synergies through procurement activities and operational improvements through sharing of best practices. Goodwill, which is not deductible for income tax purposes, was allocated to the U.S. Factory-built Housing reporting unit.
Cash, trade accounts receivable, other assets, accounts payable, and accrued liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Intangible assets consist primarily of amounts recognized for the fair value of customer relationships and trade names and were based on an independent appraisal. Customer-based assets include the Company’s established relationships with its customers and the ability of those customers to generate future economic profits for the Company. The Company estimates that these intangible assets have a weighted average useful life of ten years from the acquisition date. Fair value estimates of plant, property, and equipment were based on independent appraisals and broker opinions of value, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate. Level 3 fair value estimates of $40.2 million related to property, plant, and equipment and $52.1 million related to intangible assets were recorded in the accompanying consolidated balance sheet as of March 28, 2020. The Company determined $2.1 million of property acquired met the definition of held for sale and is classified in other current assets in the accompanying consolidated balance sheets at March 30, 2019. In the first quarter of fiscal 2020, a loss of $1.0 million was recorded related to this held-for-sale property based on market information. The property was sold in the third quarter of fiscal 2020 for $1.1 million. For further information on acquired assets measured at fair value, see Note 7, Goodwill and Intangible Assets.
The Company allocated a portion of the purchase price to certain realizable deferred tax assets totaling $27.3 million. Deferred tax assets are primarily federal and state net operating loss carryforwards and credits offset by a valuation allowance for certain state
F-14
net operating loss carryforwards that are not expected to be realized. The deferred tax assets are offset by deferred tax liabilities of $20.3 million resulting from the purchase price allocation step-up in fair value that exceed the historical tax basis.
The statement of operations for fiscal 2019 includes $218.8 million of net sales attributable to the acquired Skyline operations.
A summary of the results of operations for the Company, on an as reported and on a pro forma basis, are as follows:
| Year Ended<br><br><br>March 30, 2019 | Year Ended<br><br><br>March 31, 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Reported | Pro forma | Reported | Pro forma | |||||
| Net sales | $ | 1,360,043 | $ | 1,405,847 | $ | 1,064,722 | $ | 1,297,159 | |
| Net (loss) income | (58,208 | ) | (43,460) | 15,800 | 25,655 |
The pro forma results are based on adding the historical results of operations of Champion and Skyline and adjusting those historical amounts for the amortization of intangibles created in the Exchange; the increase in depreciation as a result of the step-up in fair value of property, plant, and equipment; removing transaction costs directly associated with the Exchange; removing equity-based compensation expense directly resulting from the Exchange; reflecting the financing arrangements entered into in connection with the Exchange, and adjusting those items for income taxes. The pro forma disclosures do not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the Exchange or any integration costs. The pro forma data is intended for informational purposes and is not indicative of the future results of operations.
The Exchange Agreement provided that the Company was permitted to pay a capital distribution prior to completion of the Exchange to the extent it had cash in excess of debt and other debt-like items and unpaid Exchange fees and expenses. Prior to the completion of the Exchange, the Company made a capital distribution to its members equal to an aggregate of $65.3 million (of which $22.5 million was reflected as a reduction to retained earnings and $42.8 million was reflected as a reduction to members’ contributed capital).
| 3. | Cash, Cash Equivalents, and Restricted Cash |
|---|
A reconciliation of cash, cash equivalents, and restricted cash was as follows:
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | |||
|---|---|---|---|---|---|---|
| Balance sheet - cash and cash equivalents | $ | 209,455 | $ | 126,634 | $ | 113,731 |
| Balance sheet - restricted cash | — | — | 22,885 | |||
| Statement of cash flows - cash, cash equivalents, and restricted cash | $ | 209,455 | $ | 126,634 | $ | 136,616 |
| 4. | Inventories, net | |||||
| --- | --- |
The components of inventory, net of reserves for obsolete inventory, were as follows:
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||
|---|---|---|---|---|
| Raw materials | $ | 55,408 | $ | 48,531 |
| Work in process | 17,773 | 13,973 | ||
| Finished goods and other | 53,205 | 60,134 | ||
| Total inventories, net | $ | 126,386 | $ | 122,638 |
At March 28, 2020 and March 30, 2019, reserves for obsolete inventory were $4.2 million and $4.1 million, respectively.
F-15
| 5. | Property, Plant, and Equipment |
|---|
Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on the straight-line method, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense, for the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018 was $13.1 million, $11.3 million, and $7.8 million, respectively.
The components of property, plant, and equipment were as follows:
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||||
|---|---|---|---|---|---|---|
| Land and improvements | $ | 35,332 | $ | 34,264 | ||
| Buildings and improvements | 87,222 | 83,973 | ||||
| Machinery and equipment | 51,239 | 42,476 | ||||
| Construction in progress | 1,810 | 3,619 | ||||
| Property, plant, and equipment, at cost | 175,603 | 164,332 | ||||
| Less accumulated depreciation | (66,312 | ) | (55,745 | ) | ||
| Property, plant, and equipment, net | $ | 109,291 | $ | 108,587 | ||
| 6. | Goodwill and Intangible Assets | |||||
| --- | --- |
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At March 28, 2020 and March 30, 2019, the Company had goodwill of $173.5 million and $173.4 million, respectively. The change in the goodwill balance during the period was a result of the finalization of the purchase price allocation related to the Exchange. Goodwill is allocated to reporting units included in the U.S. Factory-built Housing segment, which include the Company’s U.S. manufacturing and retail operations.
Intangible Assets
The components of amortizable intangible assets were as follows:
| (Dollars in thousands) | March 28, 2020 | March 30, 2019 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Customer<br><br><br>Relationships | Trade<br><br><br>Names | Total | Customer<br><br><br>Relationships | Trade<br><br><br>Names | Total | |||||||||||||
| Gross carrying amount | $ | 48,370 | $ | 13,068 | $ | 61,438 | $ | 48,782 | $ | 13,173 | $ | 61,955 | ||||||
| Accumulated amortization | (13,118 | ) | (4,963 | ) | (18,081 | ) | (9,052 | ) | (3,967 | ) | (13,019 | ) | ||||||
| Amortizable intangibles, net | $ | 35,252 | $ | 8,105 | $ | 43,357 | $ | 39,730 | $ | 9,206 | $ | 48,936 | ||||||
| Weighted average remaining amortization period, in years | 7.3 | 6.2 | 7.1 | 8.2 | 7.1 | 8.0 |
The Company recognized customer relationships of $43.1 million and trade names of $9.0 million related to the Exchange. The fair value of the customer relationship intangible asset was estimated using the multi-period excess earnings method of the income approach. The fair value of the customer relationship intangible asset was determined based on estimates and assumptions of projected cash flows attributable to the acquired customer relationships, the annual attrition rate of existing customer relationships, the contributory asset charges attributable to the assets that support the customer relationships, such as: (i) net working capital; (ii) property, plant, and equipment; (iii) trade names; and (iv) workforce, with the economic life and the discount rate as determined at the time of the final valuation. The fair value of the trade names intangible asset was estimated using the relief-from-royalty method of the income approach. The fair value of the trade names intangible asset was determined based on estimates and assumptions of the expected life of the intangible asset, the royalty rate, and the discount rate that reflects the level of risk associated with the future cash flows, as determined at the time of the final valuation.
F-16
Amortization of intangible assets for the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018 was $5.4 million, $4.8 million, and $0.5 million respectively. Estimated amortization expense of intangible assets over the next five years is estimated to be (dollars in thousands):
| Fiscal 2021 | $ | 5,443 |
|---|---|---|
| Fiscal 2022 | 5,443 | |
| Fiscal 2023 | 5,326 | |
| Fiscal 2024 | 5,278 | |
| Fiscal 2025 | 5,278 | |
| 7. | Other Current Liabilities | |
| --- | --- |
The components of other current liabilities were as follows:
| (Dollars in thousands) | March 28, 2020 | March 30, 2019 | ||
|---|---|---|---|---|
| Customer deposits | $ | 22,679 | $ | 27,873 |
| Accrued volume rebates | 17,469 | 21,020 | ||
| Accrued warranty obligations | 19,179 | 17,886 | ||
| Accrued compensation and payroll taxes | 27,776 | 32,075 | ||
| Accrued insurance | 11,182 | 16,245 | ||
| Other | 15,745 | 14,462 | ||
| Total other current liabilities | $ | 114,030 | $ | 129,561 |
| 8. | Accrued Warranty Obligations | |||
| --- | --- |
Changes in the accrued warranty obligations were as follows:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||||
| Balance at the beginning of the period | $ | 23,346 | $ | 15,430 | ||
| Warranty assumed in the Exchange | — | 6,259 | ||||
| Warranty expense | 39,434 | 37,298 | ||||
| Cash warranty payments | (37,811 | ) | (35,641 | ) | ||
| Balance at end of period | 24,969 | 23,346 | ||||
| Less noncurrent portion in other long-term liabilities | (5,790 | ) | (5,460 | ) | ||
| Total current portion | $ | 19,179 | $ | 17,886 | ||
| 9. | Debt and Floor Plan Payable | |||||
| --- | --- |
Long-term debt consisted of the following:
| (Dollars in thousands) | March 28, 2020 | March 30, 2019 | ||
|---|---|---|---|---|
| Revolving credit facility maturing in 2023 | $ | 64,900 | $ | 41,900 |
| Obligations under industrial revenue bonds due 2029 | 12,430 | 12,430 | ||
| Total debt | 77,330 | 54,330 | ||
| Less current portion | — | — | ||
| Total long-term debt | $ | 77,330 | $ | 54,330 |
F-17
On June 5, 2018, the Company entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement provides for a revolving credit facility of up to $100.0 million, including a letter of credit sub-facility of not less than $45 million. Initial borrowings under the Credit Agreement were used to repay the Company’s $46.9 million term loans and replace the Company’s existing cash collateralized stand-alone letter of credit facility. During fiscal 2020, the Company elected to repay $15.0 million of the outstanding balance on the revolving credit facility during the first nine months and borrowed $38.0 million on the revolving credit facility in March 2020.
The Credit Agreement matures on June 5, 2023 and has no scheduled amortization. The interest rate under the Credit Agreement adjusts based on the first lien net leverage of the Company. From June 5, 2018 through December 31, 2018, the annual interest rate was the selected London Interbank Offered Rate (“LIBOR”) plus 1.75%. Thereafter, the interest rate adjusts based on the first lien net leverage from a high of LIBOR plus 2.25% and ABR plus 1.25% when the first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when the first lien net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.25% and 0.40% (depending on the first lien net leverage) in respect of unused commitments under the Credit Agreement. At March 28, 2020 the interest rate on borrowings under the Credit Agreement was 2.4%. At March 28, 2020, letters of credit issued under the Credit Agreement totaled $28.7 million. Total available borrowings under the Credit Agreement as of March 28, 2020 were $6.4 million.
Also, prior to entering into the Credit Agreement, the Company provided letters of credit issued by a commercial bank under a separate stand-alone facility collateralized with restricted cash of 101% of the issued letters of credit. Subsequent to entering into the Credit Agreement, the Company is no longer required to back letters of credit with restricted cash.
Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at March 28, 2020, including related costs and fees, was 6.31%. At March 30, 2019, the weighted-average interest rate, including related costs and fees, was 3.62%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
The Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Credit Agreement as of March 28, 2020.
Floor Plan Payable
The Company’s retail operations utilize floor plan financing to fund the acquisition of manufactured homes for display or resale. At March 28, 2020 and March 30, 2019, the Company had outstanding borrowings on floor plan financing agreements of $33.9 million and $33.3 million, respectively. The financing arrangements allow for borrowings up to $48.0 million. Borrowings are secured by the homes and are required to be repaid when the Company sells the home to a customer.
| 10. | Revenue Recognition |
|---|
The Company’s revenue is recognized when performance obligations under the terms of a contract are satisfied which generally occurs with the transfer of control of products. The Company enters into contracts with its customers to provide manufactured homes, modular homes, park model RVs, ADUs, commercial structures and transportation services. Generally, the Company’s contracts may be terminated by the Company’s customers at any time. Historically, terminations of these contracts have been minimal. The Company receives signed sales quotes from its customers, which provide the terms for a specific home, including price. The Company also has agreements with certain customers that provide for certain variable considerations such as volume discounts that are deducted from the contract price and accrued at the time of sale. In certain situations, the Company may receive payment in advance of completion of its contractual obligations. In these situations, the arising contract liability is classified within customer deposits and receipts in excess of revenues. Following the receipt of the customer deposit, the Company typically completes its performance obligation within a twelve-month period.
F-18
For sales to independent retailers and builders/developers, revenue is recognized at the point in time when wholesale floor plan financing or retailer credit approval has been received, the home has shipped and title has transferred, which occurs when the Company has satisfied its contractual obligations and the control of its products has been transferred. The Company does not have an enforceable right to payment prior to shipment. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products. The Company’s customers pay for products received in accordance with payment terms that are customary within the industry. As is customary in the factory-built housing industry, a significant portion of the Company’s sales to independent retailers are financed under floor plan financing programs with certain third-party lenders. Floor plan financing arrangements are generally identified prior to shipment of products and payment for sales financed under floor plan programs is generally received 5 to 10 business days from the date of invoice.
For retail sales to consumers from Company-owned retail sales centers, revenue is recognized when the home has been delivered, set up and accepted by the consumer, and title has transferred.
The Company recognizes commercial revenue and related cost of sales for long-term construction contracts (“Commercial”) over time as performance obligations are satisfied using the percentage-of-completion method (input method). Management estimates the stage of completion on each construction project based on progress and costs incurred. Unbilled revenue on long-term construction contracts are classified as a contract asset in accounts receivable. Receipts in excess of billings are classified as contract liabilities and included in other current liabilities. At March 28, 2020 and March 30, 2019, uncollected billings related to long-term construction contracts totaled $1.0 million and $0.9 million, respectively. There was no unbilled revenue for long-term contracts at March 28, 2020 or March 30, 2019.
Revenue for the Company’s transportation operations is recognized when a shipment has been delivered to its final destination. Amounts billed to customers related to shipping and handling costs are included in net sales. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales.
The following tables disaggregate the Company’s revenue by sales category:
| Year Ended March 28, 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | U.S.<br><br><br>Factory-Built<br><br><br>Housing | Canadian<br><br><br>Factory-built<br><br><br>Housing | Corporate/<br><br><br>Other | Total | ||||
| Manufacturing and retail | $ | 1,218,293 | $ | 84,196 | $ | — | $ | 1,302,489 |
| Commercial | 8,100 | — | — | 8,100 | ||||
| Transportation | — | — | 59,141 | 59,141 | ||||
| Total | $ | 1,226,393 | $ | 84,196 | $ | 59,141 | $ | 1,369,730 |
| Year Ended March 30, 2019 | ||||||||
| (Dollars in thousands) | U.S.<br><br><br>Factory-Built<br><br><br>Housing | Canadian<br><br><br>Factory-built<br><br><br>Housing | Corporate/<br><br><br>Other | Total | ||||
| Manufacturing and retail | $ | 1,166,245 | $ | 98,567 | $ | — | $ | 1,264,812 |
| Commercial | 11,442 | — | — | 11,442 | ||||
| Transportation | — | — | 83,789 | 83,789 | ||||
| Total | $ | 1,177,687 | $ | 98,567 | $ | 83,789 | $ | 1,360,043 |
| Year Ended March 31, 2018 | ||||||||
| (Dollars in thousands) | U.S.<br><br><br>Factory-Built<br><br><br>Housing | Canadian<br><br><br>Factory-built<br><br><br>Housing | Corporate/<br><br><br>Other | Total | ||||
| Manufacturing and retail | $ | 841,354 | $ | 96,603 | $ | — | $ | 937,957 |
| Commercial | 19,134 | — | — | 19,134 | ||||
| Transportation | — | — | 107,631 | 107,631 | ||||
| Total | $ | 860,488 | $ | 96,603 | $ | 107,631 | $ | 1,064,722 |
- Leases
F-19
The Company has operating leases for land, manufacturing and office facilities, and equipment. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. Lease expense included in the accompanying condensed consolidated statement of operations is shown below:
| (Dollars in thousands) | March 28,<br><br><br>2020 | |
|---|---|---|
| Operating lease expense | $ | 5,884 |
| Short-term lease expense | 1,378 | |
| Total lease expense | $ | 7,262 |
Net rent expense was $6.6 million and $5.8 million during fiscal 2019 and 2018, respectively.
Operating lease assets and obligations included in the accompanying condensed consolidated balance sheet are shown below:
| (Dollars in thousands) | March 28,<br><br><br>2020 | |
|---|---|---|
| Right-of-use assets under operating leases: | ||
| Other long-term assets | $ | 14,808 |
| Lease obligations under operating leases: | ||
| Other current liabilities | 4,789 | |
| Other long-term liabilities | 10,019 | |
| Total lease obligation | $ | 14,808 |
Maturities of lease obligations as of March 28, 2020 are shown below:
| (Dollars in thousands) | March 28,<br><br><br>2020 | ||
|---|---|---|---|
| Fiscal 2021 | $ | 5,411 | |
| Fiscal 2022 | 4,431 | ||
| Fiscal 2023 | 3,360 | ||
| Fiscal 2024 | 1,414 | ||
| Fiscal 2025 | 784 | ||
| Thereafter | 1,771 | ||
| Total undiscounted cash flows | 17,171 | ||
| Less: imputed interest | (2,363 | ) | |
| Lease obligations under operating leases | $ | 14,808 |
The weighted average lease term and discount rate for operating leases are shown below:
| March 28,<br><br><br>2020 | ||
|---|---|---|
| Weighted average remaining lease term (in years) | 4.7 | |
| Weighted average discount rate | 5.5 |
The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.
F-20
Cash flow information related to operating leases is shown below:
| (Dollars in thousands) | Year Ended<br><br><br>March 28, 2020 | |
|---|---|---|
| Non-cash activity: | ||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 6,177 |
| Operating cash flows: | ||
| Cash paid related to operating lease obligations | $ | 5,811 |
| 12. | Income Taxes | |
| --- | --- |
Pretax income (loss) for the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018 was attributable to the following tax jurisdictions:
| Year Ended | |||||||
|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||
| Domestic | $ | 76,224 | $ | (50,891 | ) | $ | 32,470 |
| Foreign | 8,830 | 9,588 | 10,646 | ||||
| Income (loss) before income taxes | $ | 85,054 | $ | (41,303 | ) | $ | 43,116 |
The income tax provision by jurisdiction for the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018 was as follows:
| Year Ended | |||||||
|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||
| Current: | |||||||
| U.S. federal | $ | 9,360 | $ | 9,353 | $ | 10,033 | |
| Foreign | 1,938 | 1,452 | 2,269 | ||||
| State | 3,800 | 3,053 | 2,100 | ||||
| Total current | $ | 15,098 | $ | 13,858 | $ | 14,402 | |
| Deferred | |||||||
| U.S. federal | $ | 5,660 | $ | 1,854 | $ | 9,694 | |
| Foreign | 5,214 | 987 | 3,640 | ||||
| State | 922 | 206 | (420 | ) | |||
| Total deferred | $ | 11,796 | $ | 3,047 | $ | 12,914 | |
| Total income tax expense | $ | 26,894 | $ | 16,905 | $ | 27,316 |
F-21
Income tax expense (benefit) differs 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:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||||
| Tax expense (benefit) at U.S federal statutory rate | $ | 17,861 | $ | (8,674 | ) | $ | 13,599 | ||
| Increase (decrease) in rate resulting from: | |||||||||
| State taxes, net of U.S. federal benefit | $ | 4,491 | $ | 2,412 | $ | 1,083 | |||
| Change in deferred tax valuation allowance | 3,652 | (986 | ) | (8,632 | ) | ||||
| Non-deductible compensation due to Section 162(m) | 1,007 | 2,760 | — | ||||||
| Other permanent difference | 844 | 531 | 617 | ||||||
| Deferred tax rate changes | 538 | 928 | 9,115 | ||||||
| Foreign tax rate differences | 502 | 579 | (413 | ) | |||||
| Global intangible low-taxed income ("GILTI") | 339 | 524 | — | ||||||
| Recognition of foreign investment basis difference | 25 | 247 | 12,199 | ||||||
| Non-deductible equity-based compensation | — | 17,545 | 203 | ||||||
| Domestic production activities deduction | — | — | (970 | ) | |||||
| Transaction costs related to the Exchange | — | 2,051 | — | ||||||
| Uncertain tax positions | (643 | ) | (590 | ) | 23 | ||||
| U.S. tax credits | (1,005 | ) | (445 | ) | (75 | ) | |||
| Other | (717 | ) | 23 | 567 | |||||
| Total income tax expense | $ | 26,894 | $ | 16,905 | $ | 27,316 |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made several changes to the U.S. Internal Revenue Code of 1986, with the following changes being most impactful: (1) decreased the corporate income tax rate from 35% to 21%; (2) implemented a territorial tax system; (3) eliminated the Section 199 Domestic Production Activities Deduction; (4) expanded the scope of executive compensation that is subject to Section 162(m) deduction limitations and (5) allowed for immediate expensing of certain qualified property placed in service after September 27, 2017.
The Tax Act subjects a U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
The U.S. income tax rate for fiscal 2020 and fiscal 2019 is 21%. The U.S. income tax rate for fiscal 2018 was a blended rate of 31.5%. This rate was calculated under the guidance of Internal Revenue Service Notice 2018-38 by prorating the total annual taxable income by the amount of days in the fiscal year that the enacted 35% rate was applicable (April 2, 2017 to December 31, 2017) and the amount of days in the fiscal year that the enacted 21% rate was applicable (January 1, 2018 to March 31, 2018).
F-22
Deferred tax assets and liabilities at March 28, 2020 and March 30, 2019 consisted of the following:
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Intangible assets | $ | 9,665 | $ | 11,110 | ||
| U.S. federal net operating loss carryforwards | 9,368 | 14,213 | ||||
| Warranty reserves | 6,175 | 5,792 | ||||
| Employee compensation | 5,665 | 6,326 | ||||
| Foreign net operating loss carryforwards | 5,400 | 499 | ||||
| Self-insurance reserves | 3,806 | 4,491 | ||||
| Lease assets | 3,684 | — | ||||
| State net operating loss carryforwards | 2,793 | 4,239 | ||||
| Outside basis difference in domestic partnership investment | 2,229 | 2,133 | ||||
| U.S. tax credit carryforwards | 2,030 | 2,131 | ||||
| Inventory reserves and impairments | 1,656 | 1,660 | ||||
| Dealer volume discounts | 1,216 | 1,409 | ||||
| Equity-based compensation | 1,156 | 929 | ||||
| Capitalized transaction costs | 456 | 534 | ||||
| Foreign capital loss carryforwards | 168 | 186 | ||||
| Foreign currency translation adjustments | 67 | 9 | ||||
| Foreign tax basis difference in investments | — | 4,601 | ||||
| Other | 1,130 | 648 | ||||
| Gross deferred tax assets | $ | 56,664 | $ | 60,910 | ||
| LIABILITIES | ||||||
| Intangible assets | $ | 10,711 | $ | 11,997 | ||
| Property, plant, and equipment | 8,411 | 7,265 | ||||
| Lease liabilities | 3,684 | — | ||||
| Foreign tax basis difference in investments | 3,264 | 3,422 | ||||
| Other | 837 | 297 | ||||
| Gross deferred tax liabilities | $ | 26,907 | $ | 22,981 | ||
| Valuation allowance | (11,209 | ) | (7,293 | ) | ||
| Net deferred tax assets | $ | 18,548 | $ | 30,636 |
Due to the ability to repatriate earnings from the foreign subsidiaries tax-free because of the Tax Act, the Company anticipates periodically repatriating the earnings of its Netherlands and Canadian subsidiaries. Prior to the enactment of the Tax Act, the Company’s policy was that all undistributed earnings of its foreign subsidiaries were permanently reinvested except for its former U.K. subsidiaries. A deferred tax liability is recognized for income tax withholding which may be incurred upon the reversal of basis differences in investments in its foreign subsidiaries.
The Company periodically evaluates the realizability of its deferred tax assets based on whether it is “more likely than not” that some portion of the deferred tax assets will not be realized. Our evaluation considers available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Due to the Exchange on June 1, 2018, the Company has U.S. federal and state net operating loss (“NOL”) carryforwards that were generated by the pre-Exchange Skyline entities. At March 28, 2020, the Company has provided a $1.4 million valuation allowance for certain state NOL carryforwards. At March 28, 2020, the Company established a valuation allowance of $4.2 million for certain Canadian deferred tax assets. The Company maintains a valuation allowance with respect to its deferred tax assets in the Netherlands for fiscal 2020, 2019, and 2018. The fiscal 2020 value of the deferred tax assets and related valuation allowance in the Netherlands was adjusted to reflect the Netherlands statutory tax rate decrease from 25.0% to 21.7% expected in 2021.
As of March 28, 2020, the Company has U.S. federal NOL carryforwards of $44.6 million, which expire in 2032 through 2035. The Company also has state NOL carryforwards in various jurisdictions which expire primarily in 2020 through 2040.
F-23
Unrecognized tax benefits represent the differences between tax positions taken or expected to be taken on a tax return and the benefits recognized for financial statement purposes. The Company’s total unrecognized tax benefits were $0.6 million at March 30, 2019. There were no unrecognized tax benefits at March 28, 2020. The Company classifies interest and penalties on income tax uncertainties as a component of income tax expense. Accrued interest and penalties as of March 28, 2020 and March 30, 2019, were not significant. The following table provides the changes in unrecognized tax benefits at March 28, 2020 and March 30, 2019:
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | ||||
|---|---|---|---|---|---|---|
| Unrecognized tax benefits, beginning of period | $ | 643 | $ | 1,246 | ||
| Increase related to tax positions taken during a prior period | — | 44 | ||||
| Reductions as a result of a lapse of the applicable statute of limitations | (643 | ) | (647 | ) | ||
| Unrecognized tax benefits, end of period | $ | — | $ | 643 |
The Company estimates no material changes to uncertain tax benefits in the next twelve months. The Company is no longer subject to foreign tax examinations by tax authorities for years prior to fiscal 2016. The Company’s U.S. subsidiaries are subject to U.S. federal tax examinations for fiscal 2018 through fiscal 2020, and U.S. state tax examinations by tax authorities for fiscal 2017 through fiscal 2020. In October 2018, the Company received a notice of examination from the Internal Revenue Service for the Company’s federal income tax return for the fiscal year ended April 1, 2017. This examination was closed in February 2020 with no audit adjustments.
| 13. | Equity-Based Compensation |
|---|
The Company has equity incentive plans under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. Equity-based compensation expense of $8.3 million, $102.0 million, and $0.6 million was recognized in fiscal 2020, 2019, and 2018, respectively. Included in equity-based compensation in fiscal 2019 is $6.0 million of expense related to former Skyline employees that vested in conjunction with the Exchange. Equity-based compensation expense was included in SG&A expenses in the accompanying consolidated statements of operations. The total associated income tax benefit recognized was $1.3 million and $0.2 million in fiscal 2020 and 2019, respectively. There was no tax benefit recognized in fiscal 2018. Total unrecognized equity-based compensation for all share-based payment plans was $9.4 million at March 28, 2020, of which $5.0 million will be recognized in fiscal 2021, $2.8 million in fiscal 2022 and $1.6 million thereafter, or a weighted-average period of 1.16 years.
F-24
Time-Vesting and Performance-Vesting Restricted Share Awards
Champion Holdings granted awards to its officers, management employees, and certain members of the Board of Managers under an equity-classified management incentive plan (the “MIP”). In accordance with the provisions of the MIP, as modified on June 1, 2018, unvested units Champion Holdings granted under the MIP were exchanged for unregistered, time-vesting restricted shares and performance-vesting restricted shares of the Company subject to stock restriction agreements (the “SRAs”). The exchange was accounted for as a modification. The time-vesting restricted shares contained service conditions in which vesting would occur 20% per year over a five-year period, unless certain performance conditions were achieved in which vesting would occur immediately upon a change of control or upon an occurrence of a follow-on public offering as defined in the SRAs. During fiscal 2019, a significant portion of the outstanding restricted shares vested in conjunction with certain follow-on public offerings. The incremental fair value of the modification of the awards was $95.1 million and was recognized in fiscal 2019 as all vesting conditions were met during the period. The value of the awards that vested during fiscal 2020 was $4.2 million. A summary of the activity associated with these awards is as follows:
| (Amounts in thousands) | Management Incentive Plan Award Units | Time Based Restricted Share Awards | Performance Based Restricted Share Awards | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Outstanding at April 1, 2017 | 12,504 | — | — | ||||||
| Granted | 351 | — | — | ||||||
| Forfeited | (200 | ) | — | — | |||||
| Outstanding at March 31, 2018 | 12,655 | — | — | ||||||
| Granted | 1,000 | — | — | ||||||
| Forfeited | — | — | — | ||||||
| Exchange of MIP awards for restricted share awards | (13,655 | ) | 290 | 3,686 | |||||
| Vested | — | — | (3,686 | ) | |||||
| Outstanding at March 30, 2019 | — | 290 | — | ||||||
| Granted | — | — | — | ||||||
| Forfeited | — | — | — | ||||||
| Vested | — | (145 | ) | — | |||||
| Outstanding at March 28, 2020 | — | 145 | — |
On September 26, 2018, the Company’s shareholders approved the Company’s 2018 Equity Incentive Plan (the “Equity Plan”) which provides for grants of options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, and other awards convertible into or otherwise based on shares of the Company’s common stock. Prior to the approval of the Equity Plan, the Company maintained the Skyline Corporation 2015 Stock Incentive Plan, which allowed for the grant of stock options and other equity awards. General terms and methods of valuation for the Company’s share-based awards granted under the Equity Plan are described below.
F-25
Stock Options
Stock options generally have terms of 10 years, with one-third of each grant vesting each year for three years, and are assigned an exercise price that is equal to or greater than closing market price of a share of the Company’s common stock on the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. When determining expected volatility, the Company considered volatility of guideline public companies. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based on the options’ expected term. The expected term of the options is based on the time period to exercise for each vesting tranche, which is calculated based on the average of: (i) the full option contractual term; and (ii) the starting vest date. A summary of the activity associated with these awards is as follows:
| Shares (in thousands) | Weighted Average Exercise Price Per Share | Weighted Average Remaining Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Outstanding at March 31, 2018 | — | ||||||||
| Granted | 146 | $ | 15.00 | ||||||
| Exercised | — | ||||||||
| Outstanding at March 30, 2019 | 146 | $ | 15.00 | ||||||
| Granted | 266 | $ | 32.11 | ||||||
| Exercised | (8 | ) | $ | 15.00 | |||||
| Forfeitures | (1 | ) | $ | 15.00 | |||||
| Outstanding at March 28, 2020 | 403 | $ | 26.29 | 9.4 | $ | 58 | |||
| Vested and expected to vest at March 28, 2020 | 403 | $ | 26.29 | 9.4 | $ | 58 | |||
| Exercisable at March 28, 2020 | 41 | $ | 15.00 | 8.8 | $ | 17 |
The assumptions used in the Black-Scholes option-pricing model along with the weighted average grant date fair value for awards granted in the periods presented are as follows:
| Option Award Assumptions | Fiscal 2020 | Fiscal 2019 | ||||
|---|---|---|---|---|---|---|
| Weighted-average assumptions used: | ||||||
| Expected volatility | 30.0 | % | 25.8 | % | ||
| Dividend yield | — | — | ||||
| Risk-free interest rate | 1.7 | % | 2.4 | % | ||
| Expected term, in years | 5.88 | 5.75 | ||||
| Weighted average grant date fair value per share | $ | 10.33 | $ | 3.93 |
F-26
Performance Share Units
In fiscal 2020 and 2019, the Company issued performance share units that contain market vesting conditions and service conditions. The market condition is based on the Company’s total shareholder return (“TSR”) compared to the median TSR of certain companies over a three year performance period. The Company used a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the possible outcomes pertaining to the TSR market condition. In general, 0% to 150% of the Company’s performance share units vest on the third anniversary of the vesting commencement date based upon achievement of the market condition as specified in the performance share unit agreement. A summary of the activity associated with these awards is as follows:
| Shares (in thousands) | Weighted Average Grant Date Fair Value Per Unit | ||||
|---|---|---|---|---|---|
| Outstanding at March 31, 2018 | — | ||||
| Granted | 146 | $ | 3.62 | ||
| Vested | — | $ | - | ||
| Outstanding at March 30, 2019 | 146 | $ | 3.62 | ||
| Granted | 86 | $ | 29.05 | ||
| Vested | — | $ | - | ||
| Forfeitures | (2 | ) | $ | 3.62 | |
| Outstanding at March 28, 2020 | 230 | $ | 13.85 |
The assumptions used in the Monte-Carlo simulation for performance share units along with the weighted-average grant date fair value for awards granted in the periods presented are as follows:
| Performance Unit Assumptions | Fiscal 2020 | Fiscal 2019 | ||||
|---|---|---|---|---|---|---|
| Weighted-average assumptions used: | ||||||
| Expected volatility | 30.0 | % | 29.5 | % | ||
| Dividend yield | — | — | ||||
| Risk-free interest rate | 1.6 | % | 2.4 | % | ||
| Expected term, in years | 2.84 | 2.49 | ||||
| Weighted average grant date fair value per share | $ | 29.05 | $ | 3.62 |
Restricted Stock Units and Restricted Share Awards
Restricted stock units are valued at the market price of a share of the Company’s common stock on the date of grant. In general, these awards have graded vesting conditions in which a portion of awards vest ratably in three equal installments on the anniversary of the vesting commencement date. The total fair value of restricted stock vesting was approximately $2.1 million during fiscal 2020 and $8.5 million during fiscal 2019. The weighted average grant date fair value for restricted stock units granted in fiscal 2020 was $31.34 and in fiscal 2019 was $14.24. The weighted average grant date fair value for restricted share awards granted in fiscal 2019 was $29.77.
| (Units and shares in thousands) | Restricted Stock Units | Restricted Share Awards | ||||
|---|---|---|---|---|---|---|
| Outstanding at March 31, 2018 | — | |||||
| Granted | 158 | 349 | ||||
| Vested | — | (349 | ) | |||
| Outstanding at March 30, 2019 | 158 | — | ||||
| Granted | 112 | — | ||||
| Vested | (75 | ) | — | |||
| Forfeitures | (1 | ) | ||||
| Outstanding at March 28, 2020 | 194 | — |
F-27
| 14. | Earnings Per Share |
|---|
Basic net income (loss) per share (“EPS”) attributable to the Company was computed by dividing net income (loss) attributable to the Company by the average number of common shares outstanding during the period. The Company’s time-vesting and performance-vesting restricted share awards are considered participating securities. Diluted earnings per common share is computed based on the more dilutive of: (i) the two-class method, assuming the participating securities are not exercised or converted; or (ii) the summation of average common shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued. During fiscal years 2020, 2019, and 2018, the two-class method was more dilutive. The number of shares used to calculate earnings per share prior to the Exchange was determined based on the exchange ratio, as defined in the Exchange Agreement.
The following table sets forth the computation of basic and diluted earnings per common share:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars and shares in thousands, except per share data) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||||
| Numerator: | |||||||||
| Net income (loss) | $ | 58,160 | $ | (58,208 | ) | $ | 15,800 | ||
| Undistributed earnings allocated to participating securities | (170 | ) | — | (996 | ) | ||||
| Net income (loss) attributable to the Company's common shareholders | $ | 57,990 | $ | (58,208 | ) | $ | 14,804 | ||
| Denominator: | |||||||||
| Basic weighted average shares outstanding | 56,516 | 53,491 | 44,491 | ||||||
| Dilutive securities | 246 | — | — | ||||||
| Diluted weighted average shares outstanding | 56,762 | 53,491 | 44,491 | ||||||
| Basic net income (loss) per share: | $ | 1.03 | $ | (1.09 | ) | $ | 0.33 | ||
| Diluted net income (loss) per share: | $ | 1.02 | $ | (1.09 | ) | $ | 0.33 |
Securities that could potentially dilute basic EPS in the future that were considered antidilutive in the periods presented are shown below:
| Type of security (in thousands) | March 28, 2020 | March 30, 2019 | ||
|---|---|---|---|---|
| Options | $ | 53 | $ | 146 |
| Restricted Share Units | 60 | 158 | ||
| Performance Share Units | 133 | 146 | ||
| Total dilutive securities | $ | 246 | $ | 450 |
| 15. | Retirement Plans | |||
| --- | --- |
The Company’s U.S. subsidiary sponsors a defined contribution savings plan covering most U.S. employees. Full-time employees covered by the plan are eligible to participate. Participating employees may contribute from 1% to 25% of their compensation to the plan, with the Company matching 50% of the first 6% of pay contributed. The Company match vests after three years of employment or immediately for employees age 50 and over. The Company recognized expense of $2.4 million and $0.6 million related to this plan during fiscal 2020 and 2019, respectively. The Company made no matching contributions to this plan in fiscal 2018.
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. The Company recognized expense of $0.6 million in each of fiscal 2020, 2019, and 2018.
F-28
| 16. | Transactions with Related Parties |
|---|
Prior to the Exchange, the Company was party to a Management Advisory Services Agreement (“Services Agreement”) with Centerbridge Advisors, LLC (“Centerbridge”), MAK Management L.P.(“MAK”), and Sankaty Advisors, LLC (“Bain”), collectively, the “Managers”, affiliates of which collectively owned a majority of the units of the Company and the Company’s common stock (the “Principal Shareholders”), whereby the Principal Shareholders provided management, consulting, financial and other advisory services to the Company in exchange for an annual management fee totaling $1.5 million plus reimbursable expenses. Management fee expense during fiscal 2019, recognized prior to the Exchange, was $0.3 million. The Service Agreement was terminated in connection with the Exchange. Management fee expense was $1.5 million for fiscal 2018. Management fee expense is included in SG&A expenses in the accompanying consolidated statements of operations.
On June 1, 2018, the Company, the Principal Shareholders, Champion Holdings, and certain other parties entered into a registration rights agreement providing for, among other things, customary demand registration rights, shelf registration rights and “piggyback” registration rights in favor of the Principal Shareholders and Arthur J. Decio. The Company registered shares for its own account and registered for sale shares held by the Principal Shareholders and others. As the result of a sale of shares by the Principal Shareholders on September 25, 2018, the Principal Shareholders held less than 50% of the Company’s outstanding shares. Two of the Principal Shareholders, Bain and Centerbridge, have sold all of their shares in the Company. The Company did not sell any shares. MAK and Arthur J. Decio continue to hold registration rights in their favor, and their shares are registered for sale.
On June 1, 2018 the Company, the Principal Shareholders and Champion Holdings entered into an investor rights agreement (the “Investor Rights Agreement”). The Investor Rights Agreement provides for, among other things, certain information rights and certain agreements relating to the composition of the Board of Directors. As the result of Bain and Centerbridge selling their holdings in the Company, they no longer meet the ownership thresholds to participate in the Investor Rights Agreement. Additionally, the Company and Champion Holdings entered into a transition services agreement, pursuant to which the Company provided certain services to Champion Holdings, including accounting and financial reporting services, tax services, cash and capital management services, and services relating to Champion Holdings’ members and liquidation.
| 17. | Segment Information |
|---|
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segment primarily based on net sales, before elimination of inter-company shipments, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and operating assets.
The Company operates in two reportable segments: (i) U.S. Factory-built Housing, which includes manufacturing and retail housing operations and (ii) Canadian Factory-built Housing. Corporate/Other includes the Company’s transportation operations, corporate costs directly incurred for all segments and intersegment eliminations. Segments are generally determined by geography. Segment data includes intersegment revenues and corporate office costs that are directly and exclusively incurred for each segment. Total assets for Corporate/Other primarily include cash and certain deferred tax items not specifically allocated to another segment.
F-29
Selected financial information by reportable segment was as follows:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | March 31,<br><br><br>2018 | ||||||
| Net sales: | |||||||||
| U.S. Factory-built Housing | $ | 1,226,393 | $ | 1,177,687 | $ | 860,488 | |||
| Canadian Factory-built Housing | 84,196 | 98,567 | 96,603 | ||||||
| Corporate/Other | 59,141 | 83,789 | 107,631 | ||||||
| Consolidated net sales | $ | 1,369,730 | $ | 1,360,043 | $ | 1,064,722 | |||
| Operating income: | |||||||||
| U.S. Factory-built Housing EBITDA | $ | 131,339 | $ | 111,857 | $ | 66,747 | |||
| Canadian Factory-built Housing EBITDA | 9,272 | 10,417 | 10,800 | ||||||
| Corporate/Other EBITDA | (35,610 | ) | (135,937 | ) | (14,698 | ) | |||
| Depreciation | (13,116 | ) | (11,259 | ) | (7,773 | ) | |||
| Amortization | (5,430 | ) | (4,820 | ) | (487 | ) | |||
| Consolidated operating income (loss) | $ | 86,455 | $ | (29,742 | ) | $ | 54,589 | ||
| Depreciation: | |||||||||
| U.S. Factory-built Housing | $ | 11,015 | $ | 9,507 | $ | 6,360 | |||
| Canadian Factory-built Housing | 1,073 | 933 | 907 | ||||||
| Corporate/Other | 1,028 | 819 | 506 | ||||||
| Consolidated depreciation | $ | 13,116 | $ | 11,259 | $ | 7,773 | |||
| Amortization of intangible assets: | |||||||||
| U.S. Factory-built Housing | $ | 5,430 | $ | 4,587 | $ | 241 | |||
| Canadian Factory-built Housing | — | 233 | 246 | ||||||
| Corporate/Other | — | — | — | ||||||
| Consolidated amortization of intangible assets | $ | 5,430 | $ | 4,820 | $ | 487 | |||
| Capital expenditures: | |||||||||
| U.S. Factory-built Housing | $ | 11,753 | $ | 9,494 | $ | 7,348 | |||
| Canadian Factory-built Housing | 1,566 | 879 | 888 | ||||||
| Corporate/Other | 2,070 | 1,719 | 1,206 | ||||||
| Consolidated capital expenditures | $ | 15,389 | $ | 12,092 | $ | 9,442 | |||
| (Dollars in thousands) | March 28,<br><br><br>2020 | March 30,<br><br><br>2019 | |||||||
| Total Assets: | |||||||||
| U.S. Factory-built Housing (1) | $ | 491,110 | $ | 488,878 | |||||
| Canadian Factory-built Housing (1) | 56,760 | 59,260 | |||||||
| Corporate/Other (1) | 233,830 | 151,816 | |||||||
| Consolidated total assets | $ | 781,700 | $ | 699,954 | |||||
| (1) | Deferred tax assets for the Canadian operations are reflected in the Canadian Factory-built Housing segment. U.S. deferred tax assets are presented in Corporate/Other because an allocation between segments is not practicable. | ||||||||
| --- | --- |
F-30
| 18. | Commitments, Contingencies, and Concentrations |
|---|
Repurchase Contingencies and Guarantees
The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on their agreement to pay the financial institution. The risk of loss from these agreements is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. Based on these repurchase agreements and our historical loss experience, we establish an associated loss reserve which was $1.0 million at March 28, 2020 and March 30, 2019. Excluding the resale value of the homes, the contingent repurchase obligation as of December 28, 2019 was estimated to be approximately $152.7 million. Losses incurred on homes repurchased were immaterial during each of the fiscal years ended March 28, 2020, March 30, 2019, and March 31, 2018.
At March 28, 2020, the Company was contingently obligated for approximately $28.7 million under letters of credit, primarily consisting of $12.7 million to support long-term debt, $15.7 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued under a sub-facility of the Credit Agreement. The Company was also contingently obligated for $23.7 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.
In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.
Legal Proceedings
The Company has agreed to indemnify counterparties 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. As of the date of this filing, the Company believes the ultimate liability with respect to these contingent obligations will not have, either individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Concentrations
The components and products used in the factory-built housing operations are presently available from a variety of vendors, and the Company is 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. The Company generally has been able to pass higher material costs on to its customers in the form of surcharges and price increases. For fiscal 2020, 2019 and 2018, sales from the Company’s Canadian operations were approximately 6%, 7%, and 9%, respectively, of consolidated sales. The Company’s net assets in Canada totaled approximately $45.0 million and $41.6 million at March 28, 2020 and March 30, 2019, respectively.
The Company has approximately 6,600 employees. The Company’s manufacturing facilities in Canada employ approximately 700 workers, and most of the workers belong to trade associations that operate under collective bargaining agreements. There are five collective bargaining agreements (one for each Canadian plant) and each have separate expiration dates. One agreement expired in November 2019 and is still under renegotiation, two agreements are set to expire in June 2020, one agreement is set to expire in November 2021, and one agreement is set to expire in November 2022.
F-31
| 19. | Summary Quarterly Financial Data (Unaudited) |
|---|
The following table presents summary unaudited quarterly financial data:
| Fiscal 2020 | Fiscal 2019 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||
| Net sales | $ | 371,888 | $ | 354,458 | $ | 342,239 | $ | 301,145 | $ | 322,261 | $ | 355,436 | $ | 354,671 | $ | 327,675 | ||
| Gross profit | 76,035 | 74,055 | 68,901 | 59,984 | 55,160 | 59,000 | 64,736 | 66,463 | ||||||||||
| Net income (loss) | 17,380 | 17,745 | 17,037 | 5,998 | (853 | ) | (77,025 | ) | 10,513 | 9,157 | ||||||||
| Per share data: | ||||||||||||||||||
| Basic income (loss) per share | 0.31 | 0.31 | 0.30 | 0.11 | (0.02 | ) | (1.42 | ) | 0.19 | 0.16 | ||||||||
| Diluted income (loss) per share | 0.31 | 0.31 | 0.30 | 0.11 | (0.02 | ) | (1.42 | ) | 0.19 | 0.16 |
F-32
| Skyline Champion Corporation | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Schedule II--Valuation and Qualifying Accounts | |||||||||||||
| (in millions) | |||||||||||||
| Balance at Beginning of Period | Additions | Deductions | Other | Balance at End of Period | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Fiscal Year Ended March 28, 2020: | |||||||||||||
| Allowance for doubtful accounts | $ | 0.6 | $ | 0.7 | $ | (0.9 | ) | - | $ | 0.4 | |||
| Valuation allowance for deferred taxes | 7.3 | 4.5 | (0.2 | ) | (0.4 | ) | (a) | 11.2 | |||||
| Fiscal Year Ended March 30, 2019 | |||||||||||||
| Allowance for doubtful accounts | $ | 0.2 | $ | 0.5 | $ | (0.1 | ) | - | $ | 0.6 | |||
| Valuation allowance for deferred taxes | 6.4 | 0.3 | (1.3 | ) | 1.9 | (b) | 7.3 | ||||||
| Fiscal Year Ended March 31, 2018: | |||||||||||||
| Allowance for doubtful accounts | $ | 0.9 | $ | 0.1 | $ | (0.8 | ) | - | $ | 0.2 | |||
| Valuation allowance for deferred taxes | 15.0 | 0.3 | (8.9 | ) | 6.4 | ||||||||
| (a)Represents a decrease due to provision-to-return adjustments<br><br><br>(b)Represents an increase in valuation allowance for deferred taxes related to a business combination. | |||||||||||||
| --- |
F-33
sky-ex104_159.htm
Exhibit 10.4
| Name: | [•] |
|---|---|
| Number of Shares of Stock Subject to the Stock Option: | [•] |
| Price Per Share: | [•] |
| Date of Grant: | [•] |
| Vesting Commencement Date: | [•] |
Skyline Champion Corporation 2018 Equity Incentive Plan
[•] Grant
Non-statutory Stock Option Agreement (Employees)
This agreement (this “Agreement”) evidences a stock option granted by Skyline Champion Corporation (the “Company”) to the undersigned (the “Participant”) pursuant to the Company’s 2018 Equity Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan.
1.Grant of Stock Option. On the date of grant set forth above (the “Date of Grant”), the Company hereby grants to the Participant an option (the “Stock Option”) to purchase, on the terms provided herein and in the Plan, up to the number of shares of Stock set forth above (each, a “Share”, and collectively, the “Shares”) at the exercise price per Share set forth above, in each case subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.
The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that does not qualify as an incentive stock option under Section 422 of the Code). The Participant is an employee of the Company and/or of one or more subsidiaries of the Company with respect to which the Company has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).
^^
2.Vesting; Method of Exercise; Treatment of the Stock Option upon Cessation of Employment.
| (a) | Vesting. Unless earlier terminated, forfeited, relinquished or expired, the Stock Option shall vest as follows, subject to the Participant remaining in continuous Employment from the Date of Grant through the applicable vesting date. |
|---|
(i)Except as provided in Section 2(a)(ii) or (iii) below, the Stock Option shall vest as to one-third (1/3) of the Shares on each of the first, second, and third anniversaries of the Vesting Commencement Date, with the number of Shares that vest on any such date, other than the final vesting date, being rounded down to the nearest whole Share.
(ii)In the event the Company terminates the Participant’s Employment without Cause, the next one-third (1/3) of the Shares that would have vested had the Participant remained in Employment shall vest upon the cessation of the Participant’s Employment, with the number of Shares that vest on any such date, other than the final vesting date, being rounded down to the nearest whole Share.
(iii)In the event the Participant’s Employment is terminated due to death or Disability, any unvested portion of the Stock Option that remains outstanding shall automatically vest upon the cessation of the Participant’s Employment.
| (b) | Exercise of the Stock Option. No portion of the Stock Option may be exercised until it vests. Each election to exercise the Stock Option must comply with such rules as the Administrator prescribes from time to time and must be accompanied by payment in full of the exercise price in one or more of the forms described in Section 6(b)(3) of the Plan. For the avoidance of doubt, the Participant may pay the exercise price through the withholding of unrestricted shares of Stock that would have otherwise been deliverable upon exercise of the Stock Option, such shares having a Fair Market Value equal to the exercise price. In the event that the Stock Option is exercised by a person other than the Participant, the Company will be under no obligation to deliver Shares hereunder unless and until it is satisfied as to the authority of the person to exercise the Stock Option and compliance with applicable securities laws. The latest date on which the Stock Option or any portion thereof may be exercised will be the tenth (10^th^) anniversary of the Date of Grant (the “Final Exercise Date”). Any portion of the Stock Option that remains outstanding and has not been exercised by the Final Exercise Date will thereupon immediately terminate. |
|---|---|
| (c) | Treatment of the Stock Option upon Cessation of Employment. Notwithstanding the provisions of Section 6(a)(4) of the Plan, if the Participant’s Employment ceases, the Stock Option, to the extent not already vested, will be immediately forfeited, and any portion of the Stock Option that is then outstanding will be treated as follows: |
| --- | --- |
(i)Subject to clauses (ii), (iii) and (iv) below or as otherwise determined by the Administrator in connection with the final sentence of this Section 2(c), the Stock Option to the extent vested immediately prior to the cessation of the Participant’s Employment will remain exercisable until the earlier of (A) the 90th day following the date of such cessation of Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(i), will thereupon immediately terminate.
(ii)Subject to clauses (iii) and (iv) below and Section 2(a)(ii) of this Agreement or as otherwise determined by the Administrator in connection with the final sentence of this Section 2(c), the Stock Option, to the extent vested as of the cessation of the Participant’s Employment by the Company without Cause, the Stock Option will remain exercisable until the earlier of (A) the 180^th^ day following the date of such cessation of Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(ii), will thereupon immediately terminate.
(iii)Subject to Section 2(a)(iii) of this Agreement or as otherwise determined by the Administrator in connection with the final sentence of this Section 2(c), the Stock Option, to the extent vested as of the cessation of the Participant’s Employment due to death or Disability, will remain exercisable until the earlier of (A) the first anniversary of the Participant’s death or Disability or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(iii) will thereupon immediately terminate.
(iv)The Stock Option (whether or not vested or exercisable) will terminate and be forfeited immediately prior to the cessation of Participant’s Employment if the Participant is terminated by the Company for Cause.
For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested portion of the Stock Option in the event the Participant’s Employment terminates due to retirement.
3.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit A attached hereto.
4.Forfeiture; Recovery of Compensation. By accepting the Stock Option the Participant expressly acknowledges and agrees that his or her rights (and those of any permitted transferee) under the Stock Option or to any Stock acquired under the Stock Option or any proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 8 of this Agreement.
5.Transfer of Stock Option. The Stock Option may not be transferred except at death in accordance with Section 6(a)(3) of the Plan.
6.Certain Tax Matters. The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued the Shares (or any
portion thereof) upon exercise of the Stock Option, are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld, if any. No Shares will be transferred pursuant to the exercise of the Stock Option unless and until the person exercising the Stock Option has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by exercising the Stock Option such person shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such Shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. For the avoidance of doubt, the Participant may pay any taxes contemplated by this Section 6 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan. The Participant also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligations under the preceding provisions of this Section 6.
7.Effect on Employment. Neither the grant of the Stock Option, nor the issuance of Shares upon exercise of the Stock Option, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
8.Acknowledgments. By accepting the Stock Option, the Participant agrees to be bound by, and agrees that the Stock Option is subject in all respects to, the terms of the Plan. In the event of a conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control. The Participant further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
9.Stock Ownership and Holding Guidelines. The Stock Option and any Shares delivered under the Stock Option are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Stock Option, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: __________________________
Name: Mark Yost
Title: CEO
Agreed and Accepted:
By_______________________________
~~EXHIBIT~~ A
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities.~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ During Employment and for twelve (12) months after the Participant terminates Employment (the “~~Restricted Period~~”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit A, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person
as a result of his or her Employment or his or her consultancy with the Company or any of its Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit A, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit A.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return
to the Company no later than the date on which his or her Employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Non-Statutory Stock Option Agreement, including the restraints imposed upon him or her pursuant to this Exhibit A. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit A, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit A shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit A shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions.~~ For purposes of this Exhibit A, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit A, such term shall have the meaning as ascribed to such term in the Non-Statutory Stock Option Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“~~Intellectual Property~~” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
sky-ex105_158.htm
Exhibit 10.5
| Name: | [●] |
|---|---|
| Target Number of PSUs: | [●] |
| Date of Grant: | [●] |
| Vesting Date: | [●] |
Skyline Champion Corporation
2018 Equity Incentive Plan
[●] Grant
Performance Stock Unit Agreement
This Performance Stock Unit Agreement (this “Agreement”), is made, effective as of [●] (the “Date of Grant”), between Skyline Champion Corporation (the “Company”), and [●] (the “Participant”).
1.Performance Stock Unit Award. The Participant is hereby awarded, pursuant to the Skyline Champion Corporation 2018 Equity Incentive Plan (as amended from time to time, the “Plan”), and subject to its terms, a Performance Award (the “Award”) consisting of a target number of [●] performance stock units (such performance stock units, the “PSUs”). Each PSU represents the conditional right to receive, without payment but subject to the terms, conditions and limitations set forth in this Agreement and in the Plan, one share of Stock (a “Share”), subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof. The percentage of the PSUs that become vested will be determined in accordance with Section 3 and Exhibit A hereto. For the avoidance of doubt, the term “PSUs” used throughout this Agreement refers to the PSUs granted pursuant to this Agreement and not to performance stock units that may or have been granted pursuant to a separate document.
2.Meaning of Certain Terms. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan. The following terms shall have the following meanings:
(a)“Change in Control”^^means (i) any transaction or series of related transaction in which any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them), acquires more than fifty percent (50%) of all of the Shares or more than fifty percent (50%) of all the voting power of the Shares, whether by reason of merger, consolidation or recapitalization or any other transaction (including the issuance of new Shares), whether or not the Company is a party thereto; or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company to any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them).
(b)“Dividend Equivalent” means a dividend equivalent received in connection with (x) any regular dividend declared on Shares that is payable in cash or (y) any regular dividend declared on Shares that is payable in Shares, for each Share deliverable in respect of a PSU.
(c)“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
(d)“Principal Shareholder” means each shareholder of the Company who beneficially owned five percent (5%) or more of the total Shares immediately prior to the August 7, 2018 closing of the underwritten offering of nine million (9,000,000) Shares.
3.Vesting Eligibility; Cessation of Employment. Unless earlier terminated, forfeited, relinquished or expired, the PSUs will become eligible to vest on the Vesting Date and as set forth in this Section 3, subject to the Participant remaining in continuous Employment from the Date of Grant through such eligibility date.
(a)Except as otherwise provided in Section 3(b) below or as otherwise determined by the Administrator in connection with the final sentence of this Section 3(a), if the Participant’s Employment terminates for any reason prior to the Vesting Date, the Award and the PSUs will immediately and automatically terminate and be forfeited upon such termination of Employment with no consideration due to the Participant. For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested PSUs in the event the Participant’s Employment terminates due to retirement.
(b)If prior to the Vesting Date the Participant’s Employment is terminated by the Company or one of its subsidiaries without Cause (such termination of Employment, a “Qualifying Termination”), and to the extent that any PSUs are outstanding immediately prior to such Qualifying Termination but not then vested, a percentage of such unvested PSUs shall remain outstanding and eligible to vest, such percentage equal to the quotient of (A) divided by (B), where (A) equals the number of days from the first day of the Performance Period through the date of such Qualifying Termination, and (B) equals the total number of days in the Performance Period. The PSUs described in the immediately preceding sentence shall become “Qualifying PSUs.” Any Qualifying PSUs that have not vested by the one-year anniversary of such Qualifying Termination will at such time immediately and automatically terminate and be forfeited with no consideration due to the Participant.
4.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit B attached hereto.
5.Delivery of Shares and Dividend Equivalents.
(a)Delivery of Shares. Subject to Section 6 and Section 9(a) below, the Company shall effect delivery of the Shares with respect to such vested PSUs to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) upon the date the PSUs become vested pursuant to the provisions of Section 3 and Exhibit A. No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.
(b)Dividend Equivalents. Any Dividend Equivalents credited with respect to unvested PSUs shall be delivered on the same date on which the Shares with respect to such unvested PSUs are delivered, if at all.
6.Forfeiture; Recovery of Compensation. The Administrator may cancel, rescind, withhold or otherwise limit or restrict this Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan. By accepting, or being deemed to have accepted, this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 11 of this Agreement.
7.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award. The Participant will be entitled to receive Dividend Equivalents with respect to unvested PSUs in accordance with this Section 7. Any such Dividend Equivalents will entitle the Participant to receive, subject to the terms of this Agreement, a payment equal to the amount that the Participant would have received as a regular dividend had the Participant held the Shares deliverable in respect of such PSUs at the time such dividend was paid. Any Dividend Equivalents with respect to an unvested PSU will be paid, if at all, in cash, in the case of a cash dividend, or in cash and/or Shares, as determined by the Administrator, in the case of a distribution of Shares, in either case, in accordance with Section 5 of this Agreement.
- Nontransferability. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
9.Taxes.
(a)The Participant expressly acknowledges that the settlement of the PSUs acquired hereunder and the payment of any Dividend Equivalents shall give rise to “wages” subject to withholding. No Shares will be delivered or Dividend Equivalents paid pursuant to this Award unless and until the Participant has remitted to the Company in cash or by check (or by such other means as may be acceptable to the Administrator and permitted under the Plan) an amount sufficient to satisfy all taxes required to be withheld in connection with such settlement or payment. For the avoidance of doubt, the Participant may pay any taxes contemplated by this Section 9 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan.
(b)The Participant authorizes the Company and its subsidiaries to withhold any amounts due in respect of any required tax withholdings or payments from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligation under the preceding provisions of this Section 9.
(c)In no event will the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A.
10.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares under this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
11.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been furnished to the Participant. By accepting, or being deemed to have accepted, all or any portion of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control.
12.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
13.Stock Ownership and Holding Guidelines. The Award and any Shares delivered under the Award are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Award, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
Exhibit 10.5
The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: ______________________________
Name: ___________________________
Title: ______________________________
Agreed and Accepted:
By_______________________________
[Participant’s Name]
[Signature Page to Performance Stock Unit Agreement]
Exhibit 10.5
EXHIBIT A
PERFORMANCE CRITERIA
1.Total Shareholder Return. Total Shareholder Return (as measured by TSR Percentile Rank) shall be the Performance Criteria under the Award. The PSUs shall become vested, if at all, pursuant to the provisions of Section 3 of this Agreement and this Exhibit A.
2.Definitions. The terms set forth below, as used in this Exhibit A, shall the following meanings:
(a)“Indexed Company” shall mean each of the following companies: Cavco Industries, Inc., Beezer Homes USA, Inc., Century Communities Inc., LGI Homes, M/I Homes, M.D.C Holdings, Inc., Meritage Home Corporation, NCI Building Systems, Inc., Quanex Building Products Corporation, TRI Pointe Group Inc., and William Lyon Homes, which cumulatively shall be referred to as the “Indexed Companies.”
(b)“Performance Period” shall mean the period beginning on [●] and ending on the Vesting Date.
(c)“Performance Period End Date” shall mean the Vesting Date.
(d)“Total Shareholder Return” shall mean the change in value expressed as a percentage of a given dollar amount invested in a company’s most widely publicly traded stock over the Performance Period, taking into account both stock price appreciation (or depreciation) and the reinvestment of dividends (including the cash value of non-cash dividends) in such stock of the company. The thirty calendar-day average closing price of shares of Stock and the stock of the Indexed Companies, as applicable (i.e., the average closing prices over the period of trading days occurring in the thirty calendar days prior to July 1, 2018 and ending on July 1, 2018 and the average closing prices over the period of trading days occurring in the final thirty calendar days ending on the Performance Period End Date) will be used to value shares of Stock and the stock of the Indexed Companies, as applicable. Dividend reinvestment will be calculated using the closing price of a share of Stock or the stock of the applicable Indexed Company, as applicable, on the ex-dividend date or, if no trades were reported on such date, the latest preceding date for which a trade was reported.
(e)“TSR Measurement Date” means the Performance Period End Date, except as otherwise determined by the Administrator.
(f)“TSR Percentile Rank” shall mean the percentage of Total Shareholder Return values among the Indexed Companies at the TSR Measurement Date that are equal to or lower than the Company’s Total Shareholder Return at the TSR Measurement Date.
3.Vesting of PSUs. Other than as set forth in the final sentence of this Paragraph 3, no portion of the PSUs shall become vested unless the TSR Percentile Rank is at or above the 50^th^ percentile. If (i) the TSR Percentile Rank Performance Criteria described in the previous sentence has been met as of the Performance Period End Date, and (ii) the PSUs are eligible to
[Signature Page to Performance Stock Unit Agreement]
vest pursuant to Section 3 of this Agreement, the number of PSUs that vest shall be equal to the number of PSUs multiplied by the “Applicable Percentage” set forth in the table below. In the event that TSR Percentile Rank falls between two of the percentiles listed in the table below, the Applicable Percentage shall be interpolated on a straight line basis and the percentage of the number of PSUs vested (subject to the satisfaction of the vesting eligibility criteria set forth in Section 3 of this Agreement) shall be based on such interpolated percentage. If TSR Percentile Rank is at or above the 80^th^ percentile, the Applicable Percentage shall be 150%.
| TSR Percentile Rank | Applicable Percentage |
|---|---|
| 80^th^ percentile | 150% |
| 65^th^ percentile | 100% |
| 50^th^ percentile | 50% |
Notwithstanding anything in this Paragraph 3 to the contrary, (i) while the Participant remains Employed the PSUs shall vest upon a Change in Control, and (ii) the Qualifying PSUs shall vest upon a Change in Control that occurs prior to the one-year anniversary of the Qualifying Termination described in the final sentence of Section 3(b) of this Agreement.
4.Determinations by Administrator. At the end of the Performance Period, the Administrator shall determine the extent to which, if any, the Performance Criteria has been met, the vesting eligibility provisions in Section 3 of this Agreement have been satisfied, and the number of PSUs, if any, that are vested hereunder. No PSUs shall be vested until the Administrator certifies that the Performance Criteria has been met and the vesting eligibility provisions in Section 3 of this Agreement have been satisfied and certifies the extent to which such Performance Criteria and provisions have so been met. The Administrator shall make such determination and certification no later than the Vesting Date. PSUs that are vested shall be settled as set forth in Section 5 of this Agreement. Any vested PSUs shall be rounded down to the nearest whole number of Shares and any fractional vested PSUs shall be disregarded. All determinations under this Exhibit A shall be made by the Administrator and will be final and binding on the Participant.
Exhibit 10.5
EXHIBIT B
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities~~~~.~~ ~~~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ ~~~~ During Employment and for twelve (12) months after the Participant terminates Employment (the “Restricted Period”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit A, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person as a result of his or her Employment or his or her consultancy with the Company or any of its
Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit A, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit A.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “Documents”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return to the Company no later than the date on which his or her Employment terminates, and at such
earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ ~~~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ ~~~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Non-Statutory Stock Option Agreement, including the restraints imposed upon him or her pursuant to this Exhibit A. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit A, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit A shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit A shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions~~~~.~~ For purposes of this Exhibit A, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit A, such term shall have the
meaning as ascribed to such term in the Non-Statutory Stock Option Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“Confidential Information” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“Intellectual Property” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“Products” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
sky-ex106_161.htm
Exhibit 10.6
| Name:^^ | [●] |
|---|---|
| Number of Restricted Stock Units subject to Award: | [●] |
| Date of Grant: | [●] |
| Vesting Commencement Date | [●] |
Skyline Champion Corporation
2018 Equity Incentive Plan
Restricted Stock Unit Award Agreement (Non-Employee Directors)
This agreement (this “Agreement”) evidences an award (the “Award”) of restricted stock units granted by Skyline Champion Corporation (the “Company”) to the individual named above (the “Participant”), pursuant to and subject to the terms of the Company’s 2018 Equity Incentive Plan (as amended from time to time, the “Plan”).
1.Grant of Restricted Stock Unit Award. The Company grants to the Participant on the date set forth above (the “Date of Grant”) the number of Restricted Stock Units set forth above giving the Participant the conditional right to receive, without payment and pursuant to and subject to the terms, conditions and limitations set forth in this Agreement and in the Plan, one share of Stock (a “Share”) with respect to each Restricted Stock Unit forming part of the Award, subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof. For the avoidance of doubt, the term “Restricted Stock Units” used throughout this Agreement refers to the Restricted Stock Units granted pursuant to this Agreement and not to restricted stock units that may or have been granted pursuant to a separate document.
2.Meaning of Certain Terms. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan. The following terms shall have the following meanings:
| (a) | “Change in Control”^^means (i) any transaction or series of related transaction in which any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them), acquires more than fifty percent (50%) of all of the Shares or more than fifty percent (50%) of all the voting power of the Shares, whether by reason of merger, consolidation or recapitalization or any other transaction (including the issuance of new Shares), whether or not the Company is a party thereto; or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company to any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them); provided, that no event shall be a Change in Control under this Agreement unless such event constitutes a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation under Section 1.409A-3(i)(5) of the United States Treasury Regulations. |
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| (b) | “Dividend Equivalent” means a dividend equivalent received in connection with (x) any regular dividend declared on Shares that is payable in cash or (y) any |
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| regular dividend declared on Shares that is payable in Shares, for each Share deliverable in respect of a Restricted Stock Unit. | |
| --- | |
| (c) | “Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. |
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| (d) | “Principal Shareholder” means each shareholder of the Company who beneficially owned five percent (5%) or more of the total Shares immediately prior to the August 7, 2018 closing of the underwritten offering of nine million (9,000,000) Shares. |
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3.Vesting; Cessation of Employment.
| (a) | Vesting. Unless earlier terminated, forfeited, relinquished or expired, the Restricted Stock Units will vest as set forth in this Section 3(a), subject to the Participant remaining in continuous service as a Director from the Date of Grant through such vesting date. |
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| (i) | Subject to Section 3(a)(ii) and Section 3(a)(iii) below, one-hundred percent (100%) of the Restricted Stock Units will vest on the earlier of (i) the first anniversary of the Vesting Commencement Date or (ii) the date of the 2020 Annual Meeting of the Shareholders. |
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| (ii) | In the event of the termination of the Participant’s service as a Director due to the Participant’s death or the Company’s termination of the Participant’s service due to the Participant’s Disability, and to the extent that any Restricted Stock Units are outstanding immediately prior to such termination of service but not then vested, all such unvested Restricted Stock Units shall become fully-vested upon the occurrence of such termination of service. |
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| (b) | Cessation of Service. Unless as set forth in Section 3(a)(ii) above or as otherwise determined by the Administrator in connection with the final sentence of this Section 3(b), automatically and immediately upon the cessation of the Participant’s service as a Director (i) the unvested portion of this Award, including corresponding Dividend Equivalents, will terminate and be forfeited for no consideration, and (ii) the vested portion of this Award, if any (including corresponding Dividend Equivalents), will terminate and be forfeited for no consideration if the Participant’s service is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s service to be terminated for Cause. |
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4.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit A attached hereto.
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5.Delivery of Shares and Dividend Equivalents.
| (a) | Standard Delivery. Subject to Section 5(b), Section 6, and Section 9(a) below, the Company shall effect delivery of the Shares with respect to such vested Restricted Stock Units to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) upon the earlier of (i) the vesting date, and (ii) the occurrence of a Change in Control. No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator. |
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| (b) | Delivery in the Event of Death or Disability. Subject to Section 6 and Section 9(a) below, in the event that the Participant’s service is terminated as described in Section 3(a)(ii) herein, and to the extent there are outstanding vested Restricted Stock Units with respect to which Shares have not on the date of such termination of service been delivered, the delivery of all such Shares shall occur on the earlier of (i) the delivery date specified in Section 5(a) above, and (ii) the one-year anniversary of the termination of service described in Section 3(a)(ii) herein. |
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| (c) | Dividend Equivalents. Any Dividend Equivalents credited with respect to the Shares associated with the Restricted Stock Units shall be delivered on the same date on which such Shares are delivered, if at all. For the avoidance of doubt, in the event any Share with respect to a Restricted Stock Unit is not delivered due to the operation of Section 3, the Dividend Equivalent with respect to such Share shall be forfeited and cancelled without any consideration therefor. |
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6.Forfeiture; Recovery of Compensation. The Administrator may cancel, rescind, withhold or otherwise limit or restrict this Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan. By accepting, or being deemed to have accepted, this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 11 of this Agreement.
7.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award. The Participant will be entitled to receive Dividend Equivalents with respect to Restricted Stock Units in accordance with this Section 7. Any such Dividend Equivalents will entitle the Participant to receive, subject to the terms of this Agreement, a payment equal to the amount that the Participant would have received as a regular dividend had the Participant held the Shares deliverable in respect of such Restricted Stock Units at the time such dividend was paid. Any Dividend Equivalents with respect to an unvested Restricted Stock Unit will be paid, if at all, in
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cash, in the case of a cash dividend, or in cash and/or Shares, as determined by the Administrator, in the case of a distribution of Shares, in either case, in accordance with Section 5 of this Agreement.
8.Nontransferability. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
9.Taxes.
| (a) | The Participant expressly acknowledges that the delivery of the Restricted Stock Units acquired hereunder and the payment of any Dividend Equivalents shall give rise to “wages”. The Company shall annually provide Participant a statement of wages for any year in which Participant served as a Director. |
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| (b) | In no event will the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A. |
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10.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares under this Award, will give the Participant any right to be retained in the service of the Company or any of its subsidiaries, or affect any right of the Participant to terminate his or her service at any time.
11.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been furnished to the Participant. By accepting, or being deemed to have accepted, all or any portion of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control.
12.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
13.Stock Ownership and Holding Guidelines. The Award and any Shares delivered under the Award are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Award, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
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The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: ______________________________
Name: ___________________________
Title: ______________________________
Agreed and Accepted:
By_______________________________
[Participant’s Name]
Signature Page to Restricted Stock Unit Award Agreement
Exhibit A
Covenants Regarding Competition, Solicitation and Confidentiality
sky-ex107_162.htm
Exhibit 10.7
| Name:^^ | [●] |
|---|---|
| Number of Restricted Stock Units subject to Award: | [●] |
| Date of Grant: | [●] |
| Vesting Commencement Date | [●] |
Skyline Champion Corporation
2018 Equity Incentive Plan
[●] Grant
Restricted Stock Unit Award Agreement (Employees)
This agreement (this “Agreement”) evidences an award (the “Award”) of restricted stock units granted by Skyline Champion Corporation (the “Company”) to the individual named above (the “Participant”), pursuant to and subject to the terms of the Company’s 2018 Equity Incentive Plan (as amended from time to time, the “Plan”).
1.Grant of Restricted Stock Unit Award. The Company grants to the Participant on the date set forth above (the “Date of Grant”) the number of Restricted Stock Units set forth above giving the Participant the conditional right to receive, without payment and pursuant to and subject to the terms, conditions and limitations set forth in this Agreement and in the Plan, one share of Stock (a “Share”) with respect to each Restricted Stock Unit forming part of the Award, subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof. For the avoidance of doubt, the term “Restricted Stock Units” used throughout this Agreement refers to the Restricted Stock Units granted pursuant to this Agreement and not to restricted stock units that may or have been granted pursuant to a separate document.
2.Meaning of Certain Terms. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan. The following terms shall have the following meanings:
| (a) | “Change in Control”^^means (i) any transaction or series of related transaction in which any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them), acquires more than fifty percent (50%) of all of the Shares or more than fifty percent (50%) of all the voting power of the Shares, whether by reason of merger, consolidation or recapitalization or any other transaction (including the issuance of new Shares), whether or not the Company is a party thereto; or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company to any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them); provided, that no event shall be a Change in Control under this Agreement unless such event constitutes a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation under Section 1.409A-3(i)(5) of the United States Treasury Regulations. |
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| (b) | “Dividend Equivalent” means a dividend equivalent received in connection with (x) any regular dividend declared on Shares that is payable in cash or (y) any regular dividend declared on Shares that is payable in Shares, for each Share deliverable in respect of a Restricted Stock Unit. |
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| (c) | “Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. |
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| (d) | “Principal Shareholder” means each shareholder of the Company who beneficially owned five percent (5%) or more of the total Shares immediately prior to the August 7, 2018 closing of the underwritten offering of nine million (9,000,000) Shares. |
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3.Vesting; Cessation of Employment.
| (a) | Vesting. Unless earlier terminated, forfeited, relinquished or expired, the Restricted Stock Units will vest as set forth in this Section 3(a), subject to the Participant remaining in continuous Employment from the Date of Grant through such vesting date. |
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| (i) | Subject to Section 3(a)(ii) and Section 3(a)(iii) below, one-third of the Restricted Stock Units will vest on each of the first three anniversaries of the Vesting Commencement Date, with the number of Restricted Stock Units that vest on any such date being rounded down to the nearest whole Share and the Award becoming vested as to one-hundred percent (100%) of the Restricted Stock Units on the third anniversary of the Vesting Commencement Date. |
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| (ii) | Subject to Section 3(a)(iii) below, in the event the Participant’s Employment is terminated by the Company or one of its subsidiaries without Cause (such termination of Employment, a “Qualifying Termination”), and to the extent that any Restricted Stock Units are outstanding immediately prior to such Qualifying Termination but not then vested, that number of Restricted Stock Units that, in the absence of such Qualifying Termination, would have become vested on the next vesting date following such Qualifying Termination pursuant to the vesting schedule set forth in Section 3(a)(i) hereof will automatically vest in full upon the occurrence of such Qualifying Termination. |
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| (iii) | In the event of the termination of the Participant’s Employment due to the Participant’s death or the Company’s or a subsidiary’s termination of the Participant’s Employment due to the Participant’s Disability, and to the extent that any Restricted Stock Units are outstanding immediately prior to such termination of Employment but not then vested, all such unvested |
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| Restricted Stock Units shall become fully-vested upon the occurrence of such termination of Employment. | |
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| (b) | Cessation of Employment. Unless as set forth in Sections 3(a)(ii) and 3(a)(iii) above or as otherwise determined by the Administrator in connection with the final sentence of this Section 3(b), automatically and immediately upon the cessation of the Participant’s Employment (i) the unvested portion of this Award, including corresponding Dividend Equivalents, will terminate and be forfeited for no consideration, and (ii) the vested portion of this Award, if any (including corresponding Dividend Equivalents), will terminate and be forfeited for no consideration if the Participant’s Employment is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause. For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested Restricted Stock Units in the event the Participant’s Employment terminates due to retirement. |
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4.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit A attached hereto.
5.Delivery of Shares and Dividend Equivalents.
| (a) | Standard Delivery. Subject to Section 5(b), Section 6, and Section 9(a) below, the Company shall effect delivery of the Shares with respect to such vested Restricted Stock Units to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) upon the earlier of (i) the third anniversary of the Date of Grant, and (ii) the occurrence of a Change in Control. No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator. |
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| (b) | Delivery in the Event of Death or Disability. Subject to Section 6 and Section 9(a) below, in the event that the Participant’s Employment is terminated as described in Section 3(a)(iii) herein, and to the extent there are outstanding vested Restricted Stock Units with respect to which Shares have not on the date of such termination of Employment been delivered, the delivery of all such Shares shall occur on the earlier of (i) the delivery date specified in Section 5(a) above, and (ii) the one-year anniversary of the termination of Employment described in Section 3(a)(iii) herein. |
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| (c) | Dividend Equivalents. Any Dividend Equivalents credited with respect to the Shares associated with the Restricted Stock Units shall be delivered on the same date on which such Shares are delivered, if at all. For the avoidance of doubt, in the event any Share with respect to a Restricted Stock Unit is not delivered due to |
| --- | --- |
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| the operation of Section 3, the Dividend Equivalent with respect to such Share shall be forfeited and cancelled without any consideration therefor. |
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6.Forfeiture; Recovery of Compensation. The Administrator may cancel, rescind, withhold or otherwise limit or restrict this Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan. By accepting, or being deemed to have accepted, this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 11 of this Agreement.
7.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award. The Participant will be entitled to receive Dividend Equivalents with respect to Restricted Stock Units in accordance with this Section 7. Any such Dividend Equivalents will entitle the Participant to receive, subject to the terms of this Agreement, a payment equal to the amount that the Participant would have received as a regular dividend had the Participant held the Shares deliverable in respect of such Restricted Stock Units at the time such dividend was paid. Any Dividend Equivalents with respect to an unvested Restricted Stock Unit will be paid, if at all, in cash, in the case of a cash dividend, or in cash and/or Shares, as determined by the Administrator, in the case of a distribution of Shares, in either case, in accordance with Section 5 of this Agreement.
8.Nontransferability. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
9.Taxes.
| (a) | The Participant expressly acknowledges that the settlement of the Restricted Stock Units acquired hereunder and the payment of any Dividend Equivalents shall give rise to “wages” subject to withholding. No Shares will be delivered or Dividend Equivalents paid pursuant to this Award unless and until the Participant has remitted to the Company in cash or by check (or by such other means as may be acceptable to the Administrator and permitted under the Plan) an amount sufficient to satisfy all taxes required to be withheld in connection with such settlement or payment. For the avoidance of doubt, the Participant may pay any taxes contemplated by this Section 9 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan. |
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| (b) | The Participant authorizes the Company and its subsidiaries to withhold any amounts due in respect of any required tax withholdings or payments from any amounts otherwise owed to the Participant, but nothing in this sentence shall be |
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| construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligation under the preceding provisions of this Section 9. | |
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| (c) | In no event will the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A. |
| --- | --- |
10.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares under this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
11.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been furnished to the Participant. By accepting, or being deemed to have accepted, all or any portion of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control.
12.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
13.Stock Ownership and Holding Guidelines. The Award and any Shares delivered under the Award are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Award, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
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The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: ______________________________
Name: ___________________________
Title: ______________________________
Agreed and Accepted:
By_______________________________
[Participant’s Name]
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Exhibit 10.7
EXHIBIT A
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities.~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ During Employment and for twelve (12) months after the Participant terminates Employment (the “Restricted Period”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit A, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person as a result of his or her Employment or his or her consultancy with the Company or any of its
Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit A, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit A.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “Documents”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return to the Company no later than the date on which his or her Employment terminates, and at such
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earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Non-Statutory Stock Option Agreement, including the restraints imposed upon him or her pursuant to this Exhibit A. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit A, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit A shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit A shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions.~~ For purposes of this Exhibit A, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit A, such term shall have the
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meaning as ascribed to such term in the Non-Statutory Stock Option Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“Confidential Information” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“Intellectual Property” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“Products” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
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sky-ex109_157.htm
Exhibit 10.9
| Name: | [•] |
|---|---|
| Number of Shares of Stock Subject to the Stock Option: | [•] |
| Price Per Share: | [•] |
| Date of Grant: | [•] |
| Vesting Commencement Date: | [•] |
Skyline Champion Corporation 2018 Equity Incentive Plan
[•] Grant
Non-statutory Stock Option Agreement (Employees)
This agreement (this “Agreement”) evidences a stock option granted by Skyline Champion Corporation (the “Company”) to the undersigned (the “Participant”) pursuant to the Company’s 2018 Equity Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan.
1.Grant of Stock Option. On the date of grant set forth above (the “Date of Grant”), the Company hereby grants to the Participant an option (the “Stock Option”) to purchase, on the terms provided herein and in the Plan, up to the number of shares of Stock set forth above (each, a “Share”, and collectively, the “Shares”) at the exercise price per Share set forth above, in each case subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.
The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that does not qualify as an incentive stock option under Section 422 of the Code). The Participant is an employee of the Company and/or of one or more subsidiaries of the Company with respect to which the Company has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).
^^
2.Vesting; Method of Exercise; Treatment of the Stock Option upon Cessation of Employment.
| (a) | Vesting. Unless earlier terminated, forfeited, relinquished or expired, the Stock Option shall vest as follows, subject to the Participant remaining in continuous Employment from the Date of Grant through the applicable vesting date. |
|---|
(i)Except as provided in Section 2(a)(ii) or (iii) below, the Stock Option shall vest as to one-third (1/3) of the Shares on each of the first, second, and third anniversaries of the Vesting Commencement Date, with the number of Shares that vest on any such date, other than the final vesting date, being rounded down to the nearest whole Share.
(ii)In the event the Company terminates the Participant’s Employment without Cause or the Participant resigns for Good Reason (as defined below), the next one-third (1/3) of the Shares that would have vested had the Participant remained in Employment shall vest upon the cessation of the Participant’s Employment, with the number of Shares that vest on any such date, other than the final vesting date, being rounded down to the nearest whole Share. “Good Reason” shall have the same meaning as set forth in the Participant’s employment, severance-benefit or other similar agreement with the Company or a subsidiary that contains a definition of “Good Reason.” The Good Reason-related provisions of this Agreement shall cease to apply in the event that the agreement identified in the immediately preceding sentence ceases to be in effect.
(iii)In the event the Participant’s Employment is terminated due to death or Disability, any unvested portion of the Stock Option that remains outstanding shall automatically vest upon the cessation of the Participant’s Employment.
| (b) | Exercise of the Stock Option. No portion of the Stock Option may be exercised until it vests. Each election to exercise the Stock Option must comply with such rules as the Administrator prescribes from time to time and must be accompanied by payment in full of the exercise price in one or more of the forms described in Section 6(b)(3) of the Plan. For the avoidance of doubt, the Participant may pay the exercise price through the withholding of unrestricted shares of Stock that would have otherwise been deliverable upon exercise of the Stock Option, such shares having a Fair Market Value equal to the exercise price. In the event that the Stock Option is exercised by a person other than the Participant, the Company will be under no obligation to deliver Shares hereunder unless and until it is satisfied as to the authority of the person to exercise the Stock Option and compliance with applicable securities laws. The latest date on which the Stock Option or any portion thereof may be exercised will be the tenth (10^th^) anniversary of the Date of Grant (the “Final Exercise Date”). Any portion of the Stock Option that remains outstanding and has not been exercised by the Final Exercise Date will thereupon immediately terminate. |
|---|---|
| (c) | Treatment of the Stock Option upon Cessation of Employment. Notwithstanding the provisions of Section 6(a)(4) of the Plan, if the Participant’s Employment ceases, the Stock Option, to the extent not already vested, will be immediately forfeited, and any portion of the Stock Option that is then outstanding will be treated as follows: |
| --- | --- |
(i)Subject to clauses (ii), (iii) and (iv) below or as otherwise determined by the Administrator in connection with the final
sentence of this Section 2(c), the Stock Option to the extent vested immediately prior to the cessation of the Participant’s Employment will remain exercisable until the earlier of (A) the 90th day following the date of such cessation of Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(i), will thereupon immediately terminate.
(ii)Subject to clauses (iii) and (iv) below and Section 2(a)(ii) of this Agreement or as otherwise determined by the Administrator in connection with the final sentence of this Section 2(c), the Stock Option, to the extent vested as of the cessation of the Participant’s Employment by the Company without Cause or by the Participant for Good Reason, the Stock Option will remain exercisable until the earlier of (A) the 180^th^ day following the date of such cessation of Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(ii), will thereupon immediately terminate.
(iii)Subject to Section 2(a)(iii) of this Agreement or as otherwise determined by the Administrator in connection with the final sentence of this Section 2(c), the Stock Option, to the extent vested as of the cessation of the Participant’s Employment due to death or Disability, will remain exercisable until the earlier of (A) the first anniversary of the Participant’s death or Disability or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 2(c)(iii) will thereupon immediately terminate.
(iv)The Stock Option (whether or not vested or exercisable) will terminate and be forfeited immediately prior to the cessation of Participant’s Employment if the Participant is terminated by the Company for Cause.
For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested portion of the Stock Option in the event the Participant’s Employment terminates due to retirement.
3.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit A attached hereto.
4.Forfeiture; Recovery of Compensation. By accepting the Stock Option the Participant expressly acknowledges and agrees that his or her rights (and those of any permitted transferee) under the Stock Option or to any Stock acquired under the Stock Option or any proceeds from the disposition thereof, are subject to Section 6(a)(5) of the
Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 8 of this Agreement.
5.Transfer of Stock Option. The Stock Option may not be transferred except at death in accordance with Section 6(a)(3) of the Plan.
6.Certain Tax Matters. The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued the Shares (or any portion thereof) upon exercise of the Stock Option, are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld, if any. No Shares will be transferred pursuant to the exercise of the Stock Option unless and until the person exercising the Stock Option has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by exercising the Stock Option such person shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such Shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. For the avoidance of doubt, the Participant may pay any taxes contemplated by this Section 6 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan. The Participant also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligations under the preceding provisions of this Section 6.
7.Effect on Employment. Neither the grant of the Stock Option, nor the issuance of Shares upon exercise of the Stock Option, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
8.Acknowledgments. By accepting the Stock Option, the Participant agrees to be bound by, and agrees that the Stock Option is subject in all respects to, the terms of the Plan. In the event of a conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control. The Participant further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
9.Stock Ownership and Holding Guidelines. The Stock Option and any Shares delivered under the Stock Option are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Stock Option, the
[Signature page follows.]
The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: __________________________
Name: Mark Yost
Title: CEO
Agreed and Accepted:
By_______________________________
~~EXHIBIT~~ A
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities.~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ During Employment and for eighteen (18) months after the Participant terminates Employment (the “~~Restricted Period~~”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit A, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person
as a result of his or her Employment or his or her consultancy with the Company or any of its Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit A, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit A.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return
to the Company no later than the date on which his or her Employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Non-Statutory Stock Option Agreement, including the restraints imposed upon him or her pursuant to this Exhibit A. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit A, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit A shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit A shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions.~~ For purposes of this Exhibit A, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit A, such term shall have the meaning as ascribed to such term in the Non-Statutory Stock Option Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“~~Intellectual Property~~” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
sky-ex1010_160.htm
Exhibit 10.10
| Name:^^ | [●] |
|---|---|
| Number of Restricted Stock Units subject to Award: | [●] |
| Date of Grant: | [●] |
| Vesting Commencement Date | [●] |
Skyline Champion Corporation
2018 Equity Incentive Plan
[●] Grant
Restricted Stock Unit Award Agreement (Employees)
This agreement (this “Agreement”) evidences an award (the “Award”) of restricted stock units granted by Skyline Champion Corporation (the “Company”) to the individual named above (the “Participant”), pursuant to and subject to the terms of the Company’s 2018 Equity Incentive Plan (as amended from time to time, the “Plan”).
1.Grant of Restricted Stock Unit Award. The Company grants to the Participant on the date set forth above (the “Date of Grant”) the number of Restricted Stock Units set forth above giving the Participant the conditional right to receive, without payment and pursuant to and subject to the terms, conditions and limitations set forth in this Agreement and in the Plan, one share of Stock (a “Share”) with respect to each Restricted Stock Unit forming part of the Award, subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof. For the avoidance of doubt, the term “Restricted Stock Units” used throughout this Agreement refers to the Restricted Stock Units granted pursuant to this Agreement and not to restricted stock units that may or have been granted pursuant to a separate document.
2.Meaning of Certain Terms. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan. The following terms shall have the following meanings:
| (a) | “Change in Control”^^means (i) any transaction or series of related transaction in which any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them), acquires more than fifty percent (50%) of all of the Shares or more than fifty percent (50%) of all the voting power of the Shares, whether by reason of merger, consolidation or recapitalization or any other transaction (including the issuance of new Shares), whether or not the Company is a party thereto; or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company to any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them); provided, that no event shall be a Change in Control under this Agreement unless such event constitutes a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation under Section 1.409A-3(i)(5) of the United States Treasury Regulations. |
|---|---|
| (b) | “Dividend Equivalent” means a dividend equivalent received in connection with (x) any regular dividend declared on Shares that is payable in cash or (y) any regular dividend declared on Shares that is payable in Shares, for each Share deliverable in respect of a Restricted Stock Unit. |
| --- | --- |
| (c) | “Good Reason” shall have the same meaning as set forth in the Participant’s employment, severance-benefit or other similar agreement with the Company or a subsidiary that contains a definition of “Good Reason.” The Good Reason-related provisions of this Agreement shall cease to apply in the event that the agreement identified in the immediately preceding sentence ceases to be in effect. |
| --- | --- |
| (d) | “Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. |
| --- | --- |
| (e) | “Principal Shareholder” means each shareholder of the Company who beneficially owned five percent (5%) or more of the total Shares immediately prior to the August 7, 2018 closing of the underwritten offering of nine million (9,000,000) Shares. |
| --- | --- |
3.Vesting; Cessation of Employment.
| (a) | Vesting. Unless earlier terminated, forfeited, relinquished or expired, the Restricted Stock Units will vest as set forth in this Section 3(a), subject to the Participant remaining in continuous Employment from the Date of Grant through such vesting date. |
|---|---|
| (i) | Subject to Section 3(a)(ii) and Section 3(a)(iii) below, one-third of the Restricted Stock Units will vest on each of the first three anniversaries of the Vesting Commencement Date, with the number of Restricted Stock Units that vest on any such date being rounded down to the nearest whole Share and the Award becoming vested as to one-hundred percent (100%) of the Restricted Stock Units on the third anniversary of the Vesting Commencement Date. |
| --- | --- |
| (ii) | Subject to Section 3(a)(iii) below, in the event the Participant’s Employment is terminated by the Company or one of its subsidiaries without Cause or if the Participant terminates his or her Employment for Good Reason (each such termination of Employment, a “Qualifying Termination”), and to the extent that any Restricted Stock Units are outstanding immediately prior to such Qualifying Termination but not then vested, that number of Restricted Stock Units that, in the absence of such Qualifying Termination, would have become vested on the next vesting date following such Qualifying Termination pursuant to the vesting schedule set forth in Section 3(a)(i) hereof will automatically vest in full upon the occurrence of such Qualifying Termination. |
| --- | --- |
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| (iii) | In the event of the termination of the Participant’s Employment due to the Participant’s death or the Company’s or a subsidiary’s termination of the Participant’s Employment due to the Participant’s Disability, and to the extent that any Restricted Stock Units are outstanding immediately prior to such termination of Employment but not then vested, all such unvested Restricted Stock Units shall become fully-vested upon the occurrence of such termination of Employment. |
|---|---|
| (b) | Cessation of Employment. Unless as set forth in Sections 3(a)(ii) and 3(a)(iii) above or as otherwise determined by the Administrator in connection with the final sentence of this Section 3(b), automatically and immediately upon the cessation of the Participant’s Employment (i) the unvested portion of this Award, including corresponding Dividend Equivalents, will terminate and be forfeited for no consideration, and (ii) the vested portion of this Award, if any (including corresponding Dividend Equivalents), will terminate and be forfeited for no consideration if the Participant’s Employment is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause. For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested Restricted Stock Units in the event the Participant’s Employment terminates due to retirement. |
| --- | --- |
4.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit A attached hereto.
5.Delivery of Shares and Dividend Equivalents.
| (a) | Standard Delivery. Subject to Section 5(b), Section 6, and Section 9(a) below, the Company shall effect delivery of the Shares with respect to such vested Restricted Stock Units to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) upon the earlier of (i) the third anniversary of the Date of Grant, and (ii) the occurrence of a Change in Control. No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator. |
|---|---|
| (b) | Delivery in the Event of Death or Disability. Subject to Section 6 and Section 9(a) below, in the event that the Participant’s Employment is terminated as described in Section 3(a)(iii) herein, and to the extent there are outstanding vested Restricted Stock Units with respect to which Shares have not on the date of such termination of Employment been delivered, the delivery of all such Shares shall occur on the earlier of (i) the delivery date specified in Section 5(a) above, and (ii) the one-year anniversary of the termination of Employment described in Section 3(a)(iii) herein. |
| --- | --- |
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| (c) | Dividend Equivalents. Any Dividend Equivalents credited with respect to the Shares associated with the Restricted Stock Units shall be delivered on the same date on which such Shares are delivered, if at all. For the avoidance of doubt, in the event any Share with respect to a Restricted Stock Unit is not delivered due to the operation of Section 3, the Dividend Equivalent with respect to such Share shall be forfeited and cancelled without any consideration therefor. |
|---|
6.Forfeiture; Recovery of Compensation. The Administrator may cancel, rescind, withhold or otherwise limit or restrict this Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan. By accepting, or being deemed to have accepted, this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 11 of this Agreement.
7.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award. The Participant will be entitled to receive Dividend Equivalents with respect to Restricted Stock Units in accordance with this Section 7. Any such Dividend Equivalents will entitle the Participant to receive, subject to the terms of this Agreement, a payment equal to the amount that the Participant would have received as a regular dividend had the Participant held the Shares deliverable in respect of such Restricted Stock Units at the time such dividend was paid. Any Dividend Equivalents with respect to an unvested Restricted Stock Unit will be paid, if at all, in cash, in the case of a cash dividend, or in cash and/or Shares, as determined by the Administrator, in the case of a distribution of Shares, in either case, in accordance with Section 5 of this Agreement.
8.Nontransferability. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
9.Taxes.
| (a) | The Participant expressly acknowledges that the settlement of the Restricted Stock Units acquired hereunder and the payment of any Dividend Equivalents shall give rise to “wages” subject to withholding. No Shares will be delivered or Dividend Equivalents paid pursuant to this Award unless and until the Participant has remitted to the Company in cash or by check (or by such other means as may be acceptable to the Administrator and permitted under the Plan) an amount sufficient to satisfy all taxes required to be withheld in connection with such settlement or payment. For the avoidance of doubt, the Participant may pay any taxes contemplated by this Section 9 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan. |
|---|
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| (b) | The Participant authorizes the Company and its subsidiaries to withhold any amounts due in respect of any required tax withholdings or payments from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligation under the preceding provisions of this Section 9. |
|---|---|
| (c) | In no event will the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A. |
| --- | --- |
10.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares under this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
11.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been furnished to the Participant. By accepting, or being deemed to have accepted, all or any portion of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control.
12.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
13.Stock Ownership and Holding Guidelines. The Award and any Shares delivered under the Award are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Award, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
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The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: ______________________________
Name: ___________________________
Title: ______________________________
Agreed and Accepted:
By_______________________________
[Participant’s Name]
Signature Page to Restricted Stock Unit Award Agreement
~~EXHIBIT~~ A
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities.~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ During Employment and for eighteen (18) months after the Participant terminates Employment (the “~~Restricted Period~~”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit A, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person
as a result of his or her Employment or his or her consultancy with the Company or any of its Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit A, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit A.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return
to the Company no later than the date on which his or her Employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Restricted Stock Unit Award Agreement, including the restraints imposed upon him or her pursuant to this Exhibit A. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit A, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit A shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit A shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions.~~ For purposes of this Exhibit A, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit A, such term shall have the meaning as ascribed to such term in the Restricted Stock Unit Award Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“~~Intellectual Property~~” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
sky-ex1011_155.htm
Exhibit 10.11
| Name: | [•] |
|---|---|
| Target Number of PSUs: | [•] |
| Date of Grant: | [•] |
| Vesting Date: | [•] |
Skyline Champion Corporation
2018 Equity Incentive Plan
[•] Grant
Performance Stock Unit Agreement
This Performance Stock Unit Agreement (this “Agreement”), is made, effective as of [•] (the “Date of Grant”), between Skyline Champion Corporation (the “Company”), and [•] (the “Participant”).
1.Performance Stock Unit Award. The Participant is hereby awarded, pursuant to the Skyline Champion Corporation 2018 Equity Incentive Plan (as amended from time to time, the “Plan”), and subject to its terms, a Performance Award (the “Award”) consisting of a target number of [•] performance stock units (such performance stock units, the “PSUs”). Each PSU represents the conditional right to receive, without payment but subject to the terms, conditions and limitations set forth in this Agreement and in the Plan, one share of Stock (a “Share”), subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof. The percentage of the PSUs that become vested will be determined in accordance with Section 3 and Exhibit A hereto. For the avoidance of doubt, the term “PSUs” used throughout this Agreement refers to the PSUs granted pursuant to this Agreement and not to performance stock units that may or have been granted pursuant to a separate document.
2.Meaning of Certain Terms. Except as otherwise defined herein, all capitalized terms used herein shall have the same meaning as provided in the Plan. The following terms shall have the following meanings:
(a)“Change in Control”^^means (i) any transaction or series of related transaction in which any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them), acquires more than fifty percent (50%) of all of the Shares or more than fifty percent (50%) of all the voting power of the Shares, whether by reason of merger, consolidation or recapitalization or any other transaction (including the issuance of new Shares), whether or not the Company is a party thereto; or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company to any Person (or group of Persons acting together), other than the Principal Shareholders (or any one of them).
(b)“Dividend Equivalent” means a dividend equivalent received in connection with (x) any regular dividend declared on Shares that is payable in cash or (y) any regular dividend declared on Shares that is payable in Shares, for each Share deliverable in respect of a PSU.
(c)“Good Reason” shall have the same meaning as set forth in the Participant’s employment, severance-benefit or other similar agreement with the Company or a subsidiary that contains a definition of “Good Reason.” The Good Reason-related provisions of this Agreement shall cease to apply in the event that the agreement identified in the immediately preceding sentence ceases to be in effect.
(d)“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
(e)“Principal Shareholder” means each shareholder of the Company who beneficially owned five percent (5%) or more of the total Shares immediately prior to the August 7, 2018 closing of the underwritten offering of nine million (9,000,000) Shares.
3.Vesting Eligibility; Cessation of Employment. Unless earlier terminated, forfeited, relinquished or expired, the PSUs will become eligible to vest on the Vesting Date and as set forth in this Section 3, subject to the Participant remaining in continuous Employment from the Date of Grant through such eligibility date.
(a)Except as otherwise provided in Section 3(b) below or as otherwise determined by the Administrator in connection with the final sentence of this Section 3(a), if the Participant’s Employment terminates for any reason prior to the Vesting Date, the Award and the PSUs will immediately and automatically terminate and be forfeited upon such termination of Employment with no consideration due to the Participant. For the avoidance of doubt, the Administrator shall have discretion to determine vesting treatment of any then-unvested PSUs in the event the Participant’s Employment terminates due to retirement.
(b)If prior to the Vesting Date the Participant’s Employment is terminated by the Company or one of its subsidiaries without Cause or if the Participant terminates his or her Employment for Good Reason (each such termination of Employment, a “Qualifying Termination”), and to the extent that any PSUs are outstanding immediately prior to such Qualifying Termination but not then vested, a percentage of such unvested PSUs shall remain outstanding and eligible to vest, such percentage equal to the quotient of (A) divided by (B), where (A) equals the number of days from the first day of the Performance Period through the date of such Qualifying Termination, and (B) equals the total number of days in the Performance Period. The PSUs described in the immediately preceding sentence shall become “Qualifying PSUs.” Any Qualifying PSUs that have not vested by the one-year anniversary of such Qualifying Termination will at such time immediately and automatically terminate and be forfeited with no consideration due to the Participant.
4.Restrictive Covenants. The Participant acknowledges and agrees that he or she shall be bound by the Covenants Regarding Competition, Solicitation and Confidentiality set forth in Exhibit B attached hereto.
5.Delivery of Shares and Dividend Equivalents.
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(a)Delivery of Shares. Subject to Section 6 and Section 9(a) below, the Company shall effect delivery of the Shares with respect to such vested PSUs to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) upon the date the PSUs become vested pursuant to the provisions of Section 3 and Exhibit A. No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.
(b)Dividend Equivalents. Any Dividend Equivalents credited with respect to unvested PSUs shall be delivered on the same date on which the Shares with respect to such unvested PSUs are delivered, if at all.
6.Forfeiture; Recovery of Compensation. The Administrator may cancel, rescind, withhold or otherwise limit or restrict this Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan. By accepting, or being deemed to have accepted, this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence shall be construed as limiting the general application of Section 11 of this Agreement.
7.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award. The Participant will be entitled to receive Dividend Equivalents with respect to unvested PSUs in accordance with this Section 7. Any such Dividend Equivalents will entitle the Participant to receive, subject to the terms of this Agreement, a payment equal to the amount that the Participant would have received as a regular dividend had the Participant held the Shares deliverable in respect of such PSUs at the time such dividend was paid. Any Dividend Equivalents with respect to an unvested PSU will be paid, if at all, in cash, in the case of a cash dividend, or in cash and/or Shares, as determined by the Administrator, in the case of a distribution of Shares, in either case, in accordance with Section 5 of this Agreement.
- Nontransferability. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
9.Taxes.
(a)The Participant expressly acknowledges that the settlement of the PSUs acquired hereunder and the payment of any Dividend Equivalents shall give rise to “wages” subject to withholding. No Shares will be delivered or Dividend Equivalents paid pursuant to this Award unless and until the Participant has remitted to the Company in cash or by check (or by such other means as may be acceptable to the Administrator and permitted under the Plan) an amount sufficient to satisfy all taxes required to be withheld in connection with such settlement or payment. For the avoidance of doubt, the Participant may pay any taxes contemplated by this
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Section 9 consistent with the method for paying such taxes as described in the last sentence of Section 6(a)(6) of the Plan.
(b)The Participant authorizes the Company and its subsidiaries to withhold any amounts due in respect of any required tax withholdings or payments from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant (or any permitted transferee) of any liability for satisfying his or her obligation under the preceding provisions of this Section 9.
(c)In no event will the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A.
10.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares under this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect any right of the Company or any of its subsidiaries to discharge or discipline the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.
11.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been furnished to the Participant. By accepting, or being deemed to have accepted, all or any portion of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan will control.
12.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
13.Stock Ownership and Holding Guidelines. The Award and any Shares delivered under the Award are subject to any stock ownership and holding guidelines as may be adopted by the Company and are in effect from time to time (the “Guidelines”). By accepting or being deemed to have accepted the Award, the Participant acknowledges and agrees to comply with the terms and conditions of the Guidelines.
[Signature page follows.]
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Exhibit 10.11
The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the date first set forth above.
SKYLINE CHAMPION CORPORATION
By: ______________________________
Name: ___________________________
Title: ______________________________
Agreed and Accepted:
By_______________________________
[Participant’s Name]
[Signature Page to Performance Stock Unit Agreement]
Exhibit 10.11
EXHIBIT A
PERFORMANCE CRITERIA
1.Total Shareholder Return. Total Shareholder Return (as measured by TSR Percentile Rank) shall be the Performance Criteria under the Award. The PSUs shall become vested, if at all, pursuant to the provisions of Section 3 of this Agreement and this Exhibit A.
2.Definitions. The terms set forth below, as used in this Exhibit A, shall the following meanings:
(a)“Indexed Company” shall mean each of the following companies: Cavco Industries, Inc., Beezer Homes USA, Inc., Century Communities Inc., LGI Homes, M/I Homes, M.D.C Holdings, Inc., Meritage Home Corporation, NCI Building Systems, Inc., Quanex Building Products Corporation, TRI Pointe Group Inc., and William Lyon Homes, which cumulatively shall be referred to as the “Indexed Companies.”
(b)“Performance Period” shall mean the period beginning on [•] and ending on the Vesting Date.
(c)“Performance Period End Date” shall mean the Vesting Date.
(d)“Total Shareholder Return” shall mean the change in value expressed as a percentage of a given dollar amount invested in a company’s most widely publicly traded stock over the Performance Period, taking into account both stock price appreciation (or depreciation) and the reinvestment of dividends (including the cash value of non-cash dividends) in such stock of the company. The thirty calendar-day average closing price of shares of Stock and the stock of the Indexed Companies, as applicable (i.e., the average closing prices over the period of trading days occurring in the thirty calendar days prior to July 1, 2018 and ending on July 1, 2018 and the average closing prices over the period of trading days occurring in the final thirty calendar days ending on the Performance Period End Date) will be used to value shares of Stock and the stock of the Indexed Companies, as applicable. Dividend reinvestment will be calculated using the closing price of a share of Stock or the stock of the applicable Indexed Company, as applicable, on the ex-dividend date or, if no trades were reported on such date, the latest preceding date for which a trade was reported.
(e)“TSR Measurement Date” means the Performance Period End Date, except as otherwise determined by the Administrator.
(f)“TSR Percentile Rank” shall mean the percentage of Total Shareholder Return values among the Indexed Companies at the TSR Measurement Date that are equal to or lower than the Company’s Total Shareholder Return at the TSR Measurement Date.
3.Vesting of PSUs. Other than as set forth in the final sentence of this Paragraph 3, no portion of the PSUs shall become vested unless the TSR Percentile Rank is at or above the 50^th^ percentile. If (i) the TSR Percentile Rank Performance Criteria described in the previous sentence has been met as of the Performance Period End Date, and (ii) the PSUs are eligible to
[Signature Page to Performance Stock Unit Agreement]
vest pursuant to Section 3 of this Agreement, the number of PSUs that vest shall be equal to the number of PSUs multiplied by the “Applicable Percentage” set forth in the table below. In the event that TSR Percentile Rank falls between two of the percentiles listed in the table below, the Applicable Percentage shall be interpolated on a straight line basis and the percentage of the number of PSUs vested (subject to the satisfaction of the vesting eligibility criteria set forth in Section 3 of this Agreement) shall be based on such interpolated percentage. If TSR Percentile Rank is at or above the 80^th^ percentile, the Applicable Percentage shall be 150%.
| TSR Percentile Rank | Applicable Percentage |
|---|---|
| 80^th^ percentile | 150% |
| 65^th^ percentile | 100% |
| 50^th^ percentile | 50% |
Notwithstanding anything in this Paragraph 3 to the contrary, (i) while the Participant remains Employed the PSUs shall vest upon a Change in Control, and (ii) the Qualifying PSUs shall vest upon a Change in Control that occurs prior to the one-year anniversary of the Qualifying Termination described in the final sentence of Section 3(b) of this Agreement.
4.Determinations by Administrator. At the end of the Performance Period, the Administrator shall determine the extent to which, if any, the Performance Criteria has been met, the vesting eligibility provisions in Section 3 of this Agreement have been satisfied, and the number of PSUs, if any, that are vested hereunder. No PSUs shall be vested until the Administrator certifies that the Performance Criteria has been met and the vesting eligibility provisions in Section 3 of this Agreement have been satisfied and certifies the extent to which such Performance Criteria and provisions have so been met. The Administrator shall make such determination and certification no later than the Vesting Date. PSUs that are vested shall be settled as set forth in Section 5 of this Agreement. Any vested PSUs shall be rounded down to the nearest whole number of Shares and any fractional vested PSUs shall be disregarded. All determinations under this Exhibit A shall be made by the Administrator and will be final and binding on the Participant.
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Exhibit 10.11
~~EXHIBIT~~ B
Covenants Regarding Competition, Solicitation and Confidentiality
~~Restricted Activities.~~ ~~~~ The Participant agrees that some restrictions on his or her activities during and after his or her Employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates.
~~1.~~ ~~Non-compete, Non-solicitation, Non-disclosure.~~ ~~~~ During Employment and for eighteen (18) months after the Participant terminates Employment (the “~~Restricted Period~~”), the Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Participant agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Participant’s Employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Participant has provided services, as conducted or in planning during his or her Employment. For the purposes of this Exhibit B, the business of the Company and its Affiliates shall be defined to include all Products and the Participant’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Participant agrees that, during Employment, he or she will limit his or her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his or her duties and obligations to the Company or any of its Affiliates.
The Participant agrees that, during the Restricted Period, the Participant will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Participant has performed work for such Person during his or her Employment or been introduced to, or otherwise had contact with, such Person as a result of his or her Employment or his or her consultancy with the Company or any of its
Affiliates or has had access to Confidential Information which would assist in the Participant’s solicitation of such Person.
The Participant agrees that during the Restricted Period, the Participant will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Exhibit B, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Participant agrees that during the Restricted Period, the Participant will not provide information about the Company or any of its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Participant shall give notice to the Company of each new business activity he or she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Participant’s business relationship(s) and position(s) with such Person. The Participant shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Participant’s continued compliance with his or her obligations under this Exhibit B.
2.Confidentiality and Related Matters.
The Participant acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Participant may have developed or had access to Confidential Information through his or her Employment and other associations with the Company and its Affiliates. The Participant agrees that he or she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Participant shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Participant understands and agrees that this restriction is in addition to any restrictions to which he or she is bound as a result of his or her prior Employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company. The Participant shall return to the Company no later than the date on which his or her Employment terminates, and at such
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earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Participant’s possession or control.
During Employment and thereafter, the Participant shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.~~Assignment of Rights to Intellectual Property.~~ ~~~~ The Participant shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Participant hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Participant’s full right, title and interest in and to all Intellectual Property. The Participant agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Participant creates in the performance of his or her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.~~Enforcement of Covenants.~~ ~~~~ The Participant acknowledges that he or she has carefully read and considered all the terms and conditions of the Performance Stock Unit Agreement, including the restraints imposed upon him or her pursuant to this Exhibit B. The Participant agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him or her from obtaining other suitable employment during the period in which the Participant is bound by these restraints. The Participant further agrees that he or she will never assert, or permit to be asserted on his or her behalf, in any forum, any position contrary to the foregoing. The Participant further acknowledges that, were he or she to breach any of the covenants contained in this Exhibit B, the damage to the Company would be irreparable. The Participant therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Participant of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Exhibit B shall be tolled, and shall not run, during any period the Participant is in breach thereof. The parties further agree that, in the event that any provision of this Exhibit B shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
5.~~Definitions.~~ For purposes of this Exhibit B, the following definitions shall apply. To the extent a term is capitalized and not defined in this Exhibit B, such term shall have the
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meaning as ascribed to such term in the Performance Stock Unit Agreement or the Plan, as applicable.
a.“Affiliate” shall mean, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
b.“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
c.“~~Intellectual Property~~” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Participant (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Participant’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
d.“Person” shall mean any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
e.“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Participant’s Employment.
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sky-ex1012_156.htm
| Exhibit 10.12 |
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EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made and entered into as of the 1^st^ day of June 2019 (the “Effective Date”) by and between Champion Home Builders, Inc. (the “Company”) and Mark J. Yost (the “Executive”).
WHEREAS, the Executive is possessed of certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Company, and its parent company, Skyline Champion Corporation (“Skyline”), therefore wishes to employ the Executive as its President and Chief Executive Officer and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree:
| 1. | Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers, and the Executive hereby accepts, employment. |
|---|---|
| 2. | Term. The Executive’s employment hereunder shall continue until terminated in accordance with Section 5 hereof. Such period is hereafter referred to as the “Term.” |
| --- | --- |
| 3. | Capacity and Performance. |
| --- | --- |
(a)During the Term, the Executive shall serve the Company and Skyline as its President and Chief Executive Officer.
(b)During the Term, the Executive shall be employed by the Company on a full-time basis and shall perform the duties and responsibilities of his position, and such other duties and responsibilities on behalf of the Company and its Affiliates as reasonably may be designated from time to time by the Board of Directors of Skyline Champion Corporation (the “Board”).
(c)During the Term, the Executive shall devote his business time and his best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates. The Executive should not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement that would restrict his ability to advance
| Exhibit 10.12 |
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the business. After a period of two years from the Effective Date, the Executive is eligible and encouraged to participate as a board member of an independent company.
| 4. | Compensation and Benefits. As compensation for all services performed by the Executive during the Term and subject to the Executive’s performance of his duties and obligations to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall provide the Executive with the following compensation and benefits: |
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(a)Base Salary. During the Term, the Company shall pay the Executive a base salary at the rate of Six Hundred Thousand Dollars ($600,000) per annum, payable in accordance with the payroll practices of the Company and subject to increases from time to time by the Board in the Board’s sole discretion (such base salary, as from time to time increased, the “Base Salary”). Each fiscal year, the Board shall conduct a review of the Executive’s compensation to determine appropriate increases as the Board determines to be reasonable. The review shall include consideration of the Executive’s individual performance and the level of compensation paid to the chief executive officers of peer companies. Each fiscal year the Board shall retain a compensation consultant to deliver a report to the Board for the Board to use in its review of the Executive and his direct reports; and acted upon no later than the twelve-month anniversary of the Effective Date each fiscal year. The report will provide an analysis of how the Executive’s current Base Salary, Target Bonus (as defined below) and Equity Incentives (as described in Section 4 (c) below) compare to similarly situated executives at peer companies, as determined by the consultant when taking into consideration factors such as financial performance, profitability, market capitalization and other customary factors.
(b)Annual Bonus. For each fiscal year completed during the Term (including, for the avoidance of doubt, the 2020 fiscal year), the Executive shall be eligible to participate in an annual bonus plan. The Executive’s annual target bonus shall be one hundred percent (100%) of the Base Salary (the “Target Bonus”), with a maximum annual bonus of two hundred (200%) of the Base Salary, with the actual amount of his bonus, if any, to be determined by the Board, in accordance with the Executive’s performance against performance objectives for Executive and for the Company set by the Board. Other than provided for in Sections 5(a), 5(b), 5(d) and 5(e), the Executive, in order to be eligible to earn an annual bonus for any fiscal year occurring during the Term hereof, must be employed on the date payment of annual bonuses for that fiscal year is made to Company executives generally.
(c)Equity Incentive. During the Term, the Executive shall be eligible to participate in the Company’s long-term incentive plan (“LTIP”) as defined and determined by the Board and approved during the 2018 Annual Shareholders Meeting or similar such plans as designed by Board. The Executive’s annual target LTIP award shall be two hundred and twenty-five (225%) of the Base Salary (the “Target LTIP”), with the actual amount of his LTIP, if any, to be determined by the Board, in accordance with the Executive’s performance against performance objectives for Executive and for the Company set by the Board and as defined in the Company’s LTIP. Other than as provided for in specific LTIP award agreements for each individual LTIP award, the Executive, in order to be eligible to earn an
| Exhibit 10.12 |
|---|
annual award for any fiscal year occurring during the Term hereof, must be employed on the date payment of such award is made to Company executives generally. Additionally, the Executive will be granted a one-time equity grant in the amount of 15,900 shares of restricted stock units that vest pro-ratably on each of the first three anniversaries of the Effective Date.
(d)Vacations. During the Term, the Executive shall be entitled to earn vacation at the rate of five (5) weeks per year, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company.
(e)Other Benefits. During the term hereof, the Executive shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, except to the extent otherwise agreed herein. Such participation shall be subject to the terms of the applicable plan documents and generally applicable Company policies. Except as otherwise provided in any plan or agreement or as prohibited by law, the Company may alter, modify, add to or terminate its employee benefit plans at any time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive.
(f)Business Expenses and In-Kind Benefits. The Company shall pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. Any reimbursement of expenses or the provision of any in-kind benefits that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (along with the rules and regulations thereunder, “Section 409A”), shall be subject to the following additional rules: (A) no reimbursement of any such expense or provision of any in-kind benefit, shall affect the Executive’s right to reimbursement of any other such expense, or the provision of any other in-kind benefit, in any other taxable year; (B) reimbursement of the expense shall be made, if at all, not later than seventy-five (75) days following the end of the fiscal year in which the expense was incurred; and (C) the right to receive reimbursements or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
| 5. | Termination of Employment and Severance Benefits. The Executive’s employment hereunder shall terminate under the circumstances specified in this Section 5. The effective date of any such termination of employment is hereinafter referred to as the “Termination Date”. |
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(a)Death. In the event of the Executive’s death during the Term, the Executive’s employment hereunder shall immediately and automatically terminate. In such event, the Executive’s estate shall be entitled to receive: (i) (A) any Base Salary and any Annual Bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally, including pay for any
| Exhibit 10.12 |
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vacation time earned but not used through the date of termination, payable in accordance with the Company’s regular payroll practices on the Company’s next regular pay date following the Termination Date (or earlier, if so required by applicable law) and (B) any business expenses incurred by the Executive but un-reimbursed on the date of termination, provided that such expenses and required substantiation and documentation are submitted within sixty (60) days of termination, that such expenses are reimbursable under Company policy, and that any such expenses subject to the last sentence of Section 4(f) shall be paid not later than the deadline specified therein (all of the foregoing, subject to the timing of payment rules therein, “Final Compensation”) and (ii) a prorated Annual Bonus for the fiscal year in which termination occurs, calculated in the same manner and paid at the same time as bonuses payable to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date. The Company shall have no further obligation to the Executive hereunder.
| (b) | Disability. |
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(i)The Company may terminate the Executive’s employment hereunder, upon notice to the Executive, in the event that the Executive becomes Disabled as defined in Section 409A during his employment hereunder. In the event of such termination, the Company shall have no further obligation to the Executive, other than for payment of (A) Final Compensation, and (B) a prorated Annual Bonus for the fiscal year in which termination occurs, calculated in the same manner and paid at the same time as bonuses payable to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date.
(ii)The Board may designate another employee to act in the Executive’s place during any period of the Executive’s disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4(a) and benefits in accordance with Section 4(e), to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for long-term disability income benefits under the Company’s long-term disability income plan or until the termination of his employment, whichever shall first occur. Notwithstanding anything in this Section 5(b)(ii) to the contrary, and for the avoidance of doubt, the combination of Base Salary and short-term disability income benefits (if any) during the period of Executive’s disability shall not exceed the amount of compensation and benefits that the Executive would have received during such period had the Executive been actively at work during such period.
(iii)While receiving long-term disability income payments under
| Exhibit 10.12 |
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the Company’s long-term disability income plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a) hereof, but shall continue to participate in Company benefit plans in accordance with Section 4(e) and subject to the terms of such plans, until the termination of his employment.
(iv)If any question shall arise as to whether during any period the Executive is Disabled, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or his duly appointed guardian, if any, has no reasonable objection so as to determine whether the Executive is Disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s determination of the issue shall be binding on the Executive.
(c)By the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination:
(i)refusal or failure to perform (other than by reason of disability), or material negligence in the performance of the Executive’s duties and responsibilities to the Company or its Affiliates, which refusal or failure to perform or material negligence is not cured within 30 days after written notice from the Company or such Affiliates;
(ii)commission of, indictment for, conviction of or plea of guilty or nolo contendere to a felony or any crime involving moral turpitude, fraud, embezzlement or theft;
(iii)breach of fiduciary duties (including a violation of the Company’s or any of its Affiliate’s code of ethics) on the part of the Executive;
(iv)gross negligence or willful misconduct in the performance of employment, which negligence or misconduct is not cured within 30 days after written notice from the Company, and which willful act or misconduct could reasonably be expected to be injurious to the financial condition or business reputation of the Company or any of its Affiliates;
(v)the material breach by Executive of any provision of any agreement to which such Executive and the Company or any or its Affiliates are party which is not cured within the applicable period provided for in such agreement; or
(vi)breach by the Executive of the terms of Schedule 1 to this Agreement (the “Restrictive Covenants”).
| Exhibit 10.12 |
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Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the Company shall have no further obligation to the Executive, other than for his Final Compensation.
| (d) | By the Company Other than for Cause. |
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(i)The Company may terminate the Executive’s employment hereunder other than for Cause at any time upon written notice to the Executive.
(ii)In the event of the Executive’s Separation from Service (as defined below) pursuant to this Section 5(d), in addition to Final Compensation, the Executive will be entitled to the following payments and benefits, provided that the Executive satisfies all conditions to such entitlement, including without limitation, continued compliance with the Restrictive Covenants and signing and returning to the Company a timely and effective Employee Release in accordance with subsection (iii) below:
| (A) | For the period of the twenty-four (24) months following the Termination Date (the “Termination Period”), the Company shall continue to pay the Executive the Base Salary and Annual Bonus at Target Bonus at the rate in effect on the Termination Date, and, subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans at the same rate as is in effect for active employees of the Company (the “Company’s Contribution Amount”), provided that the Executive is entitled to continue such participation under applicable laws and plan terms. If Executive is not permitted to continue such participation, then Company shall pay to medical and dental insurance providers designated by Employee the Company’s Contribution Amount during the Termination Period. |
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| (B) | Executive shall be paid any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs and the prorated amount of annual bonus awarded in the current year, but unpaid on the Termination Date. Such bonus shall be payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of Termination Date. |
| --- | --- |
| Exhibit 10.12 | |
| --- |
(iii)Any obligation of the Company to the Executive hereunder, other than for his Final Compensation, is conditioned, however, on the Executive’s timely and effective execution of the form of release included with this Agreement as Exhibit A, by the deadline specified therein (any such release submitted by such deadline, the “Employee Release”) and delivering it to the Company not later than the deadline specified therein, which shall not be later than the sixtieth (60th) calendar day following the date of his Separation from Service. Subject to Section 5(g) below, severance pay to which the Executive is entitled hereunder shall be payable in accordance with the normal payroll practices of the Company, with the first payment, which shall be retroactive to the day immediately following the Termination Date, being due and payable on the Company’s next regular payday for executives that follows the expiration of sixty (60) calendar days from the Termination Date. The Release of Claims required for separation benefits in accordance with this Section 5(d) or Section 5(e) creates legally binding obligations on the part of the Executive and the Company therefore advises the Executive to seek the advice of an attorney before signing it.
| (e) | By the Executive for Good Reason. |
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(i)The Executive may terminate his employment hereunder for Good Reason by providing notice to the Company specifying in reasonable detail the condition giving rise to the Good Reason no later than thirty (30) days following the occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy the condition and so specifying in the notice and (C) by terminating his employment for Good Reason within thirty (30) days following the expiration of the period to remedy if the Company fails to remedy the condition.
(ii)For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following conditions without the Executive’s consent: (A) a material adverse change in the Executive’s responsibilities, duties and/or authority; (B) a material diminution in the Base Salary, (C) a change in Executive’s principal work location which is more than fifty (50) miles from Executive’s principal work location as of the Effective Date; (D) a breach by the Company of any material provision of this Agreement; or (E) in the event of an asset sale of the Company, the failure of any successor to the Company to expressly assume the Company’s obligations under this Agreement; provided, that, for the avoidance of doubt, Executive’s business related travel to Company locations outside of the Executive’s principal work location as of the Effective Date shall not constitute, or provide the basis for, Good Reason.
(iii)In the event of a Separation from Service in accordance with this Section 5(e), and provided that no benefits are payable to the Executive under a separate severance agreement or an executive severance plan as a result of such termination or, if any such benefits are payable, that the Executive waives his rights thereto, then, in addition to Final Compensation, the Executive will be entitled to the
| Exhibit 10.12 |
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severance benefits provided in Section 5(d)(ii) above; provided that the Executive satisfies all conditions to such entitlement, including without limitation the signing and return to the Company of a timely and effective Employee Release in accordance with Section 5(d)(iii) above.
(f)By the Executive Other than for Good Reason. The Executive may terminate his employment hereunder at any time upon thirty (30) days’ notice to the Company. In the event of the Executive’s termination of employment pursuant to this Section 5(f), the Company may elect to waive all or any part of the period of notice, and, if the Company so elects, the Company will pay the Executive his Base Salary for the portion of the notice period so waived. The Company shall have no further obligation to the Executive, other than for his Final Compensation.
(g)Timing of Payments; Definition of “Separation from Service.” If at the time of the Executive’s Separation from Service the Executive is a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such Separation from Service that constitute deferred compensation subject to Section 409A, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six months following such Separation from Service, shall instead be paid on the date that follows the date of such Separation from Service by six (6) months. For purposes of this Agreement, “Separation from Service” (and correlative terms such as “Separate from Service”) shall mean a “separation from service” as defined in Treas. Regs. § 1.409A-1(h), and the term “specified employee” shall mean an individual determined by the Company to be a specified employee under Treas. Regs. § 1.409A-1(i).
| 6. | Effect of Termination. The provisions of this Section 6 shall apply to any termination of the Executive’s employment hereunder. |
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(a)Other than as described in Sections 5(d) and 5(e), above, payment by the Company of any Base Salary and contributions to the cost of the Executive’s continued participation in the Company’s group health and dental plans that may be due the Executive shall constitute the entire obligation of the Company to the Executive. Other than as described in Section 5(d)(ii), above, medical, dental and other benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the Executive’s Separation from Service without regard to any continuation of Base Salary or other payment to the Executive following such Separation from Service, except for any right of the Executive to continue participation pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or other applicable law.
(b)Provisions of this Agreement shall survive any Separation from Service if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of the Executive under Section 7 hereof and the Restrictive Covenants. The obligation of the Company to make payments to or on behalf of the Executive under Section 5(d), 5(e) hereof is expressly conditioned upon the Executive’s continued full performance of his obligations under the Restrictive Covenants.
| Exhibit 10.12 |
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The Executive recognizes that, except as expressly provided in Section 5(d) or 5(e), no compensation is earned after the Termination Date. The Executive’s right to receive and retain the payments provided under Section 5(d) or 5(e) hereof (other than for his Final Compensation) are expressly conditioned on his continued compliance with his obligations under the Restrictive Covenants and Section 7 hereof.
| 7. | Non-Disparagement. The Executive shall not make or induce other persons or entities to make any negative statements about the Company, its Affiliates, employees, past or current partners and shareholders, past or present officers, directors, managers, 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 taken in connection with such proceedings) shall not be subject to this Section 7. |
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| 8. | Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. |
| --- | --- |
| 9. | Covenants Regarding Competition, Solicitation and Confidentiality. The Executive agrees that some restrictions on his activities during and after his employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates. |
| --- | --- |
(a)~~Non-compete~~~~.~~ ~~~~ ~~~~ During employment and for twenty-four (24) months after termination of the Executive’s employment for whatever reason (the “~~Restricted Period~~”), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States or Canada. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Executive’s employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Executive has provided services, as conducted or in planning during his employment. For the purposes of this Agreement, the business of the Company and its Affiliates shall be defined to include all Products and the Executive’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Executive’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
| Exhibit 10.12 |
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The Executive agrees that, during employment, he will limit his outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his duties and obligations to the Company or any of its Affiliates.
(b)Non-Solicit. The Executive agrees that, during the Restricted Period, the Executive will not directly or indirectly (i) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (ii) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement.
The Executive agrees that during the Restricted Period, the Executive will not, and will not assist any other Person to, (Y) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (Z) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Agreement, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
(c)Until forty-five (45) days after the conclusion of the Restricted Period, the Executive shall give notice to the Company of each new business activity he plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Executive’s business relationship(s) and position(s) with such Person. The Executive shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Executive’s continued compliance with his obligations under this Agreement.
(d)Confidentiality and Related Matters. The Executive acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Executive may have developed or had access to Confidential Information through his employment and other associations with the Company and its Affiliates. The Executive agrees that he shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Executive shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Executive
| Exhibit 10.12 |
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understands and agrees that this restriction is in addition to any restrictions to which he is bound as a result of his prior employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company. The Executive shall return to the Company no later than the date on which his employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Executive’s possession or control.
(e)Assignment of Rights to Intellectual Property. The Executive shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive’s full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Executive creates in the performance of his services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
(f)Enforcement of Covenants. The Executive acknowledges that he has carefully read and considered all the terms and conditions of the Agreement, including the restraints imposed upon him pursuant to this Agreement. The Executive agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him from obtaining other suitable employment during the period in which the Executive is bound by these restraints. The Executive further agrees that he will never assert, or permit to be asserted on his behalf, in any forum, any position contrary to the foregoing. The Executive further acknowledges that, were he to breach any of the covenants contained in this Agreement, the damage to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Agreement shall be tolled, and shall not run, during any period the Executive is in breach thereof. The parties further agree that, in the event that any provision of this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be
| Exhibit 10.12 |
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deemed to be modified to permit its enforcement to the maximum extent permitted by law.
| 10. | Indemnification. The Company and the Executive shall, simultaneous with the execution of this Agreement, enter into a directors and officers indemnification agreement substantially in the form attached hereto as Exhibit B, which shall provide coverage to the Executive effective as of the Effective Date. |
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| 11. | Assignment. Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. |
| --- | --- |
| 12. | Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. |
| --- | --- |
| 13. | Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. |
| --- | --- |
| 14. | Notices. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Chair of the Board, or to such other address as either party may specify by notice to the other actually received. |
| --- | --- |
| 15. | Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive’s employment. |
| --- | --- |
| 16. | Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company. |
| --- | --- |
| Exhibit 10.12 | |
| --- | |
| 17. | Headings. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. |
| --- | --- |
| 18. | Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. |
| --- | --- |
| 19. | Governing Law. This is a Michigan contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Michigan without regard to the conflict of laws principles thereof. |
| --- | --- |
| 20. | Definitions. The following terms shall have the following meanings for purposes of this Agreement. |
| --- | --- |
(a)“Affiliate” means, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
(b)“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
(c)“~~Intellectual Property~~” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Executive’s employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
| Exhibit 10.12 |
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(d)“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
(e)“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Executive’s employment.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first written above.
| SKYLINE CHAMPION CORPORATION | MARK J. YOST |
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| _________________________________ | _______________________________ |
| --- | --- |
Timothy J. Bernlohr
Chairman
14
sky-ex1013_17.htm
Exhibit 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made and entered into as of the 4th day of June, 2018 (the “Effective Date”) by and between Champion Home Builders, Inc. (the “Company”) and Laurie Hough (the “Executive”).
WHEREAS, the Executive is possessed of certain experience and expertise that qualify her to provide the direction and leadership required by the Company and its Affiliates; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to employ the Executive as its Senior Vice President and Chief Financial Officer and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree:
1.Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers, and the Executive hereby accepts, employment.
2.Term. The Executive’s employment hereunder shall continue until terminated in accordance with Section 5 hereof. Such period is hereafter referred to as the “Term.”
3.Capacity and Performance.
(a)During the Term, the Executive shall serve the Company as its Senior Vice President and Chief Financial Officer.
(b)During the Term, the Executive shall be employed by the Company on a full-time basis and shall perform the duties and responsibilities of her position, and such other duties and responsibilities on behalf of the Company and its Affiliates as reasonably may be designated from time to time by the Chief Executive Officer of the Company (the “CEO”) or the Board of Directors of Skyline Champion Corporation (the “Board”).
(c)During the Term, the Executive shall devote her full business time and her best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates and to the discharge of her duties and responsibilities hereunder. The Executive shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement, except as may be expressly approved in advance by the CEO in writing.
4.Compensation and Benefits. As compensation for all services performed by the Executive during the Term and subject to the Executive’s performance of her duties and obligations to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall provide the Executive with the following compensation and benefits:
(a)Base Salary. During the Term, the Company shall pay the Executive a base salary at the rate of Three Hundred and Seventy-Five Thousand Dollars ($375,000) per annum, payable in accordance with the payroll practices of the Company and subject to increases from time to time by the Board, in consultation with the CEO, in the Board’s sole discretion (such base salary, as from time to time increased, the “Base Salary”). The Board, in consultation with the CEO, shall review the Base Salary and Target Bonus (as defined below) at least once during each fiscal year during the Term, in light of factors including the Company’s performance and profitability, the individual performance of the Executive, compensation for similarly situated executives at peer companies, and such other metrics as it deems reasonable and appropriate, in its sole discretion.
(b)Annual Bonus. For each fiscal year completed during the Term (including, for the avoidance of doubt, the 2019 fiscal year), the Executive shall be eligible to participate in such annual bonus plan as may be established by the Company for its executives generally, as in effect from time to time. The Executive’s annual target bonus shall be seventy- five percent (75%) of the Base Salary (the “Target Bonus”), with a maximum annual bonus of one hundred and fifty percent (150%) of the Base Salary, with the actual amount of her bonus, if any, to be determined by the Board, in consultation with the CEO, in accordance with the Executive’s performance against performance objectives for Executive and for the Company set by the Board in consultation with the CEO. Other than provided for in Sections 5(a), 5(b), 5(d) and 5(e), the Executive, in order to be eligible to earn an annual bonus for any fiscal year occurring during the Term hereof, must be employed on the date payment of annual bonuses for that fiscal year is made to Company executives generally.
(c)Equity Incentive. Champion Enterprises Holdings, LLC and the Executive have entered into that certain Champion Enterprises Holdings, LLC Amended and Restated Officer Class C Unit Award Agreement and the Stock Restriction Agreement attached thereto as Appendix 1, which shall govern the terms and conditions of the “Restricted Shares” set forth therein.
(d)Vacations. During the Term, the Executive shall be entitled to earn vacation at the rate of four (4) weeks per year, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company. Vacation shall otherwise be governed by the policies of the Company, as in effect from time to time.
(e)Other Benefits. During the term hereof, the Executive shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, except to the extent any such employee benefit plan is in a category of benefit otherwise provided to the Executive (e.g., a severance pay plan). Such participation shall be subject to the terms of the applicable plan documents and generally applicable Company policies. Except as otherwise provided in any plan or agreement or as prohibited by law, the Company may alter, modify, add to or terminate its employee benefit plans at any time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive.
(f)Business Expenses and In-Kind Benefits. The Company shall pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of her duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. Any reimbursement of expenses or the provision of any in-kind benefits that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (along with the rules and regulations thereunder, “Section 409A”), shall be subject to the following additional rules: (A) no reimbursement of any such expense, or provision of any in-kind benefit, shall affect the Executive’s right to reimbursement of any other such expense, or the provision of any other in-kind benefit, in any other taxable year; (B) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (C) the right to receive reimbursements or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
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5.Termination of Employment and Severance Benefits. The Executive’s employment hereunder shall terminate under the circumstances specified in this Section 5. The effective date of any such termination of employment is hereinafter referred to as the “Termination Date”.
(a)Death. In the event of the Executive’s death during the Term, the Executive’s employment hereunder shall immediately and automatically terminate. In such event, the Executive’s estate shall be entitled to receive: (i) (A) any Base Salary earned but not paid during the final payroll period of the Executive’s employment through the date of termination, including pay for any vacation time earned but not used through the date of termination, payable in accordance with the Company’s regular payroll practices on the Company’s next regular pay date following the Termination Date (or earlier, if so required by applicable law) and (B) any business expenses incurred by the Executive but un-reimbursed on the date of termination, provided that such expenses and required substantiation and documentation are submitted within sixty (60) days of termination, that such expenses are reimbursable under Company policy, and that any such expenses subject to the last sentence of Section 4(f) shall be paid not later than the deadline specified therein (all of the foregoing, subject to the timing of payment rules therein, “Final Compensation”) and (ii) any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or her estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date. The Company shall have no further obligation to the Executive hereunder.
(b)Disability.
(i)The Company may terminate the Executive’s employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during her employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of her duties and responsibilities hereunder, notwithstanding the provision of any reasonable accommodation, for ninety (90) days during any period of three hundred and sixty-five (365) consecutive calendar days. In the event of such termination, the Company shall have no further obligation to the Executive, other than for payment of (i) Final Compensation and (ii) any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or her estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date.
(ii)The Board may designate another employee to act in the Executive’s place during any period of the Executive’s disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4(a) and benefits in accordance with Section 4(e), to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for long-term disability income benefits under the Company’s long-term disability income plan or until the termination of her employment, whichever shall first occur. Notwithstanding anything in this Section 5(b)(ii) to the contrary, and for the avoidance of doubt, the combination of Base Salary and short-term disability income benefits (if any) during the period of Executive’s disability shall not exceed the amount of compensation and benefits that the Executive would have received during such period had the Executive been actively at work during such period.
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(iii)While receiving long-term disability income payments under the Company’s long-term disability income plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a) hereof, but shall continue to participate in Company benefit plans in accordance with Section 4(e) and subject to the terms of such plans, until the termination of her employment.
(iv)If any question shall arise as to whether during any period the Executive is disabled through any illness, injury, accident or condition of either a physical or psychological nature so as to be unable to perform substantially all of her duties and responsibilities hereunder, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or her duly appointed guardian, if any, has no reasonable objection to determine whether the Executive is so disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s determination of the issue shall be binding on the Executive.
(c)By the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination:
(i)refusal or failure to perform (other than by reason of disability), or material negligence in the performance of the Executive’s duties and responsibilities to the Company or its Affiliates, which refusal or failure to perform or material negligence is not cured within 30 days after written notice from the Company or such Affiliates;
(ii)commission of, indictment for, conviction of or plea of guilty or nolo contendere to a felony or any crime involving moral turpitude, fraud, embezzlement or theft;
(iii)breach of fiduciary duties (including a violation of the Company’s or any of its Affiliate’s code of ethics) on the part of the Executive;
(iv)gross negligence or willful misconduct in the performance of employment, which negligence or misconduct is not cured within 30 days after written notice from the Company, and which willful act or misconduct could reasonably be expected to be injurious to the financial condition or business reputation of the Company or any of its Affiliates;
(v)the material breach by Executive of any provision of any agreement to which such Executive and the Company or any or its Affiliates are party; or
(vi)breach by the Executive of the terms of Schedule 1 to this Agreement (the “Restrictive Covenants”).
Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the Company shall have no further obligation to the Executive, other than for her Final Compensation.
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(d)By the Company Other than for Cause.
(i)The Company may terminate the Executive’s employment hereunder other than for Cause at any time upon written notice to the Executive.
(ii)In the event of the Executive’s Separation from Service pursuant to this Section 5(d), in addition to Final Compensation, the Executive will be entitled to the following payments and benefits, provided that the Executive satisfies all conditions to such entitlement, including without limitation, continued compliance with the Restrictive Covenants and signing and returning to the Company a timely and effective Employee Release in accordance with subsection (iii) below:
| (A) | Until the conclusion of a period of the twelve (12) months following the Termination Date, the Company shall continue to pay the Executive the Base Salary at the rate in effect on the Termination Date, and, subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans at the same rate as is in effect for active employees of the Company, provided that the Executive is entitled to continue such participation under applicable laws and plan terms. |
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| (B) | Executive shall be paid any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date. Such bonus shall be payable in the year of the Termination Date at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or her estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of Termination Date. |
| --- | --- |
(iii)Any obligation of the Company to the Executive hereunder, other than for her Final Compensation, is conditioned, however, on the Executive’s timely and effective execution of the form of release included with this Agreement as Exhibit A, by the deadline specified therein (any such release submitted by such deadline, the “Employee Release”) and delivering it to the Company not later than the deadline specified therein, which shall not be later than the sixtieth (60th) calendar day following the date of her Separation from Service. Subject to Section 5(g) below, severance pay to which the Executive is entitled hereunder shall be payable in accordance with the normal payroll practices of the Company, with the first payment, which shall be retroactive to the day immediately following the Termination Date, being due and payable on the Company’s next regular payday for executives that follows the expiration of sixty (60) calendar days from the Termination Date. The Release of Claims required for separation benefits in accordance with this Section 5(d) or Section 5(e) creates legally binding obligations on the part of the Executive and the Company therefore advises the Executive to seek the advice of an attorney before signing it.
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(e)By the Executive for Good Reason.
(i)The Executive may terminate her employment hereunder for Good Reason (A) by providing notice to the Company specifying in reasonable detail the condition giving rise to the Good Reason no later than thirty (30) days following the occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy the condition and so specifying in the notice and (C) by terminating her employment for Good Reason within thirty (30) days following the expiration of the period to remedy if the Company fails to remedy the condition.
(ii)For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following conditions without the Executive’s consent: (A) a material adverse change in the Executive’s responsibilities, duties and/or authority that, taken as a whole, constitutes a breach of Section 3(a) hereof and effectively constitutes a demotion; provided, however, that a change in reporting relationships resulting from a reorganization of the Company or from a change in the direct or indirect control of the Company (or a successor corporation) by another corporation and any diminution of the business of the Company or any of its Affiliates or any sale or transfer of equity, property or other assets of the Company or any of their Affiliates shall not constitute “Good Reason,” (B) material diminution in the Base Salary, or (C) a change in Executive’s principal work location which is more than fifty (50) miles from Executive’s principal work location as of the Effective Date; provided, that, for the avoidance of doubt, Executive’s business-related travel to Company locations outside of the Executive’s principal work location as of the Effective Date shall not constitute, or provide the basis for, Good Reason.
(iii)In the event of a Separation from Service in accordance with this Section 5(e), and provided that no benefits are payable to the Executive under a separate severance agreement or an executive severance plan as a result of such termination or, if any such benefits are payable, that the Executive waives her rights thereto, then, in addition to Final Compensation, the Executive will be entitled to the severance benefits provided in Section 5(d)(ii) above; provided that the Executive satisfies all conditions to such entitlement, including without limitation the signing and return to the Company of a timely and effective Employee Release in accordance with Section 5(d)(iii) above.
(f)By the Executive Other than for Good Reason. The Executive may terminate her employment hereunder at any time upon thirty (30) days’ notice to the Company. In the event of the Executive’s termination of employment pursuant to this Section 5(f), the Company may elect to waive all or any part of the period of notice, and, if the Company so elects, the Company will pay the Executive her Base Salary for portion of the notice period so waived. The Company shall have no further obligation to the Executive, other than for her Final Compensation.
(g)Timing of Payments; Definition of “Separation from Service.” If at the time of the Executive’s Separation from Service the Executive is a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such Separation from Service that constitute deferred compensation subject to Section 409A, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six months following such Separation from Service, shall instead be paid on the date that follows the date of such Separation from Service by six (6) months. For purposes of this Agreement, “Separation from Service” (and correlative terms such as “Separate from Service”) shall mean a “separation from service” as defined in Treas. Regs. § 1.409A-1(h), and the term “specified employee” shall mean an individual determined by the Company to be a specified employee under Treas. Regs. § 1.409A-1(i).
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6.Effect of Termination. The provisions of this Section 6 shall apply to any termination of the Executive’s employment hereunder.
(a)Other than as described in Sections 5(d) and 5(e), above, payment by the Company of any Base Salary and contributions to the cost of the Executive’s continued participation in the Company’s group health and dental plans that may be due the Executive shall constitute the entire obligation of the Company to the Executive. Other than as described in Section 5(d)(ii), above, medical, dental and other benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the Executive’s Separation from Service without regard to any continuation of Base Salary or other payment to the Executive following such Separation from Service, except for any right of the Executive to continue participation pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or other applicable law.
(b)Provisions of this Agreement shall survive any Separation from Service if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of the Executive under Section 7 hereof and the Restrictive Covenants. The obligation of the Company to make payments to or on behalf of the Executive under Section 5(d), 5(e) hereof is expressly conditioned upon the Executive’s continued full performance of her obligations under the Restrictive Covenants. The Executive recognizes that, except as expressly provided in Section 5(d) or 5(e), no compensation is earned after the Termination Date. The Executive’s right to receive and retain the payments provided under Section 5(d) or 5(e) hereof (other than for her Final Compensation) are expressly conditioned on her continued compliance with her obligations under the Restrictive Covenants and Section 7 hereof.
7.Non-Disparagement. The Executive shall not make or induce other persons or entities to make any negative statements about the Company, its Affiliates, employees, past or current partners and shareholders, past or present officers, directors, managers, 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 taken in connection with such proceedings) shall not be subject to this Section 7.
8.Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.
9.Indemnification. The Company and the Executive shall, simultaneous with the execution of this Agreement, enter into a directors and officers indemnification agreement substantially in the form attached hereto as Exhibit B, which shall provide coverage to the Executive effective as of the closing of the transactions contemplated by that certain Share Contribution & Exchange Agreement by and among Skyline Corporation and Champion Enterprises Holdings, LLC, made and entered into as of January 5, 2018.
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10.Assignment. Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive in the event that the Executive is transferred to a position with any of the Affiliates, or in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any Person or transfer all or substantially all of its properties or assets to any Person. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns.
11.Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
12.Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
13.Notices. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at her last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Chair of the Board, or to such other address as either party may specify by notice to the other actually received.
14.Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive’s employment.
15.Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company.
16.Headings. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.
17.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.
18.Governing Law. This is a Michigan contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Michigan without regard to the conflict of laws principles thereof.
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19.Definitions. The following terms shall have the following meanings for purposes of this Agreement.
(a)“Affiliate” means, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
(b)“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
[Signature page follows immediately.]
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written.
| THE EXECUTI VE: | THE COMPANY | |
|---|---|---|
 |
By: | |
| Title: | Senior Vice President and General Counsel |
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its du Iy authorized representative, and by the Executive, as of the date first above written.
| THE EXECUTIVE: | THE COMPAN Y | |
|---|---|---|
| By: |  |
|
| Title: | Senior Vice President and General Counsel |
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Schedule 1
Covenants Regarding Competition, Solicitation and Confidentiality Restricted Activities
The Executive agrees that some restrictions on her activities during and after her service relationship with the Company are necessary to protect the good will, Confidential Information and other legitimate interests of the Company and its Affiliates.
1.Non-compete, Non-solicitation, Non-disclosure. During Employment and for eighteen (18) months after the Executive terminates Employment (the “Restricted Period”), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States, the United Kingdom or Canada. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Executive’s Employment by the Company, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Executive has provided services, as conducted or in planning during her Employment. For the purposes of this Schedule 1, the business of the Company and its Affiliates shall be defined to include all Products and the Executive’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Executive’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Executive agrees that, during Employment, she will limit her outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with her duties and obligations to the Company or any of its Affiliates.
The Executive agrees that, during the Restricted Period, the Executive will not directly or indirectly (a) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (b) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of the Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement, and (z) only if the Executive has performed work for such Person during her Employment with the Company or been introduced to, or otherwise had contact with, such Person as a result of her employment or her consultancy with the Company or one of its
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Affiliates or has had access to Confidential Information which would assist in the Executive’s solicitation of such Person.
The Executive agrees that during the Restricted Period, the Executive will not, and will not assist any other Person to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Schedule 1, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
The Executive agrees that during the Restricted Period, the Executive will not provide information about the Company, its Affiliates, their business or the industries in which they are engaged to any Person (including without limitation, any organization), whether as an employee, an independent contractor or otherwise, without the advance written consent of the Company, except disclosure that is required by law.
Until forty-five (45) days after the conclusion of the Restricted Period, the Executive shall give notice to the Company of each new business activity she plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Executive’s business relationship(s) and position(s) with such Person. The Executive shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Executive’s continued compliance with her obligations under this Schedule 1.
2.Confidentiality and Related Matters. The Executive acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Executive may have developed or had access to Confidential Information through her employment and other associations with the Company and its Affiliates. The Executive agrees that she shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Executive shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Executive understands and agrees that this restriction is in addition to any restrictions to which she is bound as a result of her prior employment with the Company and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during Employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company. The Executive shall return to the Company no later than the date on which her Employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Executive’s possession or control.
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During Employment and thereafter, the Executive shall not give any statement or make any announcement, directly or indirectly, orally or in writing, publicly or to the media (electronic, print or otherwise) about the Company or any of its Affiliates, without the prior written consent of the Board or its expressly authorized representative.
3.Assignment of Rights to Intellectual Property. The Executive shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive’s full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Executive creates in the performance of her services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
4.Enforcement of Covenants. The Executive acknowledges that she has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed upon her pursuant to this Schedule 1. The Executive agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent her from obtaining other suitable employment during the period in which the Executive is bound by these restraints. The Executive further agrees that she will never assert, or permit to be asserted on her behalf, in any forum, any position contrary to the foregoing. The Executive further acknowledges that, were she to breach any of the covenants contained in this Schedule 1, the damage to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Schedule 1 shall be tolled, and shall not run, during any period the Executive is in breach thereof. The parties further agree that, in the event that any provision of this Schedule 1 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
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5.Definitions. For purposes of this Schedule 1, in addition to the definitions set forth in Employment Agreement by and between the Executive and the Company, effective as of June 4, 2018, the following definitions shall apply.
| (a) | “Confidential Information” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed. |
|---|---|
| (b) | “Employment” means the Executive’s employment or other service relationship with the Company and its Affiliates. If a Executive’s relationship is with an Affiliate and that entity ceases to be an Affiliate, the Executive will be deemed to cease Employment when the entity ceases to be an Affiliate unless the Executive transfers Employment to the Company or its remaining Affiliates. |
| --- | --- |
| (c) | “Intellectual Property” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive’s Employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates. |
| --- | --- |
| (d) | “Products” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Executive’s Employment. |
| --- | --- |
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Execution Version
EXHIBIT A
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the payments to be provided me in connection with the termination of my employment under the applicable provision of Section 5 of the agreement between me and Champion Home Builders, Inc. (the “Company”) dated as of June 4, 2018 (the “Agreement”), which are conditioned on my signing this Release of Claims and to which I am not otherwise entitled, I, on my own behalf and on behalf of my heirs, executors, administrators, beneficiaries, representatives and assigns, and all others connected with or claiming through me, hereby release and forever discharge the Company, its subsidiaries and other Affiliates and all of their respective past, present and future officers, directors, managers, trustees, shareholders, employees, agents, general and limited partners, members, managers, joint venturers, employee benefits plans, representatives, successors and assigns, and all others connected with any of them, both individually and in their official capacities, from any and all causes of action, rights or claims of any type or description, known or unknown, which I have had in the past, now have, or might now have, through the date of my signing of this Release of Claims, in any way resulting from, arising out of or connected with my employment by the Company or any of its subsidiaries or other Affiliates or the termination of that employment or pursuant to any federal, state or local law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the fair employment practices laws of the state or states in which I have been employed by the Company or any of its subsidiaries or other Affiliates, each as amended from time to time).
Excluded from the scope of this Release of Claims is (i) any claim arising under the terms of the Agreement after the effective date of this Release of Claim, (ii) any right of indemnification or contribution that I have pursuant to the Articles of Incorporation and / or By-Laws of the Company or any of its subsidiaries or other Affiliates, (iii) any right of indemnification or contribution that I have pursuant to any Directors & Officers indemnification or ERISA insurance policies secured by the Company or any of its subsidiaries or other Affiliates, (iv) any whistleblower or anti-retaliation law, each as may have been or may be amended, and (v) any other claims which are, by law, not waivable.
In signing this Release of Claims, I acknowledge my understanding that I may not sign it prior to the termination of my employment, but that I may consider the terms of this Release of Claims for up to twenty-one (21) days (or such longer period as the Company may specify) from the later of the date my employment with the Company terminates or the date I receive this Release of Claims, provided that this Release of Claims, signed and dated by me, is received not later than the sixtieth (60th) day following the date my employment with the Company terminated by the person designated under the Agreement to receive notices on behalf of the Company in order for me to qualify for benefits under the applicable provision of Section 5 of the Agreement. I also acknowledge that I am advised by the Company and its subsidiaries and other Affiliates to seek the advice of an attorney prior to signing this Release of Claims; that I have had sufficient time to consider this Release of Claims and to consult with an attorney, if I wished to do so, or to consult with any other person of my choosing before signing; and that I am signing this Release of Claims voluntarily and with a full understanding of its terms.
I further acknowledge that, in signing this Release of Claims, I have not relied on any promises or representations, express or implied, that are not set forth expressly in the Agreement. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the person designated under the Agreement to receive notices on behalf of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it.
Intending to be legally bound, I have signed this Release of Claims under seal as of the date written below.
| Signature: |
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| Name (please print): |
| Date Signed: |
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EXHIBIT B
INDEMNIFICATION AGREEMENT
sky-ex1014_154.htm
| Exhibit 10.14 |
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EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made and entered into as of the 17th^t^ day of June 2019 (the “Effective Date”) by and between Champion Home Builders, Inc. (the “Company”) and Robert M. Spence (the “Executive”).
WHEREAS, the Executive is possessed of certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Company, and its parent company, Skyline Champion Corporation (“Skyline”), therefore wishes to employ the Executive as its Senior Vice President, General Counsel and Secretary and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree:
| 1. | Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers, and the Executive hereby accepts, employment. |
|---|---|
| 2. | Term. The Executive’s employment hereunder shall continue until terminated in accordance with Section 5 hereof. Such period is hereafter referred to as the “Term.” |
| --- | --- |
| 3. | Capacity and Performance. |
| --- | --- |
(a)During the Term, the Executive shall serve the Company and Skyline as its Senior Vice President, General Counsel and Secretary.
(b)During the Term, the Executive shall be employed by the Company on a full-time basis and shall perform the duties and responsibilities of his position, and such other duties and responsibilities on behalf of the Company and its Affiliates as reasonably may be designated from time to time by the Board of Directors of Skyline Champion Corporation (the “Board”).
(c)During the Term, the Executive shall devote his business time and his best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates. The Executive should not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement that would restrict his ability to advance the business. The Executive is eligible and encouraged to participate as a board member of one independent company, subject to the consent of the Chief Executive Officer.
| 4. | Compensation and Benefits. As compensation for all services performed by the Executive during the Term and subject to the Executive’s performance of his duties and |
|---|---|
| Exhibit 10.14 | |
| --- | |
| obligations to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall provide the Executive with the following compensation and benefits: | |
| --- |
(a)Base Salary. During the Term, the Company shall pay the Executive a base salary at the rate of Three Hundred Twenty Five Thousand Dollars ($325,000) per annum, payable in accordance with the payroll practices of the Company and subject to increases from time to time by the Board in the Board’s sole discretion (such base salary, as from time to time increased, the “Base Salary”). Each fiscal year, the Board, in consultation with the CEO, shall conduct a review of the Executive’s compensation to determine appropriate increases as the Board determines to be reasonable. The review shall include consideration of the Executive’s individual performance and the level of compensation paid to the general counsel of peer companies.
(b)Annual Bonus. For each fiscal year completed during the Term (including, for the avoidance of doubt, the 2020 fiscal year), the Executive shall be eligible to participate in an annual bonus plan. The Executive’s annual target bonus shall be seventy-five percent (75%) of the Base Salary (the “Target Bonus”), with a maximum annual bonus of one hundred fifty (150%) of the Base Salary, with the actual amount of his bonus, if any, to be determined by the Board, in consultation with the CEO, in accordance with the Executive’s performance against performance objectives the for Executive and for the Company set by the Board, in consultation with the CEO. Other than provided for in Sections 5(a), 5(b), 5(d) and 5(e), the Executive, in order to be eligible to earn an annual bonus for any fiscal year occurring during the Term hereof, must be employed on the date payment of annual bonuses for that fiscal year is made to Company executives generally.
(c)Equity Incentive. During the Term, the Executive shall be eligible to participate in the Company’s long-term incentive plan (“LTIP”) as defined and determined by the Board and approved during the 2018 Annual Shareholders Meeting or similar such plans as designed by Board. The Executive’s annual target LTIP award shall be one hundred percent (100%) of the Base Salary (the “Target LTIP”), with the actual amount of his LTIP, if any, to be determined by the Board, in accordance with the Executive’s performance against performance objectives for Executive and for the Company set by the Board and as defined in the Company’s LTIP. Other than as provided for in specific LTIP award agreements for each individual LTIP award, the Executive, in order to be eligible to earn an annual award for any fiscal year occurring during the Term hereof, must be employed on the date payment of such award is made to Company executives generally. Additionally, the Executive’s first equity grant will have a vesting date of the Effective Date.
(d)Vacations. During the Term, the Executive shall be entitled to earn vacation at the rate of four (4) weeks per year, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company. Vacation shall otherwise be governed by the policies of the Company, as in effect from time to time.
(e)Other Benefits. During the term hereof, the Executive shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, except to the extent otherwise agreed herein. Such participation
| Exhibit 10.14 |
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shall be subject to the terms of the applicable plan documents and generally applicable Company policies. Except as otherwise provided in any plan or agreement or as prohibited by law, the Company may alter, modify, add to or terminate its employee benefit plans at any time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive. Notwithstanding any employee benefit plan document relating to the purchase of a home from the Company, the Executive shall be entitled to obtain a discount on the purchase of home from the Company as of the Effective Date, in accordance with the discount generally available to Company employees.
(f)Business Expenses and In-Kind Benefits. The Company shall pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. Any reimbursement of expenses or the provision of any in-kind benefits that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (along with the rules and regulations thereunder, “Section 409A”), shall be subject to the following additional rules: (A) no reimbursement of any such expense or provision of any in-kind benefit, shall affect the Executive’s right to reimbursement of any other such expense, or the provision of any other in-kind benefit, in any other taxable year; (B) reimbursement of the expense shall be made, if at all, not later than seventy-five (75) days following the end of the fiscal year in which the expense was incurred; and (C) the right to receive reimbursements or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
| 5. | Termination of Employment and Severance Benefits. The Executive’s employment hereunder shall terminate under the circumstances specified in this Section 5. The effective date of any such termination of employment is hereinafter referred to as the “Termination Date”. |
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(a)Death. In the event of the Executive’s death during the Term, the Executive’s employment hereunder shall immediately and automatically terminate. In such event, the Executive’s estate shall be entitled to receive: (i) (A) any Base Salary earned but not paid during the final payroll period of the Executive’s employment through the date of termination, including pay for any vacation time earned but not used through the date of termination, and any Annual Bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally, and payable in accordance with the Company’s regular payroll practices on the Company’s next regular pay date following the Termination Date (or earlier, if so required by applicable law) and (B) any business expenses incurred by the Executive but un-reimbursed on the date of termination, provided that such expenses and required substantiation and documentation are submitted within sixty (60) days of termination, that such expenses are reimbursable under Company policy, and that any such expenses subject to the last sentence of Section 4(f) shall be paid not later than the deadline specified therein (all of the foregoing, subject to the timing of payment rules therein, “Final Compensation”) and (ii) a prorated Annual Bonus for the fiscal year in which termination occurs, calculated in the same manner and paid at the same
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time as bonuses payable to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date. The Company shall have no further obligation to the Executive hereunder.
| (b) | Disability. |
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(i)The Company may terminate the Executive’s employment hereunder, upon notice to the Executive, in the event that the Executive becomes Disabled as defined in Section 409A during his employment hereunder. In the event of such termination, the Company shall have no further obligation to the Executive, other than for payment of (A) Final Compensation, and (B) a prorated Annual Bonus for the fiscal year in which termination occurs, calculated in the same manner and paid at the same time as bonuses payable to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date.
(ii)The Board may designate another employee to act in the Executive’s place during any period of the Executive’s disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4(a) and benefits in accordance with Section 4(e), to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for long-term disability income benefits under the Company’s long-term disability income plan or until the termination of his employment, whichever shall first occur. Notwithstanding anything in this Section 5(b)(ii) to the contrary, and for the avoidance of doubt, the combination of Base Salary and short-term disability income benefits (if any) during the period of Executive’s disability shall not exceed the amount of compensation and benefits that the Executive would have received during such period had the Executive been actively at work during such period.
(iii)While receiving long-term disability income payments under the Company’s long-term disability income plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a) hereof, but shall continue to participate in Company benefit plans in accordance with Section 4(e) and subject to the terms of such plans, until the termination of his employment.
(iv)If any question shall arise as to whether during any period the Executive is Disabled, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or his duly appointed guardian, if any, has no reasonable objection so as to determine whether the Executive is Disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s
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determination of the issue shall be binding on the Executive.
(c)By the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, in consultation with the CEO, shall constitute Cause for termination:
(i)refusal or failure to perform (other than by reason of disability), or material negligence in the performance of the Executive’s duties and responsibilities to the Company or its Affiliates, which refusal or failure to perform or material negligence is not cured within 30 days after written notice from the Company or such Affiliates;
(ii)commission of, indictment for, conviction of or plea of guilty or nolo contendere to a felony or any crime involving moral turpitude, fraud, embezzlement or theft;
(iii)breach of fiduciary duties (including a violation of the Company’s or any of its Affiliate’s code of ethics) on the part of the Executive;
(iv)gross negligence or willful misconduct in the performance of employment, which negligence or misconduct is not cured within 30 days after written notice from the Company, and which willful act or misconduct could reasonably be expected to be injurious to the financial condition or business reputation of the Company or any of its Affiliates;
(v)the material breach by Executive of any provision of any agreement to which such Executive and the Company or any or its Affiliates are party which is not cured within the applicable period provided for in such agreement; or
(vi)breach by the Executive of the terms of Paragraph 9 herein (the “Restrictive Covenants”).
Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the Company shall have no further obligation to the Executive, other than for his Final Compensation.
| (d) | By the Company Other than for Cause. |
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(i)The Company may terminate the Executive’s employment hereunder other than for Cause at any time upon written notice to the Executive.
(ii)In the event of the Executive’s Separation from Service (as defined below) pursuant to this Section 5(d), in addition to Final Compensation, the Executive will be entitled to the following payments and benefits, provided that the Executive satisfies all conditions to such entitlement, including without limitation, continued compliance with the Restrictive Covenants and signing and returning to the Company a timely and effective Employee Release in accordance with subsection (iii)
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below:
| (A) | For the period of the twelve 12) months following the Termination Date (the “Termination Period”), the Company shall continue to pay the Executive the Base Salary at the rate in effect on the Termination Date, and, subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans at the same rate as is in effect for active employees of the Company (the “Company’s Contribution Amount”), provided that the Executive is entitled to continue such participation under applicable laws and plan terms. If Executive is not permitted to continue such participation, then Company shall pay to medical and dental insurance providers designated by Employee the Company’s Contribution Amount during the Termination Period. |
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| (B) | Executive shall be paid any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date. Such bonus shall be payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of Termination Date. |
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(iii)Any obligation of the Company to the Executive hereunder, other than for his Final Compensation, is conditioned, however, on the Executive’s timely and effective execution of the form of release included with this Agreement as Exhibit A, by the deadline specified therein (any such release submitted by such deadline, the “Employee Release”) and delivering it to the Company not later than the deadline specified therein, which shall not be later than the sixtieth (60th) calendar day following the date of his Separation from Service. Subject to Section 5(g) below, severance pay to which the Executive is entitled hereunder shall be payable in accordance with the normal payroll practices of the Company, with the first payment, which shall be retroactive to the day immediately following the Termination Date, being due and payable on the Company’s next regular payday for executives that follows the expiration of sixty (60) calendar days from the Termination Date. The Release of Claims required for separation benefits in accordance with this Section 5(d) or Section 5(e) creates legally binding obligations on the part of the Executive and the Company therefore advises the Executive to seek the advice of an attorney before signing it.
| (e) | By the Executive for Good Reason. |
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(i)The Executive may terminate his employment hereunder for Good Reason by providing notice to the Company specifying in reasonable detail the
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condition giving rise to the Good Reason no later than thirty (30) days following the occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy the condition and so specifying in the notice and (C) by terminating his employment for Good Reason within thirty (30) days following the expiration of the period to remedy if the Company fails to remedy the condition.
(ii)For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following conditions without the Executive’s consent: (A) a material adverse change in the Executive’s responsibilities, duties and/or authority; (B) a material diminution in the Base Salary, (C) a change in Executive’s principal work location which is more than fifty (50) miles from Executive’s principal work location as of the Effective Date, provided, that, for the avoidance of doubt, Executive’s business related travel to Company locations outside of the Executive’s principal work location as of the Effective Date shall not constitute, or provide the basis for, Good Reason; (D) a breach by the Company of any material provision of this Agreement; or (E) in the event of an asset sale of the Company, the failure of any successor to the Company to expressly assume the Company’s obligations under this Agreement.
(iii)In the event of a Separation from Service in accordance with this Section 5(e), and provided that no benefits are payable to the Executive under a separate severance agreement or an executive severance plan as a result of such termination or, if any such benefits are payable, that the Executive waives his rights thereto, then, in addition to Final Compensation, the Executive will be entitled to the severance benefits provided in Section 5(d)(ii) above; provided that the Executive satisfies all conditions to such entitlement, including without limitation the signing and return to the Company of a timely and effective Employee Release in accordance with Section 5(d)(iii) above.
(f)By the Executive Other than for Good Reason. The Executive may terminate his employment hereunder at any time upon thirty (30) days’ notice to the Company. In the event of the Executive’s termination of employment pursuant to this Section 5(f), the Company may elect to waive all or any part of the period of notice, and, if the Company so elects, the Company will pay the Executive his Base Salary for the portion of the notice period so waived. The Company shall have no further obligation to the Executive, other than for his Final Compensation.
(g)Timing of Payments; Definition of “Separation from Service.” If at the time of the Executive’s Separation from Service the Executive is a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such Separation from Service that constitute deferred compensation subject to Section 409A, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six months following such Separation from Service, shall instead be paid on the date that follows the date of such Separation from Service by six (6) months. For purposes of this Agreement, “Separation from Service” (and correlative terms such as “Separate from Service”) shall mean a “separation from service” as defined in Treas. Regs. § 1.409A-1(h), and the term “specified employee” shall mean an individual determined by
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the Company to be a specified employee under Treas. Regs. § 1.409A-1(i).
| 6. | Effect of Termination. The provisions of this Section 6 shall apply to any termination of the Executive’s employment hereunder. |
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(a)Other than as described in Sections 5(d) and 5(e), above, payment by the Company of any Base Salary and contributions to the cost of the Executive’s continued participation in the Company’s group health and dental plans that may be due the Executive shall constitute the entire obligation of the Company to the Executive. Other than as described in Section 5(d)(ii), above, medical, dental and other benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the Executive’s Separation from Service without regard to any continuation of Base Salary or other payment to the Executive following such Separation from Service, except for any right of the Executive to continue participation pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or other applicable law.
(b)Provisions of this Agreement shall survive any Separation from Service if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of the Executive under Section 7 hereof and the Restrictive Covenants. The obligation of the Company to make payments to or on behalf of the Executive under Section 5(d), 5(e) hereof is expressly conditioned upon the Executive’s continued full performance of his obligations under the Restrictive Covenants. The Executive recognizes that, except as expressly provided in Section 5(d) or 5(e), no compensation is earned after the Termination Date. The Executive’s right to receive and retain the payments provided under Section 5(d) or 5(e) hereof (other than for his Final Compensation) are expressly conditioned on his continued compliance with his obligations under the Restrictive Covenants and Section 7 hereof.
| 7. | Non-Disparagement. The Executive shall not make or induce other persons or entities to make any negative statements about the Company, its Affiliates, employees, past or current partners and shareholders, past or present officers, directors, managers, 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 taken in connection with such proceedings) shall not be subject to this Section 7. |
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| 8. | Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. |
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| 9. | Covenants Regarding Competition, Solicitation and Confidentiality. The Executive agrees that some restrictions on his activities during and after his employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates. |
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(a)~~Non-compete~~~~.~~ ~~~~ ~~~~ During employment and for eighteen (18) months after termination of the Executive’s employment for whatever reason (the “~~Restricted Period~~”), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent,
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employee, co-venturer or otherwise, compete with the Company or any of its Affiliates within any geographic area in which the Company or any of its Affiliates do business or undertake any planning for any business competitive with the Company or any of its Affiliates in the United States or Canada. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Executive’s employment by the Company or any of its Affiliates, and further agrees not to work or provide services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, to any Person who is engaged in any business that is competitive with the business of the Company or any of its Affiliates for which the Executive has provided services, as conducted or in planning during his employment. For the purposes of this Agreement, the business of the Company and its Affiliates shall be defined to include all Products and the Executive’s undertaking shall encompass all items, products and services that may be used in substitution for Products. The foregoing, however, shall not prevent the Executive’s passive ownership of two percent (2%) or less of the equity securities of any publicly traded company.
The Executive agrees that, during employment, he will limit his outside activity, whether or not competitive with the business of the Company or any of its Affiliates, so that it does not and, could not reasonably be expected to, give rise to a conflict of interest or otherwise unreasonably interfere with his duties and obligations to the Company or any of its Affiliates.
(b)Non-Solicit. The Executive agrees that, during the Restricted Period, the Executive will not directly or indirectly (i) solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or (ii) seek to persuade any such customer or prospective customer of the Company or any of its Affiliates to conduct with anyone else any business or activity which such customer or prospective customer conducts or could conduct with the Company or any of its Affiliates; provided that these restrictions shall apply only with respect to those Persons who are or have been a customer of the Company or any of its Affiliates at any time within the immediately preceding two year period or whose business has been solicited on behalf of the Company or any of its Affiliates by any of their officers, employees or agents within said two year period, other than by form letter, blanket mailing or published advertisement.
The Executive agrees that during the Restricted Period, the Executive will not, and will not assist any other Person to, (Y) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (Z) solicit or encourage any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For the purposes of this Agreement, an “employee” of the Company or any of its Affiliates is any person who was such at any time within the preceding twelve (12) months.
(c)Until forty-five (45) days after the conclusion of the Restricted Period, the Executive shall give notice to the Company of each new business activity he plans to undertake, at least ten (10) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Executive’s
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business relationship(s) and position(s) with such Person. The Executive shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Executive’s continued compliance with his obligations under this Agreement.
(d)Confidentiality and Related Matters. The Executive acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined herein); that the Executive may have developed or had access to Confidential Information through his employment and other associations with the Company and its Affiliates. The Executive agrees that he shall not disclose to any Person or use any Confidential Information, other than as required for the proper performance of the services or as required by applicable law after notice to the Company and a reasonable opportunity for it to seek protection of the Confidential Information prior to disclosure. For avoidance of doubt, “reasonable opportunity” shall be determined under the circumstances, provided that the Executive shall make every effort to provide notice as expeditiously as is reasonably possible to the Company. The Executive understands and agrees that this restriction is in addition to any restrictions to which he is bound as a result of his prior employment and that this restriction, as well as any earlier agreed restrictions, shall continue to apply both during employment and thereafter, regardless of the reason for its termination.
All documents, records, disks and other media of every kind and description containing Confidential Information, and all copies, (the “~~Documents~~”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company. The Executive shall return to the Company no later than the date on which his employment terminates, and at such earlier time or times as the Company may specify, all Documents as well as all other property of the Company and its Affiliates, then in the Executive’s possession or control.
(e)Assignment of Rights to Intellectual Property. The Executive shall promptly and fully disclose to the Company all Intellectual Property (as defined herein). The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive’s full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. All copyrightable works that the Executive creates in the performance of his services hereunder shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.
(f)Enforcement of Covenants. The Executive acknowledges that he has carefully read and considered all the terms and conditions of the Agreement, including the restraints imposed upon him pursuant to this Agreement. The Executive agrees without reservation that each of the restraints contained herein is necessary for the reasonable and proper protection of the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates; that each and every one of those restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in
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the aggregate, will not prevent him from obtaining other suitable employment during the period in which the Executive is bound by these restraints. The Executive further agrees that he will never assert, or permit to be asserted on his behalf, in any forum, any position contrary to the foregoing. The Executive further acknowledges that, were he to breach any of the covenants contained in this Agreement, the damage to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond. So that the Company and its Affiliates may enjoy the full protection of these bargained-for restrictions, the parties agree that the period of restriction in any of the covenants in this Agreement shall be tolled, and shall not run, during any period the Executive is in breach thereof. The parties further agree that, in the event that any provision of this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
| 10. | Indemnification. The Company and the Executive shall, simultaneous with the execution of this Agreement, enter into a directors and officers indemnification agreement substantially in the form attached hereto as Exhibit B, which shall provide coverage to the Executive effective as of the Effective Date. |
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| 11. | Assignment. Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. |
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| 12. | Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. |
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| 13. | Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. |
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| 14. | Notices. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the CEO, or to such other address as either party may specify by notice |
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| to the other actually received. | |
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| 15. | Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive’s employment. |
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| 16. | Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company. |
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| 17. | Headings. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. |
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| 18. | Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. |
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| 19. | Governing Law. This is a Michigan contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Michigan without regard to the conflict of laws principles thereof. |
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| 20. | Definitions. The following terms shall have the following meanings for purposes of this Agreement. |
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(a)“Affiliate” means, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
(b)“~~Confidential Information~~” means any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or any of its Affiliates would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people and organizations with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates has received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.
(c)“~~Intellectual Property~~” means inventions, discoveries, developments,
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methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off the Company premises) during the Executive’s employment that relate to either the Products or any prospective activity of the Company or any of its Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Affiliates.
(d)“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
(e)“~~Products~~” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Executive’s employment.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first written above.
| SKYLINE CHAMPION CORPORATION | ROBERT M. SPENCE |
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| _______________/s/________________ | ___________/s/_________________ |
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Mark J. Yost
CEO
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EXHIBIT A
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EXHIBIT B
INDEMNIFICATION AGREEMENT
Executed as of July 30, 2019 and on file.
15
sky-ex1015_11.htm
Exhibit 10.15
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the “Agreement”) is made and entered into as of June 4, 2018 (the “Effective Date”) by and between Champion Home Builders, Inc. (the “Company”) and Keith Anderson (the “Executive”). For the avoidance of doubt, the effectiveness of this Agreement is contingent upon the occurrence of the Exchange (as defined below).
WHEREAS, the Company and the Executive entered into an employment agreement (the “Original Employment Agreement”), effective June 2, 2015 (the “Original Effective Date”), pursuant to which the Company employed the Executive as its President and Chief Executive Officer;
WHEREAS, the Company and the Executive wish to amend and restate such employment agreement;
WHEREAS, the Executive is possessed of certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates;
WHEREAS, the Executive is currently employed as Chief Executive Officer of the Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to continue to employ the Executive as its Chief Executive Officer and the Executive wishes to continue such employment.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree:
Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers, and the Executive hereby accepts, employment.
Term. The Executive’s employment hereunder shall continue until terminated in accordance with Section 5 hereof. Such period is hereafter referred to as the “Term.”
Capacity and Performance.
During the Term, the Executive shall serve the Company as its Chief Executive Officer. In addition, and without further compensation, the Executive shall serve as a member of the Board of Directors of the Company and/or director and/or officer of one or more of the Company’s Affiliates, in each case if so elected or appointed from time to time.
During the Term, the Executive shall be employed by the Company on a full-time basis and shall perform the duties and responsibilities of his position, and such other duties and responsibilities on behalf of the Company and its Affiliates as reasonably may be designated from time to time by the Board or by its Chair or other designee and agreed to by Executive.
During the Term, the Executive shall devote his full business time and his best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates and to the discharge of his duties and responsibilities hereunder. Executive may serve on up to two outside boards (or serve in a similar advisory capacity), so long as such participation does not conflict with the interests of the Company or the Executive’s duties or responsibilities hereunder. The Executive shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement, except as may be expressly approved in advance by the Board in writing.
Compensation and Benefits. As compensation for all services performed by the Executive during the Term and subject to the Executive’s performance of his duties and obligations to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall provide the Executive with the following compensation and benefits:
Base Salary. During the Term, the Company shall pay the Executive a base salary at the rate of Six Hundred and
Twenty-five Thousand Dollars ($625,000) per annum, payable in accordance with the payroll practices of the Company and subject to increases from time to time by either the Board of Managers of Champion Enterprises Holdings, LLC (“Holdings”), or, effective as of the closing of the transactions contemplated by Exchange (as defined below), the Board of Directors of Skyline Champion Corporation (in either case as applicable, the “Board”) in its sole discretion (such base salary, as from time to time increased, the “Base Salary”). The Board shall review the Base Salary and Target Bonus (as defined below) at least once during each fiscal year during the Term, in light of factors including the Company’s performance and profitability, the individual performance of the Executive, compensation for similarly situated executives at peer companies, and such other metrics as it deems reasonable and appropriate, in its sole discretion.
Annual Bonus. For each fiscal year completed during the Term (including, for the avoidance of doubt, the 2016 fiscal year), the Executive shall be eligible to participate in such annual bonus plan as may be established by the Company for its executives generally, as in effect from time to time. The Executive’s annual target bonus shall be one- hundred percent (100%) of the Base Salary (the “Target Bonus”), with a maximum annual bonus of two-hundred percent (200%) of the Target Bonus, with the actual amount of his bonus, if any, to be determined by the Board in accordance with the Executive’s performance against performance objectives for Executive and for the Company agreed to by Executive and the Board. Other than provided for in Sections 5(a), 5(b), 5(d) and 5(e), the Executive, in order to be eligible to earn an annual bonus for any fiscal year occurring during the Term hereof, must be employed on the date payment of annual bonuses for that fiscal year is made to Company executives generally.
Equity Incentive. On or promptly following the Original Effective Date, Holdings granted to Executive 5,000,000 Class C Units representing profits interests in Holdings (the “Unit Award”). The Unit Award and any units acquired thereunder has been subject to the terms and conditions of Holdings’ 2011 Management Incentive Plan, Second Amended and Restated Limited Liability Company Agreement, and the Unit Award agreement (each, as in effect from time to time).
Time Vesting Units.Fifty percent (50%) of the Unit Award are subject to vesting on an annual basis (the “Time Vesting Units”), with twenty percent (20%) vesting on each of the first, second, third, fourth and fifth anniversaries of the Original Effective Date, subject to Executive’s continued employment with the Company on each applicable vesting date.
Performance Vesting Units.Fifty percent (50%) of the Unit Award are subject to vesting based on attainment of MoM (as defined in the Unit Award agreement) hurdles (the “Performance Vesting Units”) as set forth in the Unit Award agreement, subject to Executive’s continued employment with the Company on the applicable vesting date.
Cancellation of Existing Units. By executing the Original Employment Agreement, the Executive forfeited, without payment, as of the Original Effective Date, one hundred percent (100%) of the Class C Units in Holdings granted to Executive pursuant to that certain Class C Unit Award Agreement by and between Holdings and Executive, dated as of July 24, 2013, which were not yet vested as of the Original Effective Date, and Executive agreed to execute any documents reasonably requested by Holdings in connection with such forfeiture.
Vacations. During the Term, the Executive shall be entitled to earn vacation at the rate of four (4) weeks per year, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company. Vacation shall otherwise be governed by the policies of the Company, as in effect from time to time.
Other Benefits. During the term hereof, the Executive shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, except to the extent any such employee benefit plan is in a category of benefit otherwise provided to the Executive (e.g., a severance pay plan). Such participation shall be subject to the terms of the applicable plan documents and generally applicable Company policies. Except as otherwise provided in any plan or agreement or as prohibited by law, the Company may alter, modify, add to or terminate its employee benefit plans at any time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive.
Business Expenses and In-Kind Benefits. The Company shall pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. Additionally, the Company
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agreed to reimburse reasonable attorneys’ fees, up to a maximum of $10,000, incurred by the Executive in connection with the review and negotiation of the Original Employment Agreement prior to the Original Effective Date. Any reimbursement of expenses or the provision of any in-kind benefits that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (along with the rules and regulations thereunder, “Section 409A”) shall be subject to the following additional rules: (A) no reimbursement of any such expense, or the provision of any in-kind benefit, shall affect the Executive’s right to reimbursement of any other such expense, or the provision of any in-kind benefit, in any other taxable year; (B) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (C) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
Termination of Employment and Severance Benefits. The Executive’s employment hereunder shall terminate under the circumstances specified in this Section 5. The effective date of any such termination of employment is hereinafter referred to as the “Termination Date”.
Death. In the event of the Executive’s death during the Term, the Executive’s employment hereunder shall immediately and automatically terminate. In such event, the Executive’s estate shall be entitled to receive: (i) (A) any Base Salary earned but not paid during the final payroll period of the Executive’s employment through the date of termination, including pay for any vacation time earned but not used through the date of termination, payable in accordance with the Company’s regular payroll practices on the Company’s next regular pay date following the Termination Date (or earlier, if so required by applicable law) and (B) any business expenses incurred by the Executive but un-reimbursed on the date of termination, provided that such expenses and required substantiation and documentation are submitted within sixty (60) days of termination, that such expenses are reimbursable under Company policy, and that any such expenses subject to the last sentence of Section 4(g) shall be paid not later than the deadline specified therein (all of the foregoing, subject to the timing of payment rules therein, “Final Compensation”) and (ii) any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date. The Company shall have no further obligation to the Executive hereunder.
Disability.
The Company may terminate the Executive’s employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities hereunder, notwithstanding the provision of any reasonable accommodation, for ninety (90) days during any period of three hundred and sixty-five (365) consecutive calendar days. In the event of such termination, the Company shall have no further obligation to the Executive, other than for payment of (i) Final Compensation and (ii) any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date, payable at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of the Termination Date.
The Board may designate another employee to act in the Executive’s place during any period of the Executive’s disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4(a) and benefits in accordance with Section 4(f), to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for long-term disability income benefits under the Company’s long-term disability income plan or until the termination of his employment, whichever shall first occur. Notwithstanding anything in this Section 5(b)(ii) to the contrary, and for the avoidance of doubt, the combination of Base Salary and short-term disability income benefits (if any) during the period of Executive’s disability shall not exceed the amount of compensation and benefits that the Executive would have received during such period had the Executive been actively at work during such period.
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While receiving long-term disability income payments under the Company’s long-term disability income plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a) hereof, but shall continue to participate in Company benefit plans in accordance with Section 4(f) and subject to the terms of such plans, until the termination of his employment.
If any question shall arise as to whether during any period the Executive is disabled through any illness, injury, accident or condition of either a physical or psychological nature so as to be unable to perform substantially all of his duties and responsibilities hereunder, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or his duly appointed guardian, if any, has no reasonable objection to determine whether the Executive is so disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s determination of the issue shall be binding on the Executive.
By the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination:
refusal or failure to perform (other than by reason of disability), or material negligence in the performance of the Executive’s duties and responsibilities to the Company or its Affiliates, which refusal or failure to perform or material negligence is not cured within 30 days after written notice from the Company or such Affiliates;
commission of, indictment for, conviction of or plea of guilty or nolo contendere to a felony or any crime involving moral turpitude, fraud, embezzlement or theft;
breach of fiduciary duties (including a violation of the Company’s or any of its Affiliate’s code of ethics) on the part of the Executive;
gross negligence or willful misconduct in the performance of employment, which negligence or misconduct is not cured within 30 days after written notice from the Company, and which willful act or misconduct could reasonably be expected to be injurious to the financial condition or business reputation of the Company or any of its Affiliates;
the material breach by Executive of any provision of any agreement to which such Executive and the Company or any or its Affiliates are party; or
breach by the Executive of the terms of Exhibit A of the Executive’s Unit Award Agreement, as in effect from time to time (the “Restrictive Covenants”).
Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the Company shall have no further obligation to the Executive, other than for his Final Compensation.
By the Company Other than for Cause.
The Company may terminate the Executive’s employment hereunder other than for Cause at any time upon written notice to the Executive.
In the event of the Executive’s Separation from Service pursuant to this Section 5(d), in addition to Final Compensation, the Executive will be entitled to the following payments and benefits, provided that the Executive satisfies all conditions to such entitlement, including without limitation, continued compliance with the Restrictive Covenants and signing and returning to the Company a timely and effective Employee Release in accordance with subsection (iii) below:
Until the conclusion of a period of the twelve (12) months following the Termination Date, the Company shall continue to pay the Executive the Base Salary at the rate in effect on the Termination Date, and, subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans, provided that the Executive is entitled to continue such participation under applicable law and plan terms.
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Executive shall be paid any annual bonus compensation awarded for the fiscal year immediately preceding the year in which termination of employment occurs, but unpaid on the Termination Date. Such bonus shall be payable in the year of the Termination Date at the same time as bonuses are paid to Company executives generally; provided, however, that if paying such amount on the date on which bonuses are paid to Company executives generally would result in an additional tax on the Executive or his estate under Section 409A, then such bonus shall be payable no later than June 15 of the year of Termination Date.
Any obligation of the Company to the Executive hereunder, other than for his Final Compensation, is conditioned, however, on the Executive’s timely and effective execution of the form of release included with this Agreement as Exhibit A, by the deadline specified therein (any such release submitted by such deadline, the “Employee Release”) and delivering it to the Company not later than the deadline specified therein, which shall not be later than the sixtieth (60th) calendar day following the date of his Separation from Service. Subject to Section 5(g) below, severance pay to which the Executive is entitled hereunder shall be payable in accordance with the normal payroll practices of the Company, with the first payment, which shall be retroactive to the day immediately following the Termination Date, being due and payable on the Company’s next regular payday for executives that follows the expiration of sixty (60) calendar days from the Termination Date. The Release of Claims required for separation benefits in accordance with this Section 5(d) or Section 5(e) creates legally binding obligations on the part of the Executive and the Company therefore advises the Executive to seek the advice of an attorney before signing it.
By the Executive for Good Reason.
The Executive may terminate his employment hereunder for Good Reason (A) by providing notice to the Company specifying in reasonable detail the condition giving rise to the Good Reason no later than thirty (30) days following the occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy the condition and so specifying in the notice and (C) by terminating his employment for Good Reason within thirty (30) days following the expiration of the period to remedy if the Company fails to remedy the condition.
For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following conditions without the Executive’s consent: (A) a material adverse change in the Executive’s responsibilities, duties and/or authority that, taken as a whole, constitutes a breach of Section 3(a) hereof and effectively constitutes a demotion; provided, however, that the failure to continue the Executive’s appointment or election as a member of the Board or director or officer of Holdings or any of its Affiliates, a change in reporting relationships resulting from a reorganization of Holdings or the Company or from a change in the direct or indirect control of the Company (or a successor corporation) by another corporation and any diminution of the business of the Company or any of its Affiliates or any sale or transfer of equity, property or other assets of Holdings, the Company or any of their Affiliates shall not constitute “Good Reason,” (B) material diminution in the Base Salary, or (C) requiring Executive to relocate outside Lake Elmo, Minnesota.
In the event of a Separation from Service in accordance with this Section 5(e), and provided that no benefits are payable to the Executive under a separate severance agreement or an executive severance plan as a result of such termination or, if any such benefits are payable, that the Executive waives his rights thereto, then, in addition to Final Compensation, the Executive will be entitled to the severance benefits provided in Section 5(d)(ii) above; provided that the Executive satisfies all conditions to such entitlement, including without limitation the signing and return to the Company of a timely and effective Employee Release in accordance with Section 5(d)(iii) above.
By the Executive Other than for Good Reason. The Executive may terminate his employment hereunder at any time upon thirty (30) days’ notice to the Company. In the event of the Executive’s termination of employment pursuant to this Section 5(f), the Company may elect to waive all or any part of the period of notice, and, if the Company so elects, the Company will pay the Executive his Base Salary for portion of the notice period so waived. The Company shall have no further obligation to the Executive, other than for his Final Compensation.
Timing of Payments; Definition of “Separation from Service.” If at the time of the Executive’s Separation from Service the Executive is a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such Separation from Service that constitute deferred compensation subject to Section 409A, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within
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six months following such Separation from Service, shall instead be paid on the date that follows the date of such Separation from Service by six (6) months. For purposes of this Agreement, “Separation from Service” (and correlative terms such as “Separate from Service”) shall mean a “separation from service” as defined in Treas. Regs. § 1.409A-1(h), and the term “specified employee” shall mean an individual determined by the Company to be a specified employee under Treas. Regs. § 1.409A-1(i).
Effect of Termination. The provisions of this Section 6 shall apply to any termination of the Executive’s employment hereunder.
Other than as described in Sections 5(d) and 5(e), above, payment by the Company of any Base Salary and contributions to the cost of the Executive’s continued participation in the Company’s group health and dental plans that may be due the Executive shall constitute the entire obligation of the Company to the Executive. Other than as described in Section 5(d)(ii), above, medical, dental and other benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the Executive’s Separation from Service without regard to any continuation of Base Salary or other payment to the Executive following such Separation from Service, except for any right of the Executive to continue participation pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or other applicable law.
Provisions of this Agreement shall survive any Separation from Service if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of the Executive under Section 7 hereof and the Restrictive Covenants. The obligation of the Company to make payments to or on behalf of the Executive under Section 5(d), 5(e) hereof is expressly conditioned upon the Executive’s continued full performance of his obligations under the Restrictive Covenants. The Executive recognizes that, except as expressly provided in Section 5(d) or 5(e), no compensation is earned after the Termination Date. The Executive’s right to receive and retain the payments provided under Section 5(d) or 5(e) hereof (other than for his Final Compensation) are expressly conditioned on his continued compliance with his obligations under the Restrictive Covenants and Section 7 hereof.
Non-Disparagement. The Executive shall not make or induce other persons or entities to make any negative statements about the Company, its Affiliates, employees, past or present officers, directors, managers, 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 taken in connection with such proceedings) shall not be subject to this Section 7.
Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.
Indemnification. The Company and the Executive shall, as soon as practicable following and contingent upon the occurrence of the Exchange (as defined below), enter into a directors and officers indemnification agreement substantially in the form attached hereto as Exhibit B, which shall provide coverage to the Executive effective as of the closing of the transactions contemplated by that certain Share Contribution & Exchange Agreement by and among Skyline Corporation and Champion Enterprises Holdings, LLC, made and entered into as of January 5, 2018 (the “Exchange”).
Assignment. Except as is specifically set forth below, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive in the event that the Executive is transferred to a position with any of the Affiliates, or in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any Person or transfer all or substantially all of its properties or assets to any Person.This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns.
Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby,
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and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
Notices. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Chair of the Board, or to such other address as either party may specify by notice to the other actually received.
Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive’s employment.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company.
Headings. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.
Governing Law. This is a Michigan contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Michigan without regard to the conflict of laws principles thereof.
Definitions.
“Affiliate” means, with respect to any specified Person at any time, any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such specified Person at such time.
“Class C Units” means the units of interests in Holdings designated as “Class C Units” and having the relative rights, preferences, privileges, limitations and qualifications set forth in Holdings’ Second Amended and Restated Limited Liability Company Agreement, Holdings’ 2011 Management Incentive Plan (each, as in effect from time to time) and, in the case of each Class C Unit, the applicable award agreement pursuant to which such Class C Unit was granted.
“Person” means any natural person, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
[Signature page follows immediately.]
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written.
| THE EXECUTIVE: | THE COMPANY |
|---|
By: --
Title: Senior Vice President and General Counsel
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TN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written.
| THE EXECUTIVE: | THE COMPANY |
|---|
By:
Title: Senior Vice President and General Counsel
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EXHIBIT A
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the payments to be provided me in connection with the termination of my employment under the applicable provision of Section 5 of the amended and restated agreement between me and Champion Home Builders, Inc. (the “Company”) dated as of June 4, 2018 (the “Agreement”), which are conditioned on my signing this Release of Claims and to which I am not otherwise entitled, I, on my own behalf and on behalf of my heirs, executors, administrators, beneficiaries, representatives and assigns, and all others connected with or claiming through me, hereby release and forever discharge the Company, its subsidiaries and other Affiliates and all of their respective past, present and future officers, directors, managers, trustees, shareholders, employees, agents, general and limited partners, members, managers, joint venturers, employee benefits plans, representatives, successors and assigns, and all others connected with any of them, both individually and in their official capacities, from any and all causes of action, rights or claims of any type or description, known or unknown, which I have had in the past, now have, or might now have, through the date of my signing of this Release of Claims, in any way resulting from, arising out of or connected with my employment by the Company or any of its subsidiaries or other Affiliates or the termination of that employment or pursuant to any federal, state or local law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the fair employment practices laws of the state or states in which I have been employed by the Company or any of its subsidiaries or other Affiliates, each as amended from time to time).
Excluded from the scope of this Release of Claims is (i) any claim arising under the terms of the Agreement after the effective date of this Release of Claim, (ii) any right of indemnification or contribution that I have pursuant to the Articles of Incorporation and/or By-Laws of the Company or any of its subsidiaries or other Affiliates, (iii) any right of indemnification or contribution that I have pursuant to any Directors & Officers indemnification or ERISA insurance policies secured by the Company or any of its subsidiaries or other Affiliates, (iv) any whistleblower or anti-retaliation law, each as may have been or may be amended, and (v) any other claims which are, by law, not waivable.
In signing this Release of Claims, I acknowledge my understanding that I may not sign it prior to the termination of my employment, but that I may consider the terms of this Release of Claims for up to twenty-one (21) days (or such longer period as the Company may specify) from the later of the date my employment with the Company terminates or the date I receive this Release of Claims, provided that this Release of Claims, signed and dated by me, is received not later than the sixtieth (60th) day following the date my employment with the Company terminated by the person designated under the Agreement to receive notices on behalf of the Company in order for me to qualify for benefits under the applicable provision of Section 5 of the Agreement. I also acknowledge that I am advised by the Company and its subsidiaries and other Affiliates to seek the advice of an attorney prior to signing this Release of Claims; that I have had sufficient time to consider this Release of Claims and to consult with an attorney, if I wished to do so, or to consult with any other person of my choosing before signing; and that I am signing this Release of Claims voluntarily and with a full understanding of its terms.
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I further acknowledge that, in signing this Release of Claims, I have not relied on any promises or representations, express or implied, that are not set forth expressly in the Agreement. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the person designated under the Agreement to receive notices on behalf of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it.
Intending to be legally bound, I have signed this Release of Claims under seal as of the date written below.
| Signature: |
|---|
| Name (please print): |
| Date Signed: |
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EXHIBIT B
INDEMNIFICATION AGREEMENT
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sky-ex211_9.htm
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
| Name | Jurisdiction of Incorporation |
|---|---|
| Layton Homes Corp. | Indiana |
| CHB International B.V. | Netherlands |
| Champion Home Builders, Inc. | Delaware |
| CHB Holdings B.V. | Netherlands |
| Homepride Holdings, LLC | Delaware |
| Champion Retail Housing, Inc. | Delaware |
| Star Fleet Trucking, Inc. | Delaware |
| Titan Factory Direct Homes, Inc. | Delaware |
| Champion Canada International ULC | Alberta, Canada |
| Champion Modular, Inc. | Delaware |
| TFDH Insurance Agency, Inc. | Delaware |
| Northern Lights Idlewild, LLC* | Delaware |
* The entity is owned 90% by the Company
sky-ex231_16.htm
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
| (1) | Registration Statement (Form S-3 No. 333-226176) of Skyline Champion Corporation, and |
|---|---|
| (2) | Registration Statement (Form S-8 No. 333-227539) pertaining to the 2018 Equity Incentive Plan of Skyline Champion Corporation; |
| --- | --- |
of our reports dated May 21, 2020, with respect to the consolidated financial statements and schedule of Skyline Champion Corporation and the effectiveness of internal control over financial reporting of Skyline Champion Corporation included in this Annual Report (Form 10-K) of Skyline Champion Corporation for the year ended March 28, 2020.
/s/ Ernst & Young
Detroit, Michigan
May 21, 2020
sky-ex311_20.htm
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Yost, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Skyline Champion Corporation; |
|---|---|
| 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 fiscal 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 the 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. |
| --- | --- |
| Dated: | May 21, 2020 |
| --- | --- |
| By: | /s/ Mark Yost |
| Mark Yost | |
| President and Chief Executive Officer (Principal Executive Officer) |
sky-ex312_12.htm
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Laurie Hough, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Skyline Champion Corporation; |
|---|---|
| 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 fiscal 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 the 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. |
| --- | --- |
| Dated: | May 21, 2020 |
| --- | --- |
| By: | /s/ Laurie Hough |
| Laurie Hough | |
| Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer) |
sky-ex321_13.htm
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Skyline Champion Corporation (the “Registrant”) for the period ending March 28, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Registrant hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:
| 1. | The Report fully complies with the requirements of Sections 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 Registrant. |
| --- | --- |
| May 21, 2020 | |
| --- | |
| /s/ Mark Yost | |
| Mark Yost | |
| President and Chief Executive Officer (Principal Executive Officer) | |
| /s/ Laurie Hough | |
| Laurie Hough | |
| Executive Vice President, Chief Financial Officer, and Treasurer | |
| (Principal Financial Officer) |